PRESS RELEASE
May 12,2016

New Medium-Term Business Plan (FY2016-20)“Beyond the Horizon”-

1st Stage of Growth Strategy for Realization of Corporate Vision
JGC CorporationJGC Corporation has prepared its “Beyond the Horizon” Medium-Term Business
Plan for the JGC Group covering a five-year period from FY2016 to FY2020.

Section 1: Overview of the Previous Medium-Term Business Plan
“NEW HORIZON 2015”
In the “NEW HORIZON 2015” previous Medium-Term Business Plan, the JGCGroup presented a vision of transformation into a new corporate format of“Program Management Contractor & Investment Partner”. This goes beyond
the framework of a conventional engineering contractor and set numerical goals
for FY2015 (March 2016 period) of ¥50 billion in consolidated net profit and at
least 10% ROE. The JGC Group enlisted its full capabilities toward realizationof the plan goals.
The JGC Group expanded orders value and sales during these years, taking
advantage of opportunities from steeper-than-expected advances by thehydrocarbons market , including sustained high crude-oil prices supported byeconomic growth in emerging countries and a rise in LNG projects. All of thiswas against the backdrop of rapid advances in the development of shale gas,
and the Group reported over ¥45 billion in net profit in FY2012 and FY2013,
achieving 11.6% average ROE for the five years covering FY2011-15.

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Net Profit

ROE

FY2011 (March 2012 period)¥39.1 billion

14.1%

FY2012 (March 2013 period)
FY2013 (March 2014 period)
FY2014 (March 2015 period)
FY2015 (March 2016 period)¥46.1 billion¥47.1 billion¥20.6 billion¥42.7 billion

14.8%
13.3%
5.4%
10.6%

Average 11.6%
Additionally, efforts to develop New EPC as a new business area in the businessstrategy resulted in new entries into F-LNG and non-ferrous metal areas.
However, JGC believes that it is still midway along the path to the goal oftransformation into a new corporate format of “Program Management Contractor& Investment Partner” for the JGC Group from an overall perspective, including
the requirement for profit creation from business investments in order tosupplement EPC business.

Section 2: Positioning and Composition of the New Medium-TermBusiness Plan
The “Beyond the Horizon” new medium-term business plan is a first-halffive-year growth strategy that clarifies the direction and business areas of thecorporate group over the 10 years from now (to 2025) aimed at realization of thecorporate vision “Program Management Contractor & Investment Partner”
targeted by the JGC Group and seeks to expand sales, net profit, and otherbusiness indicators, as well as achieve further reforms. The New Medium-TermBusiness Plan consists of the following content. Please refer to Section 3 andthereafter for plan details.
Composition of the New Medium-Term Business Plan
Section 1:

Overview of the Previous Medium-Term Business Plan
“NEW HORIZON 2015”
Section 2: Positioning and Composition of the New Medium-TermBusiness Plan
Section 3: Assumptions for Plan
(Core Competence and Market Environment)
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1.
2.

Core competence of the JGC Group
Changes in the market environment

Section 4: Targeted Direction and Business Areas
Section 5: Numerical Goals
Section 6: Basic Policies
1.
Basic Policy 1: Expand EPC business (expand in the oil & gas
area, broaden to infrastructure)2.
Basic Policy 2: Expand profit from non-EPC businesses(business investments and manufacturing)3.
Basic Policy 3: Promotion of Financial Strategy to Realize Basic
Policies 1 and 2
Section 7: Strategies for the Basic Policies
Strategy 1: Expand the market
Strategy 2: Strengthen project implementation capabilities
Strategy 3: Expand business areas
Strategy 4: Strengthen orders competitiveness by pursuing technology
advantages
Section 8:
Section 9:

Shareholders Return Policy
Corporate Governance Responses

Section 3:

Assumptions for Plan
(Core Competence and Market Environment)

Through to the present time, the JGC Group has mainly operated EPC businessfor downstream hydrocarbon energy plants, but believes it is vital to broaden
business scope, similarly to global top contractors such as Bechtel, Fluor, andTechnip, in order to achieve further growth and expansion.
1. JGC Group’s core competences
To broaden business scope, the JGC Group must expand to areas where it can
maximally utilize its strengths and advantages (core competences) with
continuity and pursue steady profit creation. The JGC Group possesses thefollowing core competences:
1) Top global results and performance based on delivery capabilities forcompleting complex, advanced projects in difficult conditions as an
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EPC contractor in the hydrocarbon downstream field.
2) Highly talented human-resource group with robust technology andmanagement capabilities that can integrate people, goods, andinformation on a global scale as well as expand EPC business scopeand pursue new business areas.
3) Understanding and knowhow as a business operating firm accumulated
through 10 years of business investment experience.
4) Sturdy financial base and robust capital resources that enable further
growth strategy investments.

2. Changes in the market environment
Besides core competence, JGC needs to identify changes in the plant market
and utilize these developments as opportunities for steady additions to its
business areas.
The plant market currently continues to confront very difficult conditions becauseof the sharp decline in crude oil prices since two years ago and the resulting
cutbacks of capital investments by major oil firms and oil-producing countries.
However, the expansion trend for hydrocarbon energy demand driven by
growing populations and economic advancement in emerging countries has notchanged from a longer-term perspective. JGC expects a return of full-fledged
capital investment in light of tighter supply-demand conditions for crude oil, LNG,
and other energy and recovery by the plant market from the latter half of the new
medium-term plan period, on track with forecasts from major oil firms (as shown
below).

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In relation to the plant market environment, the JGC Group views changes asfollows:
1) No change in the trend of growing demand for hydrocarbon energy
mainly in emerging countries over the longer term2) Realization of a new EPC market in light of political changes in Central
Asia, Iran, Iraq, and other areas
3) Steady progress in utilization of renewable energy spurred by growinginterest in global environment conservation
4) Accelerated urbanization worldwide and growing infrastructure(electricity, transportation) demand, fueled by population increases
and economic advances in emerging countries5) Expansion of drug and medical needs in China and Southeast Asian
countries
6) Increasingly sophisticated requirements in resource development
plans for project implementation capabilities in 3D (Difficult, Deep,
Distance) areas
7) Industry revolution advances using IT technologies, such as IoT thatleverages Big Data

Section 4:

Targeted Direction and Business Areas

The JGC Group must respond with a multi-faceted approach in promoting the
New Medium-Term Business Plan. One perspective is the necessity ofovercoming the current headwinds and achieve transformation to a newcorporate format. Another perspective is to not relax efforts for transformation
into a new corporate format, despite such headwinds. The JGC Group musthave an objective awareness of the current conditions it faces and also seek toachieve the new corporate format.
From this perspective and in light of the core competences and the changes in
the market environment, the JGC Group is targeting the direction and businessareas described below for the 10 years from now through to 2025.

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Target Direction

Mainly oil & gas fields with expansion to infrastructure
Key points
1. Expand to upstream areas, in addition to downstream, for the EPC
business in core oil & gas fields; enter O&M services business too
2. Expand EPC business to infrastructure areas, including energy
infrastructure, industrial infrastructure, and social infrastructure, in
addition to oil & gas
3. Place emphasis on infrastructure areas in business investments
4. Focus on technology development and overseas initiatives for
manufacturing
The following serves to overview the business areas that the JGC Group covers.

Section 5:

Numerical Goals

Sales levels of global top engineering contractors are: Bechtel at ¥4 trillion,
Fluor at ¥2 trillion, and Technip, CBI, and Saipem each at ¥1.5 trillion. The JGCGroup must pursue further expansion of sales, profits, and other business values
in order to genuinely put itself on the same footing as these firms.
The New Medium-Term Business Plan calls for at least ¥1 trillion in sales, ¥60
billion in net profit in FY2020 and retains at least 10% ROE as numerical goals.

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Numerical goals in the New Medium-Term Business Plan
FY2015 results

Beyond the Horizon

Sales¥879.9 billion

At least ¥1 trillion

Net Profit
ROE¥42.7 billion
10.6%¥60 billion
At least 10% (unchanged)

The plan envisions the following business area ratios (adjusted operating profit
basis) in FY2020.

Section 6:

Basic Policies

To achieve further growth, the JGC Group must expand EPC business inmainstay oil & gas areas, broaden EPC business to infrastructure areas, andgenerate steady profit from business investments and other non-EPC
businesses.
These initiatives require allocation of cash reserves based on a quantitative
standard in order to implement growth strategy investments. The JGC Group
recognizes the need to pursue even higher capital efficiency than in the past,and from this perspective it has defined the following basic policies for the New
Medium-Term Business Plan.

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Basic Policy 1: Expand EPC business (expand the oil & gas area andbroaden to infrastructure)
Basic Policy 2: Expand profit from non-EPC businesses (business
investments, manufacturing)
Basic Policy 3: Promote financial strategy to realize basic policies 1 and 2

Section 7:

Strategies for the Basic Policies

The JGC Group has devised the following individual business strategies forthese basic policies.
Basic Policy 1:

Expand EPC business (expand the oil & gas area andbroaden to infrastructure)

The expansion of oil & gas areas (oil refining, gas processing, LNG,
petrochemicals, etc.) in the JGC Group’s mainstay EPC business merits thegreatest attention because profits from these areas currently account for asizable portion of overall earnings. This is an inevitable direction in the context
of overcoming the near-term market environment and being prepared for thesubsequent arrival of an improved market environment. The JGC Group alsoplans to enter the O&M services business for oil & gas areas.
Furthermore, the JGC Group intends to expand to the infrastructure area for its
EPC business and become an engineering contractor that covers oil & gas andinfrastructure.
Specific business strategies are described in the below:
Strategy 1: Expand the market
It is difficult to expand in oil & gas areas on the basis of existing markets alone(Japan, Southeast Asia, the Middle East, North Africa, etc.) where the JGCGroup already has extensive results. The JGC Group aims to expand themarket to North America and Russia it has entered in recent years as well as
Central Asia (Turkmenistan, Azerbaijan, etc.), East Africa, Iran, and Iraq and to
pursue higher sales and profits.

8Strategy 2: Strengthen project implementation capabilities
The EPC business in the oil & gas areas requires not only development of newmarkets, but also strengthening of project implementation capabilities. The
JGC Group is promoting the following strategies:(1) Domestic and overseas EPC-capable JGC Group companies strategy
EPC-capable Group companies located in Japan, Asia, the Middle East, andNorth Africa (besides JGC Philippines) have worked to expand the track recordof smaller-scale local projects. The new medium-term business plan envisions agroup company management strategy led by JGC headquarters in accordancewith the following policies:-

Strengthen control exercised by JGC headquarters over domestic andoverseas EPC group companies, and have it serve as the command centerfor orders and project implementation.

-

Bolster and expand functions taking into account the characteristics ofindividual EPC-capable Group companies..

-

Promote collaboration among individual EPC-capable Group companies inaccordance with project characteristics.

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(2) Promote collaboration with a wide range of joint-venture partners
The JGC Group believes it is vital to expand collaboration with external
resources in order to strengthen project implementation capabilities, in addition
to the key matter of increasing sales and profits at domestic and overseas
EPC-capable Group companies.
The JGC Group intends to actively promote a wide range of collaboration with
Bechtel, Fluor, Technip, KBR, GS, SK, and domestic engineering companies thathave joint-venture experience for EPC implementation as well as engineering
contractors in the US and Europe, Korea, China, and other countries.
(3) Create a European site for global operations with three main centers
The JGC Group considers it needs an engineering site in Europe to address
markets in the Middle East, North Africa, and Russia as it promotes the market
expansion strategy. It intends to create a new engineering site in Europe, in
addition to the existing Japan headquarters in Yokohama and JGC America in
the United States, for the establishishment of operations at three sites worldwide
covering a wide range of markets.
The JGC Group plans to approach implementation of this strategy from multiple
perspectives, including acquisitions of, or investments in, US and European
engineering contractors and organic growth.
(4) Create Group companies to deal with emerging countries
The JGC Group plans to review setting up Group companies as new EPC
business implementation sites in emerging countries with considerable potential10

as future markets. It intends to utilize these group companies as EPC sites andalso have them serve as centers for business investments. For the time being,
the focus will be on China, Myanmar, and other Asian countries.
Strategy 3: Broaden business areas
The JGC Group aims to broaden business areas to upstream areas with large
market scale as opportunities for continuous expansion, leveraging the Group’s
core competence.
Planning is to cover EPC activities related to power generation for energy
infrastructure and transportation infrastructure as well as other areas for social
infrastructure in efforts to broaden business scope to infrastructure areas.
Additional planning is to cover service businesses, and EPC activities, in the oil& gas areas and make a full-fledged entry into the overseas plant O&M services
market.
(1) Expand scope to upstream areas
The JGC Group aims to enter the area of upstream facilities, such as onshore
crude oil and gas gathering facilities as well as crude oil and gas separation
facilities, in collaboration with overseas EPC group companies. Primary targets
for the upstream field are Southeast Asia, the Middle East, and North Africa.
In the offshore field, the JGC Group is interested in collaborating withengineering firms, ocean project specialty firms, and equipment manufacturers
and plans to look at investments in, and acquisitions of, such firms.
Additionally, the JGC Group intends to pursue further enhancement of F-LNG
technologies and project implementation capabilities. It will pursue FSRU
(floating storage and re-gasification unit) projects in the near-shore area, power
plants, and ocean-based wind power.
(2) Energy infrastructure: Strengthen power generation (fossil fuels,
nuclear power, renewable energy)
The JGC Group aims to enter power generation as an EPC business that can becontinuously expanded. Besides fossil fuel power plants, it plans to pursue
EPC business for overseas nuclear power plants by leveraging related
technologies accumulated in the processing and disposal of radioactive wastefrom domestic nuclear facilities as well as overseas project execution
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capabilities. In the reewable energy area, the JGC Group aims to focus on
solar power and obtain EPC orders for overseas sites capitalizing on existing
results.
(3) Social infrastructure: Expand business scope to transportation
infrastructure
The JGC Group intends to enter the EPC business for airports from the present
transportation infrastructure segment, as a way forward to broadening its scope.
It also plans to pursue business investments in the transportation infrastructure
field. The JGC is currently making efforts to obtain business rights to Myanmar
Airport through a joint venture with an airport management specialty firm andothers. The JGC Group aims to leverage knowhow related to airport facilities
accumulated through this initiative in order to obtain EPC orders for overseas
transportation infrastructure.
(4) Social infrastructure – Promote overseas initiatives in pharmaceuticaland medical areas
The JGC Group aims to expand sales and profits in the pharmaceutical andmedical EPC business, pursuing orders for overseas projects by leveraging
extensive domestic successful project execution. For pharmaceuticals, it intends
to assist overseas investments by Japanese firms and emerging country
investments by mega-pharma companies. In the medical business area, itplans to seek overseas EPC orders and move forward with overseas business
investments while leveraging experience from the planned hospital operation in
Cambodia.
(5) Oil & gas services business –Full-fledged entry into plant O&M services
The JGC Group plans to provide O&M services that contribute to improved
customer business value by raising plant certainty, availability, and quality
through analysis and utilization of big data that integrates customer plant
operating data and JGC’s design data to forecast future plants.
The JGC Group is considering O&M services business as a new business
investment area.
The JGC Group is looking at the provision of conventional maintenance services12

in overseas markets too and plans to review initiatives that involve collaboration
between overseas EPC-capable Group companies and local maintenancecompanies. It also intends to review investments in, and acquisitions of,overseas plant maintenance companies.
Strategy 4:

Bolster orders competitiveness by pursuing technology
advantages
The JGC Group intends to pursue further enhancement of engineering andproject management technologies it possesses and meet customer needs forbusiness value improvement amid major changes taking place in the plant
market, such as advances by project implementation technologies
accompanying the 3D (Difficult, Deep, Distance) shift by resource development
projects, changes driven by utilization of IoT and other IT technologies, andrevolutions occurring in gene therapy, regenerative medicine, and other life
science fields.
The JGC Group plans to implement the following measures.
(1) Further enhancement of LNG technology capabilities
The JGC Group intends to achieve further enhancement of LNG technology
capabilities and ensure differentiation of its technologies from competitors in the
LNG field where it holds a world-leading position as an engineering contractor,
including for its track record of achievements and its technology capabilities.
Specifically, it intends to propose a compact LNG plant concept to meet thediverse needs of customers for LNG investments. It plans to actively promote
the AIRLIZE LNG concept that facilitates efficient LNG production in varying
weather conditions at construction sites.
(2) Further pursuit of advances in project implementation technology suchas modular construction
The JGC Group plans to pursue further advances in plant construction
technology using the modular construction method for the Ichthys LNG project inAustralia and the Yamal LNG project in Russia, and reinforce its leading position
based on this method as unmatched by other firms, including through the
diffusion of the J-I-Module concept to realize cost savings and shorter delivery
periods. At the same time, it intends to solidify advantages for F-LNG projects
13that leverage offshore plant construction technologies accumulated through theimplementation of the F-LNG project in Malaysia. It also aims to utilize
knowledge accumulated from F-LNG projects to enter the offshore field.
(3) Promote use of IoT to enhance plant business value
The JGC Group intends to establish design technologies that ensure plant safety
through the integration of wide-ranging and massive amounts of data
accumulated from numerous projects handled in past years and data obtained
from operating plants owned by customers. It also aims to make advanced
technology proposals using IoT with the goal of enhancing plant productivity andother business value. It is considering promotion of these measures as the big
data solutions business.
(4) Enhance technology capabilities for advanced cutting-edge medicalcare to broaden business
The JGC Group aims to develop close alliances with not only mega-pharma
firms but also venture companies by leveraging its EPC track record forregenerative pharmaceutical facilities, and to expand pharma sales and earnings
in the EPC business by pursuing enhancement of engineering technology
capabilities at drug plants and promoting overseas activity.
Basic Policy 2: Expand profit from non-EPC businesses (business
investments and manufacturing)1) Business investments
The JGC Group started business investments from FY2005 with the goal of
offsetting earnings fluctuation in the EPC business. Specific results thus far
include establishing a position as a player in the integrated water and power
production (IWPP) business, raising business potential using knowledge as an
EPC contractor, and cultivating expert human resources and acquiringknowledge in various business fields. However, it missed the profit target(roughly ¥6 billion per year by FY3/16) and acknowledges the presence ofissues that need to be resolved.
Policy for business investments in the new medium term business plan
Based on results from the past 10 years, the JGC Group intends to pursue the14

following policy that clarifies numerical goals and investment criteria.
(1) Investment policy
Numerical goals-

Retaining the IRR goal of at least 12%

Clarification of investment criteria-

Promote business selectivity and focus and organize initiatives into three
categories (expansion, status quo, and future)-

Clarify policies for each business area
Aim for major shareholders
Pursue multifaceted profits with EPC(2) Strategies for the various business areas
Expansion areas: Continue to actively pursue from the existing businesses
base-Integrated water and power production (IWPP) business: Focus on Middle
East, Africa, and United States; aim for major shareholders-

Environmental and new energy business: Focus on Middle East and Asia;
mainly solar power and coal-to-liquids and aiming for multifaceted profit with
EPC-

Medical (health care) business:
hospital management

Status quo areas:

Focus on Asia and Russia; promote

Continue for the time being, but review future potential inlight of market conditions and other factors-

Resource development business:market environment-

Water and sewage business:being

Focus on existing businesses for the time-

Urban development business:being

Focus on existing businesses for the time

Respond in light of changes to the

Future areas: New areas to challenge taking into account the extent of future
potential
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-

Airport operation business: Pursue business in the Asian region
Agricultural business: Respond based on advances by the businessachievement in Russia-

Chinese business: Assess business opportunities from a broad perspective
including chemical, environmental, pharmaceutical and other perspectives-

Big data solutions business: Utilize IoT to contribute to enhancement of plantbusiness value

2) Manufacturing
The JGC Group aims to expand sales and profit in manufacturing areas, such as
catalysts, fine chemicals, and fine ceramics, through the promotion oftechnology developments that contribute to new product and new material
developments targeting growing global demand, as well as overseas initiatives
together with reviewing acquisition and alliance opportunities involving domestic
and overseas companies in order to gain technologies.
Basic Policy 3:

Promotion of Financial Strategy to Realize Basic Policies
1 and 2The JGC Group intends to implement a financial strategy that emphasizes
capital efficiency and clarifies allocation of cash reserves in the New
Medium-Term Business Plan.
1) Capital adequacy ratio
The JGC Group intends to maintain a robust financial base unaffected byfinancial market trends from the standpoint of retaining customer trust and thesmooth implementation of large-scale projects. It will stably sustain the capital
adequacy ratio at 50% or higher to ensure that it has fund-raising leeway todynamically make large investments.
2) Return on shareholder’s equity (ROE)The JGC Group is aware of capital efficiency as an important issue from thestandpoint of achieving sustainable improvement of enterprise value andcontinues to use the goal of at least 10% return on shareholder’s equity (ROE).

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3) Allocation of cash reserves
The JGC Group prioritizes working capital for the EPC business, growth strategy
investments targeting further growth and expansion, and shareholders’ returnand intends to allocate cash reserves with the following targets in the New
Medium-Term Business Plan.
Target area

Target allocation ratio

・EPC business working capital
・Growth strategy investments
・Shareholder return・Business investments
・Capital investments (building upkeep, groupcompanies)
Total

30％
30％
20％
10％
10％
100％

4) Growth strategy investments
The JGC Group aims to allocate 30% of cash reserves to the implementation of
the below strategies, in line with its basic policies.
It positions growth strategy investments as priority investments and plans tomake these outlays separately from business investments.
Reinforcement of project implementation capabilities
1) Create an engineering center in Europe
2) Create new overseas group companies to deal with emerging countries
Expansion of business areas
3) Move into upstream areas
4) Full-fledged entry into the overseas plant O&M services business5) Enter the transportation infrastructure (airport area) business
Strengthen orders competitiveness through pursuit of technology
advantages
6) Promotion of big data solutions business and other measures17Section 8: Shareholders Return Policy
The JGC Group updated its shareholders return policy from the previous level(targeting 25% of consolidated net profit) to the policy described below.
1) Dividend policy
It intends to pay dividends at a ratio of 30% of consolidated net profit
Reference: Dividend results for the past five years (FY2011-15)

2) Share buybacks
The JGC Group intends to mainly compensate shareholders in the form of
dividends but also considers implementation of share buybacks as necessary, inlight of cash reserves holdings, the share-price trend, and other factors as its
shareholders return policy for FY2016-20.

Section 9: Corporate Governance Responses
The JGC Group aims to enhance longer-term corporate value and realize its
corporate ideal while also being keenly aware of the importance of corporate
governance, having directors and employees share the value of promoting fair
and transparent corporate activities with a high ethical view, and strongly
understanding corporate social responsibility.
To achieve these goals, it intends to build positive relationships with18

shareholders, investors, customers, business partners, regional societies, andother stakeholders, and to enhance corporate governance by quickly andaccurately disclosing information and maintaining and strengthening the Boardof Directors, Auditor Board, and other functions.
It reduced the number of directors from 15 to 10 directors and increased
executive officers in June 2014 during the previous medium-term business planin order to provide dynamic decisions and bolster implementation capabilities in
response to changes in the business environment and expansion anddiversification of business scope.
Furthermore, the JGC Group intends to increase the number of outside directors
from one to two directors under the New Medium-Term Business Plan with theaims of obtaining suitable advice regarding group management and business
implementation and realizing a supervisory function from an independent
perspective.

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