JGC Report2021

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https://www.jgc.com/en/

Enhancing planetary healthA new era is dawning

The world ischanging
Great change is sweeping across the world. Several urgent issues in need of
global solutions have become apparent, including demographically driven
energy demand, higher greenhouse gas (GHG) emissions, worsening
waste problems, unchecked urbanization, and lower birthrates paired withaging populations.
Companies that rise to the challenge must go beyond business as usual
and take on inspired transformation.

Management Messages
5

Message from the President and COO

9Messages from Outside Directors

63

Message from the Chief Financial Officer

13

Corporate Governance

66

Quality Management System

74

A History of Constant Evolution

17

JGC Group Strengths
Supporting Transformation

21

Value-Creation Mechanism

23

75

Risk Management

77

Management Structure

79

Dialogue with Shareholders and Investors

80

CHAPTER 05
Results of Value Creation
Financial Highlights

83

ESG Data Highlights

85

27

Consolidated Segment Information86

JGC Group Materiality

29

Total Engineering Business87

Long-Term Management Vision

31

Medium-Term Business Plan

35

Functional Materials
Manufacturing Business

90

Analysis of Performance andFinancial Position

91

Consolidated Financial Statements

95

Notes to Consolidated
Financial Statements

103

CHAPTER 03
Reinforcing Management Mainstays
Driving Force for Value Creation

From the start, corporate transformation has enabled the JGC Group

Human Resources

47

Independent Auditor’s Report120

to keep growing by anticipating changes in turbulent market

Technical Expertise

51

Supplemental Explanation

123

Project Risk Management Capabilities

53

Internal Control Report (Translation)

124

Business Partners

55

Stock Information

125

Outline of JGC

126

environments. Building on an original business approach andstrengths cultivated through past transformation, the JGC Groupwill achieve sustainable growth in corporate value as we take on

Occupational Health and Safety

58

Addressing Climate Change

59

to solutions for a wider range of social issues.
Editorial Policy
Purpose of This Report
The purpose of the JGC Report, which was first published in2015, is to explain to stakeholders how the JGC Group
works to generate sustainable growth and increase corporate value over the medium to long term. JGC uses thisreport as a tool to communicate with stakeholders as part ofits efforts to deliver sustainable growth through continuous,constructive dialogue
Organizations Covered
In this report, “JGC Group” and “the Group” refer to JGC
Holdings Corporation and its subsidiary operating companies.
Period Covered
In principle, the report covers the period April 2020 to March
2021 (fiscal 2020), but also includes information related toevents from April 2021.

Information Provided
The JGC Report summarizes and presents the most relevant
information related to the JGC Group and society. For
detailed and comprehensive financial and non-financial
information about the Group, please visit the JGC website.
Forward-Looking Statements
Data and forecasts disclosed in this report are based on
judgments and information available at the time of publication. The Company provides no guarantee for targets,
forecasts, and earnings projections, which may change due
to a range of factors.
Reference Guidelines
JGC Report 2021 was compiled referring to the disclosure
framework of the Value Reporting Foundation (VRF) and theWorld Intellectual Capital Initiative (WICI), as well as“Guidance for Collaborative Value Creation” of the Ministryof Economy, Trade and Industry (METI).

Enhancement of Corporate Governance Results of Value Creation

our third transformation—into a corporate group that contributes

To Achieve Sustainable Growth

Reinforcing Management Mainstays

JGC Group Purpose

Toward the Third Transformation

CHAPTER 02
Toward the Third Transformation

Compliance

Overview of Value Creation

Enhancingplanetary health

CHAPTER 04
Enhancement of Corporate Governance

Message from the Chairman and CEO

CHAPTER 01
Overview of Value Creation

Into the future throughthe Group’s third transformation

Management Messages

Contents

Management Messages

Message from the Chairman and CEO

Sustainability trends are a tailwind for
the JGC GroupManagement Messages

Establishing the 2040 Vision,
Our Long-Term Management Visionindustry and society at large. As of May 2021, we redefined the Group’s purpose as “Enhancing planetary
health,” in anticipation of how the global shift to susThe market environment remained uncertain throughout

tainability will affect our business environment. This was

2020, with energy demand dropping in a sluggish

announced in our long-term management vision, 2040

global economy still suffering from the COVID-19 pan-

Vision. While remaining true to the corporate stance wedemic. As 2021 began, vaccination programs were

have maintained since our founding, that is to say a

expanding across developed countries, and many

global long-term perspective, the corporate group wenations were starting to see the results of fiscal stimu-

envision will also “Enhance planetary and humanlus. In the International Monetary Fund (IMF)’s April

health.” Even in a business environment undergoing

outlook, projected global economic growth (real GDP

great change, these plans and strategies we havegrowth) for 2021 was raised to 6.0%. But other COVID-

established are aimed at ensuring sustainable growth.

19 variants are spreading, and the extent of recovery in

The JGC Group business, centered on EPC in thesociety differs between developed and developing

oil & gas sector, has always stood at the crossroads ofcountries. Conditions remain unpredictable.

issues that must be faced if we are to balance energy

While the world as a whole has continued to face
this uncertainty since last year, one thing has become

guided by a new sense of purpose in “Enhancing plan-

clear. The world is now shifting toward sustainability,

etary health,” we will be working toward solutions forand the low-carbon / decarbonization transition that is

the three social issues of balancing energy stability withso vital in addressing climate change is accelerating at

decarbonation, reducing the environmental impact ofa surprising pace.

resource consumption, and building as well as main-

We have seen this trend in a series of low-carbon /taining vital infrastructure and services in the fivedecarbonization strategy announcements from oil

business areas of 1. energy transition, 2. healthcare &majors traditionally involved in resource exploitation.

life sciences, 3. high-performance functional materials,

The social challenge of the low-carbon / decarboniza-

4. circular economy, and 5. industrial & urban infrastruc-tion transition could have a significant impact on theture. Each business area is well served by thesustainable growth of the energy industry, according toadvanced engineering technologies developed by thea May 2021 International Energy Agency (IEA) road

JGC Group over many years, as well as our outstand-map for net-zero CO2 emissions by 2050.

ing project management capabilities and unparalleled,

In response to shareholders and investors who havesophisticated functional material production technolo-CEO
Message

Masayuki Sato
Representative Director,
Chairman, and Chief Executive
Officer (CEO)Has worked in finance and accounting sincejoining JGC in 1979, overseeing finance for
the Middle East, North Africa, Southeast

wondered whether the accelerating global trend toward

gies. I therefore believe we should view the marked

low carbon / decarbonization will greatly inhibit the

global shift toward sustainability, including the acceler-sustainable growth of the JGC Group, whose

ating trend toward low carbon / decarbonization, not asmain business has been oil & gas engineering, procure-a headwind against our own sustainable growth but as

ment, and construction (EPC), I wish to answer with aa tailwind that will bolster this growth by allowing us to

Director and Chairman as of June 2014 andfirm “No.”showcase our strengths.

CEO as of June 2017.

Since the JGC Group’s founding in 1928, we haveconstantly changed with the times in supporting5

and environmental needs. But looking ahead, andJGC Report 2021

Asia, and CIS projects. Appointed as adirector in June 2010, CFO and Managing
Director, Senior General Manager of the
Corporate Administrative & Financial Affairs
Division in July 2011, and Executive Vice
President in June 2012. Representative

By segment, 60% of sales by the corporate group
we aspire to be in 2040 will be derived from energy

JGC Report 2021

6

Management Messages

Message from the Chairman and CEO

expansion by the Group will also include digital platform

ness models, further diversification will be pursued,

business as well as corporate investment and businessaiming for 60% in EPC operations and 40% in non-EPC

participation to create new markets. By strengthening

operations. As for financial targets, we are working

and speeding up our framework for developing

toward ¥150 billion to ¥200 billion in operating income

new products, we will also accelerate expansion

by fiscal 2040, the year for achieving the 2040 Vision.

of the key non-EPC business of functional

With energy transition positioned as our core business,materials manufacturing.

healthcare & life sciences and high-performance

Fundamental to our transformation of business

functional materials as growth business, and circularareas and models is the transformation of our organiza-

economy as well as industrial & urban infrastructure astion itself. With this in mind, an organizational structure

future business, we have divided the period through toin which clients in each country or region are

2040 into several phases in which we will see profit

approached from our Yokohama Head Office will befrom each business area, successively.

supplemented by strengthening regional headquar-

Our 2040 Vision charts a course for the JGC Group toters, as a framework for local production for local

break free from overreliance on EPC business in the oil &consumption that approaches customers and con-gas sector. By cultivating new business and new markets

ducts business locally.

through a variety of business models in diverse business

Another focus will be fostering a corporate cultureareas, we will achieve sustainable growth with the globalof constant innovation that enables cycles of creating

shift toward sustainability, the wind at our backs.

new business and applying proven technical expertise

Three essential transformation

to nurture it to maturity. We have also taken the

proposals, and with the appointment of Ms. Noriko Yao

But this only convinces me once again that we

opportunity of this transformation for enhancement ofat the June 2021 General Meeting of Shareholders, ourmust waste no time in transforming our businessplanetary health to pledge to net-zero CO2 emissionsorganization now represents an even greater diversity

domains and models, and their supporting organiza-by 2050, which attests to our commitment toof opinions.

tions, to become a corporate group that enjoys

We know that to meet the 2040 Vision financial targets

sustainable gains in corporate value. We will seek

I myself intend to fulfill my duties as chairman byand ensure sustainable growth in years to come, we

net-zero CO 2 emissions from our corporate activities

seeing that these diverse opinions of our outside direc-

must work in business areas along the lines of ourthrough energy conservation, use of renewabletors are reflected in management, and by ensuringformation, the third in the history of the JGC Group. It

traditional domains. However, these goals also requireenergy, and other means.

highly effective board management.

follows an initial transformation in the 1930s, when thetransformation that takes us in new directions from the*1 PMC: Project management consulting*2 O&M: Operation and maintenancestandpoints of business areas, business models, andour internal organization.
Of the five business areas where we will expand
operations, energy transition in particular will have a
profound impact on sustainability in society. This isContinuous strengthening of­corporate governancean area where the JGC Group can fully demonstratesustainable growth as sought in the 2040 Vision.
I am keenly aware of the significance of this trans-

Company shifted from the original business model of oil

Five years of challenge, underway in
a difficult business environment

refining to the engineering business, and a second in
the 1960s, when we ventured overseas, upgradedproject execution, expanded business segments, andattained the status of a global engineering contractor.

The period from fiscal 2021 to 2025 is positioned as

These past reforms have enabled the JGC Group to

the first phase in pursuing the 2040 Vision. We will beestablish our own value-creation process (please see

strengths we have built up through oil & gas EPC.

The 2040 Vision calls for the JGC Group to venture into

doing our utmost to achieve the goals of our current

p. 23, Value-Creation Mechanism) and continue to

We intend to promote widespread adoption of low-

new areas. The transformation extends to businessmedium-term business plan, “Building a Sustainable

grow. I recognize that my responsibility as CEO is tocarbon / decarbonized oil & gas and clean energy asmodels, and to our internal organization. In corporate

Planetary Infrastructure 2025 (BSP 2025),” in these fivelead the JGC Group as we steadily implement this third

an engineering firm at the vanguard of the global

governance, this requires us to establish organizational

years of challenge.

transformation and achieve more substantial, sustainableenergy transition.

structures encouraging assertive management while

Admittedly, the earnings estimate for fiscal 2021

growth. To this end, I will exercise strong leadership.

reinforcing our defense against the greater variety ofdoes not make this a fitting inaugural year in ourbased business models such as licensing, consulting,risks that accompany new challenges. The truly

medium-term plan. Factors for this rough start include

PMC*1, maintenance, and digital O&M*2 is only the

profound transformation we seek also requires man-the lingering impact of market uncertainty from theued support of the JGC Group from a medium- to

start. With 2040 in mind, we anticipate a growing needagement from diverse perspectives. Previously we havepandemic-induced global economic downturn since

long-term perspective, as we seek further sustainable

for value co-creation enabling business centered on

appointed more outside directors, who have offered alast year, as well as an extraordinary loss recorded in

growth while covering more ground in our commitment

wholly new technologies. Accordingly, new businessbalance of assertive and defensive management

the Ichthys LNG project.

to a sustainable society.

In business model transformation, expanding EPC-

7

Management Messages

transition, with 40% from other segments. As for busi-

JGC Report 2021

I ask our shareholders and investors for their contin-

JGC Report 2021

8

Management Messages

Message from the President and COO

Results achieved in fiscal 2020,
despite a challenging environment

Management Messages

An Engineering Company
Navigating Turbulent Times“Building a Sustainable Planetary Infrastructure 2025
(BSP 2025)” starts in fiscal 2021 and is positioned in
the 2040 Vision as “five years of challenge.” The plan
Fiscal 2020 presented the JGC Group with a difficult,targets ¥800 billion in net sales, ¥60 billion in operating

unpredictable market environment. Targeting ¥670

income, and ¥45 billion in net income attributable tobillion in total engineering business orders (¥400 billion

owners of the parent.

in overseas oil & gas, ¥140 billion in overseas infra-

Working toward the 2040 Vision, the JGC Groupstructure, and ¥130 billion domestically), we focused

will seek sustainable growth in the five business areas

on securing orders for projects likely to proceed.

of energy transition, healthcare & life sciences, high-Ultimately, we received ¥683 billion in orders, surpass-performance functional materials, circular economy,

ing our goal of ¥670 billion. This total included a large

and industrial & urban infrastructure. From fiscal 2025,

refinery upgrading project in Iraq. Worth more than

we anticipate that 80% of sales will derive from the¥400 billion by itself, this modernization represents anenergy transition area. As for business models, theopportunity for the country to rebuild and grow eco-focus will meanwhile remain on our traditional EPC

nomically. Beyond the size of the order, we consider thebusiness as we pursue new models. We expect EPC

project to be very significant.

business to account for 80% of sales in fiscal 2025. As

As for performance, despite constraints caused by

COO
Messageperformance functional materials manufacturing. With

cuted projects in Japan and overseas. Although net

this outlook in mind, BSP 2025 calls for us to follow theincome attributable to owners of the parent fell short ofthree key strategies of “transformation of EPC opera-

the initial forecast due to an extraordinary loss posted

tions,” “expansion of manufacturing b­ usiness forfor resource development in the United States, thehigh-performance functional m­ aterials,” and “establish-

gross profit ratio stood at 10.1%, surpassing the initialment of future engines of growth.”

forecast of 9.0% on improved profitability of some of

The first key strategy of “transformation of EPC

projects currently underway. Through the year, the­operations” will see us work to increase competitive-

market as a whole remained shrouded in uncertainty.

ness and profitability in EPC megaprojects and take on

Tadashi Ishizuka

With all the world’s engineering companies working

EPC growth markets and segments. Greater competi-

Representative Director,
President and Chief
Operating Officer (COO)

under these difficult conditions, the JGC Group distin-tiveness and enhanced profitability in large EPC projects

guished itself with steady results in orders andwill involve focusing on steadily securing orders for

performance, which will surely benefit us in the future.

large-scale liquified natural gas (LNG) projects for which
final investment decisions are expected in or afterManaged numerous projects outsideof Japan after initially working in theDomestic Project Construction
Division in 1972. Appointed
Managing Director and Senior
General Manager of the Project

Key strategies and strategic­investment during BSP 2025

2008, Senior Managing Director inratios through digital transformation (DX) and improvebidding competitiveness. In taking on EPC growth

Our long-term management vision, 2040 Vision, calls

seeking more orders in growth fields such as LNG

Board Director in June 2011, Senior

for the JGC Group to pursue sustainable growthreceiving terminals, gas-fired power, solar, and biomass

Executive Vice President and CPO in

through diverse business models in a broader range ofpower generation, pharmaceuticals, hospitals, andbusiness areas. Our medium-term business plan,chemicals. With our attention given to local production

2010, Executive Vice President andFebruary 2017, and President and
COO in June of that year.

JGC Report 2021

2022. We also plan to enhance project gross profit

markets and segments in Asia and Japan we will beOperation Services Division in June9for non-EPC business, we will be focusing on high-the COVID-19 pandemic, the JGC Group steadily exe-

JGC Report 2021

10

Management Messages

Message from the President and COO

Management Messages

Strategy for securing orders infiscal 2021

as maintenance at refineries and petrochemical plants.
As in fiscal 2020, we are seeking an ambitious ordertarget set at ¥160 billion.

BSP 2025 is described as “five years of challenge,”

And in the high-performance functional materials

being the first phase in our work toward the 2040

manufacturing business, we are beginning to see positive

Vision. It begins in fiscal 2021, which makes this year asigns in the area of fine chemicals as semiconductors andpivotal time. As president and COO, I will be devoting

other segments of the market environment recover. We

all of my energy to ensuring that we meet our orderhope results will surpass the forecast for ¥40 billion intargets and earnings estimate for the year, and to

net sales and ¥5 billion in operating income.

implementing the key BSP 2025 strategies mentioned.

and local consumption in executing projects in the

In fiscal 2021, we are targeting ¥500 billion in

attributable to owners of the parent has been revisedorders from our total engineering business, consisting

downward due to an extraordinary loss in the Ichthysof ¥260 billion in energy solutions, ¥80 billion in facility

LNG project, as disclosed in July. We project net sales

infrastructure solutions, and ¥160 billion domestically.

of ¥470 billion, gross profit of ¥38 billion, operating

The global market environment is expected to remain

income of ¥16 billion, ordinary income of ¥19 billion,

highly uncertain. Accordingly, as in fiscal 2020, we willand ¥46 billion in net loss attributable to owners of themaintain a stance of focusing on orders for projects

parent. Given the earnings forecast for the fiscal year,that are likely to proceed. We will watch for any

the figures represent a challenge for our first year ofchanges in energy industry trends while anticipating

BSP 2025, but we are determined to secure earnings

Asian market, we are currently planning a new Asia-

will aggressively promote strategic investment in eachthe post-pandemic situation, and any developments inby continuing our steady management of all projects

Pacific headquarters to oversee regional engineering

segment. In “transformation of EPC operations,” we will

new market formation spurred by progress in low

in Japan and overseas, including megaprojects suchgroup companies.

invest in digital technologies to strengthen EPC DX,

carbon / decarbonization, while ensuring that we meetas LNG Canada and refinery modernization in Iraq. We

with M&As and other investment to promote businessorder targets based on business policies in each of

are also committed to positive results, hopefully better“expansion of manufacturing business for high-­

development in segments such as healthcare & life

the sectors described.

than anticipated, in the high-performance functional

performance functional materials” will call for s­ eeking

sciences. In “expansion of manufacturing business for

In energy solutions (formerly overseas oil & gas

greater revenue from increased product lines in exist-

high-performance functional materials,” facility invest-

business), final investment decisions have been post-

ing business, developing and rapidly launching newment will boost production and R&D investment will

poned since fiscal 2020 but are expected in fiscal 2021

fine chemicals (such as chemical catalysts, nanopar-

support new product development. Further, in “estab-for projects that include a non-ferrous refining plant

ticles for chemical mechanical polishing (CMP), andlishment of future growth engines,” we will make capitalconstruction in Indonesia and petrochemical plantother strategic products), and expanding the produc-and business investments, some pertaining to ports in

expansion in the United States, for which we have

For the JGC Group, I sense that turbulent times aretion of high thermal conductivity silicon nitride

the offshore wind segment and others enabling partici-

already participated in the first project. Focusing on

upon us. It will be a matter of steadily securing orders

substrates. We will also be actively developing

pation in O&M businesses and securing EPC opportu-

securing orders for these promising projects, we arefor key projects such as large and more environmentally

next-generation business such as catalysts for carbon

nities. Besides investment made in anticipation of small

pursuing our order target of ¥260 billion.

sound LNG projects that will resume as energy demand

recycling, solid-state battery electrolytes, and bone

modular reactor (SMR) EPC contracts, we will invest in

In facility infrastructure solutions (formerly overseas

regeneration materials.

acquiring licensed technology in the hydrogen / fuelinfrastructure business), we are pursuing an order target

erating shift toward sustainability, whether from theMeeting targets in the second key strategy ofmaterials manufacturing business.

At a time of change

recovers, as well as increasing revenue. Amid an accel-

The third key strategy of “establishment of futureammonia segment and conduct commercial demon-of ¥80 billion by securing orders for relatively smaller

standpoint of low-carbon / decarbonization, or other,growth engines” is to sow the seeds for future r­ evenue

strations in the segment of chemical recycling of plastic

projects such as an LNG-fired power generation facility

how can the JGC Group be a business leader in thefrom the five business areas mentioned, with a view toand fiber waste.

in Indonesia, a storage tank in Taiwan, and a water treat-

new markets that are rapidly forming?

ment facility in the Middle East, for which client discus-

With the Group’s market environment on the verge

meeting 2040 Vision targets. During the period of BSP

We believe that strategic investment in each seg-

2025, we will be making full use of diverse businessment is essential to expand our business areas and tomodels beyond EPC business, with segments of inter-achieve sustainable growth as well as stable revenue

est being offshore wind power and “blue” hydrogen /from diverse business models. As such, we are plan-

ment in infrastructure, which has been largely unaf-

gating these times. As president and COO, I am

fuel ammonia in energy transition as well as plastic

ning ¥200 billion in strategic investment during thefected by the pandemic. We will focus on securingstrongly committed to implementing these strategies toand fiber waste chemical recycling and sustainable

period of BSP 2025.

orders related to pharmaceutical production facilities,

achieve our envisioned results. I thank our stakeholders

hospitals, chemicals, and nuclear power related, as wellfor their continued support.

aviation fuel (SAF) in a circular economy.

11

To ensure that these key strategies are effective, we

As for the fiscal 2021 earnings forecast, net income

JGC Report 2021

sions have been underway since fiscal 2020.
Domestically, we anticipate ongoing capital invest-of drastic changes, these “five years of challenge”
charted in BSP 2025 are indeed our strategy for navi-

JGC Report 2021

12

Management Messages

Message from the Chief Financial Officer
To ensure that thorough risk management is achieved,

throughout the BSP 2025 period.

Kiyotaka Terajima
Director, Senior Executive
Vice President, and Chief
Financial Officer (CFO)Management Messages

stable shareholders’ equity ratio of at least 50%

these investments will be carefully examined by the JGC
Holdings’ Group Investment and Loan Committee before
decisions are made. Moreover, maintaining robust

Shareholders’ equity ratio

finances ensures ample funding capacity and flexibility in(%)strategic investment.

70

After joining JGC in 1981, established business alliances and60

developed contracts for domestic

CFO
Messageand overseas projects in the Legal
Department. Appointed Executive

59.1

57.6

58.2

57.7

59.4

Increasing shareholder return from a
medium- to long-term perspective

50

Officer and Deputy General
Manager of the Corporate

40

Before concluding, I will turn to shareholder return as

Administrative & Financial Affairs
Division in 2014, Director, Executive
Officer, and Senior General Manager

0

2016

2017

2018

2019

2020

a priority matter for management. In view of our inten-(FY)tion to allocate earned cash to strategic investment,of the division in 2016 (Senior

for the BSP 2025 period we have set a target dividend

Executive Officer in 2017),
Executive Vice President and CFO
in April 2018, and Senior Executive
Vice President in April 2020.

payout ratio of 30% of net income attributable to

Remaining flexible in our
strategic investments

owners of the parent. To encourage shareholders to
support our business activities from a medium- tolong-term perspective, we have also set a minimum

Strategies for Sustainable Growth

For steady expansion of business areas and diversifica-

dividend of ¥15 per share. Despite our expectation oftion of business models, earned cash must be suitably

posting a net loss attributable to owners of the parent

allocated to strategic investment.

this fiscal year, this minimum dividend of ¥15 per

The planned ¥200 billion in strategic investment

Loss on the Ichthys LNG project

over the five years of BSP 2025 will serve three key

2021–2025, our medium-term business plan, “Building

strategies: “transformation of EPC operations,” “expan-

ate, in consideration of earnings forecast and free cash

To begin, we must inform you that the JGC Groupa Sustainable Planetary Infrastructure 2025 (BSPsion of manufacturing business for high-performanceflow conditions. Steadily meeting our financial targets

posted an extraordinary loss on the Ichthys LNG proj-2025),” which marks the first phase of the 2040 Vision.

functional materials,” and “establishment of future

through strategic investment and the other means given

ect in the first quarter of fiscal 2021, which has led us

By fiscal 2025, we are targeting ¥800 billion in net

engines of growth.” We plan to invest in DX,

in BSP 2025 will support us in providing higher share-

to expect a ¥46 billion net loss attributable to owners ofsales, ¥60 billion in operating income, ¥45 billion in net

business development, M&As, commercial

holder return from a medium- to long-term perspective.

the parent in this year’s earnings forecast. On this pro-income attributable to owners of the parent, and returndemonstrations, production facilities, and R&D,

tracted matter, we took the opportunity to eliminate

on equity (ROE) of 10%. To this end, as CFO I will work

as examples.

uncertainty in future project management, to the extent

toward sustainable growth for the JGC Group first by

possible, and complete the required accounting. This

maintaining sound, robust finances, second by remain-

allows the Group to focus on meeting the targets

ing flexible in our strategic investments, and third bydescribed in the recently established long-term man-increasing shareholder return from a medium- to long-

agement vision and medium-term business plan. As aterm perspective.

temporary loss with a modest impact on the Group’s soundment or other aspects of the medium-term business plan.

Businessdevelopment

DX

Maintaining sound, robust finances
In the 2040 Vision, EPC business will account for 60%
of net sales in 2040, but initially it is still expected to bearound 80% by 2025. Maintaining robust finances forlump-sum projects and other EPC business reassures

In May 2021, the JGC Group released two documentsclients and is essential for sustainable growth as atargeting sustainable growth: our long-term

corporate group. Accordingly, we intend to maintain a

JGC Report 2021

We appreciate your continued understanding

Investment for the three key strategies

Transformation of EPC operations

Financial strategies supporting
BSP 2025

Share buy-back will also be considered, as appropri-and support.

and robust finances, it does not affect strategic invest-

13

share remains a commitment.

management vision (“2040 Vision”) and, covering fiscal¥

70 billion• EPC DX• Acquire business capabilities in
Asian region• Pharmaceutical engineering
technologies, etc.

Commercial
demonstrations

M&As

Expansion of manufacturing business forhigh-performance functional materials¥

50 billion• Investment to develop new producttechnologies (such as for life sciencesmaterials)• Facility investment related to high thermal
conductivity silicon nitride substrates, etc.

Production
facilities

R&D

Establishment of futureengines of growth¥

80 billion• Carbon management• Offshore wind power• Hydrogen / fuel ammonia• Chemical recycling, etc.

JGC Report 2021

14

01
CHAPTER

Overview of Value Creation

Overview of Value Creation
Two past transformative milestones saw a change of businessmodels and considerable market expansion. In market environments of all kinds, the JGC Group has fulfilled a mission true to thefounding spirit of supporting the foundations of industry and society at large. This chapter examines these two turning points, theoriginal value-creation mechanism behind our corporate transformations, and the underlying strengths that make it all possible.

15

JGC Report 2021

P.17

A History of Constant Evolution

P.21

JGC Group Strengths Supporting Transformation

P.23

Value-Creation Mechanism

JGC Report 2021

16

CHAPTER 01 Overview of Value Creation

A History of Constant Evolution

through new business models, expanded markets and segments, or upgraded project execution.
Here we look back on this heritage and the “Life-cycle Engineering,” we have established throughFirst Transformation

Overview of Value Creation

From the start, taking on continuous evolution has enabled sustained growth by the JGC Group, whether

Becoming an engineering firm

these transformations.

Dawn of a New Enterprise

Applying process technologies

Complete project planning and coordination

Shifting from oil refining toengineering businessJapan’s first general contractor

Construction of a refinery in Otsu, present-day Izumiotsu,

In postwar Japan, domestic refiners resumed operations

in Osaka was initially planned, but the Company had noaround 1950, and JGC once again engaged in plantchoice but to abandon these plans in 1930, in view ofengineering and construction in the oil industry. New

both local opposition and the collapse of the domestic oil

plant construction at that time mainly involved separate

market in the wake of the Great Depression a year ear-orders with different contractors for EPC. For clients, thisFor an economical low-cost, abundant supply of oillier. For a while, business was supported by licensing themade project management extremely inconvenient. In

Founding aspirations in oil refining and sales

Dubbs cracking process and patents on isooctane pro-

1956, JGC received a lump-sum EPC contract for theduction still in the Company’s possession to domestic oil

Tokuyama Refinery of Idemitsu Kosan. Japan’s first large-

Aspiring to support the foundations of industry as well as societyMotor vehicles took off in Japan after the Great Kanto

acquisition of patent rights and licensing of the technol-

refiners. Over time, JGC hired more engineers and ven-scale “grassroots” refinery project was finished in 10

Earthquake in 1923, and so did imports of gasoline, as

ogy. It would soon form the basis of Japan Gasoline Co.,

tured into plant design and construction for aviation fuelshort months. By coordinating each phase of the project,domestic production trailed demand. Believing that

Ltd., established for refining and sales in 1928, which

applying these processes, becoming Japan’s first engi-

JGC had become the country’s first general contractor.

national growth hinged on expanding domestic gas pro-would one day become the JGC Group.

neering firm. The juncture also saw the Company’s first

Later, the Company completed many refineries and pet-functional materials manufacturing, focused on petro-rochemical complexes that underpinned Japan’s rapid

leum refining catalysts.

economic growth.

duction, future JGC founder Masao Saneyoshi noted that

From the very beginning, Masao Saneyoshi’s found-it was relatively cheaper to produce from heavy oil using

ing spirit of supporting society and industry as a

the Dubbs cracking process of Chicago-based Universal

corporate mission—initially by supplying oil, viewed as

Oil Products Co. (UOP), at the time an acclaimed

vital in this regard—has been handed down in the JGC

method in the U.S. Negotiations with UOP led to fullGroup to the present today.
Application“Life-cycle Engineering” of the JGC Group pplication in a variety ofAbusiness segments
Expansion into new areas

The JGC Group business consists of a unique Life-cycle
Engineering characterized by cycles of discovery, integration, and application. Social and industrial issues andApplicationneeds serve as our starting point. Diverse resources arefocused on these needs, leading to optimal solutions.
As new challenges emerge, the valuable outcomes from

Discovery

past work are applied to solve them. This approach
Integration

underlies the Group’s successful transformations.
Masao Saneyoshi, founderNews of the Company’s founding,announced in the p­ redecessor of The Nikkei on October 11, 1928

17

JGC Report 2021

Discovery

Integration

 iscoveries arise as social, industrial,Dand client needs are consideredIntegration of essential technologies
and knowledge

Here, the Group finds optimal solutions

Bringing business partners together

JGC Report 2021

18

CHAPTER 01 Overview of Value Creation

A History of Constant Evolution

Showing what’s possible through engineering

Overview of Value Creation

Second Transformation
Moving into growth industries and segments with potential

Expanding business areas

Surmounting challenges, building expertise

As the JGC Group established a formidable presence outside of Japan, a constantServing a broader market

goal from the standpoint of management stabilization and income smoothing has

While actively engaged in refining and petrochemical projects in Japan, we also

been to cultivate segments beyond oil, petrochemicals, and other energy businessthat is easily disturbed by international economic fluctuations. Emerging growth

made an all-out foray into overseas projects, starting with three refinery construc-industries and promising segments have always been targeted for new business.

tion projects in South America. Market expansion in South America was followed

To this end, we have applied essential characteristics of engineering—creating new

by North Africa, the Middle East, Asia, and Oceania. By 1970, more than half of all

functionality by integrating and organizing various core technologies for a certain

orders were from outside of Japan—up considerably from around 10% in the latepurpose—and our project management capabilities. In the 1960s, EPC business

1960s. In the 1980s, this level regularly surpassed 80%. Overseas expansion

grew to include nuclear power, and since the 1980s, the Group has taken on life sciences applications such as pharmaceu-

brought its own challenges, beyond harsh deserts, jungles, the far north, and thetical production, healthcare applications such as hospitals, and industrial infrastructure such as non-ferrous refining. Fromsea. Linguistic, religious, and cultural differences must be bridged, and despite

the 2000s, JGC Group has been an early responder to the trend toward global environmental conservation, as demon-

mandates in the developing world to maximize use of local firms, construction companies were lacking and workers still

strated by cultivating the segments of renewable energy and carbon capture and storage (CCS). LNG in particular, which

inexperienced. Navigating these difficulties was no ordinary task, and initial overseas expansion was fraught with costly

we pioneered in the 1970s by applying the low-­temperature technologies used at ethylene plants, has grown considerably

lessons. But by the 1980s, this steady application of the experience gained in each project had established the JGC

to become our main sector. Diversity has also been actively pursued in business models. Functional materials manufactur-Group as a reliable engineering firm that completed plants on time and with the quality required.

ing includes fine ceramics as well as fine chemical products that apply nanotechnologies developed for catalyst businessoriginally launched in the 1940s. Environmental and energy consulting business is another example of this diversification.

Managing increasingly diverse and complex risks

More sophisticated project execution
We were inevitably rocked by the tumultuous international economy as the
proportion of overseas projects grew from the 1970s. Initial overseas expansion
essentially involved Japanese resources for EPC. After the shift from a fixed¥360/U.S.$1 exchange rate to a floating exchange rate in 1973, events such as
the second oil crisis in the late 1970s and the Plaza Accord in the mid 1980s set
the stage for rapid appreciation of the yen, which has often had quite an impact on
our competitiveness and profitability. Starting in the late 1970s, this led to aconcerted effort to globalize our EPC resources. Engineering companies and procurement bases were established outside of Japan, and measures such as building a global resource management“Life-cycle Engineering” refined through repetition

Application leads tothe next discovery

A constant commitment to refine our Life-cycle Engineering hasenhanced the quality of the solutions we provide, expanded the scope

Discoveryof potential applications, and made possible the next new discovery.
This refinement of our cyclical Life-cycle Engineering continues tobroaden the potential of value provided by the JGC Group.

Discovery
Integration
Application

system were taken to form a project execution framework more resistant to foreign exchange risks. We also focusedon establishing intelligent, scientific methods of managing highly complex and risky projects outside of Japan. Fromthe 1980s, an original project management system was devised and formally introduced in overseas projects, which,in conjunction with our emphasis on resource globalization, has established our reputation and capabilities as aninternational engineering firm.

19

JGC Report 2021

JGC Report 2021

20

CHAPTER 01 Overview of Value Creation

Strengths honed by the JGC GroupJGC Group Strengths Supporting Transformation

Accelerating our “Life-cycle Engineering,”
serving as the basis of further Group growthManagement capabilities
to see and direct the entire project

Visionto discern how the future is unfolding

JGC Group Strengths

Application

Application

Technical expertise

Integrationthat creates new value

Discovery

Transformations by the JGC Group have stemmed from anticipating changes in the business
Overview of Value Creation

Risk management­environment and seizing them as opportunities, as the Group proactively ventures into new

to anticipate and overcome issues

areas. Behind our success to date lies unique strengths honed over the course of repeatedly
taking our own “Life-cycle Engineering.” These strengths will continue to support sustained
growth for the JGC Group.

Strength 01

Strength 02

Strength 03

Strength 04

Management capabilities

VisionTechnical expertise

Risk management

to see and direct the entire projectto discern how the future is unfoldingthat creates new value

to anticipate and overcome issues

Management capabilities forged through many EPC

To thrive in foreign markets exposed to international

The JGC Group’s advanced engineering technologies

To manage complex overseas projects with many risk

projects give the JGC Group the ability to integrate

economic fluctuations, the JGC Group has anticipatedhave supported plant and factory project execution infactors appropriately and ensure steady revenue,

diverse technologies and expertise, as well as internal

coming changes and quickly adapted, which has

many social and industrial sectors. Rather than being

we have refined our sophisticated risk-response capa-

and external resources, and to direct efforts toward

enabled sustained growth. We firmly intend to act onlimited to individual engineering technologies, ourbilities for predicting and anticipating risks andoptimal solutions from a comprehensive view ofour vision—discerning how the future is unfolding andstrength here also consists in our ability to integrate

determining optimal countermeasures. A heightened

projects. But beyond EPC business, the JGC Group

anticipating issues and needs—in taking on businessdiverse technologies in creating new value. We willawareness of risk, in view of our long-standing status

also applies this strength in functional materials

expansion into areas that will be sought by rapidly

continue to hone this technological expertise not only

as an independent organization unaffiliated with con-manufacturing business to develop new, futuristicchanging societies and industries, and in diversifying

in existing EPC, functional materials manufacturing,glomerates or capital groups, is reflected in projectmaterials, and in cultivating future business centered

our business models to this end.

and environmental and energy consulting businessexecution as well as Group management itself, as

but also in expansion of new business areas.

required for sound finances.

on novel technologies.

21

JGC Report 2021

JGC Report 2021

22

——Purpose——

CHAPTER 01 Overview of Value Creation

Value-Creation Mechanism

Mechanism of Ever-Evolving
Value Creation

Growth and expansion
as a company

Expansion of business areas / target markets
Advancement of project execution methods

Our “Life-cycle Engineering” is an original value-creation mechanism supported by strengths honed

Overview of Value Creation

Diversification of business models

through corporate transformation to date. The cycle is constantly refined, which will enable newtransformation as the Group fulfills its purpose in “Enhancing planetary health.”

Diverse social issues

Materiality
Application
E•S ocieties in harmony with the environmentS•W orking with local communities around the world•H uman rights, employee motivation•E nergy access•Q uality of lifeG•C orporate governance, risk management

Discovery

Integration

Further reinforcing strengths
Management capabilities
to see and direct the entire project

Vision to discern how the future is unfolding

Management Strategy

Technical expertise that creates new value
Risk management
to anticipate and overcome issues

Long-term vision——Founding Spirit——

Medium-term business planSound, robust finances

Supporting thefoundations ofindustry and society

P.13

Message from the Chief Financial Officer

Management mainstays
P.45

Strengthening corporate governance, risk management
23

JGC Report 2021

P.61


CHAPTER
03
Reinforcing Management Mainstays

 HAPTER 04
C
Enhancement of Corporate Governance

JGC Report 2021

24

02
CHAPTER

Toward the Third Transformation

Toward the Third
Transformation“Enhancing planetary health,” the Group’s newly redefined
purpose, is a fitting reason for existence in a world where efforts
toward sustainability are accelerating. This chapter describes
the long-term management vision for 2040 inspired by this fresh
perspective and outlines the medium-term business plan for the
next five years.

25

JGC Report 2021

P.27

JGC Group Purpose

P.29

JGC Group Materiality

P.31

Long-Term Management Vision

P.35

Medium-Term Business PlanJGC Report 2021

26

CHAPTER 02 Toward the Third TransformationJGC Group Purpose

Taking on our third transformation,in line with the 2040 Vision
17.1 billion toe*On the other hand, CO emissions are required to be net zero by 2050.
Global primary energy demand by 2040:
2* toe: ton of equivalent
Sources: IEA World Energy Outlook 2020, IPCC’s Special Report on Global Warming of 1.5ºC (published in 2018)

To date, the JGC Group has passed through several transformations in adapting
to changes in the business environment.
Significant changes now call for the third transformation in our corporate history.
Our recently established long-term management vision for 2040 describes how
our traditional core competencies will be used to address social issues.

Global waste by 2050:

3.4 billion tons/year

Social issues that the JGC Group will focus on

Source: World Bank, A Global Snapshot of Solid Waste Management to 2050

our third transformation

Health of the Earth

Reducing environmental impactof resource consumption

Building and maintaining vital
infrastructure and services

Meeting higher demand of energy

Reducing CO2 throughout
manufacturing processes

Establishing and maintaining
industrial and urban infrastructure

Reducing the environmental
impact of waste

Establishing and improving
medical infrastructure

Popularizing environmentallyprotective high-performance
functional materials

Promoting widespread use of
personalized and preventive
medical careAchieving net-zero CO2 emissions

Urbanization in Asia, Africa by 2050:

66% of the population

Health of Humans

Pursuing both a stable energy
supply and decarbonization

Responding to the low-carbon /decarbonization transition

Toward the Third Transformation

A compelling time forSource: United Nations, World Urbanization Prospects

Percentage of the population 65 or older by 2040:

35% (Japan)

Purpose of the JGC Group

Source: National Institute of Population and Social Security Research “Japan’s Future Population Estimate”

We remain committed to our traditional mission of creating a more
prosperous future, which has been redefined to reflect our purposeof enhancing the intertwined health of humans and the Earth.

27

JGC Report 2021

JGC Report 2021

28

CHAPTER 02 Toward the Third TransformationJGC Group Materiality

Making a positive impact in “Enhancing planetary health”
Six key material issues in society consistent with the Group purpose of “Enhancing planetary health”
have been determined from a comprehensive evaluation of social, stakeholder,and corporate priorities.

JGC Group materiality

Materiality

Related SDGs

Recognized Social Issues

Materiality is positioned as a fundamental element in establishingmanagement policies and conducting business. Through our business activities, we address social issues and create economic,

E

Societies in harmony with environmentsocial, and environmental value.

Working with local
communities aroundaddress

the world

through business activities

Materiality toCreating a more prosperous future, which has been

ness activities

G

TOPICS

Commitment to carbon neutrality by 2050
Toward our materiality goal of societies in harmony
with the environment, the JGC Group is targeting a
reduction of CO2 emissions from business activities
to net zero by 2050.
 P. 59

Addressing Climate Change• Promoting measures that encourage workplace diversity• Expanding the personnel system accounting for opportunities andskill-building for women• Ensuring thorough respect for human rights, including in supply chains

Energy access• Meeting greater global energy demand• Promoting wider use of renewable energy that contributes tosustainable growth• Enhancing productivity through greater global energy efficiency• Construction of various types of energy plants in regions worldwide• Promoting wider use of renewable energy• Making energy plants more efficient and reducing energy consumption

Quality of life

• Responding to aging social and industrial infrastructure• Promoting development of social and industrial infrastructure in
emerging markets• Improving global medical standards• Making life more convenient and comfortable• Conducting maintenance business for social and industrial infrastructure• Construction of various infrastructure facilities in Southeast Asia
• Construction of pharmaceutical plants and medical facilities• Development and production of functional materials for electronics,
everyday products, and more• Strengthening and improving corporate governance• Ensuring regulatory compliance in business activities• Responding appropriately to corporate and business risk

• Continuing to strengthen corporate governance and ensure efficacy• Being thorough about compliance policies, strengthen related activities• Practicing thorough risk management

result of busi-

intertwined health of humans and the Earth• Construction of plants and facilities in emerging markets• Promoting procurement in emerging markets• Training and educating engineers in emerging markets

マテリアリティ

achieve as aredefined to reflect our purpose of enhancing the• Contributing to economic and industrial development in emerging
markets• Creating employment in emerging markets• Supporting technology transfer and human resource developmentin emerging markets• Promoting workplace diversity（重要な社会課題）• Promoting female hiring and strengthening skill-building• Respecting human rights in all business activities

Human rights, employee
motivation

S• Reducing the environmental impact of fossil energy• Promoting use of a greater share of renewable energy• Protecting ecosystems, maintaining biodiversity• Promoting development of products and technologies that help
curb global warming

Corporate governance,risks management

Based on these materiality goals,
we will address issues in the fivebusiness areas of energy transition,
healthcare & life sciences, highperformance functional materials,
circular economy, and industrial &urban infrastructure, where our corecompetencies can be applied toenhance planetary health.

Five business areas to be addressed to improve planetary healthThrough materials,
helping to shape a more prosperous
future for people and the Earth

High-performance
functional materials

Making widespread use ofenvironmentallyconscious
resources a reality

Circulareconomy29

JGC Report 2021

Toward the Third Transformation

Purpose of the JGC Group

Materiality toGroup Initiatives• Construction of fossil energy plants with a lighter environmental
footprint• Construction of renewable energy plants• Protecting rare plants and animals near construction sites• Producing environmentally beneficial products in volume andpioneering environmental technology business

Establishing a stable energy
supply and decarbonization

Energy transition

Through medical care and healthcare,
contributing to human well-being

Establishing environmentally conscious
industrial & urban
infrastructure

Healthcare & life
sciences

Industrial& urbaninfrastructure

JGC Report 2021

30

CHAPTER 02 Toward the Third Transformation

Long-Term Management Vision

2040 Vision, Our Long-Term Management Vision
Change is sweeping through our business environment. For the JGC Group to continue to enjoy sustained growth, weare responding swiftly and flexibly to these current trends. Based on the global, long-term perspective of enhancing

Growth business Established as a pillar of business in five years of harvest (2026–2030)

planetary health, we have recently established the 2040 Vision, anticipating the future 20 years from now.
Guided by this sense of purpose, the JGC Group will pursue its vision for 2040 by applying proven capabilities and  Healthcare & life sciences

experience to address the three social issues of balancing energy stability with decarbonization, reducing the environmental impact of resource consumption, and building and maintaining vital infrastructure and services. Through a trans-

Pharmaceutical / hospital-related business in Japan andformation that spans business areas, business models, and our organization, we are gearing up for the challenge of

emerging economies will be developed in response to both

becoming a corporate group that enhances planetary health.

growing needs in personalized and preventive medicine
mainly in advanced economies and market growth from01

higher standards of healthcare in Asia. We will also makeand clinics, for expansion of smart hospital business.

The Group will be expanding into five areas that include core business, growth business, andfuture business which will be developed into pillars of business

Five years of challenge

10 years of rapid growth(2020)(2021–2025)(2026–2030)(2031–2040)•A dvancing into renewable energy
infrastructure•F urther developing our functional
materials manufacturing
capabilities•S owing the seeds for businesses
promoting sustainability•E xpanding in the energy
transition segment•A ctively investing in growthbusinesses•L aying the groundwork for futurebusiness•H arvesting the fruit of efforts
for growth business (Highperformance functional materials,
Healthcare & life sciences)•M aking future business profitable•D eveloping the future business(Circular economy, Industrial &urban infrastructure) into pillarsof business•E stablishing diversified portfolio
management

Low-carbon /decarbonized
Oil & Gas

Oil & Gas /Renewable energy

Industrial &urban infrastructure

81%

10%

OthersOur frameworks for new product development will be reinEnergy
transition

2%

60%

High-performance
functional materials

9%

Clean energy

2040

Oil & Gas
Renewable energy
Energy transition
High-performance functional materials
Healthcare & life sciences
Circular economy
Industrial & urban infrastructure

Healthcare &life sciences8%

High-performance
functional materials

Healthcare &life sciences

10%

10%

Segments of interest
 ilicone nitride substrates, Polishing nanoparticles
S
for semiconductor
Catalysts for carbon and chemical recycling
Materials used in energy storage and new energy
applications
Materials used in life sciences applications

TimelineCore business Established as a pillar of business in five years of challenge (2021–2025)
Energy transition

Future business Established as a pillar of business in 10 years of rapid growth (2031–2040)  Circular economy

Contributing to low carbon / decarbonization in the global oil & gas industry
Low-carbon / decarbonized oil & gas

Clean energy

CCS and energy-saving technologies will be incorporated

In offshore wind power generation, alliances will be ourin oil & gas projects to support low carbon / decarboniza-

starting point, initially in Japan. Besides EPC, we will alsotion. Wider adoption of “blue” hydrogen / fuel ammonia

study participation in special-purpose companies. In

will also be sought, as R&D investment and partnerships“green hydrogen” & fuel ammonia, we will join in building

help scale up production facilities.

new energy value chains and promote adoption in society.
As for small modular reactors (SMRs), we will gain construction experience outside of Japan through investment in

CCS
Energy-saving
Carbon credits technologies“Blue” hydrogen / Fuel ammonia

silicon nitride substrates and semiconductor polishing
and abroad.

Futurebusiness
Growthbusinessto date. Manufacturing technologies and production

nanoparticles, as we take on business expansion at home

2020

Core
business

forced and accelerated, applying core technologies refined
capacity will be enhanced for high thermal conductivity

Circulareconomy10%

Segments of interest  High-performance functional materials

Envisioned breakdown of sales
Five years of harvest

Toward the Third Transformation

Present

JGC Report 2021

Pharmaceutical plants (including regenerative­medical care)Traditional and smart hospitals
Digital healthcare

advance investments in digital technologies for hospitals

Business area transformation

Path to business area expansion

31

Segments of interest

Chemical recycling technologies such as for plastic andfiber waste will be acquired for wider adoption in society.
Besides EPC, we will provide licensing and operational

Chemical recycling (plastic, fiber waste, etc.)

consulting, applying operational expertise from commercial demonstrations.

  Industrial & urban infrastructure

NuScale Power, LLC, with practical adoption as the goal.

To meet demand for industrial & urban infrastructure as

Segments of interest

economies in emerging markets grow, we will enter the

Offshore wind power“Green” hydrogen / fuel ammonia
SMRsSegment of interest

segment of complex infrastructure and incorporate solutions from energy transition, circular economy, and otherbusiness areas.

Segments of interest
Industrial facilities
Water treatment
Railways
Integrated urban infrastructure

JGC Report 2021

32

CHAPTER 02 Toward the Third Transformation

Long-Term Management Vision

02

Business model transformation
A sustainable EPC business model will be pursued, along with a diversified revenue structure fromexpansion of non-EPC models.

Transformation of EPC business model

03

Organizational transformation
Regional management will be strengthened and a culture of innovation fostered.

Digital technologies will make our bidding more competitive, increase the likelihood of orders, and reduce project execu-

Stronger framework forregional managementtion risks. Investing to develop these technologies and then deploying them for superior project execution will support

For greater growth market responsiveness, we

us in completing projects twice as fast with one-third the staff hours by 2030, as envisioned in the IT Grand Plan 2030.

will strengthen our regional management

Regional
HQ

Regional
HQ

framework, aimed at promptly proposing andexecuting solutions in an attentive, locally pro-

Future goals for 2030

Scenarios projected for 2040

duced and consumed arrangement for local

Yokohama Head Office

Regional
HQclients. Starting with the JGC Group’s collaborative network in Asia, the reinforcement will
• Innovation in engineering
capabilities through AI design

IT GrandPlan 2030•P roject digital twins and simulations based on AWP*1 anddata-centric project execution

1/3 the staff hours,
twice as fast

Potential of new business models•P roviding an EPC execution platform externally (SaaS)•P roviding project execution services externally(consulting, PMC*2)•P roviding a collaborative system with engineers worldwide

transfer authority and develop more agile operations, as we gradually expand the scope.

More vibrant culture ofinnovation

For an innovative group of engineers creating andpioneering new technologies and businessIn new and existing operations, a corporate•D ramatic improvements atconstruction sites from 3D
printers and automatedconstruction

New forms of EPC, partnerships•M inimizing execution
risk by making projectstatus more transparent through an EPC
execution platform• Improved productivity throughstandardized, modular plants•D evelopment of smart
community technology•O ptimal types of EPC contracts,
closer integration with clientsand contractors• Innovative reframing of arrangements, starting with relationships
between clients and contractors

Toward the Third Transformation

Enhancing EPC
execution
capabilities

Regional
HQ

Gradually expanding
coverage as overseas
markets growculture will be fostered for continuous innovaExisting businesstion in technical commercialization and•P yramid-like organization•F ocusing on execution
efficiency•T aking core technologies
to the next levelbusiness model development, as needed fortransformation in business areas and models.

Becoming an“ambidextrous”
organization,
gaining agility inwork styles

New business• Network-likeorganization•F ocusing on external
collaboration•N ew businessexploration

We will seek an “ambidextrous” organization
with diverse work styles.

The JGC Group will reinforce its environment for personnel recruitment /development, exploration, and organization / administration.
(Innovators gather and undertake active roles)*1 AWP: Advanced work packaging*2 PMC: Project management consulting

Target level of operating income*Business model diversification

These three facets of transformation will support us in reaching ¥150–200 billion of income in 2040. Strategic invest-

EPC-based business models will be expanded upstream and downstream in the value chain, building on technologies

ments to be made over the long term.

cultivated in our traditional EPC business model. New business models will also be sought by participating in digitalplatform business that applies digital technologies in our traditional business segments and in segments of interest.

Target level of operating income

This will support us in increasing the proportion of non-EPC business from 22% in 2020 to 40% in 2040.

EPC

Upstream

Downstream• Licensing• Maintenance• Consulting•D igital O&M• PMCNew business models¥

Present

Five years of challenge

Five years of harvest

10 years of rapid growth(2020)(2021–2025)(2026–2030)(2031–2040)

22.8

billion¥60.0

billion or more¥

100

billion or more¥

150–200

billionThe JGC Group will realize
greater income over the longterm by strategic investment.

• Platform•B usiness participation*A djusted operating income: Operating income plus interest and dividend income and share of
profit of entities accounted for using equity method earned in each business area

33

JGC Report 2021

JGC Report 2021

34

CHAPTER 02 Toward the Third Transformation

Medium-Term Business Plan

Medium-Term Business Plan
As we work toward the 2040 Vision, we have positioned the next five years to fiscal 2025 as five yearsof challenge. Our medium-term business plan for this initial phase is “Building a Sustainable Planetary
Infrastructure (BSP 2025).”

Business Environment Outlook for BSP 2025
Core business

Future business  Energy transition  Industrial & urban infrastructure

LNG is promoted as a “clean” fuel—a fossil fuel with a lighter carbon footprint. Higher LNG
demand is expected to drive steady plant demand. Besides the LNG segment, new business

As for the circular economy, progress in forming recycling value chains (such as for chemical

opportunities are also anticipated in other segments, as the energy transition toward a low-

2025. Amid Asian economic growth, market expansion is also expected in industrial andSegment

Market awareness

LNG

Tight supply and demand is expected to be balanced in the late 2020s
New projects on the scale of tens of millions of tons are expected in 2022 and later

Renewable energy

Renewable energy market such as solar power, energy storage, and biomass power
generation will remain robust

Carbon management

Need for CCS and other programs are expected to grow rapidly

Offshore wind power

Domestic market is expected to take off in the first half of the 2020s

Hydrogen / fuel ammonia

Formation of value chains will be progressed in anticipation of significant market
growth in 2030 and later

Existing

New

Very highHigh

Fairly highToward the Third Transformation

recycling of plastic waste) will be made in developed economies and elsewhere during BSP

carbon / decarbonized society accelerates.
Marketgrowthrate  Circular economy

urban infrastructure.
Marketgrowthrate

Segment

Market awareness

Circular economy

New

Waste plastic
recycling

Technology development and commercial demonstration will bein progress. Market formation will be in 2025 and beyond

Industrial & urban
infrastructure

New

Water treatment,
railwaysMarket expansion is expected in Asia driven by economic growth

Very highHigh

Fairly high

Flat

Flat

Growth business  High-performance functional materials  Healthcare & life sciences

Review of the previous plan, Beyond the Horizon

Existing segments in high-performance functional materials are likely to recover demand
sapped by the COVID-19 pandemic. In particular, growth is expected in markets involving

Although the JGC Group fell short of financial targets in the previous medium-term business plan for fiscal 2016–2020,

semiconductors, telecommunications, and chemical / environmental applications. In new seg-

we improved our operating income ratio through stronger risk management and other measures, laid the groundwork

ments, growth is expected for materials used in electric vehicles (EVs) and in semiconductor

for future growth, and adopted a holding company structure for more effective promotion of growth strategies.

applications. In the healthcare & life sciences segment, market expansion in Japan and overseas is expected from higher standards of living and an aging population.
Marketgrowthrate

Highperformance
functional­materials
manufacturing

Healthcare &life sciences
Very high35

JGC Report 2021

High

Segment

Market awareness

Catalysts

Oil refining catalyst market contract
Demand for chemical / environmental catalysts is expected to growFine chemicals

Demand for materials for cosmetics, displays, and semiconductor
applications is expected to expand

Fine ceramics

Demand for materials for semionductor manufacturing equipment
and telecommunications / sensor products is expected to expand

High thermal conductivity
silicon nitride substrates

Worldwide market growth is expected as EVs are adopted

Nanoparticles for CMP*

Worldwide market growth is expected as the semiconductor
industry grows

Existing

Pharmaceuticals, hospitals (domestic)

Domestic capital investment will be recovered in pharmaceuticals,
greater medical needs arising from aging populations

New

Pharmaceuticals, hospitals (outside of Japan)

Demand is expected to grow due to higher standards of living andaging populations

Existing

New

Fairly highFlat

Higher operating income

Groundwork for growth

Holding company structure•L essons learned from
FY2016 loss applied tostrengthening EPC risk
management•A chieved higher operating
income ratio(3.0% in FY2017
5.3% in FY2020)• Positioned functional materials manufacturing as oneof core businesses•A chieved a fuller EPC trackrecord in infrastructure•E stablished a framework
for commercializing clean
energy and recycling
technologies•S trengthened portfolio
management•A ccelerated decision-­making through delegationof authority to operatingcompanies* CMP: Chemical mechanical polishing

JGC Report 2021

36

CHAPTER 02 Toward the Third Transformation

Medium-Term Business PlanThree key strategies pursued over five years of challenge

Financial targets, capital and shareholder return policies

The time frame of BSP 2025 sets the stage for transformation of EPC operations, expansion of manufacturing

Through steady progress in implementing the three key strategies, we are targeting net sales of ¥800 billion inbusiness for high-performance functional materials, and establishment of future engines of growth. Two of thesefiscal 2025, with operating income of ¥60 billion, profit of ¥45 billion, and ROE of 10%. Capital and shareholder

strategies are aimed at securing and expanding revenue in existing operations, and the third seeks long-term

return policies will also be upheld, with sustainable growth of the JGC Group as a primary consideration.

growth toward 2040.

• Increase competitiveness and profitability in mega-sized
EPC projects•T ake on EPC growth markets and segments
 P. 39

Transformation of
EPC operations

Net sales¥433.9 billion¥800 billion

Operating income¥22.8 billion¥60 billion

Net income attributableto owners of the parent¥5.1 billion¥45 billion

1.3%

10%

ROE

 P. 41

Net sales targets by business area
Business area

Net sales target for fiscal 2025 (Billion yen)

Energy transition

600.0

Healthcare & life sciences

50.0

High-performance functional materials

60.0

Circular economy•O ffshore wind power• “ Blue” hydrogen / fuel ammonia•C hemical recycling, etc.

 stablishment of futureE
engines of growth

FY2025 (Targets)

90.0

Industrial & urban infrastructure
Total

 P. 43

800.0

Sales targets by business modelBusiness model

Policies supporting the three key strategies
Both our investment strategy and policies on our talent and organization will support us in implementing the three

650.0

Non-EPC

150.0

Total

800.0

Sales targets by key strategy
Key strategies

commercial demonstrations, and R&D. Specifically, ¥70 billion will be allocated toengines of growth.
 P. 13

Message from the Chief Financial Officer•H uman resources will be realigned internally and expanded with talent in new occupational categories.

Net sales target for fiscal 2025 (Billion yen)

350.0

LNG, petroleum refining, etc.
Transformation of EPC operations(EPC)

EPC growth markets and segments

Expansion of manufacturing business for high-performance functional
materials (non-EPC)

Main conventional products

transformation of EPC operations, ¥50 billion to expansion of manufacturing businessfor high-performance functional materials, and ¥80 billion to establishment of future

Details

Mega-sized overseas EPC projects

The JGC Group calls for a total of ¥200 billion in investment during the medium-term

Investment
strategy

Net sales target for fiscal 2025 (Billion yen)

EPC

key strategies.

business plan in areas such as DX, M&As, production facilities, business development,

Toward the Third Transformation•O ffer more product lineups in existing business forincreased revenue•E xpand sales of strategic products•E xplore and develop next-generation business xpansion ofE
manufacturing businessfor high-performance
functional materials

FY2020 (Actual)

Establishment of future engines ofgrowth (EPC + non-EPC)
Other

300.0

LNG receiving terminals, gas-fired power
Renewable energy, chemicals
Healthcare & life sciences, etc.
50.0

Strategic products

10.0

Growth engines

50.0

Offshore wind power
Chemical recycling“Blue” hydrogen / fuel ammonia, etc.
Maintenance, etc.

40.0

Total

800.0

•C
 ommercialization will be accelerated by establishing specialized business units at

Policies on ourtalent andorganizationeach company in segments targeted for commercialization and profitability during
BSP 2025.

•S ound, robust finances will be maintained to support EPC operations, still our core business as of fiscal 2025.

our innovation environment to cultivate segments for future commercialization and•F lexibility will be maintained in our strategic investments to ensure diversification of business areas and models.

promote business development.

• Increased shareholder return will be sought from a medium- to long-term perspective.

 P. 4537

JGC Report 2021

Capital and shareholder return policies• Innovative processes, organizations, and systems will be expanded in building up

Reinforcing Management Mainstays

 P. 13

Message from the Chief Financial Officer

JGC Report 2021

38

CHAPTER 02 Toward the Third Transformation

Medium-Term Business Plan Key Strategy

Transformation of EPC operations

For greater competitiveness and profitability in mega-sized EPC projects, we will take core competencies to the nextlevel. Stricter risk management and project negotiations will improve the gross profit ratio, and optimized joint venture
strategies, digital technologies, and construction methods will provide a competitive edge in securing orders.
In taking on EPC growth markets and segments, we will expand EPC operations into these markets and segments

Take on EPC growth markets and segments
Expanding into
growth markets

Asia region

as we seek a diversified portfolio. Increased revenue will be sought by strengthening operations to secure some of the
LNG receiving terminals
Gas-fired power

many projects anticipated for LNG receiving terminals, gas-fired power, solar power, and biomass power plants, pharmaceutical plants, hospitals, and chemical facilities. Moreover, we will reinforce regional management in Asia, which is
growing rapidly, and bolster our workforce with the domestic market also in mind.

Expanding into
growth segments

Increase competitiveness and profitability in mega-sized EPC projects
Risk
management

Improve projectgross profit ratios

Project
negotiations• Improve business management skills of engineers•A ppoint qualified global leaders for managerial roles

Joint venture
strategies•O ptimize joint venture partnering for projects or alliances

Digitaltechnologies•A ccelerate deliveries and improve quality of design and execution utilizing AI for
design and AWP for project execution

Optimalconstruction
methods•A utomated welding robots•D igital RT*, AI judgment of welding quality•H igh-frequency induction bending for pipes•R emote management of site activities

2,600

•E
 nable our pharmaceutical EPC workforce•E stablish a business unit focused on
chemical projects

1,200

ExamplePromoting EPC DX (Visual representation of plan and progress for
project execution and remote management of site activity)
The JGC Group is transforming business process from document-centric to data-centric for faster, higherquality project execution. For this purpose, the framework under construction will link each EPC support
system via a flexible data hub, automatically collect data on a data collection platform, and display it in realtime with various key performance indicators (KPIs) on the project dashboard.
Conditions at construction sites can be visually represented even at remote sites, which enables moreaccurate investigation and decision-making. Moreover, the collected performance data can accelerate process and reduce costs, yielding a competitive edge in securing orders. The Group plans to develop a
predictive project simulator that will apply the ample performance data acquired.

3,100

Domestic offices

Chemicals* RT: Radiographic test

ExamplePharmaceuticals /hospitals•E stablish coordinating office for­operating centers in the Asian region•S trengthen business development andproject execution capabilities•C entralize engineering functions

Toward the Third Transformation

Improvecompetitiveness insecuring orders•F ormulate and implement execution plans with a balance of risk and avoidance,
mitigation, transfer, and retention

Solar power
Biomass power

Asia offices

1,500

	
Solid dosage pharmaceutical plant construction
Adding to
Our Record in Asia
awarded by a Vietnamese pharmaceutical company
JGC Corporation and local subsidiary JGC Vietnam were awarded an EPC contract for a solid dosage pharmaceutical facility by Ha Tay Pharmaceutical Joint Stock Company, of which Japan’s Aska PharmaceuticalCo., Ltd. is a shareholder.
Factors in receiving this order included the value of unified project management by these group companies, as well as JGC Vietnam’s experience and capabilities in local EPC. The client also recognized the valueof JGC Group quality- and productivity-enhancing proposals for the flow line and an optimal layout, which
comply with PIC/S* GMP international standards for pharmaceutical production and quality management andapply extensive pharmaceutical industry experience in Japan and overseas.
Seasoned engineers at JGC Corporation provide support from the initial stages of a project, in line withthe vision of clients considering plant construction outside of Japan. Plant configurations can be tailored tomeet client needs or budgets, and service of suitable quality can be provided regardless of the scale of project. The JGC Group will continue to help make client business plans a reality by promoting project executionthat emphasizes local production for local consumption with our companies in Vietnam, Indonesia, thePhilippines, and elsewhere.
* PIC/S: Pharmaceutical Inspection Convention and Pharmaceutical Inspection Cooperation Scheme

Storage / conversion
Engineeringsystems

Analysis, visual presentation / investigation, decision-making

Automatedcollection

Procurement
systems

Project overview

Data Warehouse

Construction
systems

Project Operation Systems

39

JGC Report 2021

Project

Construction plan for a solid dosage pharmaceuticalplant in Vietnam

Segment

Solid dosage pharmaceutical plant

ClientHa Tay Pharmaceutical Joint Stock Company

Location

Thach That District, Socialist Republic of Vietnam

Capacity

2 billion tablets annually

Project Dashboard → Project Simulator

JGC Report 2021

40

CHAPTER 02 Toward the Third Transformation

Medium-Term Business Planzq

Expansion of manufacturing business for Key Strategy­high-performance functional materials

High-performance functional materials manufacturing will be scaled up. For a broader revenue base, we will expand
lines in our primary business, such as JGC-developed chemical catalysts, materials used in semiconductors and highspeed telecommunications, and materials used in semiconductor production. Another engagement will be strategic

Expand sales of strategic products
Strategic segments

Business strategies

Catalysts,
fine chemicals•D evelop technologies for new chemical catalysts and fine chemicals products (such as nanoparticles for CMP),
and rapidly develop this market

Fine ceramics• Invest in production facilities and technology development for higher performance of high thermal conductivity silicon
nitride substrates for power semiconductors

investment for the future and development of next-generation business. Investments will target fine chemical productdevelopment and production facilities for high thermal conductivity silicon nitride substrates, among other applications.
In next-generation business development, catalysts for carbon recycling, solid-state battery electrolytes, and boneregeneration materials are targeted.

Offer more product lineups in existing business for increased revenue
Strategic segments

Business strategies

Example•D evelop catalysts offering high bottom cracking performance(high bottom cracking catalysts, high-performance additives)• Increase joint development with clients•D evelop catalysts for chemical refineries•E xpand development of original chemical catalysts•D evelop low-temperature denitration catalysts

Catalysts

JGC Catalysts and Chemicals, Japan Fine Ceramics:
Expanding sales of strategic products
Semiconductor CMP (Chemical Mechanical Polishing)Fine chemicals•E xpand offers of nanoparticles for hard disk polishing•E xpand offers of cosmetics materials (micro bead alternatives), optical materials•D evelop optical film materials for automotive display application•E xpand product offerings of materials for semiconductor / high-speed telecom applications (fine materials with low /high dielectric constants)

Fine ceramics•E xpand offerings of products used in semiconductor manufacturing equipment•E xpand business from contract manufacturing of thin-film circuit substrate to design and supply of original products

Toward the Third Transformation

Offer ceria-silica composite particles and variant silica particle as low-defect, high-speed polishing slurry for
STI*1 and ILD*2 applications developed using control techniques of morphology, composite and impurities
of nanoparticles.

High thermal conductivity silicon nitride substrates for power semiconductors
Expand production capacity of high thermal conductivity silicon nitride substrates that improve heat dissipation (indispensable for higher performance in power semiconductors) to meet increasing demand as EVs
become more widespread.

JGC Catalysts and Chemicals: Expansion of core business
ExampleFCC Catalysts for Chemical Refineries(FCC catalysts to improve propylene yield: PMC catalysts)•D evelopment of PMC catalysts supporting both conventional FCC and chemical FCC processes•O ffering high propylene yield in conjunction with additive for propylene conversion•M eeting refinery needs for production of petrochemical raw materials

Propylene yieldmeasured by JGC’s instruments

PMC catalysts(wt%)

280% UP

20High activity, high selectivity• Optimal active ingredients• Hydrogen transfer reaction control

140% UP

New silicon nitride factories (SN buildings)
Start of production in January 2021

Explore and develop next-generation business

10

Strategic segments

High C5-C10 olefin yield
Additives
0

Conventional
FCC

Conventional
FCC+
PMC catalyst / additive*1 STI: Shallow trench isolation*2 ILD: Inter-layer dielectrics

Chemical FCC process+
PMC catalyst / additive

Business strategies

Catalysts,
fine chemicals•C atalysts for carbon recycling, chemical recycling•M aterials for high-speed communications(balloon silica low dielectric constant materials, high dielectric constant nanomaterials)•F rom antibacterial and dental materials to materials used in the life sciences segment(such as agents and sustained release materials)

Fine ceramics•A ll-solid-state battery / Li recovery electrolytes, CMC*3 for engineering ceramic parts• OCP*4 for bone regeneration

High propylene (C3 olefin) yield*3 CMC: Ceramic matrix composites*4 OCP: Octacalcium phosphate

41

JGC Report 2021

JGC Report 2021

42

CHAPTER 02 Toward the Third Transformation

Medium-Term Business Plan Key Strategy

Establishment of future engines of growth

The third key BSP 2025 strategy involves establishing new business as engines for future growth. Among the businessareas defined in the 2040 Vision, the following are especially promising in this regard.

Areas viewed as future growth engines
Business areas

Energy transition•C arbon management•O ffshore wind power•H ydrogen / fuel ammonia•S mall modular reactors (SMRs)•S mart O&M•S mart hospitals•S mart factories•D igital healthcare

Example* Key focus areas in boldBusiness areas

Growth engines

High-performance
functional materials•C atalysts for carbon recycling, chemical recycling•B one regeneration materials / OCP, etc.

Circular economy•C hemical recycling of plastic and fiber waste•S ustainable aviation fuel (SAF)

Industrial & urban
infrastructure•W ater treatment• Railways

The JGC Group is participating in a pilot project in Saudi Arabia
aimed at establishing a “blue” ammonia supply network to Japan, as
promoted by the Institute of Energy Economics of Japan and Saudi
Aramco, to promote wider adoption. For “green” ammonia, the JGCGroup and Japan’s National Institute of Advanced Industrial Scienceand Technology (AIST) collaboration successfully produced hydrogenfrom solar-powered water electrolysis, synthesized ammonia at low
temperature and pressure, and generated 47 kW from an ammonia
Ammonia synthesis pilot project facility
gas turbine in a world-first demonstration of a value chain. This early
involvement in the market is valuable preparation not only for EPC but
also licensing. Widespread adoption of ammonia as an energy carrier will also require larger production­facilities. More recently, as part of a Green Innovation Fund project of Japan’s New Energy and Industrial
Technology Development Organization (NEDO), a pilot chemical plant jointly operated with Asahi Kasei Corp.
has begun synthesizing “green” ammonia and other chemicals using a large-scale hydrogen production
system. Efforts toward commercial applications on this large scale are accelerating.

Toward the Third Transformation

Healthcare &life sciences

Growth engines

Hydrogen / fuel ammonia

Recycling of plastic and fiber wasteOperations established in these new areas will be developed into profitable future pillars of business. The business will
be expanded to a scale of ¥50 billion in sales by fiscal 2025. Our stance on engaging in segments of particular inter-

Exampleest—offshore wind power, hydrogen / fuel ammonia, and chemical recycling of plastic and fiber waste—is as follows.

Vision in five years
Business model

Offshorewind powerAwarded domestic offshore wind power EPC projects, becoming a leading company in this sector. Target sales of ¥30 billion
in fiscal 2025. Medium to long term: Venture into more technically challenging floating facilities.

EPC
O&M
Business participation

In plastic recycling, the JGC Group has concluded anagreement with Ebara Environmental Plant Co. Ltd.,Ube Industries Ltd., and Showa Denko K.K. for sublicensing of the Ebara Ube Process (EUP) license. The
agreement forms the basis for accelerated efforts topromote plastic waste recycling. In fiber waste recycling, we have concluded a joint agreement with
ITOCHU Corporation and Teijin Limited on licensing oftechnology for chemical recycling of polyester fromdiscarded polyester fiber products. We will be looking
into licensing chemical recycling technology in Japanand overseas, as well as establishing cost-effective
chemical recycling systems.

Gasification facility using EUP (Showa Denko Kawasaki Plant)

EPC“Blue” hydrogen /fuel ammonia

Acquired relevant technologies and participated in constructionof “blue” hydrogen / fuel ammonia value chains.
Participate in “green” hydrogen / fuel ammonia toward 2040.

Licensing

EPC

Chemicalrecycling

Attained standing as technology licensor and operator in thissegment, formed new markets around the world.
Achieve widespread adoption and commercialization by 2025.

Licensing
Consulting
Business participation

43

JGC Report 2021

Sustainable aviation fuelConsulting
Business participation

ExampleAlso under review by the JGC Group is theestablishment of a domestic value chain forCollection
Production
Distribution
Use
next-generation sustainable aviation fuel(SAF) made from used cooking oil. A joint
Development andCollection
Business
Site / utility supply,
Transport anddemonstration ofof usedmanagement,
plant operation,
proposal with Revo International Inc. andsupply of SAF
a smart IT systemcooking
EPC
SAF mixing
for collectionoilCosmo Oil Co. Ltd. on establishing a supply
Revo
Cosmo
Cosmo
International
Odakyu Electricchain model for bio-jet fuel production from
Oil
Oil
Railway
domestic used cooking oil was selected in a
NEDO public call for proposals. The projectis intended to develop and demonstrate a smart IT system for collecting used cooking oil, with Odakyu
Electric Railway Co. Ltd., contracted by JGC Holdings. It will further accelerate business development toward
the establishment of an SAF supply chain in the future.

JGC Report 2021

44

03
CHAPTER

Reinforcing
Management Mainstays
Reinforcing management resources is essential in keeping theReinforcing Management Mainstays

unmatched value-creation mechanism that they support working
smoothly, and in making the JGC Group more valuable than ever.
This chapter describes the human and intellectual capital andcloser collaboration with business partners that drives value creation, as well as how we are addressing climate change, which we
recognize is intrinsically linked to sustainable growth.

Driving Force for Value Creation
P.47

Human Resources

P.51

Technical Expertise

P.53

Project Risk Management Capabilities

P.55

Business Partners

To Achieve Sustainable Growth45

JGC Report 2021

P.58

Occupational Health and Safety

P.59

Addressing Climate Change

JGC Report 2021

46

CHAPTER 03 Reinforcing Management Mainstays

Driving Force for Value Creation

Human Resources

Securing talented people
To build a framework for continuous innovation toward the 2040 Vision, we will be uncovering current shortcomings relative to our envisioned human resource portfolio and then conducting strategic recruitment, training, and realignment as we

Basic stance

expand human resources with diverse expertise, such as digital technologies, business development, and management.

Human resources drives the JGC Group growth as our most important management resource in total engineering business,functional materials manufacturing business, and other all operations. To diversify business areas and models (as targeted inContinuous human resource development

the 2040 Vision), we must make current business more sustainable and transform into an innovative group of engineers,

Human resource development by the JGC Group consists of on-the-job training (including on-site training and job rota-

creating and pioneering new technology and business. Ongoing measures to this end include expansion of personneltion), a variety of off-the-job training, and support in self-improvement for members acquiring certification or language

development and administration, with supportive work environments as another commitment. As for new initiatives,

skills. These programs cultivate human resources with high technical proficiency and expertise, a willingness to collabo-

reforming organizational and personnel systems will encourage a corporate culture of individual autonomy and diligence,

rate with others of diverse backgrounds, and leadership skills.

as we aspire to be an organization that continues to develop current and new business to remain valuable in society.

Starting in fiscal 2021, we will also be phasing in the following human resource development measures and programs
to promote, maintain, and firmly establish each member’s challenge on the path to the realization of 2040 Vision.

Organization envisioned• An organization that continues to address social issues in a state of flux
­autonomous initiative
The dynamism sought in human resources

Demonstrating autonomy, taking action
as professionals intheir field

Flexibility,
adaptability

Awareness of newchallenges

Adapting to respondflexibly to externalchanges

Constantly finding or
setting new challenges

Leadership

Co-creation withdiverse global stakeholders, acting on anunderstanding of socialand client needs

Acting on a sense ofownership to overcome difficulties andtake the lead in solving problems andimplementing solutions in society

This dynamism equips all JGC Group members to take

Creating
rewarding work
environments

on challenges in working toward our Group vision. Other
valued traits are advanced technical capabilities and arange of abilities including flexibility, awareness of newchallenges, and collaborative skills. To ensure that ourmembers embody these ideals as we pursue higher corporate value, we are building a complete system, fromsecuring talented people to developing human resources
to providing work environments that are rewarding.

47

JGC Report 2021

Securing
talented people

Continuous
human resource
development

Process of confronting and persisting in challenges

Collaborative skills

Encouraging members to
confront challenges

Introduce measures and programs to create an environment encouraging members to
confront challenges, as by closely and thoroughly aligning career plans with the Groupvision, supporting ownership of challenges, and expanding member discretion overwork and careers

Persisting in challenges

Introduce evaluation and remuneration systems that help each member feel a sense of job
satisfaction and growth while enabling accurate goal-setting and assessment that allows tocheck the stage of their growth

Fostering a culture thattakes on challenges

Develop measures to enhance manager–employee communication, which is central in
actually confronting challenges; ensure opportunities and time for this communication

Reinforcing Management Mainstays

Advanced
technical capabilities,
expertise

Essential measures and programs• An organization that repeats cycles of developing current and new business through a culture of constant

Establish
Appreciate
Act
Empathize
UnderstandMembers understand the
JGC Group vision andimportance of taking onthese challenges

Members show initiativein taking on challenges

Members can appreciate
results / feedback from
efforts and sense thebenefits, such as growth

A corporate culture isestablished where eachmember autonomously
confronts challenges

Members share the JGCGroup vision or recognize how it is personallyvaluable, and have asense of ownership

Encouraging members to
confront challenges

Persisting in challenges

Fostering a culturethat takes onchallenges

JGC Report 2021

48

CHAPTER 03 Reinforcing Management Mainstays

Driving Force for Value Creation

ParallelTechnologies

ParallelTechnologies

Human Resources
Creating rewarding work environments
Sustainable growth is driven by our employees. The Group is committed to motivating, healthy work environments where
engaged members can make the most of their abilities and offer their best performance.

 romoting employment of people with disabilities:P
Establishment of JGC Parallel Technologies CorporationJGC Parallel Technologies Corporation was established in February 2021 to rein-

Measures respecting diversity: Women, people with disabilities, seniors, global personnel, and others
Fair personnel management that emphasizes human rights is fundamental to JGC Group. This fairness is reflected inrecruitment practices and personnel systems. Diversity and inclusion are also promoted from a belief that respecting
diverse lifestyles, motivating all employees, and fostering workplaces where everyone can reach their full potential asforce and stabilize internal employment of individuals with disabilities. The company
developed a personnel system which make it easier for people with disabilities towork, and mainly engaged in IT operational support, such as development, operation, maintenance, and administration of Group information systems.

dynamic professionals is vital to creating a broad range of value and driving sustainable growth.
Behind the company name JGC Parallel Technologies
System and policies for accomplishing diversity

Corporation lies our wish to help build a world in which

Women

People with disabilities

Seniors

Global human resources

The JGC Group has created a
supportive environment, forexample, through an expansion of
its family care system

The JGC Group strives to strictly
observe the employment ratio
designated by the Act for Promotionof Employment of Persons with
Disabilities and provides appropriate workplace environments

By raising the retirement age to65, we support the work of seniors
on the front lines and promote theinternal transfer of expertise

Promotion of recruitment andtraining of multicultural humanresources able to work globally

MessagefromManagement

those with and without disabilities can work as equals
and apply their skills knowing that they are valuable members of society. Together with Vice President Awatari, who isalso a para-athlete, we are offering a fresh take on disabled employment
and enhancing the Group’s corporate value.
From left: 
Jun Narikawa, Representative Director and President
Kenta Awatani, Senior Executive Vice President

Jun Narikawa, Representative Director and President

Promotion of women’s careers
A fulfilling work–life balance is the goal of the family care system. Other expanded internal systems include short- andlonger-term nursing care, up to two days off per month for childcare leave, and shorter working hours. Measures forthrough talks with female employees and other planning.

• Home leave for those outside of Japan
Quarterly home leave offers nearly two weeks of vacation to employees assigned to overseas environments different fromJapan. Supporting employee health and work–life balance, the system in place helps these members take on their over-

Family care system
Pre and postnatal leave
Six weeks before childbirth,eight weeks afterChildbirth

Ample internal systems
Reinforcing Management Mainstays

more supportive work environments and opportunities for managerial roles for female employees have been taken

Childcare leave

Shorter working hours for childcare

Until children reach the age of two

Until children finish elementary schoolChildcare

Age 1

Age 2

Age 3

1st gradeseas duties refreshed in body and mind.

6th grade

Available reduction in working hours until children
reach the age of three: 1–3 hours
Available reduction when children are between three
years old and sixth-grade age: 1–2 hours• Rapport among younger employees
Also in place is a rapport system that builds interpersonal networks beyond
divisional and corporate boundaries and cultivates diverse perspectives. The
rapport system complements on-the-job training by division supervisors andinstructors. Younger members of JGC Holdings, JGC, and JGC Japan are• Welcome Back systemgrouped under senior employees and supported in a variety of activities that

This program welcomes back employees who rejoin us within three years of resigning to move and live at least a year

build mutual relationships of trust.

with a spouse who was transferred or stationed abroad.
• Number and ratio of women in managerial positions*Fiscal 2019
Number of female
managers

Fiscal 2020

• Year-round business casual
Business casual attire is allowed at JGC Holdings, JGC Corporation, and JGC

1,182

1,221

Ratio of female managers
(%)

26

30

Number of total managers

2.2

2.5

Japan. This policy is aimed at stimulating creativity and more flexible thinking.
It is also intended to make workplaces more comfortable.

* Applies to employees of JGC Holdings, JGC, and JGC Japan, after adoption of aholding company structure on October 1, 201949

JGC Report 2021

JGC Report 2021

50

CHAPTER 03 Reinforcing Management Mainstays

Driving Force for Value Creation

Technical Expertise

Passing down technical expertise
Advanced technologies of many kinds have been built up by the JGC Group over decades, and we actively pass down

Basic stancethis expertise within the Group. Departmental training programs teach members about elemental technologies, and as aTechnical expertise has been a key asset from the start, as the JGC Group grew with a focus on technologies. Thisestablishing mechanisms for all members to gain proficiency in many technologies.

Group known for engineering that optimally integrates these technologies, we also focus on providing opportunities andexpertise will remain fundamental in creating value as we expand into future business areas. Not only the wide-ranging
basic and elemental technologies, we excel at engineering technologies that create new value from optimal integration of

Mechanisms for passing down technical expertisean array of those basic and elemental technologies. Both kinds of technologies are steadily built up and passed down as
we actively acquire emerging technologies that promise to benefit society in new ways.

Main group-wide initiatives
Study sessions, practical exercises, roundtables

Wide-ranging technologies of
the JGC Group
Total engineering business
JGC engineers excel at chemical, civil, structural, mechanical,
electrical, instrumentation and control, safety, information,
and all other engineering disciplines supported by theseelemental technologies. Identifying and optimally integrating
diverse technologies enables plant and infrastructure facilities of all kinds in industries including oil & gas, renewable

as needed
Corporate Lessons Learned (CLL) activities

Corporate affairs / other

Project management

1,146 people

Information management / Cost
engineering / Quality control /Legal, contracts, accounting,and taxation / Project accounting

Marketing / sales /new business

1,701 people

175 people

Process / HSE / Piping / Static
equipment / Packaged equipment / Furnace / Rotating
equipment / Electrical /Instrumentation and control /Civil / Architecture / Informationand communication technology /Analysis and technical support

2,124 people
Procurement335 people

shared; through active internal development, best practices are sought in future projects
Technical development briefings

Engineering

Construction /commissioning

To avoid recurrent problems in project execution, lessons learned from projects are chronicled and

3,540 people

Regular briefings are held to share opinions and introduce technologies under development by teams
and departments
Passing down expertise
Reinforcing Management Mainstays

energy, and healthcare & life sciences.

A variety of study sessions, practical exercises, and roundtables are held by chief engineers and experts

Human resources with broad EPC technicalcapabilities and expertise

Learning platform for all employees
JGC University

Videos of past talks and study session materials are archived on the corpo-

Partial breakdown of certified members
Professional Engineer (Japan)

73

Professional Engineer

56

Project Management Professional

66

First-Class Welding Engineer

23First-Class Architect

49

First-Class Electrical Chief Engineer

2rate intranet. Talks by outside instructors are also available. This provides
convenient access to a variety of information.

Promoting acquisition and commercialization of new technologies
To promote technical development and com-

Mechanisms for exploring and commercializing new technologies

mercialization in business areas that the

Functional materials manufacturing businessWe produce materials that are fundamental to industry and society at large, thanks to unique technologies – focused on nano-Group is exploring for medium- to long-term

technologies for catalysts and fine chemicals, and on ceramics production and processing technologies for fine ceramics.

growth, a new framework focused on the

JGC Holdings Top management leaders
ReportTechnology Commercialization Council formed
the Technology Commercialization Officer
Nanoparticle Preparation
Technology
Technology which preparesnanomaterials

Technology Commercialization Council• Operating company leaders• TCO

in April 2021 is being established. Headed by

Four nanotechnologies used in catalysts and fine chemicals
Nanoparticle Aliginment
Control Technology

Nano Pore Structure
Control Technology

Macro Structure Control
Technology

Technology which aligns nanoparticles in single / multiple
layers or compositions

Technology which can control
the pore distribution to withina narrow margin

Technology which can control
the macro structure to optimizing shape for usage(TCO), the Council works with leaders of each
operating company to develop growth strategies and plans, identify new technologies,
collaborate internally and externally, andReport / deliberate /monitorReport / deliberate /monitorTechnology Development Committee

JGC Holdings

Commercialization Committee

JGC

JGC Japan

pursue commercialization to drive exploratory
activities of the Group as a whole.

51

JGC Report 2021

JGC Report 2021

52

CHAPTER 03 Reinforcing Management Mainstays

Driving Force for Value Creation

Project Risk Management Capabilities

Cultivating project management staff
The quality and number of PMs is one of the most important elements in assessing an engineering firm’s capability, andthe JGC Group works on PM training in an organized fashion that also involves company management.

Basic stance

What is a project manager (PM)?

The diminishing profits of individual projects, along with the increasing scale of projects, could have a significant impact

Utilizing project management techniques and tools in cooperation with internal and external partners to protect estab-on the profitability of the entire company.

lished delivery times, budgets, and quality, secure prots, complete a project, and ensure the client’s satisfaction are the

Therefore, at the JGC Group we have long fostered a project implementation culture that holds that large-scale
projects overseas represent an aggregation of many risks, an appropriate response to which is the essence of project
management. With this understanding, all staff involved in a project, not just project and company management, always

ultimate tasks of a PM.
A PM is required to set short-, medium-, and long-term strategies for executing a project and to participate in all
project phases ranging from design to procurement, construction, and commissioning.

respond to risks based on a high risk sensitivity in all EPC functions and phases, and the Group also makes systematic

Required knowledge and abilities

efforts to train project managers, an essential element of project risk management.

• Comprehensive knowledge of respective technical and commercial areas,
management skills

Project risk areas
Technical Risks

Contract Terms and Other
Consequent Risks

Project Implementation Risks

Required assets•L eadership, coordination, and negotiation skills•S trength of character and stress resistance• Ability to set a master schedule and manning plan•B
 road horizon and decision-making abilities•A bility to grasp cost conditions•L ogicality, planning, and scheduling abilities•A bility to establish an outline of equipment composition/scale, costs, work
processes, and man-hours based on plant capability requirements, and to
explain this outline internally and externally

Risks that must be grasped from the perspective oftechnical specifications and scope of work

Risks that must be understood from the perspective ofproject implementation

Risks that must be grasped from the perspective ofcontract terms and project backgrounds

E.g., disagreement with design requirements, new processes

E.g., securing of internal, vendor, andsubcontractor resources

Project manager training system

The project team and engineering sections cooperate tolead responses to these risks.

The project team and project manager lead responses tothese risks.

E.g., exchange rates, taxations, politicalinstability, excessive requirements ofperformance, and delivery guarantee
The project manager leads the response to these risks incooperation with company management.

why the JGC Group has created a human resources training plan that goes beyond the framework of company divisions

In order to cultivate outstanding PMs, it is important for them to undergo diverse experiences from a young age. That is

Reinforcing Management Mainstays

and departments, based on a human resources vision looking toward the future. In order to prevent specific divisions
from holding back outstanding personnel and obstructing variation in their experiences, the talent and organization

Risk management flow

development department serves as an office that monitors the status of PM candidates and manages them from a
medium- to long-term perspective to enable them to accumulate experience.
Risk response categories

Qualitative and quantitative risk assessment
Risk profiling

Project manager career path

Prediction and identification of risk areas
Elimination

Sharing

Grading of identified risk areas byevaluating impacts if risks are actualized

Example: Changing contract terms

Example: Founding of a consortium

Identification of risk areas basedon the above risk area categories

Avoidance

Retainment(conversion into costs)

Example: Preventing risks from
actualizing through active responses

Example: Insurance and appropriationof contingency funds

Entering the Company–30s
Job Rotation

JV organization

Project

Decision on responses to risk areas

External experience and training

Overseas subsidiaries

Impact on company performanceif risks are actualized

Responses to risks

Holding company
top management

C
A

Operating companies’ management
Sales, legal, andfinancial divisions

company management, regularly moni-

40s–50s

PM insmall- andmedium-scale
projects

Assistant toPM inlarge-scale
project

PM inlarge-scale
projects

Corporate dispatching
Costestimationand planning

Internal and external
training programs

PM in projectof overseas
subsidiaries

tor the state of the project manager andD

project team’s responses to risks.
Project manager
Project teamConstant

JGC Report 2021

Designoperating companies’ management andconnected divisions, as well as holding

The JGC Group implements anPorganized response to risks based on
Monitoring frequency

53

In response to the grading of risk areas,

Construction
management

30s–40sMonthly

Quarterly

the Plan, Do, Check, Act cycle.

Creation and implementation of a human resources training plan that goes beyond the framework of company
divisions and departments, based on a human resources vision looking toward the future
Holding company top management

Operating companies’ management

Project Staff Administration Department

Group talent and organization development department (office)JGC Report 2021

54

CHAPTER 03 Reinforcing Management Mainstays

Driving Force for Value Creation

Business Partners

Cultivating new partnerships
At a faster pace than before, the JGC Group is cultivating business partnerships in pursuit of business area expansion
and business model diversification under the 2040 Vision. A focus is creating new social value with new partners byapplying project management capabilities honed as a prime contractor coordinating an array of stakeholders in complex

Basic stanceplant construction. The JGC Mirai Innovation Fund, a corporate venture capital (CVC) fund, was established in April 2021

Collaboration with a variety of partner companies around the world is essential in our business. As a partner in creating
value, we prize the global supply chains we have forged. Maintaining and strengthening these relationships contributeswith independent venture capital firm Global Brain Corporation to create new business and customer value by funding
domestic and overseas start-ups with innovative technologies and business models.

to mutual competitiveness and growth. Beyond existing ties, the JGC Group recognizes that cultivating new partners
and clients and building collaborative frameworks will also be essential in pursuing business area expansion and­business model diversification as described in the 2040 Vision.
ExpertiseTechnology
Commercialization ofenvironmental technologies

JGC Group business partners
External partners
Government, municipalities
Financial support in technical development, joint development, etc.

Trading companies
Marketing support, information
gathering, etc.

TalentJGC Group

Advances in EPC business

Financial institutions
Project implementation,
financing, etc.

Creation of new businessResearch
funding

Software companies
Streamlining of EPC, etc.

Consulting companies
Economic assessments, etc.

TalentFunding

Insurance companies
Insurance for risk hedging, etc.

Clients
National oil companies, oilmajors, etc.

Domestic and overseas
EPC contractors
Joint venture partners, etc.

Examples of collaboration with new business partners
ThemeEngineering design
subsidiaries
Engineering work and project
implementation support

Transportation companies
Equipment and materials transportation
Universities,
research institutes
Joint technicaldevelopment

Suppliers
Equipment
manufacturing,materials supply

Other domestic andforeign companies
Joint technical development
and commercialization, etc.

Maximizing value from partnerships
Supporting our vendors with technical assistance
The JGC Group actively promotes domestic procurement
where plants are built. When ordering equipment that is

expertise and facilities. Knowing that these close ties with
suppliers are an asset, we take the initiative in providing
technical assistance to vendors.
Training for welders

Human resources training programs in resource-rich countries

Overview

Environmental area
National Institute of Advanced
Industrial Science and Technology(AIST)

World’s first successful green (powered by renewables) ammonia synthesis andpower generation

Asahi Kasei Corporation

Green ammonia plant feasibility study and technical demonstration; part of a Green
Innovation Fund projectChemical recycling ofplastic waste

Ebara Environmental Plant Co., Ltd.,Ube Industries, Ltd., Showa Denko
K.K.

Establishing a supply chain for gasification chemical recycling of plastic waste using
the Ebara Ube Process (EUP)

Carbon separation, capture,and reuse

NGK Insulators, Ltd.

Development of technology for carbon separation and recovery using DDR-typezeolite membranes

Sustainable aviation fuel (SAF)

Revo International Inc.,
Cosmo Oil Co., Ltd.

Demonstration and establishment of a supply chain model for bio-jet fuel production from used cooking oil

Carbon capture and storage (CCS)

Pertamina, Bandung Institute ofTechnology, Electric Power
Development Co., Ltd. (J-Power)

Feasibility study in Gundih, Indonesia, for the first CCS demonstration project inSoutheast Asia

Polyester chemical recycling

Teijin Limited, ITOCHU Corporation

Establishment of licensing business for chemical recycling technology of waste
polyester products

Small modular reactors (SMRs)

NuScale Power, LLC

Establishment of EPC business for SMR plants outside of Japan

Structural monitoring

Dainichi Consultant Inc.

Collaboration in development, sales, and delivery for structural monitoring business

Overseas infrastructure

Nihon Suido Consultants Co., Ltd.

Business alliance in overseas water infrastructure

Fuel ammoniadifficult to manufacture, we may dispatch our engineers toprovide technical assistance tailored to local vendors’Partners

Infrastructure area

To build closer ties in countries with abundant resources, over the past few decades the Group has held various training

Digitalization area

programs for engineers and students of chemical engineering and similar disciplines. Many participants eventually con-DX in execution of EPC projects

MODS

Management Joint development of a digital construction system

tribute to domestic resource or industrial development, which has also led to business expansion in these areas.

3D printers

COBOD International A/S

Demonstration of 3D construction printers

JGC Report 2021

Reinforcing Management Mainstays

Subcontractors
Construction work

Licensors
Process licensing

55

Technology

JGC Report 2021

56

CHAPTER 03 Reinforcing Management Mainstays

CHAPTER 03 Reinforcing Management Mainstays

Driving Force for Value Creation

To Achieve Sustainable GrowthBusiness Partners

Occupational Health and Safety

Protecting the human rights of business partners
EPC business involves projects with partner companies of all kinds, such as vendors and subcontractors. As a prime
contractor, we recognize that a key duty of ours is to protect and manage the human rights of those working for our
subcontractors on our behalf. We are committed to protecting human rights, including those of our business partners,
by protecting the rights of those working across our supply chains and respecting their welfare.

Basic stanceIn accordance with Group policy on health and safety and basic HSSE* guidelines, and under the leadership of senior
management, the JGC Group is committed to preventing worksite and traffic accidents involving our own employees andthose of partner companies. These practices are also appreciated by clients, and the JGC Group will continue to maintain a rigorous approach to health and safety.

System for managing human rights protection
Potential subcontractors receive and are asked to understand the JGC Vendor and Contractor Expectations,which includes rules on respecting human rights. Rights
protection is also stipulated in contracts concluded withpartner companies, who are requested to understandand respect internationally recognized human rights. We
will also consider conducting human rights due diligencefor partner companies in the future.

* Health, safety, security, and environment

JGC Vendor andContractor Expectations
JGC believes the success of our business is dependent on the trust we earn from the society,our clients and shareholders. Performing our work with the highest ethical standards is a key
to earn trust.
JGC Group Code of Business Conduct sets forth the expectations for all JGC directors,
officers and employees to conduct business with the highest ethical and legal standards.
Recognizing that our Vendors and contractors play a critical role for us to realize ourphilosophy, we seek to work with vendors and contractors who share the same ethicalstandards with us.
This Vendor and Contractor Expectations is to define what we expect our vendors andcontractors and their employees to observe when working with us.

Compliance with Law

Membership in building responsibly
JGC Corporation is a board member of Building
Responsibly (BR), an organization of engineering andthat is committed to protecting workers’ rights andrespecting their welfare. BR promotes rights protection
for construction workers by establishing principles andguidelines that serve as international standards on theirwork environments, occupational health and safety conditions, and housing conditions.

Health, Safety andEnvironment

Vendors and contractors are expected toprovide safe and healthy workplaces fortheir employees, and prevent workrelated injury, ill health and environmental
pollution.

Information Security
JGC is entrusted with information fromour clients and licensors. Vendors andcontractors are expected to handle all
information provided by JGC with utmost
care considering that it contains information from such important business
partners of JGC and to protect andmaintain confidential information to not be
disclosed in public or any third parties
without consent of JGC.
Vendors and contractors are also expected to take necessary actions against

cyberattacks to mitigate risks and maintain the continuity of business operations
and Project execution.

Books and Records
Vendors and contractors are expected tomaintain accurate books and records andrecord all payment related to the work
done for JGC.

Anticorruption

JGC Group has a zero-tolerance
approach when it comes to bribery
and corruption. Therefore, ourvendors and contractors shall also
never offer, promise, authorize, pay
or accept any bribe, kickback,improper payment or anything of valuethat could be perceived as such to or fromanyone for any purpose. Anything ofvalue may include, money, gifts, entertainment, travel expenses, training
expenses, promises of future employment or shares or dividends of a company.

HSSE organization

Key health and safety matters are
discussed and decided at monthly
meetings of the JHD HSSE

JHD HSSE Committee(the highest authority to plan and coordinate HSSE matters for
the JGC Group as a whole)

Committee, a company-wide

JHD Quality Assurance, Safety& Environment Department

organization under the Presidentof JGC Holdings. Committee decisions are promptly implemented

JGC CorporationJGC Japan(Overseas Operating Company)(Domestic Operating Company)by the operating companies. An

Energy Solutions

auditing group appointed by thechairman audits health and safety
at primary domestic and overseas

Functional Materials
Manufacturing, others

Engineering Solutions Center

Facility Infrastructure Solutions

Reinforcing Management Mainstays

construction companies mainly in the oil & gas industry

Vendors and contractors shall comply
with all applicable laws and regulations,and work with highest ethical standards.

HSSE organization

construction sites and reports theresults to the Committee.

Overview of fiscal 2020 activities
In fiscal 2020, besides advising domestic and foreign construction sites on health and safety issues, the Committee
developed an internal exercise program to help employees and site workers stay healthy. Widespread adoption of the
program at these sites was sought as part of the Committee’s health-focused efforts. This commitment once again

Excerpt from “JGC Vendor and Contractor Expectations”
Overview of BR
Established: 2017
Board members: 13 companies

enabled the Group to maintain an outstanding safety record compared to global competitors.

Response to COVID-19
JGC Group measures to prevent infection have included adopting a combination ofcommuting and telecommuting at the Yokohama Head Office and, from July 2021,
workplace vaccination for all employees. Construction sites remain very careful about
preventing infection and ensuring safety for employees and other stakeholders alike.

Workplace vaccinations

57

JGC Report 2021

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58

CHAPTER 03 Reinforcing Management Mainstays

To Achieve Sustainable Growth

Addressing Climate Change
Scenario analysis
Scenario Item

Definition
Business Area

Basic stance
As we work toward a sustainable society, addressing climate change has become a global challenge. JGC Group has

scenario analysis in recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

STEPS

2040

Target(Stated Policies Scenario)

Analysis reference
data

Based on data from the International

LNG

Energy Agency’s (IEA) World Energy

Energytransition

Outlook 2020—

CirculareconomyPlastic waste
Chemical recycling—

Highperformance
functional
materials

Catalysts

Other

Consulting• Stated Policies Scenario (STEPS)• Sustainable Development Scenario (SDS)

Framework for governanceAnalysis of energy transition, circularAs with all other aspects of management, our response to climate change is under the jurisdiction of the JGC Group
Target of analysis

announced in May 2021 were established through Board discussions based in part on results of climate change scenario

economy, and high-performance functional
materials areas that are highly relevant toclimate change.

analysis and an assessment of risks and opportunities.

The JGC Group is working to reduce and prevent risks from climate change and other factors under a framework thatP. 77

Risk Management

Recognition of climate-related risks and opportunities
Main risks

Guided by our purpose of “Enhancing planetary health” and based in part on risk / opportunity and scenario analyses,
energy transition and circular economy are positioned as axes of climate-related business in the long-term management
vision and medium-term business plan.

Long-Term Management Vision

Metrics and targets
To assess the impact of Group business activities on climate change, we are monitoring Scope 1–3 GHG emissions ofIntroduction of global carbon pricing may lead to higher equipment and fuel costs, which may affect business costs in the future. We
also recognize that introduction of carbon taxes and stricter emission targets in various countries poses a risk of fewer contract
opportunities, from a decline in oil & gas projects.

Technology risks

Lower gasoline demand from the spread of electric and fuel cell vehicles poses a risk of fewer contract opportunities for plants in the
oil & gas industry. A similar risk is posed by the spread of decarbonized materials and a shift to renewable energy driven by the
spread of high-performance storage batteries.

Regulatory risks

Firms bidding on plant construction projects are likely to face stricter information disclosure requirements regarding their climatechange measures. This poses a risk of lost opportunities or unsuccessful bids, which may affect the corporate reputation.

Market risks

Lower plant demand in the oil & gas industry may result in fewer contract opportunities. An aversion in financial and capital markets
to business related to fossil fuels also poses a risk that projects may not be approved.

Policy and legal risks

Failure to maintain or build on our reputation as an enterprise with the technical expertise to contribute to climate change solutions
such as carbon reduction, renewable energy, and hydrogen applications may adversely affect the JGC Group in various ways, suchas contract opportunities, financing, or securing human resources.

Acute physical risks

More frequent extreme weather events such as heavy rain, storms, typhoons, and flooding attributed to climate change may physically damage materials, equipment, and JGC Group facilities, adversely affect employees, and delay procurement.

Chronic physical risks

Higher average temperatures may make longer construction periods more common, due to lower labor productivity at construction
sites in temperate and tropical regions. Another concern is increased costs for countermeasures and accident compensation, due
to higher occupational safety risks. There is also a risk of higher shipping costs from a lack of ports if sea levels rise in coastal areas.

the Group as a whole. Moreover, the medium-term business plan pledges net-zero Scope 1 and 2 GHG emissions by
2050 from Group business activities at our own sites. Recent Scope 1 and 2 CO2 emissions for the fiscal 2020 were132,546 tons, based on CDP reporting.

Targets in the commitment to carbon neutrality by 2050
TargetThe JGC Group has an extensive record in renewable energy plants such as solar and biomass power plants, which, as the international community shifts toward decarbonization, may increase contract opportunities. The JGC Group has also taken steps toexpand orders by establishing an organization dedicated to the promising segment of offshore wind power generation.
Oil & gas sector applications of CCS, for which the JGC Group has completed multiple projects in Japan and overseas, and CCUS,
for which joint development is underway, are expected to expand contract opportunities.

Net-Zero Initiatives

Scope 1+2
2050

Net-zero CO2 emissions

Scope 1+2

For Scope 1 and 2 reductions, adopt low-carbon / decarbonized practices, such as by reducing energy consumed in business activities, by using renewable energy, and by other means

2030

30% reduction in CO2 emissions per unit of production

Scope 3Main opportunities

Products and services

P. 31

Reinforcing Management Mainstays

New regulatory risks

Fine ceramics

Strategy

Risk management
includes the Group Risk Management Committee.

Power generation,
nuclear power,
new energy
Hydrogen / fuelammonia

Based on the following outlook scenarios
Scenarios

representative director and CEO. Moreover, the long-term management vision and medium-term business plan

SDS (Sustainable
Development Scenario)

Refineryidentified "societies in harmony with the environment" as a material issue. Besides taking climate action through environmentally conscious business activities, the JGC Group studies and formulates business strategies accounting for

Segment

Business Growth Potential(scale of 1–6)

Reduction as determined inconsultation with stakeholders

For Scope 3 reductions, leverage technologies cultivated by the JGC Group to provide energy transition solutions to stakeholders• Reduction of plant energy consumption through smart O&M• CCS technology• Construction of environmentally conscious facilities such as solar power, biomass power, offshore wind power, and SMRs
• Hydrogen / fuel ammonia operations• Chemical recycling (plastic and fiber waste), SAF, etc.
CDP Logo guidelines for partners

CDP logo
The CDP logo is available :When CDP works in partnership with an organization for the duration of the partnership or a particular project;
to indicate that a company publicly takes part in the CDP process as a signatory or reporting organization; andwhen an organization buys a service from us (eg reporter services, supply chain or investor membership).

The logo must never be recreated. The full color ver
is supplied for use on coloured backgrounds. The p
strapline ʻDisclosure Insight Actionʼ
Please use this version wherever possible.

Climate action initiatives

The JGC Group is engaged in technological development and other initiatives in hydrogen, ammonia, and SMRs applications aimed
at a decarbonized society. More contract opportunities here can be expected in the future.

This fiscal year marked the start of our participation in surveys conducted by the global

Greater worldwide demand for a circular economy can be expected to drive demand for technologies under development by JGCGroup, which include chemical recycling of plastic waste, recycling of fiber waste, and SAF.

mendations of the Task Force on Climate Change-related Financial Disclosures (TCFD).

environmental impact nonprofit CDP. The JGC Group has also declared support for recomTo ensure the CDP logo maintains impact, especially in busy graphic environments, a deﬁned clear space must be
maintained around it. To achieve this please leave a minimum space around the logo that is equivalent to the smallest
triangle. See diagram below .

Always ensure the logo is prominently positioned
do not apply it at a width less than 25mm as indic

DISCLOSURE INSIGHT ACTION

25mm

DISCLOSURE INSIGHT ACTION59

JGC Report 2021

JGC Report 2021

60

04
CHAPTER

Enhancement ofCorporate Governance
Sustainable growth in corporate value rests on a constant commitment to more robust corporate governance and risk management.
The JGC Group’s corporate governance and risk management systems are introduced in this chapter. Recognizing the importance ofdiverse opinions in management, we also present the thoughts of
independent outside directors on our corporate governance, business activities in general, and future considerations regarding
management based on the long-term management vision.

JGC Report 2021

Messages from Outside Directors

P.66

Corporate Governance

P.74

Quality Management System

P.75

Compliance

P.77

Risk Management

P.79

Management Structure

P.80

Dialogue with Shareholders and Investors

Enhancement of Corporate Governance

61

P.63

JGC Report 2021

62

CHAPTER 04

Enhancement of Corporate Governance

Messages from Outside Directors(Outside director profiles are provided on p.70.)

Toward Steady Progress in the Third Transformation

Shigeru Endo
Outside Director

Reform Motivated by a Sense of Urgency

viewed as an investment risk. Now that the purpose ofinclude the 2040 Vision. For me, personally, it was

the JGC Group has been defined as “Enhancing plan-uniquely dense and substantial, which made theetary health,” the Company is committed to helping

experience exciting.

solve social issues and intends to be carbon neutral by

This planning led to BSP 2025, but plans are only

2050. This social trend calls on companies to be bothmeaningful when enacted. It will be useless unless all in

economically and socially valuable. For the JGC Group,

the workplace share their thoughts until we’re all satis-

it poses a considerable challenge: how to generate

fied, and then routinely put into practice what we deem

profit while promoting ESG objectives.

necessary to attain it.

The Group’s current, third transformation is oriented
toward achieving a sustainable society. I view this as acontinuous transformation. As for implementation of theMasayuki Matsushima
Outside Director

As the Group focuses on implementing it, the results
may also diverge from the plan.

holding company structure, we have heard that ties
In fiscal 2020, the COVID-19 pandemic disturbed manywith Group companies are now even closer. Holding

BSP 2025, the medium-term business plan for fiscal

Neither can we deny the possibility of unexpected

aspects of society, industry, and everyday life around thecompany members are gradually adjusting to this new

2021 to fiscal 2025 announced in May, represents aenvironmental changes. Accordingly, I hope the planworld. Early in the year, my thoughts turned to employ-mindset, and I expect them to further refine decision-

landmark for the JGC Group.

evolves to become fuller and more practical, as it

ees, especially those outside of Japan. The JGC Groupmaking from a broad perspective. This is essentially a

To begin with, in tracing a path to the future, it is acomes to reflect practical suggestions and opinions

soon took necessary measures, acting on the informa-matter of governance, of building relationships between

forward-looking plan. Rather than being a projection of

from the workplace. There’s truth in the adage thattion available.

managers / executives and supervisors, and between

five years from now, it is part of a plan projected back-persistence pays off. From a medium-term perspective,

the holding company and Group companies.

ward from the 2040 Vision, our long-term management

though, sticking to bad old habits may be detrimental.

vision, in which it is positioned as the first phase andEspecially assuming that technological innovation will

described as five years of challenge.

keep growing exponentially, it’s no exaggeration to say

Meanwhile, we were busy formulating both thelong-term management vision and medium-term busi-

DX is also being promoted, as led by JGC Corporation.

ness plan: 2040 Vision and “Building a Sustainable

This is intended to boost productivity and efficiency, but

Planetary Infrastructure 2025 (BSP 2025).” Discussions

along with DX, work styles must also be addressed,

Second, although the JGC Group’s core oil & gas

were held on Group strengths, global expansion, thealong with facets of corporate culture and ethics.

EPC business will remain central for the time being, thechanges is vital. Moreover, it’s not necessarily pessimis-

Group has pledged to achieve carbon neutrality by

tic to have a sense of urgency. Leveraging a sense ofSDGs, environmental, social, and governance (ESG),

The fluidity of human resources in society has alsothat constant corporate adaptation to environmental

and other key topics. Group-wide involvement helped

led to serious thought on reforming the Group’s per-2050. To this end, the Group has made it clear thaturgency for the sake of reform is nothing short of a sign

maintain and improve overall cohesiveness. The 2040

sonnel system. Professionalism has been a key sales

during the BSP 2025 period, while focusing on energyof self-affirmation, showing that we will be clearing a

Vision and BSP 2025 from this work were created withpoint, but as progress is made in DX and technologies

transition, the Group will eventually shift from an over-way forward and aspiring to realize sustainable growth.

growth firmly in mind. Strategic investment was anotherbecome more advanced, human resource outsourcing

reliance on oil & gas to a multifaceted approach tofocus. I encourage the Group to do their utmost to

and reskilling will no doubt gain importance. Hopefully,

energy business that includes decarbonization of oil &reform motivated by urgency, which will leave a heritage

implement these plans.

this will produce a broad-minded, diverse workforce.

gas, clean energy, and other business.

of solid corporate value for future generations and con-

The Board of Directors has also been receiving IR /Looking ahead, I believe that in the next decade,And third, this medium-term business plan is notable

SR reports as needed, and the Nominating Committee

geopolitical dynamics in the international community

as the first since the Group adopted a holding company

and Remuneration Committee continue to expand theirwill be quite different from in the previous decade,structure. As an organizational shift, the transition hasreporting to the Board, which recently resolved towhich may affect Group business more than ever.

encouraged rapid decision-making in managing eachestablish a special subsidiary promoting employment ofConstant combat-readiness will be needed, so tobusiness unit, especially in growth strategies. And as apeople with disabilities.

speak. As a group and as individuals, there has nevertrial-and-error challenge, it has encouraged a balance ofSociety has recently been taking a harder look atbeen a better time to hone our ability to cope with rapid

globally optimal solutions in human and financial

the oil majors. In the situation emerging, failing to takechanges, read market trends, and sense risks, as weresource allocation and overall Group governance.

concrete steps toward decarbonization may itself bebuild resilience.

Planning therefore took longer than a year, if we

JGC Report 2021

Enhancement of Corporate Governance63

But at the same time, BSP 2025 is not set in stone,
and we can’t claim the plan covers all matters perfectly.

I encourage all in the Group to commit to corporate

tribute to global well-being.

JGC Report 2021

64

CHAPTER 04

Enhancement of Corporate Governance

CHAPTER 04

Enhancement of Corporate GovernanceCorporate Governance

Messages from Outside Directors

Expanding into New Segments through
Human Resources

Basic stance
The JGC Group remains aware that, in line with our purpose of “Enhancing planetary health,” sound governance is thefoundation for management in pursuit of higher medium- to long-term corporate value and sustained growth. We are
therefore strengthening our corporate governance, which we view as a priority material issue.

building a track record, acquiring new technologies,

roles are continuously reviewed, with Board effectiveness analyzed and assessed each year as we seek progresscially in new segments. Undeniably, these things willthrough steady improvement.

take time to improve profitability.
We may wonder what it will take to establish thesepromising new segments as hoped.
This answer is hardly original, but I think the key ishuman resources. Not in the sense of attracting an array

Kazuo Ueda
Outside Director

Our central mechanism for corporate governance is the Board of Directors. Its governance structures, functions, andconducting M&As, and engaging in partnerships, espe-

In shareholder and investor engagement, we take a proactive stance in highly transparent information disclosure, andviewpoints from this dialogue are applied to strengthen governance and management.
In regulatory compliance and other matters essential to appropriate corporate governance as well, our purpose andvalues call on each employee and officer to maintain high ethical standards in everything they do, so that the Group as awhole works to enhance medium- to long-term corporate value and achieve sustained growth.

of outstanding experts from outside the Company. I thinkit’s essential to have a framework that encourages members of the JGC Group to wield their skills in boldly
taking on new segments, a framework that inspires

On May 12, 2021, after more than a year of discussion,

innovation. We will probably see more cases where out-

the JGC Group announced its long-term management

side experts are brought in or entire companies are

vision and medium-term business plan, 2040 Visionacquired, but even then, human resource evaluation andand Building a Sustainable Planetary Infrastructurecompensation must suit the segment involved. The new

2025 (BSP 2025). This was greeted the next day by apersonnel system is a development that responds toless than ideal reaction in the market—a drop of ¥164

these points, although after adoption it will need to bein the share price of JGC Holdings Corporation, which

Outline of corporate governance system
JGC Holdings maintains a board of directors and audit

and enhance transparency toward this end, we haveand supervisory board. The JGC Group has adopted aappointed outside directors and outside Audit &holding company structure under which operating compa-

Supervisory Board members meeting the criteria for inde-nies pursue the Group’s core business.

pendent officers. Additionally, an executive officer system

Separating management from execution provides

has been introduced to ensure rapid, efficient managerial

greater clarity on roles and responsibilities of the holding

decision-making and execution. This is intended to maxi-

company and operating companies. The holding com-mize corporate value and ensure optimal allocation ofpany’s role is to formulate management policies and oversee

management resources for the Group as a whole whilerefined in various ways. Personally, I will keep these

the operating companies from a medium- to long-term

enhancing transparency of corporate management andslid more than 10% to ¥1,064 per share. The Nikkei

points in mind when contributing to new Group initiatives.

Group perspective. Operating companies apply Group

strengthening overall Group governance.

225 itself fell sharply that day, which certainly affected

It will take some time for the market to form an

management policies and strategies to respond flexibly

the share price, but even now, two months later, there

opinion, but because the general plan is more or lessand rapidly to market characteristics and seek further

are no clear signs that investors are reevaluating theunderstood, I am hopeful that even modest positive

business expansion. To reinforce management oversightplan more favorably.

developments may lead to a better assessment

Probably the main factor for the market’s reaction on

are as follows.

Outline of corporate governance system
Body

PurposeMeetings

Members

Head oforganization

than expected. Changes in stock prices generally take
into account forward-looking information. Here, the forecast for this fiscal year no doubt had a big impact.
On the other hand, when I read what various stakeholders thought about the 2040 Vision or BSP 2025,
they seemed to understand our vision, which is aimed
at improving profitability while reducing environmental
impact in the energy segment, further nurturing emerging business in functional materials areas, and ambi-

Board ofDirectors• Resolves key matters of business execution• Oversees directors’ executive actions• Deliberates on medium- to long-term strategies
and issues

Generally
monthly

Nine directors (including four outside directors)
Five auditors (including three outside auditors)(For fuller discussions, others also attend as needed,such as operating company officers, executive officers incharge of certain areas, and those in relevant divisions)

Chairman andCEO
Masayuki Sato

Audit &
Supervisory
Board• Discusses and resolves issues based on reports of
key auditing matters• Presents opinions based on the results to directors or
the Board of Directors as necessary

Generally
monthly

Five auditors (including three outside auditors)

Full-time Audit &Supervisory
Board member
Yasumasa Isetani

Nominating
andRemuneration
Committees• Deliberates on appointment and dismissal of officers,
remuneration, etc.

Group Steering
Committee• Reports on and discusses the direction that the Groupshould take as well as steering matters such as
management / business strategies for the Group as awhole and each operating company• Deliberates on holding company and Group­investment and lending projects

tious initiatives in new growth segments. Still, from themarket’s perspective, investors may not know at present how these strategies fit in future earnings forecasts.
In retrospect, the plan does include many references to65

JGC Report 2021

Group
Investment
and Loan
Committee
Accounting
Auditors

Annually(and asneeded)Chairman and CEO Masayuki Sato
President and COO Tadashi Ishizuka
Four outside directors*(Shigeru Endo, Masayuki Matsushima,
Kazuo Ueda, and Noriko Yao)

Enhancement of Corporate GovernanceMay 13 was a much lower fiscal 2021 earnings forecast

than expected.

Main elements of the corporate governance system

Chairman andCEO
Masayuki Sato

* In order to improve fairness and transparency, the majority of thecommittee consists of outside directors.

Generally
monthly

Chairman and CEO Masayuki Sato
President and COO Tadashi Ishizuka
Auditors (rotating)(Consists of members such as Group company officers
appointed by the chairperson)

Chairman andCEO
Masayuki Sato

Generally
monthlyStanding members: Eight directors, e­ xecutive officers,
and auditors of the h­ olding company and GroupNon-standing members: Two executive officers of theholding company may attend, depending on the agenda

Chairman andCEO
Masayuki Sato

• CPAs Takemitsu Nemoto, Atsushi Nagata, and Takashi Inoue of KPMG AZSA LLC audit JGC accounts.
• Auditing support is provided by 10 other CPAs and seven assistants.

JGC Report 2021

66

CHAPTER 04

Enhancement of Corporate GovernanceCorporate Governance

Board of directors

Corporate governance system

Board functions
The Board of Directors is responsible for decision-making on medium- to long-term Group strategies and issues, and it

General Meeting of Shareholders

provides oversight regarding business execution of Group companies. Board composition is intended to enable effective
and efficient execution of these functions.

Appoints / dismisses

AuditsBoard of Directors

Basic policy on board composition and diversity(five inside directors, four outside directors)

From the standpoint of further enhancing discussions on medium- to long-term Group strategies and issues and of

Deliberation,
reporting

Deliberation,
reporting

Nominating
Committee

Selects,
oversees

Remuneration
Committee

Deliberation,
reportingstrengthening oversight regarding business execution of Group companies, the board consists of the following members.
Appoints /dismisses

ReportingAppoints /dismisses

1knowledge and expertise in EPC operations, which is the primary Group business.
2

Group Steering
Committee

Deliberation,
reportingIndependent outside directors are appointed in order to incorporate outside perspectives in management,with the expectation that these directors will provide objective advice to the Board and fulfill oversight func-

Chairman andCEOtions from an independent viewpoint.

President and
COO

As a matter of policy respecting the importance of diverse perspectives, members are appointed not solely based onGroup Investment
and Loan
Committee
Group Risk
Management
Committee

Consists mainly of directors with broad experience in business markets and directors with a high level of

Audit &
Supervisory
Board

Other Departments

Internal Auditing
Department

professional experience and expertise but also on competence, regardless of nationality, race, or sex.
Accounting
Auditors

Collaborates

AuditsInternal auditing
Deliberation,
reporting

In June 2021, Ms. Noriko Yao was appointed as an outside director, part of the Group’s ongoing efforts to ensure
Board diversity.

Background of directors (five inside, four outside), etc.
Name and
position at JGC

Corporate administration,internal control

Outside director
Term asattendance at board
director
meetings in(in years)
fiscal 2020

Masayuki Sato11–

Tadashi Ishizuka

4

–

5

–

16

–

Newly
appointed–*

Chairman and CEOGroup Companies

Overseas EPC(energy, infrastructure)

Domestic EPC

Functional materials
manufacturing

Other

AuditsPresident and COO

Kiyotaka Terajima

Director, Senior Executive Vice
President, and CFO

Yutaka Yamazaki
Outside Director

Shoji Yamada

JGC Holdings’ Board of Directors determines the basic principles of the internal control system and revises them as necessary.

Shigeru Endo

8

Improvement status

14/14(100%)

Masayuki Matsushima

5

14/14
(100%)

2

13/14(92.8%)

Newly
appointed–*

1

The Internal Auditing Department monitors, evalu-

3

Management rules for Group companies have been

Director

Outside Director

ates, and improves the effectiveness of the internal

formulated and implemented to ensure efficient andKazuo Ueda

control systems of JGC Holdings and the JGC

appropriate operations across the Group

Noriko Yao

Outside Director

Outside Director

Group and conducts separate audits as necessary2

Director

and authority of each role, and clarify the system ofness execution

governance for JGC Holdings and are making steadyefforts to further solidify our corporate governance.

Term asauditor(in years)

Outside auditor attendance at
Audit & Supervisory Board
meetings in fiscal 2020

3

–

Newly
appointed–*

Masao Mori

10

24/24
(100%)

Koichi Ohno

7

24/24
(100%)

Norio Takamatsu

5

24/24
(100%)Name and position at JGCContent1

Implementation of all principles laid out in the
Corporate Governance CodeSince the implementation of the Tokyo Stock Exchange’s
consistently held discussions on appropriate corporate

Sales andmarketingHuman
resources

Finance andaccounting

Legal

Globalexperience

Background of Auditors (two inside, three outside), etc.

responsibilities in corporate management and busi-

Corporate Governance Code in June 2015, we haveTechnology* Appointed on June 29, 2021

Rules of Management Authority regulate the duties

Response to the
Corporate Governance Code

Projectmanagement

Enhancement of Corporate GovernanceImprovement status of internal control system

Background
Businessplanning andmanagement

2Disclosure according to all 11 general principles,
principles, and supplementary principles requiredby the Tokyo Stock Exchange

Yasumasa Isetani

Audit & Supervisory Board Member

Kazuyoshi Muto

Audit & Supervisory Board Member

Outside Audit & Supervisory Board Member

Outside Audit & Supervisory Board Member

Outside Audit & Supervisory Board Member

Background
Corporate management

Legal, finance, and accounting

Economics* Appointed on June 29, 2021

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68

CHAPTER 04

Enhancement of Corporate GovernanceCorporate GovernanceIntroduction of outside directors

Board effectiveness evaluation
Board effectiveness is analyzed and evaluated annually, efforts toward improvement are reviewed, and issues linked tofurther gains in effectiveness are discussed by the Board in pursuit of continuous improvement. Presented below are aThis section introduces JGC Holdings’ outside directors, who serve an important role on its Board of Directors,
Nominating Committee, Remuneration Committee, etc., as well as their resumes and reasons for their appointment.

summary of the process of evaluating Board effectiveness in fiscal 2020, the survey, results, and future issues toNameaddress, and main past efforts to enhance efficacy.

Process• Directors and auditors complete a survey conducted by the Board secretariat• Progress is reviewed, including progress in areas for improvement when effectiveness was last evaluated• Opinions are collected on current Board effectiveness and ways to enhance Board effectiveness• The Board reviews the results, focusing on key future issues

Content of survey• Checks compliance with principles of Section 4, “Responsibilities of the Board,” of the Corporate Governance Code,including progress since the previous evaluation• Main evaluation items: Board composition, management, discussion, oversight functions, dialogue with shareholders,own involvement, and management of Nominating and Remuneration committees• Solicits open-ended responses on Board performance and areas for improvement

Shigeru Endo
Outside Director

Evaluation results
An internal control system for appropriate management and supervision of group companies was established and has
been in operation since adoption of the holding company structure. Moreover, through formulation of the Group’s
long-term management vision and medium-term business plan (2040 Vision and Building a Sustainable Planetary
Infrastructure 2025 (BSP 2025), respectively), active discussions have been held on strategies and issues relevant toenhancing corporate value and achieving sustainable growth of the JGC Group over the medium to long term. Thus, wehave confirmed that Board functions in the holding company are greatly improved, as is overall board effectiveness,compared to the previous fiscal year.

Evaluation results
and future issues
to address

IssuesIssues to address for greater effectiveness, response policy• Implementing measures established in the medium-term business plan, Building a Sustainable Planetary
Infrastructure 2025 (BSP 2025)• DX and SDGs initiatives• Creating opportunities for free discussion and exchange of opinions beyond agenda items• Reporting to the Board, as at discussions of the Nominating and Remuneration committees

Masayuki Matsushima• Enhance board discussions and supervision on the issues listed above

Main efforts to date for improving board effectivenessDirector training*

From fiscal 2020

• Expanded Board discussions, especially on key
project status and othermatters in the context
of adopting a holding company structure• Reduced inside directors by three
and increased outside directors by
one following the June 2019 generalshareholders’ meeting, to introduce
a system of nine directors (including
three outside directors)•R eorganized various committees
under the holding company structure and revised matters discussed
by the Board•R evised Board rules and internal
decision-making rules to makeagenda item criteria more fitting forthe holding company structure•H eld multiple Board meetings to
discuss the establishment of the2040 Vision and medium-termbusiness plan, BSP 2025

• Company seminars (D&O
insurance, 2018 revisions to
the Corporate GovernanceCode)• Various external seminars•C ompany seminars (Board of theholding company)•C ompany seminars describing
business of Group operatingcompanies involved in manufacturing and consulting•O n-site plant and office visits byoutside directors and auditors toworkplaces of the manufacturing
operating company•E xternal seminars (workshops on“ambidextrous” management led
by a business school professor)*P olicy on director training: JGC Holdings bears costs for and provides opportunities and information for directors and auditors to acquire the knowledge and competence to fulfill
their roles and responsibilities.

69

JGC Report 2021

Apr. 1974 Joined the Ministry of Foreign Affairs
Apr. 2001	Director-General, Middle Eastern and African Affairs Bureau
Feb. 2002	Director-General, Consular and Migration Affairs Department
Aug. 2003	Ambassador to The Permanent Mission of Japan to the United
Nations and Other International Organizations in Geneva and Consul
General, Consulate General of Japan in Geneva
Mar. 2007	Ambassador Extraordinary and Plenipotentiary to the Republic
of Tunisia
Jul. 2009	Ambassador Extraordinary and Plenipotentiary to Saudi Arabia
Oct. 2012 Retired from the Ministry of Foreign Affairs
Jun. 2013 Outside Director, former JGC CORPORATION
Jun. 2013 Outside Director, IINO KAIUN KAISHA, LTD. (current post)
Apr. 2014 Special Assistant to the Minister for Foreign Affairs (current post)
Jun. 2018 Outside Director, ADEKA Corporation (current post)
Oct. 2019 Outside Director, JGC HOLDINGS CORPORATION (current post)

Mr. Shigeru Endo does not have direct
experience in corporate management,
but he has served as the ambassador
extraordinary and plenipotentiary to
Saudi Arabia and Tunisia and possesses
extensive experience and knowledge ofthe Group’s principal business market.
Appointment as outside director reflects
the Group’s determination that thisexperience and knowledge will beapplied in appropriately performing theduties of providing accurate advice andopinions on management and businessand fulfilling a supervisory role from an
independent standpoint, which willcontribute to sustainable enhancementof corporate value.

Apr. 1968 Joined Bank of Japan
Jun. 1998 Executive Director, in charge of the Bank’s International Affairs
Jun. 2002 Senior Advisor, the Boston Consulting GroupFeb. 2005 Senior Executive Advisor, Credit Suisse Securities (Japan) Limited
Jun. 2008 Chairman, Credit Suisse Securities (Japan) Limited
May 2011 Senior Advisor, the Boston Consulting Group
Jun. 2011 Outside Director, Mitsui Fudosan Co., Ltd.
Jun. 2011 Outside Director, Mitsui O.S.K. Lines, Ltd. (current post)
Sep. 2014 Senior Advisor, Integral Corporation (current post)
Jun. 2016 Outside Director, former JGC CORPORATION
Jul. 2017 External Councillor, Grant Thornton Taiyo LLC (current post)
Oct. 2019 Outside Director, JGC HOLDINGS CORPORATION (current post)

Mr. Masayuki Matsushima has extensive experience and knowledge infinance and corporate management,
having served as executive director of
the Bank of Japan and in other significant positions. Appointment as outside
director reflects the Group’s determination that this experience and knowledge
will be applied in appropriately performing the duties of providing accurate
advice and opinions on management
and business and fulfilling a supervisoryrole from an independent standpoint,
which will contribute to sustainableenhancement of corporate value.

Apr. 1989 Assistant Professor, Faculty of Economics, The University of Tokyo
Mar. 1993 Professor, Faculty of Economics, The University of Tokyo
Apr. 1998 Member of the Policy Board, Bank of Japan
Apr. 2005 Professor, Graduate School of Economics, The University of Tokyo
Oct. 2005 Dean, Graduate School of Economics, The University of Tokyo
Oct. 2005 Dean, Faculty of Economics, The University of Tokyo
Oct. 2008 Outside Director, Development Bank of Japan Inc. (current post)
Apr. 2017 Director, Center for Advanced Research in Finance, The University ofTokyo (current post)
Apr. 2017 Professor, Faculty of International Studies, Kyoritsu Women’s University
Jun. 2017 Professor Emeritus, The University of Tokyo (current post)
Jun. 2017 Outside Audit & Supervisory Board Member, MELCO HOLDINGS
INC. (current post)
Jun. 2019 Outside Director, former JGC CORPORATION
Oct. 2019 Outside Director, JGC HOLDINGS CORPORATION (current post)
Apr. 2020 Dean, Faculty of Business, Kyoritsu Women’s University (current post)
Apr. 2020 Professor, Faculty of Business, Kyoritsu Women’s University (current post)

Mr. Kazuo Ueda does not have direct
experience in corporate management
but has extensive academic experience
as an expert on macroeconomics.
Appointment as outside director
reflects the Group’s determination that
this experience and knowledge will beapplied in appropriately performing theduties of providing accurate advice andopinions on management and businessand fulfilling a supervisory role from an
independent standpoint, which willcontribute to sustainable enhancementof corporate value.

Kazuo Ueda
Outside Director

Mar. 1995 Graduate, Legal Training and Research InstituteApr. 1995 Registered as an attorney, Fukuoka Bar Association
Sep. 2001 Joined Paul, Hastings, Janofsky & Walker LLP
Oct. 2002 Registered as an attorney, Daini Tokyo Bar Association
Oct. 2002 Admitted as an attorney, New York State Bar Association
Jul. 2007 Joined TMI Associates
Jan. 2008 Partner, TMI Associates (current post)
Oct. 2014 Outside Audit & Supervisory Board Member, Japan Overseas
Infrastructure Investment Corporation for Transport & Urban
Development (current post)
Nov. 2015 Outside Director, Meiko Network Japan Co., Ltd. (current post)
Jun. 2016 Outside Audit & Supervisory Board Member, Sato Holdings
Corporation (current post)
Jun. 2019 Outside Director, Asahi Net, Inc. (current post)
Jun. 2021 Outside Director, JGC HOLDINGS CORPORATION (current post)

Ms. Noriko Yao does not have direct
experience in corporate management,
but she possesses professional
knowledge and keen insight as an
attorney at law with extensive international experience. Appointment as
outside director reflects the Group’s
determination that this experience andknowledge will be applied in appropriately performing the duties of providing
accurate advice and opinions on
management and business andfulfilling a supervisory role from an
independent standpoint, which willcontribute to sustainable enhancement of corporate value.

Noriko Yao
Outside Director

JGC Report 2021

Enhancement of Corporate Governance

Main Board and­committee efforts

From fiscal 2019

Reason for appointment

Outside Director

Policy in responding

From fiscal 2018

Resume70

CHAPTER 04

Enhancement of Corporate GovernanceCorporate GovernanceDirector compensation

Breakdown of executive remuneration

Policy on determining director compensation amounts or calculation methods

Basic policy,
general shareholders’ meeting
resolutions

Process for determining amount ofcompensation• Under a basic policy to secure the management personnel needed for greater global competitiveness and higher
medium- to long-term corporate value, a resolution made at the 113th general shareholders’ meeting on June 26,
2009, set maximum annual director compensation at ¥690 million, with maximum auditor compensation at ¥88
million.
• As for the policy on determining the amount, calculation, and breakdown of compensation for individual directors,
compensation shall not exceed the range resolved at the general shareholders’ meeting, and details are discussed inadvance by the Remuneration Committee (consisting of a majority of outside directors), whose report is considered by
the Board to reach a decision.

Breakdown of remuneration, etc.

Category

Six directors(excluding outside directors)¥251 million

six¥223 million

five¥9 millionsix¥18 million

Two Audit & Supervisory Board members(excluding outside Audit & Supervisory
Board members)¥36 million

two¥36 million

–

–

–

–

Six outside executives(three outside directors and threeoutside Audit & Supervisory
Board members)¥58 millionsix¥58 million

–

–

–

–

• The amount and breakdown of compensation for individual directors within the range set at the general shareholders’meeting is at the discretion of the chairman of the Board, who as the Company’s chief executive officer is most familiar with the duties and responsibilities of each director, their performance, and the extent to which this performance
contributes to higher corporate value.
• To ensure fairness, transparency, and consistency with this decision policy, decisions by the chairman and CEO reflect
the results of comprehensive deliberation by the Remuneration Committee on evaluation of individual directors andthe amount of remuneration.
• The Board has determined that final decisions have been consistent with this policy, and in making this determination,
the Board has been informed of a summary and results of Remuneration Committee deliberations, as well as final
decisions by the chairman and CEO.

Note: As of the end of fiscal 2020, there were nine directors (including three outside directors) and five auditors (including three outside auditors).

• Inside directors receive fixed compensation as well as performance-based and restricted stock compensation, withthe former being a short-term incentive and the latter a medium- to long-term incentive.
• The compensation mix is designed to provide a higher proportion of variable compensation (performance-based andrestricted stock compensation) for higher performance and rank.

Policies and procedures for senior management appointment and dismissal

Fixed compensation• Determined according to each director’s position and the value of their duties, accounting for the capabilities required
and the weight and impact of those duties.
• Consists of base compensation and an allotment for directors or representative directors, both paid monthly.
• Outside director compensation is limited to fixed compensation, to enable management oversight from a position
independent of business execution.

Fixed,
performancebased, andrestricted stockcompensation

Performance-based
Restricted stock
Total value of
Fixed remuneration
remunerationcompensation
remuneration,etc.
Number of
Number of
Number of
Total amount
Total amount
Total amounteligibleeligibleeligible
providedprovidedprovided
executives
executives
executives

Appointment
process

2.	After comprehensive deliberation by the Nominating Committee, a decision is made by the Board.
	Appointment of senior management and nomination of director candidates follows this process and involves ample discussion before decisions are made, with the understanding that these individuals may one day be candidates to succeed
the CEO.

Performance-based compensation• Indexed to current-term net income attributable to owners of the parent, a target in the medium-term business plan,
to incentivize attainment of business plan targets, and paid in July.
• Performance-based compensation is determined from an evaluation of each director’s professional duties and contribution to fiscal-year performance, acknowledging that in the JGC Group’s main EPC operations, several years passfrom when orders are sought until projects contribute to earnings, and accounting for whether the director contributed
to gains in medium- to long-term corporate value.
• As a greater incentive for each director in attaining performance targets, performance-based compensation will more
directly reflect the extent that targets have been met.

Appointment of senior management and nomination of candidates for directors
1.	Deliberations of the Nominating Committee, which consists of a majority of outside directors, are focused on thefollowing items.
(1) Qualities such as character and views(2) Senior management and inside directors: Qualities such as performance and management capabilities(3) Outside directors: Qualities such as independence and expertise

Dismissal of senior management

Dismissal process

In the event of any of the following, the Board decides on dismissal after deliberation by the Nominating Committee.
(1) Wrongdoing, impropriety, or breach of faith(2) Violation of laws or articles of incorporation(3) Loss of the qualities and capabilities initially required for appointment
Enhancement of Corporate GovernanceRestricted stock compensation• Introduced so that directors share the benefits and risks of stock price fluctuations with shareholders and conductbusiness accordingly, and to further incentivize a higher stock price and greater medium- to long-term corporate value.
• Restricted stock compensation is allocated in August, and on August 11, 2020, some 17,828 restricted shares­corresponding to 10% of base compensation (equivalent to ¥19 million) were allocated to five directors.
• The restricted stock compensation system is summarized below.
Scope: Directors and executive officers of the holding company and directors of Group companies
Maximum monetary compensation: ¥190 million per year
Total shares of restricted stock (maximum): 149,300 shares per year (approximately 0.06% of total issued shares)
Restricted stock period: 3–30 years

Succession plan
In nominating a director or executive officer, theMoreover, in making the previously tacit succession plan

Nominating Committee addresses potential CEO succes-

more concrete and effective, we have held talks with current

sion by discussing whether the individual possesses therepresentative officers through a third-party organization toqualities required of a CEO, has demonstrated the requi-determine the personal qualities, experience, and other attri-site past performance, and can be viewed as a worthy

butes required of a CEO. These criteria form the basis for

successor. Only after this discussion will the Board

concrete steps taken to formulate the succession plan.

­proceed with nomination.

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CHAPTER 04

Enhancement of Corporate Governance

CHAPTER 04 Enhancement of Corporate Governance

Quality Management System

Corporate Governance

Cross-shareholdings
1

Basic stancePurpose

Following revision in June 2018, the Corporaterisks are commensurate with capital costs. Sale of shares

Governance Code now includes guidance on topics suchdeemed to have lost their significance is investigatedas reduction of cross-shareholdings and the cost of capi-

accounting for the market environment and changes intal. The Group refrains from cross-shareholdings except instock prices. The review process is described below,

cases where maintaining and strengthening relationships

along with a record of past sales and reductions.

with clients and business partners will contribute to higher

Quality must be ensured for safe operation and stable production at plants and other facilities. The Group has established an ISO 9001-certified quality management system and ensures quality through a global network of systems andhuman resources that bring together valuable knowledge and skills built up over many years of project execution. These
efforts include pursuing root causes of any quality issues and taking effective measures to prevent recurrence, as led by
the Quality Assurance Committee to promote continuous improvement in ensuring quality.

Basis for exercising voting rights

medium- to long-term corporate value for the Group.

2

Moreover, each year, the Board of Directors reviews the

In exercising voting rights for cross-shareholdings, advan-

significance of maintaining each cross-shareholding. Bothtages and disadvantages are weighed based on whether

quantitative and qualitative aspects of the shares are

the decision will contribute to sustained growth of theThorough QMS-based quality assurance

reviewed. Specifically, quantitative considerations include

company involved, and thus, higher group corporate value

JGC Holdings obtained ISO 9001 certification for its qual-

by each operating company, department, and section,

dividend yield and valuation gains, and aspects that areover the medium to long term.

ity management system (QMS) in 1993. We have actively

which set quality targets in line with the policy. Each fiscal

improved our organization on a continuous basis, led by

year, they identify any organizational issues and formulate

the Quality Assurance Committee, with the aim of improv-

operating policies and action plans (“Plan”), implementing organizational performance as appropriate to the typethem (“Do”), evaluate them (“Check”), and improve themof work performed.

on the basis of the evaluation process (“Act”). This PDCA

difficult to quantify include whether business benefits andReview process of holding objective and stock to be sold

Every year, quality guidelines announced by thecycle is designed to drive continuous improvement in

President of JGC Holdings are treated as a quality policy

organizational performance.

Quality assurance committee

Positioning of the Quality Assurance Committee

Primary criteria for reviewing holding objective

Quantitative aspects

Qualitative aspects

Dividend yield from held stock, valuation gains, etc.

Difficult to quantify business benefits

The Quality Assurance Committee meets monthly andreports directly to the president. The Committee is chaired

President

Management Review

and comprised of operating company senior general managers and members at the level of general manager.
The Board of Directors reviews the objective of cross-shareholdings each year
considering both quantitative and qualitative aspects, as well as cost of capital comparisons.

The Quality Assurance Committee implements a rangeof remedial measures to ensure the quality of products
and services provided to clients consistently meets their
specifications. It also evaluates the impact of those mea-

Relevant Departments

sures to drive ongoing improvements.
Once a year, the president conducts a management

Enhancement of Corporate GovernanceConcerning stock whose holding objective is determined as diminished upon review, the Board of Directors
discusses its sale, after a consideration of factors such as the market environment and changes in stock price.

Quality AssuranceCommittee

review of the Quality Assurance Committee’s activities,
with the president leading efforts to continuously improve
the quality assurance organization.
History of sales and reductions in cross-shareholdings since the introduction of the Corporate Governance CodeFiscal 2015 to fiscal 2020
(fiscal 2020 in parentheses)

Number of companies whose
stock was soldTotal value of sales(based on acquisition price)

Reduction rate*

35 companies(three companies)¥4,507 million(¥49 million)

Approx. 35%* Represents the reduction rate for publicly listed stock held as of April 1, 2015 (ratio based on acquisition prices).

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74

CHAPTER 04

Enhancement of Corporate GovernanceCompliance
JGC Group Corporate Philosophy

Basic stanceJGC Group Code of Business Conduct

Guided by our sense of purpose and values representing our corporate philosophy, we view compliance as the cornerstone of management, based on two keywords in a list of shared values—respect and integrity. As a member of theBribery Prevention Regulations

international community, the JGC Group believes that compliance with the laws of Japan and all other countries where
the Group operates, as well as fair and equitable business practices in accordance with corporate ethics, are essential tothe pursuit of sustainable business development. Based on this belief, the Group has developed the JGC Group Code ofBusiness Conduct. The code, which must be followed by all employees, contains key points to ensure that the JGCRegulations to prevent bribery
by employees

Regulations to prevent bribery bybusiness partners

Regulations to ensure effective operationof bribery prevention programs

Gifts, entertainment, and travel policy

Anti-corruption policy for commercial
representatives

Rules related to the JGC Group
Compliance Hotline

Policy on charitable donations

Anti-corruption policy for joint ventures

Bribery risk management guidelines

Policy on political contributions

Anti-corruption policy for suppliers andsubcontractors

Bribery prevention training guidelines

Group’s corporate philosophy is implemented in practice.

Group compliance system
Compliance executives assigned to each main Group

Committee as a forum to share information and collabo-

company work with compliance officers under their super-rate among Group companies. We are aiming to achieve avision to evaluate risks faced by the company and implement

sense of unity to the entire Group through the Committee.

suitable measures. The JGC Group has established a

The Compliance Team at JGC Holdings Corporation is inGroup compliance system to ensure each company car-charge of comprehensive measures, coordination, andries out its business based on high ethical standards. The

other functions to promote Group-wide compliance.

JGC Group has also established the Compliance

JGC Holdings

Reports toCompliance
Committee

Auditors
President
Appoints

Reports to

Auditors
President

Forum for mutual information
sharing by JGC Holdings and
JGC Group companies

Reports to

Appoints

Group Compliance Executive
Directs, instructs

Consults with,
reports to

Directs, instructs

JGC Group Compliance Hotline
Reports toConsults with, notifies

Consults with, notifies

Consults with,
reports toCompliance Officer
Reports toConsults with, notifies

Consults with,
reports toDisseminates
information, raises
awareness

Consults with,
reports toCompliance training
Awareness of compliance is enhanced through thematic

been focused on preventing corruption and responding toand level-specific compliance training programs.

organized crime, with in-person training held for relevant

Beginning, intermediate, or advanced training is given

divisions and projects.

when employees are promoted. Beyond compliance

Consults with,
reports to

Fiscal 2020

each employee to view matters of compliance as personally relevant. Since fiscal 2019, level-specific training has

Number of courses

also been available for employees of domestic Group

Number of participants

19
1,856

* Figures represent the number of days the training was held.

companies. In particular, training by the JGC Group has
Training courses in fiscal 2020
Type of training

Division Heads
Directs, instructs

Courses and participation

basics, the training features case studies and encourages

Level-specific

Employees

Thematic

CourseParticipants

New employee training

New employees of domestic Group companies

Basic compliance training

Newly appointed assistant managers of domestic Group companies

Intermediate compliance training

Newly appointed section managers of domestic Group companies

Project compliance training

Members involved in the projectAnti-harassment training

All employees of JGC Holdings, JGC Corporation, and JGC Japan

Site-specific anti-harassment training

Relevant domestic employees* No advanced compliance training (for newly appointed managers) was held in fiscal 2020.

Measures to prevent bribery
The JGC Group follows a basic policy of complying withany necessary risk-based measures, such as stipulating

all anti-bribery rules and regulations, such as provisions instrict anti-corruption clauses in contracts with business part-

Compliance hotline

Japan’s Unfair Competition Prevention Law prohibiting theners. Any gifts, entertainment, donations, or contributions

For prompt identification and prevention of complianceconsultation and reporting, which enables faster investiga-

bribing of foreign public officials, the US Foreign Corrupt

must be approved in advance, so that we are aware of trans-risks, the JGC Group Compliance Hotline was establishedtion and response. Offering several ways to seek advice

Practices Act (FCPA), and the UK Bribery Act 2010. Groupactions that may be linked to corruption.

as a resource that employees can use without hesitation

and report suspicions provides a more convenient environ-Compliance is also monitored to ensure implementa-

to seek advice or report any concerns about actual orment for employees to receive assistance. In addition totion of anti-bribery programs at Group companies. Eachpotential violations. Calls are answered by a third-party

accepting reports from employees, we also accept reports

year, members of the Compliance Team of JGC Holdingsorganization, which also enables anonymous consultationof violation of corporate ethics from all suppliers working

visit several Group companies. Executives and employees

and reporting. The hotline is supplemented by internalwith Group companies.

sultants, vendors, subcontractors, joint ventures, and others

are interviewed and records audited to identify issues andlines at the two main operating companies, JGC* Number of reports received by hotlines is shown on p.85.

who intend to do business with the JGC Group are screened

make improvements.

Corporation and JGC Japan, to provide direct lines forrules on preventing bribery, based on our corporate philosophy and Code of Business Conduct, are summarized
in the following table.
Under these anti-corruption programs, the agents, con-

Enhancement of Corporate GovernanceDirects, instructs(answered by a professional
third-party organization)

Consults with,
reports toDivision Heads

Reports toCompliance Executive

Compliance Team
Disseminates
information, raises
awarenessJGC Group Companies

Compliance monitoring guidelines

to ensure compliance. The results enable us to implement75

JGC Report 2021

JGC Report 2021

76

CHAPTER 04

Enhancement of Corporate GovernanceRisk Management
Primary Group risks and responses

Basic stancePrimary Risk Area

Recognizing that appropriate risk management reduces losses and contributes to profits for the Group, we strive to
reduce and prevent risks routinely by understanding and organizing risks posed to the Group as a whole and by building,Countermeasures

Risk associated withreceiving and executing
projects• Specific risk analysis by the holding company and operatingcompanies, monitoring of project progress and profitability

Country risk

• Impact on business activities from political instability, war,
revolution, domestic conflict, terrorism, sudden changes in
economic policies or conditions, or economic sanctions• Use of trade insurance• Gathering information on country risk
• Setting reasonable contract conditions with clients, addressing force majeure clauses and regulatory changes• Strengthening crisis management functions by the Crisis
Management Dept.

Risk associated with natural
disasters, epidemics, etc.

• Impact on business activities from natural disasters of
unforeseen magnitude such as earthquakes, torrential rain,or typhoons, or from global pandemics such as new strains
of influenza• Establishing disaster response procedures, introducing
systems to confirm safety, and implementing
disaster training• Gathering information on risk
• Taking necessary measures in response to official requests,
confirming safety in accordance with national conditions
and regulations• Setting reasonable contract conditions with clients, addressing force majeure clauses and regulatory changes• Requesting and discussing with clients any necessary
rescheduling or rebudgeting

Foreign exchange
volatility risk

• Impact on sales and profit / loss from sharp fluctuations inforeign exchange rates• Using project contracts denominated in multiple currencies,
using overseas procurement• Issuing orders denominated in foreign currencies, using
forward foreign-exchange agreements

Risk of construction worker
shortages, substantial wage
increases• Impact on business activities in total engineering businessfrom shortages of construction workers or substantial
increases in wages• Monitoring and forecasting trends in the constructionindustry labor force for primary plant markets• Adopting modular construction techniques to minimize
on-site construction• Working with companies that have extensive track records
in local construction

Risk of substantial
increases in material andequipment costs• Increased procurement costs for material and equipment in
total engineering business• Substantial rises in prices of raw materials or fuel in functional materials manufacturing• Monitoring and forecasting price trends for raw materials
and for materials and equipment• Placing orders for materials and equipment early on• Diversifying suppliers• Passing on higher prices to clients

Investment risk

• Loss from unforeseen circumstances in the investment
environment• Closer monitoring of existing investment projects• Careful selection of new investments

Legal and regulatory risk

• Restrictions under business laws and regulations such as
tax or construction laws, various domestic and international
environmental laws, import / export trade regulations
including those for security purposes, various laws andregulations to prevent corruption such as graft, or businessor investment licenses• Developing, implementing, monitoring, and improving
compliance programs

Information security risk

• Leaks and loss of information from power outages, disasters, failure, loss, or theft of host computers, servers, or
network equipment, external attacks, or virus infections• Security measures such as preventing intrusion by establishing information security policies, adopting antivirus
measures, and using encryption

Risk associated with quality• Poor quality of supplies or items procured, recall of delivered products due to defects, liability for damages• Promoting quality management system activities by establishing organizations with jurisdiction over quality assurance• Using product liability insurance

Risk associated withchanges in the macroeconomic environment• Impact on business activities from declining energy prices
or cooling of the global economy• Impact on the oil & gas segment and catalyst segment
served by the Group from acceleration of the shift to a
low-carbon / decarbonized society• Diversifying our business portfolio by shifting to a Groupmanagement structure• Developing technologies to reduce environmental impact• Building value chains in collaboration with other companies
that possess advanced technologies

Risk associated with lower
demand for fossil fuels andfossil fuel-derived products• Impact on business activities from lower fossil fuel-related
investment by clients, or from similar changes to clientbusiness itself• Receiving and executing projects in non-fossil fuel segments• Transforming business areas, business models, and theGroup’s internal organization in line with the 2040 Vision,
our long-term management vision

maintaining, and refining our risk management system. If risks do materialize, we respond rapidly and appropriately tominimize the impact and associated loss.

Risk management system
Based on the Group Risk Management Committee rules,

committed to further reducing these risks. Management of

the JGC Group has established and uses a comprehensive

business risks of the Group is mainly carried out by eachrisk management system for a systematic understanding

operating company, with significant individual risks reportedof the risks posed to the Group as a whole. We areto the holding company Board and discussed as necessary.

Risk Management System
Board of Directors(five inside directors, four outside directors)

Deliberation, reporting

Group Risk Management
Committee

Oversees

JGC Holdings

JGC Holdings
JGC CorporationJGC Japan(Chairman: JGC Holdings

JGC Catalysts and Chemicals

Representative Director,

Japan Fine Ceramics

President and COO)

Japan NUS

Deliberation,
reporting

Representative Director,
Chairman and CEO

Representative Director,
President and COO

Relevant business units
Dept. with jurisdiction overcrisis management

Dept. with jurisdiction overcomplianceDept. with jurisdiction overcorporate communications

Departments

Group companies
Overseas EPC(energy, infrastructure)77

JGC Report 2021

Domestic EPC

Functional materials
manufacturing

OthersJGC Report 2021

Enhancement of Corporate Governance

Nature of Typical Risks• Change of plans, cancellation, suspension, or postponement of projects in total engineering business after orders
are received• Worsening financial conditions of joint venture consortium
partners as comprehensive engineering projects are
executed78

CHAPTER 04

Enhancement of Corporate Governance

CHAPTER 04 Enhancement of Corporate GovernanceManagement Structure

Dialogue with Shareholders and Investors (Information Disclosure, IR activities)(As of June 2021)

Directors 
Basic stance
The Group considers shareholder and investor engagement indispensable to sustained growth and gains in corporate
value. We are proactive in highly transparent information disclosure that serves as the basis for this dialogue. By listening tothe opinions of shareholders and investors, providing feedback to management and relevant departments, acting on thisknowledge in management strategies, and striving to disclose not only financial but also non-financial information, we are
creating an environment in which shareholders have a solid, long-term understanding of Group management policies.

Masayuki Sato

Tadashi Ishizuka

Kiyotaka Terajima

Representative Director,
Chairman and Chief Executive Officer (CEO)

Representative Director, President andChief Operating Officer (COO)

Member of the Board

Main IR activities (Fiscal 2020)
Dialogue on the long-term management vision and medium-term business plan
The Group actively engaged with shareholders and investors while formulating the long-term management vision andmedium-term business plan (2040 Vision and “Building a Sustainable Planetary Infrastructure 2025 (BSP2025),”­respectively), announced on May 12, 2021. Through the IR Department, we took steps to encourage an understanding
in the stock market of the Group’s vision for growth by carefully explaining the SDGs-compatible orientation to sustainable growth that is behind these plans. From the variety of opinions we received, this dialogue also helped us understandand act on market expectations.

Yutaka Yamazaki

Shoji Yamada

Shigeru Endo

Member of the Board

Member of the Board

Outside Director

Enhancements to the JGC Report (Integrated Report)
Each year, the JGC Report is designed to be more informative, as a key disclosure resource forinvestment decisions from a long-term perspective. Before publication of the 2020 report, we
received a variety of opinions from shareholders and investors. As a corporate group pursuingsustainable growth by working toward a sustainable society, we provided expanded content oncommercialization of environmental technologies and applications of digitalization. Fuller coverageof non-financial information included highlighting strengths from our heritage in EPC business ininterviews with employees representing the next generation. As a result, the report was recognizedwith a Most-Improved Integrated Report award of 2020 by domestic equity investment managersof the Government Pension Investment Fund (GPIF).

Masayuki Matsushima

Kazuo Ueda

Noriko Yao

Outside Director

Outside Director

Outside Director

Online earnings release conferences
In promoting a better understanding of the Group, we conducted a detailed online Business Activities Briefing
Enhancement of Corporate GovernanceConference. Functional materials manufacturing and sustainability-oriented business development were of particularinterest to shareholders and investors, and the information given provided a better understanding of this business. We

Audit & Supervisory Board Members will continue to ensure that shareholders, investors, and many other stakeholders are well informed of Group business.

Yasumasa Isetani

Kazuyoshi Muto

Masao Mori

Koichi Ohno

Norio Takamatsu

Audit and Supervisory
Board Member

Audit and Supervisory
Board Member

Outside Audit & Supervisory
Board Member

Outside Audit & Supervisory
Board Member

Outside Audit & Supervisory
Board Member

Main IR activities

IR activities schedule

Activity

2nd quarter
Results announcement
Results briefing

3rd quarter
Results announcement
Conference call

Executive Officers 

12

1

11

Kiyotaka Terajima

Yasuhiro Okuda

Masahiro Aika

Takuya Hanada

Akio Yoshida

Senior Executive Vice President,
Chief Financial Officer (CFO)

Senior Executive Officer

Senior Executive Officer,
Technology Commercialization
Officer (TCO)

Senior Executive Officer,
Chief Digital Officer (CDO)

Senior Executive Officer

2

Takeshi Kawasaki

Shigeru Adachi

Masaki Ishikawa

Yoshihiro Mizuguchi

Executive Officer

Executive Officer

Executive Officer

Executive Officer

Executive Officer

Executive Officer

1st quarter
Resultsannouncement
Conference call

71

2
2
7
0
1

52
61
7
0
39

Overseas IR roadshows by senior management*
103AnnualSchedule

Business activities briefing conference* Suspended during the fiscal 2020, due to the pandemic.

457No. ofcompanies156

ESG-related meetings

Overseas IR

8

Aya Yamazaki

Responses to requests for information, phone callsfrom institutional investors in Japan / overseas
Results briefing conference calls
Results briefings by senior management

9

Masayasu Endo

No. of events

Full-year results
Resultsannouncement
Results briefing

6

Ordinary generalshareholders’ meeting

Ordinary General Shareholders’ Meetings
Date held
Shareholders attending
Ratio of voting rights
exercised

Fiscal 2019

Fiscal 2020

Fiscal 2021

June 27 (Thu)227

June 26 (Fri)15*

June 29 (Tue)
19*

82.6%

84.0%

84.2%

* In Fiscal 2019 and 2020, we asked shareholders to avoid attending the meeting at thevenue as much as possible, as part of measures to prevent the spread of COVID-19.

79

JGC Report 2021

JGC Report 2021

80

CHAPTER 05 価値創造の結果

日揮グループ（2021年3月31日現在）

05
CHAPTER

Results of Value Creation
The JGC Group’s value-creation mechanism addresses social
issues while enhancing corporate value. Outcomes from thismechanism are gauged and evaluated through a variety of financial
and non-financial indicators. This chapter summarizes businessresults for fiscal 2020, and chronicles this value creation.

JGC Report 2021

Financial Highlights

P.85

ESG Data Highlights

P.86

Consolidated Segment Information

P.90

Total Engineering Business

P.90

Functional Materials Manufacturing Business

P.91

Analysis of Performance and Financial Position

P.95

Consolidated Financial Statements

P.103

Notes to Consolidated Financial Statements

P.120

Independent Auditor’s Report

P.123

Supplemental Explanation

P.124

Internal Control Report (Translation)

P.125

Stock Information

P.126

Outline of JGCResults of Value Creation

81

P.83

JGC Report 2021

82

CHAPTER 05 Results of Value Creation

Financial Highlights
JGC HOLDINGS CORPORATION and its consolidated subsidiaries*2(Millions of yen)

Years Ended March 31

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Net Sales

556,966

624,637

675,821799,076879,954

693,152

722,987

619,241

480,809433,970

Operating Income (Loss)

67,05364,123

68,25329,74049,661(21,496)

21,49523,24920,23422,880Net Income (Loss) Attributable to
Owners of the Parent*1

39,111

46,17947,178

20,62842,793(22,057)

16,58924,005

4,117

5,141

New Contracts

793,278594,091

818,161

769,680

320,626

506,293547,826

935,451

189,643

683,068

1,506,146

1,549,813

1,767,814

1,772,036

1,192,625

1,045,684

846,157

1,208,365

941,618

1,241,204

Total Current Assets

376,172

460,231575,886

533,538

522,747

480,865

521,320541,747

537,955

548,359

Total Current Liabilities

205,771

262,439

333,353

286,533

225,203

226,457

215,773

223,559

228,386

197,055

Working Capital

170,401

197,792

242,533

247,005

297,544

254,408

317,200

318,188309,569

351,304

Net Property and Equipment

64,88771,70870,29078,56076,25569,87755,22255,44049,794

66,654

Total Assets

526,169

628,757

746,102719,754689,782646,291

684,921708,855

671,273702,529

7,591

9,363

13,001

22,71520,991

12,631

4,294

3,949

347

16,783

Total Net Assets

291,042

336,083

379,882

388,496

419,673

383,260

395,779

410,350

390,979

417,616

Shareholders’ Equity

290,415

335,534

374,654

387,480

418,695

382,215394,701

409,254

390,516

417,120

Performance Highlights

Outstanding Contracts

Financial Position at Year-End

Long-Term Loans Payable

Cash Flows
Cash Flows from Operating Activities

97,84785,010120,576(71,416)(49,764)(28,884)

5,539(55,259)

92,442

12,467

Cash Flows from Investing Activities(18,746)(28,370)(18,728)(23,411)

8,696(12,979)

11,736(4,662)

19,364(13,520)

Cash Flows from Financing Activities(20,536)(3,695)(10,687)

3,836(4,374)(19,674)

33,781(13,878)(7,699)196

Cash and Cash Equivalents at End of Year

222,556

284,777

385,252

297,707247,947

185,603

235,394

160,841

261,898

268,281Return On Assets (ROA) (%)

14.6

12.6

12.2

6.1

7.4

(2.3)

3.8

4.6

3.2

3.7

Return On Equity (ROE) (%)

14.1

14.8

13.3

5.4

10.6

(5.5)

4.3

6.0

1.0

1.3

Net Income (Loss) per Share (in yen)

154.90182.91186.9081.73

169.60(87.42)

65.75

95.14

16.32

20.37

Cash Dividends per Share (in yen)

38.5

45.5

46.5

21.0

42.5

30.0

25.0

28.5

12.0

12.0

Gross Profit Ratio (%)

15.6

13.5

13.1

6.6

8.3

0.2

6.2

7.3

9.0

10.1

Operating Income Ratio (%)

12.0

10.3

10.1

3.7

5.6

(3.1)

3.0

3.7

4.2

5.3

Financial Highlights

Shareholders’ Equity Ratio (%)

55.2

53.4

50.2

53.8

60.7

59.1

57.6

57.7

58.2

59.4

Current Ratio (%)

182.8

175.4

172.8

186.2

232.1

212.3

241.6

242.3

235.5

278.2

Payout Ratio (%)

24.9

24.9

24.9

25.7

25.1

—

38.0

30.0

73.5

58.9

Number of Employees

6,524

6,721

7,005

7,332

7,489

7,554

7,610

7,841

7,607

7,371

83

JGC Report 2021

Results of Value Creation*1 As
 a consequence of applying “Accounting Standard for Business Combinations” (ASBJ Statement No. 21, September 13, 2013), “Net income (loss)” is referred to as“Net income (loss) attributable to owners of the parent” from fiscal 2015 onward.
*2 As of March 31, 2021, there were 20 consolidated subsidiaries.

JGC Report 2021

84

CHAPTER 05 Results of Value Creation

CHAPTER 05 Results of Value Creation

ESG Data Highlights

Consolidated Segment Information

JGC’s main KPIs

E

Environment-related Initiatives• Contribution to environmental
Industrial waste recycling rate (Domestic construction sites)
protection
Number of incidents of leaks of hazardous substances, etc.
• Environmental Improvement(Domestic and overseas construction sites)
Activities in Line with Our
Energy-related CO2 emissions (Domestic construction sites)
Business• Promotion of the Zero Emissions Rate of diffusion of electronic manifests
Initiative
Energy consumption (Yokohama Head Office)*3

Fiscal2018

Fiscal
2019

Fiscal2020*1

Functional Materials Manufacturing

Other

Functional Materials Manufacturing

Other¥ 40.7 billion¥4.6 billion¥5.8 billion¥ 0.1 billion

9.4 %
t

—

—

—

—

132,546

%

98.1

97.7

96.1

85.2

88.3

Incidents

0

1

0

0

0

kgCO2/hr

1.43

3.52

2.39

0.61

0.40

%

96.0

64.2

79.5

69.5

85.9

Crude oilequivalent (kl)

2,405

2,248

2,224

2,139

Yokohama Head Office power consumption

1,000 kWh

5,974

5,571

5,497

5,221

4,756

1,000 MJ

15,857

14,071

15,353

15,503

14,349Consumption of steam by Yokohama Head Office1,000 MJ

8,886

9,153

7,724

7,170

10,377

Volume of waste disposed by Yokohama Head Office1,000 kg

209

212

206

191

109

Rate of recycling of waste by Yokohama Head Office

%

64.9

65.7

61.4

59.5

65.5

Persons

17

19

21

24

30

%

—

—

—

2.2

2.5

Number of women in management positions
Ratio of women in managerial positions

%

1.81

1.82

1.87

1.97

2.27

Number of re-employed employees*4

Persons

189

159

109

55

55

Number of non-Japanese employees*4

Persons

94

100

89

86

95

Number of employees taking childcare leave (Male)

Persons

2

8

11

14

40

Persons (%)

27 (96)24 (100)

24 (100)

19 (100)

27 (100)

Rate of employment of people with disabilities

Number of female employees taking childcare leave (Rate ofreinstatement of female employees taking childcare leave)

Fiscal 2020

Fiscal 2020

Comprehensive
Engineering Business89.5 %

73.7 %¥388.5 billion¥16.8 billion

Total Engineering Business
Focused on total engineering business activities including design, procurement, construction, and commissioning of facili-

Number of employees taking spousal childbirth leave

Persons

81

81

64

80

91

Persons

115

123

185

187

217

ties and plants used for petroleum and petroleum refining, petrochemicals, gas, LNG, chemicals, nuclear energy, metal

Number of employees taking nursing care leave

Persons

8

20

22

11

42

refining, biochemicals, food, pharmaceuticals, healthcare, logistics, information technology, environmental protection, andNumber of employees taking temporary retirement for
nursing care

Persons

2

1

0

0

1

pollution control.

Number of employees working reduced hours for childcare

Persons

44

42

51

47

47

Number of employees working reduced hours for nursing care

Persons

1

2

0

0

0

%

53

57

53

59

60.75

Number of employees dispatched for on-site training /on-site instruction

Persons

62

72

86

45

55

Number of employees dispatched to overseas companies, etc.

Persons

5

5

2

4

4

Total project working hours

1,000 hrs.

128,036

81,072

90,99356,47840,861

Number of fatal accidents

Accidents

3

2

0

0

1

Number of accidents accompanied by lost work time

Accidents

8

9

8

7

7

Number of restrictions on work

Restrictions

25

6

11

18

15

Number of conditions requiring specialized treatment

Conditions

Functional Materials Manufacturing Business
Focused on manufacturing and sales of products in the fields of catalysts, nanoparticle technology, hygiene and safety,
electronic materials, high-performance ceramics, and next-generation energy.

Other Business
Includes consulting, office support, desalination, and oil & gas production and sales.

65

41

31

46

46

Rate of frequency of accidents accompanied bylost work time*5

0.012

0.022

0.018

0.025

0.034

Japan

Southeast Asia

Middle East

AfricaNorth America

Other

Total

Rate of frequency of recordable accidents*6

0.16

0.14

0.11

0.25

0.34

173,948

48,05731,55848,004

124,734

7,669

433,970

Completed Construction by Region(Millions of yen)

Based on client location and classified by country or region.

Report on GovernanceInitiatives related to fair businesspractices•	Realization of increased
compliance awarenessComprehensive
Engineering Business

Number of employees taking sick or injured childcare leave

Rate of utilization of annual leave

Initiatives related to health andsafety•	Fostering of culture of healthand safety•	HSSE leadership by top
management•	Enhancement of HSSE
management system forinvestment projects•	Ongoing implementation of
traffic safety measures•	Further development of in-house
health and safety education•	Enhancement of Head Officeconstruction HSSE functions

0.8 %Operating
IncomeNet Sales

2,091

Consumption of chilled water by Yokohama Head Office25.5 %

1.1 %Report on Social Initiatives

Initiatives related to human rights
and labor practices• Promotion of diversity• Support for realization ofwork–life balance• Support for employee careerformation

G

Fiscal2017

Report on Environmental Initiatives
Scope 1 and 2 GHG emissions*2

S

Fiscal
2016

Units

Times
(People)12 (373)

13 (353)

6 (199)21 (559)

19 (1,856)

Number of reports received byhotlines

Numbers

12

18

28

47

44

Initiatives related to the promotionof information security•	Information management
Number of serious information security-related incidents
awareness verification surveys
and voluntary inspections•	Drills against targeted threats

Incidents

0

0

0

1

0

Reinforcement of governancesystemPersons

2

2

2

3

4

Number of times compliance training implemented /Number of employees receiving compliance training

Results of Value Creation

Number of outside directors

（※7）

*7

*1 Applies to JGC Holdings, JGC, and JGC Japan combined.
*2 Also includes JGC C&C, Japan Fine Ceramics, and Japan NUS.
*3 Energy consumption (Yokohama Head Office): Reduction target set so that an average annual reduction of 1% over the past five years can be achieved.
*4 Number of re-employed employees and number of non-Japanese employees = (Number of employees in April + Number of employees in March) ÷ 2*5 Rate of frequency of accidents accompanied by lost work time = Number of accidents accompanied by lost work time × 200,000 ÷ Total project working hours*6 R
 ate of frequency of recordable accidents = (Number of fatal accidents + Number of accidents accompanied by lost work time + Number of restrictions on work + Number of conditions requiring
specialized treatment) × 200,000 ÷ Total project working hours*7 Number of serious information security-related incidents: 1 (Emails sent to external parties due to unauthorized access)Corrective measures for the above incident: introduction of measures to prevent unauthorized access through two-factor authentication

85

JGC Report 2021

JGC Report 2021

86

CHAPTER 05 Results of Value Creation

Total Engineering Business

Energy Solutions Sector

Takahiro Shimoota
Executive Officer,
President,
Energy Solutions,JGC CORPORATION(Former Overseas Oil & Gas Sector)

Facility Infrastructure
Solutions Sector

Terumitsu Hayashi
Director, Senior Executive
Vice President,
President,
Facility Infrastructure Solutions,JGC CORPORATION(Former Overseas Infrastructure Sector)

Covered Sectors

Covered Sectors

Engineering, procurement,
and construction of plants
and facilities in sectors such asliquefied natural gas (LNG),
Carbon Capture and Storage(CCS), refinery, chemicals, gas
processing, crude oil and gas
gathering, non-ferrous metalsmelting, hydrogen, fuelammonia, etc.

Engineering, procurement, andconstruction of infrastructure
facilities focused on renewableenergy power generation (solar,
biomass, wind), battery energy
storage, LNG / LPG terminals,
waste power generation, pharmaceuticals and food factories,
hospitals, airports, transportation
infrastructure, water treatment etc.

New Contracts in Fiscal 2020

New Contracts Targeted for Fiscal 2021

New Contracts in Fiscal 2020

New Contracts Targeted for Fiscal 2021

Approx. ¥¥Approx. ¥¥497billion

260billion

Growth Opportunities• Increasing energy demand, driven in part by global population growth• Increased demand for LNG and other fossil fuels with lower environmental impact• Increase in demand for environmental load reduction from existing energy plants• Expanded use of hydrogen and fuel ammonia

Medium- to Long-term Risks• Lower demand for fossil fuels as a whole• Postponement of client capital investment plans from resource market stagnation• Rapid divestment of fossil fuels, including LNG

4billion

80billion

Growth Opportunities• Increasing demand for new infrastructure, as populations in emerging markets grow• Increasing demand for renewable energy, toward a low-carbon / decarbonized society

Medium- to Long-term Risks• Sluggish capital investment from an economic slowdown in emerging markets

Business policy
Business policy

aim to achieve our goals by winningproactive proposals from the upstream

the market environment caused by theorders for power generation projects suchstage of the business plan, such us

as LNG-fired power plants and solar

addressing customer needs like
decarbonization.

In fiscal 2020, the market environmentthat develops small modular reactors

the market environment. However, in the

spread of COVID-19, the decision tocontinued to be uncertain against the(SMRs) and entered into the EPC busi-

process of transitioning to clean energy

invest in large-scale projects of more

power plants, as well as chemical storage

backdrop of a slowdown in the global

ness for SMR plants overseas. Although

for the realization of a low-carbon /than ¥100 billion, for which we hadtanks and LNG receiving terminals, Ineconomy due to the spread of COVID-

the market environment remains uncertain

decarbonized society, LNG will continue

hoped to receive orders, were post-

addition, we will be entering new fields

19. However, as a result of our focus onin fiscal 2021, we are working to secure

to play an important role as an environ-

poned, bringing about a result that falls

such as water treatment and railways.

projects expected to move ahead, weorders for projects that are expected tomentally friendly form of fossil energy.

far short of our target. However, we were

have received orders for a large-scale oilmake progress, such as the non-ferrous

In addition to our response to the large-

able to receive orders for small-scale

infrastructure is expected to grow further

refinery upgrading project in Iraq, ametal smelting project planned in Indonesia

scale LNG projects which are expected

projects such as the introduction of solar

in the Asian region, which is a growthmarket, against the backdrop of popula-

In the future, demand for energy andnatural gas processing facility construc-and the petroleum chemical project into be the subjects of final investment

power generation for industrial parks intion project in Saudi Arabia and otherthe United States that will allow us todecisions after fiscal 2022, we need toVietnam and the construction of the firsttion increase and economic growth. In

projects, and achieved our order targets.

reach our target of ¥260 billion.

improve our risk management capabili-

solar power generation project withaddition to maximizing the use of Asian

Also, we invested in MODS, a British

Since last year, final investment

ties and accelerate the use of strategic

battery energy storage system inbases in Vietnam and other countries,

software company, to accelerate its

decisions for large-scale LNG projects

partnering and digital technologies in

Mongolia, as well as the basic engineer-

we intend to expand orders through theefforts to digitize EPC, as well asplanned by major oil companies haveorder to enhance our competitivenessing for projects that are expected toaccount-focused approach which aims

NuScale Power, LLC, a U.S. company

been postponed due to uncertainty inand profitability.

materialize in the future. In fiscal 2021, wefor structure projects by making

JGC Report 2021

Results of Value Creation

87

In fiscal 2020, due to the deterioration of

JGC Report 2021

88

CHAPTER 05 Results of Value Creation

CHAPTER 05 Results of Value Creation

Total Engineering Business

Functional Materials Manufacturing Business

Domestic Sector

Shoji Yamada
Representative Director,
President,
JGC JAPAN
CORPORATIONJGC CORPORATION

Engineering, procurement, construction and maintenance ofplants and facilities for oil & gas,chemicals, pharmaceuticals andlaboratories, healthcare (medical
and welfare), renewable energy
power generation, hydrogen / fuelammonia, resource recycling,
nuclear energy-related, etc.

180billion

Approx. ¥New Contracts Targeted for Fiscal 2021

160billion¥

Growth Opportunities• Increasing demand for maintenance as refining and petrochemical plants deteriorate• Increasing demand for renewable energy and hydrogen/fuel ammonia, toward a low-carbon society• Increased capital investment in life sciences from a declining birthrate and aging population• Increased nuclear power plant decommissioning related• Increasing demand for smart factories in concert with factory automation

Medium- to Long-term Risks• Less new large-scale capital investment in refining and petrochemicals from lower fossil fuel demandand stagnation of crude oil prices• Sluggish capital investment in infrastructure field from a domestic economic slump

GrowthOpportunities

Medium- to
Long-term Risks• Slowdown in exports of functional coating materials from economic
stagnation in China• Declining demand for petroleum refining catalysts from lower crude oil prices

In the domestic market in fiscal 2020,

field, such as hospital and pharmaceuticalstrengthening our smart factory support

capital investment was made in aspects

manufacturing plants, as well as chemistry,

service and utilizing CVC funds to invest inof the infrastructure sector where thenuclear energy, and maintenancestart-up companies in Japan and abroad.

impact of the COVID -19 infection was

projects to reach our targets order.

eye on trends in the global economy, in

resulted in a decline in the operating rate

the catalyst field we will work to increaseof domestic and overseas refineries,

our domestic share of FCC catalysts andbringing about a consequent decrease in

expand our business overseas, as well

the sales of petroleum refining catalysts

as acquiring new chemical catalyst

and other products. Also, in the field of

projects and expanding sales of cata-

fine chemicals, the global economic

lysts for environmental conservation.

downturn has led to a reduction in the

In the fine chemicals field, we will expand

use of silica sol as a support material forsales of functional coating materials andelectromagnetic steel sheets and auto-

develop multiple applications, as well as

motive exhaust gas purification catalytic

focus on expanding orders received byequipment, as well as materials for use

improving productivity and expandingin cosmetics and eyeglass coatings.

the supply system for cosmetic materials.

In the field of offshore wind power,

power generation projects and solar

which is expected to see rapid growth inpower generation projects, in addition,

Japan in the future, we are actively seek-

to maintenance work for existing oil

ing to strengthen our partnerships withrefineries, medical product manufactur-

related companies and participate ining plants, and high-efficiency gas

business with the aim of winning orders

turbine power generation projects. As afor EPC projects.
In addition, we will also actively seektargets. In fiscal 2021, we will focus on

to enter new fields where demand isbuilding up orders in the life sciences

expected to grow in Japan throughCosmetics Ingredients(Silica Beads, an Environmentally Friendly
Inorganic Material)

Hiroshi Tanaka

Fine Ceramics Sector
Covered Sectors

Oil Refining Catalysts (FCC Catalysts)

Representative Director,
President,
Japan Fine Ceramics Co., Ltd.

GrowthOpportunities• Increased demand for parts used in optical communication and semiconductor applications from adoption of 5G• Increased demand for high thermal conductivity silicon nitride substrates
from adoption of EVs and HVs

Medium- to
Long-term Risks• Postponement of semiconductor investment plans from Chinese economic stagnation

Business policy
Although fiscal 2020 was affected by the

production efficiency in preparation for

spread of COVID-19 and the frictions

mass production.

involved in U.S. and Chinese trade,

In fiscal 2021, we will expand orders

orders for semiconductor-related prod-

and develop new customers and prod-

ucts recovered in the second half of theucts in the semiconductor manufacturing

fiscal year against a backdrop of

equipment-related market, which is on a

expanding demand for memory devices

continued upward trend, while working

worldwide. In addition, we have estab-to enhance quality and establish mass

lished a new production plant for highproduction systems. In addition, we will

thermal conductivity silicon nitride sub-aim to increase orders for optical com-

strates for electric vehicles (EVs) andmunication circuit boards, and to expand

hybrid vehicles (HVs), which are becom-

sales through the mass production ofing increasingly popular, and have beenhigh thermal conductivity silicon nitride

working on improving quality andsubstrates as a pillar of future earnings.

Results of Value Creation

relatively small. These include biomass

In fiscal 2021, while keeping a close

following the spread of COVID-19

Development and production of ceramicmaterials for semiconductor, automotive, telecommunications, industrial,
medical, and aerospace applications

Business policy

JGC Report 2021

Representative Director,
President,
JGC Catalysts andChemicals Ltd.

Business policy
In fiscal 2020, restrictions on movement

New Contracts in Fiscal 202089

Toshiharu Hirai• Expanding demand for new chemical refining catalysts at petroleum
refineries• Increased demand for environmental catalysts and cosmetics ingredients
made with silica beads, reflecting increased environmental awareness• Increased demand for anti-reflective materials, semiconductor abrasives,and other functional coating materials from adoption of HDTVs and
5G technology

Covered Sectors
Development and production of catalysts used in petroleum refining, chemical, and environmental conservation andof fine chemical products used asmaterials in semiconductor, IT / electronics, optics, cosmetics, and otherapplications

Covered Sectors

result, we were able to exceed our order

Catalysts andFine Chemicals Sector

High thermal conductivity silicon nitride substrates

Newly constructed production plant for highthermal conductivity silicon nitride substrates

JGC Report 2021

90

CHAPTER 05 Results of Value Creation

Analysis of Performance and Financial Position
Overview of the business environment¥7,306 million in investments and other assets, despite a

In the consolidated results for fiscal 2020, while there has been

decrease of ¥3,314 million in intangible fixed assets.

some signs of recovery in the world economy from

As a result, total assets amounted to ¥702,529 million,

the effects of COVID-19, the JGC Group’s situation in its Total

an increase of ¥31,255 million compared to the end of theEngineering segment’s oil & gas (oil refining, petrochemicals,

previous consolidated fiscal year.

gas processing, LNG, etc.) and overseas infrastructure (power
generation, non-ferrous metals, pharmaceuticals, medical care

Liabilities

facilities, etc.) sector is uncertain and energy demand remained

Total current liabilities at the end of the consolidated fiscal year

low. In addition, with regard to trends in capital investment by

under review were ¥197,055 million, a decrease of ¥31,330

customers, the price of crude oil has recovered to aroundmillion compared to the end of the previous consolidated fiscal

US$60 per barrel since the third quarter of the fiscal year, but

year. This was mainly due to an increase of ¥17,479 million inthis has not yet resulted in a change in customer trends, andadvances received for uncompleted contracts, and a decrease

the situation remains difficult to predict.

of ¥26,461 million in notes and accounts payable for construc-

Meanwhile, in the domestic sector, the impact of COVID-19

tion contracts, and a decrease of ¥20,000 million in the current

has been relatively small, and in addition to the refurbishment

portion of bonds. Total long-term liabilities totaled ¥87,857

and maintenance of refineries, there has been continuous

million, an increase of ¥35,949 million compared to the end of

capital investment in projects in the areas of renewable energy,

the previous consolidated fiscal year. This was mainly due tolife sciences, and other fields.

an increase of ¥20,000 million in bonds payable and an

In the Functional Materials Manufacturing Business, thecatalyst field has been affected by the decline in the global

increase of ¥16,436 million in long-term loans payable.
As a result, total liabilities amounted to ¥284,912 million,

economy and restrictions on movement due to the spread of

an increase of ¥4,618 million from the end of the previous

COVID-19. Customer demand was generally sluggish due toconsolidated fiscal year.

the impact of lower operating rates at domestic and overseas
refineries. Demand from customers in the fine chemicals field

Net assets

also declined due to the global economic downturn. Against

Total net assets at the end of the consolidated fiscal year undera backdrop of expanding demand for memory devices world-

review were ¥417,616 million, an increase of ¥26,636 million

wide, capital investment in the semiconductor manufacturing

compared to the end of the previous consolidated fiscal year.

equipment-related field has been actively implemented sinceThis was mainly due to the recording of ¥5,141 million in net

the second half of the fiscal year, and the information andincome attributable to shareholders of the parent company,

communications field has been recovering.

as well as a ¥16,132 million increase in foreign exchange

Results of operations
In the consolidated fiscal year under review, the JGC Group
reported net sales of ¥433,970 million (down 9.7% year
on year), operating income of ¥22,880 million (up 13.1% year
on year), ordinary income of ¥25,506 million (up 14.0% year

translation adjustments.
As a result, the shareholders’ equity ratio was 59.4% comparedwith 58.2% at the end of the previous consolidated fiscal year.

Segment information
Total Engineering Businesson year), and net income attributable to owners of the parent

In the field of overseas oil and gas, we received orders for aof ¥5,141 million (up 24.9% year on year). ROE was 1.3%.

natural gas processing facility construction project in Saudi

engaged in include the introduction of solar power generation• In January 2021, Cosmo Oil Co., Ltd. joined a feasibility study

for an industrial park in Vietnam and Mongolia’s first project foron the establishment of a supply chain for next-generation

the construction of a solar power generation facility with ansustainable aviation fuel (SAF) made from used cooking oil,energy storage system.

which is being promoted jointly with other companies, toIn the domestic sector, in addition to the maintenance ofAssetsects to install high-efficiency gas turbine power generation

Functional Materials Manufacturing Businessfacilities and mega solar power plants. In addition to theseIn the Functional Materials Manufacturing Business, the operat-

projects, we have also undertaken the construction of biomass-

ing rate of domestic and overseas refineries declined due tofired power plants in Aichi and Miyagi prefectures.

restrictions on movement following the spread of COVID-19,

In fiscal 2020, the Group was aiming for orders of ¥670

catalysts and other products. In the field of fine chemicals, theof the world economy and the impact of the slump in crude oil

global economy has been depressed due to the spread ofprices brought about by the spread of the COVID-19 epidemic,

COVID-19, and there has been a decrease mainly in the sales

the future path of customers’ investment in facilities continuedof silica sol as a support material for electromagnetic steel sheets

to be uncertain, but we have focused on projects with a highand automotive exhaust gas purification catalytic equipment,

likelihood of realizing customers’ final investment decisions, withmaterials for cosmetics, and materials for eyeglass coatings.

the result that consolidated orders received totaled ¥683.0 billion.

Also in the field of fine ceramics, orders for semiconductor-

Further, with the aim of realizing a sustainable society, thethe modification of an existing plant owned by the company.

¥10,403 million compared to the end of the previous fiscal

In addition, we invested in MODS Management Ltd., ayear. This was mainly due to a decrease of ¥2,212 million insoftware company in the United Kingdom, and concluded anotes and accounts receivable, and a decrease of ¥2,141

strategic partnership agreement for the provision of specialized

million in payments for uncompleted construction contracts

software. Furthermore, we have invested in NuScale Power,

combined with an increase of ¥6,382 million in cash and

LLC, a U.S. company developing SMRs, with the aim of enter-

deposits, and an increase of ¥13,023 million in accounts receiv-

ing the EPC business for SMR plants overseas.

able-other. Fixed assets totaled ¥154,170 million, an increase91

related products, a major market, recovered in the second halfGroup considers the environmental field to be one of its priorityof the fiscal year against the backdrop of expanding global

business fields to be addressed and we are engaged in projects

demand for semiconductor memory. In addition, a new plant

to reduce and recycle CO2 emissions as one of the priority

for the production of high thermal conductivity silicon nitride

business fields to be addressed together the development of

substrates EVs and HVs has been constructed, with the aim of

the use of CO2-free ammonia as a hydrogen energy carrier.

working to improve quality and production efficiency for mass
production.

The main initiatives in the consolidated fiscal year wereAs a result of the above efforts, the business results of theas follows:• In July 2020, a joint project with universities and other companies was launched to develop technology to fix CO2 using

Group by reportable segment for the consolidated fiscal year
under review are as shown below.

calcium contained in waste concrete and magnesium contained in seawater and waste brine, and has been adopted

Net Sales by Reportable Segment

as a commissioned research and development project byJapan’s New Energy and Industrial Technology Development
Organization (NEDO)• In October 2020, the Ebara Ube Process (EUP) license agreement was signed with Ebara for the re-application of the EUP
in the gasification and chemical recycling of waste plastics(Billions of yen)
1,000
800

828.4
670.0

643.3

600

564.0
426.7

400

388.5

200
0

37.6

39.9

42.1

46.6

45.9

2016/32017/3
2018/3
2019/32020/3
Total Engineering Business
Functional Materials Manufacturing Business

40.7
2021/3Fiscal 2020
Total Engineering
Business(Millions of yen)In the field of overseas infrastructure, as well as a feasibility

Year-on-year
Change(%)

Functional Materials
Manufacturing
Business(Millions of yen)

Year-on-year
Change(%)

Other Businesses(Millions of yen)

Year-on-year
Change(%)

of ¥20,852 million from the end of the previous consolidated

study for a waste plastic gasification and recycling plant infiscal year. This was mainly due to an increase of ¥16,860

South Korea and the front-end engineering services for a

Net Sales

388,585(8.9)

40,726(12.7)

4,658(37.0)

million in property, plant and equipment and an increase ofhydrogen production plant in Australia, the projects we are

Operating Income (Loss)

16,825

39.4

5,816

(13.7)

188(87.8)JGC Report 2021

Results of Value Creation

under review were ¥548,359 million saw an increase of

resulting in a decrease in the sales of petroleum refining

billion in the Total Engineering Business. Due to the slowdown

project in Iraq. In Saudi Arabia, we have signed a long-term
comprehensive contract with a state-owned oil company forcommercialization of SAF.

manufacturing plants, we have also received orders for proj-

Arabia, as well as for a large-scale oil refinery modernization
Total current assets at the end of the consolidated fiscal year

further accelerate efforts toward the production and full-scale

existing oil refineries and the construction of pharmaceutical

JGC Report 2021

92

CHAPTER 05 Results of Value Creation

Analysis of Performance and Financial Position

Cash flows

Cash Flow-Related Indicators

Current cash and cash equivalents (hereafter, “net cash”) on aYears Ended March 31

2019

2020

2021

year stood at ¥268,281 million, a year-on-year increase of

Shareholders’ equity ratio
(%)

57.7

58.2

59.4

¥6,382 million.

Shareholders’ equity ratio(market basis) (%)

52.4

32.6

48.7

consolidated basis as of the end of the consolidated fiscal

With regard to cash flows from operating activities, income
before taxes on income of ¥22,444 million, as well as anincrease in advances received for uncompleted contracts,
resulted in a total of ¥12,467 million for the fiscal year underreview, compared to ¥92,442 million for the previous fiscal year.
Cash flows from investing activities amounted to ¥13,520
million used in these activities, mainly due to sales of property
and equipment, compared to ¥19,364 million provided bythese activities in the previous fiscal year.
Net cash used in financing activities increased by ¥196
million, mainly due to proceeds from long-term loans, com-

Interest-bearing liabilities tocash flow ratio (Years)

—

0.6

5.5

Interest coverage ratio(Times)

—

600.9

68.2

Notes: S hareholders’ equity ratio: (Total net assets – Non-controlling interests) / Total
assets Shareholders’ equity ratio (market basis): Total market capitalization / Total
assets Interest-bearing liabilities to cash flow ratio: Interest-bearing liabilities /Cash flow Interest coverage ratio: Cash flow / Interest expense* All indicators are calculated using consolidated financial figures.
* “ Interest-bearing liabilities” includes all liabilities on the consolidated balance sheeton which interest is paid. “Cash flow” is cash flows from operating activities shown inthe consolidated statements of cash flow. “Interest expense” is the amount ofinterest paid shown in the consolidated statements of cash flows.
* In fiscal years where cash flow is negative, the interest-bearing liabilities to cash flow
ratio and the interest coverage ratio are denoted by a dash.

pared to a decline of ¥7,699 million the previous fiscal year.

Shareholders’ Equity and Shareholders’ Equity Ratio(Billions of yen)

65
418.6

400

60.7

382.2

394.7

409.2

390.5

62

57.6

57.7

59

58.2

56

200
100

53

0

0

2017/3

2018/3

2019/3

Shareholders’ Equity (left scale)
Shareholders’ Equity Ratio (right scale)

2020/32021/3¥683,068 million.

demand for LNG is expected to continue to grow over the

The tables below provide a breakdown of new contracts in

120

111.8
92.4

80
60
40
20

8.6

0

–12.9

5.5

11.7

17.2

12.4
–4.6
19.3

–20
–60

–1.0
–13.5

–28.8
–41.0

–41.8

2016/32017/3–49.7

medium to long term.
In the domestic sector, we confidently anticipate that clientsthe total engineering business by sector and region

will seek to implement capital investment plans in the fields ofchemistry, renewable energy, and healthcare / life sciences.

New Contracts by Business Sector
Years Ended March 31(Billions of yen)2021
(Percentage of
new contracts)

The impact of delays in construction work in current projects brought about by the effects of the spread of COVID-19
has been incorporated in the forecast of business results for

2020

2021

Oil and gas development projects

10.1

41.2

6.0%

Petroleum refining projects

29.0

433.2

63.4%

LNG projects

13.9

36.7

5.4%

Chemical projects

50.7

23.2

3.4%

Functional Materials Manufacturing BusinessIn the Functional Materials Manufacturing Business, in thethe next fiscal year to the extent that it is possible to assume.
However, we will keep a close watch on future trends.

Power generation, nuclear power,
and new energy

42.4

128.4

18.8%

Living and general production
facility

21.6

9.9

1.5%

Environmental protection, social
development, and IT

13.2

4.5

0.7%

we are also working to acquire new chemical catalyst projects

Others

8.4

5.5

0.8%

and expand sales of catalysts for environmental conservation.

catalyst field, in addition to expanding the domestic market
share of FCC catalysts and developing overseas operations,functional coating materials and developing multiple applica-(Billions of yen)–40
2016/3

playing an important role as a stable energy source, and theIn the fine chemicals field, we will focus on expanding sales of

100

417.1
59.4

59.1

300

environmentally friendly fossil energy sources. LNG is seen as

In the fiscal year under review, orders received totaled

Cash Flows
(%)

500

Analysis of new contracts–55.2

2018/3–59.9

2019/3

Cash Flows from Operating Activities
Cash Flows from Investing Activities
Free Cash Flow

2020/32021/3

tions, as well as expanding the supply system for cosmetic

New Contracts by Region

(Billions of yen)

Years Ended March 31

2020

2021

2021
(Percentage of
new contracts)

will also focus on expanding orders by improving productivity.

Japan

127.1

182.1

26.7%

optical communication circuit boards, and to expand orders forSoutheast Asia

29.4

9.7

1.4%

Oceania

0.6

0.3

0.1%

semiconductor-related products and high thermal conductivity

Africa

8.4

17.3

2.5%

Middle East

12.4

452.1

66.2%

Europe / CIS

2.3

0.5

0.1%

North America and Other

8.9

20.7

3.0%

materials and increasing orders by improving productivity. We
In the field of fine ceramics, we aim to increase orders forsilicon nitride substrates.

Future outlook
Total Engineering BusinessIn the overseas oil & gas sector, the future of client investment
in equipment is uncertain due to the decline in the world economy and the decrease in energy demand caused by the global
spread of COVID-19. However, as the spread of COVID-19
passes its peak, energy demand is expected to expand again,
and capital investment is also expected to recover. In theoverseas infrastructure sector, demand for energy and infrastructure is expected to continue to grow against the backdrop
Results of Value Creationof population growth and economic growth, particularly indeveloping countries. As COVID-19 moves toward convergence,
we anticipate that clients’ capital investment plans, which are
currently being postponed, will be steadily implemented. While
the spread and expansion of clean energy, such as renewableenergy and hydrogen, is being called for in order to realize a
low-carbon / decarbonized society, in the process of making
the transition to clean energy, LNG is one of the most93

JGC Report 2021

JGC Report 2021

94

CHAPTER 05 Results of Value Creation

Consolidated Balance Sheets
March 31, 2021 and 2020

2021

Millions of yen

Thousands of
U.S. dollars(Note 1)

2020

2021

ASSETS¥268,281¥261,899$2,423,277

Notes and accounts receivable (Notes 2, 9 & 15)

143,064

145,276

1,292,241

Inventories (Note 4)

32,96834,680297,787

Allowance for doubtful accounts
TOTAL CURRENT ASSETS

2020

2021

¥    589¥ 20,227$    5,320

Notes and accounts payable (Notes 2, 9 & 15)

41,77868,239377,364

Advances received on uncompleted contracts (Note 2)

100,707

83,228909,647

CURRENT LIABILITIES:Cash and deposits (Notes 3, 12 & 15)

Other current assets (Notes 2, 9 & 15)

2021
LIABILITIES AND NET ASSETSCURRENT ASSETS:

Short-term loans receivable (Notes 2, 12 & 15)

Millions of yen

Thousands of
U.S. dollars(Note 1)

Short-term loans and current maturities of long-term debt
(Notes 2, 3, 9 & 15)

447

437

4,038

103,775

95,822

937,359

Reserve for job warranty costs

1,318

976

11,905Reserve for losses on contracts

3,590

11,10932,427

(176)

(158)

(1,590)548,359

537,956

4,953,112

Income taxes payable

1,264

1,956

11,417

Other current liabilities (Notes 2, 9 & 15)

47,81042,651

431,849

TOTAL CURRENT LIABILITIES

197,056

228,386

1,779,929

Long-term debt, less current maturities (Notes 3, 9 & 15)

66,78430,347603,234

Net defined benefit liability (Note 5)

15,545

16,972

140,412Deferred tax liabilities for land revaluation (Note 13)

1,015

1,015

9,168

LONG-TERM LIABILITIES:PROPERTY AND EQUIPMENT (Note 10):

Other long-term liabilities (Note 11)

4,513

3,574

40,764TOTAL LONG-TERM LIABILITIES

87,85751,908793,578

284,913280,294

2,573,507

Land (Note 13)

18,553

18,581

167,582

TOTAL LIABILITIESBuildings and structures

61,50459,852555,542CONTINGENCIES (Note 6)

Machinery and equipment (Note 3)

61,24760,026553,220

NET ASSETS (Note 7):

Construction in progress (Note 3)

17,836910

161,106

SHAREHOLDERS’ EQUITY

Other

4,260

4,423

38,478

163,400

143,792

1,475,928

Authorized 600,000,000 shares,

Less accumulated depreciation(96,745)(93,997)(873,860)

NET PROPERTY AND EQUIPMENT

66,65549,795602,068 Issued 259,214,827 shares in 2021,
259,110,861 shares in 2020

23,612

23,555

213,278

Capital surplus

25,71025,653

232,229

Retained earnings

380,402375,6413,436,022(6,740)(6,739)(60,880)

422,984

418,1103,820,649

5,571

2,206

50,321248(1,005)2,240(10,892)(10,892)(98,383)(359)(16,491)(3,243)INTANGIBLE ASSETS (Note 16)

6,867

10,18262,027

Common stock Treasury stock, at cost 6,749,173 shares in 2021,
6,748,713 shares in 2020
TOTAL SHAREHOLDERS’ EQUITYACCUMULATED OTHER COMPREHENSIVE INCOME

INVESTMENTS AND OTHER ASSETS:

Net unrealized holding gains on securities (Notes 8 & 15)
29,57923,396

267,176

Deferred gains (losses) on hedges (Note 9)

Investment securities (Notes 3, 8 & 15)

24,621

21,412

222,392

Revaluation reserve for land (Note 13)

Long-term loans receivable (Note 15)

182

143

1,644

15,532

21,713140,294

860

569

7,768

TOTAL ACCUMULATED OTHER COMPREHENSIVE INCOME

9,874

6,108

89,188NON-CONTROLLING INTERESTSTOTAL NET ASSETS

Deferred tax assets (Note 11)
Net defined benefit asset (Note 5)
Other
TOTAL INVESTMENTS AND OTHER ASSETSTOTAL ASSETS

80,64873,341

728,462¥702,529¥671,274$6,345,669

Foreign currency translation adjustments
Remeasurements of defined benefit plans (Note 5)

TOTAL LIABILITIES AND NET ASSETS(432)(1,411)(3,902)(5,864)(27,593)(52,967)

496

463

4,480

417,616

390,980

3,772,162¥702,529¥671,274$6,345,669

Results of Value Creation

Investments in unconsolidated subsidiaries and affiliates(Notes 8 & 15)

The accompanying notes are an integral part of these statements.

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CHAPTER 05 Results of Value Creation

CHAPTER 05 Results of Value Creation

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Years ended March 31, 2021 and 2020

Years ended March 31, 2021 and 2020

Millions of yen

Thousands of
U.S. dollars(Note 1)

2021

2020

2021

NET SALES (Note 10)¥433,970¥480,810$3,919,881

2021

COST OF SALES

390,188

437,4613,524,415

Gross profit

43,782

43,349395,466

Net unrealized holding gains (losses) on securities (Notes 8 & 15)

NET INCOME

Millions of yen

Thousands of
U.S. dollars(Note 1)

2020

2021

¥ 5,208¥  4,258$ 47,042

3,330(5,190)30,079OTHER COMPREHENSIVE INCOME (Note 17)

20,902

23,115

188,800

Deferred gains (losses) on hedges (Note 9)

4,597

(728)

41,523

22,88020,234

206,666

Translation adjustments

16,407(12,165)

148,198

Remeasurements of defined benefit plans (Note 5)

1,058

(251)

9,556

Interest and dividend income

2,218

6,525

20,034

Interest expense

(180)

(187)

(1,626)

Share of other comprehensive income of affiliates accounted
for using equity method

(674)

(196)

(6,088)Gain on sales of investment securities (Note 8)

1,845

5,649

16,665TOTAL OTHER COMPREHENSIVE INCOME¥24,718¥(18,530)$223,268

TOTAL COMPREHENSIVE INCOME¥29,926¥(14,272)$270,310

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating income
OTHER INCOME (EXPENSES):

Loss on impairment of fixed assets (Notes 10 &16)

(2,911)—(26,294)

Exchange loss, net(2,059)(5,229)(18,598)

Equity in earnings of affiliates

2,187

3,876

19,754COMPREHENSIVE INCOME ATTRIBUTABLE TO:

Loss on devaluation of investment securities (Note 8)(1,357)(866)(12,257)

Owners of the parent¥29,859¥(14,412)$269,705

Non-controlling interests¥    67¥    140$    605—(3,211)

—

(179)

(848)

(1,616)

(436)

5,709

(3,938)22,44425,943

202,728

Current

13,97416,091

126,222

Deferred

3,262

5,594

29,464NET INCOME

5,208

4,258

47,042

Loss on sales of shares of subsidiaries and affiliates
Other, net (Note 8)

Income before taxes on income

The accompanying notes are an integral part of these statements.

TAXES ON INCOME (Note 11):

67

141

605

¥ 5,141¥  4,117$   46,437

Yen

U.S. dollars(Note 1)

2020

2021

NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTSNET INCOME ATTRIBUTABLE TO OWNERS OF THE PARENT

2021
AMOUNTS PER SHARE OF COMMON STOCK:Net income¥20.37¥16.32$0.18

Cash dividends applicable to the year

¥12.00¥12.00$0.11

The accompanying notes are an integral part of these statements.

Results of Value Creation

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CHAPTER 05 Results of Value Creation

Consolidated Statements of Changes in Net Assets
Years ended March 31, 2021 and 2020

Common stock
SharesCapital surplus

AmountThousands of shares

Balance at April 1, 2019
Issuance of common stock

Retained earnings

Treasury stock,at cost¥376,145¥(6,739)

Net unrealized
Deferred gains
Revaluation reserve
holding gains(losses) on hedges
for land (Note 13)(losses) on securities(Note 9)(Notes 8 & 15)

Millions of yen

259,053¥23,511¥25,609

58

44

44

Foreign currencytranslation
adjustments

Remeasurementsof defined
benefit plans (Note 5)

Non-controllinginterests

Total shareholders’equity¥1,096¥410,350

Millions of yen¥ 7,240¥   (277)¥(10,891)¥ (3,968)¥(1,376)

88

Net income attributable to owners of the parent

4,117

4,117

Cash dividends(7,191)(7,191)

Effect of change in scope of consolidation

1,001

Gain on disposal of treasury stock

1,001
(0)

(0)

1,569

Effect of change in scope of equity method accounting

1,569

Net changes in items other than shareholders’ equity(5,034)(728)(12,523)

(36)

(633)

(18,954)

Net changes during the year

58

44

44

(504)

(0)

(5,034)(728)(12,523)

(36)

(633)

(19,370)

Balance at March 31, 2020

259,111¥23,555¥25,653¥375,641¥(6,739)¥ 2,206¥(1,005)¥(16,491)¥(1,412)¥   463¥390,980

Issuance of common stock

104

57

57

¥(10,891)

Net income attributable to owners of the parent

5,141

5,141

Cash dividends(3,028)(3,028)

Effect of change in scope of consolidation

1,642

Gain on disposal of treasury stock(2,250)

(55)

(648)

(35)

(663)

(1)

Effect of change in scope of equity method accounting

(1)

1,006

Net changes in items other than shareholders’ equity

(0)

323

3,365

4,151

16,222979

33

24,750Net changes during the year

104

57

57

4,761

(1)

3,365

1,253

16,132979

33

26,636

Balance at March 31, 2021

259,215¥23,612¥25,710¥380,402¥(6,740)¥ 5,571¥   248¥(10,892)¥   (359)¥   (432)¥   496¥417,616

Common stock

Capital surplus

Retained earnings

Treasury stock,at costNet unrealized
holding gains
on securities(Notes 8 & 15)

Deferred gains
Revaluation reserve(losses) on hedges
for land (Note 13)(Note 9)Foreign currencytranslation
adjustments

Non-controllinginterests

Total shareholders’equity$(60,871)$19,926$4,182$3,531,569

Thousands of U.S. dollars (Note 1)

Balance at April 1, 2020
Issuance of common stock$212,763$231,714

515

515

Remeasurementsof defined
benefit plans (Note 5)

Thousands of U.S. dollars (Note 1)$3,393,018$ (9,078)$(98,383)$ (148,957)$(12,745)

1,030

Net income attributable to owners of the parent

46,437

Cash dividends(27,351)

Effect of change in scope of consolidation

14,831

46,437(27,351)(20,323)(497)(5,853)(316)(5,989)(9)Gain on disposal of treasury stock
Effect of change in scope of equity method accounting

(9)

9,087

(0)

2,918

30,39537,494

146,527

8,843

298

223,557

Net changes during the year

515

515

43,004(9)30,395

11,318145,714

8,843

298

240,593

Balance at March 31, 2021

$213,278$232,229$3,436,022$(60,880)$50,321$  2,240$  (3,243)$ (3,902)$4,480$3,772,162

Net changes in items other than shareholders’ equity$(98,383)

The accompanying notes are an integral part of these statements.

Results of Value Creation

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CHAPTER 05 Results of Value Creation

Consolidated Statements of Cash Flows
Years ended March 31, 2021 and 2020

2021

Millions of yen

Thousands of
U.S. dollars(Note 1)

2020

2021

2021

CASH FLOWS FROM OPERATING ACTIVITIES:
Income before taxes on income

Millions of yen

Thousands of
U.S. dollars(Note 1)

2020

2021

CASH FLOWS FROM INVESTING ACTIVITIES:¥ 22,444¥ 25,943$ 202,728

Adjustments to reconcile income before taxes on income to net cash
provided by operating activities:

Payments for purchases of property and equipment
Proceeds from sales of property and equipment¥   (8,720)¥   (4,435)$   (78,764)

46

39

415

Payments for purchases of investment securities(5,627)(1,463)(50,826)

Depreciation and amortization

6,432

7,016

58,098

Payments for purchases of intangible assets(1,487)(2,234)(13,431)

Loss on impairment of fixed assets

2,911

—

26,294

Proceeds from sales of investment securities

2,095

25,39518,923

Increase in allowance for doubtful accounts

99

3,893

894

Decrease in reserve for losses on contracts(7,454)(4,156)(67,329)

Proceeds from sales of shares of subsidiaries resulting in change inscope of consolidation

—

1,284

—

Increase (decrease) in net defined benefit plans(1,281)

836(11,571)

Other

Interest and dividend income(2,218)(6,525)(20,034)

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

180

187

1,626

Exchange (gain) loss

(2,320)2,060(20,956)

Interest expense

172

779

1,553

(13,521)

19,365(122,130)

CASH FLOWS FROM FINANCING ACTIVITIES:

Equity in earnings of affiliates(2,187)(3,876)(19,754)

Proceeds from bonds

20,000—180,652

Gain on sales of investment securities(1,845)(5,649)(16,665)

Repayment of bonds(20,000)—(180,652)

Loss on devaluation of investment securities

1,357

866

12,257

Net increase (decrease) in short-term loans

17

(13)

153

Gain on sales of property and equipment
Decrease in notes and accounts receivable

(8)

(39)

(72)

Proceeds from long-term loans

3,408

2

30,783

3,451

86,286

31,172

Repayments of long-term loans

(63)

(297)

(569)

Decrease in inventories

1,686

1,345

15,229Net (increase) decrease in treasury stock(Increase) decrease in other assets

3,479(1,343)31,424

Cash dividends paid

Decrease in notes and accounts payable(27,457)(21,642)(248,008)

Increase in advances received on uncompleted contracts

17,720

9,342

160,058

Other

9,772

8,122

88,266

Subtotal

24,761

102,666

223,657

Interest and dividends received

3,344

7,548

30,205Interest paid

(183)

(154)

(1,653)

Income taxes paid
NET CASH PROVIDED BY OPERATING ACTIVITIES

(1)

0

(9)

(3,030)(7,193)(27,369)

Cash dividends paid to non-controlling interests

(34)

(214)

(307)

Other

(100)

16

(903)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

197(7,699)1,779

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS

5,342(3,782)

48,252

4,485

100,326

40,511

261,899

160,8422,365,631

1,897

731

17,135¥268,281¥261,899$2,423,277(15,455)(17,618)(139,599)

NET INCREASE IN CASH AND CASH EQUIVALENTS¥ 12,467¥ 92,442$ 112,610

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
INCREASE IN CASH AND CASH EQUIVALENTS FROM NEWLYCONSOLIDATED SUBSIDIARIESCASH AND CASH EQUIVALENTS AT END OF YEAR (Note 12)
The accompanying notes are an integral part of these statements.

Results of Value Creation

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CHAPTER 05 Results of Value Creation

Notes to Consolidated Financial Statements
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements of JGC HOLDINGSCORPORATION (Nikki Holdings Kabushiki Kaisha, the “Company”) and its
consolidated subsidiaries have been prepared in accordance with theprovisions set forth in the Japanese Financial Instruments and Exchange
Act and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which are
different in certain respects as to application and disclosure requirementsfrom International Financial Reporting Standards (“IFRS”).
The accounts of consolidated foreign subsidiaries are prepared in accordance with either IFRS or U.S. generally accepted accounting principles(“U.S. GAAP”), with adjustments for the specified five items as applicable.
The accompanying consolidated financial statements have been translated
into English (with some expanded descriptions) from the consolidated
financial statements of the Company prepared in accordance withJapanese GAAP and filed with the appropriate Local Finance Bureau of the
Ministry of Finance as required by the Japanese Financial Instruments andExchange Act. Certain supplementary information included in the statutory
Japanese-language consolidated financial statements, but not required forfair presentation, is not presented in the accompanying consolidated
financial statements.
In addition, certain reclassifications have been made to present the accompanying consolidated financial statements in a format which is more familiar
to readers outside Japan. Furthermore, certain reclassifications of previously
reported amounts have been made to reconcile the consolidated financial
statements for the year ended March 31, 2020 to the 2021 presentation.
The translation of the Japanese yen amounts into U.S. dollars is included
solely for the convenience of readers outside Japan, using the prevailingexchange rate at March 31, 2021, which was ¥110.71 to U.S.$1. The
convenience translations should not be construed as representations that
the Japanese yen amounts could be converted into U.S. dollars at this or
any other rate of exchange.
(b) PRINCIPLES OF CONSOLIDATIONThe consolidated financial statements include the accounts of theCompany and its significant subsidiaries that include less than 50% owned
affiliates controlled through substantial ownership of majority voting rights
or existence of substantial control. All significant inter-company transactions and account balances are eliminated in consolidation.
Investments in non-consolidated subsidiaries and affiliates over which theCompany has the ability to exercise significant influence over operating andfinancial policies of the investees are accounted for by the equity method.
The numbers of consolidated subsidiaries and affiliates accounted for using
the equity method at March 31, 2021 and 2020 were as follows:
2021

2020

Consolidated subsidiaries

20

18

Affiliates under the equity method

74Consolidated subsidiaries and affiliates accounted for using the equity
method at March 31, 2021 and 2020, were as follows:
Consolidated subsidiaries

Location

Capital Share
2021

Japan

100%

100%

JGC JAPAN CORPORATION

Japan

100%

100%

JGC PLANTECH AOMORI CO., LTD.

Japan

100%

100%

JGC Catalysts and Chemicals Ltd.

Japan

100%

100%

JAPAN FINE CERAMICS CO., LTD.

Japan

100%

100%

Meito Giken Co.,Ltd.*2, *3

Japan

—

100%

NIKKI BUSINESS SERVICES CO., LTD.

Japan

100%

100%

JAPAN NUS CO., LTD.

Japan

89%

89%

JGC SINGAPORE PTE LTD

Singapore

100%

100%

JGC PHILIPPINES, INC.

Philippines

100%

100%

JGC Gulf International Co. Ltd.

Saudi Arabia

100%

100%

JGC Gulf Engineering Co. Ltd.

Saudi Arabia

75%

75%

JGC OCEANIA PTY LTD

Australia

100%

100%

JGC America, Inc.

U.S.A.

100%

100%

JGC (GULF COAST), LLC

U.S.A.

100%

100%

JGC Exploration Eagle Ford LLC

U.S.A.

100%

100%

JGC EXPLORATION CANADA LTD.

Canada100%

100%

PT. JGC INDONESIA

Indonesia

49%

49%

JGC Construction International Pte. Ltd.*5 Singapore

100%

100%

JGC SP (Malaysia) Sdn. Bhd.*5

Malaysia

100%

100%

Al Ashilah Desalination Company
S.A.O.C.*5

Oman

75%

75%

Location

Capital Share
2021

2020

Nikki-Universal Co., Ltd.

Japan

50%

50%

Swing Corporation*

Japan

33%

33%

Swing AM Corporation*4

Japan

33%

33%

Swing Engineering Corporation*4

Japan

33%

33%

A.R.C.H WLL*6

Bahrain30%

30%

Japan Sankofa Offshore Production
Pte. Ltd.*6

Singapore

26%

26%

ASH SHARQIYAH OPERATION AND
MAINTENANCE COMPANY LLC*6

Saudi Arabia

29%

29%

4

securities are required to be written down to the net asset value with thecorresponding losses in the period of decline. In these cases, such fairmarket value or the net asset value will be the carrying amount of the
securities at the beginning of the next year.

Balance sheets of consolidated overseas subsidiaries are translated into
Japanese yen at the year-end rates except for net assets accounts, which
are translated at the historical rates. Income statements of consolidated
overseas subsidiaries are translated at average rates except for transactions
with the Company, which are translated at the rates used by the Company.

(h) R ECOGNITION OF SALES, CONTRACT WORKS IN PROGRESS,
AND ADVANCES RECEIVED ON UNCOMPLETED CONTRACTS
Sales on contracts of which percentage of completion can be reliably
estimated are recognized by the percentage-of-completion method. The
percentage of completion is calculated at the cost incurred as a percentageof the total estimated cost.

2020

JGC CORPORATION*1

Affiliates under the equity method(d) C ONVERSION OF FOREIGN CURRENCIES AND TRANSLATIONOF STATEMENTS
Receivables and payables denominated in foreign currencies are translated
into Japanese yen at the year-end rates.

Investments in non-consolidated subsidiaries and affiliates not accounted
for by the equity method are carried at cost, adjusted for any substantial
and non-recoverable decline in value. The effect on net income andretained earnings from those investments not accounted for under theequity method is immaterial.
*1 In the year ended March 31, 2020, JGC CORPORATION was included in the consolidation
because it was newly established.
*2 In the year ended March 31, 2020, Meito Giken Co., Ltd. was included in the consolidation
because its effect on the consolidated financial statements became significant.
*3 In the year ended March 31, 2021, Meito Giken Co., Ltd. was excluded from the scopeof consolidation because JAPAN FINE CERAMICS CO., LTD., absorbed and merged with
it and it was liquidated.
*4 In the year ended March 31, 2020, Swing Corporation, Swing AM Corporation, andSwing Engineering Corporation were included in the scope of the equity method because
their effect on the consolidated financial statements became significant.
*5 In the year ended March 31, 2021, JGC Construction International Pte. Ltd., JGC SP(Malaysia) Sdn. Bhd., and Al Ashilah Desalination Company S.A.O.C. were included in
the consolidation because their effect on the consolidated financial statements became
significant.
*6 In the year ended March 31, 2021, A.R.C.H WLL, Japan Sankofa Offshore Production
Pte. Ltd., and ASH SHARQIYAH OPERATION AND MAINTENANCE COMPANY LLC were
included in the scope of the equity method because their effect on the consolidated
financial statements became significant.

(f) ALLOWANCE FOR DOUBTFUL ACCOUNTS
Notes and accounts receivable, including loans and other receivables, arevalued by providing for individually estimated uncollectible amounts plus
the amounts for probable losses calculated by applying a percentage
based on collection experience to the remaining accounts. In Investments
and other assets, the amount of Allowance for doubtful accounts isdeducted from Long-term loans receivable and Other.
(g) M ARKETABLE SECURITIES, INVESTMENTS IN UNCONSOLIDATEDSUBSIDIARIES AND AFFILIATES, AND INVESTMENT SECURITIESThe Company and its consolidated subsidiaries are required to examine theintent of holding each security and classify those securities as (1) securities
held for trading purposes, (2) debt securities intended to be held to maturities, (3) equity securities issued by subsidiaries and affiliates, and (4) allother securities that are not classified in any of the above categories(hereafter, “available-for-sale securities”). The Company and its consolidated subsidiaries did not have the securities defined as (1) above for theyears ended March 31, 2021 and 2020.
Available-for-sale securities with available fair market values are stated atfair market value. Unrealized gains and losses on these securities arereported, net of applicable income taxes, as a separate component of net
assets. Realized gains and losses on the sale of such securities are computed using the moving-average method. Other securities with no available
fair market value are stated at moving-average cost. Equity securities issued
by subsidiaries and affiliates, which are not consolidated or accounted forusing the equity method, are stated at moving-average cost.
If the market value of available-for-sale securities declines significantly, suchsecurities are restated at fair market value and the difference between fairmarket value and the carrying amount is recognized as loss in the period of
decline (See Note 8). For equity securities with no available fair market
value, if the net asset value of the investee declines significantly, such

103

JGC Report 2021

Contract works in progress are stated at cost determined by a specificidentification method and comprised of direct materials, components andparts, direct labor, subcontractors’ fees and other items directly attributable
to the contract, and job-related overheads. Selling, general and administrative expenses are charged to operations as incurred and are not allocatedto contract job work costs.
The Company normally receives payments from customers on a progressbasis in accordance with the terms of the respective construction contracts.
(i) INVENTORIESInventories of the Company and its consolidated subsidiaries are stated atcost determined using the moving-average method (which writes off thebook value of inventories based on decreases in profitability) except forcontract works in progress as stated in Note 1(h).
(j) OPERATING CYCLE
Assets and liabilities related to long-term contract jobs are included in
Current assets and Current liabilities in the accompanying consolidatedbalance sheets, as they will be liquidated in the normal course of contract
completion, although it may require more than one year.
(k) P ROPERTY AND EQUIPMENT, DEPRECIATION, AND FINANCE LEASES
Property and equipment are stated at cost, except for certain revalued landas explained in Note 13. Depreciation of property and equipment is calculated primarily using the straight-line method for buildings used for business
operation and structures which were acquired since April 1, 2016, and thedeclining-balance method for other property and equipment over the estimated useful lives of the assets based on the Corporate Tax Code of Japan.
Expenditures for new facilities and those that substantially increase theuseful lives of existing property and equipment are capitalized. Maintenance,
repair, and minor renewals are charged to expenses as incurred.
The cost and accumulated depreciation applicable to assets retired orotherwise disposed of are eliminated from the related accounts and thegain or loss on disposal is credited or charged to income.
(l) IMPAIRMENT OF FIXED ASSETSThe Company and its consolidated subsidiaries review their long-lived
assets for impairment whenever events or changes in circumstancesindicate the carrying amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying amount ofan asset or asset group exceeds the sum of the undiscounted future cash
flows expected to result from the continued use and eventual disposition of
the asset or asset group. The impairment loss would be measured as theamount by which the carrying amount of the asset exceeds its recoverable
amount, which is the higher of the discounted cash flows from the continued
use and eventual disposition of the asset or the net selling price at disposition.

Results of Value Creation(c) CONSOLIDATED STATEMENTS OF CASH FLOWSIn preparing the consolidated statements of cash flows, cash on hand, readily
available deposits and short-term highly liquid investments with negligible riskof changes in value, and maturities not exceeding three months at the time ofpurchase are considered to be cash and cash equivalents.

(e) U NIFICATION OF ACCOUNTING POLICIES APPLIED TO FOREIGNSUBSIDIARIES FOR CONSOLIDATED FINANCIAL STATEMENTS
The Accounting Standards Board of Japan (“ASBJ”) has issued ASBJ
Practical Issues Task Force No. 18 “Practical Solution on Unification of
Accounting Policies Applied to Foreign Subsidiaries for Consolidated
Financial Statements” (“PITF No. 18”). PITF No. 18 requires that accounting
policies and procedures applied by a parent company and its subsidiaries
to similar transactions and events under similar circumstances should, inprinciple, be unified for the preparation of the consolidated financial statements. PITF No. 18, however, as a tentative measure, allows a parent
company to prepare consolidated financial statements using foreign subsidiaries’ financial statements prepared in accordance with either IFRS or
U.S. GAAP. In this case, adjustments for the following five items are requiredin the consolidation process so that their impacts on net income are accounted
for in accordance with Japanese GAAP unless the impact is not material.
(1) Goodwill not subjected to amortization(2) A ctuarial gains and losses of defined benefit plans recognized outside
profit or loss
(3) Capitalized expenditures for research and development activities(4) F air value measurement of investment properties, and revaluation ofproperty, plant and equipment, and intangible assets(5) R eclassification adjustments recognized in other comprehensive incomeon subsequent changes of fair value of equity instruments(m) RETIREMENT AND SEVERANCE BENEFITS AND PENSION COSTS(1) E mployees’ severance and retirement benefitsThe Company and its certain consolidated subsidiaries provide two
types of post-employment benefit plans, unfunded lump-sum payment
plans and funded non-contributory pension plans, under which all eligible
employees are entitled to benefits based on the level of wages and

JGC Report 2021

104

CHAPTER 05 Results of Value Creation

Notes to Consolidated Financial Statements

salaries at the time of retirement or termination, length of service, andcertain other factors.
 he Company and its certain consolidated subsidiaries also have aTdefined contribution pension plan, which was transferred from a portionof defined benefit pension plan.
	The Company and its certain consolidated subsidiaries provided allowance for employees’ severance and retirement benefits at March 31,
2021 and 2020, based on the estimated amounts of projected benefit
obligation, actuarially calculated using certain assumptions and the fairvalue of the plan assets at that date.
	The method of attributing the amount of expected retirement benefit ineach period is a benefit formula basis.
	The Company and its consolidated subsidiaries recognize past service
costs as expenses using the straight-line method over 12 years within
the average of the estimated remaining service lives of the employees,
and actuarial gains and losses as expenses using the declining-balancemethod over 12 years within the average of the estimated remaining
service lives.
 owever, certain consolidated subsidiaries recognized actuarial differH
ences as expenses in the period incurred.
(2) O fficers’ severance and retirement benefits	Consolidated domestic subsidiaries provide for liabilities in respect of
lump-sum severance and retirement benefits to directors and corporate
statutory auditors computed on the assumption that all officers retired ata year-end.
(n) RESEARCH AND DEVELOPMENT COSTS
Research and development costs for the improvement of existing skills andtechnologies or the development of new skills and technologies, including
basic research and fundamental development costs, are charged to incomein the period incurred. The total amount of research and development
expenses, included in Cost of sales and Selling, general and administrative
expenses, was ¥7,742 million ($69,930 thousand) and ¥6,861 million,
respectively, in 2021 and 2020.
(o) TAXES ON INCOME
The Company and its consolidated subsidiaries provide tax effects of
temporary differences between the carrying amounts and the tax basis ofassets and liabilities. The asset and liability approach is used to recognize
deferred tax assets and liabilities for the expected future tax consequencesof temporary differences.
(p) RESERVE FOR JOB WARRANTY COSTS
A reserve for the estimated cost of warranty obligations is provided for
the Company’s EPC work at the time the related sales on contracts arerecorded.

(r) PER SHARE INFORMATION
Net income per share is computed by dividing net income available tocommon shareholders by the weighted-average number of common shares
outstanding for the period.

105

JGC Report 2021(s) DERIVATIVE TRANSACTIONS AND HEDGE ACCOUNTING
The accounting standard for financial instruments requires companies tostate derivative financial instruments at fair value and to recognize changes
in the fair value as gains or losses unless the derivative financial instruments
are used for hedging purposes.
If derivative financial instruments are used as hedges and meet certain
hedging criteria, the Company and its consolidated domestic subsidiaries
defer recognition of gains or losses resulting from changes in fair value ofderivative financial instruments until the related losses or gains on thehedged items are recognized.
However, in cases where foreign exchange forward contracts are used ashedges and meet certain hedging criteria, foreign exchange forward
contracts and hedged items are accounted for in the following manner(Allocation Method):(1) If a foreign exchange forward contract is executed to hedge an existing
foreign currency receivable or payable,(i)	The difference, if any, between the Japanese yen amount of thehedged foreign currency receivable or payable translated using the
spot rate at the inception date of the contract and the book value ofthe receivable or payable is recognized in the statement of income in
the period which includes the inception date, and(ii)	The discount or premium on the contract (that is, the difference between
the Japanese yen amount of the contract translated using the contracted
forward rate and that translated using the spot rate at the inception
date of the contract) is recognized over the term of the contract.
(2) If a foreign exchange forward contract is executed to hedge a futuretransaction denominated in a foreign currency, the future transaction will
be recorded using the contracted forward rate, and no gains or losseson the foreign exchange forward contract are recognized.
Also, where interest rate swap contracts are used as hedges and meetcertain hedging criteria, the net amount to be paid or received under theinterest rate swap contract is added to or deducted from the interest on theliabilities for which the swap contract was executed (Special method forinterest rate swap).
(t) ACCRUED BONUSES TO DIRECTORS AND CORPORATE AUDITORS
Accrued bonuses to directors and corporate auditors are provided by theestimated amounts, which are obligated to pay to directors and corporate
auditors after the fiscal year-end, based on services provided during thecurrent period.
(u) ACCRUED BONUSES TO EMPLOYEES
Accrued bonuses to employees are provided by the estimated amounts,
which are obligated to pay to employees after the fiscal year-end, based onservices provided during the current period.
(v) CONSOLIDATED TAX PAYMENT SYSTEMThe Company and its certain consolidated domestic subsidiaries adopt theconsolidated taxation system from the first quarter of the fiscal year ended
March 31, 2020.
(The application of Tax Effect Accounting for the Transition from theConsolidated Taxation System to the Group Tax Sharing System)
The Company and its certain consolidated domestic subsidiaries calculated
the amount of deferred tax assets and liabilities according to the tax acts
before amended based on treatment of paragraph 3 of “Practical Solution
on the Treatment of Tax Effect Accounting for the Transition from theConsolidated Taxation System to the Group Tax Sharing System” (ASBJ
Practical Issues Task Force No.39, March 31, 2020) instead of applying theprovision on paragraph 44 of “Implementation Guidance on Tax EffectAccounting” (ASBJ Guidance No. 28, February 16, 2018), regarding thetransition to the group tax sharing system established in “Act for Partial
Amendment of the Income Tax Act, etc.” (Act No.8 of 2020), and items forwhich the non-consolidated taxation system were reviewed in line with thetransition to the group tax sharing system.
(w) A CCOUNTING PRINCIPLES AND PROCEDURES ADOPTED WHEN
THE RELATED ACCOUNTING STANDARDS ARE NOT DEFINED(Accounting treatment on contracts for which orders are received
through formed joint ventures)
The Company’s share of profit and losses of joint ventures is recorded ineach account on the consolidated statements of income. In addition, theCompany’s share of net assets of joint ventures is recorded in the consolidated balance sheets.
In case of consolidated overseas subsidiaries, the related accounting treat­ment is in accordance with the IFRS or US GAAP.
(x) ADDITIONAL INFORMATIONThe Company and its certain consolidated domestic subsidiaries adopted“Accounting Standard for Accounting Policy Disclosures, Accounting
Changes and Error Corrections” (ASBJ Statement No. 24 on March 31,2020) from the year ended March 31, 2021, and disclose accounting
principles and procedures adopted when the related accounting standards
are not defined.
(y) SIGNIFICANT ACCOUNTING ESTIMATES
1. Recognition of revenue on construction contracts(1) T he amount of the percentage-of-completion method was ¥349,834
million ($3,159,913 thousand) as of the year ended March 31, 2021.
(2) S ignificant accounting estimate information for the identified items
Sales on contracts of which percentage of completion can be reliably
estimated are recognized by the percentage-of-completion method.
The percentage of completion is calculated at the cost incurred as apercentage of the total estimated cost.
Total revenue amount and total estimated costs are reasonably estimated inaccordance with the information that management has determined to be
the best at that time based on the know-how, experience, and achievements that our group has gained in past projects.
Risks in receiving orders and project execution, country risks, natural
disasters, infectious diseases, insufficient construction workers, and risks inrising wages and materials prices for equipment, fuel, and raw materials
may affect the estimated costs. If any of these risks occur, they could havea negative impact on the Company’s consolidated financial position.
2. Reserve for losses on contracts(1) T he amount of the reserve for losses on contracts was ¥3,590 million($32,427 thousand) as of the year ended March 31, 2021.
(2) S ignificant accounting estimate information for the identified items
	The reserve for losses on contracts is provided for an estimated amountof probable losses to be incurred in future years in respect of construction projects in progress.
Reserve for losses on contracts are reasonably estimated in accordancewith the information that management has determined to be the best atthat time based on the know-how, experience, and achievements that ourgroup has gained in the project.
Risks in receiving orders and project execution, country risks, natural
disasters, infectious diseases, insufficient construction workers, and risks inrising wages and materials prices for equipment, fuel, and raw materials
may affect the estimated costs. If any of these risks occur, they could havea negative impact on the amount of the reserve for losses.

3. Deferred tax assets(1) T he amount of the deferred tax assets was the same as in Note 11(2) asof the year ended March 31, 2021.
(2) S ignificant accounting estimate information for the identified items
	The deferred tax assets are recognized in accordance with the reasonably estimated future taxable income based on the future business plans
and the usage schedule of the deductible temporary difference. As theresult, the valuation allowance is provided for deferred tax assets thatare not to be realized.
The addition or reduction of the costs not expected at the time of estimation may affect the estimated amount of the future taxable income. This
may result in a negative impact on the amount of the valuation allowanceand deferred tax assets.
4. Allowance for doubtful accounts(1) T he amount of the allowance for doubtful accounts was ¥13,106 million($118,381 thousand) as of the year ended March 31, 2021.
(2) S ignificant accounting estimate information for the identified items
Notes and accounts receivable, including loans and other receivables,
are valued by providing for individually estimated uncollectible amounts
plus the amounts for probable losses calculated by applying a percentage based on collection experience to the remaining accounts.
In the future, in cases in which the debtors’ fiscal condition worsens resulting in diminished capacity for repayment, additional allowance may benecessary, or additional bad debt expenses may be incurred.
5. Retirement benefit plan assets, liabilities, and expenses(1) T he amount of retirement benefit plan assets and liabilities as of the year
ended March 31, 2021 and retirement benefit plan expenses for theyear ended March 31, 2021 are the same as in Note 5(3) and (4).
(2) S ignificant accounting estimate information for the identified items
	The Company and its certain consolidated subsidiaries have a defined
contribution pension plan, which is contract-type corporate pension
plan. The Company and its consolidated subsidiaries calculate theretirement benefit plan assets, liabilities, and expenses, based on certain
assumptions used for actuarial calculations, including discount rate,
long-term expected rate of return, and expected rate of salary increase.
The discount rate is determined based on the rates of return of Japanese
government bonds at the fiscal year-end, which corresponded with theestimated term of the retirement benefit liabilities. The expected long-term
rate of return on pension plan assets is determined based on the current
and projected assets allocations, as well as expected long-term investment
returns and risks for each category of the plan assets. The expected rate ofsalary increase is determined based on the average salary for each age
group of employees enrolled as of the base date of the fiscal recalculation.
The changes of these estimate and assumptions used for the actuarial
calculations may affect the retirement benefit plan assets, liabilities, andexpenses in the future.
Results of Value Creation(q) RESERVE FOR LOSSES ON CONTRACTS
A reserve for losses on contracts is provided for an estimated amount ofprobable losses to be incurred in future years in respect of construction
projects in progress. The reserve for losses on contracts and the related
contract work in progress are offset, and the net amount of the reserve ispresented in the consolidated balance sheets. The offset amount was¥2,203 million ($19,899 thousand) and ¥2,494 million as of the year ended
March 31, 2021 and 2020, respectively.

Cash dividends per share have been presented on an accrual basis andinclude dividends to be approved after the balance sheet date but
applicable to the year then ended.

(z) ACCOUNTING STANDARDS NOT YET APPLIED, ETC.
(Accounting standards for revenue recognition)• “ Accounting Standard for Revenue Recognition” (ASBJ Statement
No. 29, March 31, 2020)• “ Implementation Guidance on Accounting Standard for Revenue
Recognition” (ASBJ Guidance No.30, March 26, 2021)• “ Guidance on Disclosures about Fair Value of Financial Instruments”(ASBJ Guidance No. 19, March 31, 2020)

JGC Report 2021

106

CHAPTER 05 Results of Value Creation

Notes to Consolidated Financial Statements(1) Overview
The International Accounting Standards Board (IASB) and the Financial
Accounting Standards Board (FASB) in the United States jointly developed
comprehensive accounting standards for revenue recognition and published the “Revenue from Contracts with Customers” (IFRS 15 in the IASB
and Topic 606 in the FASB) in May 2014. Given that IFRS 15 has been
applied from fiscal years starting on or after January 1, 2018 and that Topic
606 has been applied from fiscal years starting after December 15, 2017,
the ASBJ has developed comprehensive accounting standards for revenue
recognition and published them in step with the Implementation Guidance.
The basic policy of the ASBJ in developing accounting standards forrevenue recognition is thought to be setting accounting standards, with theincorporation of the basic principles of IFRS 15 as a starting point, from astandpoint of comparability between financial statements, which is one of
the benefits of ensuring consistency with IFRS 15, and to be adding alternative accounting treatments without losing comparability if there is an itemthat we should take into account in practices, etc., that have been
conducted in Japan.
(2) Planned date of application
To be applied from the beginning of the year ending March 31, 2022.
(3) Impact of the application of the accounting standards, etc.
The amount of the impact on consolidated financial statements is currently
under evaluation.
(Accounting Standards for Fair Value Measurement, etc.)• “ Accounting Standard for Fair Value Measurement” (ASBJ Statement
No. 30, July 4, 2019)• “ Accounting Standard for Measurement of Inventories” (ASBJ Statement
No. 9, July 4, 2019)• “ Accounting Standard for Financial Instruments” (ASBJ Statement
No. 10, July 4, 2019)• “ Guidance on Accounting Standard for Fair Value Measurement”(ASBJ Guidance No. 31 Implementation, July 4, 2019)• “ Guidance on Disclosures about Fair Value of Financial Instruments”(ASBJ Guidance No. 19, March 31, 2020)(1) Overview
The IASB and the FASB have established detailed guidance regarding fairvalue measurement (IFRS 13 “Fair Value Measurement” in IFRS and Topic
820 “Fair Value Measurement” in FASB). The ASBJ repeatedly considered
the guidance regarding fair value of financial instruments and disclosure inorder to improve the comparability with such international accounting
standards, and issued the Accounting Standard for Fair Value Measurement
and the Implementation Guidance on Accounting Standard for Fair Value
Measurement. ASBJ’s basic policy in developing the new Fair Value measurement standards is to first incorporate the core principle of IFRS 13 in
the light of improving the international comparability of financial statements
and then add additional alternative treatments to the extent that international comparability would not be significantly impaired where any businesspractices operated in Japan need to be considered.

(aa) CHANGES IN PRESENTATION(Accounting Standards for Disclosure of Accounting Estimates)
The Company and its certain consolidated domestic subsidiaries adopted“Accounting Standards for Disclosure of Accounting Estimates” (ASBJ
Statement No. 31, March 31, 2020) from the year ended March 31, 2021,
and disclosed accounting standards of material accounting estimates.
However, the Company did not disclose this note for the year ended
March 31, 2020, in accordance with the transitional treatment of chapter
11 proviso.
(Consolidated statements of income)1. “ Provision of allowance for doubtful accounts,” which was presented
separately in the previous fiscal year, is included in “Other, net” under“Other income (expenses)” for the year ended March 31, 2021, due to its
decreased materiality. As a result, ¥3,124 million presented as “Provisionof allowance for doubtful accounts” for the previous fiscal year has been
reclassified as “Other, net.”
2. “ Gain on sales of shares of subsidiaries and affiliates”, which was presented separately in the previous fiscal year, is included in “Other, net”
under “Other income (expenses)” for the fiscal year ended March 31,
2021, due to its decreased materiality. As a result, ¥2,247 million presented as “Gain on sales of shares of subsidiaries and affiliates” for theprevious fiscal year has been reclassified as “Other, net.”(Consolidated statements of cash flows)“Loss on sales of shares of subsidiaries and affiliates,” which was presented
separately in the previous fiscal year, is included in “Other” under “Cashflows from operating activities’’ for the year ended March 31, 2021, due to its
decreased materiality. As a result, ¥964 million presented as “Loss on salesof shares of subsidiaries and affiliates” for the previous fiscal year has been
reclassified as “Other” under “Cash flows from operating activities.’’
Note 2: R
 ECEIVABLES FROM AND PAYABLES TO
UNCONSOLIDATED SUBSIDIARIES AND AFFILIATES
Major receivables from and payables to unconsolidated subsidiaries andaffiliates at March 31, 2021 and 2020, were as follows:

2021

2020

2021

Notes and accounts receivable¥   93¥2,210$   840

443

435

4,001

2,978

4,051

26,899

Short-term loans

124

107

1,120

Notes and accounts payable

640

1,040

5,781

Other current assets

Advances received on uncompleted
contracts
Other current liabilities

Millions of yen

March 31,

0

230

0

564

603

5,094

March 31,

2021

2020

2021

Balance at beginning of year

¥51,098¥50,729$461,548

Service cost

2,037

2,040

18,399Interest cost

252

294

2,276

2021

Actuarial loss

1,023

130

9,240

Benefits paid

(2,528)(2,183)(22,834)

(35)

30

(316)

2

30

18

0.48%–7.00% loans from banks¥17,148¥    367$154,891

Past service costs

0.03%–0.23% bonds due seriallythrough 2025

50,00050,000451,631

Increase in a newly consolidated
subsidiary

67,14850,367

606,522

Other

(364)

(20,020)(3,288)¥66,784¥ 30,347$603,234

Less current maturities
Long-term debt due after one year

Thousands of
U.S. dollars(Note 1)Millions of yen

Balance at end of year

21

28

190

¥51,870¥51,098$468,521(2) Movement in plan assets
Assets pledged as collateral for Short-term loans and Long-term debt at
March 31, 2021 and 2020, were as follows:
Thousands of
U.S. dollars(Note 1)Millions of yen

March 31,

2021

2020

2021

Cash and deposits¥    94¥   —$    849

93

—

840

Machinery and equipment, at net bookvalue
Construction in progress

16,842—

152,127

Investments securities

1,900

1,900

17,162¥18,929¥1,900$170,978Total

The annual maturities of Long-term debt outstanding at March 31, 2021
were as follows:
Thousands of
U.S. dollars
Millions of yen(Note 1)2022¥   364$  3,288

2023

37,874342,1012024

10,412

94,048

2025

452

4,083

2026 and thereafter

18,046

163,002¥67,148$606,522

Note 4: INVENTORIESInventories at March 31, 2021 and 2020, were summarized as follows:

Millions of yen

March 31,

Thousands of
U.S. dollars(Note 1)Thousands of
U.S. dollars(Note 1)Millions of yen

March 31,

2021

2020

2021

Balance at beginning of year

¥34,949¥35,459$315,681

Expected return on plan assets
Actuarial (gain) loss
Contributions paid by the employer
Benefits paid

537

577

4,851

2,387

(633)

21,561

976

971

8,816

(1,453)(1,453)(13,124)

8

28

71

¥37,404¥34,949$337,856

Other
Balance at end of year(3) R econciliation from retirement benefit obligations and plan assets
to net defined benefit liability and asset
Thousands of
U.S. dollars(Note 1)Millions of yen

March 31,

2021

2020

2021

Funded retirement benefit obligations¥ 37,976¥37,259$ 343,022

Plan assets(37,404)(34,949)(337,856)

572

2,310

5,166

13,894

13,839125,499

Unfunded retirement benefit obligations
Allowance for officers’ lump-sum
severance benefits

219

254

1,979

Total net defined benefit liability

14,685

16,403

132,644

Net defined benefit liability

15,545

16,972

140,412Net defined benefit asset

(860)

(569)

(7,768)¥ 14,685¥16,403$ 132,644

Total net defined benefit liability(4) Retirement benefit expenses

2021

2020

2021

¥20,849¥22,990$188,321

Finished goods and merchandise

5,593

5,366

50,519March 31,

2021

2020

2021

Works in process

2,652

2,636

23,955Service cost

¥2,037¥2,040$18,399

Interest cost

252

294

2,276

Expected return on plan assets

(537)

(577)

(4,851)Thousands of
U.S. dollars(Note 1)Inventories:
Contract works in progress

Total

3,874

3,688

34,992¥32,968¥34,680$297,787

Note 5: RETIREMENT BENEFIT PLAN
The significant components of the pension plans as of and for the years
ended March 31, 2021 and 2020, were summarized as follows:

Millions of yen

Net actuarial loss amortization

238

790

2,151

Past service cost amortization

(220)

(220)

(1,987)¥1,770¥2,327$15,988

Total retirement benefit expenses(5) Remeasurements of defined benefit plans
Thousands of
U.S. dollars(Note 1)Millions of yen

March 31,2021

Actuarial losses¥1,603¥28$14,479

Past service costs

(185)

(250)

(1,671)

29

7

262

¥1,447¥(215)$13,070

OthersTotal balance107

JGC Report 2021

Results of Value Creation(3) Impact of the application of the accounting standards, etc.
The amount of the impact on consolidated financial statements is currently
under evaluation.

2020(a) DEFINED BENEFIT PLAN
(1) Movement in retirement benefit obligations

Thousands of
U.S. dollars(Note 1)

Unsecured debt

Raw materials and others(2) Planned date of application
To be applied from the beginning of the year ending March 31, 2022.

2021

Total

March 31,
Short-term loans receivable

Long-term debt consisted of the following:

Year ending March 31,

Thousands of
U.S. dollars(Note 1)Millions of yen

Note 3: BORROWINGS AND ASSETS PLEDGED AS COLLATERAL
Short-term loans consisted mainly of unsecured notes and bank overdrafts
and bore interest at the annual rates of 0.28% and 0.30% at March 31,
2021 and 2020, respectively. Such loans are generally renewable at maturity.

2020

2021

JGC Report 2021

108

CHAPTER 05 Results of Value Creation

Notes to Consolidated Financial Statements(6) Cumulative effect of remeasurements of defined benefit plans

Millions of yen

March 31,
Actuarial losses that are yet to berecognized
Past service costs that are yet to berecognized
Total balance

2021

Thousands of
U.S. dollars(Note 1)2020¥(3,683)¥(1,938)2021$(17,505)

1,477

1,697

13,341¥   (461)¥(1,986)$ (4,164)(7) Plan assets
Components of plan assets
March 31,

March 31, 2021 March 31, 2020

Bonds

64%

68%

Equity securities

20

16

Cash and cash equivalents

1

1

Other

15

15

100%

100%

Total

The maximum amount that the Company can distribute as dividends is
calculated based on the non-consolidated financial statements of theCompany in accordance with the Law.
At the annual shareholders’ meeting of the Company held on June 29,
2021, the shareholders approved cash dividends amounting to ¥3,030
million ($27,369 thousand). Such appropriations have not been accrued in
the consolidated financial statements as of March 31, 2021. Such appropriations are recognized in the period in which they are approved by theshareholders.

(b) UNCONSOLIDATED SUBSIDIARIES AND AFFILIATES

Note 8: INFORMATION ON SECURITIES
A. The following tables summarize acquisition costs and book values statedat the fair value of securities with available fair values as of March 31,
2021 and 2020.

(c) LOSS ON DEVALUATION OF INVESTMENT SECURITIESThe Company recognized loss on devaluation for investment securities in
the amount of ¥1,357 million ($12,257 thousand) and ¥866 million for theyears ended March 31, 2021 and 2020, respectively.

AVAILABLE-FOR-SALE SECURITIES WITH AVAILABLE FAIR VALUES(1) Securities with book values exceeding acquisition costs

The Company and its consolidated domestic subsidiaries follow a policy ofdevaluation of available-for-sale securities. The policy of devaluation for theCompany and its consolidated domestic subsidiaries is that if the available
fair value of the securities declines by 50% or more, compared with acquisition cost, all the corresponding securities are devalued as such decline isconsidered to be substantial and non-recoverable in value. In addition, inthe case whereby the available fair value of the securities declines by morethan 30% but by less than 50%, the Company and its consolidated domestic subsidiaries examine the recoverability of the fair value of the securities
and devaluate if those securities are considered to be unrecoverable.

Millions of yen
Acquisition
cost

Book value

Difference

Equity securities¥6,902¥14,356¥7,454

Bonds

2,620

2,620

—

March 31, 2021

Long-term expected rate of return
Current and target asset allocations and historical and expected returns on
various categories of plan assets have been considered in determining thelong-term expected rate of return.

Millions of yen
Acquisition
cost

Book value

Difference

Equity securities¥4,672¥8,179¥3,507

Bonds

2,800

2,800

—

March 31, 2020

(8) Actuarial assumptions
The principal actuarial assumptions at March 31, 2021 and 2020, were as
follows:
March 31,

2021

Millions of yen

March 31,

2021

2020

2021

Securities of unconsolidated
subsidiaries¥10,295¥ 6,050$ 92,991

Securities of affiliates

19,284

17,346

174,185¥29,579¥23,396$267,176

Total

Discount rate

Principally 0.25% Principally

0.25%

March 31, 2021

Acquisition
cost

Long-term expected rate of returnPrincipally

1.5% Principally

1.5%

Equity securities$62,343

Expected rate of salary increase

Principally

4.4% Principally

4.4%

Bonds

23,665

Thousands of
U.S. dollars(Note 1)Millions of yen

Book value

Difference

March 31,

$129,672$67,329

Equity securities—

23,665

2021

2020

2021

Sales proceeds¥1,894¥7,938$17,108(2) Securities with book values not exceeding acquisition costs
Millions of yen

March 31, 2021

Note 6: CONTINGENCIES(1) It is a business practice in Japan for a company to guarantee theindebtedness of its trading agents, suppliers, subcontractors, andcertain subsidiaries and affiliates. The aggregate amount of suchguarantees was ¥1,033 million ($9,331 thousand) and ¥7,432 million
at March 31, 2021 and 2020, respectively.

Equity securities

Acquisition
cost

Book value

Difference

¥997

¥969

¥(28)

Millions of yen

March 31, 2020
Equity securities

Acquisition
cost

Book value

Difference¥3,270¥2,438¥(832)

Thousands of U.S. dollars (Note 1)(2) T he Company has guaranteed employees’ housing loans and othersfrom banks in the amount of ¥6 million ($54 thousand) and ¥9 million
at March 31, 2021 and 2020, respectively.

109

JGC Report 2021

Equity securities

Book value

Difference$9,006$8,753$(253)B. T
 he following tables summarize book values of securities with no available fair values or securities not valued by fair market prices as of March
31, 2021 and 2020.
(a) A VAILABLE-FOR-SALE SECURITIES WITH NO AVAILABLE
FAIR VALUES
Thousands of
U.S. dollars(Note 1)Millions of yen

March 31,

2021

2020

2021

Non-listed equity securities¥6,638¥7,957$59,959

Other

38

38

343

Total

¥6,676¥7,995$60,302

Millions of yen
Contract amountMarch 31, 2021

Due within
one year

Due after
one year

Total

Fair value

Profit or loss
evaluation

Forward exchange contracts¥86,616¥    —¥86,616

¥ 824

¥ 824

Sell Euro

Sell U.S. dollars

752

11,59812,350735

735Sell CNY

16,562—

16,562(15)(15)

Buy U.S. dollars

16,189—16,189

(843)

(843)

Buy Euro504

11,598

12,102

(747)

(747)

Buy CNY

16,562—

16,56215

15

Sell Petroleumrelated products

67

183

250

58

58

Buy Petroleumrelated products

67

183

250

(58)

(58)

Aggregate gain

1,845

5,649

16,665

Sales proceeds

24

—

217

Aggregate loss

17

—

154

Note 9: DERIVATIVE TRANSACTIONS AND HEDGE ACCOUNTING
As explained in Note 1(s), the accounting standard for financial instruments
requires companies to state derivative financial instruments at fair value andto recognize changes in the fair value as gains or losses unless derivative
financial instruments are used for hedging purposes.

Contract amountMarch 31, 2020

Due within
one year

Due after
one year

Total

Fair value

Profit or loss
evaluation

Forward exchange contracts¥71,170¥13,214¥84,384¥(878)

Sell Euro

9,940

—

9,940

25

25

Sell CNY

2,554

13,50916,063

(618)

(618)

Sell U.S. dollars¥(878)

Sell CAD

4,801

—

4,801

258

258

Buy U.S. dollars

2,514

13,214

15,728891

891

Buy CNY

2,554

13,50916,063618

61

Buy AUD

1,164

—

1,164

(184)

(184)

Buy CAD

4,801

—

4,801

(258)

(258)

Product swap

The Company utilizes foreign currency forward contracts, interest rate
swap contracts, and commodity swaps as derivative financial instruments
only for the purpose of mitigating future risks of fluctuation of foreign
currency exchange rates with respect to foreign currency receivable andpayable, and mitigating future risks of interest rate increases and fixing thefinancing costs with respect to borrowings and mitigating future risks ofprice increases and fixing the costs with respect to commodities used in
the EPC business.
Foreign currency forward contracts and interest rate swap contracts are
subject to risks of foreign exchange rate changes and interest ratechanges, respectively.
The derivative transactions are executed and managed in accordance withthe established policies and within the specified limit on the amounts ofderivative transactions allowed.
The following summarizes hedging derivative financial instruments used by
the Company and hedged items:
Hedging instruments

Hedged items

Foreign currency forward
contracts

Foreign currency accounts receivable,accounts payable and future transactions
denominated in a foreign currency

Interest rate swap contracts

Interest on loans payable

Sell Nickel

88

—

88

15

15

Buy Nickel

88

—

88

(15)

(15)

Thousands of U.S. dollars (Note 1)
Contract amountMarch 31, 2021

Due within
one year

Due after
one year

Total

Fair value

Profit or loss
evaluation

Forward exchange contracts$782,368$     —

$782,368$ 7,443$ 7,443

Sell Euro

Sell U.S. dollars

6,793

104,760

111,553

6,639

6,639

Sell CNY

149,598—

149,598

(135)

(135)

Buy U.S. dollars

146,229—

146,229(7,614)(7,614)

Buy Euro

4,552

104,760

109,312(6,747)(6,747)

Buy CNY

149,598—

149,598

135

135

Sell Petroleumrelated products

605

1,653

2,258

524

524

Buy Petroleumrelated products

605

1,653

2,258

(524)

(524)

Results of Value Creation

Note 7: NET ASSETS
Under the Japanese Corporation Law (“the Law”) and regulations, theentire amount paid for new shares is required to be designated as common
stock. However, companies may, by a resolution of the Board of Directors,
designate an amount not exceeding one-half of the price of the new sharesas additional paid-in capital, which is included in capital surplus.
Under the Law, companies are required to set aside an amount equal to atleast 10% of cash dividends and other cash appropriations in a legal
earnings reserve until the total of the legal earnings reserve and additional
paid-in capital equals 25% of common stock.
Under the Law, the legal earnings reserve and additional paid-in capital canbe used to eliminate or reduce a deficit by a resolution of the shareholders’meeting or can be capitalized by a resolution of the Board of Directors.
Additional paid-in capital and legal earnings reserve may not be distributed
as dividends. Under the Law, however, additional paid-in capital and legal
earnings reserve may be transferred to retained earnings by a resolution of
the shareholders’ meeting as long as the total amount of the legal earnings
reserve and additional paid-in capital remained equal to or exceeded 25%of common stock.

March 31, 2021

Acquisition
cost

(a) F
 AIR VALUE OF UNDESIGNATED DERIVATIVE FINANCIAL
INSTRUMENTS
Fair value of undesignated derivative financial instruments as of March 31,
2021 and 2020, is summarized as follows:

Millions of yen

Others(b) DEFINED CONTRIBUTION PENSION PLAN
The Company’s contributions were ¥405 million ($3,658 thousand) and¥440 million for the years ended March 31, 2021 and 2020, respectively.

The Company evaluates hedge effectiveness semi-annually by comparing
the cumulative changes in cash flows from or the changes in fair value ofhedged items and the corresponding changes in the hedging derivative
instruments. However, where the principal conditions underlying the hedging
instruments and the hedged assets or liabilities are similar, the evaluationof hedge effectiveness is not performed.
The Company’s financial instrument counter-parties are all prime bankswith high ratings, and the Company does not expect non-performance by
the counter-parties.

Product swap(d) S ALES OF SECURITIES CLASSIFIED AS OTHER SECURITIESThousands of U.S. dollars (Note 1)

2020

Thousands of
U.S. dollars(Note 1)

Product swap

Fair value of forward exchange contracts is stated based on the quoted
price from banks.

JGC Report 2021

110

CHAPTER 05 Results of Value Creation

Notes to Consolidated Financial Statements(b) F AIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS
DESIGNATED AS HEDGING INSTRUMENTS
Fair value of derivative financial instruments designated as hedging instruments as of March 31, 2021 and 2020, is summarized as follows:
Millions of yen

March 31, 2021
Accounting
methodContract amountHedging
instruments

Hedgeditem

Contract Portion overamountone year

Forward exchange
Allocation method
contracts(Note 1(s))
Sell U.S. dollars

Accounts¥   642
receivable

Allocation method Forward exchange(Note 1(s))
contracts Sell Euro

Accounts
receivable

Forward exchange
Allocation method
contracts(Note 1(s))
Buy U.S. dollars

Accounts
payable

Fair
value

¥   154¥   (30)

—

(6)

363

560

8

36

Allocation method Forward exchange(Note 1(s))
contracts Buy Euro

Accounts
payable

744

—

14

Interest rate swap
contracts Receive
floating and
Pay fixed swap

Long-term
debt

10,298

10,298(1,206)

Principal method(Note 1(s))

Millions of yen

March 31, 2020
Accounting
methodContract amountHedging
instruments

Hedgeditem

Contract Portion overamountone year

Fair
value

Forward exchange
Allocation method
contracts(Note 1(s))
Sell U.S. dollars

Accounts
receivable¥   484¥ —¥    (4)

Allocation method Forward exchange(Note 1(s))
contracts Sell Euro

Accounts
receivable

655

—

(2)

Allocation method Forward exchange(Note 1(s))
contracts Buy AUD

Accounts
payable

8,619—(1,355)

Forward exchange
Allocation method
contracts(Note 1(s))
Buy U.S. dollars

Accounts
payable

885

264

29

Thousands of U.S. dollars (Note 1)

March 31, 2021
Accounting
methodContract amountHedging
instruments

Hedgeditem

Contract Portion overamountone year

Forward exchange
Allocation method
contracts(Note 1(s))
Sell U.S. dollars

Accounts$ 5,799
receivable

Allocation method Forward exchange(Note 1(s))
contracts Sell Euro

Accounts
receivable

Forward exchange
Allocation method
contracts(Note 1(s))
Buy U.S. dollars

Accounts
payableAllocation method Forward exchange(Note 1(s))
contracts Buy Euro

Accounts
payableInterest rate swap
contracts Receive
floating and
Pay fixed swap

Long-term
debt

Principal method(Note 1(s))

3,279

Fair
value

$ 1,391 $   (271)—Millions of yen
Reportable Segment

Year ended March 31, 2021

Total Engineering

Functional Materials
Manufacturing

Other

Subtotal

Total

Adjustment

Consolidated¥433,970

Net sales:
External customers
Inter-segment
Total¥388,586¥40,726¥429,312¥ 4,658¥433,970¥     —

61

11

72

2,157

2,229

(2,229)—¥388,647¥40,737¥429,384¥ 6,815¥436,199¥  (2,229)¥433,970

Segment profit¥ 16,825¥ 5,817¥ 22,642¥   188¥ 22,830¥50¥ 22,880

Segment assets¥419,864¥59,822¥479,686¥29,230¥508,916¥193,613¥702,529

Impairment loss¥     —

¥    —¥     —

¥ 2,911¥  2,911¥     —¥  2,911

Depreciation and amortization¥  3,300¥ 2,669¥  5,969¥   463¥  6,432¥(0)¥  6,432

Capital expenditures¥  1,068¥ 3,645¥  4,713¥ 3,332¥  8,045¥  1,296¥  9,341*1. The “Other” category includes business activities of consulting, management of real estate and water supply and oil & gas production.
*2. “Adjustment” were as follows:(1) Adjustment for Segment profit and Depreciation and amortization represent the elimination of inter-segment transactions.
(2) A djustment for Segment assets includes corporate assets unallocated to any reportable segment of ¥203,014 million ($1,833,746 thousand). Corporate assets are mainly Cash anddeposits, Investment securities, and fixed assets (Buildings and structures, Land, etc.) of the Company.
(3) Adjustment for Capital expenditures represents corporate assets unallocated to any reportable segment.
(4) T he corporate assets are not allocated to any reportable segment, but Depreciation and amortization for the corporate assets are allocated to the reportable segments considering theburden rate.
*3. Segment profit is reconciled to Operating income of the consolidated statements of income.

Millions of yen
Reportable Segment

Year ended March 31, 2020

Total Engineering

Functional Materials
Manufacturing

Other

Subtotal

Total

Adjustment

Consolidated¥480,810

Net sales:¥426,765¥46,653¥473,418¥ 7,392¥480,810¥      
—

423

13

436

2,305

2,741

(2,741)

Total¥427,188¥46,666¥473,854¥ 9,697¥483,551¥  (2,741)¥480,810

Segment profit¥ 12,071¥ 6,743¥ 18,814¥ 1,542¥ 20,356¥   (122)¥ 20,234

Segment assets¥394,521¥59,414¥453,935¥17,613¥471,548¥199,726¥671,274

Depreciation and amortization¥  3,432¥ 2,499¥  5,931¥ 1,087¥  7,018¥     (2)¥  7,016

Capital expenditures¥  1,887¥ 3,569¥  5,456¥   417¥  5,873¥  1,941¥  7,814

External customers
Inter-segment*1. The “Other” category includes business activities of consulting, management of real estate, power and water supply and oil & gas production.
*2. “Adjustment” were as follows:(1) Adjustment for Segment profit and Depreciation and amortization represent the elimination of inter-segment transactions.
(2) A djustment for Segment assets includes corporate assets unallocated to any reportable segment of ¥200,015 million. Corporate assets are mainly Cash and deposits, Investment
securities, and fixed assets (Buildings and structures, Land, etc.) of the Company.
(3) Adjustment for Capital expenditures represents corporate assets unallocated to any reportable segment.
(4) T he corporate assets are not allocated to any reportable segment, but Depreciation and amortization for the corporate assets are allocated to the reportable segments considering theburden rate.
*3. Segment profit is reconciled to Operating income of the consolidated statements of income.

Thousands of U.S. dollars (Note 1)

5,058

72

Reportable Segment

325

Other

Total

Adjustment

Consolidated$3,877,807$ 42,074$3,919,881$       —

$3,919,881

650

19,484

20,134(20,134)—$367,961$3,878,457$ 61,558$3,940,015$  (20,134)$3,919,881$  151,974$ 52,542$  204,516$  1,698$  206,214$     452$  206,666$3,792,467$540,349$4,332,816$264,023$4,596,839$1,748,830$6,345,669

Impairment loss$       —

$     —

$       —

$ 26,294$   26,294$       —$   26,294

Depreciation and amortization$   29,808$ 24,108$   53,916$  4,182$   58,098$       (0)$   58,098

Capital expenditures$    9,647$ 32,924$   42,571$ 30,097$   72,668$   11,706$   84,374

Total Engineering

Functional Materials
Manufacturing

Subtotal$3,509,945$367,862

551

99

Total

$3,510,496

Segment profit
Segment assets

Year ended March 31, 2021
6,720

—

126

Net sales:
External customers
Inter-segment

93,01893,018(10,893)

JGC Report 2021

Results of Value CreationJGC Report 2021

The following is information about sales and profit or loss by reportable segments for the years ended March 31, 2021 and 2020:(54)

Fair value of forward exchange contracts is stated based on the quoted
price from banks.

111

Note 10: SEGMENT INFORMATION(a) OVERVIEW OF REPORTABLE SEGMENTS
The reportable segments of the Company are those units for which separate
financial statements can be obtained among the constituent units of theCompany and regularly examined by Chief Executive Officer for decisions
on the allocation of management resources and for assessing businessperformance. The operations of the Company and its consolidated subsidiaries are classified into two reportable segments: the total engineeringbusiness and the functional materials manufacturing business.
Major activities included in the total engineering business are design,
procurement, construction, and performance test services of machinery andplants for petroleum, petroleum refining, petrochemicals, gas, chemicals,
nuclear energy, metal refining, biochemical, food, pharmaceuticals, medical,
logistics, information technology, environmental conservation, and pollution
control. Major activities in the functional materials manufacturing businessinclude manufacturing and distribution of chemical and catalyst products(FCC catalysts, hydro treating catalysts, deNOx catalysts, petrochemical
catalysts, etc.) and new functional material products (colloidal silica, coating
materials for surface treatment, material for semiconductors and cosmetic
products, etc.).
In addition, since the Group changed to a holding company structure on
October 1, 2019, the Company will be responsible for group administrative
management operations.
As a result, the revenues and expenses associated with the group administrative management operations are allocated to each reportable segment.
In addition, the corporate assets retained by the Company are processed
as adjustment.
The accounting policies of the segments are substantially the same as
those described in the significant accounting policies in Note 1.

112

CHAPTER 05 Results of Value Creation

Notes to Consolidated Financial Statements(b) RELATED INFORMATION
I. INFORMATION BY GEOGRAPHY(1) Net sales
Year ended March 31, 2021
Japan

Millions of yen

East andSoutheast
Asia

Middle East

¥48,057¥31,558¥173,948

Africa¥48,004

North
AmericaOther¥124,734¥7,669

Total¥433,970*1. Net sales are classified by the place of customers’ address.

Year ended March 31, 2020

Note 11: TAXES ON INCOME
Income taxes applicable to the Company and its consolidated domestic
subsidiaries comprise corporate taxes, inhabitants’ taxes, and enterprisetaxes which, in the aggregate, resulted in statutory tax rates of 30.6% for
the years ended March 31, 2021 and 2020, respectively.
(1) T he following table summarizes the differences between the statutory
tax rate and the Company’s and its consolidated subsidiaries’ effective
tax rate for financial statement purposes for the years ended March 31,
2021 and 2020:

Millions of yen

Japan

East andSoutheast
Asia

Middle East

AfricaNorth
America

Other

Total

¥193,048¥62,710¥48,813¥64,968¥90,955¥20,316¥480,810*1. Net sales are classified by the place of customers’ address.
*2. Other includes Australia ¥7,662 million.

Year ended March 31, 2021

Thousands of U.S. dollars (Note 1)

Japan

East andSoutheast
Asia

Middle East

$1,571,204$434,080$285,051

AfricaNorth
AmericaOther$433,601 $1,126,673

Total$69,272 $3,919,881(2) Property and equipment
Thousands of
U.S. dollars(Note 1)Millions of yen

2021
Statutory tax rate

30.6%

2020
30.6%

(2) S
 ignificant components of the Company’s and its consolidated
subsidiaries’ deferred tax assets and liabilities as of March 31, 2021 and2020, were as follows:
Thousands of
U.S. dollars(Note 1)Millions of yen

March 31,

2021

2020

2021

Deferred tax assets

—

—

—

—

—

—

—

—

—

—

(606)

—

—

Reserve for losses on contracts

1,699

4,016

15,3462027 and
thereafter

17,493

158,007(14,694)(132,724)

2,799

25,283Net defined benefit liability

4,535

4,863

40,963

Total¥17,560 $158,613 ¥(14,761) $(133,330)¥2,799$25,283

Tax credit for research and development
expenses

Accrued bonuses to employees

1,942

1,913

17,541

(0.7)

(0.1)

Tax loss carryforwards with unrecognized
tax effects

Adjustment of percentage
completion method

2,322

1,369

20,9741.1

2.7

Depreciation

1,164

628

10,514

Valuation allowances

4.2

6.3

Reserve for job warranty costs

412

267

3,721

Differences in tax bases of the enterprise tax

2.1

3.6

Loss on devaluation of fixed assets

132

132

1,192

Deductible foreign corporate tax

40.9

37.4

Deferred losses on hedges

177

425

1,599

Accrued enterprise tax

190

350

1,716

1,318

1,296

11,905

83.6%

—

2024

(67)

29,753

76.8%

—

—

158,613

Effective tax rate

—

606

3,291

(0.3)

—

—

17,8770.0$     —

—

67

3,294

Other

¥    ——

2025

17,5600.5¥    — $     — ¥      — $      —

2023

2026

Tax loss carryforward*1

1.6

2022

59,986

Allowance for doubtful accounts

Past years’ corporate tax

Deferred tax
assets*II

6,125

1.6

(4.6)

Valuation
allowance

6,641

(2.9)

(3.0)

Deferred tax
Tax loss
assets*II
carryforward*I, II

Year ended
Tax loss
Valuation
March 31, 2021 carryforward*I, II allowance$  28,715

0.6

Equity in earnings of affiliates

Thousandsof U.S.
dollars(Note 1)¥   5,354

(0.6)

8.8

Millionsof yenMillionsof yen¥  3,179

Accounts payableNon-taxable dividend income—

Thousandsof U.S.
dollars(Note 1)

Loss on devaluation of investment
securities

Non-deductible expenses

Adjustment for gain on sales of sharesof affiliate

Thousandsof U.S.
dollars(Note 1)Millionsof yenOther44,56547,906

402,538

Valuation allowance for tax loss
carryforward*1(14,761)(15,369)(133,330)

Valuation allowance for deductible
temporary difference(10,428)(9,587)(94,192)

Subtotal*I.	The amount of Tax loss carryforward is an amount multiplied by the statutory tax rates.
*II.	The amount of Tax loss carryforward (amount measured using the statutory tax rates)¥17,560 million ($158,613 thousand) was mainly due to the loss before income tax atsome consolidated foreign subsidiaries, the non-taxable dividend income, the deductible
foreign corporate tax, and the deduction of deductible temporary difference of Notes
and accounts payable at the Company and some consolidated subsidiaries. Regarding
the deferred tax assets ¥2,799 million ($25,283 thousand) of the Tax loss carryforward, avaluation allowance was not recognized for the portion deemed to be recoverable basedon estimates of future taxable income.

Millions of yen

Year ended
March 31, 2020

Tax losscarryforward*I

Valuation
allowance

Deferred tax
assets*II2022¥    —¥     —

¥    —

2023

—

—

—

2024

—

—

—

2025

—

—

—

—

—

—

Year ended March 31,

2021

2020

2021

Total valuation allowances(25,189)(24,956)(227,522)

2026

Japan

¥46,762¥46,382$422,383

Total deferred tax assets

19,376

22,950175,0162027 and thereafter

17,877(15,369)

2,508

Total

¥17,877¥(15,369)¥2,508(2,372)(904)(21,425)

Net defined benefit asset

(241)

(129)

(2,177)

Deferred gains on hedges(1,025)—(9,258)

(206)

(204)

(1,862)*I.	The amount of Tax loss carryforward is an amount multiplied by the statutory tax rates.
*II.	The amount of Tax loss carryforward (amount measured using the statutory tax rates)¥17,877 million was mainly due to the loss before income tax at some consolidated
foreign subsidiaries, the non-taxable dividend income, the deductible foreign corporatetax, and the deduction of deductible temporary difference of Notes and accounts
payable at the Company and some consolidated subsidiaries. Regarding the deferred
tax assets ¥2,508 million of the Tax loss carryforward, a valuation allowance was notrecognized for the portion deemed to be recoverable based on estimates of futuretaxable income.

Other

19,893

3,413

179,685

Total¥66,655¥49,795$602,068

II. INFORMATION BY MAJOR CUSTOMERSThe following is information on major customers which account for 10% ormore of the Net sales on the consolidated statements of income for theyears ended March 31, 2021 and 2020:

Year ended March 31, 2021

Millions of yen

LNG Canada¥118,727

Year ended March 31, 2020

Millions of yen

LNG Canada

Thousands of
U.S. dollars(Note 1)

$1,072,414

Deferred tax liabilities
Net unrealized holding gains on
securities

Reserve for advanced depreciationof noncurrent assets
Total deferred tax liabilities
Net deferred tax assets

Related segments(3,844)(1,237)(34,722)¥ 15,532¥ 21,713$ 140,294*1. The amount of Tax loss carryforward and its deferred tax assets will expire as follows;

March 31,
¥81,654

Related segments

Total engineering

III. INFORMATION ON IMPAIRMENT LOSS
This information is not disclosed, as this information is disclosed in Note 10(a) for the year ended March 31, 2021.
This information is not disclosed, as there is no impairment loss for the year
ended March 31, 2020.

Thousands of
U.S. dollars(Note 1)Millions of yen

Total engineering

2021

2020

2021

Deferred tax liabilities
Undistributed earnings ofconsolidated foreign subsidiaries
OthersTotal deferred tax liabilities¥891¥  9876269560¥1,049¥960$9,475Note 12: N OTES TO THE CONSOLIDATED STATEMENTS OF
CASH FLOWS
Reconciliation of cash in the consolidated balance sheets and Cash andcash equivalents in the consolidated statements of cash flows was asfollows:
Thousands of
U.S. dollars(Note 1)Millions of yen

JGC Report 2021

2021

2020

2021

Cash and deposits¥268,281¥261,899$2,423,277

Cash and cash equivalents

268,281

261,899

2,423,277

JGC Report 2021

Results of Value Creation

March 31,

113

$8,915114

CHAPTER 05 Results of Value Creation

Notes to Consolidated Financial Statements

Note 13: LAND REVALUATION
Pursuant to Article 2 of the Enforcement Ordinance for the Law Concerning
Land Revaluation effective March 31, 1998, the Company recorded its
owned land used for business at the fair value as of March 31, 2002, andthe related revaluation difference, net of income taxes, was debited to Landrevaluation, net of deferred tax portion in the Net Assets section. The
applicable income tax portion was reported as Deferred tax liabilities forland revaluation in the consolidated balance sheets at March 31, 2021 and2020. When such land is sold, land revaluation is reversed and debited toretained earnings.
Note 14: RELATED-PARTY TRANSACTIONSThis information is not disclosed, as this is immaterial for the years ended
March 31, 2021 and 2020.
Note 15: FINANCIAL INSTRUMENTS
A. QUALITATIVE INFORMATION ON FINANCIAL INSTRUMENTS(a) POLICIES FOR USING FINANCIAL INSTRUMENTS
The Company manages surplus capital using financial instruments that areshort term and carry low risk. The Company uses derivatives to mitigate therisks that are described below, and does not use derivatives for
speculative transactions.
(b) F INANCIAL INSTRUMENTS, ASSOCIATED RISKS, AND THE RISKMANAGEMENT SYSTEM
Notes and accounts receivable expose the Company to customer credit
risk. Investment securities are mainly related to the business and capitalalliance companies and expose the Company to the changes in market
prices. Loans receivable are mainly related to subsidiaries and affiliates.
Most Notes and accounts payable are due within one year. Some accounts
payable associated with purchasing machines and construction contracts
are denominated in foreign currencies, which expose the Company to therisks of exchange rate fluctuations. The Company generally procures
capital required under its business plan through bank loans. Some bankloans and bonds expose the Company to the risks of interest rate fluctuations.
The Company uses derivatives transactions including foreign exchange
forward contracts to hedge the risk of exchange rate fluctuations associated with accounts receivable and payable denominated in foreign currencies, commodity swaps to hedge the risk of price fluctuations associatedwith commodities used in the EPC business, and interest rate swaps tohedge the risk of interest rate fluctuation associated with loans. The detailsof hedge accounting of the Company such as methods, hedging policies,
hedged items, and recognition of gain or loss on hedged positions are
explained in Note 1(s) and Note 9.

(2) M arket risk management (risk of exchange rate and prices fluctuations)	The Company monitors the balance of the foreign currency receivableand payable by each currency and every month and utilizes foreign
currency forward contracts and foreign currency deposit to hedge therisk of fluctuations. The Company uses commodity swaps to mitigate
the risk of price fluctuations associated with commodities used in the
EPC business.
	Regarding marketable securities and investment securities, theCompany periodically examines fair value and the financial conditionof the issuing entities and revises its portfolio based on its relationships
with issuing entities.
	The derivative transactions are executed and managed by the Finance &Accounting Department in accordance with the established policies andwithin the specified limit on the amounts of derivative transactions
allowed. The Department periodically provides administrative reports on
the results to the financial director and treasurer.

B. FAIR VALUES OF FINANCIAL INFORMATION(a) FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values of financial instruments as of March 31, 2021 and 2020, were summarized as follows:
The financial instruments, whose fair values were difficult to measure, were not included in the table below and were summarized in B(b).
Millions of yen

Year ended March 31,(d) S UPPLEMENTAL INFORMATION ON THE FAIR VALUE OF
FINANCIAL INSTRUMENTS	The fair value of financial instruments is based on market prices, or areasonable estimate of fair value for instruments for which market prices
are not available. Estimates of fair value are subject to fluctuation
because they employ variable factors and assumptions.
	In addition, the contractual amounts of the derivatives transactions
discussed in B(a) below are not an indicator of the market risk associatedwith derivatives transactions.

Tax loss carryforward*1

2020

Valuation allowance

Deferred tax assets*2

Tax loss carryforward*1

Valuation allowance

Deferred tax assets*2

Cash and deposits¥268,281¥268,281¥ —¥261,899¥261,899¥—

Notes and accounts receivable, net*1

143,064

143,064—

145,276

145,276

—

447

447

—

437

437

—

Other receivables*2

97,097

97,097—

84,074

84,074—

Investment securities

17,945

17,945—

13,416

13,416

—

182

186

4

143

145

2

¥527,016¥527,020¥  4¥505,245¥505,247

2

Short-term loans receivable

Long-term loans receivable, net*1
Total assets¥ 41,778¥ 41,778¥ —¥ 68,239¥ 68,239¥—

Short-term debt

589

589

—

227

227

¥—

Long-term debt*3

66,784

66,960176

50,34750,39548

Total liabilities¥109,151¥109,327¥176¥118,813¥118,861¥48

Derivative financial instruments, net¥  (1,223)¥  (1,223)¥ —¥   (1,478)¥   (1,478)¥—

Notes and accounts payable(3) M anagement of liquidity risk associated with capital procurement(payment default risk)
	The Company manages liquidity risk by creating and updating a financing
plan based on reports from each division.

Thousands of U.S. dollars (Note 1)

2021

Thousands of U.S. dollars (Note 1)

2021
Year ended March 31,

Tax loss carryforward*1

Valuation allowance

Deferred tax assets*2

Cash and deposits$2,423,277$2,423,277$   —

Notes and accounts receivable, net*1

1,292,241

1,292,241

—

4,038

4,038

—

Other receivables*2

877,039877,039—

Investment securities

162,090

162,090

—

1,644

1,680

36

$4,760,329$4,760,365$   36$   —

Short-term loans receivable

Long-term loans receivable, net*1
Total assets
Notes and accounts payable$  377,364$  377,364

Short-term debt

5,320

5,320

—

Long-term debt*3

603,234

604,824

1,590

Total liabilities$  985,918$  987,508$1,590Derivative financial instruments, net$   (11,047)$   (11,047)

$   —

*1. T
 he amount of individual allowance for doubtful accounts is deducted from Notes and accounts receivable and Long-term loans receivable.
*2. O ther receivables are classified as Other current assets in the consolidated balance sheets.
*3. The current portion of bonds payable are included in Long-term debt.

(c) RISK MANAGEMENT SYSTEM FOR FINANCIAL INSTRUMENTS(1) Credit risk management (counter-party risk)
	The Company has established internal procedures for receivables underwhich the related divisions are primarily responsible for periodicallymonitoring counter-party status. The department manages amounts andsettlement dates by counter-party and works to quickly identify andmitigate payment risk that may result from situations including deterioration of the financial condition of counter-parties.
In using derivatives transactions, the Company mitigates counter-party risk
by conducting transactions with highly creditworthy financial institutions.
Results of Value Creation

115

JGC Report 2021

JGC Report 2021

116

CHAPTER 05 Results of Value Creation

Notes to Consolidated Financial Statements

The following methods and assumptions were used to estimate the fairvalue of the financial instruments.
Cash and deposits, and Marketable securities
All deposits and negotiable certificates of deposit are short term. Therefore,
the carrying amount is used for the fair value of these items because theseamounts are essentially the same.
Notes and accounts receivable
Notes and accounts receivable are short term. Therefore, the carrying
amount is used for the fair value of short-term receivables because theseamounts are essentially the same.

(b) F INANCIAL INSTRUMENTS WHOSE FAIR VALUES WERE
DIFFICULT TO MEASURE
The financial instruments whose fair values were difficult to measure, as ofMarch 31, 2021 and 2020, were summarized as follows:

Note 17: OTHER COMPREHENSIVE INCOME
Reclassification adjustments of the Company’s and consolidated subsidiaries’ other comprehensive income for the years ended March 31, 2021 and2020, were as follows:

Thousands of
U.S. dollars(Note 1)Thousands of
U.S. dollars(Note 1)

2021

Millions of yen

March 31,

2021

2020

2021

Unconsolidated subsidiaries andaffiliates¥29,579¥23,396$267,176

6,638

7,957

59,958

38

38

343

Non-listed equity securities
Other

March 31,

Short-term loans receivable
Short-term loans receivable are short term. Therefore, the carrying amountis used for the fair value of short term receivables because these amounts
are essentially the same.

It is difficult to measure the fair value of these financial instruments because
there is no market price available and it is not practical to calculate future
cash flow. Therefore, these financial instruments were not included in theInvestment securities described in B(a).

Other receivables
Other receivables are short term. Therefore, the carrying amount is used forthe fair value of short-term receivables because these amounts are essentially the same.

(c) MATURITIES OF FINANCIAL INSTRUMENTS
The maturities of the financial instruments at March 31, 2021, were as
follows:

Investment securities
Fair value of Investment securities is the price listed on securities
exchanges for equities. In addition, Note 8 provides information on marketable securities by holding intent.

Year ending March 31,

2022

Cash and deposits
Notes and accounts receivable

Long-term loans receivable
Fair value of long-term loans receivable is estimated as discounted present
value of total principal and interest using assumed interest rates for equivalent new loans. With respect to doubtful claims, because the amountobtained by deducting the irrecoverable balance estimated based oncollectable amounts from the amount stated in the consolidated balance
sheet as of the current year approximate the fair value, this amount isdeemed to be the fair value.

Long-term loans receivable, net
Total assets

Long-term debt
Floating-rate long-term debt reflects market interest rates. In addition, fairvalue approximates carrying amount because the Company’s creditworthiness does not vary significantly after assuming long-term debts. Therefore,
carrying amount is used for fair value of floating-rate long-term debt. Fair valueof fixed-rate long-term debt is the discounted value of total principal andinterest using assumed interest rates on equivalent new loans and bonds.

117

JGC Report 2021

¥ 5,374¥ (2,653)

Reclassification adjustment(576)(4,825)(5,203)

Subtotal

4,798(7,478)43,3386,181(1,081)

55,831

—

108

—

6,181

(973)

55,831

16,407(12,165)

148,198———

16,407(12,165)

148,198

1,055

(651)

9,529

392

436

3,541

1,447

(215)

13,070

(589)

(344)

(5,320)$ 48,541

Deferred gains (losses) on hedges
Deferred gains (losses) on hedges
arising during the year
Reclassification adjustment

Reclassification adjustment
Subtotal
Remeasurements of defined benefit
plans

2023–2026

2027–2031

2032 and
thereafter¥268,281

¥  —

¥—

¥—

Defined benefit plans during the year

143,064———

Reclassification adjustment

447

—

—

—

Subtotal

97,097

—

—

—

—

182

—

—

¥508,889

¥182

¥—

¥—

Thousands of U.S. dollars (Note 1)

Equity for equity-method affiliates
Share of other comprehensive incomeof affiliates accounted for using equity
method arising during the year
Reclassification adjustment

(85)

148

(768)

Subtotal

(674)

(196)

(6,088)254,349

2023–2026

2027–2031

2032 and
thereafter

Before-tax amount

28,159(21,027)$2,423,277

$   —

$—

$—

Income tax effect(3,441)

2,497(31,081)

Notes and accounts receivable 1,292,241

—

—

—

Total other comprehensive income¥24,718¥(18,530)$223,268

Year ending March 31,

2022

Cash and deposits
Short-term loans receivable
Other receivable
Long-term loans receivable, net
Total assets

4,038

—

—

—

877,039

—

—

—

—

1,644

—

—

$4,596,595$1,644$—$—

Tax effects allocated to each component of other comprehensive income
for the years ended March 31, 2021 and 2020, were as follows:
Millions of yen

Note 16: IMPAIRMENT OF FIXED ASSETSAs discussed in Note 1(l), the Company and its consolidated subsidiaries
have applied the accounting standard for impairment of fixed assets.
The following is information on impairment loss for the year ended
March 31, 2021.
Location

Use

Type of assets

U.S.A.

Oil & gas production andsales business

Intangible assets

Before-tax
amount*1

Income tax
effectNet-of-tax
amount¥ 4,798¥(1,468)¥ 3,330

Deferred gains (losses) on hedges

6,181(1,584)

4,597

Translation adjustments

16,407—

16,407

Remeasurements of defined benefit
plans

1,447

(389)

1,058

Year ended March 31, 2021
Net unrealized holding gains (losses)
on securities

Equity for equity-method affiliates
Other comprehensive income

(674)

—

(674)

¥28,159¥(3,441)¥24,718

Millions of yen

The Company grouped the assets for oil & gas production and sales
business based on individual countries. Carrying amount of certain assets
was devalued to their recoverable amounts, since the oil & gas businessenvironment had significantly changed. As a result, the Company recognized
loss on impairment in the amount of ¥2,897 million ($26,167 thousand).
The Company measured the recoverable amounts of the related assets
based on the value in use by applying a discount rate of 10% to theestimated future cash flows.
Other impairment losses are not disclosed since they are immaterial.
This information is not disclosed, as there is no impairment loss for the year
ended March 31, 2020.

Year ended March 31, 2020
Net unrealized holding gains (losses)
on securities
Deferred gains (losses) on hedges
Translation adjustments
Remeasurements of defined benefit
plans
Equity for equity-method affiliates
Other comprehensive income

Before-tax
amount*1

Income tax
effectNet-of-tax
amount¥ (7,478)¥2,288¥ (5,190)

(973)

245

(728)

(12,165)—(12,165)

(215)

(36)

(251)

(196)

—

(196)

¥(21,027)¥2,497¥(18,530)

Income tax
effectNet-of-tax
amount$ 43,338$(13,259)$ 30,079

Deferred gains (losses) on hedges

55,831(14,308)

41,523

Translation adjustments

148,198—

148,198

Remeasurements of defined benefit
plans

13,070(3,514)9,556

Equity for equity-method affiliates(6,088)—(6,088)$254,349$(31,081)$223,268

Year ended March 31, 2021
Net unrealized holding gains (losses)
on securities

Other comprehensive income

Note 18: SUBSEQUENT EVENT
A lawsuit was filed in the Yokohama District Court on April 16, 2021, as set
out below.
1. Background of the Lawsuit
The Company’s subsidiary formed a joint venture company JKC Australia
LNG Pty Ltd. (the “JV”) with KBR. and Chiyoda Corporation, and wasawarded a project for the EPC and commissioning of onshore LNG facilities
in Darwin, Australia (the “Ichthys LNG project”) from ICHTHYS LNG PTY
Ltd (the “Plaintiff”), an equity-method affiliated company of INPEXCorporation, in 2012. All plant facilities have been completed and delivered.
In the course of the execution of the Ichthys LNG project, subcontractors
requested additional payments to cover their increased costs. A funding
deed (the “Deed”) in the sum of A$757,727,884.46 was agreed and payment was made by the Plaintiff to the JV for additional costs. Subsequently,
a dispute concerning the settlement of the additional costs arose, and an
arbitration is being conducted in Singapore. During the course of thearbitration, the Plaintiff demanded that the JV returns the full amount of thefunds by the end of December 2020, but the JV refused on the grounds
that the correct settlement procedures under the Deed had not been
followed and the arbitration award to determine this had not been made.
Having considered this, the Plaintiff delivered a letter dated January 15,
2021, to the parent companies of the JV, namely KBR, Inc., Chiyoda
Corporation, and the Company (the “Parent Companies”). The letter
requested the Parent Companies to pay the same amount to the Plaintiff
based on the parent company guarantee deeds. However, the Parent
Companies declined the request for the same reasons mentioned above.
The liability share of the partners in the JV is JGC: 40%, KBR: 30%, andChiyoda: 30%.
2. Plaintiff(1) Name: ICHTHYS LNG PTY Ltd(2) A ddress: 22nd Floor, 100 St George’s Terrace, Perth, Western Australia,
Australia(3) N ame and Title of Representative: Tetsuhiro Murayama, Representative
Director
3. Outline of the Lawsuit and Amount Claimed(1) Statement of Claim	The Plaintiff seeks subrogation against the Company, by way of performance of the parent company guarantee deed, for the full amount of thefunds provided by the Plaintiff to the JV under the Deed.
(2) Amount of Claim	A$757,772,884.46 and legal costs relating to the case

Results of Value Creation

Derivative financial instruments
Please refer to Note 1(s) and Note 9.

Unrealized holding gains (losses)
arising during the year

Translation adjustments arisingduring the year

Please see Note 3 for the maturities of long-term debt.
Short-term debt
Short-term debt is short term. Therefore, carrying amount is used for thefair value of short-term debt because this amount is essentially the same.

2020

Translation adjustments

Millions of yen

Short-term loans receivable2021

Net unrealized holding gains (losses)
on securities

Subtotal

Other receivable

Notes and accounts payable
Notes and accounts payable are short term. Therefore, carrying amount isused for the fair value of short-term payables because these amounts are
essentially the same.

Millions of yen

Thousands of U.S. dollars (Note 1)
Before-tax
amount*1

4. Future Outlook
The Company will examine the details of this lawsuit and take appropriate
action. The impact of this litigation on the Company’s business result iscurrently unknown.

JGC Report 2021

118

CHAPTER 05 Results of Value Creation

CHAPTER 05 Results of Value Creation

Notes to Consolidated Financial Statements

Independent Auditor’s Report

Note 19: OTHER(Ichthys LNG Project)
JKC Australia LNG Pty Ltd., an Australian company operating as a joint
venture among KBR, Chiyoda Corporation, and the Company’s subsidiary,(“JV”) contracted in 2012 with ICHTHYS LNG PTY Ltd., being an equitymethod affiliated company of INPEX Corporation (the “Client”) to performthe EPC and commissioning of onshore LNG facilities in Darwin, Australia(“Ichthys LNG project”). The execution of the Ichthys LNG project has been
substantially completed and the plant handed over to the Client inAugust 2018.
Notwithstanding the above situation, the JV and the Client have notreached a final settlement about part of the additional costs incurred due toincrease in services scope and other factors, and the parties are currently
under a few arbitration processes.
Regarding reimbursement of part of additional costs of subcontracts, theJV and the Client did not reach an agreement. Therefore, as a tentative
measure, in December 2016 the JV and the Client agreed to a deed for
during (the “Deed”), under which the Client would provide the funds andthe JV continue construction utilizing them. The repayment deadline was
set to be December 31, 2020. Subsequently, the JV initiated an arbitration
requesting a determination that the Client bears the additional costs of
subcontracts as reimbursable costs and the funds provided under the
Deed be recognized as the definite payment. In early December 2020, thearbitration court gave a partial award that determination as definitive reimbursable costs cannot be made as it is necessary to assess whether eachcost item is regarded as a legitimate additional cost under the subcontracts. Having received this partial award, the Client requested that the JV
refund the full amount of the payment immediately under the Deed. Also, inthe middle January 2021, the Client required that the parent companies of
the JV, namely KBR, Inc., Chiyoda Corporation, and the Company (the“Parent Companies”) pay the same amount to the Client based on theparent company guarantees. In response, the JV requested that the Client
first go through the settlement process specified in the Deed. In this connection, the Parent Companies are continuing to negotiate with the Client,
together with other issues that have not reached agreements. In April 2021,
the Client filed a suit in Japan against the Company seeking repayment of
the funding referring to the parent company guarantee issued by theCompany. The liability share of the Company in the JV is 40%, amounting
to about A$303 million.

JGC Report 2021

In view of the above overall, if the arbitrations against the Client or theConsortium lead to a disadvantageous result for the JV, this could havea negative impact on the Company’s consolidated financial position.

To the Board of Directors of JGC Holdings Corporation:
OpinionWe have audited the accompanying consolidated financial statements of
JGC Holdings Corporation and its consolidated subsidiaries (collectively
referred to as “the Group”), which comprise the consolidated balance
sheets as at March 31, 2021 and 2020, the consolidated statements ofincome, comprehensive income, changes in net assets and cash flows forthe years then ended, and notes to consolidated financial statements,
comprising a summary of significant accounting policies and other explanatory information.
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the consolidated financial position of theGroup as at March 31, 2021 and 2020, and its consolidated financial
performance and its consolidated cash flows for the years then ended inaccordance with accounting principles generally accepted in Japan.

Basis for Opinion
We conducted our audit in accordance with auditing standards generally
accepted in Japan. Our responsibilities under those standards are further
described in the Auditor’s Responsibilities for the Audit of the Consolidated
Financial Statements section of our report. We are independent of theGroup in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Japan, and we havefulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficientand appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment,
were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context
of our audit of the consolidated financial statements as a whole, and informing our opinion thereon, and we do not provide a separate opinion onthese matters.

Reasonableness of the Group’s estimate of total revenue amount and total estimated costs related to construction contracts applying thepercentage-of-completion method and construction contracts recognizing a reserve for losses on contracts
The key audit matter

How the matter was addressed in our audit

As described in Note 1 (y), “Significant Accounting Estimates,
1. Recognition of revenue on construction contracts, and 2. Reserve forlosses on contracts,” to the consolidated financial statements, the Groupapplied the percentage-of-completion method (the percentage of completion of construction contracts is determined using the cost-to-cost method)
to the construction contracts for which the realization of the completed
portion was assured at the end of the current fiscal year. In addition, areserve for losses was provided for an estimated amount of probablelosses to be incurred on and after the beginning of the subsequent fiscal
year in respect of construction contracts whose constructions were notdelivered at the end of the current fiscal year and for which the losses were
probable and reasonably estimable. The revenue from construction contracts recognized using the percentage-of-completion method amounted to¥349,834 million for the current fiscal year, representing 81% of the total
net sales in the consolidated financial statements. The amount of thereserve for losses on contracts recognized at the end of the current fiscal
year was ¥3,590 million.
In applying these accounting policies, the Group reasonably estimates total
revenue amount and total estimated costs, and the percentage of completion of construction at the end of a reporting period. Based on the estimates, the Group recognized revenue from construction contracts and areserve for losses on contracts.
The construction contracts applying the percentage-of-completion method
and the construction contracts recognizing a reserve for losses on contracts were related to the EPC (Engineering, Procurement andConstruction) businesses of each plant in the total engineering business.
Total revenue amount and total estimated costs were estimated based on
the know-how and experience acquired from the implementation of the
EPC projects in the past. However, the projects which took a long timefrom the signing of a contract to delivery of a plant may have required
adjustments of transaction prices due to revisions of work plans to respondto changes of construction environments which had not been expected in
the initial plans, performance or quality of deliverables or late delivery,
whereby the estimated total revenue amount and total estimated costs may
have been significantly updated. Therefore, management’s judgment had asignificant effect on the estimated total revenue amount and total estimatedcosts at the end of the reporting periods.
We, therefore, determined that our assessment of the reasonableness of
the Group’s estimate of total revenue amount and total estimated costs
related to construction contracts applying the percentage-of-completion
method and construction contracts recognizing reserve for losses oncontracts was the most significant in our audit of the consolidated financial
statements for the current fiscal year, and accordingly, a key audit matter.

The primary procedures we performed to assess that the Group’s estimateof total revenue amount and total estimated costs related to construction
contracts applying the percentage-of-completion method and the construction contracts recognizing a reserve for losses on contracts wasappropriate included the following:(1) Internal control testing
We tested the design and operating effectiveness of certain of the Group’s
internal controls relevant to the estimation of total revenue amount and total
estimated costs. In this assessment, we focused our testing on the following controls over:•d etermination of total estimated costs•u pdate of the estimated construction revenue and costs•a pproval of a reserve for losses on contracts(2)	Assessment of the reasonableness of the estimate of total revenue amount and total estimated costs
We selected construction contracts which could be significantly impacted
by updates of the estimated total revenue amount and total estimated costs.
In addition, in order to assess the reasonableness of key assumptions, we:•a ssessed that all the activities required to complete construction
contracts were identified and their estimated costs were included in
the breakdown schedule of total estimated costs by inspecting theconstruction contracts and other relevant documents;•a ssessed the accuracy of the total estimated costs by comparing thepreliminary estimate with its fixed or revised estimate per item;• inquired of personnel responsible for a project regarding the overview
and progress of the construction and assessed that the information in
the schedule of the construction management was consistent with thepercentage of completion of construction determined using thecost-to-cost method;• inspected the relevant documents and inquired of personnel responsible for a project about any changes in circumstances that occurred
after the start of construction and their judgment on the updates of
estimated total revenue amount and total estimated costs, as well as
assessed that any impacts from the changes on the related work
plans and construction schedule were reflected in the estimated total
revenue amount and total estimated costs in a timely and appropriatemanner, if any; and•a ssessed management’s judgment on the impact on the estimates of
total revenue amount and total estimated costs from the adjustmentsof the transaction prices for the construction contracts, for whichsignificant negotiations and arbitration with customers or subcontractors were made on how costs are shared, by inspecting legal documents which management obtained from external attorneys.

JGC Report 2021

Results of Value Creation

119

In addition, to fulfill its obligations under the contract with the Client, the JVawarded a fixed-price EPC contract to a subcontractor for the design,
procurement, construction, and commissioning of the combined cycle
power plant (the “Power Plant”). The subcontractor was a consortium
consisting of General Electric Company, General Electric International, Inc.,UGL Engineering Pty Limited and CH2M Hill Australia Pty. Limited(the “Consortium”). During the execution of the Ichthys LNG project, theConsortium unilaterally repudiated the contract and entered into an arbitration demanding damages. While the JV hired another subcontractor andpaid the costs to complete the Power Plant, the JV is making a counterclaim under the arbitration, pursuing recourse against the Consortium torecover all of the costs.

120

CHAPTER 05 Results of Value Creation

Independent Auditor’s Report

Responsibilities of Management and Audit & supervisory board
members and audit & supervisory board for the Consolidated
Financial Statements
Management is responsible for the preparation and fair presentation of theconsolidated financial statements in accordance with accounting principles
generally accepted in Japan, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud
or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern in accordancewith accounting principles generally accepted in Japan
Audit & supervisory board members and audit & supervisory board are
responsible for overseeing the directors’ performance of their duties withregard to the design, implementation and maintenance of the Group’s
financial reporting process.

121

JGC Report 2021

We communicate with audit & supervisory board members and audit &supervisory board regarding, among other matters, the planned scope andtiming of the audit, significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.
We also provide audit & supervisory board members and audit & supervisory board with a statement that we have complied with relevant ethicalrequirements regarding independence, and communicate with them all
relationships and other matters that may reasonably be thought to bear on
our independence, and where applicable, related safeguards.
From the matters communicated with audit & supervisory board members
and audit & supervisory board, we determine those matters that were ofmost significance in the audit of the consolidated financial statements ofthe current period and are therefore the key audit matters. We describe
these matters in our auditor’s report unless law or regulation precludes
public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in ourreport because the adverse consequences of doing so would reasonably
be expected to outweigh the public interest benefits of such communication.
Convenience Translation
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2021 are presented solely
for convenience. Our audit also included the translation of yen amounts into
U.S. dollar amounts and, in our opinion, such translation has been madeon the basis described in Note 1 to the consolidated financial statements.
Interest required to be disclosed by the Certified Public
Accountants Act of Japan
We do not have any interest in the Group which is required to be disclosed
pursuant to the provisions of the Certified Public Accountants Act of Japan.

Takemitsu Nemoto
Designated Engagement Partner
Certified Public Accountant

Atsushi Nagata
Designated Engagement Partner
Certified Public Accountant

Results of Value Creation

Auditor’s Responsibilities for the Audit of the Consolidated Financial
Statements
Our objectives are to obtain reasonable assurance about whether the
consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s reportthat includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance withauditing standards generally accepted in Japan will always detect a material misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions of users
taken on the basis of these consolidated financial statements.
As part of our audit in accordance with auditing standards generally
accepted in Japan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design andperform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our
opinion. The risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, orthe override of internal control.
•O btain an understanding of internal control relevant to the audit inorder to design audit procedures that are appropriate in the circumstances, while the objective of the audit is not to express an opinion
on the effectiveness of the Group’s internal control.
•E valuate the appropriateness of accounting policies used and thereasonableness of accounting estimates and related disclosures madeby management.
•C onclude on the appropriateness of management’s use of the going
concern basis of accounting and based on the audit evidence
obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the Group’s ability tocontinue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s reportto the related disclosures in the consolidated financial statements or, if
such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditor’s report. However, future events or conditions may cause theGroup to cease to continue as a going concern.
•E valuate whether the presentation and disclosures in the consolidated
financial statements are in accordance with accounting standards
generally accepted in Japan, the overall presentation, structure andcontent of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent
the underlying transactions and events in a manner that achieves
fair presentation.

•O btain sufficient appropriate audit evidence regarding the financial
information of the entities or business activities within the Group to
express an opinion on the consolidated financial statements. We areresponsible for the direction, supervision and performance of thegroup audit. We remain solely responsible for our audit opinion.

Takashi Inoue
Designated Engagement Partner
Certified Public Accountant

KPMG AZSA LLC
Yokohama Office, Japan
June 29, 2021

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122

CHAPTER 05 Results of Value Creation

CHAPTER 05 Results of Value Creation

Supplemental Explanation

Internal Control Report (Translation)

Internal Control over Financial Reporting in Japan
Under the Financial Instruments and Exchange Act in Japan (“the Act”), which was enacted in June 2006, the management of all listed companies in Japanare required to implement assessments of internal control over financial reporting (“ICOFR”) as of the end of the fiscal year and the management assessment
shall be audited by independent auditors, effective from the fiscal year beginning on or after April 1, 2008.

NOTE
The following is an English translation of the report on internal control over financial reporting filed under the Financial Instruments and Exchange Act in Japan(“ICOFR under the Act”). This report is presented merely as supplemental information.

We have evaluated our ICOFR as of March 31, 2021, in accordance with “On the Revision of the Standards and Practice Standards for Management
Assessment and Audit concerning Internal Control Over Financial Reporting (Council Opinions)” published by the Business Accounting Council on March 30,
2011.
As a result of conducting the evaluation of ICOFR for the year ended March 31, 2021, we concluded that our internal control system over financial reporting asof March 31, 2021, was operating effectively and reported as such in the Internal Control Report.

There are differences between the management assessment of ICOFR under the Act and one conducted under the attestation standards established by theAmerican Institute of Certified Public Accountants (“AICPA”).
In the management assessment of ICOFR under the Act, there is detailed guidance on the scope of the management assessment of ICOFR, such as quantitative guidance on business location selection and/or account selection. In the management assessment of ICOFR under the attestation standards establishedby the AICPA, there is no such guidance. Accordingly, based on the quantitative guidance which provides an approximate measure for the scope of assessment of internal control over business processes, we used a measure of approximately two-thirds of total sales and others for the selection of significant
locations and business units.

Independent Auditor, KPMG AZSA LLC, performed an audit of our management assessment on the effectiveness of ICOFR under the Act.
[TRANSLATION]
An English translation of the Internal Control Report and the Independent Auditor’s Report on the financial Statements and Internal Control Over Financial
Reporting filed under the Act is provided on the following pages.
JGC Holdings Corporation

Internal Control Report
1. Framework of Internal Control Over Financial Reporting
Masayuki Sato, Representative Director, Chairman and CEO, and Kiyotaka Terajima, Chief Financial Officer of JGC Holdings Corporation (the “Company”),
are responsible for establishing and maintaining adequate internal control over financial reporting (“ICOFR”) as defined in the rule “On the Revision of theStandards and Practice Standards for Management Assessment and Audit concerning Internal Control Over Financial Reporting (Council Opinions).”
Because of its inherent limitations, ICOFR may not completely prevent or detect misstatements.
2. Assessment Scope, Timing, and Procedures
We have assessed our ICOFR as of March 31, 2021, in accordance with assessment standards for ICOFR generally accepted in Japan.
We assessed the design and operation of our company-level control and based on this assessment, we analyzed business processes within the scope of theinternal control to be assessed, identified a key control that would have a material impact on the reliability of financial reporting, and assessed whether thebasic components of internal control are operating with regard to the key control.
We assessed the effectiveness of ICOFR of the Company, consolidated subsidiaries, and equity-method affiliates to the extent necessary in light of theirdegree of impact on the reliability of financial reporting.
In assessing the effectiveness of internal control, we decided on reasonable scope of assessment for the significant business processes in light of their degreeof quantitative and qualitative impact on financial reporting based on the assessment of the company-level control.
Locations and business units that did not have a material effect on financial reporting were excluded from the scope of assessments.
In assessing the period-end financial reporting process, we decided on reasonable scope of assessment in light of its degree of quantitative and qualitative
impact on financial reporting in a similar manner as company-level control.
In assessing the business processes other than described above, based on the assessment of the company-level controls, we assessed the significant business locations based on sales levels until combined sales amounts reach approximately two-thirds on a consolidated basis and the business processes which
impact the accounts (sales, accounts receivable, and inventory) that were closely associated with the significant business locations’ business objectives.
3. Results of Assessment
As a result of the above assessment, the Company’s management has concluded that, as of March 31, 2021, the Company’s ICOFR was effective.
4. Supplementary Information
Not applicable
5. Other
Not applicable

Results of Value Creation

123

JGC Report 2021

JGC Report 2021

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CHAPTER 05 Results of Value Creation

CHAPTER 05 Results of Value Creation

Stock Information

Outline of JGC

As of March 31, 2021

As of March 31, 2021

Major Shareholders

Authorized SharesCompany Name

600,000,000

Number of shares(thousands)

Percentage of
total (%)

JGC HOLDINGS CORPORATION

Issued and Outstanding Shares

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

42,708

16.91

Head Office259,214,827

Custody Bank of Japan, Ltd. (Trust Account)

30,61712.12

2-3-1, Minato Mirai, Nishi-ku, Yokohama-shi, Kanagawa, 220-6001, Japan

Number of Shareholders

JGC Trading & Services Co., Ltd.

12,112

4.79

Established

24,166JGC-S SCHOLARSHIP FOUNDATION

8,433

3.34

October 25, 1928

Sumitomo Mitsui Banking Corporation

5,500

2.17

THE BANK OF NEW YORK 133972

3,805

1.50

Custody Bank of Japan, Ltd.
(Securities Investment Trust Account)

3,804

1.50

SSBTC CLIENT OMNIBUS ACCOUNT

3,469

1.37

236 (Consolidated: 7,371)

Custody Bank of Japan, Ltd. (Trust Account 5)

3,208

1.27

Independent Auditor

Custody Bank of Japan, Ltd. (Trust Account 9)

3,063

1.21

KPMG AZSA LLC

Administrator of the Shareholders’Register
Mitsubishi UFJ Trust and Banking Corp.
1-4-5, Marunouchi, Chiyoda-ku,
Tokyo 100-8212, Japan

Capital¥23,611,730,000
Employees(Notes) 1.	Number of shares is rounded down to the nearest thousand. Percentage of total is rounded down to thesecond decimal place.
2.	The Company holds 6,749 thousand shares (2.60%, 5th) of treasury stock, but this is excluded from theabove list of major shareholders.
3. Percentage of total is calculated excluding treasury stock.

Distribution of Shareholders(%)
Financial
institutions

Treasury stock

Financial institutions

Foreigninvestors

43.65

Financial instruments firms

3.72

Other domestic corporations

11.40

Individuals and others

9.95

Foreign investors

28.68

Treasury stock

2.60

Stock Price
JGC Holdings Stock Price (Yen)

Nikkei Average (Yen)

4,000

40,000
Nikkei Average

3,000
5,000
2,000
4,000

20,00040,000

1,000
3,000
0
2,000
1,000
0

JGC Holdings Stock Price

2017
1

2

2018
3

4

5

6

7

8

9 10 11 12 1

2017
1

2

2

2019
3

4

5

6

7

8

2018
3

4

5

6

7

8

9 10 11 12 1

2

9 10 11 12 1

2

2020
3

4

5

6

7

8

2019
3

4

5

6

7

8

9 10 11 12 1

2

9 10 11 12 1

2

2021
3

4

5

6

7

8

2020
3

4

5

6

7

8

9 10 11 12 1

2

9 10 11 12 1

2

3

4

5

6

4

5

6

7

8

9 10 11 12 1

2

3

4

5

60,00020,000

0

2017
1

2018
3

4

5

6

7

8

9 10 11 12 1

3

4

5

6

7

8

9 10 11 12 1

2017
1

125

2

2

2

2019
3

4

5

6

7

8

9 10 11 12 1

3

4

5

6

7

8

9 10 11 12 1

2018

JGC Report 2021

https://www.jgc.com/en/esg-hsse/

Detailed(Comprehensive)

CriticalContent• JGC Group Materiality• Realizing a Sustainable Society• Environmental Initiatives• Social Initiatives• Governance, etc.

0
20,00010,000Investor Relations

https://www.jgc.com/en/ir/• IR Calendar• Financial Information• Medium-Term Business Plan
• Fact Sheet, etc.

80,00040,00020,000JGC Website

6

Volume (Thousands of shares)
60,00040,0000

Sustainability

10,00030,0000

2021
3• Message from Top Management• JGC’s Purpose and Values• Group Companies• History• JGC Group at a Glance, etc.

Results of Value Creation

80,00030,00050,000JGC Report(Integrated Report)

Broad

50,0005,000

https://www.jgc.com/en/about/Target (Primarily aimed at investors)

Figures have been rounded to two decimal places.

Other domestic
corporations

About Us

Narrow

Financial
instruments
firms

Individuals
and others

Information Provided

2

2

2020
3

4

5

6

7

8

9 10 11 12 1

3

4

5

6

7

8

9 10 11 12 1

2019
2

2

2021
3

4

5

6

7

8

9 10 11 12 1

3

4

5

6

7

8

9 10 11 12 1

2020
2

2

3

4

5

6

3

4

5

6

2021
2

JGC Report 2021

126