Showa Shell Sekiyu K.K. Corporate Report 2013 Corporate Report 2013 [Year ended December 31, 2012] Powering A New Stage of Growth Showa Shell Sekiyu K.K. Powering a New Stage of Growth The search for an appropriate means of supplying energy into the future is progressing on a global scale, and in Japan energy sources are becoming an ever more common subject of discussion. Calling upon the strength forged over a history spanning 113 years in Japan, the Showa Shell Group has devoted itself to playing a central role in providing a stable supply of energy over the long term. Going forward, we will contribute to shaping the future of energy in accordance with the needs of today’s society. Energy is directly linked to our daily lives and to industrial activity. We are working to create new value by supplying this energy in an optimal and reliable manner while also providing advanced new energy sources that will power the next generation. The Showa Shell Group believes that this is our way toward becoming a global energy solution provider. Philosophy Management Philosophy / Code of Conduct Mindset Oil Business: Become the most profitable refiner in Japan Medium-Term Solar Business: Become a global leader Electric Power Business: Expand business scale and the Business source of power generation Action Plan Fostering seeds for future growth: Develop new products or business models for future growth Foundation HSSE / Compliance To Become the Global Energy Solution Provider that Society and Customers Require 1 Over the past several years, the Showa Shell Group has continued to evolve as it strives to transform into an organization that can lead the industry over the next 50 years. These efforts have started producing results. Looking toward the future, we will take a realistic perspective, without fear of the changing times, as we boldly pursue the creation of new value. We believe that the Showa Shell Group is growing toward the next stage at an accelerated pace. Shigeya Kato Chairman, Representative Director, and Chief Executive Officer (CEO) Management Philosophy Showa Shell Sekiyu K.K. can only achieve a further leap and perpetual growth by constantly making its contribution to society, while secur- ing reasonable profits and constructing a strong management base and sound corporate constitution. With this in mind, we set our corporate creed as follows: 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 supply 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 everybody participation for thinking and sweating together and construct an affluent future on the base of the Company’s unshakable footing. Code of Conduct We share a set of core values—honesty, integrity, and respect for people. We also firmly believe in the fundamental importance of trust, openness, teamwork, and professionalism, and pride in what we do. Please see our website for the text of our Code of Conduct. http://www.showa-shell.co.jp/english/profile/mp/action.html Editorial Policy 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 believe that our corporate social responsibility (CSR) activities are core to ac- complishing this goal. For this reason and to provide a more comprehensive view of the Group’s management and business activities, this report includes non-financial information regarding CSR and other matters along with management policies, strategies, and business conditions. Reporting Period Information contained in this report is based on corporate performance during fiscal 2012 (January 1, 2012, through December 31, 2012). In some cases, the report also describes activities conducted in fiscal 2013. Scope of Reporting In principle, this report covers the 31 consolidated subsidiaries and 13 equity-method affiliates that constituted the Showa Shell Group as of December 31, 2012. In the event that reporting is outside this scope, this fact is indicated. 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 (2012 version), Ministry of the Environment of Japan Caution Regarding Business Forecasts and Forward-Looking Statements Business forecasts and other forward-looking statements regarding Showa Shell found in this report reflect the management’s assessment based on data available to it at the time the report was published. Readers are cautioned that actual business results may differ materially from these statements due to changes in economic conditions, market trends, exchange rates, and other factors. 2 CONTENTS P4 P12 P24 Profile PROFILE MANAGEMENT REVIEW OF MESSAGE OPERATIONS Management Message 4 Our Value Chain and Strengths 12 Message from the CEO 24 Business Highlights 6 Our History 16 Interview with the COO 26 Oil Business 8 Our Medium-Term Business Action Plan 22 Message from the CFO 34 Energy Solution Business Review of Operations 10 Financial and Non-Financial Highlights 36 Energy Solution Business (Solar Business) 43 Energy Solution Business (Electric Power Business) 45 Research and Development P46 P50 P60 HUMAN RESOURCES HSSE COMMUNITY AND Human Resources SOCIAL CONTRIBUTION ACTIVITIES HSSE 47 Formulation of the Talent Vision 51 HSSE Promotion and Management System 61 Eighth Environmental Photo Contest “Things 48 Creation of a Worker-Friendly 52 Goal Zero Movement to Preserve and Correct around Our Town” Environment 54 Health 62 Major Initiatives in 2012 54 Safety 55 Security 56 The Environment Community and Social Contribution Activities P63 P71 Website CORPORATE FINANCIAL SECTION CSR BOOK 2013 GOVERNANCE AND CORPORATE DATA Corporate Governance CSR Book 2013 Showa Shell Sekiyu K.K. 2013 / 07 / 01 [15:37] 64 Corporate Governance Structure 72 Twelve-Year Summary of Selected Details pertaining to other CSR initia- 65 Outside Directors and Auditors Financial Data Financial Section and tives are described in CSR Book 2013, 66 Executive Remuneration 74 Business Risks Corporate Data 66 Internal Control System 76 Consolidated Financial Statements which is available on our website. 69 Interview with Outside Director 81 Notes to the Consolidated Financial 70 Board of Directors and Corporate Auditors Statements http://www.showa-shell.co.jp/ 95 Independent Auditor’s Report english/csr/index.html 96 Network 98 Major Subsidiaries and Affiliates 99 Investor Information 3 PROFILE Our Value Chain and Strengths We are creating new value by pursuing synergies that exceed the boundaries of individual businesses. Oil Business Procurement Refining We procure crude oil from Our refineries refine crude oil We produce gasoline, diesel oil, oil producing countries. into such products as gasoline, kerosene, heavy fuel oil, lubri- kerosene, diesel oil, heavy fuel oil, cants, asphalt, raw materials for raw materials for petrochemical petrochemical products, liquid products, and LPG. petroleum gas (LPG), and other oil products, and sell these prod- ucts to customers throughout STRENGTH STRENGTH Japan via contract dealers. Flexible crude oil procurement High utilization rate at refiner- leveraging the networks of the ies that are “top class” in Japan Shell Group and Saudi Aramco in terms of competitiveness Transport Raw Material Procurement Energy Solution SOLAR BUSINESS Synergies We procure raw materials for the Business production of CIS thin-film solar modules. In our solar business, under the brand name Solar Frontier, we develop and manufacture CIS thin-film solar modules. In the electric power business, we operate power plants and sell ELECTRIC POWER BUSINESS Power Plant Operation power to customers. We operate power plants that use byproducts from the petroleum refining process as fuel, natural gas-fired power stations built on former facility sites, and solar power plants utilizing CIS thin-film solar modules. Synergies Research and Development and Cultivation of Next-Generation Services Development We continuously develop Showa Shell is developing next- and provide new services. generation products and services to drive future growth. HSSE (Health, Safety, Security, Environment) 4 Profile Management Message Oil Depots Sales Our petroleum products Service stations operated are stored in refinery tanks by our contract dealers and oil depots. and retailers sell our gaso- Customers line, kerosene, diesel oil, and other products to Review of Operations customers. We also sell Plants Distribution industrial fuels, jet and Our plants produce lubricants We distribute our marine fuels, lubricants, General and asphalt. petroleum products asphalt, and LPG through Households throughout Japan