JGC Report 2016

2-3-1, Minato Mirai, Nishi-ku, Yokohama 220-6001, Japan

Engineering
the Future

JGC Report

Tel: 81-45-682-1111 Fax: 81-45-682-1112

2016

www.jgc.com

April 1, 2015 – March 31, 2016

Considerations made for paper use
Use of FSC certified
paper®
We used paper made of timberfrom adequately managed
forests.

Printed in Japan

STRENGTHS OF JGCFirst-class project
execution capabilities
JGC delivers top-quality plants and facilities while staying within defined budgets and projectschedules. As an engineering contractor, the company views project management as its mostimportant skill. It forecasts and analyzes various risks inherent in projects and formulates optimal
project implementation plans. Plants and facilities built by JGC worldwide bear witness to the full
application of its experience for over 80 years. It is a leader among global contractors in seamlessproject implementation capabilities, notably lump-sum turnkey projects.

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JGC Report 2016

02

STRENGTHS OF JGCAdvanced technologies for
maximum returns
JGC leverages its expertise in design technologies, such as process technology, in its engineering work for plants andfacilities. It factors in both plant construction costs (Capex) and plant operating costs (Opex). The completed facilities
ensure maximum returns for customers making capital investments. JGC’s approach to technology is not limited to the

LNG produced at plants built by JGC accounts
for 1/3 of global production

13

refinement of existing engineering technology and optimization by technology integration. It extends to the proactive
utilization of the IoT and other advanced technologies, as well as environmental efforts such as reducing the burden offossil fuel energy and promoting wider use of renewable energy.

03

JGC Report 2016

04

STRENGTHS OF JGCHighly driven humanresources offering excellent
leadership and goal completion

Project locations

80

Projects completed

countries

20,000projects

JGC’s outstanding performance as an engineering contractor comes from the aggregateof skills possessed by individual human resources. Talented professionals are headed byexcellent managers who provide leadership and controls over a project staff that might
at times reach as many as tens of thousands of people. Project managers devise andresolutely implement optimal response measures for issues that occur at all phases ofprojects and move projects forward to successful completion. Individuals at JGC harness astrong sense of mission to ensure that the goals of customers through capital investments
become a reality.

05

JGC Report 201606

New JGC Group Corporate Philosophy

STRENGTHS OF JGC

Top priority on safety

The JGC Way
The JGC Group’s corporate philosophy, The JGC Way,
provides us with a fundamental orientation and guidelines for the conduct of business activities by the Group as well as theindividual behavior of the Group’s executives and employees.

JGC’s absolute aim is to deliver its customers’ projects without incidents or
injuries as the most important mission given to an engineering contractor.
However, this cannot be achieved unless all staff involved in construction
work, not only the prime contractor but also sub-contractors, recognize andimplement this mission. JGC reviews procedures for individual tasks andMissionpromotes awareness to conclusively communicate the concept of safety firstto all staff in the performance of construction work.

MissionValuesWe are committed to creating amore prosperous future for ourclients, for people, and for society
through integrating our core capabilities andtechnical expertise to generate innovative solutions.

VisionJGC Way
Corporate slogan

Engineeringthe
FutureValuesWe are driven by our shared values andcommitments. These elements express our strengths
and represent the basis for how we work anddeliver solutions to our clients and stakeholders:[ Shared Values ]Challenge We venture into new business fields, overcome
technical hurdles and establish innovative
methodologies.
CreateWe remain dedicated to developing results-focused,thoughtful solutions that fully meet the needs of ourclients and benefit society as a whole.
Integrate We bring together a wide range of technologies,
innovative tools and a diverse team dedicated toincreasing value to all stakeholders.
Deliver
We commit to overcoming obstacles throughdiligence and our “nevergive-up” philosophy, andto delivering quality products and services to ourclients and society.
[ Professional Commitments ]Respect

Integrity

We undertake to foster mutual respect and support
among all those involved in our activities and toemphasize the importance of safety for all.
We pledge to maintain the highest ethical standards
in everything we do.

Accident-free work record

130,900,000(July 2012 - March 2014) Barzan Onshore Project07

JGC Report 2016

Visionhours

We bring a new generation of
innovative solutions to the energy and infrastructureindustries by utilizing our core competencies in engineering andproject management.

08

The Corporate Value Creation Process

The Foundations of Value Creation

Financial AffairsContents
Strengths of JGC

P01Special Feature 2

An Initiative Aiding the Regional
Community and the Environment

P26
Top message

To Our Stakeholders
Businesses & Value Creation

09

Aiming to Reconcile Engineeringand the Environment

P11

P29
31
35

Review of Operations by Segment
Status of Major Projects

Masayuki Sato
Chairman and Representative Director

Koichi Kawana
President and Representative Director

The Foundations of Value Creation
ESG Section

The Corporate Value
Creation Process

ESG Management

Message from the Chairman

Interview with the Chairman

Message from the President

17
19

G-Governance
Message from the Outside Director

To Our Stakeholders

Special Feature 1

BeyondThe Horizon

GovernanceCompliance
Risk Management

national oil companies. However, due to expanding demand forof the JGC Report, we offer our heartfelt thanksenergy against a background of rising population and economic

for the deep understanding of our business activities andgrowth, capital expenditure (CAPEX) in oil and gas industries

the vigorous support shown by all our stakeholders. In May

by the state-owned oil companies of oil-producing countries

2016, the Company announced its new “Beyond the Horizon”

began to show positive signs at the start of fiscal 2016. While

5-year medium-term management plan, of which fiscal 2016

taking the measure of the changing market environment, theis the inaugural year. While the oil and gas industries will beCompany will resolutely implement the business strategies

S-Societypositioned as the core fields for the Company, as before, we will

set out in the new “Beyond the Horizon” medium-term

Human resources

expand our business area into the infrastructure field, aiming

management plan, looking toward the realization of still greater

Occupational Health and Safety

to achieve further growth as a steadily expanding corporate

business expansion. By this means, we will fulfill the mission

group that is able to ride out any market fluctuations. Theof creating a prosperous future for people and the planet asSocial Contribution
Activities

previous fiscal year of 2015 saw a continuation of the extremely

outlined in its corporate philosophy, The JGC Way, and respondchallenging environment in the plant market, characterized byto the expectations of its diverse stakeholders, including

lower oil prices and excess LNG supply, leading in turn to tightly

shareholders, clients, suppliers and local communities.

controlled capital investments at major oil companies and09

JGC Report 2016

41
42
43
45
46
47

Shareholders & Investorsn the occasion of the publication of the 2016 edition

O

37
39

P23

THE NEW MEDIUM-TERM BUSINESS PLAN

Management Structure

E-Environment

48

Environment

51
53
57

Suppliers
Quality Management
SystemESG Highlights

Financial Affairs Section
Outline of JGC

58
59
61
62

99
10

The Corporate Value Creation Process

The Foundations of Value Creation

Financial Affairs

JGC:
Value Creation & Businesses
Based on our management philosophy – We are committed to creating a more
prosperous future for our clients, for people and for society through integrating
our core capabilities and technical expertise to generate innovative solutions– we are creating value and responding to the needs of society through ourengineering business.

JGC Group
Expanding
Demand forEnergyJGC’s Businesses

JGC’s Corporate Value

EPC Business
Oil and Gas Field

Rolling out
SocialInfrastructure

The
Demands ofSociety

Infrastructure Field

In the oil and gas business, JGC’s activities

JGC leverages its engineering technologies andcover all aspects of oil and natural gas

project management capabilities cultivated in

exploration and development from upstream tothe oil and gas business to implement many

downstream and are trusted as a vital partner

projects in Japan and other countries involving

by Japanese oil firms as well as oil majors andpower plants and other energy infrastructure,national oil companies. It has achieved a top

non-ferrous metals and other industrial

global position in technological capabilities andinfrastructure, and pharmaceutical plants,

results for LNG plants in particular.

hospitals, environmental facilities, and othersocial infrastructure areas, and it consistently
leads customers’ capital investment plans toProviding Stable Energy to the World Through EPC
In order to fulfill the rising demand for energy caused by the world's population growth,
we contribute to global energy supplies through the Company’s core business of EPC for
oil and gas.

Contributing to the Development of Oiland Gas-Producing Countries
As well as managing developments in emerging economies that have expanded
together with oil and gas development, we commit the resources necessary to provide
close support to the further growth of these countries.

success.

Rolling out Social Infrastructure
In developing countries with ongoing economic growth, there is an expanding need for

Expanding Demand forEnvironmentally
Aware Energy

Investment and Services
Operations

As well as holding a position as a world leading

Based on the engineering technology that we

supplier of petroleum refining catalysts, thehave nurtured through many EPC operations,JGC Group also manufactures and sells various

and on a rich project management track record

forms of these substances for otherbuilt in all four corners of the world as apetrochemical plants as well as for

distinctive organization that offers both

environmental protection purposes.

operational services capabilities andtechnological expertise, we invest and operate
in a wide range of areas around the globe, suchas power generation and desalination, oil & gas
development and new energy, transportation,
healthcare, and agriculture.

11

JGC Report 2016

Manufacturing Industry

MissionWe are committed tocreating a more prosperous
future for our clients,
for people, and for society
through integrating ourcore capabilities andtechnical expertise to generateinnovative solutions.

healthcare such as pharmaceuticals and hospitals, and the provisioning oftransportation infrastructure such as airports is also an urgent issue.
We support the roll-out of social infrastructure in such developing countries throughboth the EPC business and the investment business.

Contributing to Global Environment Conservation
Through the EPC and investment businesses, as well as through technology
development, we deploy initiatives that contribute to the conservation of the global

Additionally, it utilizes nanotechnologies

environment by making effective use of resources, promoting greater energy efficiency

cultivated for catalyst production for theusage, commercializing renewable energy and so on.

Creating Value toRealize Our
Basic Philosophy

production and sale of IT materials, electronicmaterials, optical materials, cosmetics
materials, and other fine materials.

12

The Foundations of Value Creation

The Corporate Value Creation Process

JGC:
Value Creation and Businesses

CreatingValuethroughout
the
Value
Chain

Financial Affairs

The world is facing a range of social problems at the global level,
including energy issues and intensifying climate change.
Recognizing its role as a corporate group to be the creation ofprosperous future for our clients, for people and for society,
the JGC Group is contributing to the resolution of diverse social
issues, in particular through its core EPC business.

Value Provided toEach Stakeholder

Clients
Realizing Development of
Economic andSocial Infrastructure

The EPC Operations and the Value

Shareholders /Investors
Returning Profits Generated byMedium to Long-term Corporate
Value Creation

Initiatives

Primary
Items
to beConsidered

Front-End Design• Draw up plan forcommercialization• Consider economic potential• Arrange finance• Conceptual design• Decide basic specifications• Various types of basic design• Calculate detailed costs andschedules• Draw up plan for compositionof facilities, taking into
account local environment• Propose energy-saving
technology• Propose technology for
effective energy use• Draw up plan for compositionof facilities, taking into
account safety concerns

Local Communities

Employees

Creating
Sustainable Employment

Producing Human Resources to
Drive Sustained Growth

Chain

Business Planning Phase
Feasibility Studies

Suppliers
Working and Growing Together
on Equal Terms

EPC Phase
Design• Various types of detailed design(process, equipment, etc.)

Purchasing

Operating Phase
Construction Work / Commissioning• Selecting vendors,
ordering materials• Manage construction work

• Manage manufacturing
processes / quality• Performance assurance testing• Commissioning• Manage transportation• Design to improve safety(observe laws and regulations and design
standards,as well as selecting materials with afocus on safety)• Design for accident prevention(automatic control and emergency
shut-offsystems,safety valves, etc.)• Encourage use ofenvironmental safety measuresby vendors• Reduce paper use significantly
through use of digitaltechnology• Design to prevent accident damage
from spreading• Apply environment management systems(legal compliance, thorough environment risk
management, etc.)

Operations and Maintenance• Operational support• Periodic repair work
• Dealing with trouble• Support for expansion and capacity
increases• Health, Safety, Security, Environment(HSSE) risk assessment• Thorough implementation of health andsanitation measures(infectious disease prevention, construction of
medical facilities)• Thorough implementation of safetymeasures(fire prevention, extinguishing, fire-proof andexplosion-proof facilities, escape routes, etc.)(implement systems and facilities, safety patrols,etc.)

SocialIssuesEnergy Access

13

JGC Report 2016

Inadequate Electric Power Supply

Climate Change

Rising population

14

The Corporate Value Creation Process

The Foundations of Value Creation

Financial Affairs

Financial and Non-financial Highlights(Thousands of U.S. dollars)

March 31, 2007

March 31, 2008

March 31, 2009

March 31, 2010

March 31, 2011

March 31, 2012

March 31, 2013

March 31, 2014

March 31, 2015

March 31, 2016

¥608,529¥551,062¥450,911¥414,257¥447,222¥556,966¥624,637¥675,821¥799,076¥879,954

26,41344,89652,003

41,91963,55967,05364,123

68,25329,74049,661

20,18730,01931,543

27,11225,477

39,111

46,17947,178

20,62842,793

New Contracts

301,347

402,352

506,135

733,549618,203793,278594,091

818,161

769,680

320,626

Outstanding Contracts

744,679

632,827

671,341

982,594

1,163,256

1,506,146

1,549,813

1,767,814

1,772,036

1,250,336

Total Current Assets

327,333

324,616

335,220

283,538

319,464

376,172

460,231575,886

533,538

522,747

Total Current Liabilities

237,585

217,339

208,023

137,728

174,293205,771

262,439

333,353

286,533

225,203

Total Assets

470,286

466,772

480,279

430,176

468,502526,169

628,757

746,102719,754689,782

Total Net Assets

189,239

207,536

224,488

246,140

264,483

291,042

336,083

379,882

388,496

419,673

Shareholders’ Equity

188,965

207,254

223,887

245,819

263,983

290,415

335,534

374,654

387,480

418,695

Net operating cash flow

79,113

28,86436,595-25,179

48,214

97,84785,010120,576-71,416-49,764

Investment cash flow

-14,009-15,032-26,457-19,823116-18,746-28,370-18,728-23,411

8,696

Financing cash flow

1,552

-7,317472-8,893-7,317-20,536-3,695-10,687

3,836-4,374

159,410

164,617

174,281

123,808

161,894

222,556

284,777

385,252

297,707247,947

ROA (Return On Assets) (%)

7.8

10.0

10.4

9.0

14.1

14.6

12.6

12.2

6.1

7.4

ROE (Return On Equity) (%)

11.2

15.2

14.6

11.5

10.0

14.1

14.8

13.3

5.4

10.6

EPS (Earnings Per Share) (in yen)

79.52

118.33124.76107.25100.83154.90182.91186.9081.73

169.60Cash Dividends per Share (in yen)

15.0

21.0

30.0

21.0

30.0

38.5

45.5

46.5

21.0

42.5

Gross Margin Ratio (%)

7.2

11.6

16

14.6

18.2

15.6

13.5

13.1

6.6

8.3

Operating Income Ratio (%)

4.3

8.1

11.5

10.1

14.2

12.0

10.3

10.1

3.7

5.6

Shareholders’ equity ratio (%)

40.2

44.4

46.6

57.1

56.3

55.2

53.4

50.2

53.8

60.7

Current ratio (%)

137.8

149.4

161.1

205.9

183.3

182.8

175.4

172.8

186.2

232.1

Payout Ratio (%)

18.9

17.7

24.0

19.6

29.8

24.9

24.9

24.9

25.7

25.1

Number of incidents of leaks of hazardous substances, etc.
(Domestic and overseas construction sites)

-

-

0

2

1

0

0

0

0

0

Number of women in management positions

-

-

-

-

-

3

5

10

11

15

Rate of frequency of accidents accompanied by lost work time (%) *2

-

-

-

-

-

0.014

0.010

0.004

0.012

0.015

Performance highlights
Net Sales
Operating Income
Profit attributable to owners of parent*1

Financial position at Year-End

Cash-flow

Cash and Cash Equivalents at End of Year
Financial Highlights

ESG indicators*1: As a consequence of applying “Accounting Standard for Business Combinations” (ASBJ Statement No. 21, September 13, 2013), “Net income” is referred to as “Net income attributable tothe owners of the parent” from the fiscal year ended March 2016 onward*2: Rate of frequency of accidents accompanied by lost work time = Number of accidents accompanied by lost work time × 200,000 ÷ Total project working hours

15

JGC Report 201616

The Corporate Value Creation Process

The Foundations of Value Creation

Financial Affairs

Message from the Chairman

Toward Further
Enhancements
in Corporate
Value
Chairman and Representative Director

In May 2016 the JGC Groupannounced its new “Beyond
the Horizon” medium-term
management plan for fiscal
years 2016 - 2020. Amid

Middle East, North Africa, Southeast Asia, and CIS countries. Appointed
Director in June 2012. From July 2011, served as Managing Director, Senior
General Manager of the Corporate Administrative & Financial Affairs Division,and Chief Financial Officer. In June 2012 was appointed Executive Vice

functions related to supervision ofmanagement in order to guarantee
the ef ficiency and soundness ofphilosophy, as our mission, is tothe executive team. In addition, thethe Horizon” seeks to reinforce andcreate a more prosperous future

entire JGC Group is working as

grow the core EPC operations infor our clients, for people and for

one to further reinforce its existing

the oil and gas industries in order tosociety through integrating our corecompliance initiatives, which include

further enhance corporate value. At

capabilities and technical expertiseanti-bribery efforts.

the same time, we will expand ourto generate innovative solutions. In

business area outside of oil and gas

recognition of this principle, Beyond

into energy infrastructure and social

the Horizon positions “creating a more

infrastructure, while making a full-prosperous future for our clients,

scale push into the O&M services

for people and for society through

Human resources form a crucial

industry and generating stable profits

integrating our core capabilities

asset of the JGC Group, and we arefrom business investments, with theand technical expertise to generatealso taking the initiative in matters

aim of achieving the net income target

innovative solutions” as the mission toof employee diversity. Currently,

we have set of 60 billion yen by fiscal

be fulfilled by the Group. I believe that,one person in six employed at the2020.

by steadily implementing the businessYokohama headquar ters is non-strategy of “Beyond the Horizon”

Japanese, and at plant construction

to further raise corporate value, we

sites overseas we appoint a diverse

can contribute to sustainable global

range of individuals according to theirdevelopment over an even broader

ability and without discrimination

range of fields than previously.

with regard to culture, language,

Corporate Management witha Focus on
Increased Capital Efficiency
From the perspective of the medium

Further Progress in the
Promotion of Employee Diversity

or religion. We are also mak ing

Constructive Responses to
Corporate Governanceef for ts to nur ture the humanefficiency, and one of the goals of

On the other hand, we are aware

a long-term perspective, to which“Beyond the Horizon” is to maintainof the importance of strengthening

end we have established and are

the shareholders’ equity ratio at aour involvement in Environment,

implementing a system whereby

stable level of 50% or more, withSociety, Governance (ESG) issues,n ew e m p l oye e s a re d i s p atc h e dan additional ROE target of 10% or

and repeatedly engaging with ato construction sites in order tohigher, in order to preserve a solid

w i d e r a n g e o f s t a k e h o l d e r s togive them exposure to a diverse

financial foundation and to allow a

explain and gain their understanding

range of values. Going forward, thereserve for raising funds in ordero f J G C G r o u p ’s i n i t i a t i v e s t o

JGC Group will pursue maximum

to execute business strategies. At

enhance corporate value. In Japan,

corporate value in accordance withthe same time, we will focus on thestakeholder interest in corporate

our corporate philosophy, aiming

efficient distribution of funds in handgovernance has increased

to gain the support of a wide range

as par t of our moves to improvedramatically since the corporateof stakeholders through continualc a p i t a l e f f i c i e n c y, p l a c i n g t h egovernance code was enacted indevelopment.

emphasis on working capital related

2015 to enhance corporate value

to th e EP C b u s i n e s s, s tr a te g i cby encouraging more efficient andinvestments for further growth andtransparent management. While

expansion, and shareholder returns.

implementing each of these rules, thecorporate value, we recognize theimpor tance of improving capital

JGC Report 20162016 o nwa rd a nd stre ng th e n e d

T h e J G C G ro u p’s m a n a g e m e n t

to long-term enhancement of

17

directors to two persons from fiscal

poor visibility in the markets

President and Director. Since June 2014, has held position of Chairman and
Representative Director.

JGC Group has increased outside

for the resource business, “Beyond

Career Summary Since joining JGC in 1979, has worked throughout infinance and accounting. Has been in charge of finance for projects in theRealization of Increased
Corporate Value through the
Implementation of “Beyond the
Horizon”

re s o u rc e s th at w i l l s u p p o r t th eCompany’s global expansion from18

The Corporate Value Creation Process

The Foundations of Value Creation

Financial Affairs

Message from the President

New Medium-term Management Plan

How “Beyond the Horizon” Was Drawn Up

Overcoming DifficultMarket Environment to
Seek out Further Growth

Q1. Please give us an overview of the
March 2016 fiscal year.

depressed, causing international oil companies (IOC) and national oil companies(NOC) to rein in capital expenditure (CAPEX), leading in turn to an extremely difficult
environment in the overall plant market. However, the plant market is forecast
to recover gradually from fiscal 2016 onward and we believe that fiscal 2015
represented the bottom of the market. The Company will work with all its strength
to achieve the goals of the new “Beyond the Horizon” medium-term management
plan, announced in May 2016 and running from fiscal 2016 to fiscal 2020.

President and Representative Director

increase in both number and scale comparedto fiscal 2015. By region, there are plans in theHigh levels of net sales and net income,but orders struggled due to plant market
contraction.

Middle East, Africa, Southeast Asia, Central Asia,

With regard to sales, progress in large-scale

In Japan, large-scale investments are planned

projects already underway, such as thosein such fields as chemicals, power generation,

related to LNG, was steady and we were able

photovoltaic (PV) plant, and pharmaceuticalto maintain a high level of sales at 879.9 billion

products. I want to achieve our new contracts

yen. As for net income, gross margins dipped

target by winning as many orders as possible forslightly compared to expectations and there

superior projects that allow us to secure profits.

was an increase in losses on exchange due to

The outlook for major large-scale LNG projects

the stronger yen, but the 42.8 billion yen posted

in North America and Africa remains uncertain so

was comparable to the level of the past several

we have not included these in our new contract

years. For orders, the stagnation in oil prices has

forecasts, but LNG CAPEX plans of the major oil

continued, leading the major oil producers andcompany and the state-owned national oil com-oil and gas-producing countries to review partpany are forecast to pick up in earnest aroundof their capital investment plans. The decline in2017 or 2018 in order to relieve the tightness intendered projects resulted in a continuation of

LNG supply predicted for the first half of the next

the difficult conditions in the plant market as adecade. I expect some of the faster-moving proj-

whole. In this environment, the Company bid forects to emerge in fiscal 2016.

and North America for projects related to gas
processing, oil refinery, F-LNG and LNG receiving
terminals, petrochemicals, and power generation.

a limited number of small to medium-scale deals,
winning orders for oil and gas-related projects
in Southeast Asia and the Middle East, but

After peaking in the summer of 2014, oil prices plunged in fiscal 2015 and remained

intends to bid for in fiscal 2016 are predicted toconsolidated new contracts only reached 320.6

Q3. What are the goals of the new“Beyond the Horizon” medium-term
management plan?

billion yen.

Q2. Please share your thoughts on theoutlook for the operating environment
in the March 2017 fiscal year.

Achieving further growth for the Group by
expanding the business area.
Our new “Beyond the Horizon” medium-term
management plan makes a clear statement about

Recognizing the need to achieve financial
and order forecasts in the first year of the
new planthe direction and the business area of the Group

Fiscal 2016 is the first year of “Beyond theindicators, such as net sales and net income,Horizon,” our new medium-term management

and to implement further change. Our numericalplan, and as such will play an important part intargets are net sales of 1 trillion yen or more, net

enabling us to reach the targets of net sales of 1

income of 60 billion yen, and ROE of 10% or

trillion yen or more and net income of 60 billion

more in fiscal 2020. Our thinking is that in fiscal

10 in years, that is, in 2025, while providing a
growth strategy for the first five years of that
period to enable us to increase management

yen set out by the plan. Since touching $26 on

2025 on an adjusted operating income base*, oil

Career Summary Joined the Company in 1982. After holding successive

February 2016, after a decline that began in theand gas fields will account for 60% of the total,

posts as head of the Abu Dhabi and London offices and others, he led

second half of 2014, oil prices have followed ainfrastructure for 20%, and business investments

gentle rising curve and projects the Company

and manufacturing for 20%.

the effort to launch the business investment field. Appointed Director in
July 2009. Appointed Managing Director, Senior General Manager of the
Global Marketing Division in July 2009 before becoming Executive Vice
President and Director in July 2010. Since July 2011 has held the positionof President and Representative Director.

19

JGC Report 201620

The Corporate Value Creation Process*Adjusted operating income base: operating income to which
has been added the equity in earnings of affiliates in eachbusiness area, dividends received, and interest received

The following have been prescribed as basic
policies.
Basic Policies

1
2
3

21

Growing the EPC Operations
Growing the oil and gas fields while expanding thefield of infrastructure

Non-EPC Business
Increasing profits in
Business investment,
Manufacturing
Promoting Financial
Strategy

JGC Report 2016

The Foundations of Value Creation

Financial Affairs

It will be difficult to achieve the numerical

Basic Policy 2 mainly concerns theWith regard to our policy on shareholder returns,

targets in “Beyond the Horizon” if our businessstrengthening of business investment, which

as a rule we implement this through dividends,

area remains restricted to the oil and gas

was started in 2005 with the aim of offsetting the

but we will also consider share buybacks if

downstream plant, as it is currently. Accordingly, I

fluctuations in earnings in the EPC operations.

necessary, depending on such factors as funds inhave taken the course of expanding our business

Until now we have been able to generate results

hand and recent movements in the share price.

area into the infrastructure field while keeping thein terms of establishing our position as a player

oil and gas fields at the core. Specifically, whilein power and water business (IWPP), improving

Q4. What are your thoughts on the roleplanning to grow the core EPC business in the oil

business potential by demonstrating our EPC

that the JGC Group should play in future?

and gas fields, we aim to generate stable profits

contractor know-how, developing specialist

by expanding in the infrastructure field of the EPC

human resources, and acquiring knowledge inoperations, as well as in non-EPC operations

each business field, but profits have not matched

Our goal is to realize a sustainable society
as well as to change ourselves.

such as business investments.

our expectations and we recognize that there are

The JGC Group’s mission is to create a more

Basic Policy 1 is rooted in our perception thatissues that must be addressed going forward.

prosperous future for our clients, for people

within the core EPC business of the JGC Group,

Based on the lessons of the past 10 years, weand for society through integrating our core

the expansion in the oil and gas fields (oil refining,

will establish clearer standards for investment

capabilities and technical expertise to generate

gas processing, LNG, petrochemicals, amongand steadily realize profits through a process ofinnovative solutions. In order to fulfill this mission,others) is the area on which we should focus

selection and concentration.

the Group must expand and grow. Today themost of our attention. This is because the profits

As part of Basic Policy 3 we are aware ofworld is facing many serious issues, such as

from these fields account for the majority of total

the need for greater capital efficiency, and will

environmental problems related to growth inprofit. This is indispensable also in the sense of

distribute funds in hand according to quantitative

demand for energy and population growth.

surmounting the current market environment andstandards, but with priority given to investments

Going forward, while realizing sustainable growth

preparing for the improved market environment

for the growth strategy, risk buffer for the EPC

as a Group we will tackle these problems bythat should emerge, and we are also planning

operations, and shareholder returns. Further, webringing to bear the engineering technology andto enter the O&M service business. In addition,

have established targets of 50% or more for the

project management cultivated by us over a wide

while planning to expand the infrastructure field

shareholders’ equity ratio and ROE of 10% orrange of fields. With the objective of realizing aof the EPC operations, we will favor engineeringmore. Our target for the dividend payout ratio

sustainable society, we will continue to take on

contractors that are able to cover both oil andhas been raised from 25% up to the March 2016

new challenges, change ourselves, and strive togas and infrastructure.

fiscal year to 30% of consolidated net income.

meet the expectations of all our stakeholders.

22The Foundations of Value Creation

SPECIAL FEATURE 1

The Corporate Value Creation Process

2021~

THE NEW MEDIUM-TERM BUSINESS PLAN

THE NEW MEDIUM-TERM
BUSINESS PLAN

Beyondthe
HorizonFinancial Affairs

Beyond the Horizon
New Horizon 20152010-2015

Five-year growth strategy as the 1st Stage of a 10-year plan
toward realization of the corporate vision. Define direction
and business areas in the 10 years from now.

The JGC Group’s● World-leading results and performance ● Exceptional human resources ● Knowledge and expertise as

2010

2011

2012

Metamorphosis toProgram Management
Contractor &Investment Partner

2016-2020

Previous Medium-term
Business Plan

2013

2014

2015

Core Competencies
a company operating business enterprises ● Solid financial foundations and abundant financial resources

2016

2017

2018

2019

2020

2021

2022

2023

2024

FY

Mainly Oil & Gas,
Broaden to Infrastructure

Ratios by Business Area*1
The JGC Group announced its new “Beyond the
Horizon” medium-term management plan for fiscal
years 2016 - 2020. Our new plan clarifies the
direction and business area of the Group 10 years
from now in 2025. While pursuing achievement of a
new role as “Program Management Contractor &Investment Partner,” the plan also provides a

Oil & Gas

Infrastructure (non-HC*2 energy, industry/social)*1 Breakdown by business area (%):
Adjusted operating incomebase.Operating income to which
has been added the equity inearnings of affiliates in eachbusiness area, dividends received
and interest received

Investment Including
catalysts andfine chemicals

20%

15%
5%

8%
FY201510%87%

FY202075%*2 HC: hydrocarbon

20%

FY202560%

growth strategy for the first five years of that period
to enable us to increase management indicators,
such as net sales and net income, and to implement
further change.

Overview ofPrevious Medium-term Business Plan
In its previous medium-term Business plan “NEW HORIZON 2015,”

Sales at least(¥)

1,000

billion

Net Profit(¥)

ROE at least

60

10 %

billionthe JGC Group set itself the target of becoming a new corporate
entity ( “Program Management Contractor & Investment Partner” )that transcends the traditional EPC contractor frame. In terms ofnumerical targets, the JGC Group put the sum of its strength into

EPC Business

Mainly Oil & Gas, Broaden to Infrastructure

achieving the goal of consolidated net income of 50 billion yen in

Oil & Gas

Infrastructure

fiscal 2015 (the March 2016 fiscal period) with ROE of 10% or more.

Downstream
Upstream
LNG and Gas Processing,
Crude oil/Gas gathering,
Gas-Oil separation, Offshore Oil Refining,
Petrochemicals, LNG terminals

Energy Infrastructure
Power Generation (Fossil fuels, Nuclear power,Renewable energy)

Overcoming the changes in the operating environment caused by ahydrocarbon market that proved far more volatile than expected, theGroup increased orders received and net sales, and as a result net
income exceeded 45 billion yen in fiscal 2012 and 2013. Meanwhile,
between fiscal 2011 and fiscal 2015, the 5-year average of ROE came

Social Infrastructure Pharmaceutical, Medical, Airports
Industrial Infrastructure Non-ferrous

Investments
Integrated water and power (IWPP),
Environmental and new energy,
Medical, Airports, etc.

Manufacturing
Catalysts, Fine chemicals, Fine ceramics

Services

Domestic plant maintenance service,
Overseas plant O&M

in at 11.6%, surpassing the target.

23

JGC Report 201624

SPECIAL FEATURE 2

The Corporate Value Creation Process

Towardthe Realization of
Sustainable
Development
JGC works on projects throughout the world, and no two are alike.
Our clients and society as a whole expect us to fulfill numerous
requirements, and each case calls for new responses on our part.
Despite the fact that the requirements to be fulfilled differ for eachof our projects, we continue to work to overcome the associatedproblems, cooperating with our stakeholders and striving towards
the realization of sustainable societies through the implementation of
our projects.
This special feature looks at two projects completed by JGC in 2015,
the Donggi Senoro LNG Project in Indonesia and a carbon dioxide

The Foundations of Value Creation

Initiatives to Benefit the Regional
Community and the Environment
within the Project

Financial Affairs

SulawesiIndonesia

Project Overview
The Donggi Senoro LNG Project entailed the construction of a plant able to process two million tons of liquefied
natural gas (LNG) per year, and represented Indonesia’s fourth LNG production facility. The project differed fromconventional LNG projects led by oil majors or state-owned oil companies in being the first LNG project led by
Japanese companies, and has the potential to provide a model case for future stable LNG supply for Japan. The
project began in April 2011, and was completed, and produced and shipped its first cargoes, in October 2015.
Realizing accord with local residents was one of the factors in the success of this project. As Sulawesi’s firstlarge-scale energy plant construction project, the Donggi Senoro LNG Project attracted a great deal of attention
from the local community. Our goal for the project was not merely to secure profits for JGC, but also to help realize
sustainable development in the project region, and we brought the project to a successful conclusion while also
consistently implementing a variety of measures that prioritized harmony with the local community, including
employing local people and ordering equipment from local businesses, repairing
village roads to support the health and safety of local residents, instructing local
high school students in safe motorcycle riding, offering traffic safety instruction
on public roads close to the project site, and arranging for instruction byphysicians regarding anti-malaria measures. On the next page, we introduce
some of our local initiatives in Sulawesi.

DS LNG
Project

capture and storage (CCS) project conducted in Hokkaido, from socialand environmental perspectives.

25

JGC Report 201626

SPECIAL FEATURE 2

The Corporate Value Creation Process

Initiatives for the Regional Community —for Local Residents working on
Sulawesi is
Education Programs Training
Employment of located 1,800
the Projecton our conviction that providing training
kilometers distantfor Local Residents Based
Local Residents from Indonesia’s
for the local residents employed on the project
capital Jakarta, and the Donggi Senoro LNG Project was

would contribute both to the success of the project and the sustainable development of thethe island’s first large-scale energy plant construction

region. By ensuring that the local employees

project. Almost all of the local residents were engaged

had acquired skills in construction techniquesin fishing or farming. In collaboration with our clientsat the completion of the project and would be

and representatives of the Indonesian government, weable to use those skills in other projects in thedecided to directly recruit only Indonesian citizens for

future, we have contributed to the realization

the project, and more than half of these were residents

of a sustainable society in the local region.

surrounding the construction site. For example, many
they could apply for a license were riding motorbikes.
Taking into consideration the increase in the volume oftraffic with vehicles related to site work, and the effectthat this would have on the local area, we worked in

Initiatives for the Environment —The area around the construction site was home to a rich natural
Towardenvironment, supporting diverse ecosystems. We instituted
environmental management measures in order
Zero Leaks comprehensive
to protect this environment. We have maintained a record ofzero leaks of hazardous substances and other contaminants from our domestic sites since
fiscal 2011, and on the Donggi Senoro LNG Project, we shared an absolute awareness ofthe necessity for preventing any contamination from within the site with our clients and all
employees of participating companies, and we put this awareness into practice. Two of
our major initiatives involved conducting oil recovery drills using an oil fence and collecting
samples from the river close to the site for the purpose of environmental monitoring.

offered traffic safety courses for the students of local
Welding technique course for villagers

local construction companies, and took the population

schools. Using knowhow cultivated by safety activities
on other construction sites, they communicatedSite Tours for Local Students
As part of our initiatives to ensure that the local community understood the social
significance of the project, we conducted 13 site tours, guiding a total of 637 students
around the site. The program was designed to inspire an interest in energy plants in thestudents, and to offer them an image of what

the importance of traffic safety to more than 1,000
students, and worked to inspire safety awareness.
In addition, we also conducted initiatives to upgrade
local traffic infrastructure, for example by conducting
repair work on village roads and spraying down dirt

it would be like to be employed in a related

and gravel roads.

industry in the future, by giving them theTaking samples from a river near a site forenvironmental monitoring purposes

Oil recovery drill using oil fence

Message
From
Subcontractor

same safety training as employees receive,
providing an overview of the project, andoffering education in construction techniques,
Workers hired from Sulawesi

Financial Affairs

cooperation with local police, and company employees

local people, we shared the recruitment process withto ensure fair recruitment.

Awareness of traffic safety was poor in the area
children who had not yet reached the age at whichof the region close to the construction site. In employingof each of the local villages into consideration in order

Seeking to Realize Zero
Traffic Accidents on Sulawesi

The Foundations of Value Creation

concluding with a tour around the site.
Visit to site by students from nearby high school

PT. SEKAWAN President Director.

Safety lectures for high school students

Halim Liawan
Together with JGC, PT. Sekawan Kontrindo (SK) contributed significantly to the success of the

The Donggi Senoro
LNG Project

Donggi Senoro LNG Project from both social and environmental perspectives. In conducting
the project, the goal of the two companies was not merely to seek profits; one of its importantgoals was to assist members of the local community in becoming more autonomous by providing
employment opportunities for local people. Local residents comprised 68% of the more than
2,000 construction workers employed by SK, and they were not employed just to perform simple
tasks, but were provided with training in procedures such as welding and pipe installation. Since
the use of the technical skills learned by these employees would not be limited to the Donggi
Senoro Project, but would provide them with opportunities for employment in other projects
being planned in Indonesia and elsewhere, their training was thorough, and the trainees appliedthemselves seriously to acquiring skills. In addition, based on the guidelines for environmental
protection established for the project, we advanced initiatives to increase awareness of safety
and the environment, providing local residents with education concerning health and safety andthe regional environment. In all of these ways, the local community became involved with the
project both directly and indirectly, contributing to their increased autonomy as well as to theproject’s success.

27

JGC Report 201628

The Foundations of Value Creation

The Corporate Value Creation Process

SPECIAL FEATURE 2

Aiming to Reconcile
Engineeringand the Environment

The Company's
Thoughts on CCS

Financial Affairs

The Company’s core

this technology could make a compelling contribution to Japan, whichbusiness in the oil andrequires that greenhouse gas reductions be conducted within the Clean

gas industries is intimately

Development Mechanism (CDM) framework. Based on such thinking, therelated to the emission ofCompany leveraged the know-how amassed from CCS plants in Algeria

greenhouse gases, and we believe that we can leverage our technologicaland Australia, and in the first large-scale demonstration experiments inexpertise to make a significant contribution to the reduction of greenhouse

Japan, which started in 2004, won orders for the EPC and trial operation

gases. In particular, there is an extremely close affinity between theof aboveground equipment to separate, capture and inject CO2 included in

CO2 capture technology used in the LNG and natural gas plants thatthe supplied gases, and handed it off to the customer in February 2016.

are the Company’s specialty, and CCS. Moreover, it was thought that
Initiatives to Conserve the Global Environment
The IPCC’s* Fifth Assessment Report, published in 2014, notes that “There is no room to

The Company’s Track Record

doubt the global warming of climate systems” and “The probability that human activities
have been the dominant cause of global warming from the second half of the twentieth

Project Name

Construction Location

Capacity

century is extremely high.” At the G7 summit held in Germany in 2015, a new long-term

In Salah Natural Gas Development Project

In Salah / Algeria

Annual production:
1 million tons

2004

target was agreed whereby global greenhouse gas emissions would be cut by 2050 to theTomakomai Aboveground CCS Facilities Construction Work

Hokkaido / Japan

upper end of a range comprising 40-70% of the 2010 level. In the 2015 Paris Agreement, aGorgon LNG Project

Barrow Island / Australia

Annual production:
200,000 tons
Annual production:
3 million tons

On-going

Year of Completion
2016

long-term goal was set of reducing global greenhouse gas emissions to an extent that can beabsorbed by the ecosystem, while an objective to reduce greenhouse gas emissions arisingfrom human activities to effectively zero was decided.
In this way, the global tide of environmental attitudes continues to change, and companies

Company will use its
Future Deployment The
HIPACT high-pressureof CCS Technology technology, which absorbs

are being asked to enhance the sustainability of their activities through improving
infrastructure and industries by using resources more effectively and by expanding the
deployment of technology and industrial processes that take into account the environmentand clean technology. The Company is developing carbon capture and storage (CCS)

and separates CO2 fromtechnology to help reduce greenhouse gases and is promoting a variety of initiatives both innatural and synthetic gases, using high pressure to capture the CO2 (seeJapan and overseas.

column below) to implement CCS plant projects. In addition, the Company*IPCC: Intergovernmental Panel on Climate Change

will apply this CO2 capture technology and use CO2 capture facilities for
Integrated Gasification and Combined Cycle (IGCC) that use coal andColumnHigh-pressure Regenerative CO2 Capture (HiPACT®)
Process
HiPACT® is a technology for absorbing and separating CO2 in naturaland synthetic gases and capturing them at high pressure.
By using this technology, CO2 can be stored underground at low cost
(CCS: Carbon dioxide Capture and Storage), while dramaticallyreducing additional energy required for CCS and thus contributing toheavy oil as raw materials (expansion into CO2-free power generation)

the prevention of global warming.

and Enhanced Oil Recovery (EOR) to raise the efficiency of oil fields where

This process has been jointly developed with BASF. In 2010, theproductivity has decreased.

Company completed demonstration tests suitable for Inpex

The Company will develop technology to deal with global warming, which

Corporation’s natural gas plant, enabling commercialization.

is expected to rise going forward, thus contributing to the achievement ofsustainable societies around the world.

Examples of use• CO 2 capture facilities for Natural gas plants and LNG (Liquefied
Natural Gas)plants• capture facilities for plants that manufacture ammonia, urea,hydrogen,acetic acid, methanol and substitute natural gas (SNG) via
synthetic gases

What is CCS?

• capture facilities for Integrated Gasification and Combined Cycle

CCS is an abbreviation for Carbon dioxide Capture and Storage. In order to build richer lives, humankind has for many

(IGCC)that use coal and heavy oil as raw materials (expansion into

years dug deep into the earth to extract and use oil, coal and other fossil fuels. When fossil fuels are used, they emit CO2,

CO2-free power generation).

which results in rising concentrations of CO2 in the atmosphere. This is said to be one of the main causes of global
warming. CCS is a technology that seeks to capture the CO2 generated by factories and electric power stations before it isreleased into the atmosphere, transporting it and injecting it via boreholes into geological strata, spread deep beneath thesurface, that are suitable for stable long-term storage. It is the trump card of global warming countermeasures, with

Schematic Diagram of CCS

1.2
Conventional
process

surface and consist of storage strata of highly
porous rocks such as sandstone. To prevent the
thick layer of mudstone, called a confining layer,

HiPACT®

CO2 diffusion pressure

promising ability to reduce CO2. Locations forstoring CO2 lie more than 1,000 meters under theCO2 from leaking out, it is necessary to have a

Natural gas(including CO2)Acid gas removal unit
Gas-producing well

above the storage strata to prevent the passage of

3-8

Bar(a)

Compression

HiPACT®

CO2

CO2 injection pressure
200 Bar(a)LNG
Market gas

Two major advantages of HiPACT®
• Excellent high-temperature durability• Excellent CO2 absorption performance

Purified gas
Compressor

Liquefaction

High-pressure CO2

Water-bearing layer /Oil field

Reduction of energy expenditure andequipment cost for CCS

CO2 gasinjection well

CO2.

29

JGC Report 2016
Gas layer

Water-bearing layer

30

The Corporate Value Creation Process

Review of Operations by Segment
Japan, the Middle East, Africa, Southeast Asia, the North American region,

Total engineering businessand Russia/CIS etc., and won oil and gas-related projects in Southeast Asiaand in the Middle East etc., as well as mega-solar projects and so on in─ Review of operations

Japan, but consolidated orders came to only 320.6 billion yen.
As for oil prices, conditions still do not allow for optimism, but from

In fiscal 2015 the economic slowdown in developing countries and theexcess supply of oil resulted in continued stagnation in oil prices. In
such conditions, gas and oil-producing countries as well as the major oil
producers etc. reviewed some of their capital investment plans, leading
to continued poor visibility for the environment in which the JGC Group
operates. On the other hand, against the background of population growth

the tail-end of fiscal 2015 they have been on a recovery trend and in fiscal
2016 we have seen some favorable signs, such as an increase in businessinquiries. Going forward, the Company
will use its entire strength to workon sales activities and win superior
projects.

for projects directed toward internal demand, primarily oil and gas-related,
is progressing steadily.
Faced with this environment the Company worked to win orders in

Executive Officer,
Senior General Manager,
Global Marketing Division

Masahiro Aika

Fiscal 2015 Major Project Orders Received
Project Name
Petrochemical Complex
Project

Refinely Upgrade Project

Date Order
Received
September 2015

Customer

PTTGC America LLC

Contracting Entity

Contract Value

Service Ordered

Joint venture between group company JGC America,
US-based Bechtel Corporation, and Samsung
Engineering, headquartered in South Korea

Not disclosed

Consortium between JGC and group company JGC
Indonesia

Approx. 30
billion yen

EPC (Engineering,
Procurement,
Construction)
EPCC (Engineering,
Procurement,
Construction, andCommissioning)

Front End Engineering and
DesignStatus of major Projects
─ Oil & Gas

Status of major Projects
─ Infrastructure Business Segment

Projects in our oil and gas business segments in fiscal 2015 included

At present, liberalization of the electricity market in Japan is promoting

large-scale LNG projects in Australia and Russia; an LNG project inthe entry of companies other than traditional power companies –Indonesia; oil refinery projects in Vietnam, Kuwait, and Saudi Arabia; a gas-for example oil companies – to the electricity industry. Investment inprocessing project in Qatar; and an ethylene project in the US. All projects

renewable energy is also continuing, spurred by a system for the fixed-

currently underway, including our large-scale LNG projects in Australia andprice purchase of power that has been established to promote the use of

Russia, are proceeding smoothly.

renewables.

However, the completion of work on the ethylene complex project in the US

In our infrastructure business segment in fiscal 2015, we were

has been delayed six months by poor weather conditions, and unfortunately

commissioned for a variety of domestic projects, including a range of

we recorded a loss for the second quarter of the fiscal year ending March

generation facilities including solar facilities, a pharmaceutical plant

2017.

construction project in which there has been continuous investment, andIndividual Projects

the area of power generation, including the construction of an integrated

Construction work on our large-scale LNG projects in Australia andcoal gasification combined-cycle facility, and in the area of life sciences,

Russia, employing modular construction – a new approach for us – isincluding the construction of a pharmaceutical manufacturing plant and aapproaching its peak phase. Modular construction involves the assembly

hospital.

of functional units in different parts of Asia and then transporting them

JGC’s medium-term business plan, Beyond the Horizon, whichby large container ships to the construction site, where the plant iscommences from fiscal 2016, seeks to expand our business domain

completed. We successfully completed the Indonesia LNG project by the

into the area of infrastructure, including power generation and the life

end of 2015. While our gas processing plant project in Qatar recorded

sciences.

a loss in the fiscal year ended March 2016 due to factors including

In fiscal 2016, we are actively working to expand our businessincreased construction costs resulting from extension of the completion

into the area of power generation, and have already secured a variety ofdate, the project was completed with no further loss in profits. Profit

projects, including a coal-fired thermal power plant in the Philippines,

margins have worsened in our oil refinery projects in Vietnam and Saudi

and a biomass generation facility and a solar facility in Japan.

Arabia due to increases in construction-related costs, but strict cost andNovember 2015

PT Pertamina

Gas Processing Plant
Project

January 2016

Bahrain National Gas
Expansion Company

JGC alone

Approx. 40
billion yen

Gas Processing Plant
Project

March 2016

PT MEDCO E&P MALAKA

Joint venture between group company JGC Indonesia
and local contractor PT. ENCONA INTI INDUSTRIApprox. 27
billion yen

EPC (Engineering,
Procurement,
Construction)

Mega-solar power plant
construction project

March 2016

Karumai Nishi Solar, LLC

JGC aloneNot disclosed

EPC (Engineering,
Procurement,
Construction)schedule management measures continue being put into effect, and we
expect to complete the project in Vietnam within the fiscal year ending
March 2018.

Executive Vice President,
Senior General Manager

31

JGC Report 2016

Financial Affairs

a hospital construction project. Within Japan, we conducted projects inand economic expansion in developing countries, global demand for energy
is expected to continue rising and in some regions and countries planning

The Foundations of Value Creation

General Manager,
Oil & Gas Project Division

Senior Executive Officer
General Manager,
Infrastructure Division

Satoshi Sato

Hitoshi Kitagawa

32

The Corporate Value Creation Process

Ichthys LNG Project

Yamal LNG Project

The Foundations of Value Creation

Financial Affairs

Catalyst and Fine Products Business

Investment and Service Business─ Review of operations

─ Review of operations

In a first for a Japanese company in a large-scale LNG project, INPEXIn the local language the name of this project means “the farthest point”

In the catalysts and fine products business, shipments of hydrotreating

Since fiscal 2005, the Company has aimed to expand the businessCorporation is acting as operator and driving the development work, while

and it is thought that it contains more than 20% of the world’s natural

catalysts rose due to strong demand for contract manufacturing andinvestment and services operations to offset the fluctuations in profitability

JGC is the leader of the joint venture entrusted with executing the EPC

gas reserves. This project is advancing at Sabetta in the Yamalo-Nenets

export projects, but due to stagnant demand in Japan, chemicalin the EPC business. Until now, the Company has promoted the investment

work.

autonomous region of the Russian Federation, on the Yamal peninsula

catalyst shipments declined. In the fine products business, functionaland services operations with an approach of investing over a relatively

within the Arctic Circle. It is the second project for the country and iscoating materials and optical communication components posted higher

wide range of areas, but while a certain level of success has been

currently also the largest planned LNG project in the country.

shipments, but abrasives for use with smartphone materials and ceramic-

achieved in some areas such as the power generation operations, theFor this project a modular construction approach is being applied
wherever possible, in which the related functional units (modules) are
divided up and manufactured in a module yard at a different location thanIn order to achieve prompt delivery of construction work in thismetal composites for liquid crystal exposure equipment recorded lower

situation in other areas such as resources development is that profits

the construction site, then after transportation by large ship are finally

extreme location, where temperatures in winter can fall to -50°C, thesales volumes. As a result, the catalysts and fine products business posted

generated have not met initial expectations. As part of the new “Beyond

assembled on the construction site. When applying modular construction

project uses a full modular construction approach. With design for extreme

a small increase in net sales over the previous term, but profits declined.

the Horizon” medium-term management plan, each field in the investment

methods, sophisticated handling of multiple module yards, logistics, andcold, management of fabrication yards responsible for manufacturing

and services operations will be categorized into one of “expand,” “maintain,”works supervision at the construction site etc. are required and it is JGC,

a total module weight of 560,000 tons, transportation along arctic

and “future,” and the experience and issues of the past decade will bewith its high-level design and project management capabilities as a major

sea routes created by icebreakers (some modules were successfully

used to promote a policy of nuanced selection of investment projects.

LNG contractor, that is leading this project.

transported along the arctic sea routes during the summer season),Currently the manufacturing of the modules, which has been taking

followed by on-site work at “the farthest point” of Sabetta, this projectplace at eight separate locations in parallel around the world, is almost

presented a series of challenges unprecedented in their difficulty, but thecomplete and we are approaching the crucial state of transporting

Company has brought together everything it knows about project execution

each module by large ship to the construction site for installation.

and continues to lead the project to a successful completion.

While maintaining thorough safety management processes at the plant
construction site, we will work with all our strength to bring the project to a
successful conclusion.

Services

EPC (Engineering, Procurement, Construction)

Customer

Ichthys LNG Project (With equity investment from
INPEX Corporation and France’s Total S.A.)

Project Execution
Structure

Joint venture comprising the Company, JGC, KBR, andChiyoda Corporation (JKC)

Project Overview

The JKC joint venture will carry out EPC (engineering,procurement, construction) services related to the onshore
LNG plant for the Ichthys LNG project led by INPEXCorporation. Two LNG facilities with processing capacity of
4.2 million tons, related utility facilities, LNG tanks, shipping
facilities, etc.

Construction Location

Darwin, Australia

EPC Contract Signed

January 201233

JGC Report 2016

Services

EPSCC (Engineering, Procurement, Construction, andCommissioning)

Customer

JSC Yamal LNG(Financed by Novatek (Russia) and Total (France))

Project Execution
Structure

Joint venture between JGC, Chiyoda Corporation,
and Technip (France)

Project Overview

Construction of three LNG facilities with processing capacityof 5.5 million tons, and related facilities

Construction Location

Yamal, Russia

EPC Contract Signed

April 201334

The Foundations of Value Creation

The Corporate Value Creation Process

Status of Major Projects
Order received

In progress

Financial Affairs(Fiscal 2015 Results)

Operational (Investment Business)

North America

Asia / Oceania
1

Refining capacity increase (Indonesia / Indonesia state-owned oil company)

19 Water supply and sewerage (Australia / United Utilities Australia)

5

LNG plant construction (Australia / Ichthys LNG)

20 Drawing up plans for business park, attracting companies,

6

LNG plant construction (Australia / Gorgon Joint Venture)

7

Floating LNG plant construction (Malaysia / Malaysia state-owned oil company)

21 Plant for manufacture and demonstration of power generation using

8

LNG plant capacity extension (Malaysia / Malaysia state-owned oil company)

the new JCF slurry fuel derived from low-grade coals (Indonesia)

9

LNG complex expansion (Malaysia / Malaysia state-owned oil company)

acting as intermediary for investment (China)

16 Large-scale ethylene manufacturing plant construction project(USA / Chevron Phillips Chemical)
27 Shale oil production and development business (USA)28 Shale gas production and development business (Canada)

22 Integrated city development (India)

10 Refinery / Petrochemical complex construction(Vietnam / Nghi Son Refinery and Petrochemical LLC)

Europe / CIS
11 Large-scale LNG plant construction (Russia / JSC Yamal LNG)
26 Solar thermoelectric power business(Spain / Abengoa Solar)
11

28

29
26
30
14

25

12

3

4

20

13

3

17

18

2
24

Japan
(Fukushima Prefecture / Japan Petroleum Exploration)
4

23

10

LNG receiving terminal construction

27

South America

16

Integrated Coal Gasification Combined Cycle

15 Heavy oil processing facilities construction

demonstration plant construction

22(Venezuela / Venezuela state-owned oil company)(Hiroshima / Osaki CoolGen Corporation)
17 Mega-solar power generation business

7(Chiba Prefecture / Kamogawa Mirai Solar)

9

18 Mega-solar power generation business

8
1

15

(Oita Prefecture / JGC Mirai Solar Co., Ltd.)

21

29 Carbon dioxide capture, storage, and compression facilities construction(Hokkaido / Japan CCS Co., Ltd.)
5

Africa /Middle East
2

6

19

Gas processing plant construction

14 Gas processing capacity expansion (Algeria / Sonatrach)(Bahrain / Bahrain National Gas Expansion Company)

23 Power generation and desalination business (United Arab Emirates)

12 Large-scale refinery construction(Kuwait / Kuwait state-owned oil company)
13 Core facilities construction for large-scale refinery

24 Electric power, desalination and steam supply business (Saudi Arabia)
25 Power generation and desalination business (Saudi Arabia)
30 Crude oil processing plant construction project (Algeria / Groupement Bir Seba)(Saudi Arabia / Saudi Arabia state-owned oil company)

35

JGC Report 2016

36

The Foundations of Value Creation

The Corporate Value Creation Process

Communication with stakeholders

ESG Management
In 2006, the United Nations published the Principles for
Responsible Investment (PRI), which urged institutional
investors to incorporate consideration of the environment,
society and governance (ESG) in their investment decisionmaking process. Numerous institutional investors, inparticular in the US and Europe, became signatories to the
PRI, and the principles became entrenched among financial
institutions and other institutional investors. In Japan,
the movement to prioritize responsible investment was
accelerated by the signing of the PRI by the Government
Pension Investment Fund (GPIF), which manages public
pensions, and attention has been focused on corporate ESG
initiatives.

Basic Thinking regarding ESG

Construction
Contractors
Suppliers

The JGC’s corporate philosophy, the JGC Way (see p.8), provides
us with fundamental orientations and guidelines for the conduct ofour business activities, and urges us to hold high ethical principles,
respond to the needs of the community and our clients, respect
diverse human resources, and utilize broad-ranging technologies as
we strive to continuously increase our corporate value and to realize
increased environmental and social value.
Based on our recognition that striving to embody the JGC Way as we
pursue our business activities and engaging as a company in ESGrelated initiatives are two sides of the same coin, we will continue
to work via our business activities to realize ongoing increase in our
corporate value.
In making disclosures regarding ESG in this report, we have referredto the Global Reporting Initiative (GRI), the fourth generation (G4) of
Sustainability Reporting Guidelines, and the Sustainable Development
Goals (SDGs) in accordance with the central stipulations of ISO 26000.

JGC Report 2016

JGC
Group

Developing trust
Fair trade

Shareholders
Investors

Creating employment
Environmental protection

Compliance
Payment of tax

Achieving employee
satisfaction

Developing trust Fair trade

Administrative
Agencies

Joint
VenturePartnerDeveloping trust
Generating value through cooperation

Profit distribution Corporate
governance Information disclosure

Local
Communities

Employees
Clients

Linkage with core themes of ISO26000
Consumer (Customer)
Related Issues

Environment-Related
IssuesEnsure fair marketing,information disclosure, andcontractual business practice● Ensure consumer health andsafety● Promote sustainableconsumption● Provide services and support toconsumers, addresscomplaints, and resolve
conflicts● Protect consumer data andprivacy● Undertake education regarding
access to essential services
and enhance awareness

●

●

37

Financial Affairs

Prevent pollution
Ensure the sustainable
use of resources● Alleviate and adapt toissues relating toclimate change● Protect the environment and biodiversity
while restoring natural
ecosystems●

Organizational governanceand fair businesspractice-related issues

Respect human rights
and engage in properlabor practices

Promote organizational
governance● Prevent corruption● Pursue responsible politicalinvolvement● Engage in fair competition● Promote social responsibility across the value chain● Respect property rights●●

Promote employment
and engage in proper
employment activities● Ensure fair labor
conditions and social
protection● Promote dialog withsociety● Ensure labor health andsafety● Conduct workplace
human resource
education and training

Participate in community
events and contribute to
the growth and developmentof local communities
Participate in community
events● Engage in educationaland cultural pursuits● Create employment
opportunities anddevelop skills● Develop technologies
and promote access● Create prosperity andincome● Promote sound health● Undertake social
investment●

38

The Corporate Value Creation Process

Interview
with the Chairman

Corporate
governancefor continuous
growthChairman and
Representative Director

Please explain the positioningof corporate governanceactivities within the JGCGroup.

The Foundations of Value Creation

Financial Affairs

In recent years, as

JGC is a company withoutside director, being a former executive director of the Bank

typified by the draftinga board of directors andof Japan and possessing plentiful experience and knowledge ofan audit & supervisoryinternational finance and corporate management. We anticipate

board . It has alsothat he will leverage his unique perspective to provide supervision

introduced an executive

and advice on such issues as financial arrangements for overseas

officer system in orderprojects and management of overseas subsidiaries.

and application ofJapanese versions ofstewardship code andcorporate governance

Please summarize for us thegovernance framework of the
JGC Group and the thinking
behind it.

codes, the environment

to clarify the authority

surrounding corporatea n d re s p o n s i b i l i t i e s

There is a school ofgovernance in Japan has changed dramatically, and I have

involved in the execution of business, as well as encouraging

thought arguing thatexperienced for myself the rise in required standards for fairer,

more prompt and more efficient decision-making and execution

more transparent, and more expeditious decision-making. Sinceof business by management. The board of directors comprises

the Company began applying the corporate governance code

10 directors including two outside audit & supervisory board

in June 2015, we have observed every item of the regulations,members, with five audit & supervisory board members including

such as by checking each point, electing multiple independent

three outside members also attending. With the primary aim ofinvestors opens theoutside directors, and establishing an external point of contact for

securing more expeditious execution of business, from July 2016

way to sustained

whistle-blowers, but we will continue to work to understand theonward meetings of the board of directors will be held once ag ro w t h a n d m e d i u m

spirit of the code and to effect further improvements. Ensuringmonth instead of twice a month. While the number of meetings

to long-term corporate value. I endorse this way of thinking andthe fairness, transparency and efficiency, among others, of

has fallen, by revising the rules to adopt a policy of fuller reporting

perceive it to be a key to the success of the Japanese style

management, putting in place a framework that has the trustof items by the management team, the supervisory function of the

stewardship code and corporate governance codes. I, myself,of society, and realizing sustained improvements in businessboard of directors has, if anything, been strengthened. In addition,

at shareholders’ meetings of course but also in other situations,value are some of the most important issues in management.

with regard to the items deliberated by the board of directors,

create as many opportunities as I can to speak directly to both

Faced by the changes in the environment surrounding corporate

by rearranging these with the separation of the supervision anddomestic and overseas shareholders and investors and makegovernance and the rise in required standards, rather than

execution of duties in mind, we have achieved a structure thatefforts to actively share the valuable insights gained from thisreacting passively we should seize the opportunity to enhanceallows the board to focus more on the medium to long-term

dialog with directors and employees at board meetings and othercorporate value by maintaining a constructive response.

strategy it should be concentrating on, alongside the supervision

gatherings. The important opinions gleaned from these dialogs

of management. Because the management of the Company is

are reflected in the drafting of the new “Beyond the Horizon”

required to have sophisticated knowledge and understanding of

medium-term management plan and in the shift towards multiple

engineering as well as deep familiarity with international businessindependent outside directors. Going forward, we will continue tomarkets, I consider the current governance structure to be

facilitate constructive dialogs and link these to further innovation

reasonable, but we will also continuously discuss the approachin management.

What importance is assigned
to dialog with shareholders
and investors?

feedback from direct
meetings between
management andshareholders andwe should take at future meetings of the board of directors.
The Company recogSince the 117th share-

What function do the twooutside directors fulfill?

holders’ meeting in
2013, Shigeru Endo has
played an importantrole as outside director,

39

JGC Report 2016

Finally, what message
would you like to convey
to stakeholders from theperspective of governance?

nizes the role that itshould play as a corporate group that iscommitted to creating
a more prosperous

drawing extensively on his

future for its clients, forservice background as

people and for society

ambassador extraordinary

through integrating its core capabilities and technical expertiseand plenipotentiary to Saudi Arabia and Tunisia and his abundantto generate innovative solutions. A healthy corporate gover-experience and knowledge of the Middle East, which constitutes

nance structure is the foundation the rest is built upon, and in

the primary business market for the Company, to offer appropriate

the future we will promote further strengthening of corporate

advice and to discharge in full his supervisory function. Starting

governance while striving with all our strength to meet the ex-this year, Masayuki Matsushima takes on the role of second

pectations of all our stakeholders.

40The Corporate Value Creation Process

Message from the Outside Director

Human Resources
are JGC’s Lifeblood
Shigeru Endo
Outside Director

The world is changing dramatically, but even amid the upheavalof today’s international situation, the importance of humanresources to corporate organizations remains unchanged.
Human resources are the life of the company.
What makes JGC’s human resources so excellent? It is theirextremely high level of awareness of the necessity for social
contribution. As much as 80 to 90% of JGC’s business isconducted overseas, and the ethos of not sparing any effort for
the good of the countries in which it operates is strong in thecompany’s organization.
However, human resources also deteriorate. Unless you keep
pedaling a bicycle, it will fall over straightaway. Human resources
are similar to this. Those higher up in the company must neverslack off in providing training and education to the employees
under them. JGC is able to develop human resources to become
more than they thought themselves capable of. And in doing so,their superiors also grow themselves. It is my hope that humanresources developed in this way will act as the driving force andenergy behind JGC’s new medium-term management plan,“Beyond the Horizon.”

My Responsibilities as
an Outside Director
Masayuki Matsushima
Outside Director

The world is at a major historical turning point, and reading thefuture would be an extremely difficult task even if one possessed
second sight. However, being paralyzed by uncertainty does
not lead to corporate growth. It is important to make careful
determinations, but it is also necessary for JGC to actively
challenge itself in unknown areas, and to take the risks involved.
This is all the more reason for the company to increase thetransparency of its management and clarify its responsibilities
towards the future.

41

JGC Report 2016

In the past year, JGC has conformed to the stipulations of
the Corporate Governance Code, and worked to improve its
governance. Going forward, these efforts will continue. I myself
will continue to work with the Audit & Supervisory Board inoverseeing the company’s management.
The discussions of the Board of Directors have become more
dynamic. In addition to actively taking part in these discussions,
I also offer advice based on my overseas experience andmy personal network. In doing so, I hope to stimulate more
focused efforts to gain an understanding of regional informationthat can assist in supporting JGC’s overseas business and todevelop personal networks. I also participate in study groups
and other activities for younger employees, and I learn a great
deal from them in terms of awareness of the trends of the times.
We should be sensitive to the ideas and orientations of young
people. I am paying attention to their potential to provide newperspectives on JGC’s strategy.
It is a difficult struggle for a company to survive over the longterm. This is not related to the size of the company. We cannot
say that a company is safe just because it is large. JGC is
continuing in its efforts to shed its former identity and become a
global company, and, in a certain sense, the critical moment isright now. Results are essential. Many issues must be faced inorder to realize them. The period during which a company moves
into new business areas is a particularly fraught time. However,difficulties in themselves make JGC stronger. This summer, JGC
took decisive action in relation to organizational reforms. Whenthe new medium-term business plan is completed, I expect totake pleasure in discussing the successful outcomes with youall.

Outside directors, naturally enough, are not omnipotent, andin fact are absolute amateurs when it comes to the company’s
operations. What, then, can be expected from outside directors?
I believe that what can be expected are frank opinions
regarding things that people inside the company don’t notice,or, if they do notice, may hesitate to talk about because of
established practice or the boundaries between departments.
In such cases, rather than simply relying on an outsider’s
perspective, outside directors make use of the experience andknowledge gleaned from their previous positions, and in addition
to invigorating the discussions held by the Board of Directors,
make the decision-making process fairer and more robust.
A fusion of global strategy and groundbreaking technologies
will be essential for 21st century management. What will be
demanded of JGC will be the dynamic reconfiguration of thehuman resources and the management system that will realize
this fusion, in response to changes in the business environment.
It is my hope that I will be able to make a constructive
contribution, even in a small way, to the implementation of“Beyond the Horizon” as a trusted advisor to the company.

The Foundations of Value Creation_G-Governance

Financial Affairs

Shareholders & Investors
Basic Thinking regarding Shareholders & Investors
The JGC Group recognizes that dialogue (engagement) with shareholders
and investors is indispensable to increasing corporate value. With thisas our fundamental premise, we are working to ensure timely disclosureof information, and to offer detailed information, for example by having
management explain the overall status of our business activities.
IRtop
PolicyBy closely monitoring the opinions of our shareholders and investors
regarding our business management and ensuring that these opinions
are reflected in that management, we are striving to realize increased
corporate value, and to create an environment that encourages ourshareholders to retain their shares over the long term.

1. Disclosure Standards
JGC discloses information accurately in a fair and timely manner inaccordance with the “Disclosure of Corporate Affairs and Other Related
Matters” chapter of the Financial Instruments and Exchange Act, and withthe “Timely Disclosure Rules for Issuers of Listed Negotiable Securities or
Valuable Instruments” (hereafter “Timely Disclosure Rules”) laid out by the
Tokyo Stock Exchange.
Moreover, the Company has a policy of disclosing information as
proactively as possible in response to investors’ demands, even including
details of the announcements at results meetings that are not necessarily
covered by timely disclosure rules.

of investors and securities analysts.
In addition, lectures, Q&A sessions, documents published by the company,
information posted on the company website, etc. may include information
about current plans, future prospects and strategies. In either case, any
information which is not recorded historical fact is a forecast for the future
based on set preconditions and the judgment of the company management
based on the information available at the time the prediction was made.
Therefore, when investigating JGC’s performance, business value, etc. werequest that analysts and investors refrain from relying solely on futureforecasts and forward-looking statements. Since actual business performance
depends on numerous different factors, in some cases, actual results may
differ significantly from predicted results. Factors with a major influence on
actual business performance include (1) economic circumstances surrounding
the company in the domestic and worldwide market, (2) domestic andworldwide energy demand, (3) currency exchange rates, and others. Factors
affecting business performance are not limited to the three items mentioned
above.

2. Methods of Information Disclosure
Information falling under the jurisdiction of the Timely Disclosure Rules
will be disclosed, as specified in the rules, over the Tokyo Stock Exchange
information disclosure system (TDnet), following an explanation to the Tokyo
Stock Exchange. Information that does not fall under the jurisdiction of theTimely Disclosure Rules shall be disclosed at an appropriate time, by anappropriate method, in an accurate and fair manner, with due consideration
for its dissemination to general investors. Therefore, we request that investors
who wish to confirm information disclosed by JGC should refer to theinformation posted on the company website, TDnet, and the like.
3. Future Prospects
In addition to the earnings forecasts submitted to the Tokyo Stock Exchange,
the Company may also provide guidance on those forecasts for the reference

Outline of Communication Opportunities
and IR Activities
At JGC, in addition to timely disclosure, we issue shareholder
newsletters and integrated reports, as well as posting information on our homepage, in order to give our shareholders andinvestors a deeper understanding of our management policies,
business stance, and the business environment in which theCompany operates. Also, at shareholders meetings and bi-annual financial results briefings, to which we invite institutional investors and analysts, our top management directly explains ourfinancial results, and future outlook, etc. Looking forward, we
will strive to conduct timely and appropriate disclosures, and facilitate twoway communication with shareholders and investors
with the aim of creating an environment in which shareholders
feel they can securely retain their shares over the long term.

4. Regarding the Period of Silence
Before financial results briefings, JGC establishes a “period of silence,”
during which we refrain from making comments or answering questions
regarding financial results, so as to avoid information disclosures which could
influence our stock prices while we are preparing the data to be presented
at the financial results briefing. However, in the event that facts calling for
appropriate disclosure arise during the “period of silence,” we will disclose
the information in a timely and appropriate manner.

Annual IR Activity Schedule
results
2nd-quarter announcement
Financial results
briefing

Dec. Jan.
Nov.
Oct.

Sep.
results
1st-quarter announcement

Aug.

Feb.

Mar.

AnnualScheduleJul.

financial results
3rd-quarter announcement

Financial results
briefing

Apr.

Jun.

May

resultsannouncement
Ordinary General
Shareholder’s Meeting
Year-end

Scene from the financial results
briefing held in March 201642

The Foundations of Value Creation_G-Governance

The Corporate Value Creation Process

Reasons for adopting a Corporate Governance System

Governance
Basic Thinking regarding Governance
JGC views the realization of ongoing increase in corporate value as its
most important management goal, and recognizes that the creation of acorporate governance system that ensures the fairness, transparency,
and efficiency of management and wins the trust of the community
is essential to its achievement. It is a characteristic of engineering
enterprises that they necessitate management centered on internal
directors possessing high-level knowledge and expertise. For thisreason, JGC structures itself as a company with a board of directors andan audit & supervisory board, and has also appointed outside directors

and outside audit & supervisory board members in order to enhance thesupervision of management and increase its transparency.
In addition, we are working to strengthen compliance in accordancewith the values of the JGC Group, which stress upholding high ethicalprinciples and acting with honesty. Through ongoing engagement with
our shareholders and investors, we will continue working to strengthen
corporate governance to realize continuous increase in corporate value,evaluating the effectiveness of our board of directors, examining theappropriateness of executive remuneration, and further improving
compliance.

Corporate Governance
JGC is a company with a board of directors and an audit &supervisory board. We are also adopting the executive officer
system in order to clearly define the responsibility and authority
for the execution of corporate business while also seeking
to make management decision-making and the execution ofbusiness faster and more efficient. We have further appointed
an outside director and outside audit & supervisory board
member who satisfy the requirement for independent officers so
as to strengthen the supervisory function of management andenhance its transparency. The main elements of our corporate
governance system are discussed below.
Board of Directors
The Board of Directors comprises 10 board members, including
two outside board members. Five audit & supervisory board
members, including three outside audit & supervisory board
members, also attend board meetings. In principle, the Board of
Directors meets once a month.
Audit & Supervisory Board
The Audit & Super visor y Board comprises f ive audit &supervisory board members, including three outside audit& super visor y board members. In principle, the Audit &Supervisory Board meets once a month.
Operations Steering Committee
The Operations Steering Committee in principle meets twicea month to deliberate on items relating to the execution ofoperations by JGC and the JGC Group. This committee includes
audit & supervisory board members and other individuals
nominated by the president.
Nominating Committee and Assessment Committee
The Nominating Committee and the Assessment Committee
each meet in principle once a year for the purpose of enhancing
fairness and transparency in the selection of executive personnel
and in the determination of compensation. Their membership
includes outside directors.
Independent Auditor
The certified public accountants who audit JGC’s accounts are
Michitaka Shishido and Yoshinori Saito of KPMG AZSA LLC.
Five other CPAs and seven other individuals assist in carryingout these audits.

Corporate Governance System*denotes “Direct” and “Report”

is determined by the position and duties of the director.
Performance-based remuneration is set at a total figure of no
more than 1% of net income for the fiscal year, and is offered
as an incentive for the realization of improvements in businessresults. Based on our awareness of the fact that it takes several
years from the receipt of an order to the completion of a projectin our main business area, EPC services, we evaluate theoperations supervised by each of our directors and the degreeof contribution they make to results for each fiscal year withconsideration of whether or not they contribute to increased
corporate value from the medium- to long-term perspective.
In order to ensure the objectivity of these evaluations of thedegree of contribution of our directors to business results, they
are reviewed by an Evaluation Committee that includes outside
directors as members, and this Evaluation Committee makes
the final decision. To help ensure that they are able to oversee
management from a standpoint that is independent from theexecution of operations, outside directors receive only fixed
remuneration.
In consideration of the character of the Audit & Supervisory
Board as an independent institution that oversees the executionof operations by directors in order to ensure the appropriate
implementation of the corporate governance system, audit &supervisory board members also receive only fixed remuneration.

We believe that it is essential to boost the effectiveness of ourauditing and supervisory functions through the appointment ofaudit & supervisory board members who are independent of our
Board of Directors and possess a diverse range of specialized
knowledge, at the same time realizing management that
responds to the actual situation around us, centering on internal
directors with advanced knowledge and expertise in the field ofengineering and broad familiarity with business markets. For thisreason, we have adopted a system in which we make use of an
Audit & Supervisory Board.

Status of the Elements of Our Internal Control System
JGC’s Board of Directors decides on the basic principles of ourinternal control system, and revises them as necessary.
We have established an Internal Auditing Office, whichchecks, evaluates, and improves the effectiveness of the internal
control systems of JGC and the JGC Group, and conducts
individual audits as necessary. We have also formulated rules
for the assignment of management authority, which regulate theduties and authority of our executives and employees, and makeclear the system of responsibility for corporate management
and the execution of operations. In addition to this, we havealso formulated and implemented management rules for Group
companies.

Initiatives in relation to the Corporate Governance CodeJapan’s Corporate Governance Code ensures transparency
and fairness in decision-making (including fulfillment of the
responsibility of explanations to stakeholders), and encourages
rapid and decisive decision-making in order to realize “aggressive
governance.” We are in full agreement with the goals of the
Corporate Governance Code, and have applied all of the Code’s
principles. Into the future, in accordance with the goals of theCode, we will continue to work to maintain a dialogue with our
stakeholders, disclose accurate information in a timely fashion,and boost the effectiveness of our Board of Directors, seeking torealize sustainable growth and increase our corporate value overthe medium- and long-term.

Executive Remuneration
In orde r to incre ase our global competitive ne ss as anengineering enterprise, we make it a basic principle to ensurethat we possess the management human resources essential
to the realization of ongoing increases in our corporate value.
The remuneration received by our executives is decided within
the limits of the scope established at the 113th Ordinary General
Meeting of Shareholders held on June 26, 2009.
Remuneration for directors comprises fixed remunerationand performance-based remuneration. Fixed remuneration

Total value of remuneration, etc. for each executive category, and total value of remuneration, etc. by type of remuneration and number of executives eligible for remuneration

General Meeting of Shareholders
Appoint/Dismiss

Breakdown of remuneration, etc.
Appoint/Dismiss

Category
Disclose/Explain

Appoint/Dismiss

Audit & Supervisory Board
Audit

Nominating Committee

Independent Auditor

Fixed remuneration
Number of eligible
executives

Performance-based remuneration

Total amount provided

Number of eligible
executives

Total amount provided

Nine directors(Outside directors not eligible)

361.27 million yen

Nine

283.80 million yen

Eight

77.47 million yen

Two audit & supervisory board members(Outside audit & supervisory board
members not eligible)

33.60 million yen

Two

33.60 million yen--

Four outside executives(One outside director and three outside
audit & supervisory board members)

40.08 million yen

Four

40.08 million yen--

Board of Directors

Internal Auditing Office
Operations Steering Committee

Legal & Compliance Office
Risk Management Committee
Security Management OfficeBusiness Divisions/Sections

JGC Report 2016

Total value of
remuneration, etc.

Audit

Assessment Committee

43

Financial Affairs

Group Company(Note 1) The figure for fixed remuneration above includes remuneration for one director who stepped down at the conclusion of the 119th Ordinary General Meeting of Shareholders held on June 26, 2015.
(Note 2) As of the end of fiscal 2015, the Board of Directors comprised nine directors, including one outside director, and the Audit & Supervisory Board comprised five audit & supervisory board members,
including three outside audit & supervisory board members.
(Note 3) The figure for performance-based remuneration above is the figure scheduled to be provided for performance-based remuneration for fiscal 2015.

44

The Corporate Value Creation Process

Compliance
Basic Thinking regarding Compliance
As a member of the international community, the JGC Group believes that the compliance of all employees with the laws of Japanand of all the countries in which we do business and the conductof fair and honest business in accordance with corporate ethics
are essential to the pursuit of sustainable business development,
and we are therefore working to prevent corruption and any form of
inappropriate practice.

The Values of the JGC GroupIn order to pursue lasting and sustainable business development, it is essential that the executives and employeesof the JGC Group possess a shared system of values andconduct themselves in their daily activities in accordancewith these values. By basing its activities on the following values, the JGC Group believes that it can maintainstable management over the long term, and manifest its
corporate philosophy.

[ Shared Values ]Challenge We venture into new business fields, overcome technicalhurdles and establish innovative methodologies.
CreateWe remain dedicated to developing results-focused, thoughtful
solutions that fully meet the needs of our clients and benefit
society as a whole.

Integrate

We bring together a wide range of technologies, innovative
tools and a diverse team dedicated to increasing value to all
stakeholders.

Deliver

We commit to overcoming obstacles through diligence and our“nevergive-up” philosophy, and to delivering quality products
and services to our clients and society.
[ Professional Commitments ]Respect

We undertake to foster mutual respect and support among all
those involved in our activities and to emphasize the importanceof safety for all.

Integrity

We pledge to maintain the highest ethical standards ineverything we do.

appointment of compliance officers by each Group company
and the integration of compliance liaison functions. Eachcompliance officer evaluates the specific compliance risks of
their company, and proposes and implements compliancemeasures suited to that company. Compliance officers fromthroughout the Group regularly come together in order to share
information, and work to build and put into effect systems for therealization of greater awareness of compliance within the entire
the Group, cooperating as necessary. In fiscal 2015, complianceofficers from domestic and overseas
Group companies gathered at
our Yokohama Head Office and in
Jakarta (at JGC Indonesia) to attend
Group Compliance Conferences.
The conferences were marked byvigorous discussions of the specificis sue s and r isks faced by e ach
company, and effective measures
for the solution of issues and the Attendees at a Group
Compliance Conference
avoidance of risks.
(Overseas)Internal Whistleblowing System
Seeking to promote early identification and amelioration or
avoidance of compliance risks, JGC has established the JGC
Compliance Hotline as a method of enabling employees to
consult about and report compliance violations and activities
that they suspect may result in compliance violations. Whenan employee reports or consults regarding a violation, an
appropriate and timely response is put into effect following
adequate investigation of the matter. The system ensures thatthe whistleblower will not suffer any negative effects. To makethe system easy for employees to use, the JGC Compliance
Hotline offers both internal and external consultations, the former
with the company’s Compliance Department, and the latter witha third-party organization specializing in taking whistleblower
reports. Consultations can be conducted by telephone or email,and employees using the system are able to remain anonymous.
English-language assistance has also been provided to make itpossible for non-Japanese employees to use the system.
Flow of response

Results and Initiatives
Group Compliance System
The JGC Group has established a Group compliance systemthat ensures that business activities conforming to the highest
ethical principles are implemented throughout the entire Group.
Appropriate response to issues has been ensured by the45

JGC Report 2016

Financial Affairs

Risk Management

ValuesWe are driven by our shared values and commitments.
These elements express our strengths and represent the basis for
how we work and deliver solutions to our clients and stakeholders:

The Foundations of Value Creation_G-GovernanceConsultation in Japanese (External consultation)

Telephone / EmailFeedback

Third-party
organization

User
Email
Feedback

Consultation in English (Internal consultation)

ReportReport

JGC
Compliance
OfficeSecurity Management Office
JGC employees and executives make approximately 5,600
overseas business trips per year, and approximately 500
JGC personnel are stationed overseas at any one time,in 30 different countries. Therefore, JGC has established
Security Management Office available on a 24-7 basis to cope
immediately with any risks employees stationed overseas
might face, including natural disasters, acts of terrorism,
war, pandemics, crimes, riots, traffic accidents, and illness.
Security Management Office has two operating patterns:
Crisis Management Operations and Preventive Operations,details of which are presented as follows.

Crisis Management Operations
Security Management Office takes the lead in implementing a range ofmeasures based on the risk level in a given area, according to the Basic Rules
for Risk Management.

Group-wide information security promotion structure
The JGC Group looks closely at the ISO/IEC 27001 international
standard when maintaining its information security management
systems. We draw up rules and regulations for each project and put inplace the necessary operating structures based on major differencesin customer requirements, the operating environment and conditions
confronting the Company. From both the technological and humanresource perspectives, we take steps to improve the quality of theinformation security.
Acquiring information system platform certification
The Company’s Corporate Administrative & Financial Affairs
Division, which is responsible for the planning, construction, operationand management of IT infrastructure, Corporate IT Office and the
responsible department of JGC Information Systems Co., Ltd. acquired
ISO/IEC 27001 certification in 2006 as a part of effort to ensure thestable operation of information system platforms. Certification entails
continuous screening on an annual basis and renewed certification
every year. Plans are in place for continuous screening to be undertaken
in July 2015.

* Examples: business trip cancellation, temporary evacuation, etc.

Preventive Operations
1. Collect, analyze and communicate risk information: issue situation-specificreminders and warnings
2. Update standard documentation such as crisis response manuals and safety
standards
3. Survey, analyze and evaluate the levels of public safety, potential dangers
and threats as well as risks and take steps to put in place countermeasureson an individual project basis
4. Monitor each of the aforementioned items and provide guidance to ensure
continuous improvement
5. Provide education and training on crisis management
6. Make all necessary adjustment to ensure a point of contact with relatedorganizations (government agencies, outside consultants, etc.)

Information Security Management
Handling large volumes of information (specification documents,
drawings and reports) is part and parcel of EPC operations.
Much of this information contains confidential data received from
customers and business partners as well as materials regarding
proprietary know-how. As an engineering contractor, it is a matterof course that we work to ensure that these information assets
are properly protected.
Meanwhile, it is equally important that the Company’s
employees, customers and business partners have safe andready access to essential information in order to ensure thatprojects scattered throughout the world are carried out smoothly.
To this end, we actively undertake information investments which
include security countermeasures. These investments help toensure that information security is maintained at an appropriate
level that satisfies the needs of customer and business partners.

Business Continuity Plan (BCP)
JGC does not have production facilities such as manufacturing
plants, and we conduct our business through our employees, asophisticated ICT infrastructure and our offices. Consequently,
JGC’s BCP consists of the following three pillars.
Early confirmation of employee safety
In 2004, JGC introduced a “Safety Confirmation System.” Today, thescope of the system has been extended to include not only regular
employees, but also temporary staff and JGC contract employees
who work at JGC. In addition, an emergency contact network has
been established in each department as a backup to quickly confirm
employee safety.
Securing of ICT infrastructure
In 2006, JGC was the first company in the Japanese engineering
industry to obtain ISO certification (ISO 27001) for its information
security management systems. In order to maintain and improveinformation security, we have a backup system and use highly
reliable devices. In addition, we have measures in place to respondto accidents and emergencies. We conduct periodic drills, and theresulting increased awareness is reflected in workers’ preparedness.
In these ways, we continuously improve our information security
through the PDCA cycle and work towards an even more secure ICT
infrastructure.
Securing of office safety
The Yokohama Headquarters of JGC was built in 1997. It was designed
for strength meeting or exceeding the new earthquake resistancestandards, and would have been largely undamaged even by thesevere tremors of the Great East Japan Earthquake.
In addition to conducting periodic disaster management training
and full preparedness with emergency supplies, provisions and othernecessities, we provide positive protection for the safety of people
working in our office.

46

The Corporate Value Creation Process

Management Structure(As of July 1, 2016)

President and Representative Director

Masayuki Sato

Koichi Kawana

Yutaka Yamazaki

Audit & Supervisory
Board Members

Tsutomu Akabane
Satoshi Sato
Hiroyuki Miyoshi
Directors

Masanori Suzuki

JGC, as a professional engineering contractor, is committed to achieving environmental excellence in both its corporate operations and the services it renders its clients.
To meet this commitment, JGC has hereby established the following principles, which shall be applied throughout its operations.
1. We shall endeavor to preserve the natural environment through theprevention of pollution and the conservation of energy and natural resources.
2. We shall provide our clients with technical solutions that conserve energy
and natural resources, and reduce pollution and other adverse environmental
impacts.
3. We shall fully comply with both environmental laws and regulations, and theenvironmental requirements of our clients.
4. We shall reduce the production of waste through measures that emphasize
reuse and recycling.
5. We shall apply the following specific principles to the execution of our EPC
projects:• Engineering Phase:We shall reduce the adverse environmental impacts ofcompleted plants by minimizing the energy and resource consumption ofeach plant, and minimizing emissions and waste production.

Toyohiko Shimada
Yukihiro Makino

Koichi Ohno*2
Norio Takamatsu*2

Kiyotaka Terajima
Shigeru Endo*1
Masayuki Matsushima*1

Senior Executive
Vice Presidents

Senior Executive
Officers• Procurement Phase:We shall give preference to vendors that adopt
environmentally-friendly manufacturing practices.
• Construction Phase:During construction, we shall endeavor to minimize
emissions, adverse impacts on the surrounding environment, energy
and resource consumption, and waste production. Furthermore, we shallensure that our subcontractors adopt work practices consistent with thisprinciple.

Koichi Kawana
President and Representative Director,
JGC Corporation
July 31, 2015

Safety and Environmental Consideration in
Investment Projects and Research & Development

Yutaka Yamazaki*

3

Tsutomu Akabane*

3

Senior Managing
Executive Officer

Satoshi Sato*3

Hideaki Miura

Shigeru Abe

Yuji Tanaka

Hiroyasu Fukuyama

Hiroshi Bunazawa

Takaya Matsuoka

Hitoshi Kitagawa

Tokutaro Nomura

Masurao Fujii

Takehito Hidaka

Hisakazu Nishiguchi

Terumitsu Hayashi

Hiroyuki Miyoshi*3

Yasutoshi Okazaki

Masahiro Aika

Nobuhiro Kobayashi

Makoto Miyamoto

Takashi Yasuda

Yasuhiro Okuda

Aya Miyazaki

Tadao Takahashi

Akio Yoshida

Yasuharu Yamaguchi

Kenichi Yamazaki

Toru Amemiya

Takuya Hanada

Masanori Suzuki*3

Masayasu Endo

Takeshi Kawasaki

Kiyotaka Terajima*3

Tetsuya Muramoto

Kazuyoshi Muto

the preservation of the environment, the JGC Group recognizes theprotection of nature and the realization of harmony with the environment
in our business activities as essential management goals, and works
actively to protect the global environment based on our Environment
Policy.

Environmental Policy

Masao Mori*2
Audit & Supervisory
Board Members(Outside Auditor)

Financial Affairs

Environment
Basic Thinking regarding the Environment
Today, against the background of the economic development of theemerging nations and global population increase, there is growing
focus on the preservation of the global environment and the protectionof biodiversity in our quest to realize sustainable societies. Basedon our belief that engineering is intrinsically able to contribute to

Chairman and Representative Director

The Foundations of Value Creation_E-Environment

Executive
Officers

In December 2003, JGC obtained the ISO 14001 certificationfrom Lloyds Register Quality Assurance (LRQA). ISO 14001
is the international standard for environmental management
systems, and we have renewed this certification three times.
In November 2014, we completed the audit for maintaining

certification in the 2014 fiscal year. We are also taking steps
for continuous improvement by setting annual activity targets
geared to realization of our environmental policy, measuring
the degree of achievement of those targets, and evaluating theresults.

Environmental Management Systems
ChairmanPresident

Division

Division

Quality Assurance, Safety& Environment Office

Engineering

HSSE Committee

EMS Working Group

Working Group

Project Execution

Office Activities Execution

Procurement

Construction*1 Outside director *2 Outside audit & supervisory board member *3 Also a director

47

JGC Report 2016

48

The Foundations of Value Creation_E-Environment

The Corporate Value Creation Process

Financial Affairs

Environment
Environmental Improvement Activities in Line
with Our Business
Since past environmental improvement activities by JGC havecentered on reducing waste, paper, and electricity consumption
at Headquarters, our task was to shift this focus to activities
that fall in line with our actual business. To accomplish this,with the participation of the heads of all divisions, we reviewed
our methods for identifying opportunities for environmental
conservation and our procedures for target setting. What weachieved from these discussions was a common recognition of
the following points.
• While we solve environmental issues through our original
business and aim for sustainable development in society, it isimportant to link these processes to the creation of corporate
value and improvements in competitiveness.
• While concerns over environmental issues are rising worldwide,
JGC is contributing directly and indirectly to solutions through its
original core business. JGC recognizes sustainability as an issue
it has to address in this particular business.
• Important points that JGC must consider to develop itself
sustainably are as follows:
1. Implementing adequate operation and maintenance toprevent environmental problems from arising in the future.
2. Continuing to implement improvements to increase
corporate profits, while giving consideration to environmental
matters.
With this common recognition, JGC continuously makes aconcrete review of the significance of environmental objectives
and targets, and implements environmental management
activities from the following perspectives.
• Environmental management activities conducted withenvironmental objectives and targets are not separate frombusiness, they are business.
• The operational policies of divisions and departments are
determined for substantial performance improvements of theorganization and its operations.
• Environmental targets and QMS quality targets can be matched
together.
In this way, JGC conducts environmental improvement activities
in line with its original business, by lightly linking its environmental
management systems to its quality management systems.

49

JGC Report 2016

Promotion of the Zero Emissions Initiative 2015

Recycling of Construction Waste

Since 2008, as part of our measures to fulfill our corporate social
responsibility, the JGC Group has conducted initiatives to realize
environmental improvements by seeking to reduce the harmful
by-products of our business activities to zero. We are currently
advancing our Zero Emissions Initiative, which is producing
results in improving the environment.
The Zero Emissions Initiative2015 covers the head of fice, theResearch and Development Center,
JGC construction sites in Japan andoverseas, JGC Group companies inJapan and overseas, and domestic
and international sales bases.

JGC aims at minimizing final waste through the rigorous
implementation of the “Zero Emissions Initiative 2015.” In fiscal
2015, the final disposal rate of construction work in Japan was 3.7%.
On every site, before contracting disposal to a provider ofintermediate waste treatment services, we confirm its recycling
rate with our own industrial waste surveys. In particular, because
there are significant differences between contractors regarding

Zero Emissions Initiative2015 poster

JGC Group Offices
We are promoting environmental improvements in our offices byadopting an average annual rate of improvement of 1% or morein energy consumption (with fiscal 2013 as the base year) as anenvironmental target.

JGC Domestic Construction Sites
Environmental improvement targets were quantified in threeareas: final disposal rate, number of leaks, and CO2 emission
units.
With a final disposal rate of 3.7% for fiscal 2015, while we
did not achieve our target of 2%, we did realize a significant
improvement over our figure of 5.9% for fiscal 2014.
The JGC Group will continue to make every effort to achieve
the target in fiscal 2016. On a positive note, outcomes werefavorable with regard to Group targets for the number of leaks
and CO2 emissions units, with both targets being reached.
Zero Emissions Initiative 2015 Environmental Performance(JGC construction sites in Japan)
Units

Fiscal
2012

Fiscal
2013

Fiscal
2014

Fiscal2015

Final disposal rate Resultof industrial waste(Target)

%

4.2
(3)

5.8
(3)

5.9
(3)

3.7
(2)

Number of leaks ofResulttoxic substances,(Target)
etc.

Leaks

0
(0)

0
(0)

0
(0)

0
(0)

Energy-related CO 2 Result
emission units(Target)kg-CO 2 /
hour

0.36
(1)

0.58
(0.9)

0.63
(0.9)

0.64
(0.9)

Environmental
indicators

Topicsthe treatment methods and recycling rates of construction
sludge, we carefully compare treatment methods and costs.
Before starting construction, we also establish an adequate
waste separation plan based on the characteristics of waste tobe generated. In addition, through the rigorous separation ofwastes in accordance with this plan, we seek to improve therecycling rate during construction.

Toward Zero Leaks

The JGC Group executes projects on
a global scale in the areas of resource
development, oil, natural gas, and thepetrochemical industry, in addition to abroad range of other areas including theenvironment, chemicals, pharmaceuticals,
w a t e r r e s o u r c e s , a n d n e w e n e r g y.
We strive to constantly consider theenvironment across the entirety of theseprojects. While the management of ouroverseas construction sites entails greaterdifficulties than that of our domestic sites,
all employees share a thorough awarenessof the necessity for management to ensurethat contaminating materials do not escapeoutside the site, and put this awarenessinto practice. We do not just educate ourown staff in this management awareness.
As a prime contractor, we are involved
with construction companies and otherbusiness partners, and conduct training forseveral thousand people for a single project.
By this means, we are working to instillenvironmental awareness in every individual
involved in our projects.

Training to incre ase aware ne s s for theprevention of oil spills

Results for Fiscal 2015 and Fiscal 2016 Initiatives
Activity objective

Results for fiscal 2015

Assessment

Implementation of Zero
Emissions Initiative 2015

•Reduction of CO 2 emissions to Kyoto Protocol Level•Realization of zero environmental contamination due to leaks•Reduction of volume of final disposal of waste (The final disposal
rate was also improved, but the target was not achieved)•Promotion of environmental investment

G

Continued implementation of Zero Emissions Initiative

Environmental target

Setting of environmental targets is directly linked to fundamental
business activities; we are promoting linkage with qualit ymanagement systems

G

Continuing promotion of environmental improvements
directly linked to fundamental business activities

Enhancement of internal
auditing

Implementation at all overseas sites (29 times in total)
Score: 87.2 points (Target: 86 points)

E

Implementation multiple times at all overseas sites (A totalof 21 times is planned)
Target: 86 points

Enhancement of
biodiversity-related
initiatives

Biodiversity-related initiatives directly linked to fundamental businessactivities(To be deployed also at overseas sites and in Group companies)

G

Integration into environmental improvement initiatives
directly linked to fundamental business activities

Assessment
E: Completely implemented G: Extensively implemented NG: Not yet implemented

Fiscal 2016 initiatives

Improvement

Improvement:
Substantial modification of environmental improvement measures
Continuation of environmental improvement measures

50

The Corporate Value Creation Process

Human Resources
Basic Thinking regarding Human Resources
Engineering companies do not possess assets like production facilities.
For an engineering company, human resources are the company’s sole,and therefore most important asset. Fair personnel management thatgives adequate consideration to human rights is fundamental to the
JGC Group. The Group engages in no illicit employment practices suchas the exploitation of child labor, and we are enhancing the diversity of

Basic Thinking regarding Human Resources
Because the growth of each individual employee is essential
to the growth of the company, we recognize the importanceof striving to create an environment in which outcomes arecontinuously improved, and of realizing the simultaneous growthof the company and the individual. Via our various humanresources-related systems, we seek to encourage our teammembers not to close themselves off within their respective
specialized areas, but rather to take a step forward and engage
in free and open discussions, creating relationships in which they
are able to engage in friendly competition. Friendly competition
pursued with a sense of pride and responsibility as professionals
enables the creation of relationships of trust and a sense of
camaraderie in which every individual recognizes every otheras a professional. As a company, we are working to implementhuman resources-related initiatives that will foster a corporate
culture in which every employee possesses this sense of pride
and responsibility.

Diversity of Personnel
Development of Global Recruitment
To further strengthen its involvement in projects undertaken
on a multinational basis, JGC is promoting diversity in terms ofthe nationality of its employees. The Company is enterprisingly
conducting recruitment drives at universities outside Japan andemploying exchange students who come to Japan.
At present, around 100 foreign employees from more than 20
different countries are employed at our Yokohama Head Office.
With the continuing diversification of our workforce, we arededicated to creating an environment in which diverse cultures
are respected and everyone is able to work comfortably, forexample by providing a prayer room for Muslim employees at
our Yokohama Head Office.
Giving Senior Staff Members a New Lease of Life
Based on the Revised Act for Stabilization of Employment ofOlder Persons, we have established a re-employment systemfor employees aged 60 and over, under which, in principle,
every eligible employee wishing to make use of the system is reemployed.

51

JGC Report 2016

our workforce through equitable employment measures encompassing
non-Japanese personnel, seniors, the disabled, and female employees.
We have established a range of measures related to the working
environment, employee education, etc., and provide abundant
opportunities to ensure that every employee is highly motivated and isable to display their ability and energy to the greatest possible extent.

From October 2015, we raised the mandatory retirement age
to 65 in order to enable older employees who desire to do so tomake use of their rich experience and specialized knowledge,
and to create workplaces in which older employees cancontinue to work with peace of mind.
In addition to assuming the responsibility of continuing in
employment, the senior staff member elements are passing
on their techniques, providing advice, and making a major
contribution to the training of young engineers.

Financial Affairs

Work-life Balance

JGC Techno College

We have introduced a variety of measures to enable employees
to care for their families and raise children, including systems
that offer leave of absence, time off, and reduced working hours.
Since 2007, JGC has consistently been awarded the “KuruminMark” in recognition of its active support of child raising by its
employees.

As a fur ther supplement to the personnel development
programs JGC offers as a company, we established the JGC
Techno College in 2001 as a place where motivated personnel
could voluntarily participate in continuing education courses.
Senior staff members volunteer to act as instructors, organizing
and running the sessions, which allows them to pass on theirskills and experience to younger employees. The College also
holds lecture meetings, inviting prominent experts from Japanand overseas to give lectures. In fiscal 2015, the College heldaround 100 lectures, attended by a total of approximately 2,500
employees.

JGC Family Day (A Day when Our Employees’ Children visit their Parents’ Workplace)
JGC Family Day, a day on which our employees’ children visit
their parents’ workplaces and see them at work, has been held
once a year since 2009.
In addition to developing their social awareness and senseof work and occupation, the aim of JGC Family Day is to help
children gain an understanding of the jobs that their family
members perform. The event is held for employees’ children ingrades 4 to 6 of elementary school. In fiscal 2015, 23 children
participated and experienced work, meetings, and other aspectsof their parents’ working day.

Employment of the Disabled
Under a law promoting their employment, JGC actively works
to comply with the legal ratio of employees with disabilities.
Efforts are also being made to upgrade or improve workplaceenvironments to cater for the type and degree of a person’s
disability.
Employees and their children participating in JGC Family Day

Employment of Women
As part of our efforts in the area of diversity management (forexample, employing non-Japanese and senior staff), we havebeen working to create a working environment that is friendly towomen through measures including the establishment of a familycare system. Via activities as part of the Kanagawa Women’s
Career Support Group and informal discussions with female
employees, we are working to further promote the use of thesystem in the future, boosting career awareness in our female
employees, and supporting them in displaying their abilities andadvancing to leadership positions. We are also pushing ahead
with initiatives to increase awareness of our industry as one inwhich women can be involved, for example by holding company
briefing sessions for new graduates aimed specifically at female
students.

The Foundations of Value Creation_S-society

JGC Summer TimeJGC is implementing a campaign that encourages employees
to start work an hour earlier in the morning and go homeearlier in the afternoon during the summer months, when it isbrighter for longer during the day. By making employees think
about the time they leave work, this campaign seeks to create
opportunities for each individual to change their thinking about
their work style.
Together with other initiatives such as “No Overtime Day,”JGC Summer Time is proving to be of benefit in promoting worklife balance.

Worksite Training System
Since fiscal 2013, we have dispatched all new employees toconstruction sites both inside Japan and overseas for six months
during their first year of employment. By actually seeing andexperiencing the plants that represent JGC’s finished products
and being involved in the construction stage at an early period intheir careers, our new employees gain an understanding of how
the engineering blueprints that they will be engaged in creating
at our Yokohama Head Office are used in the plant construction
process. They also experience the weight of the responsibility ofensuring quality and delivering plants to customers on schedule.
At overseas construction sites, there are times when people fromseveral tens of different countries come together to work. Among
those present on the worksite, there will be customers, vendors
supplying materials and equipment, and subcontractors involvedin plant construction work, and each will have their own way of
thinking and their own value systems. Amid this environment,
despite the fact that the employees on dispatch are new, we
require them to display the leadership and teamwork skills
necessary to bringing everyone together to work towards thegoal of completing the plant. Employees who have participated inthis training process have indicated that while initially bewilderedby the new environment, they felt a sense of responsibility
towards the fulfillment of their duties, a sense of unity as a teambuilt through daily face-to-face communication, and a senseof accomplishment in constructing a massive plant. JGC willcontinue to implement this training program for new employees.

Health Checks, Mental Health
The Company implements, for example, partially subsidized
medical checkups, including regular health checks that areheld in-house twice a year, and actively works to improveawareness of health issues among its employees.
Besides requiring its managers to attend mental healthworkshops, interviews are conducted by industrial physiciansat the on-site health management centers established within
the Company.

52

The Foundations of Value Creation_S-society

The Corporate Value Creation Process

HSSE Organization

Occupational Health and Safety
Basic Thinking regarding Occupational Health and Safety
For an engineering contractor, safety is one of the very highest priorities.
In accordance with our Health and Safety Policy, JGC works under theleadership of top management to prevent accidents at worksites andtraffic accidents involving our own employees and those of partnercompanies. The implementation of “Incident- and Injury-Free” (IIF)

initiatives at all of our construction sites over the past several years has
had a remarkable effect on increasing awareness of occupational healthand safety and traffic safety in domestic and overseas construction
projects. We will continue in our efforts to entrench comprehensive worksafety and traffic safety measures throughout the entire Group.

Financial Affairs

a target of 0.60 or below, and 0.16 for overseas projects, against
a target of 0.15 or below.

The HSSE* Committee deliberates on important safety mattersfor the entire group. It also reports to the Operations Steering
Committee, which is chaired by the President. Matters decided
by the HSSE Committee are promptly acted upon by the various
company divisions.
An audit group appointed by the chairman of the HSSE
Committee conducts health and safety audits at principal
construction sites in Japan and overseas, and reports the audit
results to the Operations Steering Committee.

*1 The incident rate expresses the occupational accident frequency as the toll of occupational
accidents that result in a fatality or time off work of more than one day per million hours worked.
*2 TRIR is a benchmark of the frequency of occupational injuries developed by OSHA in the UnitedStates. It is calculated as the number of recordable injuries, which includes injuries not requiring
time away from work, per 200,000 work hours.

The incident rates for JGC’s domestic projects
and the Japanese construction industry as a whole (ILO Method)
Construction industry in Japan(2006 - 2015)

JGC projects in Japan(Incident rate)

Average incident rate for
Average incident rate fordomestic projects: 0.5 JGC projects in Japan: 1.3

2.0
1.5

* The first letters of “Health,” “Safety,” “Security,” and “Environment.”

1.0

Safety and Health Policy

0.5

HSSE OrganizationJGC Corporation places the highest priority on maintaining the safety
and good health of all the personnel participating in or affected by
JGC’s operations and preventing property losses as JGC serves its
clients, industry and the world community.

Operations Steering Committee(Chaired by the President)

Second JGC’s management encourages safety and health awareness amongits employees on an ongoing basis.
Third Regardless of the location, nature and type as well as size of projects, all applicable safety and health rules shall be strictly applied on
all of JGC’s projects.

First

JGC’s management, employees and project employees are committed to continuing efforts for zero accidents, injuries and property
losses.

Quality Assurance,
Safety & Environment Office

Health Management
Center, Human Resources
and Organizational
Development Department,
Corporate Administrative &Financial Affairs Div.

HSE Group

Koichi Kawana
President and Representative Director,
JGC Corporation
January 1, 2016

2006

2007

2008

Oil & Gas
Project Division

Process
Technology
Division

Infrastructure
Project Division

HSE Systems
Department

Construction Department

Project teams

HSE Control Team

Project HSE Managers

Each department
and office

Safety Performance
As a result of continuous implementation of Group-widemeasures to improve health and safety, our incident rate*1 (ILO
method) has remained at an average of around 0.5 for the pastten years, a lower level than the average incident rate of 1.3 forthe construction industry as a whole. In addition, internal targets
have been set for the annual Total Recordable Injury Rate*2(TRIR; an indicator of workplace safety that includes accidents
that do not entail lost work time) for domestic and overseas
projects. The monthly status of achievement of these targets isannounced within the company to boost safety awareness. In
fiscal 2015, JGC’s TRIR was 0.34 for domestic projects, against

TopicsJGC Report 2016

2010

2011

2012

2013

2014

2015

(Fiscal year)

Formulation of JGC Group Basic HSSE Guidelines
We formulated new JGC Group Basic HSSE Guidelines, andannounced them to the Group in August 2015. The new guidelines
were formulated to replace our HSE Vision 2015, which had been
established to provide an image of the HSE initiatives that wesought to realize in 2015.
Our goal in this was to move beyond our traditional HSSE policyof setting time frames and projecting a vision of JGC’s HSSE
initiatives in several years’ time. By establishing basic guidelines
for universal HSSE, the new guidelines raise the level of HSSE
initiatives throughout the Group.
Our Basic HSSE Guidelines comprise a HSSE slogan, an HSSE
Code of Conduct, and an HSSE logo. They were announced by thepresident at the HSSE Conference he hosted on July 28, 2015.
Basic HSSE Guidelines
Everyone works safely and in good health, and returns home to their families
without incident
HSSE slogan
Respect & CareHSSE Code of Conduct• Obey rules willingly• Be aware of each other, look out for each other,appreciate each other• Every individual employee displays leadership

HSSE Conference Hosted by the President

As part of our measures to enhance HSSE initiatives, the president has hosted an HSSE
Conference every July since 2007. Approximately 240 executives, project division heads,
project department heads, project managers, and construction managers participate in theconference.
Following the President’s opening speech and the Zero- Accident Award Ceremony,presentations are given on a variety of safety themes, and are followed by group discussions.
Through the conference, JGC seeks to enhance the health and safety awareness of officers
and employees and demonstrate the leadership of top management in HSSE matters.

53

2009

HSSE Committee

In the fulfillment of the above-stated policy, JGC hereby declares:
JGC Corporation ensures that this policy, related directives and procedures arethoroughly communicated and implemented throughout the corporation andsubcontractors engaged in JGC’s projects.

0.0

The HSSE Conference

54

The Corporate Value Creation Process

The Foundations of Value Creation_S-society

Financial Affairs

Occupational Health and Safety
HSSE Patrols by the President

Safety Day Campaign

At JGC, the president performs HSSE patrols of major businesssites overseas, and works to raise awareness of safety among
all employees working at the site. The purpose of these patrols
is to have the president visit the business sites in person,
underscoring the importance of having a high awareness of
HSSE at JGC. In this initiative, in order to foster a culture ofsafety and promote safety education, the president patrols thebusiness sites in person, warmly greeting the workers at thesite, after a discussion to raise safety awareness with customers
and business partners. In recent years, the president paid avisit to the construction site of the Donggi-Senoro LNG Projectin Indonesia, held a discussion to raise awareness of HSSE
with management at its customers and business partners,
and patrolled the site to directly communicate to workers theimportance of HSSE.

From June to July every year, JGC conducts a Group-wide
campaign that focuses on traffic and construction site safety. In
addition to JGC’s Head Office, this campaign covers all of theGroup’s construction sites, offices, and affiliates in Japan andoverseas. In fiscal 2015, initiatives included calling for the designof safety posters, requesting employees to carry Commitment
Cards and record details of their HSSE efforts on them, andholding team-based safety committee meetings. This campaign
is an ongoing effort to increase health and safety awarenessamong all Group employees.

Commitment Card 2015

Fiscal 2015 safety poster award winner

President Kawana communicating to workers

Introducing “HSSE Moments”

Measures for Traffic Accident Prevention

Since September 2010, JGC has introduced “HSSE Moments,”
five-minute lectures given by a participant officer at the openingof meetings of the Operations Steering Committee, which
are attended by officers and executives. The purpose is for
management to take the lead in addressing HSSE matters, inconsideration of JGC’s aim to be a No. 1 HSSE contractor.
There are no restrictions on the topics of the lectures, andwith presentations ranging from personal topics to items closely
related to work procedures and topics of intellectual interest, the
HSSE Moments are a splendid opportunity to boost awarenessof HSSE throughout the company via a wide range of subjectsof discussion.

JGC is strengthening its measures to prevent traffic accidents
at domestic and overseas sites and bases. In fiscal 2010,
we introduced a thorough set of guidelines for managementof vehicle operation, including the Seven Golden Rules for
accident prevention, a traffic safety management system, andthe In-Vehicle Monitoring System (IVMS). We also revised theguidelines for the prevention of traffic accidents overseas. In
addition, to continuously monitor the status of traffic safetymeasure implementation at sites both in Japan and overseas,
JGC’s management conducts traffic safety audits and mandates
the submission of Monthly Traffic Safety Reports and semiannual
reports.

HSSE Moments

55

JGC Report 2016

7 Golden Rules for Safe Driving

Broadening the Scopeof IIF and realizing
an Unshakeable JGC
Culture of Safety
GC first became aware of the IIF programin 2008, while engaged in a large-scale gas
project in Qatar. This experience demonstrated
to us that the program enhanced management leadershipand fostered a culture of safety, and as a consequence
boosted results for safety. Reflecting this awareness, our
HSSE Committee has made it mandatory to apply the IIF
program to all major overseas projects. The IIF concept
has also been carried over to our domestic projects under
the name “Ii Fureai Undo,” and, together with overseas
HSSE initiatives, is contributing to fostering and further
developing the culture of safety throughout JGC.
However, the path to reach this point has not beensmooth, and we have faced numerous challenges. First,
because it is no easy matter to grasp the essence of the
IIF program through theoretical learning, we began a planin which we have the managers of newly-commenced
projects visit a site that provides a model example of IIF
initiatives, in order to deepen their understanding of IIF
through practical experience, enabling them to apply theconcepts to their own project. In the area of employee
education, we have also begun an IIF education programfor all new employees that is conducted before and after
their dispatch for onsite training programs. In this way,
they engage in onsite training with an understanding of
IIF, gaining experience of both theory and practice. The
trainees participate in workshops to receive feedback
when their onsite training is completed, giving them agrasp of the theoretical principles of leadership includedin the IIF program, which they will later apply in their workduties. These plans are contributing to the entrenchment of
an HSSE culture at JGC and to the broadening of IIF and Ii
Fureai Undo initiatives.
In addition to these plans, in fiscal 2015 we began tofocus efforts on IIF Health Checks. IIF Health Checks areclearly delineated from regular safety audits, and involve
the review and evaluation of the status of IIF initiatives at
each of JGC’s project sites by IIF experts. If problems are
identified, the staff members conducting the review discuss
concrete proposals for improvement with the relevant
project staff members and put measures into effect,
making the IIF Health Checks a plan that further enhances
JGC’s culture of safety.

J

In 2011, 2013, and again in 2016, JGC received
the highest evaluation in the HSE categor y of theTransmar Report, which evaluates the world’s leading
EPC contractors in the oil and gas industry (around 20
companies) from a comprehensive perspective. This
achievement is a result of the implementation of the IIF
program and Ii Fureai Undo initiatives and daily companywide efforts to foster and develop an HSSE culture at ouroverseas and domestic sites under the leadership of top
management since 2010, seeking to realize our slogan “To
be the Top in HSE.”
As the measures discussed above demonstrate, we
continue to advance IIF initiatives on a daily basis. We arealso projecting the following as future challenges:• Effective introduction of IIF initiatives to projects in which
JV partners are taking the lead in site management• Deployment of IIF initiatives in small-scale projects, inaddition to large-scale projects
The HSSE Committee will continue to work tirelessly to
expand the scope of projects subject to IIF initiatives, andto further strengthen JGC’s HSSE culture.

Kenichi Yamazaki
Senior Executive Officer and Chairperson, HSSE Committee

IIF activities
IF activities are based on the idea of workers watching out foreach other and ensuring that everyone involved in a construction
project is able to return home safely without incident. Safety is
not something that is enforced, but a conscious decision madeby each person involved in a project. By working to improvesafety awareness, we foster a culture of safety throughout thewhole corporate group. Everyone, from our managers in chargeof a construction site to the workers at the site, play a vital role inensuring the safety of all of those involved. IIF is not set in stonesuch as in a safety manual, but decided in accordance withconditions that vary from site to site, by the people working at
the construction site. IIF also serves to increase the motivationof each individual worker, because constant communication
is at the root of these initiatives. In this close-up, we introduce
some examples of IIF at JGC’s construction sites in Japan andaround the world.

56

The Corporate Value Creation Process

Social Contribution Activities

Suppliers

Basic Thinking regarding Regional Communities
Based on our management philosophy, creating a more prosperous
future for our clients, for people and for society through integrating
our core capabilities and technical expertise to generate innovative
solutions, we are aware of our responsibility not merely to expand ourown business, but also to contribute to the development of societies in

Basic Thinking regarding Suppliers
We believe that it is essential for all companies cooperating in a
project to have established cultures of quality and of safety, and, asa result, to be able to do it “First Time Right.” Companies that supply
equipment for a project being conducted by JGC are not simply suppliers

The Four Priorities of Social Contribution Activities
Upon establishing priority areas for activities to make social
contributions in ways that make effective use of what is uniquely
characteristic of JGC, we are promoting efforts related to thefollowing four topics.

the regions in which we operate. Seeking always to coexist harmoniouslywith society, we are actively working to fulfill our social responsibilities.
The JGC Group conducts a diverse range of initiatives to benefit regional
communities, including offering employment opportunities, conducting
education and training programs, and raising awareness.

Environment
Education
Science andTechnology
Community

To actively contribute to environmental conservation
To support the education of the next generation of qualified
professionals
To support science and technology that will form thefoundation of sustainable development
To contribute to the sustainable development of the areas
where JGC does business

Environment

Education

To commemorate its 80 th anniversar y, JGC became awatershed forest partner in Kanagawa Prefecture’s Water
Source Conservation Project in August 2008 and launched
an environmental conservation project. In September 2013, a
donation was made to Kanagawa Prefecture and the decision
taken to continue as a forest renewal partner in the project
for another five years. Through the project, employees of the
JGC Group assist with watershed forest conservation while
deepening their understanding of the role of watershed forests
and the importance of coexisting with nature. Activities arecarried out once a month, and during fiscal 2014 more than
200 employees participated in various events, including forest
walking tours and aquatic wildlife observation tours, as well
as special events held with the president and employees
participating.
We also continue to put efforts into environmental activities,
such as using forestry activities as part of the training for new
graduates.

Through the JGC-S Scholarship Foundation, JGC contributes
to the cultivation of scientists and the advancement of scienceand technology in Japan and overseas. The foundation wasestablished in March 1968 with an endowment from JGC
founder Masao Saneyoshi. Its principal undertakings include
the provision of educational loans to Japanese university andgraduate students majoring in scientific and technical fields,
grants to foreign students studying in Japan, and researchfunding assistance for young researchers. As of fiscal 2014, thefoundation has provided assistance to a total of 21,179 persons,through educational loans to 13,656 students and educational
grants to 7,562 students (2,137 Japanese and 5,425 foreigners
studying in Japan at their own expense). The foundation has also
provided research funding assistance to a total of 2,162 young
researchers. Annual disbursements have reached 397 million
and 920 thousand yen.

Science and Technology

Social Contribution

Scientific experiment seminars are held for elementary school
students every year at the Kitakyushu office of group company
JGC C&C in Fukuoka Prefecture, in order to contribute to andstrengthen relations with the local community. These seminars
are so popular that the number of attendees exceeds the quota
every year. In 2015, around 20 elementary school pupils carriedout three experiments: “Using alginic acid and calcium chloride
to create artificial salmon roe”; “Experiencing the world of -196°C
using liquid nitrogen”; and “Electric jelly fish that floats using
static electricity.”
As a chemicals manufacturer, JGC C&C provides anopportunity for children to deepen their interest in chemistry andfind meaning in having an interest for things. Going forward, thecompany will continue these positive relationships with the local
community and its social contribution initiatives.

Since fiscal 2011, the Company has lent its support to the
Yokohama City Board of Education for its “Fureai Concert Fostering the Heart” event. This concert has been held since the1998 fiscal year for all elementary and compulsory education
schools (one class from year 4 to year 6) and the elementary
sections of special needs schools, with the goal of sharpening
the senses through appreciation of music and fostering thetemperament and abilities necessary for a spiritually rich life.
During this time about 3,100 children daily come to appreciate
the music, a total of about 31,000 children. Every year there
are performances from the Kanagawa Philharmonic Orchestra
and organ recitals. The conductor and master of ceremonies
give lighthearted and easy-to-understand explanations, so thatchildren, parents, and members of the public can all enjoy theselections played while cultivating their knowledge of music.

57

JGC Report 2016

The Foundations of Value Creation_S-society

Financial Affairsdelivering equipment; they are important partners who meet the quality
standards and deadline requirements of the project and, through pricecompetitiveness, contribute to the project’s success. JGC works toestablish relationships with all of its business partners while taking
leadership as an engineering company.

Procurement Policy

Organization

We do not take the superficial route of pursuing lower prices
for equipment and materials, but instead consider how best to
reduce the total cost of the project from the construction of theplant to the final hand-off to the customer.
We use the most up-to-date technology, market and supplierinformation and other such resources concerning equipment
and materials as the basis to exercise leadership with suppliers
and provide our customers with optimal procurement solutions.

JGC procurement activities are organized around a project
procurement manager who exercises overall leadershipover six teams comprised of staff responsible for equipment
procurement and process management, a bulk team that iscomprised of specialists with responsibility for procurementof bulk materials, and a logistics (cargo transport) team that iscomprised of specialists in accomplishing the safe transportationof all equipment and materials.

TopicsSupporting Suppliers is the JGC Way

Manufacturers in emerging countries
are eager to take on the challenge of
producing equipment that is more difficult
than they have previously tackled. At suchtimes, engineers from the Company’s
Vendor Technical Support Group (VTSG)
join the manufacturer in question to geta feel for the manufacturing facilities andthe capabilities of the designers, offering
appropriate guidance and helping themachieve their new goals.
If a supplier causes quality problems,
rather than terminating the relationship,
it is in JGC’s corporate DNA to instead
pursue the cause of the problem together
with the supplier and to support their

quality improvement activities.
Our mission is to expand our “Absolute
Safety Transpor tation” activities that
aim at “Zero freight accidents,” “Zeroaccidents resulting in injury or death,”a n d “ M i n i m i z i n g t h e e nv i r o n m e n t a lburden of transportation,” in order toestablish a “culture” of safety, and to
foment a “culture” of quality by creating anenvironment in which quality is naturally
generated rather than simply managing
the quality of equipment and materials.
For these reasons, we will continue todemonstrate strong leadership going
forward.

engineers from VTSG

58

The Corporate Value Creation Process

The Foundations of Value Creation_G-Governance

Financial Affairs

Quality Management System
Basic Thinking regarding Quality Management System
In plant engineering, quality assurance is an essential element inrealizing safe operation and stable production. Centering on a Quality
Assurance Committee, JGC’s quality management system seeks torealize continuous improvement in quality. Headquarters and each ofour divisions set quality targets, and we work proactively to resolve
any quality problems, striving to make improvements and identifying
fundamental causes in order to eradicate problems as quickly as
possible.

Improved performance by means of QMS

Quality Assurance Committee

JGC obtained ISO 9001 quality management system (QMS)
certification in 1993. At the time, QMS certification was essential,
particularly for overseas projects, and we were engaged inoperations for acquiring certification from a third-party certifying
body and maintaining certification.
Since 2009, we have implemented drastic QMS reforms
and promoted continuous improvement, led by the Quality
Assurance Committee, with the aim of improving organizational
performance as appropriate to the type of work performed.

The Quality Assurance Committee reports directly to the
President. It is chaired by a managing director, comprises
executive-level general managers and meets once a month.
The Quality Assurance Committee implements various
improvement strategies to ensure that the quality of the products
and services we provide will consistently satisfy our customers,
and evaluates the results to ensure that improvement is
continuous.
The Operations Steering Committee, convened each year by
the President, conducts a management review of the activities of
the Quality Assurance Committee, and under the leadership of
the President, it works towards continuous improvement of theorganization.

Quality Policy
It is JGC’s purpose that, in realizing our Clients’ projects, we will
fulfill our Clients’ needs in the optimal way by fully applying ourknowledge and experience and by incorporating state-of-the-art
technology.
In order to achieve this purpose, we affirm the following quality
policy.

Role of the Quality Assurance Committee
President

Operations Steering Committee
Management Review• We will deliver plants and services fully complying with agreed

Quality Assurance Committee

requirements as well as statutory and regulatory requirements, thusachieving our Clients’ satisfaction and confirming their trust in JGC.

Chairman: Executive Director
Members: General Managers of
Relevant Departments• We will continually improve the effectiveness of our quality

management system.

59

JGC Report 2016

Relevant Departments

Effective Improvements Through the PDCA Cycle
At JGC, we use the “Plan, Do, Check, Act” PDCA cycle to ensure continuous
improvement, ensuring integration of our QMS with the actual functions performed,
with the aim of improving substantive performance of our organizations andoperations.
We ensure continuous improvement of operations and organizations by treating
the operating policies of departments and sections as quality targets, identifying
any organizational issues, and formulating (“Plan”) operating policies and actionplans, implementing them (“Do”), evaluating them (“Check”) and improving themon the basis of evaluation (“Act”) each fiscal year.
The internal auditing conducted by each department is conducted by the generalmanager and by senior personnel and others nominated by the general manager
who are familiar with the running of the department, and they provide instruction
and support, pointing out any issues that need to be dealt with, enabling steady
improvement to be made.
If issues relating to quality are discovered, we receive instruction from the Quality
Assurance Committee to nip the problem in the bud by investigating its root cause
and implementing preventive measures laterally throughout the company.

Topics

Improvement Programs Led by
the Quality Assurance Committee
Quality
Assurance
Committee

Continuous
improvement
by means of
the PDCA cycle• Investigate the root cause• Implement preventive measureslaterally throughout the company
Eachdepartment
Departmental
operating policies
Internal audits bysenior personnel inthe department
EachsectionSectional operating
policies

1st JGC Quality Forum: “Quality is Our Value - KIZUKI”

The first JGC Quality Forum was held on January 19, 2016,
with the participation of almost 20 domestic and overseas
companies and approximately 50 invited guests.
Quality is not simply a matter of management, but also of
the natural creation of an environment. JGC’s initiatives tocultivate a culture of quality (educational activities at lecture
meetings, workshops with business partners, etc.) haveprompted our business partners to formulate and implement
their own concrete action plans, and by this means tofoster cultures of quality tailored to their own company
environments. We support these initiatives by periodicallymonitoring the details of activities and offering advice asnecessary.
The JGC Quality Forum provides an opportunity for eachcompany involved to present the details and outcomes of
their quality-related activities. Participants share experiencesof success, in addition to engaging in comprehensive
discussion of areas in which expectations did not resultin outcomes. With the participation of JGC engineers andexecutive staff, the total number of participants exceeded
200, and frank discussions ensued.
A South Korean welding joint manufacturer was selected
to receive the prize for best presentation. The company

had previously inflicted severe penalties on employees who
contributed to quality problems, but then implemented
activities to foster a culture of quality, eventually bringing ina “no-punishment” policy. The company now promotes thesharing of awareness of quality problems that might havebeen hidden, and efforts conducted by all employees toprevent quality problems from reoccurring.
All the participants in the Forum made a commitment toachieve further improvements in quality, and came backfrom the event with increased awareness. We will continue
to support this fostering of new initiatives for the realizationof increased quality into the future.

The participants in the Forum

60

The Corporate Value Creation Process

ESG Highlights

Units

Results forfiscal 2011

Results forfiscal 2012

Results forfiscal 2013

Results forfiscal 2014

Results forfiscal 2015

%

3.3

4.2

5.8

5.9

3.7

Number of incidents of leaks of hazardous substances, etc.
(Domestic and overseas construction sites)

Incidents

0

0

0

0

0

Energy-related CO 2 emissions (Domestic construction sites)

kgCO 2 /hr

0.46

0.36

0.58

0.63

0.64

%

-

-

-

-

79.4

Crude oilequivalent (kl)

2,961

3,069

2,908

2,770

2,579

Six-Year Summary — Consolidated

63

%

100

100

100

100

100

Analysis of Performance and Financial Position

64

Report on Environmental Initiatives (E)Rate of final disposal of industrial waste (Domestic
construction sites)

Contribution to the realization of low-carbon
societies• Promotion of 3R activities• Environmental Improvement Activities in Line
with Our Business• Promotion of the Zero Emissions Initiative•

Rate of diffusion of electronic manifests
Energy consumption (Yokohama Head Office)(*1)
Ratio of copy paper compliant with Act on Promoting Green
Purchasing (Yokohama Head Office)••Promotion of diversity
Support for realization of work-life balance
Support for employee career formation

7,826

7,934

7,530

7,308

6,720

Risks Impacting Operations

68

Consumption of chilled water and steam by Yokohama Head
Office (Chilled water)

1,000 MJ

18,283

19,40319,058

17,112

16,195

Consolidated Balance Sheets

69

Consumption of chilled water and steam by Yokohama Head
Office (Steam)

1,000 MJ

8,729

9,911

8,617

8,252

8,021

Consolidated Statements of Income

71

Volume of waste disposal by Yokohama Head Office1,000 kg

300

309

309

258

186

Consolidated Statements of Comprehensive Income

72

Rate of recycling of waste by Yokohama Head Office

%

67.5

65.3

65.4

63.2

66.9

Consolidated Statements of Changes in Net Assets

73

Number of women in management positions

Persons

3

5

10

11

15

Consolidated Statements of Cash Flows

74

Rate of employment of people with disabilities

%

1.65

1.75

1.7

1.91

1.75

Number of re-employed employees(*2)

187

184

191

209

208

Notes to Consolidated Financial Statements

75

Persons

Number of non-Japanese employees(*2)

Persons

44

56

71

85

97

Independent Auditor’s Report

93

Number of employees taking childcare leave (Male)

Persons

1

1

0

2

1

Supplemental Explanation

94(Persons) %(14)100(14)100(12)94.7(20)100(29)100

JGC Group

98

Number of employees taking spousal childbirth leave

Persons

240

191

189

190

189

Outline of JGC

99

Number of employees taking sick or injured childcare leave

Persons

104

124

119

113

125

Number of employees taking nursing care leave

Persons

2

2

3

2

4

Number of employees taking temporary retirement for
nursing care

Persons

0

0

1

1

2

Number of employees working reduced hours for childcare

Persons

31

29

37

33

37

Number of employees working reduced hours for nursing
carePersons

1

1

0

0

1

%

50

49

48

50

53

Number of employees dispatched for onsite training / onsite
instruction

Persons

61

88

112

125

98

Number of employees dispatched to overseas companies,
etc.

Persons

5

5

3

3

2

Rate of utilization of annual leave

Initiatives related to health and safety

Total project working hours

Hr

98,551,750

Fostering of culture of health and safety• HSSE leadership by top management• Enhancement of HSSE management system forinvestment projects• Ongoing implementation of traffic safetymeasures• Further development of in-house health andsafety education• Enhancement of Head Office construction HSSE
functions

Number of fatal accidents

Accidents

0

0

0

0

0

Number of accidents accompanied by lost work time

Accidents

7

5

3

12

14

Number of restrictions on work

Restrictions

11

20

47

60

37

Number of conditions requiring specialized treatment

Conditions

38

53

77

123

99

0.014

0.010

0.004

0.012

0.015

0.11

0.15

0.18

0.19

0.16

Times(People)

23(1,122)

27(996)8(212)

8(312)

19(600)Incidents

0

0

0

0

0

Persons

0

1

1

1

1

•

Contents

1,000 kWhRate of reinstatement of female employees taking childcare
leave (Number of female employees taking childcare leave)•

Financial Affairs Section

Yokohama Head Office power consumption

Report on Social Initiatives (S)Initiatives related to human rights and labor
practices

Financial Affairs

This table introduces our initiatives related to the environment, society, and governance(ESG) and our key performance indicators (KPI).

JGC’s main KPI

Environment-related Initiatives

The Foundations of Value Creation

Rate of frequency of accidents accompanied by lost work time(*3)

Rate of frequency of recordable accidents (*4)

104,893,023 140,308,859 206,831,129 185,433,499

Report on Governance (G)Initiatives related to fair business practices•

Realization of increased compliance awarenessInitiatives related to the promotion of information security

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

Number of serious information security-related incidents
Information management awareness verification
surveys and voluntary inspections• Drills against targeted threats Reinforcement ofgovernance system
Number of outside directors
Reinforcement of governance system•(*1) Energy consumption (Yokohama Head Office): Targets for fiscal 2015 and fiscal 2016 have been set as an average annual reduction of 1%, with 2013 as the base year.
(*2) Number of re-employed employees and number of non-Japanese employees = (Number of employees in April + Number of employees in March ) ÷ 2(*3) Rate of frequency of accidents accompanied by lost work time = Number of accidents accompanied by lost work time × 200,000 ÷ Total project working hours(*4) Rate 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

61

JGC Report 2016

62

Six-Year Summary — Consolidated

Analysis of Performance and Financial Position

For the six years ended March 31.
Yen amounts are in millions except per share data.

2011
Net Sales¥2012

447,222¥556,9662013¥

624,637

2014¥

675,821

2015
¥

2016

799,076¥ 879,954

Our View of the Operating Environment

Operating Income

During the consolidated fiscal year under review, the economic

Due to the increase etc. in total income for completed projects,

slowdown in developing countries and the excess supply of oil

operating income rose by ¥19,920 million over the previous year toresulted in continued stagnation in oil prices. In these conditions, gas¥49,661 million.

Operating Income

63,55967,05364,123

68,25329,74049,661Net Income

25,477

39,111

46,17947,178

20,62842,793

Total Current Assets

319,464

376,172

460,231575,886

533,538

522,747

reviewed some of their capital investment plans, leading to continued

Other Income (Expenses)

Total Current Liabilities

174,293205,771

262,439

333,353

286,533

225,203poor visibility for the environment in which the Group operates.

Other income (expenses) declined as a result of exchange

Working Capital

145,171

170,401

197,792

242,533

247,005

297,544On the other hand, against the background of population growth

losses etc. and dropped from ¥15,126 million (net) the previous

Current Ratio

183.3

182.8

175.4

172.8

186.2

232.1

and economic expansion in developing countries, global demandconsolidated fiscal year to ¥2,386 million (net), a decrease of

Net Property and Equipment

64,63364,88771,70870,29078,56076,255for energy is expected to continue rising and in some regions and¥12,740 million.

Total Assets

468,502526,169

628,757

746,102719,754689,782

countries planning for projects directed toward internal demand,

6,623

7,591

9,363

13,001

22,71520,991

Total Net Assets

264,483

291,042

336,083

379,882

388,496

419,673

Results of Operations

valuation of investment securities etc. was posted, but the main

New Contracts

618,203793,278594,091

818,161

769,680

320,626

In the consolidated fiscal year under review, the JGC Group posted

factor was the reversal of the allowance for doubtful debts etc. As

1,163,256

1,506,146

1,549,813

1,767,814

1,772,036

1,250,336

net sales of ¥879,954 million (up 10.1% year on year), operatinga result, income before income taxes for the consolidated fiscal

100.83154.9

182.91

186.9

81.73

169.6

income of ¥49,661 million (up 67.0%), ordinary income of ¥52,047

year under review rose by ¥29,597 million to ¥59,657 million.

30

38.5

45.5

46.5

21

42.5

million (up 16.0%), and net income attributable to owners of parent of

5,826

6,524

6,721

7,005

7,332

7,489

¥42,793 million (up 107.4% year on year).

Long-Term Debt, Less Current
Maturities

Outstanding Contracts
Net Income per Share (in yen)
Cash Dividends per Share (in yen)
Number of Employees

and oil-producing countries as well as the major oil producers etc.

primarily oil and gas-related, is progressing steadily.

Income before income taxes
Extraordinary income came to ¥7,609 million (net). A loss on

Taxes on Income
Income tax and other taxes declined by ¥6,668 million compared

Net Salesto the previous consolidated fiscal year, to ¥9,078 million. In

Net sales were pushed up by the progress in projects accounted

addition, deferred taxes on income came to ¥7,610 million, leadingfor on a percentage of completion basis, growing by ¥80,878 overto tax expenses (net) of ¥16,688 million.

the previous consolidated fiscal year to reach ¥879,954 million.
Net income attributable to non-controlling interests
Cost of Sales and Selling, Generaland Administrative Expenses

Net income attributable to non-controlling interests fell by ¥44

Along with the rise in net sales, the cost of sales increased bymillion compared to the previous year, to ¥174 million.

¥60,754 million over the previous consolidated fiscal year, to¥806,995 million. Selling, general and administrative expenses rose

Net income attributable to owners of parentby ¥203 million over the previous consolidated fiscal year, hitting

The outcome was that net income attributable to owners of parent¥23,297 million.

rose by ¥22,164 million over that of the previous consolidated fiscal
year to hit ¥42,793 million.

63

JGC Report 201664

Segment Information

Financial Position

Cash Flow

Total Engineering Business

The financial position for the consolidated fiscal year under review was

On a consolidated basis, cash and cash equivalents for the

In the EPC (Engineering, Procurement, Construction) business, thetotal assets of ¥689,782 million, representing a decrease of ¥29,972

consolidated fiscal year under review (hereinafter referred to as “netCompany worked to win orders in Japan, the Middle East, Africa,

million over the previous consolidated fiscal year. Net assets came

cash”), excluding the increase arising from new entities consolidated

Southeast Asia, the North American region, and Russia/CIS etc.

to ¥419,673 million, an increase over the previous year of ¥31,176

since the end of the previous consolidated fiscal, was ¥51,175 million

In November 2015, group companies such as PT. JGC Indonesia

million.

lower, at ¥247,947 million. With regard to net cash used in operating

won orders for a refinery capacity expansion project in Indonesia,

Cash flow indicators for the Group are as follows:

activities, income before taxes on income was ¥59,657 million, but

Balance sheet indicators for the Group were as follows:

while in January 2016 the Group won orders for a gas processing

due to a fall in customer advances for projects in hand etc., the final

plant construction project in Bahrain. Moreover, in March, PT.
JGC Indonesia also won orders for a gas processing construction

March 31,2014

March 31,2015

March 31,2016

result was a decline of ¥49,764 million. Net cash used in investing
activities rose by ¥8,696 million, primarily due to sales of investment

project. We remain focused on the steady execution of projects for

Current ratio (%)

173%

186%

232%

securities and the like. Net cash provided by financing activities fell bywhich orders have already been won. For large-scale LNG projects

Fixed asset ratio (%)

45%

48%

40%

¥4,374 million as a result of dividend payments etc.

in Australia and Russia, we split the plant into functional units andNotes: Current ratio: Current assets / Current liabilities
Fixed asset ratio: Net property and equipment + Total other assets / Total net assets* Both indicators are calculated using consolidated financial figures.

construct them in various regions of Asia before transporting themby large ship to their final construction destination, where they are

Shareholders’ Equity and Shareholders’ Equity Ratio

assembled into a single unit. Construction of these plants using thisnew technique (modular construction) is nearing its peak.
In the investment business, we continue to develop various
types of operation across multiple regions, and in planning andmanagement services we are pushing forward with urban andinfrastructure development projects in Asian regions.

Shareholders’ Equity

Catalysts and Fine Products BusinessIn the catalysts and fine products business, shipments ofhydrotreating catalysts rose due to strong demand for contract
manufacturing and export projects, but due to stagnant demand

6,000
5,000

3,000

products business, functional coating materials and optical

2,000

abrasives for use with smartphone materials and ceramic-metalcomposites for liquid crystal exposure equipment recorded lower
sales volumes. As a result, the catalysts and fine products businessposted a small increase in net sales over the previous term, but
profits declined.
Other Business

5,766

53.4

3,000

50.2
3,746

（％）

60

53.8
3,874

1,000
0

March 31,2015

March 31,2016

Shareholders’ equity
ratio (%)

50.2

53.8

60.7

Shareholders’ equity
ratio (market basis, %)

121.5

83.7

61.6

Interest-bearing
liabilities to cash flow
ratio (yearly)

0.1

-

-

Interest coverage ratio(times)

319.5

-

-

Notes: Shareholders’ equity ratio: (Total net assets – Minority interests) / Total assets
Shareholders’ equity ratio (market basis): Total market value of shares / Total assets
Interest-bearing liabilities to cash flow ratio: interest-bearing liabilities / cash flow
Interest coverage ratio: Net operating cash flow / Interest expense* All indicators are calculated using consolidated financial figures.
* “Interest-bearing liabilities” includes all liabilities on the consolidated balance sheet on whichinterest is being paid. “Cash flow” is the figure for net cash used in operating activities fromthe consolidated statements of cash flow. Interest paid uses the interest paid figure from theconsolidated statements of cash flow.
*In fiscal years where cash flow is negative, the interest-bearing liabilities to cash flow ratio andinterest coverage ratio are denoted by a “-”.

4,186

2,904

40

6,248

Free Cash Flows(Billions of yen)

5,061

1,500

20

1,200
900

4,000

in Japan etc., chemical catalyst shipments declined. In the finecommunication components posted higher shipments, but

55.2

3,355

7,450

7,000

Catalyst and Fine Products Business

4,500

8,284

(Billions of yen)

8,000

60.7

(Billions of yen)

Net Sales by Reporting Segment
Total Engineering Business

Shareholders’ Equity Ratio

March 31,
2014

1,018
791
566

600
0
420

385

371

374

2011

2012

2013

2014

2012

2013

2014

2015

(FY)

0

300
0

376
2015

2011

(FY)

-300

-410

-600
-900
-1,200

-948
2011

2012

2013

2014

2015

(FY)

In Other business, we continue to roll out the large-scale solar
power generation (mega-solar) operations etc. in Japan. On
March 31, 2016, the Company transferred 100% of shares of JGCInformation Systems Co., Ltd owned by the Company to Fujitsu
Limited.

65

JGC Report 2016

66

Risks Impacting Operations
Analysis of New Contracts
A breakdown of new contracts by business sector and region is asfollows:
New Contracts by Business Sector

The JGC Group conducts investments in such areas as theDue to the effects of falling crude oil prices and other factors, it

as follows. Furthermore, forward-looking statements in the text areoil and gas development business, the new fuel business, theis expected that conditions will remain uncertain with regard tobased on information available as of March 31, 2016 and take into

power generation and desalination business, and the urban andimplementation of capital investment projects in the plant market.

account the JGC Group as a whole.

infrastructure development business.

particularly in Asia and Europe, and the adverse competitive

1. Risks with Overseas Causes

risk assessment when making new investments and reinvestments

environment is expected to continue in the next and subsequent

Overseas businesses generate more than 80% of the JGC Group’sand by performing timely monitoring of existing business. However,fiscal years.

total net sales. Such businesses are subject to country risks including

unanticipated events such as dramatic changes in the investment

In this environment, and based on the new “Beyond the Horizon”

economic risks and socio-political risks. Specific risks include

environment exemplified by sudden price changes for oil, gas andmedium-term management plan, while planning to grow thepolitical unrest, war, revolution, civil strife, terrorism, changes inother energy resources as well as changes in estimated reserves can

10.6%

core EPC business in the oil and gas fields, we aim to generate

economic policy or conditions, default on foreign debt, and changes

have an impact on the JGC Group’s performance.

March 31,
2016

478

1,311

40.9%

2,436

339

The Group conducts appropriate risk management by conducting

In addition, price competition is ongoing with other companies,

March 31,
2015

Petroleum refining
projects

3. Risks Affecting Investing Activities

potential to have a material impact on the decisions of investors are(Billions of yen)March 31,
2016
Percentage of
New Contracts

Oil and gas
development projects

Risks associated with the businesses of the JGC Group with the

Total Engineering Business

Outlook for the Future

In the fiscal year under review, orders received were ¥320,626 million.

LNG projects

5,806

415

13.0%

stable profits by expanding in the infrastructure field of the EPC

in exchange and taxation systems. To minimize the effects on its

Chemical projects

3,865

550

17.2%

operations, as well as in non-EPC operations such as businessbusinesses arising from these risks, the JGC Group continuously

4. Risks of Changes in Exchange Rates

782

586

18.3%

investments, in order to achieve further growth for the JGC Group.

reviews and reinforces its risk management system, carries trade

Almost all of the JGC Group’s overseas sales are paid underinsurance, recovers receivables as early in a project as possible, forms

agreements denominated in foreign currencies. To hedge the

Other projects

New Contracts Region(Billions of yen)

Catalyst and Fine Products Businessjoint ventures, and takes various other steps. However, when changes

associated exchange rate risks, we have introduced countermeasures

Amid a difficult operating environment for the catalysts and finein the business environment are more extreme than anticipated andincluding executing project contracts denominated in multiple

products business caused by the stagnation in demand etc.

projects are canceled, suspended, or delayed, the possibility of acurrencies, conducting overseas procurement, ordering in overseas

resulting from the contraction and restructuring of domestic

negative impact on the Group’s performance arises.

currencies and entering into forward foreign exchange agreements.

March 31,2015

March 31,2016

March 31,
2016
Percentage of
New Contracts

Japan

1,320

860

26.8%

refineries, and by the integration of refining and petrochemicals,

Asia

725

636

19.8%

we will strive to recapture domestic share in the market for FCC

2. Risks Affecting Project Execution
Most contracts for projects in which the JGC Group participates are

However, sudden exchange rate fluctuations could affect the JGC

Africa

47

409

12.7%

catalysts and grow sales overseas; promote contract manufacturing

Middle East

521

734

22.9%

of hydrotreating catalysts; conduct research and development into

lump-sum, full-turnkey contracts. However, to enable hedging of

5,082

565

17.8%

catalysts we can be competitive in, and win orders for new projects

some of the risks in these contracts, the Group uses cost-plusfee

and expand sales for chemical catalysts.

contracts and contracts based on the cost disclosure estimate

Oceania and Others

In the fine products business, we will actively push ahead withmethod, depending on the project. The Group draws fully upon its

responses to the growth in demand for optical communication

past experience to anticipate and incorporate into each contract

components, work to win orders for energy-related substrates andprovisions for dealing with the risks that threaten to arise during

for abrasives, and expand sales etc. of cosmetics materials andproject execution. When confronted with unforeseen impediments to

optical materials in overseas markets.

the execution of a project including sudden steep rises in the costs

Group’s performance.

of materials, equipment, machinery and labor, natural disasters andoutbreaks of disease or if the JGC Group’s actions or a problem
during project execution should cause a major accident, theprofitability of a project can be adversely affected, which can have an
impact on the JGC Group’s performance.

67

JGC Report 201668

Consolidated Balance Sheets
JGC CORPORATIONMarch 31, 2016 and 2015

ASSETS(Millions of yen)(Thousands of U.S. dollars)(Note 1)March 31, 2016

March 31, 2015

March 31, 2016

¥ 239,948¥ 282,708$ 2,129,464

8,000

15,00070,998

175,876

134,823

1,560,845

CURRENT ASSETS:
Cash and deposits (Notes 3, 13 & 17)
Marketable securities (Notes 9, 13 & 17)
Notes and accounts receivable (Notes 2 & 17)(Millions of yen)(Thousands of U.S. dollars)(Note 1)March 31, 2016

March 31, 2015

March 31, 2016

Short-term loans and current maturities of long-term debt (Notes 2 & 3)

¥ 15,338¥ 13,205$ 136,120

Notes and accounts payable (Notes 2 & 17)

108,390

106,598

961,928

Advances received on uncompleted contracts

37,961

84,649336,892

LIABILITIES AND NET ASSETSCURRENT LIABILITIES:Inventories (Note 4)

50,553

41,730448,641

Reserve for job warranty costs

2,884

2,226

25,595

Deferred tax assets (Note 12)11,98017,729106,319

Reserve for losses on contracts

20,68035,624

183,528

Other current assets (Notes 2, 10 & 17)

36,78941,679326,491

Income taxes payable

3,742

3,289

33,209Allowance for doubtful accounts

(398)

(131)

(3,532)

Provision for loss on guarantees

1,301

6,324

11,546TOTAL CURRENT ASSETS

522,748

533,538

4,639,226

Other current liabilities (Notes 2, 3, 10 & 17)
TOTAL CURRENT LIABILITIESPROPERTY AND EQUIPMENT (Note 3):
Land (Notes 14 & 16)

25,38025,996225,239

Buildings and structures (Note 16)

65,52067,386

581,470

Machinery and equipment

71,751

68,639636,768

Construction in progress

217

680

1,926

5,357

5,181

47,542

168,225

167,882

1,492,945(91,970)(89,322)(816,205)

76,25578,560676,740

Other

Less accumulated depreciation
NET PROPERTY AND EQUIPMENT

34,907

34,618309,789

225,203

286,533

1,998,607

Long-term debt, less current maturities (Notes 3 & 17)

20,991

22,715

186,289

Net defined benefit liability (Note 6)

15,612

13,820138,552

Deferred tax liabilities for land revaluation(Notes 12 & 14)

3,133

3,307

27,804

Other non-current liabilities (Notes 2, 3 & 12)

5,169

4,883

45,873

270,108

331,258

2,397,125

TOTAL LIABILITIESCONTINGENCIES (Notes 7 & 15)

NET ASSETS (Note 8):
SHAREHOLDERS’ EQUITY
Common stock

OTHER ASSETS:

Authorized — 600,000,000 shares,

Investments in unconsolidated subsidiaries and affiliates (Notes 9 & 17)

17,80723,264

158,032

Investment securities (Notes 3, 9 & 17)

41,51651,029368,442

Issued —23,511

23,511

208,653

Capital surplus

25,60925,608227,272
3,324,680

259,052,929 shares in 2016 and 2015

Long-term loans receivable (Notes 2 & 17)

4,846

5,941

43,007

Deferred tax assets (Note 12)

5,998

5,823

53,230Retained earnings

374,625

336,324

194

682

1,722

Treasury stock, at cost

(6,736)(6,659)(59,780)

20,41820,918181,202417,009378,784

3,700,825

90,779107,657

805,635¥ 689,782¥ 719,755$ 6,121,601

Net defined benefit asset (Note 6)
Other
TOTAL OTHER ASSETSTOTAL ASSETS
The accompanying notes are an integral part of these statements.

TOTAL SHAREHOLDERS’ EQUITYACCUMULATED OTHER COMPREHENSIVE INCOME
Net unrealized holding gains on securities (Notes 9 & 17)

7,065

10,27362,700

Deferred losses on hedges (Note 10)

(503)

(488)

(4,464)(54,269)

Revaluation reserve for land (Note 14)(6,115)(6,289)Foreign currency translation adjustments

4,072

6,594

36,138Remeasurements of defined benefit plans (Note 6)(2,832)(1,393)(25,133)

1,687

8,697

14,972

978

1,016

8,679

419,674

388,497

3,724,476¥ 689,782¥ 719,755$ 6,121,601

TOTAL ACCUMULATED OTHER COMPREHENSIVE INCOME
NON-CONTROLLING INTERESTSTOTAL NET ASSETSTOTAL LIABILITIES AND NET ASSETS69

JGC Report 201670

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

JGC CORPORATION
Years ended March 31, 2016 and 2015

JGC CORPORATION
Years ended March 31, 2015 and 2014

NET SALES (Note 11)
COST OF SALES
Gross profit
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating income(Millions of yen)(Thousands of U.S. dollars)(Note 1)

2016

2015

2016

¥ 879,955¥ 799,076$ 7,809,327

806,996746,241

7,161,839

72,95952,835647,488

23,29823,094

206,762

49,661

29,741

440,726

OTHER INCOME (EXPENSES):Interest and dividend income

4,636

5,740

41,143

Interest expense

(719)

(453)

(6,381)Gain on sales of investment securities

1,085

6

9,629

Gain on sales of affiliates securities

4,227

820

37,513

Loss on impairment of fixed assets (Notes 11 & 18)(1,661)(4,852)(14,741)

Exchange (loss) gain, net(2,938)

8,673(26,074)

Equity in earnings of affiliates

716

723

6,354

Reversal of allowance for investment loss

—

589

—

Reversal of provision for guarantees

5,294

—

46,983

Loss on provision for guarantees(1,235)(6,258)(10,960)

Loss on valuation of investment securities (Note 9)(10,371)(5,001)(92,039)

Reversal of allowance for doubtful accounts

10,231—90,797—334—

Gain on negative goodwill
Other, net (Note 16)

731

(2)

6,487

9,996

319

88,711

59,65730,060529,437

Current

9,079

15,74880,573

Deferred

7,610(6,536)

67,536¥ 42,968¥ 20,848$ 381,328

NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS

(175)

(219)

(1,553)NET INCOME ATTRIBUTABLE TO OWNERS OF JGC CORPORATION¥ 42,793¥ 20,629$ 379,775

Yen

U.S. dollars(Note 1)

Income before taxes on income and non-controlling interests in earningsof consolidated subsidiaries

NET INCOME(Millions of yen)(Thousands of U.S. dollars)(Note 1)

Year ended
March 31, 2016

Year ended
March 31, 2015

Year ended
March 31, 2016

¥ 42,968¥ 20,848$ 381,328(3,208)3,404(28,470)

(46)

(363)

(408)

OTHER COMPREHENSIVE INCOME (Note 19)
Net unrealized holding gains on securities (Notes 9 & 17)
Deferred losses on hedges (Note 10)
Land revaluation (Note 14)

174

338

1,544

Translation adjustments(2,612)

2,210(23,181)

Remeasurements of defined benefit plans (Note 6)(1,340)(959)(11,892)

3

(13)

26

Share of other comprehensive income of affiliates accounted for using
equity method
TOTAL OTHER COMPREHENSIVE INCOME
TOTAL COMPREHENSIVE INCOME
Comprehensive income attributable to owners of JGC Corporation
Comprehensive income attributable to non-controlling interests¥ (7,029)¥ 4,617$ (62,381)¥ 35,939¥ 25,465$ 318,947¥ 35,795¥ 25,273$ 317,669

¥ 144

¥ 192

$ 1,278

The accompanying notes are an integral part of these statements.

TAXES ON INCOME (Note 12):NET INCOMEAMOUNTS PER SHARE OF COMMON STOCK :Net income¥ 169.60¥ 81.73$ 1.51

Cash dividends applicable to the year

¥ 42.50¥ 21.00$ 0.38The accompanying notes are an integral part of these statements.

71

JGC Report 201672

Consolidated Statements of Changes in Net Assets

Consolidated Statements of Cash FlowsJGC CORPORATION
Years ended March 31, 2016 and 2015

JGC CORPORATION
Years ended March 31, 2016 and 2015

(Thousands ofshares)Common stock

Balance at April 1, 2014

SharesAmountCapitalsurplusRetainedearnings

Net unrealized
Treasury holding gains
stock, at on securities
cost (Notes 9 & 17)

259,053¥ 23,511¥ 25,607¥ 327,775¥ (6,478)

Cumulative effects of changes
in accounting policies(277)

Net income attributable toowners of JGC Corporation

20,629Effect of change in scope of
consolidation¥ 6,869(151)

Cash dividends

Deferred
losses onhedges(Note 10)

Revaluation
reserve for
land(Note 14)

¥ (51)¥ (6,542)(150)

ForeignNoncurrency Remeasurements
translation of defined benefit Controlling
Interestsplans
adjustments¥ 4,384¥ 5,228

(1)

4

85

Gain on disposal of treasury
stock

1

1

Net unrealized holding gains
on securities

3,404

Net deferred losses onhedges(287)

Foreign currency translation
adjustments

2,211

Increase of treasury stock(182)

Remeasurements of defined
benefit plans(972)

Net changes during the year

253
259,053¥ 23,511¥ 25,608

Net income attributable toowners of JGC Corporation¥ 336,324¥ (6,659)¥ 10,273¥ (488)¥ (6,289)(4,216)¥ 6,594¥ (1,393)¥ 1,016

42,793

Effect of change in scope of
consolidation

807

Cash dividends(5,299)Gain on disposal of treasury
stock

1

0

Net unrealized holding gains
on securities(3,208)Net deferred losses onhedges(15)

Foreign currency translation
adjustments(2,522)

Increase of treasury stock(77)

Remeasurements of defined
benefit plans(1,439)Net changes during the year
Balance at March 31, 2016

¥ (421)(11,737)

Decrease of land revaluation

Balance at March 31 andApril 1, 2015

174
259,053¥ 23,511¥ 25,609¥ 374,625¥ (6,736)¥ 7,065¥ (503)¥ (6,115)

Retainedearnings

Net unrealized
Treasury holding gains
stock, at on securities
cost (Notes 9 & 17)

Deferred
losses onhedges(Note 10)

Revaluation
reserve for
land(Note 14)$ (59,097)$ (4,331)$ (55,813)(38)¥ 4,072¥ (2,832)¥ 978(Thousands of U.S. dollars)(Note 1)

Commonstock
Balance at April 1, 2015

$ 208,653

Capitalsurplus$ 227,263 $ 2,984,770

Net income attributable toowners of JGC Corporation$ 91,170

ForeignNoncurrency Remeasurements
translation of defined benefit Controlling
Interestsplans
adjustments$ 58,520$ (12,362)$ 9,016

379,775

Effect of change in scope of
consolidation

7,162

Cash dividends(47,027)

Gain on disposal of treasury
stock

9

0

Net unrealized holding gains
on securities(28,470)

Net deferred losses onhedges(133)

Foreign currency translation
adjustments(22,382)

Increase of treasury stock(Thousands of U.S. dollars)(Note 1)

CASH FLOWS FROM OPERATING ACTIVITIES:
Income before taxes on income and Non-Controlling Interests in earningsof consolidated subsidiaries
Adjustments to reconcile income before taxes on income and NonControlling interests in earnings of consolidated subsidiaries to net cashused in operating activities:
Depreciation and amortization(Decrease) Increase in allowance for doubtful accounts(Decrease) Increase in reserve for losses on contracts
Increase in net defined benefit plans
Interest and dividend income
Interest expense
Exchange loss (gain)
Equity in earnings of affiliates
Gain on sales of investment securities(Gain) Loss on sales of property and equipment
Loss on sales and disposal of property and equipment
Loss on impairment of fixed assets
Increase in notes and accounts receivable(Increase) Decrease in inventories
Decrease (Increase) in other assets
Increase (Decrease)in notes and accounts payable
Decrease in advances received on uncompleted contracts
Other
SubtotalInterest and dividends received
Interest paid
Income taxes paid
NET CASH USED IN OPERATING ACTIVITIESCASH FLOWS FROM INVESTING ACTIVITIES:Payments for purchases of property and equipment
Proceeds from sales of property and equipment
Payments for purchase of investment securities
Proceeds from sales of investment securities
Proceeds from sales of shares of subsidiaries resulting in change in scopeof consolidation
Other
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIESCASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term loans
Proceeds from long-term loans
Repayments of long-term loans
Payments for purchase of treasury stock
Cash dividends paid
Cash dividends paid to non-controlling interests
Other
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIESEFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS
NET DECREASE IN CASH AND CASH EQUIVALENTS
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 13)

2016

2015

2016

¥ 59,657¥ 30,060$ 529,437

9,424(10,209)(14,944)
2,379(4,636)
719
4,270
(716)
(5,312)
(201)
89
1,661
(42,315)(9,456)
4,067
3,355(47,461)
4,264(45,365)
5,110
(746)
(8,764)(49,765)

10,293
3,507
14,512
1,995(5,740)453(7,968)
(723)
(824)
45
92
4,852
(30,333)
7,557(14,655)(1,825)(78,463)
18,823(48,342)
6,456
(441)
(29,090)(71,417)

83,635(90,602)(132,623)
21,113(41,143)
6,381
37,895(6,354)(47,142)(1,784)790
14,741(375,532)(83,919)
36,09329,775(421,202)
37,842(402,599)
45,350(6,621)(77,778)(441,648)(3,538)1,424(6,397)
17,901(12,475)
856(2,763)
1,840(31,399)
12,638(56,771)
158,866

1,872—

16,613(2,566)
8,696(10,869)(23,411)(22,773)
77,1743,077
4(1,731)(76)(5,302)(188)(159)(4,375)

10,580
6,374
(823)
(370)
(11,741)
(14)
(169)
3,837

27,30735(15,362)(674)(47,054)(1,668)(1,411)(38,827)(5,732)(51,176)
297,708

3,306(87,685)
385,253(50,870)(454,171)2,642,066

1,416

140

12,567¥ 247,948¥ 297,708$ 2,200,462

The accompanying notes are an integral part of these statements.

(683)

Remeasurements of defined
benefit plans(12,771)

Net changes during the year
Balance at March 31, 2016

(Millions of yen)

(Millions of yen)

1,544
$ 208,653$ 227,272 $ 3,324,680$ (59,780)$ 62,700$ (4,464)$ (54,269)(337)$ 36,138$ (25,133)$ 8,679

The accompanying notes are an integral part of these statements.

73

JGC Report 201674

Notes to Consolidated Financial Statements

Note 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

for using the equity method at March 31, 2016 and 2015, was asfinancial statements using foreign subsidiaries’ financial statements

the period of decline. In these cases, such fair market value or the(a) BASIS OF PRESENTING CONSOLIDATED FINANCIAL

follows:

prepared in accordance with either International Financial Reporting

net asset value will be the carrying amount of the securities at theStandards or U.S. generally accepted accounting principles.

beginning of the next year.

STATEMENTS
The accompanying consolidated financial statements of JGC
Corporation (Nikki Kabushiki Kaisha, the “Company”) and its
consolidated subsidiaries have been prepared in accordance with

2016

2015

Consolidated subsidiaries

19

19

Affiliates under the equity method

2

2

In

this case, adjustments for the following four items are required in
the consolidation process so that their impacts on net income are(h) ALLOWANCE FOR LOSSES ON INVESTMENT

accounted for in accordance with Japanese GAAP unless the impact

To prepare for estimated losses to be incurred in the future,

is not material.

allowance for losses on investment is stated in amounts considered

the provisions set forth in the Japanese Financial Instruments

Investments in non-consolidated subsidiaries and affiliates not

and Exchange Act and its related accounting regulations, and inaccounted for by the equity method are carried at cost, adjusted(1) Goodwill not subjected to amortization

to be appropriate based on financial condition of investments. In

conformity with accounting principles generally accepted in Japanfor any substantial and non-recoverable decline in value. The effect(2) Actuarial gains and losses of defined benefit plans recognized

Other Assets, the amount of Allowance for losses on investment(“Japanese GAAP”), which are different in certain respects as toon net income and retained earnings from those investments notapplication and disclosure requirements from International Financial

accounted for under the equity method is immaterial.
At the year ended March 31, 2016, JGC Information systems

Reporting Standards.

outside profit or loss
(3) Capitalized expenditures for research and development activities

affiliates and Investment securities.

(4) Fair value measurement of investment properties, and revaluation

The accounts of consolidated overseas subsidiaries are preparedCo., Ltd.was excluded from the scope of consolidation because allin accordance with either International Financial Reporting Standardsof the shares were sold and PT. JGC INDONESIA was included inor U.S. generally accepted accounting principles, with adjustments

the scope of consolidation because its effect on the consolidated(f) ALLOWANCE FOR DOUBTFUL ACCOUNTS

for the specified four items as applicable.

financial statement became significant.

Notes and accounts receivable, including loans and other receivables,

The accompanying

is deducted from Investments in unconsolidated subsidiaries andof property, plant and equipment, and intangible assets(i) PROVISION FOR LOSSES ON GUARANTEESTo provide for losses on guarantees, the Company makes a provision
for potential losses at the end of the fiscal year.

consolidated financial statements have been translated into English

At the year ended March 31, 2015, two of subsidiaries,

are valued by providing for individually estimated uncollectible amounts(with some expanded descriptions) from the consolidated financial

Kamogawa Mirai Solar Co., Ltd. and JGC Gulf Engineering Co., Ltd.,plus the amounts for probable losses calculated by applying a

AND ADVANCES RECEIVED ON UNCOMPLETED CONTRACTS

statements of the Company prepared in accordance with Japanese

were included in the scope of consolidation because their effect onpercentage based on collection experience to the remaining accounts.

Sales on contracts for relatively large projects, which require long

GAAP and filed with the appropriate Local Finance Bureau of

the consolidated financial statement became significant.

In Other Assets, the amount of Allowance for doubtful accounts isperiods for completion and which generally include engineering,

deducted from long-term loans receivable, investment securities andprocurement (components, parts, etc.) and construction on a full-other.

turnkey basis, are recognized on the percentage-of-completion

the Ministry of Finance as required by the Japanese Financial
Instruments and Exchange Act. Certain supplementary information(c) CONSOLIDATED STATEMENTS OF CASH FLOWS

included in the statutory Japanese language consolidated financial

In preparing the consolidated statements of cash flows, cash on hand,statements, but not required for fair presentation, is not presented inreadily available deposits and short-term highly liquid investments

the accompanying consolidated financial statements.

with negligible risk of changes in value, and maturities not exceeding

UNCONSOLIDATED SUBSIDIARIES AND AFFILIATES, AND

three months at the time of purchase are considered to be cash and

INVESTMENT SECURITIESIn addition, certain reclassifications have been made to present

cash equivalents.

(j) RECOGNITION OF SALES, CONTRACT WORKS IN PROGRESS

method, primarily based on contract costs incurred to date compared(g) MARKETABLE SECURITIES, INVESTMENTS IN

with total estimated costs for contract completion.
Contract works in progress are stated at cost determined bya specific identification method and comprised of direct materials,

The Company and its consolidated subsidiaries are required tocomponents and parts, direct labor, subcontractors’ fees and otherexamine the intent of holding each security and classify those

items directly attributable to the contract, and job-related overheads.

securities as (1) securities held for trading purposes, (2) debt

Selling, general and administrative expenses are charged tosecurities intended to be held to maturities, (3) equity securities

operations as incurred and are not allocated to contract job work

Receivables and payables denominated in foreign currencies areissued by subsidiaries and affiliates, and (4) all other securities thatcosts.

translated into Japanese yen at the year-end rates.

are not classified in any of the above categories (hereafter, “available-

The Company normally receives payments from customers on

included solely for the convenience of readers outside Japan, using

Balance sheets of consolidated overseas subsidiaries arefor-sale securities”). The Company and its consolidated subsidiaries

a progress basis in accordance with the terms of the respective

the prevailing exchange rate at March 31, 2016, which was ¥112.68

translated into Japanese yen at the year-end rates except for net

did not have the securities defined as (1) and (2) above for the years

construction contracts.

to U.S. $1. The convenience translations should not be construed asassets accounts, which are translated at the historical rates. Income

ended March 31, 2016 and 2015.

representations that the Japanese yen amounts could be converted

statements of consolidated overseas subsidiaries are translated at

Available-for-sale securities with available fair market values areinto U.S. dollars at this or any other rate of exchange.

average rates except for transactions with the Company, which arestated at fair market value. Unrealized gains and losses on theseInventories of the Company and its consolidated subsidiaries are statedtranslated at the rates used by the Company.

securities are reported, net of applicable income taxes, as a separate

at cost determined using the moving-average method (which writes

component of net assets. Realized gains and losses on the sale

off the book value of inventories based on decreases in profitability)of such securities are computed using the moving-average method.

except for contract works in progress as stated in Note 1(j).

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 toreconcile the consolidated financial statements for the year ended
March 31, 2015 to the 2016 presentation.
The translation of the Japanese yen amounts into U.S. dollars is(b) PRINCIPLE 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 intercompany transactions and account balances are eliminated inconsolidation.
Investments in non-consolidated subsidiaries and affiliates overwhich the Company has the ability to exercise significant influence
over operating and financial policies of the investees are accounted
for by the equity method.
The number of consolidated subsidiaries and affiliates accounted

75

JGC Report 2016(d) CONVERSION OF FOREIGN CURRENCIES AND TRANSLATIONOF STATEMENTS(e) UNIFICATION OF ACCOUNTING POLICIES APPLIED TO
FOREIGN SUBSIDIARIES FOR CONSOLIDATED FINANCIAL

Other securities with no available fair market value are stated at

STATEMENTS(k) INVENTORIES

moving-average cost. Equity securities issued by subsidiaries and(l) OPERATING CYCLE

The Accounting Standards Board of Japan has issued ASBJ Practicalaffiliates, which are not consolidated or accounted for using theAssets and liabilities related to long-term contract jobs are included

Issues Task Force No. 18 “Practical Solution on Unification ofequity method, are stated at moving-average cost.

in current assets and current liabilities in the accompanying

Accounting Policies Applied to Foreign Subsidiaries for Consolidated

If the market value of available-for-sale securities declines

consolidated balance sheets, as they will be liquidated in the normal

Financial Statements” (“PITF No. 18”). PITF No. 18 requires thatsignificantly, such securities are restated at fair market value andcourse of contract completion, although it may require more thanaccounting policies and procedures applied by a parent company

the difference between fair market value and the carrying amount is

one year.

and its subsidiaries to similar transactions and events under similarrecognized as loss in the period of decline (See Note 9). For equity

circumstances should, in principle, be unified for the preparation of

securities with no available fair market value, if the net asset value ofthe consolidated financial statements. PITF No. 18, however, as a

the investee declines significantly, such securities are required to betentative measure, allows a parent company to prepare consolidated

written down to the net asset value with the corresponding losses in76

(m) PROPERTY AND EQUIPMENT, DEPRECIATION AND FINANCE
LEASES

over the average of the estimated remaining service lives of theto recognize deferred tax assets and liabilities for the expected future

future transaction denominated in a foreign currency, the future

employees, and actuarial gains and losses as expenses using

tax consequences of temporary differences.

transaction will be recorded using the contracted forward rate,

Property and equipment are stated at cost, except for certain

the declining-balance method over the average of the estimatedrevalued land as explained in Note 14. Depreciation of property andremaining service lives commencing in the following period.
However,equipment is calculated primarily using the straight-line method forbuildings used for business operation, and the declining-balance

consolidated

subsidiaryrecognized

Effective from March 31, 2015, the Company and its

method for other property and equipment over the estimated useful
lives of the assets based on the Corporate Tax Code of Japan.

certainactuarial differences as expenses in the period incurred.

and no gains or losses on the foreign exchange forward contract(r) RESERVE FOR JOB WARRANTY COSTS

are recognized.

A reserve for the estimated cost of warranty obligations is provided
for the Company’s engineering, procurement and construction workat the time the related sales on contracts are recorded.

consolidated domestic subsidiaries have applied the article 35

Also, where interest rate swap contracts are used as hedges andmeet certain hedging criteria, the net amount to be paid or received
under the interest rate swap contract is added to or deducted from

Expenditures for new facilities and those that substantiallyof the “Accounting Standard for Retirement Benefits” (ASBJ(s) RESERVE FOR LOSSES ON CONTRACTS

the interest on the liabilities for which the swap contract was executed

increase the useful lives of existing property and equipment are

Statement No. 26, May 17, 2012 (“Statement No. 26”)) and the

A reserve for losses on contracts is provided for an estimated(Special method for interest rate swap).

capitalized. Maintenance, repair and minor renewals are charged to

article 67 of the “Guidance on Accounting Standard for Retirement

amount of probable losses to be incurred in future years in respect ofexpenses as incurred.

Benefits” (ASBJ Guidance No. 25, March 26, 2015 (“Guidance No.

construction projects in progress.

(w) ACCRUED BONUSES TO DIRECTORS AND CORPORATE
AUDITORS

The cost and accumulated depreciation applicable to assets25”)). The Company and its consolidated domestic subsidiaries

retired or otherwise disposed of are eliminated from the related

have reviewed the determination of retirement benefit obligations(t) PER SHARE INFORMATIONThe Company and consolidated subsidiaries recognize directors’

accounts and the gain or loss on disposal is credited or charged toand current service costs and have changed the method of

Cash dividends per share have been presented on an accrual basis

and corporate auditors’ bonuses as expenses when incurred.

income.

attributing expected benefit to periods from a straight-line

and include dividends to be approved after the balance sheet date

attribution to a benefit formula basis. In addition, the Company

but applicable to the year then ended.

(x) CHANGES IN ACCOUNTING POLICY(n) IMPAIRMENT OF FIXED ASSETS

and its consolidated domestic subsidiaries have changed the

The Company and its consolidated subsidiaries review their long-lived

determination of discount rate from based on the average period(u) AMORTIZATION OF GOODWILL

Accounting Standard for Business Combinations” (ASBJ Statement

assets for impairment whenever events or changes in circumstances

approximate to the expected average remaining working lives ofGoodwill is amortized over five years on a straight-line basis. Negative

No.21, September 13, 2013 (hereinafter, “Statement No.21”)), “Revised

indicate the carrying amount of an asset or asset group may not

employees to the use of a single weighted average discount rates

goodwill is recognized in income statement immediately.

Accounting Standard for Consolidated Financial Statements” (ASBJ

be recoverable.

reflecting the estimated timing and amount of benefit payment.

An impairment loss would be recognized if the

The Company and its domestic subsidiaries adopted “RevisedStatement No.22, September 13, 2013 (hereinafter, “Statement(v) DERIVATIVE TRANSACTIONS AND HEDGE ACCOUNTING

No.22”)) and “Revised Accounting Standard for Business Divestitures”

the effect of the changing the determination of retirement benefit

The accounting standard for financial instruments requires companies(ASBJ Statement No.7, September 13, 2013 (hereinafter, “Statement

continued use and eventual disposition of the asset or asset group.

obligations and current service costs has been recognized in

to state derivative financial instruments at fair value and to recognize

No.7”)) (together, the “Business Combination Accounting Standards”),

The impairment loss would be measured as the amount by which theretained earnings as of April 1, 2014.

changes in the fair value as gains or losses unless the derivativefrom the current fiscal year. As a result, the Company changed its

financial instruments are used for hedging purposes.

accounting policies to recognize in capital surplus the differencescarrying amount of an asset or asset group exceeds the sum of

In accordance with the article 37 of the Statement No. 26,

the undiscounted future cash flows expected to result from thecarrying amount of the asset exceeds its recoverable amount, which

There were no significant effects of this change on liability foris the higher of the discounted cash flows from the continued use andretirement benefits and retained earnings as of April 1, 2014 andIf derivative financial instruments are used as hedges andarising from the changes in the Company’s ownership interest of

eventual disposition of the asset or the net selling price at disposition.

net income and net income per share for the year ended Marchmeet certain hedging criteria, the Company and its consolidated

subsidiaries over which the Company continues to maintain control

31, 2015.

domestic subsidiaries defer recognition of gains or losses resulting

and to record acquisition related costs as expenses in the fiscal year

from changes in fair value of derivative financial instruments until thein which the costs are incurred. In addition, the Company changed

related losses or gains on the hedged items are recognized.

its accounting policy for the reallocation of acquisition costs due(o) RETIREMENT AND SEVERANCE BENEFITS AND PENSIONCOSTS(2) Officers’ severance and retirement benefits
Consolidated domestic subsidiaries provide for liabilities in

However, in cases where foreign exchange forward contracts

to the completion following provisional accounting to reflect such

The Company and its consolidated subsidiaries provide two

respect of lump-sum severance and retirement benefits toare used as hedges and meet certain hedging criteria, foreign

reallocation in the consolidated financial statements for the fiscal

types of post-employment benefit plans, unfunded lump-sum

directors and corporate statutory auditors computed on theexchange forward contracts and hedged items are accounted for inyear in which the business combination took place. The Company

payment plans and funded non-contributory pension plans,assumption that all officers retired at a year-end.

the following manner (Allocation Method):also changed the presentation of net income and the term “non-(1) If a foreign exchange forward contract is executed to hedge ancontrolling interests” is used instead of “minority interests”. Certain(1) Employees’ severance and retirement benefits

under which all eligible employees are entitled to benefits basedon the level of wages and salaries at the time of retirement or(p) RESEARCH AND DEVELOPMENT COSTS

existing foreign currency receivable or payable,amounts in the prior year comparative information were reclassified

termination, length of service and certain other factors.

Research and development costs for the improvement of existing skills(i)to conform to such changes in the current year presentation.

The difference, if any, between the Japanese yen amount of

Certain consolidated subsidiaries also have a defined

and technologies or the development of new skills and technologies,

the hedged foreign currency receivable or payable translated

With regard to the application of the Business Combination

contribution pension plan, which was transferred from a portion

including basic research and fundamental development costs, areusing the spot rate at the inception date of the contract andAccounting Standards, the Company followed the provisionalof defined benefit pension plan.

charged to income in the period incurred.

The total amount of

the book value of the receivable or payable is recognized intreatments in article 58-2 (4) of Statement No.21, article 44-5 (4)The Company and its consolidated subsidiaries provided

research and development expenses, included in Costs of Sales

the statement of income in the period which includes theof Statement No.22 and article 57-4 (4) of Statement No.7 withallowance for employees’ severance and retirement benefits atand Selling, General and Administrative expenses, was ¥5,483million

inception date, andapplication from the beginning of the current fiscal year prospectively.

March 31, 2016 and 2015, based on the estimated amounts of($48,660 thousand) and ¥4,697 million, respectively, in 2016 andprojected benefit obligation, actuarially calculated using certain

2015.

difference between the Japanese yen amount of the(y) CHANGES IN PRESENTATION

contract translated using the contracted forward rate and(Consolidated statements of income)(q) TAXES ON INCOME

that translated using the spot rate at the inception date of the“Provision of allowance for doubtful accounts”, which was stated as a

The Company and its consolidated subsidiaries provide tax effects

contract) is recognized over the term of the contract.

separate account item in “Other Income (Expenses)” in the previous

assumptions and the fair value of the plan assets at that date.
The method of attributing the amount of expected retirement
benefit in each period is a benefit formula basis.
The Company and its consolidated subsidiaries recognizeof temporary differences between the carrying amounts and the tax

past service costs as expenses using the straight-line methodbasis of assets and liabilities. The asset and liability approach is used77

JGC Report 2016(ii) The discount or premium on the contract (that is, thefiscal year, is incorporated in “Other, net” for the fiscal year ended(2) If a foreign exchange forward contract is executed to hedge aMarch 31, 2016 due to its decreased materiality. As a result, ¥ 155

78

million presented as “Provision of allowance for doubtful accounts”

Note 2 — RECEIVABLES FROM AND PAYABLES TO

income for the previous fiscal year has been reclassified as “Other,

Significant receivables from and payables to unconsolidated

net.”

subsidiaries and affiliates at March 31, 2016 and 2015, were as follows:“Gain on sales of investment securities”, which was included in(Thousands of
U.S. dollars)(Note 1)
(Millions of yen)

“Other, net” under “Other income (Expenses)” in the previous fiscal
year, is presented separately for the fiscal year ended March 31, 2016
due to its increased materiality. As a result, ¥ 6 million included in“Other, net” under “Other Income (Expenses)” on the consolidated
statement of income for the previous fiscal year has been reclassified
as “Gain on sales of investment securities”.
(z) ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED“Revised Implementation Guidance on Recoverability of Deferred
Tax Assets” (ASBJ Guidance No. 26, March 28, 2016 (hereinafter,

March 31
Notes and accounts receivable
Other current assets
Long-term loans receivable

2015

2016

2016

¥ 123

¥ 146

$ 1,092

793

2,325

7,038

1,855

—

Total

¥—

¥ 3,579$—

The annual maturities of long-term debt outstanding at March 31,

AmountOther current liabilities

139

148

1,234

Other non-current liabilities

10

10

89

Note 3 — BORROWINGS AND ASSETS PLEDGED AS COLLATERAL2016 were as follows:(Thousands of
U.S. dollars)(Note 1)
(Millions of yen)(iii) Treatment for deductible temporary differences which an

Secured Loans
1.00% -1.60% loans frombanks
due serially through 2033
Unsecured Debt
0.70% – 2.14% loans frombanks and insurance companies
due serially through 2023

fiscal year; andLess current maturities
Long-term debt due after one year

2016

2015

Year ending March 31¥ 13,222

¥ 39

$ 346

$ 186,289

31

275

2019

15

133

2020

9

80

2021

3

27

¥ 97

$ 861

Total

¥ 20,991

Note 4 — INVENTORIESInventories at March 31, 2016 and 2015 were summarized as follows:(Thousands of
U.S. dollars)(Note 1)
(Millions of yen)

2016

2015

2016

¥ 42,339¥ 32,728$ 375,745

Finished goods and merchandise

3,731

3,703

33,111Inventories:

2,394

2,828

21,246(1,313)(1,319)(11,652)¥ 50,553¥ 41,730$ 448,641¥ 20,991¥ 22,715$ 186,289

25,772

Machinery and equipment, at net
book value

11,94012,604

105,964

Cash and deposits

2,114

1,842

18,761

Investments securities

1,638

—

14,537¥ 22,876¥ 21,748$ 203,017

Total

No borrowing was outstanding for the following assets pledged

at March 31, 2016 was as follows:2018

Raw materials and others

3,022(2) The investment in leased assets due in each of the next five years

2017

197,941

2,904

—
$ 861

117,953

24,034$ 37,983—¥ 94

13,291

22,304¥ 4,280—¥ 97

2021 and thereafter

18,539¥ 4,280

Interest income

Year ending March 31

2,471

Buildings and structures, at net
book value

0

14,972

Total

AmountNote 6 — RETIREMENT BENEFIT PLAN
The significant components of the pension plans as of and for theyears ended March 31, 2016 and 2015 were summarized as follows:(a) DEFINED BENEFIT PLAN
(1) Movement in retirement benefit obligations(Thousands of
U.S. dollars)(Note 1)
(Millions of yen)

TRANSFER TO LESSEEThis information is not disclosed, as this is immaterial for the years
ended March 31, 2016 and 2015.
(b) OPERATING LEASE TRANSACTIONS
Lease commitments under non-cancelable operating leases:(Thousands of
U.S. dollars)(Note 1)
(Millions of yen)March 31,

2016

2015

2016

Due within one year

¥ 368

¥ 392

$ 3,266

Due after one year

283

504

2,511

¥ 651

¥ 896

$ 5,777

Total

2016

2015

2016

¥ 48,954¥ 45,122$ 434,452

Cumulative effects of changes inaccounting policies

—

432

—

Restated balance at beginning ofyear

48,95445,554434,452

Service cost

2,033

1,877

18,042

Interest cost

469

655

4,162

Actuarial loss

4,564

3,350

40,504

Benefits paid

(2,285)(2,737)(20,279)

Past service costs

Balance at beginning of year

Note 5 — LEASE TRANSACTIONS(Thousands of
U.S. dollars)(Note 1)
(Millions of yen)

Total

March 31,(a) FINANCE LEASE TRANSACTIONS WITHOUT OWNERSHIP

Land

0

1,687

2016 and 2015, were as follows:

being evaluated.

0

2020

A. LESSEE LEASESThe impact of adopting these accounting standards is currency

Estimated residual value

14,501

2,089

2016

$ 861

1,634

Works in process

2015

2016

¥ 94

2019

91,400

2016

2015

¥ 97

26,580other current liabilities and other non-current liabilities at March 31,

March 31,

2016

Lease payment receivable

2,995

10,812(3) Effects of application of the Guidance

March 31,2018

10,299(Thousands of
U.S. dollars)(Note 1)
(Millions of yen)(Thousands of
U.S. dollars)(Note 1)
(Millions of yen)

$ 12,283

Contract works in progress

Assets pledged as collateral for short-term loans, long-term debt,

TRANSFER TO LESSEE(1) Details of investment in leased assets¥ 1,384

2016$ 106,541(a) FINANCE LEASE TRANSACTIONS WITHOUT OWNERSHIP

2017

March 31,
¥ 12,005

B. LESSOR LEASES

Investment in leased assets

Long-term debt consisted of the following:

March 31,2017—

(Thousands of
U.S. dollars)(Note 1)
(Millions of yen)(ii) Criteria for types 2 and 3;

Effective from the beginning of the fiscal year ending March 31,

Machinery and equipment, at net
book value

4,819

in types 1 to 5;(2) Effective date—

567

Treatment for an entity that does not meet any of the criteria

criteria for types 2 or 3.

933

543

tax assets according to the classification of the entity by one of(v) Treatment when an entity classified as type 4 also meets the—Notes and accounts payable

renewable at maturity.

temporary differences that exist at the end of the current

$—

674

at March 31, 2016 and 2015, respectively. Such loans are generally

taxable income before consideration of taxable or deductible¥ 791

43,113

Deferred Tax Assets”, which prescribes estimation of deferred

3 is able to reasonably estimate with respect to future¥—

Buildings and structures, at net
book value—

overdrafts and bore interest at the annual rates of 1.03% and 1.55%(iv) Treatment for the period which an entity classified as type

2016

6,079

“Audit Treatment regarding the Judgment of Recoverability ofentity classified as type 2 is unable to schedule;

2015

76

Short-term loans consisted mainly of unsecured notes and bank

(i)

Land

2016

4,858

Following the framework in Auditing Committee Report No. 66

five types, the following treatments were changed as necessary:

March 31,

Short-term loans“Guidance No.26”)(1) Overview(Thousands of
U.S. dollars)(Note 1)
(Millions of yen)

UNCONSOLIDATED SUBSIDIARIES AND AFFILIATES

under “Other Income (Expenses)” on the consolidated statement of(2,515)—(22,320)

Increase in a newly consolidated
subsidiary

373

—

3,310

Decrease in excluding a
consolidated subsidiary

(883)

—

(7,836)

Other

(68)

255

(603)

¥ 50,642¥ 48,954$ 449,432

Balance at end of year

as collateral as of March 31, 2016 and 2015.

79

JGC Report 201680

Effective from September 30, 2015, the Company has amended

Note 7 — CONTINGENCIES(5) Remeasurements of defined benefit plansits pension plans. As the result, the retirement benefit obligations(Thousands of
U.S. dollars)(Note 1)
(Millions of yen)decreased by ¥2,515million ($22,320 thousand), which are included(Millions of yen)

(1) It is a business practice in Japan for a company to guarantee

March 31, 2016

Acquisition cost

Book value

Difference

the indebtedness of certain of its trading agents, suppliers,

Equity securities¥ 9,151¥ 18,744¥ 9,593

Acquisition cost

Book value

Difference¥ 26,320¥ 13,490

in other comprehensive income as past service costs. The past

March 31,

2016

2015

2016

subcontractors and certain subsidiaries and affiliates. The

service costs would be recognized as expenses in the statement of

Actuarial losses¥ (4,031)¥ (1,154)$ (35,774)

aggregate amount of such guarantees was ¥13,854 million

Past service costs

2,179

(231)

19,338($122,950 thousand) and ¥27,608 million at March 31, 2016 andMarch 31, 2015

(31)

(6)

(275)

2015, respectively.

Equity securities¥ 12,830¥ (1,883)¥ (1,391)$ (16,711)
March 31, 2016

Acquisition cost

Book value

Difference

Equity securities$ 81,212$ 166,347$ 85,135

income using the straight-line method over 12 years in accordancewith the accounting policy.

OthersTotal balance(2) Movement in plan assets(2) The Company has guaranteed employees’ housing loans and(Thousands of
U.S. dollars)(Note 1)
(Millions of yen)March 31,
Balance at beginning of year
Expected return on plan assets
Actuarial gain

2015

2016

¥ 36,092¥ 33,686$ 320,305

528

505

4,686

March 31,

(3,514)

Actuarial losses that are yet to berecognized¥ (6,595)¥ (2,411)$ (58,529)

Past service costs that are yet to berecognized

2,525

346

22,409Board of Directors, designate an amount not exceeding one-half of¥ (4,070)¥ (2,065)$ (36,120)

the price of the new shares as additional paid-in capital, which is

(396)

2,253

1,062

1,494

9,425

Benefits paid

(1,758)(1,962)(15,602)

(63)

116

(559)

¥ 35,465¥ 36,092$ 314,741

Balance at end of year

(Thousands of
U.S. dollars)(Note 1)
(Millions of yen)and ¥ 10million at March 31, 2016 and 2015, respectively.

2016

Contributions paid by the employer
Other(6) Cumulative effect of remeasurements of defined benefit plansothers from banks in the amount of ¥12 million ($106 thousand)Total balance

2015

2016

2016

Note 8 — NET ASSETS(Thousands of
U.S. dollars)(Note 1)
(Millions of yen)March 31,

2016

2015

2016

Funded retirement benefit
obligations¥ 38,590¥ 37,580$ 342,474

Plan assets(35,465)(36,092)(314,741)

Acquisition cost

Book value

Difference

as common stock. However, companies may, by a resolution of theEquity securities¥ 3,170¥ 2,416¥ (754)

March 31, 2015

Acquisition cost

Book value

Difference

Equity securities

¥ 79

¥ 67

¥ (12)March 31, 2016

Acquisition cost

Book value

Difference

Equity securities$ 28,133$ 21,441$ (6,692)

equal to at least 10% of cash dividends and other cash appropriations

Components of plan assets

in a legal earnings reserve until the total of the legal earnings reserve

3,125

1,488

27,733

Unfunded retirement benefit
obligations
Allowance for officers’ lump-sum
severance benefits
Total net defined benefit liability

12,052

11,374

106,958

241

276

2,139

¥ 15,418¥ 13,138$ 136,830

March 31, 2015

Bonds

73%

70%

Equity securities

16

19

capital can be used to eliminate or reduce a deficit by a resolution ofCash and cash equivalents

1

1

the shareholders’ meeting or can be capitalized by a resolution of the

Other

10

10

Board of Directors.

100%

Current and target asset allocations and historical and expected
returns on various categories of plan assets have been considered indetermining the long-term expected rate of return.

138,552(8) Actuarial assumptions

Net defined benefit asset

(194)

(682)

(1,722)The principal actuarial assumptions at March 31, 2016 and 2015 were

¥ 15,418¥ 13,138$ 136,830

2016

2015

2016

Service cost

¥ 2,033¥ 1,877$ 18,042

Interest cost

469

655

4,162

Expected return on plan assets

(528)

(505)

(4,686)

Net actuarial gain and loss
amortization
Past service cost amortization
Total retirement benefit expenses

81

JGC Report 2016

as follows:

Discount rate

March 31,

929
(336)
¥ 2,567(57)(231)¥ 1,739

8,245(2,982)$ 22,781

Additional paid-in capital and legal earnings reserve may not beearnings by a resolution of the shareholders’ meeting as long as

B. The following tables summarize book values of securities with noavailable fair values or securities not valued by fair market prices
as of March 31, 2016 and 2015.

statements of the Company in accordance with the Law.

Subscription certificate
Other investment securities

At the annual shareholders’ meeting of the Company held on
to ¥10,723 million ($95,163 thousand). Such appropriations have notPrincipally 0. 25%

Principally 0.8%

been accrued in the consolidated financial statements as of March

Principally 1.5%

Expected rate of salary increase

Principally

5.1%

Principally 5.1%

March 31,
Non-listed equity securities

March 31, 2015

1.5%

(Thousands of
U.S. dollars)(Note 1)
(Millions of yen)

dividends is calculated based on the non-consolidated financial

March 31, 2016

Principally

FAIR VALUES:

capital remained equal to or exceeded 25% of common stock.

June 29, 2016, the shareholders approved cash dividends amounting

Long-term expected rate of
return(a) AVAILABLE-FOR-SALE SECURITIES WITH NO AVAILABLE

the total amount of the legal earnings reserve and additional paid-in
The maximum amount that the Company can distribute as

13,820(Thousands of
U.S. dollars)(Note 1)
(Millions of yen)(Thousands of U.S. dollars) (Note 1)

Under the Law, the legal earnings reserve and additional paid-in

in capital and legal earnings reserve may be transferred to retained

Long-term expected rate of return

15,612(4) Retirement benefit expenses(Millions of yen)

distributed as dividends. Under the Law, however, additional paid-

Net defined benefit liability
Total net defined benefit liability

and additional paid-in capital equals 25% of common stock.

March 31, 2016

100%

(Millions of yen)March 31, 2016(7) Plan assets

Total(2) Securities with book values not exceeding acquisition costs:

the entire amount paid for new shares is required to be designatedincluded in capital surplus.

to net defined benefit liability and asset.

(Thousands of U.S. dollars) (Note 1)

Under the Japanese Corporation Law (“the Law”) and regulations,

Under the Law, companies are required to set aside an amount(3) Reconciliation from retirement benefit obligations and plan assets(Millions of yen)

31, 2016. Such appropriations are recognized in the period in which

Allowance for doubtful accounts*
Total

2016

2015

2016

¥ 20,317¥ 24,604$ 180,307

39

38

347

—

22,715——(22,715)—¥ 20,356¥ 24,642$ 180,654* The amount of allowance for doubtful accounts is deducted from otherinvestment securities.

they are approved by the shareholders.
(b) UNCONSOLIDATED SUBSIDIARIES AND AFFILIATES:
Note 9 — INFORMATION ON SECURITIES(b) DEFINED CONTRIBUTION PENTION PLAN

(Thousands of
U.S. dollars)(Note 1)
(Millions of yen)

A. The following tables summarize acquisition costs and book

The Company’s contributions were ¥228 million ($2,023 thousand)values stated at the fair value of securities with available fairMarch 31,

2016

2015

2016

and ¥185 million for the years ended March 31, 2016 and 2015,

values as of March 31, 2016 and 2015.

Securities of unconsolidated
subsidiaries¥ 3,013¥ 3,650$ 26,740

Securities of affiliates

14,794

19,614

131,292¥ 17,807¥ 23,264$ 158,032

respectively.
AVAILABLE-FOR-SALE SECURITIES WITH AVAILABLE FAIR VALUES:(1) Securities with book values exceeding acquisition costs:

Total

82

(c) AVAILABLE-FOR-SALE SECURITIES WITH MATURITIES:Note 10 — DERIVATIVE TRANSACTIONS AND HEDGE ACCOUNTING(Millions of yen)March 31, 2016

Over one Over five
year but years but
Withinwithinwithinone year five years ten years

Negotiable certificate
of deposit¥ 8,000Over
ten years

Total

¥—

¥ 8,000

Negotiable certificate
of deposit¥—

Over one Over five
year but years but
Withinwithinwithinone year five years ten years¥ 15,000

¥—

¥—

Total

¥—

¥ 15,000

Negotiable certificate
of deposit

Over one Over five
year but years but
Withinwithinwithinone year five years ten years$ 70,998$—$—

Fair value of undesignated derivative financial instruments as of

instruments at fair value and to recognize changes in the fair value

March 31, 2016 and 2015, is summarized as follows:

as gains or losses unless derivative financial instruments are used for(Millions of yen)Contract amountThe Company utilizes foreign currency forward contracts and

Total

$—

$ 70,998

¥ 254

¥ 254

Sell Euro¥ 1,023¥—¥ 1,023

¥ (6)

¥ (6)

Sell British pound¥ 1,633¥—¥ 1,633¥9¥9March 31, 2015
Accounting
methodHedging instruments

Allocation
method(Note 1(v))

Forward exchange
contracts
Buy U.S. dollars

¥ 224

¥—

¥ 224

¥ (2)

¥ (2)

Buy Euro¥ 1,151¥—¥ 1,151¥ (84)¥ (84)

interest rate changes, respectively.

Buy Saudi riyal

¥ 372

¥—

¥ 372

¥0

¥0

Buy Qatar riyal

¥ 16

¥—

¥ 16

¥0

¥0

used by the Company and hedged items:

Hedged items:

Foreign currency forward
contracts

Foreign currency trade receivable,
payable and future transactions
denominated in a foreign currency

Foreign currency deposit

Foreign currency trade receivable,
payable and future transactions
denominated in a foreign currency

The Company and its consolidated domestic subsidiaries follow
a policy of devaluation of available-for-sale securities. The policyof devaluation for the Company and its consolidated domestic

Interest rate swap contracts

Interest on loans payablesubsidiaries is that if the available fair value of the securities

The Company evaluates hedge effectiveness semi-annually by

declines by 50% or more, compared with acquisition cost, all thecomparing the cumulative changes in cash flows from or the changes

corresponding securities are devalued as such decline is considered

in fair value of hedged items and the corresponding changes into be substantial and non-recoverable in value. In addition, in the casethe hedging derivative instruments. However, where the principal

whereby the available fair value of the securities declines by moreconditions underlying the hedging instruments and the hedged

than 30% but by less than 50%, the Company and its consolidated

assets or liabilities are similar, the evaluation of hedge effectivenessdomestic subsidiaries examine the recoverability of the fair value ofis not performed.

the securities and devaluate if those securities are considered to be
non-recoverable.

The Company’s financial instrument counter-parties are all prime

March 31, 2015

Due after
one year

Sell U.S. dollars¥ 29,846¥—¥ 29,846¥ (139)Sell Euro¥ 1,060¥—¥ 1,060¥8¥ (139)¥8

Buy Euro¥ 5,799¥—¥ 5,799¥ (1,100)¥ (1,100)(Thousands of U.S. dollars) (Note 1)

March 31, 2016

Due within
one year

Due after
one year

Profitor loss
Total Fair value evaluation

Forward exchange
contracts
Sell U.S. dollars$ 2,254$ 2,254

Sell Euro$ 280,857$ 9,079$ — $ 280,857$—$ 9,079$ (53)$ (53)

Sell British pound$ 14,492$—$ 14,492

$ 80

$ 80

Buy Yen$ 1,988$—$ 1,988$ (18)$ (18)

Buy Euro$ 10,215$—$ 10,215$ (745)$ (745)

Buy Saudi riyal$ 3,301$—$ 3,301$0$0

Buy Qatar riyal

$ 142

$—

$ 142

$0

$0

(Thousands of
U.S. dollars)(Note 1)
(Millions of yen)

2015

2016

performance by the counter-parties.

Fair value of forward exchange contracts is stated based on thequoted price from banks.
(b) FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS
DESIGNATED AS HEDGING INSTRUMENTS
Fair value of derivative financial instruments designated as hedging

Equity securities:
Sales proceeds¥ 1,688¥8$ 14,980

Aggregate gain

1,085

6

9,629

Aggregate loss—2—
$ 90,486

Bond securities:
Sales proceeds¥ 10,196—

Aggregate gain

—

—

—

Aggregate loss

—

—

—

instruments as of March 31, 2016 and 2015 is summarized as follows:

¥—

¥ (4)

¥ 9,054¥ (837)

Hedged item

Accounts
payableAccounts
payableAccounts
payableAccounts
receivable

Contract Portion overamountone year

Fair value¥ 153¥ 7,901¥—¥ (239)¥ 1,166¥—¥2¥ 1,369¥—
Interest rate swap
contracts
Receive variable rate Long-termand Pay fixed rate
debt
swap
¥ 11,515 ¥ 11,515¥ (3)Sell U.S. dollars
Principal
method(Note 1(v))

Contract amount¥ (567)

Fair value of forward exchange contracts is stated based on thequoted price from banks.

Contract amountbanks with high ratings, and the Company does not expect non-(e) SALES OF SECURITIES CLASSIFIED AS OTHER SECURITIES

Accounts
payableFair Fair
value

¥—

Buy British pound

Profitor loss
Total Fair value evaluation

Forward exchange
contracts

Contract Portion overamountone year¥ 759(Millions of yen)Contract amountDue within
one yearHedged item

(Millions of yen)

Buy Euro

The following summarizes hedging derivative financial instruments

Contract amount¥ 1,397
Interest rate swap
contracts
Receive variable rate Long-termand Pay fixed rate
debt
swap
¥ 11,362¥ 31,647

Buy Yen

Hedging instruments:

for the years ended March 31, 2016 and 2015, respectively.

JGC Report 2016

Principal
method(Note 1(v))¥—

contracts are subject to risks of foreign exchange rate changes andthe amount of ¥ 10,371 million ($ 92,039 thousand) and ¥ 5,001million

2016

Forward exchange
contracts
Buy Euro¥ 31,647

Forward exchange
contracts

The derivative transactions are executed and managed in

Allocation
method(Note 1(v))

Sell U.S. dollars

for the purpose of mitigating future risks of fluctuation of foreign

Foreign currency forward contracts and interest rate swap

Hedging instruments

Due after
one yearMarch 31, 2016

lowering the financing costs with respect to borrowings.

Accounting
methodDue within
one yearinterest rate swap contracts as derivative financial instruments only

and payable and mitigating future risks of interest rate increases andProfitor loss
Total Fair value evaluation

limit on the amounts of derivative transactions allowed.

Over
ten years

The Company recognized loss on valuation for investment securities in

83

March 31, 2016

accordance with the established policies and within the specified(d) LOSS ON VALUATION OF INVESTMENT SECURITIES :March 31

(Millions of yen)

INSTRUMENTS

instruments requires companies to state derivative financial

currency exchange rates with respect to foreign currency receivableOver
ten years(Thousands of
U.S. dollars)(Note 1)March 31, 2016(a) FAIR VALUE OF UNDESIGNATED DERIVATIVE FINANCIAL

hedging purposes.
¥—(Millions of yen)March 31, 2015

As explained in Note 1 (v), the accounting standard for financial(Thousands of U.S. dollars) (Note 1)

March 31, 2016
Accounting
methodHedging instruments

Allocation
method(Note 1(w))

Forward exchange
contracts
Buy EuroPrincipal
method(Note 1(w))

Interest rate swap
contracts
Receive floating and
Pay fixed swap

Contract amount
Hedged item

Accounts
payableContract Portion overamountone year$ 12,398$—

Fair value$ (35)

Long-term
debt$ 100,834 $ 80,351 $ (7,428)

Note 11 — SEGMENT INFORMATION(a) OVERVIEW OF REPORTED SEGMENTS
The reported segments of the Company are those units for which
separate financial statements can be obtained among the constituent
units of the Company and regularly examined by Chief Executive
Officer for decisions on the allocation of management resources andfor assessing business performance. The operations of the Company
and its consolidated subsidiaries are classified into two reportablesegments: the total engineering business and the catalysts and fine
products business.
Major activities included in the total engineering business aredesign, procurement, construction and performance test services ofmachinery and plants for petroleum, petroleum refining, petrochemicals,gas, chemicals, nuclear energy, metal refining, biochemical, food,84

pharmaceuticals, medical, logistics, information technology,
environment conservation and pollution control. Major activities in
the catalysts and fine products business include manufacturing anddistribution of chemical and catalyst products (FCC catalysts, hydrotreating catalysts, deNOx catalysts, petrochemical catalysts, etc) andnew functional material products (colloidal silica, coating materials forsurface treatment on cathode ray tubes, material for semiconductors,
cathode materials and cosmetic products, etc.).
The accounting policies of the segments are substantially the sameas those described in the significant accounting policies in Note 1.

This information is not disclosed, as this is immaterial for the years(1) Net Sales

ended March 31, 2016 and 2015.
Year ended March 31, 2016

East andSoutheast Asia

MiddleEast¥ 127,672 ¥ 209,417 ¥ 113,644(Millions of yen)

Reported Segment
Catalysts andfine products
Sub-Total

Year ended March 31, 2016
Net sales:
External customers
Inter-segment
Total

Total engineering¥ 828,414
163¥ 828,577¥ 37,6290¥ 37,629

Segment profit
Segment assets
Impairment
Depreciation and amortization
Capital expenditures¥ 44,064¥ 601,945—¥ 4,482¥ 2,873¥ 3,570¥ 43,136—¥ 2,082¥ 4,196

Other

Total

Adjustment

Consolidated¥ 866,043
163¥ 866,206¥ 13,912
4,486¥ 18,398¥ 879,955
4,649¥ 884,604¥—(4,649)¥ (4,649)¥ 879,955—¥ 879,955¥ 47,634¥ 645,081—¥ 6,564¥ 7,069¥ 1,731¥ 54,034¥ 1,661¥ 3,024¥ 2,196¥ 49,365¥ 699,115¥ 1,661¥ 9,588¥ 9,265¥ 296¥ (9,333)—¥ (164)¥ 19¥ 49,661¥ 689,782¥ 1,661¥ 9,424¥ 9,284*1. The "Other" category includes business activities of information processing, consulting, management of real estate, power and water supply and oil and gas production.
*2. Adjustments for segment income, segment assets and other items represent the elimination of intersegment transactions.
*3. Segment income is reconciled to operating income of consolidated statements of income.
(Millions of yen)

Year ended March 31, 2015
Net sales:
External customers
Inter-segment
Total
Segment profit
Segment assets
Impairment
Depreciation and amortization
Capital expenditures

Total engineering

Reported Segment
Catalysts andfine products
Sub-Total

Other

Total

Adjustment

Consolidated¥ 745,035
7,658¥ 752,693¥ 37,46715¥ 37,482¥ 782,502
7,673¥ 790,175¥ 16,574
4,569¥ 21,143¥ 799,076
12,242¥ 811,318¥—(12,242)¥ (12,242)¥ 799,076—¥ 799,076¥ 23,536¥ 624,472—¥ 4,049¥ 6,871¥ 3,735¥ 41,624—¥ 2,117¥ 2,214¥ 27,271¥ 666,096—¥ 6,166¥ 9,085¥ 3,536¥ 69,039¥ 4,852¥ 3,421¥ 9,697¥ 30,807¥ 735,135¥ 4,852¥ 9,587¥ 18,782¥ (1,066)¥ (15,380)—¥ 706¥ (892)¥ 29,741¥ 719,755¥ 4,852¥ 10,293¥ 17,890*1. The "Other" category includes business activities of information processing, consulting, management of real estate, power and water supply and oil and gas production.
*2. Adjustments for segment income, segment assets and other items represent the elimination of intersegment transactions.
*3. Segment income is reconciled to operating income of consolidated statements of income.
(Thousands of U.S. dollars) (Note 1)

Year ended March 31, 2016
Net sales:
External customers
Inter-segment
Total
Segment profit
Segment assets
Impairment
Depreciation and amortization
Capital expenditures

Total engineering$ 7,351,917
1,446$ 7,353,363

Reported Segment
Catalysts andfine products
Sub-Total$ 333,9460$ 333,946$ 7,685,863
1,446$ 7,687,309

AMORTIZED BALANCEINFORMATION BY GEOGRAPHY

Japan

The following is information about sales and profit or loss by reported segments for the years ended March 31, 2016 and 2015:

IV. INFORMATION ON AMORTIZATION OF GOODWILL AND(b) RELATED INFORMATION
I.

North
America

Oceania¥ 81,247¥ 202,175 ¥ 145,800 ¥ 879,955

Other

Total

*1. Net sales are classified by the place of customers’ address.
*2. East and Southeast Asia includes Malaysia ¥ 95,165 million ($ 844,560
thousand).
*3. Oceania includes Australia ¥ 202,175 million ($ 1,794,240 thousand).
*4. Other includes Russia ¥ 121,697 million ($ 1,080,023 thousand).

Total

Adjustment

Consolidated$ 123,464
39,812$ 163,276$ 7,809,327
41,258$ 7,850,585$—(41,258)$ (41,258)$ 7,809,327—$ 7,809,327$ 391,054$ 5,342,075—$ 39,776$ 31,683$ 382,818—$ 18,477$ 422,737$ 5,724,893—$ 58,253$ 15,362$ 479,535$ 14,741$ 26,837$ 438,099$ 6,204,428$ 14,741$ 85,090$ 2,627$ (82,827)—$ (1,455)$ 440,726$ 6,121,601$ 14,741$ 83,635$ 25,497$ 37,238$ 62,735$ 19,489$ 82,224$ 169$ 82,393

East andSoutheast Asia

MiddleEast

North
America

Oceania

Other

Total

¥ 138,169 ¥ 207,988¥ 93,793¥ 47,944¥ 238,870¥ 72,312¥ 799,076

Japan*1. Net sales are classified by the place of customers’ address.
*2. East and Southeast Asia includes Malaysia ¥ 105,049 million.
*3. Oceania includes Australia ¥ 225,733 million.

Note 12 — TAXES ON INCOME
Income taxes applicable to the Company and its domesticJapan

East andSoutheast Asia

MiddleEast

North
America

Oceania

Other(2) Property and equipment(Thousands of
U.S. dollars)(Note 1)
(Millions of yen)

Years ended
Years ended
March 31, 2016 March 31, 2015

March 31,
2016

Japan

¥ 67,297¥ 65,593$ 597,240

Other

8,958

12,96779,500¥ 76,255¥ 78,560$ 676,740

II.

statutory tax rates of 33.1% and 35.6% for the years ended March 31,
2016 and 2015, respectively.

subsidiaries’ effective tax rate for financial statement purposes
for the years ended March 31, 2016 and 2015:

Total$ 1,133,049 $ 1,858,511 $ 1,008,555 $ 721,042 $ 1,794,240 $ 1,293,930 $ 7,809,327

Total

taxes and enterprise taxes which, in the aggregate, resulted instatutory tax rate and the Company’s and its consolidated

Year ended March 31, 2016

Statutory tax rate

2016

2015

33.1%

35.6%

Non-deductible expenses

0.5

1.1

Non-taxable dividend income

(0.9)

(2.8)

Tax credit utilized

(0.9)

(2.2)

Other

(3.9)

(1.1)

27.9%

30.6%

Effective tax rate(2) Significant components of the Company’s and its consolidated
subsidiaries’ deferred tax assets and liabilities as of March 31,
2016 and 2015, were as follows:(Thousands of
U.S. dollars)(Note 1)
(Millions of yen)

INFORMATION BY MAJOR CUSTOMERSThe following is information on major customers which account for
10% or more of the net sales on the consolidated statements ofYear ended March 31, 2016

(Thousands of
U.S. dollars)(Note 1)
(Millions of yen)March 31,

2016

2015

2016

Accrued employees’ bonuses¥ 2,182¥ 2,446$ 19,364

Reserve for job warranty costs

767

707

6,807

Current deferred taxes
Deferred tax assets:

Related segments

Ichthys LNG Pty Ltd¥ 178,667 $ 1,585,614 Total engineering

Reserve for losses on contracts

6,354

11,67056,390

Yamal LNG Pty Ltd¥ 121,632 $ 1,079,446 Total engineering

Other

2,704

2,964

23,997

12,007

17,787

106,558

Foreign currency hedge

—

(50)

—

Other

(27)

(8)

(239)

Year ended March 31, 2015
Ichthys LNG Pty Ltd(Millions of yen)

¥ 195,966

Related segments

Total engineering

III. INFORMATION ON IMPAIRMENT LOSS
Note 11 (a) for the years ended March 31, 2016 and 2015.

JGC Report 2016

ended March 31, 2016 and 2015.

(1) The following table summarizes the differences between theThis information is not disclosed, as this information is disclosed in

85

This information is not disclosed, as this is immaterial for the years

consolidated subsidiaries comprise corporate taxes, inhabitants’Year ended March 31, 2015

income for the years ended March 31, 2016 and 2015:
Other

V. INFORMATION ON GAIN ON NEGATIVE GOODWILL

Total current deferred tax
assetsDeferred tax liabilities:

Total current deferred tax
liabilities
Net current deferred tax assets

(27)

(58)

(239)

¥ 11,980¥ 17,729$ 106,319

86

(Thousands of
U.S. dollars)(Note 1)
(Millions of yen)March 31,

2015

2016

2016

Other
Total non-current deferred
tax assets¥ 4,600¥ 4,093$ 40,823

371

393

3,293

4,482

6,444

39,776

9,453

10,93083,892(Millions of yen)(Thousands of
U.S. dollars)(Note 1)

2016

2015

2016

¥ 239,948¥ 282,708$ 2,129,464

8,000

15,00070,998¥ 247,948¥ 297,708$ 2,200,462

March 31,
Cash and deposits

Cash and cash equivalents(3,115)(4,904)(27,645)

(340)

(203)

(3,017)

Total non-current deferred
tax liabilities(3,455)(5,107)

Net non-current deferred tax assets¥ 5,998¥ 5,823

Other

Decrease

March 31,2016

March 31,
2016

Millions of yen¥ 7,546¥ (87)¥ 7,459¥ 6,410

Thousands of U.S dollars(Note1)$ 66,968$ (772)$ 66,196$ 56,887¥ 3,133¥ 3,307

The Company has established internal procedures for receivables
periodically monitoring counter-party status. The department

balance sheets net of accumulated depreciation and accumulated

manages amounts and settlement dates by counter-party andimpairment loss.

works to quickly identify and mitigate payment risk that may result

The reason of the decrease was mainly due to the depreciationof the assets.
The fair value was determined by the Company based on “theguidance for appraising real estate”.
The Company has rental commercial properties (including land)

Note 14 — LAND REVALUATION

in Kanagawa Prefecture. The rental incomes in the Other income(30,662)

Pursuant to Article 2 of the Enforcement Ordinance for the Law

were ¥438million ($3,887 thousand) and ¥404 million for the years$ 53,230

Concerning Land Revaluation effective March 31, 1998, theended March 31, 2016 and 2015, respectively.

$ 27,804

INSTRUMENTS(1) Credit risk management (counter-party risk)

Rental real estate assets are presented on the consolidated

Company recorded its owned land used for business at the fair value
Deferred tax liabilities for land
revaluation(c) RISK MANAGEMENT SYSTEM FOR FINANCIAL

under which the related divisions are primarily responsible forMarketable securities

Deferred tax liabilities:
Net unrealized holding gains
on securities

Reconciliation of cash in the consolidated balance sheets and cash

March 31,2015

was as follows:

Deferred tax assets:
Depreciation

FLOWS
and cash equivalents in the consolidated statements of cash flows

Non-current deferred taxes
Net defined benefit liability

Note 13 — NOTES TO THE CONSOLIDATED STATEMENTS OF CASH

from situations including deterioration of the financial conditionof counter-parties. Consolidated subsidiaries are subject to thesame risk management rules.
In using derivatives transactions, the Company mitigatescounter-party risk by conducting transactions with highly
creditworthy financial institutions.
(2) Market risk management (risk of exchange rate and interest rate
fluctuations)as of March 31, 2002, and the related revaluation difference, net ofNote 17 — FINANCIAL INSTRUMENTS

The Company monitors the balance of the foreign currency

income taxes, was debited to Land revaluation, net of deferred tax

A. QUALITATIVE INFORMATION ON FINANCIAL INSTRUMENTS

receivable and payable by each currency and every month andportion in the Net Assets section. The applicable income tax portion(a) POLICIES FOR USING FINANCIAL INSTRUMENTS

utilizes foreign currency forward contracts and foreign currency

was reported as Deferred Tax Liabilities for Land Revaluation in the

The Company manages surplus capital using financial instruments

deposit to hedge the risk of fluctuations. The Company uses

Valuation of assets and liabilities ofacquired consolidated subsidiaries
at fair market value

¥—

¥ 43

$—

consolidated balance sheets at March 31, 2016 and 2015. Whenthat are short-term and carry low risk. The Company uses derivatives

interest rate swaps to mitigate the risk of interest rate fluctuations

Others

429

539

3,807

such land is sold, land revaluation is reversed and debited to retained

to mitigate the risks that are described below, and does not use

associated with loans.

¥ 429

¥ 582

$ 3,807

earnings.

derivatives for speculative transactions.

Non-current deferred tax liabilities

Fair value of the revalued land as of March 31, 2016 was
For the years ended March 31, 2016 and 2015, the valuation
allowances of ¥ 13,053 million($ 115,839 thousand) and ¥ 10,918 million have been deductedfrom the gross amount of the non-current deferred tax assets,
respectively.
Adjustment of deferred tax assets and liabilities for enacted¥3,183million ($28,248thousand) less than the book value as of March
31, 2016, which amounts include ¥1,033 million ($9,167 thousand)the Finance & Accounting Department in accordance with thedeposit. Investment securities are mainly related to the business andestablished policies and within the specified limit on the amounts

Significant transactions with related parties for the years ended

capital alliance companies and expose the Company to the changesof derivative transactions allowed. The Department periodically

March 31, 2016 and 2015 were as follows:in market prices. Long-term loans receivable are mainly related toprovides administrative reports on the results to the financial

subsidiaries and affiliates.

director and treasurer.

approximately 32.3% to 30.9% for the years beginning on or after
April 1, 2016, and to 30.6% for the years beginning on or after

Rabigh Arabian Water andElectricity Company(affiliated company)

April 1, 2018.

Guarantee obligation

respectively, and deferred losses on hedges and remeasurementsof defined benefit plans decreased by ¥ 7 million ($ 62 thousand)and ¥ 64 million ($ 568 thousand), respectively.

(Millions of yen)(Thousands of
U.S. dollars)(Note 1)

2015

2016

2016

¥ 8,008¥ 8,659$ 71,069

The Company does not receive a guarantee charge from Rabigh

Most notes and accounts payable are due within one year.
Some accounts payable associated with purchasing machines and(3) Management of liquidity risk associated with capital procurement

construction contracts are denominated in foreign currencies, which(payment default risk)

expose the Company to the risks of exchange rate fluctuations. The

The Company manages liquidity risk by creating and updating a

Company generally procures capital required under its business plan

capital deployment plan based on reports from each division.

through bank loans. Some bank loans expose the Company to therisks of interest rate fluctuations, which the Company uses interest
rate swaps to hedge.

Arabian Water and Electricity Company.

(d) SUPPLEMENTAL INFORMATION ON THE FAIR VALUE OF
FINANCIAL INSTRUMENTS

The Company uses derivatives transactions including foreign

The fair value of financial instruments is based on market prices, orNote 16 — RENTAL PROPERTY

exchange forward contracts to hedge the risk of exchange ratea reasonable estimate of fair value for instruments for which market

The fair value of investment and rental property on the consolidated

fluctuations associated with accounts receivable and payable

prices are not available.

financial statements at March 31, 2016 and 2015, were as follows:denominated in foreign currencies and interest rate swaps tofluctuation because they employ variable factors and assumptions.

hedge the risk of interest rate fluctuations associated with loans.

In addition, the contractual amounts of the derivatives transactions“Derivative Transactions and Hedge Accounting” in Note 1(v) anddiscussed in B (a) below are not an indicator of the market risk

Note 10 presented earlier explain hedge accounting issues including

associated with derivatives transactions.

Net deferred tax liabilities for land revaluation also decreased byBook value (net of depreciation)¥ 174 million ($ 1,544 thousand), and revaluation reserve for land
increased by ¥ 174 million ($ 1,544 thousand).

its relationships with issuing entities.

Note 15 — RELATED PARTY TRANSACTIONS

in Japan, which changed the normal statutory tax rate frommillion ($ 7,801 thousand), and ¥ 172 million ($ 1,526 thousand),condition of the issuing entities and revises its portfolio based on
The derivative transactions are executed and managed byMarch 31,

securities decreased by ¥ 778 million ($ 6,905 thousand), ¥ 879

RISK MANAGEMENT SYSTEM
credit risk. Marketable securities are mainly negotiable certificate of

On March 29, 2016, new tax reform laws were announced

assets, deferred income tax, and net unrealized holding gains on

the Company periodically examines fair value and the financial(b) FINANCIAL INSTRUMENTS, ASSOCIATED RISKS AND THE
Notes and accounts receivable expose the Company to customer

relevant to rental property.

changes in tax laws and rates

Due to this change in the statutory tax rate, net deferred tax

Regarding marketable securities and investment securities,

Millions of yen

Fair value

March 31,2014

Decrease

March 31,2014

March 31,2014

¥ 7,645¥ (99)¥ 7,546¥ 6,180

Estimates of fair value are subject tomethods, hedging policies, hedged items and recognition of gain orloss on hedged positions.

87

JGC Report 201688

B. FAIR VALUES OF FINANCIAL INFORMATIONCash and deposits, and Marketable securities(a) FAIR VALUES OF FINANCIAL INSTRUMENTS

All deposits and negotiable certificates of deposit are short-term.

Fair values of financial instruments as of March 31, 2016 and 2015, were summarized as follows:

Therefore, the carrying amount is used for the fair value of these items

The financial instruments, whose fair values were difficult to measure,

The financial instruments, whose fair values were difficult to measure, were not included in the table below and were summarized in B (b).

because these amounts are essentially the same.

as of March 31, 2016 and 2015, were summarized as follows:(Millions of yen)

Cash and deposits
Marketable securities
Notes and accounts receivable
Other receivables*1
Investment securities
Long-term loans receivable, net*2
Total Assets
Notes and accounts payable
Long-term debt
Total Liabilities
Derivative financial instruments, net

Estimated fair value¥ 239,948
8,000
175,876
24,95021,1604,849¥ 474,783

March 31, 2016
Difference
—
—
—
—
—
¥3
¥3

¥ 108,390
20,991¥ 129,381¥ 108,390
21,025¥ 129,415

—
¥ 34
¥ 34

¥ 106,598
22,715¥ 129,313¥ 106,598
22,706¥ 129,304

—
¥ (9)
¥ (9)

¥ (671)¥ (671)—¥ (1,884)¥ (1,884)—

Carrying amount Estimated fair value¥ 282,708¥ 282,708
15,00015,000134,823
134,823
28,95628,956
26,387
26,3875,941
5,964¥ 493,815¥ 493,838(Thousands of U.S. dollars)

Cash and deposits
Marketable securities
Notes and accounts receivable
Other receivables*1
Investment securities
Long-term loans receivable, net *2
Total Assets

March 31, 2015
Difference
—
—
—
—
—
¥ 23
¥ 23

Carrying amount¥ 239,948
8,000
175,876
24,95021,1604,846¥ 474,780

Carrying amount$ 2,129,464
70,9981,560,845
221,423
187,788
43,007$ 4,213,525

Estimated fair value$ 2,129,464
70,9981,560,845
221,423
187,788
43,034$ 4,213,552

March 31, 2016
Difference
—
—
—
—
—
$ 27
$ 27

$ 961,928
186,289$ 1,148,217$ 961,928
186,590$ 1,148,518

—
$ 301
$ 301

$ (5,955)$ (5,955)—(b) FINANCIAL INSTRUMENTS, WHOSE FAIR VALUES WERE

Derivative financial instruments, net*1. Other receivables is included in Other current assets on the consolidated balance sheets.
*2 The amount of individual allowance for doubtful accounts is deducted from long-term loans
receivable.

The following methods and assumptions were used to estimate the fair value of the financial instruments.

(Millions of yen)(Thousands of
U.S. dollars)(Note 1)

2016

2015

2016

¥ 17,807¥ 23,264$ 158,032

Notes and accounts receivable
Notes and accounts receivable are short-term.

Therefore, thecarrying amount is used for the fair value of short-term receivables
because these amounts are essentially the same.

March 31,
Unconsolidated subsidiaries andaffiliates

20,317

24,604

180,307

Other receivables

Subscription certificate

39

38

347

Other receivables are short-term. Therefore, the carrying amount

Other investment securities—

22,715—is used for the fair value of short-term receivables because these

Allowance for doubtful accounts*—(22,715)

Non-listed equity securities—

amounts are essentially the same.

* The amount of allowance for doubtful accounts is deducted from other investment
securities.

Investment securities

It is difficult to measure the fair value of these financial instruments

Fair value of Investment securities is the price listed on securities

because there is no market price available and it is not practical toexchanges for equities. In addition, Note 9 provides information on

calculate future cash flow. Therefore, these financial instruments weremarketable securities by holding intent.

not included in the Investment securities described in B (a).

Long-term loans receivable(c) MATURITIES OF FINANCIAL INSTRUMENTS

Fair value of long-term loans receivable is estimated as discounted

The maturities of the financial instruments at March 31, 2016 were

present value of total principal and interest using assumed interest

as follows:

rates for equivalent new loans.

(Millions of yen)

Year ending March 31

Notes and accounts payable
Notes and accounts payable are short-term. Therefore, carrying

Notes and accounts payable
Long-term debt
Total Liabilities

DIFFICULT TO MEASURE

amount is used for the fair value of short-term payables because
these amounts are essentially the same.
Long-Term Debt

Cash and deposits

20172018 2022

2023 2027

2028 and
thereafter¥ 239,948———

Marketable securities

8,000

—

—

—

Notes and accounts
receivable

175,876———

Other receivable

24,950———Fair value of long-term debt is estimated as the discounted present

Long-term loans
receivable, net

value of total principal and interest using assumed interest rates for

Assets Total—¥ 4,846——¥ 448,774¥ 4,846——

equivalent new loans. Interest rate swaps subject to special method
are used for long-term floating-rate loans.

(Thousands of U.S. dollars)(Note 1)

Principal and interestof the loans in which these interest rate swaps are embedded are
discounted using a reasonable estimate of the interest rate on theYear ending March 31

loan at the time of issue.

Cash and deposits

Derivative financial instruments
Please refer to “DERIVATIVE TRANSACTIONS AND HEDGEACCOUNTING” in Note 1(v) and Note 10.

20172018 2022

2023 2027

2028 and
thereafter$ 2,129,464

—

—

—

Marketable securities

70,998———Notes and accounts
receivable

1,560,845———

221,423

—

—

—

—

$ 43,007——$ 3,982,730$ 43,007——

Other receivable
Long-term loans
receivable, net
Assets Total

Please see Note 3 for the maturities of long term-debt.

89

JGC Report 201690

Note 18 — IMPAIRMENT OF FIXED ASSETS

Note 19 — OTHER COMPREHENSIVE INCOME

Tax effects allocated to each component of other comprehensive

As discussed in Note 1 (n), the Company and its consolidated

Reclassification adjustments of the Company’s and consolidated

income for the years ended March 31, 2016 and 2015, were as

subsidiaries have applied the accounting standard for impairment ofsubsidiaries’ other comprehensive income for the years ended Marchfollows:

fixed assets.

31, 2016 and 2015, were as follows:(Millions of yen)

(Millions of yen)(Thousands of
U.S. dollars)(Note 1)

2015

2016

The Company and its consolidated subsidiaries have grouped
their fixed assets principally based on their business segment, whileconsidering mutual supplementation of the cash flows.
The following is information on impairment loss for the year
ended March 31, 2016.
Location

Use

Type of assets

U.S.A

Oil and gas production
and sales business

Intangible and otherassetsThe Company grouped the assets for oil and gas production andsales business based on individual countries. Carrying amount ofcertain assets was devalued to their recoverable amounts, since oiland gas business environment had significantly adversely changed.
As a result, the Company recognized loss on impairment in theamount of ¥ 1,661 ($ 14,741 thousand) million. The Company usedthe value in use which was calculated by discounting future cash
flows at the discount rates of 10%.
The following is information on impairment loss for the year

March 31,2016

Net unrealized holding gains on
securities
Unrealized holding gains arisingduring the year

¥ (3,879)¥ 4,509$ (34,428)—(9,892)Sub-total(4,994)

4,509(44,320)

(174)

(563)

(1,544)

Deferred losses on hedges

Sub-total

37

127

328

(137)

(436)

(1,216)

Translation adjustments
Translation adjustments arisingduring the year

(2,612)

2,210(23,181)Sub-total(2,612)

2,210(23,181)

ended March 31, 2015.

Remeasurements of defined benefit
plans

Location

Use

Type of assets

Defined benefit plans during the
year

U.S.A

Oil and gas production
and sales business

Intangible and otherassetsReclassification adjustment for
defined benefit plans
Sub-total

Net-of-tax
amountNet unrealized holding gains on
securities¥ (4,994)¥ 1,786¥ (3,208)

(137)

91

(46)

—

174

174

Translation adjustments(2,612)—(2,612)Remeasurements of defined benefit
plans(1,883)543(1,340)3—

3

Other comprehensive income¥ (9,623)¥ 2,594¥ (7,029)

Year ended March 31, 2015

Before-tax
amountTax benefit(expense)

Net-of-tax
amountNet unrealized holding gains on
securities¥ 4,509¥ (1,105)¥ 3,404

Deferred gains (losses) on hedges

(436)

73

(363)

Land revaluation(1,115)

Reclassification adjustment fordeferred losses on hedges

Tax benefit(expense)

Deferred gains (losses) on hedges

Reclassification adjustment forgains (losses) realized in net
incomeDeferred losses on hedges
arising during the year

Year ended March 31, 2016

Before-tax
amount(2,447)(1,361)(21,716)

564

(30)

5,005

(1,883)(1,391)(16,711)Equity for equity method affiliates(Millions of yen)

Land revaluation

—

338

338

Translation adjustments

2,210

—

2,210

Remeasurements of defined benefit
plans(1,391)

432

(959)

Equity for equity method affiliates

(13)

—

(13)

Other comprehensive income¥ 4,879¥ (262)¥ 4,617

Year ended March 31, 2016

Before-tax
amountTax benefit(expense)

Net-of-tax
amountNet unrealized holding gains on
securities$ (44,320)$ 15,850$ (28,470)

Deferred gains (losses) on hedges(1,216)

808

(408)

—

1,544

1,544

Translation adjustments(23,181)—(23,181)

Remeasurements of defined benefit
plans(16,711)

4,819(11,892)

Equity for equity method affiliates

The Company grouped the assets for oil and gas production and(Thousands of U.S. dollars) (Note 1)

certain assets was devalued to their recoverable amounts, since oil

Share of other comprehensive
income of affiliates accounted
for using equity method arisingduring the year

3

(13)

26

and gas business environment had significantly adversely changed.

Sub-total

3

(13)

26

(9,623)

4,879(85,402)

sales business based on individual countries. Carrying amount of

As a result, the Company recognized loss on impairment in the

Before-tax amountamount of ¥ 4,852 million. The Company used the value in use whichTax benefit (expense)

was calculated by discounting future cash flows at the discount rates

Total other comprehensive incomeof 10%.

2,594

(262)

23,021¥ (7,029)¥ 4,617$ (62,381)

Land revaluation

Equity for equity method affiliates
Other comprehensive income

91

JGC Report 2016

26

—

26

$ (85,402)$ 23,021$ (62,381)

92

Independent Auditor’s Report

Supplemental Explanation

To the Board of Directors of JGC Corporation:

We have audited the accompanying consolidated financial statements of JGC Corporation and its consolidated subsidiaries , which comprise theInternal Control over Financial Reporting in Japan

consolidated balance sheets as at March 31, 2016 and 2015, and the consolidated statements of income, statements of comprehensive income,statements of changes in net assets and statements of cash flows for the years then ended, and a summary of significant accounting policies

Under the Financial Instruments and Exchange Act in Japan (“the Act”), which was enacted in June 2006, the management of all listed companies

and other explanatory information.

in Japan are 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.

Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting

We have evaluated our ICOFR as of March 31, 2016, in accordance with “On the Revision of the Standards and Practice Standards for Management

principles generally accepted in Japan, and for such internal control as management determines is necessary to enable the preparation ofAssessment and Audit concerning Internal Control Over Financial Reporting (Council Opinions)” published by the Business Accounting Council

consolidated financial statements that are free from material misstatements, whether due to fraud or error.

on March 30, 2011 .

Auditor’s Responsibility

As a result of conducting the evaluation of ICOFR for the year ended March 31, 2016, we concluded that our internal control system over financial

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits inreporting as of March 31, 2016 was operating effectively and reported as such in the Internal Control Report.

accordance with auditing standards generally accepted in Japan. Those standards require that we comply with ethical requirements and planand perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

Independent Auditor, KPMG AZSA LLC, performed an audit of our management assessment on the effectiveness of ICOFR under the Act.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements.
The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the consolidated financial

An English translation of the Internal Control Report and the Independent Auditor’s Report filed under the Act is provided on the following pages.

statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation andfair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, while
the objective of the financial statement audit is not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.

JGC Corporation

An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made bymanagement, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of JGC Corporation and its
consolidated subsidiaries as at March 31, 2016 and 2015, and their financial performance and cash flows for the years then ended in accordancewith accounting principles generally accepted in Japan.
Convenience Translation
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2016 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 made on the basis described in Note 1 to the consolidated financial statements.

KPMG AZSA LLC
June 29, 2016
Tokyo, Japan93

JGC Report 201694

Internal Control Report (Translation)

Independent Auditor’s Report (Translation)

NOTE

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.
There are differences between the management assessment of ICOFR under the Act and one conducted under the attestation standards established by the American Institute of Certified
Public Accountants (“the 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 businesslocation selection and/or account selection. In the management assessment of ICOFR under the attestation standards established by 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.

The following is an English translation of the Independent Auditor’s Report filed under the Financial Instruments and Exchange Act in Japan (“the Act”). This report is presented merely as
supplemental information.
There are differences between an audit of ICOFR under the Act and one conducted under the attestation standards established by the American Institute of Certified Public Accountants(“the AICPA”).
In an audit of ICOFR under the Act, the auditor expresses an opinion on management’s report on ICOFR and does not express an opinion on the company’s ICOFR directly. In an audit of
ICOFR under the attestation standards established by the AICPA, the auditor expresses an opinion on the company’s ICOFR directly.
Also in an audit of ICOFR under the Act, there is detailed guidance on the scope of an audit of ICOFR, such as quantitative guidance on business location selection and/or account selection.
In an audit of ICOFR under the attestation standards established by 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.

[TRANSLATION]
Internal Control Report
1[TRANSLATION]
Independent Auditor’s Report

Framework of Internal Control Over Financial Reporting
Masayuki Sato, Chairman and Representative Director, and Koichi Kawana, President and Representative Director of JGC Corporation

June 29, 2016
To the Board of Directors of JGC Corporation(“the Company”) are responsible for establishing and maintaining adequate internal control over financial reporting as defined in the rule “Onthe Revision of the Standards and Practice Standards for Management Assessment and Audit concerning Internal Control Over Financial

KPMG AZSA LLC

Reporting (Council Opinions)”.

Designated Limited Liability Partner,
Engagement Partner,
Certified Public Accountant: Michitaka Shishido

Because of its inherent limitations, internal control over financial reporting (“ICOFR”) may not completely prevent or detect misstatements.
2

Designated Limited Liability Partner,
Engagement Partner,
Certified Public Accountant: Yoshinori Saito

Assessment Scope, Timing and Procedures
We have assessed our ICOFR as of March 31, 2016 in accordance with assessment standards for internal control over financial reporting
generally accepted in Japan.
We assessed the design and operation of our company-level control and based on this assessment, we analyzed business processes

Audit of Consolidated Financial Statements

within the scope of the internal control to be assessed, identified a key control that would have a material impact on the reliability of financial
reporting and assessed whether the basic 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 their degree 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 degree of quantitative and qualitative impact on financial reporting based on the assessment of the company-level control.

Pursuant to the first paragraph of Article 193-2 of the Financial Instruments and Exchange Act in Japan (“the Act”), we have audited theconsolidated financial statements of JGC Corporation (the “Company”) and its consolidated subsidiaries included in the Financial Section,
namely, the consolidated balance sheet as of March 31, 2016, the consolidated statement of income, consolidated statement of comprehensive
income, consolidated statement of changes in net assets and consolidated statement of cash flows for the fiscal year from April 1, 2015 to March
31, 2016, and a summary of significant accounting policies, other explanatory information and consolidated supplementary schedules.

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 ofquantitative 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

Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated 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 misstatements, whether due to fraud or error.

basis and the business processes which impact the accounts (sales, accounts receivable and inventory) that were closely associated withthe significant business locations’ business objectives.

Auditor’s Responsibility
Our responsibility is to independently express an opinion on these consolidated financial statements based on our audit. We conducted our3

Results of Assessment

audit in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain

As a result of the above assessment, the Company’s management has concluded that, as of March 31, 2016, the Company’s ICOFR was

reasonable assurance about whether the consolidated financial statements are free from material misstatement.

effective.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements.
The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial

4

Supplementary Information

statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and

Not applicable.

fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, while
the objective of the financial statement audit is not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.

5

Other

An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by

Not applicable.

management as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

95

JGC Report 201696

JGC GroupAs of March 31, 2016

Opinion

OthersIn our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of JGC Corporation and its
consolidated subsidiaries as of March 31, 2016 and their financial performance and cash flows for the year ended March 31, 2016, in accordance

Total Engineeringwith accounting principles generally accepted in Japan.

Equipment Procurement
JGC Trading & Services Co., Ltd.

Audit of Internal Control

Specialized Consulting Services
JAPAN NUS CO., LTD.

Pursuant to the second paragraph of Article 193-2 of the Financial Instruments and Exchange Act in Japan, we also have audited the Company’s
report on internal control over financial reporting of the consolidated financial statements of JGC Corporation as of March 31, 2016 (“Internal
Control Report”).
Management’s Responsibility for the Internal Control ReportManagement is responsible for the design and operation of internal control over financial reporting and the preparation and fair presentation of theInternal Control Report in conformity with assessment standards for internal control over financial reporting generally accepted in Japan. Internal
control over financial reporting may not completely prevent or detect financial statement misstatements.
Auditor’s Responsibility

Catalysts and Fine Products

JGC CORPORATIONJGC Catalysts and Chemicals Ltd.
JAPAN FINE CERAMICS CO., LTD.
Nikki-Universal Co., Ltd.

Office Support Services
NIKKI BUSINESS SERVICES CO., LTD.

JGC PLANT INNOVATION CO., LTD.

Water & Power Generation Business
JGC-ITC Rabigh Utility Co., Ltd.
JGC Mirai Solar Co., Ltd.
Kamogawa Mirai Solar Co., Ltd.

JGC PLANTECH AOMORI Co., Ltd.

Oil & Gas Production and Sales Business
JGC Energy Development (USA) Inc.
JGC Exploration Eagle Ford LLC
JGC EXPLORATION CANADA LTD.

JGC SINGAPORE PTE LTD

Nikki-Universal Co., Ltd.
JMD Greenhouse-Gas Reduction
Co., Ltd.
JGC PHILIPPINES, INC.
PT. JGC INDONESIAJGC Gulf International Co. Ltd.

Our responsibility is to express an opinion on the Internal Control Report based on our internal control audit. We conducted our internal control

JGC OCEANIA PTY LTD

audit in accordance with auditing standards for internal control over financial reporting generally accepted in Japan. Those standards require thatJGC America, Inc.

we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Internal Control ReportJGC Gulf Engineering Co., Ltd.

Consolidated subsidiary
Equity-method subsidiary or affi liate

is free from material misstatement.

Non-equity-method subsidiary or affi liate

An internal control audit involves performing procedures to obtain audit evidence about the assessment of internal control over financial
reporting in the Internal Control Report. The procedures selected depend on the auditor’s judgment, including significance of effect on thereliability of financial reporting. Also, an internal control audit includes evaluating the appropriateness of the scope, procedures and result of theassessment determined and presented by management as well as evaluating the overall internal control report presentation.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Total Engineering
BusinessEngineering & Construction
Services

Country
Singapore

S$2,100,000

100%

Philippines

P1,200,000,000

100%

PT. JGC INDONESIA

Indonesia

US$1,600,000

100%

JGC Gulf International Co. Ltd.

Saudi Arabia

SAR187,500,000

JGC OCEANIA PTY LTD

Australia

A$1,000,000

JGC America, Inc.

U.S.A.

US$41,100,000

JGC Gulf Engineering Co., Ltd.

Saudi Arabia

SAR500,000

75%

Maintenance Services

JGC PLANTECH AOMORI Co., Ltd.

Japan

¥50,000,000

100%

Process Licensing Services

Nikki-Universal Co., Ltd.

Japan

¥1,000,000,000

50%

Japan

¥30,000,000

47%

March 31, 2016, presents fairly, in all material respects, the assessment of internal control over financial reporting in conformity with assessment
standards for internal control over financial reporting generally accepted in Japan.

JGC SINGAPORE PTE LTD
JGC PHILIPPINES, INC.

Capital Share100%

In our opinion, the Internal Control Report, in which JGC Corporation states that internal control over financial reporting was effective as ofJapan

Capital¥830,000,000

OpinionInterest

Company
JGC PLANT INNOVATION CO., LTD.

* JGC 70%
* JGC PLANT INNOVATION
30%100%* JGC 92%
100% * JGC SINGAPORE 8%

100%

The firm and the engagement partners do not have any interest in the Company for which disclosure is required under the provisions of theCertified Public Accountants Act of Japan.

Global Warming Gas-Emissions JMD Greenhouse-Gas Reduction Co.,
Credits Business
Ltd.

Other

* JGC PLANT INNOVATION
100%

Catalysts and Fine ProductsCompanyCountryJGC Catalysts and Chemicals Ltd.

Japan

JAPAN FINE CERAMICS CO., LTD.
Nikki-Universal Co., Ltd.

CapitalCapital Share¥1,800,000,000

100%

Japan

¥300,000,000

100%

Japan

¥1,000,000,000

50%

Other

OthersBusiness

97

JGC Report 2016

CompanyCountry

Capital¥40,000,000

Capital Share

Equipment Procurement

JGC Trading and Services Co., Ltd.

Japan

Specialized Consulting Services

JAPAN NUS CO., LTD.

Japan

¥50,000,000

88%

Office Support Services

NIKKI BUSINESS SERVICES CO., LTD.

Japan

¥1,455,000,000

100%

Water & Power Generation
Business

JGC-ITC Rabigh Utility Co., Ltd.
JGC Mirai Solar Co., Ltd.
Kamogawa Mirai Solar Co., Ltd.

Japan
Japan
Japan

¥319,000,000¥445,000,000¥231,000,000

100%
51%
100%

Oil & Gas Production andSales Business

JGC Energy Development (USA) Inc.
JGC Exploration Eagle Ford LLC
JGC EXPLORATION CANADA LTD.

U.S.A.
U.S.A.
Canada

US$130,447,000
US$65,000,000
C$105,885,000

100%
100%
100%

Other

24.5%

98

Outline of JGC
As of March 31, 2016

Established

October 25, 1928

Capital¥23,511,189,612

Number of Employees

2,336 (Consolidated: 7,489)

Major Shareholders

Number of shares (Thousands)

Percentage of total (%)

8.96

The Master Trust Bank of Japan, Ltd. (Trust Account)

23,225

Japan Trustee Services Bank, Ltd. (Trust Account)

20,4387.88

JGC Trading and Services Co., Ltd.

12,112

4.67

Sumitomo Mitsui Banking Corporation

11,0004.24

JGC-S SCHOLARSHIP FOUNDATION

8,433

3.25

Mizuho Bank, Ltd.

5,700

2.2
1.85

Japan Trustee Services Bank, Ltd. (Trust Account 9)

4,816

NORTHERN TRUST CO. (AVFC) SUB A/C AMERICAN CLIENTS

3,918

1.51

BNP Paribas Securities Limited

3,717

1.43

THE BANK OF NEW YORK MELLON SA/NV10

3,339

1.28

JGC’s treasury stock holdings total 6,744 thousand shares, approximately 2.60% of total shares issued.

Authorized Shares

600,000,000

Issued and Outstanding
Shares259,052,929

Number of Shareholders

14,383Administrator of the
Shareholders’ Register

Mitsubishi UFJ Trust and Banking Corp.
1-4-5, Marunouchi, Chiyoda-ku,
Tokyo 100-8212, Japan

Distribution of Shareholders (%)
Financial institutions

39.28

Financial instruments
firms
Other domestic
corporations

4.72
13.10

Individuals and others

13.34

Foreign investors

29.56

Figures have been rounded to two decimal places.

Stock PriceJGC Stock Price (Yen)

Nikkei Stock Average (Yen)

5,000

50,0004,000

40,0003,000

30,000JGC Stock Price

2,000

20,000
Nikkei Stock Average

1,000
0
2013
1 2

3

4

5

6

7

8

2014
9 10 11 12 1 2

7

8

2014
9 10 11 12 1 2

3

4

5

6

7

3

4

5

6

7

10,0008

2015
9 10 11 12 1 2

3

4

5

6

7

8

2015
9 10 11 12 1 2

3

4

5

6

7

0

8

2016
9 10 11 12 1 2

3

4

5

6

8

2016
9 10 11 12 1 2

3

4

5

6

Volume (Thousands of shares)

80,00060,00040,00020,000
0
2013
1 2

99

3

4

5

JGC Report 2016

6100