“MIRAI ENGINEERING”—A GRAND OPPORTUNITY FOR THE FUTURE—

ANNUAL REPORT FY2016
For the year ended March 31, 2017

CHIYODA CORPORATIONANNUAL REPORT FY2016

PROFILEINDEX

Chiyoda Corporation is a leading integrated engineering and construction company with a signiﬁcantpresence in the global oil and gas market, and customers in more than 60 countries. Especially in the ﬁeldof LNG plant engineering and construction, we are a global leader, with a track record of undertaking
projects that account for around 40% of the world’s total LNG plant capacity.
Established in 1948, Chiyoda started with domestic projects in petroleum refining, petrochemicals
and gas processing. Since the 1970s, Chiyoda has developed a powerful global footprint, taking

02 Profile
03 At a Glance
05 To Our Shareholders
11 Financial Highlights
13 Business Overview

19 Topics
21 Chiyoda’s ESG Initiatives
31 Corporate Governance
35 Directors & Officers
37 Corporate Governance Dialogue

39 Risk Management
41 Corporate Information
43 Stock Information

advantage of the many opportunities in the engineering, procurement and construction of energy-

2017

related plants, while building a first-class reputation for technological capability, safety and reliability.

Order awarded for the pilot plant for

During its 70-year history, the Chiyoda Group has been growing steadily under the corporate

production of renewable jet and diesel

philosophy of enhancing business by aiming for harmony between energy and the environment, whilefuels for euglena Co., Ltd. in Japan

contributing to the sustainable development of society. In addition, Chiyoda has expanded business

2003

into the offshore and upstream sectors, new energy and renewable energies.

by Sakhalin Energy in Russia,

Order awarded for Sakhalin ll LNG Project
the first LNG Plant in Russia

1960

1971

Order awarded for

Order awarded for LNG Project

Mitsubishi Oil Mizushima

on Das island, Abu Dhabi,

Refinery Project

the first LNG Project for us

2001
Gained ISO14001

2014
Order awarded for Cameron LNG Project in
the US and Yamal LNG Project in Russia

2004
Order awarded for Qatargas II LNG Project in Qatar,

1961

1948

the largest LNG plant(Production Capacity per Train: 7.8 million ton/year)

Moved up to

Foundation of the Company

the First Section of
the Tokyo Stock Exchange

2013

1980

Confirmed proof of concept for

Order awarded for Petromin

SPERA Hydrogen,Mobil Yanbu Export Refinerya system and technology for

Project in Saudi Arabia

1949

1957

Won the first order for

Listed on the Second

a cracking plant of

Section of the Tokyo

Koa Oil Company

Stock Exchange

1948

01

1993

1965

2009

Order awarded for Qatargas

Order awarded for Papua New Guinea

LNG Project in Qatar

Order awarded for

LNG Project

Petromin Jeddah
Refinery Projectin Saudi Arabia

1958

1st decademassive H2 storage and transportation

1968

2nd decade1978

3rd decade1987

4th decade

1988

1998

5th decade2008

6th decade2018

7th decade
02

CHIYODA CORPORATIONANNUAL REPORT FY2016

AT A GLANCE
Chiyoda Corporation is a world-leading, integrated engineering and construction company.
The Chiyoda Group has developed its cutting-edge technology in this highly challenging industry
and a wealth of experience throughout the last seven decades.
The Chiyoda Group provides excellent services backed by ample experience and technical

FY2016
Revenues

FY2016
Backlog ofContracts

FY2016
New Orders

603.7
billions of yen

876.8

351.8

Japan
Overseasbillions of yen

billions of yen

knowledge, while striving for vital business with “Energy and Environment in Harmony.” Existing major
projects and key data are reflected on this page.
MAJOR PROJECTS IN PROGRESS (As of March 2017)65.51 mil.

Yamal LNG

~40%

More than

5,300

Safe man-hours
without LTI*

in PNG LNG Project

employees

Business Fieldof the world’s total

LNG plant capacity

LNG/GasPetrochemical/Refinery
Metal
Offshore
Infrastructure

New Ulaanbaatar
International Airport

RasGas Helium 3

Reﬁnery
New Bohol Airport

More than

Tank Terminal
Copper Smelter
Jangkrik FPU

More than

3,000

20

locations(including major overseas
subsidiaries & afﬁliatedcompanies)

03

Petrochemicals

countries(Plant design & construction)

More than

1,800

More than60

Non-hydrocarbon

Tangguh Tr. 3

Ichthys

Mozambique Area 1

EPC: Engineering, Procurement
and Construction
FEED: Front-end Engineeringand Design*LTI: Lost time incident

800

RAPID

More than

Cameron LNG

Freeport LNG

Titanium Sponge Plant

projects

More than500

Domestic receiving
LNG terminals

75
04

CHIYODA CORPORATIONANNUAL REPORT FY2016

TO OUR SHAREHOLDERS

The world is facing major challenges today, including climate change, the digital revolution andchanges in the structure of energy supply and demand. Many of these issues affect us deeply here at
Chiyoda Corporation but my personal philosophy is that change offers unique, often ideal,
opportunities for organizations to adapt and to embrace the chance to reorient the Company for future
success. I am confident in these prospects and would like to share my clear vision of what should be
expected by our customers, our shareholders and our employees.

I am Masaji Santo. It is my great honor and privilege
to have become CEO of Chiyoda Corporation.
We just published Chiyoda’s new Medium-Term• Consolidation of Resources—enhancing competitiveness and reinforcing the profitability of the entire
Chiyoda Group as keys to the Group’s futureManagement Plan, “Mirai Engineering—A Granddevelopment. To achieve this, we will fully develop

Opportunity for the Future,” a four-year strategy

the human resources of all the Group companies.

blueprint for our business development based on a

Masaji Santo
President & CEO

thorough analysis of macrotrends and assessment of
the previous management plan.
For the initial two years we will prioritize structural

This will be challenging, but when I consider
Chiyoda’s major assets—reputation, experience,
financial stability and, above all, employees’ exper-

reforms to create a solid management base andtise—I am confident that we will succeed. Critical tosimultaneously pursue a growth strategy. Specific

our success is the concept of “Chiyoda—One Team,”plans for growth are (1) building an energy value

with management and all employees striving together

chain business, (2) expanding the global environmen-

to enrich the sustainable corporate value of the entire

tal business and (3) developing a new businessChiyoda Group and respond to the needs andmodel for the digital society.

expectations of all clients, shareholders and otherIn preparing for my role as CEO of Chiyoda I havedecided on three major themes to serve as thefoundation for a turnaround:stakeholders.
I believe valuing that relationship and strengthening the connection to our shareholders throughcontinuous interactions and consultations will be• Challenges Bring Opportunities—using the cycles

major ways to create an open dialogue with all

in global energy markets and recent financial

stakeholders. I look forward to the challenges tochallenges at Chiyoda to restructure our businesscome and to your continued support.

in a strong, risk-resilient manner;• How to Change Our Company—putting greater

Respectfully yours,

focus on allocation of resources, including during
the post-EPC phase of our projects, more emphasis on environment-friendly facilities and methodologies and the use of artificial intelligence (AI) to
increase efficiency and effectiveness;

05

August 201706

CHIYODA CORPORATIONANNUAL REPORT FY2016

Key Management Issues over the Medium Term

“MIRAI ENGINEERING”
Chiyoda Group has released a new medium-term management plan,“MIRAI ENGINEERING—A GRAND OPPORTUNITY FOR THE FUTURE” for the period
starting from fiscal year 2017 to 2020 (the MTMP). The aim of the MTMP is for Chiyoda
Group to be a global top-tier “Integrated Engineering and Service Provider” in the fields ofenergy and environment.

1

Assessment of the previous
medium-term management plan2

New medium-term
management plan(the previous MTMP)
The previous MTMP during the period

Given macrotrends such as changes infrom ﬁscal year 2013 to 2016 was

the supply and demand structure for

executed and, as a result, the Chiyoda

energy, heightened awareness of theGroup maintained its No. 1 position in

global environment and digital

LNG and steadily progressed in new

innovation driving changes in industrial

business areas including life scienceand new energy. However, the Chiyoda
Group now faces challenges such as
redeﬁning the business portfolio,
including offshore and upstream, andfurther strengthening risk
management capabilities.

STRUCTURAL REFORM(1) Further strengthen risk management
capabilities

fixed costs with the aim of balancing basic earnings

We will strengthen the structure for execution andoperational structure.

consolidated basis. We will also establish a structure(3) Further expand human resource basefor expansion of business fields and the transforma-To reinforce our technical strength and projecttion of the business model.

execution capabilities, we will realign the humanresource development system with a medium- to(2) Increase basic earnings strength andenhance resilience to downturns

long-term outlook and implement optimal assignment

We will seek to expand basic earnings by reinforcing

Through these efforts, we will foster a stronger corpo-

technological strength and project execution capabili-rate culture and foundation with high loyalty and aties and cost competitiveness, reduce consolidated

willingness to pursue new challenges.

of human resources for continuous earnings growth.

GROWTH STRATEGY
two key business fields of “energy” and the “environ-structure, Chiyoda Group will

(1) Expansion of business ﬁelds and transformation of the business model1) provide technological strength and

The fields of EPC, LNG, gas, petroleum, chemicals

diversify our business into investment and service

project execution capabilities, as

and metal resources will remain the Chiyoda Group’s

areas by utilizing innovative digital technologies.

the core value, that achievecore businesses. In addition, we plan to expand thement.” And we aim to innovate EPC execution andharmony between energy and theenvironment;

Energy2) contribute to the development ofa sustainable society;3) and create a corporate

Asset management *2
Gas to Power *3

Present

resonates with all stakeholders

LNG, gas, petroleum,chemicals,
metal resourcesand earns their recognition
and trust.

In the MTMP, we will seek to simultaneously pursue (i) creating a solid management basefor future growth (Structural Reform) and (ii) expanding business ﬁelds and transforming thebusiness model looking ahead 10 years (Growth Strategy).

Maintain core businesses
led by LNG, as well as gas,petroleum, chemicals, andmetal resources

Asset holding *1

management structure that07

and costs, and redefine the domestic and global

profitability management of EPC projects on a

“MIRAI ENGINEERING—A GRAND OPPORTUNITY
FOR THE FUTURE”“SEIZE THE MOMENT,OPEN UP NEW FRONTIERS”—A GRAND OPPORTUNITY FOR THE FUTURE—

Investment &Service

New energy,
industrial facilities,
life sciences

Electric power solution
New energy -related
Hydrogen supply chain
Life science

Innovation of
EPC execution

EPC

Dispersion in energy &energy storage
New materials

Environment

Advance pharmaceutical &medical fields*1. Asset holding: Businesses that gain earnings from holding and managing assets like floater (floating facilities) and onshore plants*2. Asset management: Businesses that gain earnings by providing various technological services to holders of assets*3. Gas to Power: An integrated business of LNG liquefaction, LNG regasification, and power generation

08

CHIYODA CORPORATIONANNUAL REPORT FY2016

Key Management Issues over the Medium Term

“MIRAI ENGINEERING”—A GRAND OPPORTUNITY FOR THE FUTURE—(2) Build energy value chain businessenergy), the environment, energy conservation andWe plan to enhance the upstream segment (enter

industrial facilities (technologies that reduceand strengthen ﬂoater business), midstream

environmental impact and conserve energy for

We regard fiscal year 2020 as a milestone for thebusinesses. For the 10 years from fiscal year(comprehensively strengthen and expand LNG

industrial facilities and metal resources fields) andnext 10-year growth strategy, achieving consolidated

2017 (toward fiscal year 2026) and beyond, we

lineup) and downstream (build up orders in petro-

life science (pursue business opportunities andnet profit of ¥20.0 billion with double-digit ROE

look to continue expansion of earnings through theleum, chemicals and metal resources responding tomodels in cellular, tissue and gene therapies).

based on increased earnings strength throughgrowth strategy.

shale and increasing demand from newly developing

structural reform and the strengthening of existing

addition, we aim to move into the asset holding(4) Develop new business model fora digital society

business and asset management business.

For promotion of the use of digital technologies

countries. Also, enter the Gas to Power business). In

QUANTITATIVE TARGETS

Consolidated
net profit

Companywide, innovative EPC execution and(3) Expand global environmental
engineering businessencouraging its application in the asset management

We will increase the contribution to profit with new

resources, partnering with cutting-edge digitalenergy (integration of renewable energy with energy

technology companies and innovating project IT withstorage, electricity storage as well as dispersion

artificial intelligence (AI) and others.

business, we will work on cultivating capable human

FY2020¥20

billionEarnings increase
from the Growth Strategy

Increased earnings strengthfrom Structural Reform andstrengthening of existing businesses
Present

Energy solutions

FY2020In 10 years(FY2026)

Environmental solutions- Build energy value chain business - - Expand global environmental engineering business -INVESTMENT STRATEGY
Our profit distribution policy is to allocate 50% ofconsolidated net profit each fiscal year to investment“Mirai Engineering”
Integrated Engineering & Service to contribute to a sustainable
society creating harmony between Energy and Environment
through combination of CHIYODA’s comprehensive strengths andinnovative digital technologies

Technology andbusiness model innovation- Develop new business model for a digital society -business fields and realize the three growth strategies.
With respect to the investment size, we will set anfor business growth, while maintaining proper

aggregate of roughly ¥30.0 billion to ¥50.0 billion overfinancial health.

four years, using cash on hand in addition to invest-

In terms of investment areas, we will carefully selectprojects that will contribute to reinforcing core

ment funds under the profit distribution policy, on thepremise of thorough investment discipline.

POLICY ON RETURNS TO SHAREHOLDERS
We will strive to achieve a consolidated dividend

growth strategy and the investment strategy together

payout ratio of at least 30% during the MTMP period.

with the operating environment. A minimum full-year

The actual dividend amount each fiscal year will be

dividend of ¥6 per share is set.

determined in consideration of progress under the09

10

CHIYODA CORPORATIONANNUAL REPORT FY2016

FINANCIAL HIGHLIGHTS
Chiyoda is facing major global challenges due to a shift in the supply and demand structure for energy
and increasing consciousness of the environment. These conditions represent an excellent opportunity
to transform the company, aiming to build a business foundation for future growth and combining
expansion plans with a business model supporting growth strategies for the next decade.

A MESSAGE FROM THE CFO—CHIYODA’S FINANCIAL STRATEGIESI was appointed the CFO at Chiyoda Corporation in June 2017,a challenging time for the Company. After a net loss of ¥41.1 billion in
FY2016, mainly due to the ECS investment, revenues and backlog areexpected to decline in FY2017. To deal with these challenges I have

Revenues and Backlog
Billions of yen

Billions of yen

800

1,600

1,416.9611.5
1,072.2

600

900.6
398.9

446.1

481.0

603.7
1,200

1,165.0
430.0
876.8

400

800

200

400

• Revenues remained close to record levels in
FY2015 and FY2016 due to successful projects.
• Lower forecast for FY2017 revenues assumes
limited new contracts but continued contributions
from major ongoing projects.
• The backlog remains robust, about twice theforecast for revenues.

identiﬁed four key missions to carry out. By realizing these, the Chiyoda
Group will reverse downward trends and enhance shareholder value.
As the CFO, I will undertake the following:1

the new Medium-Term Management Plan
2
3

FY2012FY2013

Revenues (left scale)

FY2014FY2015FY2016FY2017(forecast)

Improve the Group’s capital efﬁciency and proﬁtability
Ensure the Company’s ﬁnancial stability tosupport sustainable growth

40Provide ﬁnancial support to implement

0

Enhance communication with stakeholders

Hirotsugu Hayashi
Senior Executive Vice President & CFO

Backlog (right scale)Speciﬁcs of those initiatives include:

Proﬁt (Loss) Attributable to Owners of Parent
Billions of yen
20• A loss attributable to owners of parent of ¥41.1
billion for FY2016 was largely due to the ECS-related
extraordinary loss in the third quarter.

16.1
13.4
11.0

10

5.0

3.4
−41.1
0

FY2012FY2013

FY2014FY2015FY2016FY2017(forecast)• In FY2017, Chiyoda launched the new Medium
Term Management Plan, “MIRAI ENGINEERING—A GRAND OPPORTUNITY FOR THE FUTURE,”
a business portfolio in alignment with the Company’s structural reforms and strategies ensuring
further growth.
• Chiyoda forecasts profit attributable to owners ofparent of ¥5 billion for FY2017, getting back on a
profitable path.

Dividends
Yen
20• In FY2016, Chiyoda paid an annual dividend of ¥6
per share.

19
16

15

• Chiyoda will maintain a payout ratio of at least 30%
for the next four years (MTMP period) and aminimum full-year dividend of ¥6 per share.

13
10

10

6

6

FY2016FY2017(forecast)

5

0

11

FY2012FY2013

FY2014FY2015• Chiyoda determines the dividend amount eachfiscal year in consideration of progress under
growth and investment strategies and the operating
environment.

1. Financial support for the new Medium-Term Management Plan

• The new Medium-Term Management Plan develops a business strategy that focuses on areas where
Chiyoda has a distinct competitive advantage and prioritizes areas with the highest potential.
• Providing adequate financial support to implement this business strategy is a key to the plan’s success.
• Using enhanced risk management techniques is essential for creating optimum opportunities.
2. Capital efﬁciency and proﬁtability• Emphasize capital efficiency as a strong lever for future success.
• Create a lean operating structure capable of dealing with challenging market conditions while
delivering profitability.
• Evaluate returns to ensure management resources are being used to best advantage.
• Prioritize investment in opportunities with the highest potential.
• Focus on managing business on a Groupwide basis to maximize the soundness and profitability of
Chiyoda as an integrated group.
3. Financial position• With a core business of LNG and other plant construction, it is important to have abundant liquidity and asolid financial position.
• Recognize that the Company’s strong financial position supports high-level operating capabilities.
• Maintain an optimum capital policy and financial strategy that provide a pathway to sustainable future growth.
4. Communication with stakeholders• Strengthen our communication with stakeholders both inside and outside the Company.
• Listen and respond to shareholder concerns, both at the executive level and through our IR team.
• Communication with stakeholders inside the company is a key to implementing the business and financial strategy.
• Improve the transparency of corporate governance.
Together, these policies can enhance our corporate values, especially when leveraging the Group’s naturalsynergies on a global basis.

12

CHIYODA CORPORATIONANNUAL REPORT FY2016

BUSINESS OVERVIEWThe Company has developed a wealth of skills and experiences over the last decades in this highly
challenging industry. The world-class services offered by Chiyoda are supported by extensive technologicalexpertise in pursuit of “Energy and the Environment in Harmony.” The industry is highly complex, requiring along-term commitment of capital, human resources, know-how and experience, and the ability to develop
technological superiority at all levels of the business. Chiyoda Corporation meets those goals.

OUR CONSOLIDATED BUSINESS
During the fiscal year ended March 31, 2017, global

advantage for future projects, taking strategic steps

through its U.K. subsidiary, Xodus Group Ltd., toconfidence remained under pressure, adverselythat included participation in the design of highly

clients in Japan and worldwide.

affected by the protracted civil war in Syria andfeasible expansion projects.

On a consolidated basis, new contracts totaled

The consolidated backlog of contracts currently

Meanwhile, the Chiyoda Group posted unanticipat-¥351.8 billion in the latest fiscal year (down 12.8%

stands at approximately ¥900 billion. The Group

world. The global economy also underperformed, due

ed non-operating expenses and an extraordinary loss

from the previous fiscal year). The contract backlog

will continue to make steady progress on current

to the impact on macroeconomics. Chiyoda’s

in the first nine months of the fiscal year, due tototaled ¥876.8 billion (down 24.7% year on year); net

contracts including LNG projects in Australia, theoperating conditions remained challenging in a time

operating difficulties at EMAS CHIYODA Subsea Ltd.

sales of completed construction contracts reached

U.S., Indonesia and Russia while consideringof a changing global business landscape.

(ECS). ECS is a provider of engineering, procurement,¥603.7 billion (down 1.2% year on year); and operatingslight delays of new investment in large-scaleconstruction and installation (EPCI) services forincome amounted to ¥15.7 billion (down 2.1% year on

LNG projects. The Chiyoda Group will also focus

during 2016 but oil prices have yet to make a defined,

subsea projects that received investment capital fromyear). In comparison with consolidated ordinaryon new business in pharmaceuticals, theconsistent recovery. Also, market observers believe

Chiyoda Corporation in March 2016. Market condi-

income of ¥16.2 billion recorded in the previous fiscal

environment and alternative forms of energy.

that liquefied natural gas (LNG) remains in oversupply.

tions, as previously discussed, were difficult and grew

year, the Group suffered a consolidated ordinary loss

Under these operating conditions and on a

Combined, these two factors are acting as a brake on

significantly worse during the course of the fiscal year.

of ¥3.1 billion, mainly attributable to the extraordinary

consolidated basis, the Company forecasts new

final investment decisions in large new projects

In consequence, ECS and its subsidiaries filed forloss at ECS described previously. The Group also

contracts of ¥350.0 billion, operating income ofaround the world, a key element for Chiyoda’s

protection under Chapter 11 of the U.S. Bankruptcy

posted ¥41.1 billion in consolidated loss attributable to¥8.5 billion, ordinary income of ¥10.0 billion andshort-term outlook. In Japan, however, there are

Code in February 2017 and later obtained confirma-

owners of parent, compared with ¥3.4 billion in

profit attributable to owners of parent of ¥5.0 billion

increasing expectations about the government’s

tion of the proposed reorganization plan from the U.S.

consolidated profit attributable to owners of parent

in the fiscal year ending March 31, 2018, assuming

recent economic measures, and it is hoped that

Bankruptcy Court, Southern District of Texas. Underachieved in the previous fiscal year.

an exchange rate of ¥110 to the U.S. dollar.

capital investment plans will begin to accelerate.

the reorganization plan, ECS is now wholly owned byrepeated terrorist attacks in several parts of the

For example, OPEC members cut production

The Chiyoda Group deeply regrets reporting these

Subsea 7 S.A. Going forward, Chiyoda will holdresults, which are substantially lower than the forecasts

existing construction projects for LNG, a corediscussions with partners, including Subsea 7, about

announced at the beginning of the fiscal year. The Group

operating area for the Group, progressed smoothly,

the development of its offshore and upstream

is determined to improve its assessment of investment

notably in the U.S., Australia and Russia. In addition,business, using the knowledge gained from the ECS

projects and regain the trust of shareholders through thethe Chiyoda Group received a new order fromexperience. In addition, Chiyoda will continue tosuccessful management of its businesses.

Indonesia. The Group also maintained its competitive

provide offshore and upstream consulting services

Despite the sluggish environment, activity in

Yamal Tianjin Office, Tianjin

13

Outlook for the next ﬁscal year

Courtesy of ExxonMobil PNG Limited

CIMIC CMO Co., Ltd.

14

CHIYODA CORPORATIONANNUAL REPORT FY2016

LNG PLANTS & OTHER GAS-RELATED WORKREFINERIES/PETROCHEMICALS/METALSNatural gas consumption has increased rapidly in recent years due to its abundance, relatively low

Beyond basic refining, the petrochemical industry produces a wide variety of chemical products fromcost and environmentally friendly nature. Transportation of natural gas presents major technological

the raw materials of petroleum, natural gas, LPG and other hydrocarbons. Chiyoda Corporation has beenchallenges and a critical infrastructure has been developed to accommodate the needs of liquefaction

engaged in the design and construction of ethylene plants and many other downstream petrochemical

and regasification. Chiyoda Corporation is one of the world’s leading companies in the design,and chemical plants for several decades. Originally focused on the Japanese market, the Company’splanning and procurement, construction, installation and management of these vital LNG facilities.

achievements now include one of the world’s largest ethylene plants, built in the Middle East.

Overseas — The Chiyoda Group completed

Strategy for future LNG projects — As the global

Overseas — The Group completed an oil refinery

Japan — The Group continues to focus on working

front-end engineering and design (FEED) work forleader in LNG plant construction, the Group is

project in Qatar in December 2016, and finished EPC

with petroleum companies, modifying existing

LNG plants in the U.S. and Russia. Currently, thedetermined to stay ahead of the competition,

work for an oil refinery and petrochemical complex infacilities in accordance with directives that emphasize

Group is undertaking engineering, procurement andregardless of short-term market conditions. Consid-

Vietnam. Projects currently under way include

the safety, resilience and quality of life of the Japa-

construction (EPC) work in Australia, the U.S., Russia

ering new opportunities, the Chiyoda Group willengineering, procurement, construction and commis-

nese people by enhancing the energy efficiency ofand Indonesia and is continuing pre-contract work incompete strongly for new projects in the U.S.,

sioning (EPCC) work for a residue ﬂuid catalytic

these facilities and preventing the deterioration of theMozambique, where it was selected as an EPC

Canada, Russia and East Africa through its early

cracking project and EPC work for petrochemical

country’s petrochemical plants.

contractor. Group companies are also performing

planning capabilities, placing the Group in a strongtank terminal facilities, both in Malaysia. In addition,engineering, procurement and construction manage-

position once the projects are officially launched.

the Group is engaged in project management forment (EPCM) work to modify and revamp existingrefineries, chemical production and other down-

LNG and gas processing plants that were previously

Outlookbuilt by the Company, in addition to EPC work at
helium production facilities in Qatar.

Given the currently stagnant energy prices andOutlookstream projects in Asia, operating under long-term• Focus on expanding downstream projects in thecontracts, and is conducting EPC work for a titanium

U.S. and copper smelter projects in Indonesia

sponge plant in Saudi Arabia.

• Receive modification/expansion projects for

imbalances in supply and demand, Chiyoda

existing refineries and petrochemical complexes

Japan — The Group is performing EPC work to

Corporation’s clients remain cautious about final(domestic businesses)

modify and revamp the LNG receiving terminals built

investment decisions in large new projects.

by the Company.

Nevertheless, in the medium to long term, it isquite clear that LNG usage, and therefore

Recent achievements — Despite the limited

demand, will continue to increase, driven by anumber of new projects launched in 2016, Chiyoda

society dedicated to lowering carbon emissions

was awarded an EPC contract for the Tangguh

and accelerating the recent shift from coal to

Expansion Project (Tangguh LNG Train 3) in Indonesia,

gas consumption.

amid strong competition. Construction of large LNG
projects in Russia (Yamal), Australia (Ichthys) and the
U.S. (Cameron and Freeport) progressed smoothly.

LNG Demand Supply(mmtpa)Under Construction
Operational
Demand as of 2017 1Q
Demand as of 2016 3Q
Under Construction as of 2016 3Q
Operational as of 2016 3Q

600

400

200
Courtesy of Qatargas Operating Company Limited
0

15

2008

2010

2015

2020

2025

2030

2035

(Source: Wood Mackenzie)

16

CHIYODA CORPORATIONANNUAL REPORT FY2016

PHARMACEUTICALS/BIOCHEMISTRY/GENERAL CHEMISTRY/ENVIRONMENT/INFRASTRUCTURE

NEW BUSINESS FIELDS

Pharmaceutical and food manufacturing centers require impeccable standards of hygiene and safety

The utilization of renewable energy is essential for the sustainable growth of human society. Hydrogenand depend on highly skilled design and construction experts to provide the proper facilities. Chiyoda

is expected to play a key role in building a low-carbon society for the future. Chiyoda has developed

Corporation’s expertise stretches across boundaries from its core businesses of LNG, petrochemicals

the necessary technology for storing and transporting hydrogen in large volumes, enabling it to be

and pharmaceuticals to a multitude of complex engineering and construction projects, in theliquefied and transported at ambient temperatures and pressure. This world-first technology will

environmental and infrastructure fields.

overturn conventional wisdom regarding the use and functionality of hydrogen.

Overseas — The Chiyoda Group is performing EPC

Other current projects include EPC work for foodwork for a new international airport in Mongolia andthe New Bohol Airport in the Philippines. In the

Offshore and upstream — ECS and its subsidiaries

Artiﬁcial intelligence (AI) technologies — In a field

factories that adhere to the latest safety and hygiene

filed for protection under Chapter 11 of the U.S.

related to digital innovation, the Company establishedstandards; research institutes; and facilities capable

Bankruptcy Code earlier in 2017 and have com-a business alliance agreement with GRID, Inc., one ofenvironment field, the Group is providing the Chiyoda

of handling high-potency pharmacologically active

menced restructuring activities as stated previously.

the leaders in AI technologies in Japan, and started

Thoroughbred 121 (CT-121) Process, a ﬂue gas

agents and therapeutic antibodies, including

Meanwhile, Xodus Group (Holdings) Ltd., thestudies for enhancing the productivity of plants bydesulfurization technology, at coal-fired power plants

cutting-edge production facilities, drug substanceGroup’s strategic alliance partner in Britain, continues

using AI technologies. The Company has started

in high-growth India. The Chiyoda Group is also

plants and biomedicine production facilities.

to provide offshore and upstream expertise to natural

demonstration projects of AI technology application

resource companies and other clients, including

for several clients.

executing a project to demonstrate artificial lightequipment for plants in Dubai, UAE and intends to

Outlookpromote this technology in markets centered on
Russia and the Middle East.
Japan — The Group is performing EPC work forlarge-scale photovoltaic power plants (“mega solar
plants”) in various parts of the country. In anotherexample of Chiyoda’s environmental expertise, theGroup is performing EPC work on a demonstration
plant for bio-jet and diesel fuel production.

• Follow up in the pharmaceutical field including
investigational activities in new and synthetic
drugs, and projects for mega solar plants wherecontinued investments are expected• Continue business development activities invarious fields including environmental protection
for coal-fired power stations, food factories, etc.

design, consulting and other services associated withboth the construction of offshore development facilities
and the safe removal of deteriorated structures. The
continue to develop in the long term, due to theoverwhelming need for stable supplies of energy. The
Group will continue to focus on these business fields
based on Chiyoda’s philosophy of harmony between
energy and the environment.
Hydrogen — In another field related to alternative
forms of energy, the Group is planning a major
demonstration project, scheduled for implementation

Purification

Cell Processing

Outlook

Chiyoda Group takes the view that these fields will

• Refocus business strategy for offshore andupstream fields including Xodus, and restructure ECS• Continue business development activities fordemonstration project targeting commercialization of hydrogen supply chain• Provide new service for enhancing productivity ofplants by utilizing AI and big data technologies

in 2020, that uses hydrogen gas procured in Asia asfuel in Japan. The project is aimed at commercializing
a hydrogen supply chain that uses technologies formassive hydrogen storage and transportation
developed by the Company with the long-term goalof building a society based on hydrogen energy.

I’ROM Group Co., Ltd./ID Pharma Co., Ltd. GMP Vector Manufacturing Plant for Tissue Engineering

17

Demonstration Plant, Koyasu Office & Research Park

18

CHIYODA CORPORATIONANNUAL REPORT FY2016

TOPICS
Chiyoda Corporation constantly searches for ways to leverage its expertise in the adoption ofEnvironmental Technology—SPERA Hydrogen

new businesses and technological applications. Examples of projects currently under way include:

and Flue Gas Desulfurization Technology
Chiyoda attended the Kawasaki International
Eco-Tech Fair 2017, where it showcased Chiyoda’s
SPERA Hydrogen, winner of the Grand Prize at the
Nikkei Global Environmental Technology Awards in2016. Participation in such exhibitions allows Chiyoda
to provide stakeholders with detailed insights into its
activities in the hydrogen field.
Chiyoda is also active in India, a country that suffersfrom severe pollution due to rapid economic growth.
Chiyoda provides ﬂue gas desulfurization technology
for coal-fired power plants to Larsen & Toubro, one ofIndia’s largest heavy industry manufacturers. Chiyoda’s
CT-121 process already enjoys more than a 20%
market share in the Japanese and American coal-fired
power plant markets, countries that operate understrict environmental regulations. Similar activities inIndia should have a significant impact on air pollution
abatement in this rapidly emerging market.

Renewable Jet and Diesel Fuels
In February 2016, Chiyoda signed a construction contract with euglena Co., Ltd. for Japan’s
first pilot plant for bio-jet and diesel fuelproduction. Through construction of this plant(scheduled completion: October 2018) the
Company continues its commitment to thebroad use of bio-jet and diesel fuels in Japanand the associated reduction in greenhousegas emissions.

Hydrogen Storage Tank

Artiﬁcial Intelligence
Looking to optimize technological breakthroughsin big data analysis and artificial intelligence while
delivering solutions to customers, Chiyoda hasestablished a business alliance with GRID, Inc.,a leader in the field of AI. Through this agreement,
made in December 2016, Chiyoda’s engineering
technologies will be merged with GRID’s state-ofthe-art AI technology, allowing Chiyoda to offer
advanced services such as plant operation

Dealing with Challenges in the Field of LNG
The Yamal LNG project currently under way in
Russia faces special challenges. The plant issituated in the Arctic Circle at a latitude of 72
degrees north, experiences lengthy periods
without sun during winter and sees temperatures falling to minus 50 degrees Celsius.
Despite these conditions, construction
continues, including installation of construction modules, some weighing over 6,000 tons,

optimization and enhanced maintenance support.

which have been delivered by boat fromfabrication yards across Asia.
On the other side of the world, steadyprogress is being made on the Freeport LNG
and Cameron LNG projects under way in the
U.S. Combined, these two projects employ
more than 10,000 people. In March, theCameron project reached a record of 20
million man-hours without an accident,
illustrating the commitment of all staff to theCompany’s safety-first policy.

Oil Reﬁnery Projects
The oil refinery in Qatar was completed in
November 2016 and handed over to the client.
This project was a major feat of civil engineering,with 1.2 million cubic meters of soil moved andreplaced at the installation site. Construction
continued throughout high summer, when
workers experienced temperatures exceeding
40 degrees Celsius, causing a host of difficul-

Courtesy of Cameron LNG, LLC
Courtesy of Freeport LNG Development, L.P.

Yamal LNG, Yamal, Russia

ties. However, a concerted effort involving thecustomer, partners and construction contractors
ensured that the project was brought toconclusion without incident.

Courtesy of Qatargas Operating Company Limited

19

20

CHIYODA CORPORATIONANNUAL REPORT FY2016

CHIYODA’S ESG INITIATIVESThe Chiyoda Group has embraced “Energy and Environment in Harmony” since its foundation, understanding thecontribution of such collaboration to the sustainable development of society. We recognize the unique
responsibilities of major corporations in the energy engineering sector, and the obligation to search for businessstrategies that beneﬁt all members of society. In that regard, we promote open, transparent communication with all
our stakeholders about the operations of the Chiyoda Group including its ESG initiatives.

Q How can Chiyoda Corporation continue to add value for all its stakeholders?

Environment• Climate Change• Water Consumption• Biological Diversity• Pollution & Resources• Supply Chain/Environment-oriented Proposals in Project Work

• Maintaining the highest level of customer satisfaction is a key metric at Chiyoda. I believe that we can develop
our relationships with stakeholders through continuous, open and direct dialogues that recognize theirdifferent interests.
• Other key Company objectives include profitable, sustainable growth and enhancement of the Group’s
corporate values. To achieve these, in 2015, we established the “Chiyoda Corporation Corporate Governance
Policy,” designed to enhance the strength and transparency of management. Further, it acts as a constantreminder of the need for a sound corporate governance culture.

Q Chiyoda celebrates its 70th anniversary in 2018. As we reﬂect on Chiyoda’s past, what

Social• Safety, Quality, Environment andInformation Security (SQEI)Management• Labor Standards• Human Rights• Reliability• Supply Chain/Knowledge Sharing• Long-term Contribution to
Local Communities

Environment

So

cia

l

Governance
nce

na
ver

Go

• Enhanced Corporate
Governance Policy• Risk Management• Tax Transparency• Anti-corruption Practices• Enhanced Compliance Program

message would you send to the Company’s stakeholders regarding future development ofcorporate value?

• We want to be seen as a first-class, highly reputable and universally admired, reliable company. By
recognizing diversity and being open to everyone, including employees, customers and all other stakeholders, we set the highest corporate standards.
• Backed by our cutting-edge technologies and engineering expertise in various
businesses, we are dedicated to maintaining our strong presence in the LNG sector
and expanding our contribution to the market.
• We believe that Chiyoda is identified as a company with high accountability,
sustainability and timely project execution. We are eager to further develop ourworldwide reputation for excellence in the years ahead.

Creating Shared Values
An important outcome of a vigorous approach to ESG issues is Creating Shared Value for the Company and its
stakeholders. Creating Shared Value can be deﬁned as the product of Sustainable Growth using Sustainable
Means: the creation of long-term growth for the Company by methods that address important environmental andsocial challenges with corporate governance duly practiced. At the Chiyoda Group, our Shared Value approach isbuilt on a social responsibility-oriented culture that recognizes the risks inherent in the energy engineeringbusiness, and aims to realize “Energy and Environment in Harmony” using all the resources available.

Our Sustainable Development Goals
The Group believes that providing ﬁnancial disclosure and emphasizing compliance are not enough to fulﬁll social
responsibilities under this code, and has decided to integrate the principles of the SDGs into the Company’s pursuit oflong-term, sustainable growth for society. The Group realizes that achievement of these goals requires collaboration
with the government, the private sector and civil society.

Chiyoda supports the SDGs
• Plant Construction & Providing Infrastructure• Cultural Advancement & Support of Communities• Sharing Technical Knowledge & Job Creation• Working in Partnership with Local Communities• Technical Development for a Low-carbon andCarbon-free Society• Environmental Protection & Climate Change Aversion• Stable, Safe, Affordable Energy Production• Effective Use of Natural Resources

21

A MESSAGE FROM MR. SHUICHI WADA,
HEAD OF CORPORATE PLANNING & MANAGEMENT DIVISION• As a market leader in the LNG business and with involvement in “new energy”
businesses, including SPERA Hydrogen®, Chiyoda as a leading integrated engineering company is ready to adapt itself to dynamic changes in the energy market.

Q Communication of the Company’s economic and social values
to stakeholders is important. What are your thoughts about
disclosure of information in the form of an integrated report?

• Our Investor Relations Team regularly engages with the market, giving andgathering information on our corporate performance. In addition, we value
opportunities to provide more detailed information, to talk about ourlonger-term business strategy and the Company’s future development.
• Along with recent changes in senior management, we intend toincrease the number of opportunities to talk to investors, to introduce
the Company’s new leadership and to thoroughly explain thephilosophy and current and future strategies.
• Reﬂecting the above thoughts, we are planning to report in an
integrated approach that gives us the opportunity to present a holistic
look at our organization including aspects of both a financial andnon-financial nature within the context of the markets we serve: ourcustomers, communities, employees and shareholders.

Shuichi Wada
Division Director
Corporate Planning & Management Division

22

CHIYODA CORPORATIONANNUAL REPORT FY2016

OUR INITIATIVES WITH THE ENVIRONMENT
We will continue this domestic demonstration

TECHNOLOGY“Serving Society with Technology” is the philosophy of Chiyoda’s foundation. Bearing this in mind,
we have undertaken research and development, demonstration projects and commercialization ofenergy and advanced environment-related technologies.
Making the most of our strengths as an engineering firm, we are able to take such acomprehensive approach to research and development as it is integrated with process

project, aiming to improve the produced-water

we utilize construction materials and construction

filtering technology that supplies oil more economical-

methods with less of an environmental impact.

ly, increases oil field longevity and decreases theenvironmental burden.
*Produced-water: Formation water produced alongside crude oil and natural gas

development, design and system analysis. With this approach, we have carried out technology
development both on our own and in cooperation with our clients and technology owners, aiming
for commercialization and problem-solving based on society’s ever-changing demands.
We will continue our efforts to contribute to solving new issues including materializing a lowcarbon and carbon-free society.

THE DISSEMINATION OF TECHNOLOGY TO
PREVENT AIR POLLUTION
CT-121 licensing of technology to one ofIndia’s major heavy industry manufacturers
In November 2016, Chiyoda concluded a technology

NEXT-GENERATION CLEAN ENERGY
A demonstration plant for renewable jet anddiesel fuelsWith know-how accumulated through engineering

license agreement with India’s major heavy industry

and the construction of oil refineries, we continue tomanufacturer Larsen & Toubro (L&T) to provide its

collaborate in the commercialization of this technology

proprietary “Chiyoda Thoroughbred 121 (the CT-121)”

As a business partner in the “Domestic Biofueland further contribute to reducing CO2 emissions.

ﬂue gas desulfurization process (FGD) technology forpromotion in the Indian market.

Project,” led by euglena Co. Ltd. (Euglena), we are

ENVIRONMENT-ORIENTED PROPOSALS IN 2016

Site preparation plans that minimize surplus
soil generated after construction
2 Adoption of energy-conserving, low-noise
equipment
3 Pier design optimization plans to reduce jungle
deforestation
1

GREEN PROCUREMENT

Use of portland blast furnace cement (material
designated under the Green Purchasing Law)
2 Use of base coat paint (anticorrosive) (material
designated under the Green Purchasing Law)
3 Use of EM electric wires and cables(eco-friendly material)
1

EFFECTIVE UTILIZATION OF OIL FIELDS
Yabase oil ﬁeld produced-water treatment
demonstration plant

India, which, with its robust and rapid economic

Global energy needs are growing, for one reason,

ment. The demand for FGD plants is increasing

technology owner in the United States, Chevron Lummus

because water production from oil fields increases as

significantly, as the demand for coal is firmly rooted in

Global, Euglena is executing the design, procurement

oil fields age. To maintain high levels of productivity in

its cheap and stable price. While coal-fired thermaland construction according to Japanese standards.

oil and gas production while concurrently abiding by

power provides 42% of the world’s energy, that figure

Led by METI (the Ministry of Economy, Trade andenvironmental regulations, more advanced pro-is expected to reach 44.5% by 2030.

Industry) and MLIT (the Ministry of Land, Infrastructure,

duced-water* treatment technology is needed.

Under these conditions, CT-121, the environmen-

Transport and Tourism), the project aims to switch to

To resolve the problem of produced-watertal technology highly evaluated by L&T, will continueenergy, and the dissemination of hydrogen fuel cell

currently participating in the construction of Japan’s
first renewable jet and diesel fuel demonstration plant(to be completed in October 2018).
Using technology that was introduced by our

Coal accounts for 75% of the power supply ingrowth, is in need of power plants to sustain develop-

TECHNOLOGY DEVELOPMENT OF
HYDROGEN ENERGYSPERA Hydrogen® system receives the top
prize of the Nikkei Global Environmental
Technology Awards
Hydrogen is considered a clean next-generation

biofuel by 2020 to reduce the extent of CO2 emissions.

treatment, the Japan Oil, Gas and Metals National

to meet the demands of India’s economic growthvehicles and ENE-FARM (home-use fuel cells) as well

The international framework of the ICAO (International

Corporation’s project known as “Small-Scale

while helping to resolve its environmental issues.

as practical realization of hydrogen electricity

Civil Aviation Organization) to prevent CO2 emissions

Demonstration of Produced-Water Treatment

from exceeding the 2020 standard means that the needTechnology” is being jointly conducted by fourfor jet biofuel is becoming greater than ever.

companies: the Japan Oil, Gas and Metals National

this respect, it is essential to develop a technology for

Chiyoda approaches the design, procurement andSuch technology has never been available until now.

at the Yabase oil field in Akita Prefecture, with operations

construction stages of every project with consider-

In 2014, we became the first in the world tobegun in March 2017 and planned for seven months.

ation for the environment. Improving on the planscomplete technological development to resolve thisBecause the ceramic membrane filter requires noprovided by our clients and proactively engaging inissue. This system has been named “SPERA,”

pretreatment such as that for coagulation, the use ofenvironmental proposals, we aim to construct plants

meaning “hope” in Latin. There are high expectations

chemicals can be greatly reduced. Further, as thewith a lower environmental impact.

for this technology, which has been highly evaluated

For the project, a demonstration plant was constructed

membrane can be washed and used repeatedly, no

Yabase oil field produced-water treatment verification plant

generation are being promoted by the government. In

ENVIRONMENT-CONSCIOUS ACTIVITIES IN
PROJECT EXECUTION
Environmental Proposals/Green Procurement

Corporation, INPEX, METAWATER and Chiyoda.

23of the Environment’s Green Purchasing Law so that

Over the past five years we have submitted anhydrogen to be “stored” and “transported” in a stablestate and in large quantities like natural gas and oil.

both domestically and internationally, and has received

disposable waste will be generated, reducing the

average of 319 proposals annually. In 2016, 221

numerous technology awards such as the top prize inenvironmental burden. It is expected that the filteredproposals were accepted by our clients. Our project

the Nikkei Global Environmental Technology Awards.

water will be reused as injection water for reservoir

procurement operations are implemented on our

We will continue to meet these high expectations andpressure maintenance in oil fields.

green procurement guidelines based on the Ministry

to contribute to the global environment.
24

CHIYODA CORPORATIONANNUAL REPORT FY2016

CONTRIBUTING TO SOCIETY THROUGH BUSINESSWHY

The social responsibility of engineering ﬁrms is to address issues surrounding society
and provide solutions for those issues. In this respect, we are assigned the mission ofproviding superlative services and products in partnership with our clients, using skills
and expertise accumulated from experience in engineering and constructing plants
and consistently offering services with the full use of cutting-edge technologies.
• Adding value by integrating cutting-edge technologies

HOW• Forming and promoting a culture of safety• Human resource development and technology transfer in countries where wehave projects

five consecutive years, the Chiyoda Group has hosted

training provided in Japan also includes the opportu-

a total of eight graduate students in internships

nity to experience Japanese culture.

involving classroom lectures and on-site inspections

Thus, through engineering training and culturalfor a month and a half. The Japanese government

exchange, we collaborate with countries where plants

also works in close cooperation, fostering engineering

are constructed to help create a basis for theskills and human resource development.

innovation of their industries and technologies as well
as develop their human resources.

Diverse human resource development at
Chiyoda Almana in accordance with the Qatar
National Vision 2030

SAFETY FIRSTBest international safety practices to beneﬁt
project execution

Chiyoda applies the “Safety First” concept to all

DEVELOPING HUMAN RESOURCES WITH
THE GOAL OF ESTABLISHING INDUSTRIALINFRASTRUCTURE
Opening up internships for the Masdar
Institute of Science and Technology (MIST)

our clients. Through the “Design Safety” course, we

Through subsidiary aid granted by the Agency for

Qatar National Vision 2030. Chiyoda Almana

plan to apply the best international safety practices

Natural Resources and Energy in the Ministry of

supports Qatar by nurturing diverse human resources

The Chiyoda Group conducts all activities withdomestically. By promoting such a culture of safety

Economy, Trade and Industry, internships have been

and career development.

“Safety First” as a core value. Furthermore, for ourawareness, Chiyoda will continue to provide safe

provided to the United Arab Emirates’ Masdar Instituteclients, a safe plant is usually their highest priority.

and highly reliable plants to our clients. This willof Science and Technology (MIST), with the Japantional opportunities in the field of hydrocarbon

While some industries apply “destructive testing” ofenable all our employees to be proud of theInternational Cooperation Center (JICE) as the point ofprocessing technology. With the goal of enriching thetheir products (think of crash tests for cars), thisachievements we deliver.

contact. The project was founded with the goal oftechnical experience of those in the field, Chiyoda

promoting fellowship and strengthening cooperation

Almana and Chiyoda Global Headquarters facilitatedbetween Japan and the United Arab Emirates. Within

training programs geared toward RasGas andthe fields of renewable energy, smart communities

Qatargas engineers.

safety standards vary for each country and are

DEVELOPING EXCELLENTHUMAN RESOURCES THROUGHTECHNOLOGY TRANSFER
Deployment of international client training

accept MIST students of UAE nationality, with 2016

important overview of the basic operation of LNG

continually being updated. In addition, each plant’s

In addition to carrying out many international projects,

marking the fifth year so far. After arriving in Japan,

plants to young engineers of Qatargas. We are also

configuration and specifications are unique. There-

the Chiyoda Group also concentrates on developing

MIST interns receive a basic introduction to life inproactively involved with developing human resources

fore, a complete understanding of the relevant codes

human resources in those countries.

Japan. Training is provided for each enterprise. Overin regional communities.

approach would be obviously unacceptable in thedesign of hydrocarbon plants. We verify the safety ofour plant design by incorporating international,
industry and client-based safety standards. However,and standards and the skills to undertake thoroughStarting with the acceptance of trainees from thesafety studies are required when we design a plant.

Kingdom of Saudi Arabia in 1976, followed by training

To deal with the various safety requirements, our25participants in these programs last year was 73. The

and green technology, Japanese companies annually

Our overseas Group companies contribute todeveloping various human resources. Chiyoda
Almana Engineering LLC supports the developmentof human resources, an important aspect of the

In 2016, the company sponsored many educa-

On November 2 and 3, 2016, we presented an

including on-site technical education in the Federal

company offers a “Design Safety Induction Course”

Republic of Nigeria in 1978, collaborative training withthat targets all engineers involved in project execu-

external organizations has been in practice sincetion. To date, over 400 engineers have participated in

1982. The training offered to foreign clients is highly

the course, which begins with consideration of theesteemed both domestically and overseas. The

concept of plant safety. By the end of the course, we

United Arab Emirates joined in 2010, and the State ofplan to have taught participants how to achieve safe

Qatar joined in 2012, while the number of countries

plant design. The participants review relevant caseparticipating in training continues to grow, including

studies, study the work ﬂow and relationships

the Kingdom of Saudi Arabia, the Republic of Korea,

between the various required safety studies, look at

the Republic of Mozambique and the Islamic

how interdisciplinary safety matters are addressed

Republic of Iran. The training provided to foreign

and learn the effects on costs and schedules whenclients can be conducted both in Japan and bysafety studies/activities affect the design of a plant.

dispatching lecturers abroad. The number ofUniversity students of United Arab Emirates' Masdar Institute of

Qatargas professionals at Chiyoda Almana Brownfield Management Masterclass 2016

Science and Technology (MIST)

26

CHIYODA CORPORATIONANNUAL REPORT FY2016

RESPECT FOR HUMAN RIGHTS
Crisis management activity at the ﬁeld ofﬁce
in Yanbu, Kingdom of Saudi Arabia

recognizes the need for changes in work style that reﬂects the development of global human resources

SAFETY FIRST CRISIS MANAGEMENTSUPPORT TO PREPARE FOR ALL
EMERGENCIESBusiness Continuity Plan/Disaster prevention

and respects diversity.

In 2015, the Chiyoda Group formulated a Business

Non LTI for Advanced Metal Industries Cluster andContinuity Plan (BCP). Covering all kinds of disasters,

Toho Titanium Metal Company Limited, we worked

including fires and large earthquakes, disasterwith the client to implement various crisis manage-

prevention practice and BCP training are conducted

ment measures in terms of both hardware andwith the basic principle of “life comes first.”

software to ensure the safety of the client and field

At the Chiyoda Group, human resources are valuable assets. We aim to maintain a corporate culture ofwhich all employees and their families are proud.
The Group operates worldwide and, under an initiative promoted by the Japanese government,

INITIATIVES FOR CHANGES IN WORK STYLE IN FY2016
We have been encouraging reform through changes in our employees’ mindsets and organizational

In 2016, we practiced fire drills from buildings andAt the construction site of a sponge titanium plantthat was mechanically completed in May 2017 with

office staff from around the world.

operations as well as improvements in the operating bases where Chiyoda is 1) a company whose employ-dealing with disrupted transportation networks toees are motivated to continue working on a long-term basis and 2) a company that is continually able tohelp people return home safely in the event of a large

drills several times to ensure prompt evacuation anddevelop its competitiveness and strength.

earthquake. While Chiyoda Global Headquarters

confirm the effectiveness of the Emergency Plan andWe have developed systems for reduced working hours and for leaves of absence for employees

continued its BCP training from last year, training has

Emergency Response System.

constrained by child care or nursing care. Among our achievements in FY2016, we embraced diversity,

expanded on a larger scale to the Koyasu Office &Practical training was carried out while themade the child care and nursing care systems more ﬂexible and introduced a system to afford retired

Research Park and the corporate Group this year. In

difficulty level was continuously raised according toemployees new re-employment opportunities. Additional steps include:

addition, the “Nighttime/Holiday Initial Response

the progress of construction and the number of field

Training” outlines the procedures necessary for theoffice staff.

1) Leaves of absence for employees working in Japan or overseas to be off with their spouses

smooth resumption and execution of business after a2) Re-employment opportunities for people who have left the company for child care, nursing care or to

major crisis. In addition to verifying the safety ofaccompany spouses who have been transferred
3) Work-at-home (teleworking) opportunities on a trial basis (Note: Full-scale introduction was launchedin May 2017.)

As part of this activity, we conducted evacuation

employees, we also strive to ensure the safety of theirfamilies. In the event of a disaster, employees’ family
members will receive e-mails to confirm their safety ifthey are registered on the relevant system.

These steps were taken to secure human resources willing and able to work and to help retired employ-

Further, our Group company Arrowhead Interna-

ees be re-employed when their circumstances change, all enabling us to increase our workforce in an

tional makes all the arrangements for our employees’

effective manner. We will continue to take steps to increase our productivity and competitiveness bybusiness trips. Providing adequate support that puts

promoting such changes in work style.

safety first for the various risks that may occur
between departure and return, the Arrowhead Travel

In FY2016, Chiyoda Corporation received “Kurumin,” a certification for companies recognized for their

Risk Management System (A-TRIMS) provides safer

enthusiastic efforts to cultivate the next generation, granted by the Kanagawa Labor Bureau of the Ministry

and more reliable crisis management. This system

of Health, Labour and Welfare. Companies can gain this certification by achieving the goals specified in theirverifies the itineraries of those traveling overseas andaction plans and by satisfying the criteria set by the bureau.

ensures their safety by thoroughly checking throughChiyoda Corporation obtained the certification after achieving the targets set for the period from April 1,

e-mail and mobile phone. The Group as a whole2010 to March 31, 2015 and for being highly appreciated for the following new initiatives to take from now:

supports stronger crisis management and puts the

BCP Training

safety of employees first.
1) Extending application of a program of shorter working hours to employees with elementary school
children up through the sixth academic year, fostering a better balance between work and child care2) Consideration of ﬂexible work styles
3) Reduction of total working hours by enforcing stoppage of work after 20:00 and on holidays
We will continue our efforts to create an environment where employees can perform to the best of
their potential.

27

28

CHIYODA CORPORATIONANNUAL REPORT FY2016

CHIYODA’S CSR ACTIVITIESCHIYODA’S DIVERSITY
Chiyoda Corporation believes in the philosophy and integrity of diversity in the workplace andactively encourages employees to think and act accordingly.
Ms. Kaoru Nakamura, a Chiyoda employee for 31 years, has been assigned to the position of

Educational support/
Human resource
development• Internships

Operating in

General Manager in the Project Logistics & Construction Planning & Administration Unit. We• Student visits to the company

posed these questions to her:Q What does the issue of “diversity” mean to you?
Particularly in Japan, most people have the impression that diversity is an issue only about women. That is notcorrect. To consider diversity in a large corporation properly is to include, along with gender, nationality, age,the challenged, family care and other issues. The subject of diversity involves everybody, and all of us should
consider discussing this subject.

Q

7 companies

Why should Chiyoda embrace diversity?
Chiyoda has already accepted the philosophy of diversity. Project teams and construction sites are filled withmultinationals working for the common goal of a successful project. At CGH, we respect and value each other,regardless of background or nationality, focusing on the contribution each person makes to Chiyoda’s
success. We enjoy an excellent working environment that enables us to grow individually while improving thequality and efficiency of our business. At the same time, we realize that when we lose people for personalreasons, it is a loss of talent and potential for Chiyoda.
We need to extend the idea of “Diversity & Inclusion” and focus on people within the Company who may
be struggling to care for someone at home or people who feel disadvantaged in their careers because of theirgender or other unfair reason. The first step to the goal of true diversity is not just to provide a framework but
to change our mindset.

Q What can the Change Mindset Task Team achieve?
I have been part of the Change Mindset Task Team for four
years now. Through activities including lectures by visiting
experts and internal discussions, we have offered learning
opportunities about “Diversity for Chiyoda” to all personnel.
We believe one way to improve our diversity might be tochange our working style, by “reforming the way of working(hataraki-kata kaikaku)” to improve our Work/Life Balance. We
hope that with such reforms all employees will achieve a goodwork/life balance of their own regardless of gender, nationality
and so on, and enhance each individual performance, thereby
helping us to realize our corporate goals. This is something wewill be very proud to achieve.

38 students• University lectures

Held at2 universities

General Manager
Project Logistics & Construction
Planning & Administration Unit

37,200 yen(1,860 meals provided)• Eco-cap collection

196,166 caps recycled(providing 228 vaccinations)• Blood donation

Support for people withspecial needs

Assistance to areas
hit by disasters• In-house sale of products made bypeople with special needs (CGH, Koyasu Ofﬁce)• Remittance of donations forearthquakes in Italy, Ecuador and Kumamoto• Employee volunteer dispatching to areas
hit by disasters

270 people

15 gatherings• Japan Philharmonic performance of
Beethoven’s “9th Symphony” concert invitations
provided to those with visual impairments

25 sets
50 people invited

Environmental
Conservation

43 participants
200 trees planted

503 donors

7 visits
70 participants• Providing food to the victims oflarge-scale disasters

500 people• Sale of products from areas hit by disasters(held at CGH, Koyasu Ofﬁce)

10 gatherings• Cleaning operations

Over
29

• Table for Two (meal program)(facilitated domestically by the Chiyoda Group)• Grade school campaign drive• Tree planting

Kaoru Nakamura

Contributions tohealth and welfare

350 participants
30

CHIYODA CORPORATIONANNUAL REPORT FY2016

CORPORATE GOVERNANCE
The Company pledges to constantly strive for sustainable growth and to enhance the corporate values

CHAIRMAN’S MESSAGEof the Chiyoda Group on a mid- to long-term basis. To achieve this goal, the Group established in
October 2015 the “Chiyoda Corporation Corporate Governance Policy,” which developed the Group’s
basic views and guidelines on corporate governance. The Group will continue to actively secure the

CORNERSTONE OF OUR COMMITMENT

We believe a broader range of outside views will

Along with our corporate philosophy, “Energy

enrich the quality of our decision-making

and Environment in Harmony,” the Chiyoda

process. One of Chiyoda’s management

Group, while recognizing its responsibility as anpriorities is having Board Members withCORPORATE GOVERNANCE SYSTEM

Audit and Supervisory Committee

integrated engineering company, reaffirms its

independent views, a policy that we encourage

To further reinforce its corporate governance

The newly established Audit and Supervisorycommitment to the sustainable development ofthroughout our corporate governance in pursuit

structure, the Company has shifted to a “Company

Committee is composed of three directors (includ-

the global society.

of profitable, sustainable growth.

with an Audit and Supervisory Committee.” Theing two independent officers) as Audit and Supervi-

Company has established the Corporate Risksory Committee members who closely monitor the

It is of the highest priority to ensure thesoundness and transparency of its corporate management through the policy.

health and safety of everyone concerned with

KEEP MOVING FORWARD

Management Division, which presides over the

execution of duties of directors and executive

Chiyoda’s activities and to mitigate the environ-

The longest journey begins with a single step.

Compliance Unit, the SQEI (Safety, Quality, Environ-officers. The Audit and Supervisory Committee

mental impact of our global operations. To

This management team is characterized by its

ment and Information Security) Management Unit, themembers attend meetings of the Executive

maintain the highest standards in our businesspotential for development, providing investors

Crisis Management Unit and the Internal Audit Unit.

Committee and express their opinion whenpractices, we have clearly defined policies andwith a long-term opportunity for sustainable

The Corporate Risk Management Division and thenecessary. In addition, their responsibilities include

processes that thoroughly apply to all employ-

returns and continued engagement with all ofInternal Audit Unit report directly to management todeciding the content of resolutions submitted to theees, including management.

our stakeholders. I intend to deepen the trust weraise the quality and transparency of management,

General Meeting of Shareholders, such as thehave cultivated with our stakeholders, and I ask

enable timely responses to stakeholders and reinforce

appointment or dismissal of accounting auditors,

for your continued support in our many endeav-

the risk management and the compliance system.

auditing consolidated financial documents in close

STRONG CORPORATE GOVERNANCEFOR SUSTAINABLE GROWTH

ors ahead.

To ensure speedy and accurate decision-making tocooperation with the accounting auditors andRecently we have seen major changes in thedeal with rapidly changing social and economic

preparing audit reports.

global energy landscape. The energy mix isenvironments, the Company has adopted theshifting, driven by changes in supply andexecutive officer system, which separates the

Executive Ofﬁcer System

demand, technological developments andfunctions of directors, who are responsible for

Where necessary, executive officers cooperate withgrowing environmental concerns. As an

management supervision, from those of executive

outside specialists such as corporate lawyers in

integrated contractor mainly in the hydrocarbon

officers, who are responsible for business operations.

carrying out duties assigned to them at meetings ofand chemical industries, Chiyoda needs to be

By becoming a Company with an Audit and Supervi-

the Board of Directors and the Executive Committee.

ﬂexible in adapting to changes in the businesssory Committee, with new functions, the Company will

Executive officers provide regular progress reports atclimate. To enable swift responses to theimprove and implement the soundness and transpar-

executive officer and Executive Committee meetingschanging environment, the new corporate

ency of management and prompt decision-

attended by directors and corporate auditors.

management is committed to a foundation of

making, and further enhance its corporate value.

REINFORCING INTERNAL CONTROLS

effective leadership, firm governance and

The Board of Directors andMeetings of the Board of Directors

The Chiyoda Group constantly conducts self-

number of external Directors to four, out of 12,

The Board of Directors is composed of 13 directors.

reinforces internal control systems. In addition, its

to provide more diversified, transparent and effi-

Important matters concerning the Company areInternal Audit Unit, as an autonomous unit, performs

cient oversight of the Company’s management.

reported and resolved at meetings of the Board ofevaluations, including auditing the development andDirectors. The Executive Committee, made up of theoperation of a suitable overall internal control

four representative directors, examines mattersframework and constituent components, and submits

Katsuo Nagasaka

before they are submitted for resolution at meetings

reports to the Executive Committee. The unit aims to

Chairman of the Boardof the Board of Directors. It makes decisions about

ensure the establishment of an integrated frameworkbusiness execution matters by unanimous resolution.

of internal controls and a real-time monitoring systemstrong stewardship.
In the 2016 fiscal year, we increased theassessments of existing internal control functions andfor management.
31

32

CHIYODA CORPORATIONANNUAL REPORT FY2016

CORPORATE GOVERNANCE AND INTERNAL CONTROLS

3) Mikio Kobayashi

Submit/Report

Audit/
Supervision

Electionand Representative Director of Ryoshin Credit

ReportService Co., Ltd. and Deputy President andElection

Board of Directors
Directors(excluding Audit and Supervisory
Committee Members)

Election

Supervision

Election

Audit and Supervisory Committee

ReportDirectors (Audit and Supervisory Committee Members)
Survey,Report Request

Submit/Reportfrom an objective and independent perspective.

Mr. Kobayashi has gained experience as President

General Shareholders’ Meeting
Electionsound management through audits conducted

Survey,Report Request

Accounting
Auditor

4) Yukihiro Imadegawa

Representative Director of Japan Property

The Company expects that as a lawyer andSolutions Co., Ltd., after working for Mitsubishi

specialist in corporate legal matters,

UFG Trust and Banking Corporation as an

Mr. Imadegawa will contribute to its soundExecutive Officer. The Company expects that hemanagement through audits conducted from awill build on such experience and contribute to its

professional and objective perspective.

ReportSupervision

Supervision

Audit Referral
Report(advice) Submit/Report

4 Representative
Directors

Executive Ofﬁcers

Scheduled Reports(deliverables, etc.)

Submit/ReportExecutive
Committee

Executive
Ofﬁcer Meeting

Organization
Staffing

Submit/ReportTotal amount of remuneration for Directors and Audit & Supervisory Board Members of the term under review

Compliance
Committee

Internal Controls
Management
Committee

ReportDepartment Internal ControlsGroup
Companies

Business
Execution
Departments(Risk Manager)

No. of persons

Base remuneration(millions of yen)

Performance-based
remuneration(millions of yen)

Remuneration forpurchase oftreasury stock(millions of yen)

Directors(excluding Audit and Supervisory Committee members)

9

219

—

43

Directors(Audit and Supervisory Committee members)

3

43

(N/A)

(N/A)

Audit & Supervisory Board Members

3

13

(N/A)

(N/A)

Internal Audit Unit

Group Operation Unit

Corporate Risk Management Division
SQEI Management Unit
Compliance Unit
Crisis Management Unit (Crisis Manager)

Corporate Planning Unit
Corporate Services Unit, HR* Unit
Finance & Accounting Unit
Legal & Project Audit Unit

Self-Assessment

REMUNERATION FOR DIRECTORS AND AUDIT & SUPERVISORY BOARD MEMBERS*HR: Human Relations

Following are details of the policy on the decision of content of remuneration for directors and the calculation
method thereof as well as the process for deciding such a policy:
The Company’s system of remuneration for directors was established based mainly on performance, sharing
values with shareholders and increasing officers’ motivation and morale toward improving performance. The system
was approved by resolution at the FY2015 Ordinary General Meeting of Shareholders, held on June 23, 2016.

Financial Audit: Important units and arms of the Company: Departments with internal control functions

Category

Remuneration for Directors is 300 million yen orless per annum.

Performance-based
Remuneration

Corresponds to theachievements foreach term

Taking into account the levels of net income anddividend for the consolidated fiscal year underreview and qualitative elements such as the degreeof achievement of management objectives, theamount is kept within 200 million yen or 1% of theamount of profit attributable to owners of parent.

Remuneration forPurchase ofTreasury Stock

Linked to long-term
achievement
improvement

Directors (excluding Outside Directors) acquire
treasury shares of 90 million yen or less per annum
through the Directors Holding Association forcontinuous holding until retirement from positions.

Base Remuneration

Corresponds to roles
and responsibilities

Remuneration for Audit & Supervisory Board
Members is 84 million yen or less per year.

of Mitsubishi Corporation and others, and is very
well versed in a wide range of business fields such

The Company expects that, as an outside director,

as infrastructure including that of oil and gas,

Mr. Tanaka will properly fulfill his duties by drawing

power generation and new energy. He has also

on his abundant knowledge and experience

been involved in the management of investee

acquired from international organizations such ascompanies and business groups in Japan andthose specializing in international energy.

overseas. The Company expects that by leverag-Directors

ing his experience and knowledge, he is capable

2) Hiroshi Sakuma
Mr. Sakuma has served as President of Diamondof carrying out his duties as an outside director.

Audit & Supervisory
Board Members

Outline of System of Remuneration

Corresponds to roles
and responsibilities

Base Remuneration

OUTSIDE DIRECTORS
1) Nobuo Tanaka

Concept of Remuneration

Generating Corporation, Executive Vice President

33

34

CHIYODA CORPORATIONANNUAL REPORT FY2016

DIRECTORS & OFFICERS(As of June 26, 2017)

EXECUTIVE OFFICERSPRESIDENT & CEO

VICE PRESIDENTS

Masaji Santo

Eisuke Oki
Deputy Operations Director, ChAS & Life Science Project Operations

SENIOR EXECUTIVE VICE PRESIDENTS

Arata Sahara
Operations Director, Downstream & Non Hydrocarbon Project Operations

Hirotsugu Hayashi
CFO
Risk Management

Hiroshi Ogawa
Project Operations

EXECUTIVE VICE PRESIDENTS

Masahiko Kojima
Corporate Planning & Management
Operations Director, Offshore & Upstream Project Operations

Mamoru Nakano
Operations Director, Gas & LNG Project Operations No.1
GM, Gas & LNG Project Unit No.1

Toshiyuki Kariya
Deputy Operations Director, Offshore & Upstream Project Operations
GM, Offshore & Upstream Project Unit

Hideaki Tomiku
Technology Development, Investment and Project Operations

Terunobu Iio
Deputy Operations Director, Downstream & Non Hydrocarbon Project
Operations
GM, Downstream & Chemical Project Unit

Jinei Yamaguchi
Deputy Division Director, Corporate Planning & Management Division
GM, Group Operation Unit

Hiroyuki Shimizu
Deputy Operations Director, Gas & LNG Project Operations No. 1

Toshiaki Furugori
Deputy Division Director, Technology & Engineering Division

Hideo Matsui
SENIOR VICE PRESIDENTS

Ryosuke Shimizu
10

9

5

3

11
7

1

12

6

2

8

4

MEMBERS OF THE BOARD

Operations Director,
Technology Development, Investment and Project Operations

REPRESENTATIVE DIRECTORS

Nobuyuki Uchida

Katsuo Nagasaka
2 Masaji Santo
3 Arata Sahara
4 Hirotsugu Hayashi

Project Operations - US Projects
Gas & LNG Project Operations No. 2

DIRECTORS

Akira Fujisawa

1

Masahiko Kojima
6 Ryosuke Shimizu
7 Nobuyuki Uchida
8 Nobuo Tanaka*
9 Hiroshi Sakuma*
5*External director as provided for in Article 2-15 of the Companies Act.

Hiromi Koshizuka
Operations Director, ChAS & Life Science Project Operations
GM, ChAS Marketing Unit

Division Director, Business Development Division
GM, Business Development Unit 2

Masaki Kadono
Deputy Division Director, Global Project Management Division
GM, Project Management Unit

Masakazu Fujiwara
Project Director

Munetaka Horiguchi
Business Development Division

Operations Director, Gas & LNG Project Operations No. 2
GM, Gas & LNG Project Unit No. 2

Masao Ishikawa
Division Director, Technology & Engineering Division

Toshihiro Shimazaki
Deputy Operations Director, Technology Development,
Investment and Project Operations

Yasumitsu Abe
DIRECTOR, AUDIT & SUPERVISORY COMMITTEE MEMBERS

Division Director, Project Logistics & Construction Division

MEMBERS OF THE AUDIT & SUPERVISORY COMMITTEE

Shuichi Wada

10 Mikio Kobayashi*

Division Director, Corporate Planning & Management Division
GM, Corporate Planning Unit

11 Hideaki Takaishi
12 Yukihiro Imadegawa**External director as provided for in Article 2-15 of the Companies Act.

35

Masao Fujiwara
Division Director, Global Project Management Division
GM, Project Administration Unit

36

CHIYODA CORPORATIONANNUAL REPORT FY2016

CORPORATE GOVERNANCEDIALOGUE
Chiyoda’s IR Team brought together Mr. Toshikazu Suzuki, Senior Analyst at Asset Management One, and

Mr. Toshikazu Suzuki

Mr. Nobuo Tanaka

Mr. Toshikazu Suzuki is a Senior Analyst

Mr. Nobuo Tanaka graduated from theat Asset Management One.

University of Tokyo in the field of

AM One is an asset management

economics in 1972, then began his

company that was established as acareer with the Ministry of Economy,

result of integrating DIAM Co., Ltd.,

Trade and Industry (METI). Later, he also

Asset Management Division of Mizuho

became the Director for Science,

Trust & Banking Co., Ltd., Mizuho Asset

Technology and Industry at theManagement Co., Ltd. and Shinko

Organization for Economic Co-operation

Asset Management Co., Ltd. on

and Development (OECD). Before

October 1, 2016.

becoming External Director at Chiyoda

Mr. Nobuo Tanaka, External Director at Chiyoda, for an open dialogue on ESG topics, including Chiyoda’sin June 2016, he was a Japanese official
and the former Executive Director of the

ESG activities, the potential for SPERA Hydrogen as a future form of energy, carbon taxes, Chiyoda’s

International Energy Agency (IEA).

progress on diversiﬁcation and the composition of the Board of Directors. Some extracts follow.

Mr. Suzuki:
How do you evaluate the responsibility of anment, Chiyoda increased the number of externalwith shareholders and investors, for example, on

Mr. Tanaka:

directors to four in the past year.

ESG topics. A high criterion especially for an

An important business approach is the creation of

external director, but also for an internal director,

so-called “shared value” for the Company as wellis whether our action leads to shareholders’as for all its stakeholders. Creating shared value

profits. As an external director, I cannot evaluate

can be defined as the product of sustainable

the business content itself, though I can give an

growth that aims to create long-term growth for the

independent view about the importance of theCompany through actions that are environmentally

Board of Directors’ involvement in terms offriendly and socially responsible. Chiyoda’s

integrating environmental and social sustainability

corporate philosophy to enhance our business ininto corporate practices, increasing regulatory

aiming for harmony between energy and therequirements to disclose ESG risks and strategy,

environment saw the development of SPERA

external director and what do you think of therole of external directors at Board meetings in

Mr. Suzuki:

terms of Chiyoda’s corporate governance?

Various factors link corporate ESG initiatives
and investor demand for information on ESG.
What do you think are the key metrics,

Mr. Tanaka:
The Corporate Governance Code for listed
Japanese companies was facing a major turningachievements and/or future challenges on
ESG for Chiyoda?

point. There is a clear trend toward appointing
external directors, though there are different

Mr. Tanaka:

the trend toward integrated reporting and the aim

Hydrogen®, the world’s first use of technology thatinterpretations about their roles. From my point of

Chiyoda’s management clearly defined ESGof achieving sustainable development goals.

enables the storage and transportation of large

view, the main responsibility of external directors

criteria for transparent progress and achievement

is to provide oversight on management relative towhile consistently incorporating ESG factors intobusiness decisions. Examining management’s

the business. To demonstrate their effectiveness,

performance in terms of business plans andcorporate boards should increase transparency

developing strategies are essential roles. To

and take charge of relations with shareholders.

enhance external directors’ oversight on manage-

Chiyoda’s top management has regular dialogues

volumes of hydrogen gas. Hydrogen is expected to
Mr. Suzuki:
External directors should ensure the effectiveness of the corporate governance function as

the forefront of this exciting opportunity.

at Board of Directors’ meetings. Recently CSV
topic at Japanese companies. What are your37

low-carbon society, and the Chiyoda Group is atthey openly exchange views and experiences(creating shared value) has become a new“It is essential that Directors
keep open a clear line ofcommunication with shareholders.”

play a major role in the future development of thethoughts on Chiyoda’s management objectives toward investors on this topic?

Investor Relations

Engagement

Shareholder
andInvestor

Stewardship

38

CHIYODA CORPORATIONANNUAL REPORT FY2016RISK MANAGEMENT
Risk management is the identification of different types of risk within a company (financial,
operational, etc.) and measures taken to mitigate those risks to an acceptable level.

CORPORATE RISK MANAGEMENT AT CHIYODA

BUSINESS RISKSBusiness risks may significantly impact the Chiyoda Group’s business operations and finances. These risks havethe potential to impact investor decision-making. Recognizing these risks, the Group has implemented risk
mitigation plans to minimize consequences when such events occur.
The risks below are those we recognize as of the date of the fiscal year ended.
(a) Changes in the business environment; economic,
social and political factors
Various factors may require that modifications be made to clients’ investment plans,
project suspension, delay or review. These factors include changes in global
economic, social and political environments, economic sanctions, changes in homecountry energy policies and commodity prices such as oil, LNG and metal
resources prices: All the factors may affect the Group earnings. Changes in
economic, social and political environments for clients, joint venture partners,
subcontractors, suppliers and service providers could affect the Group’s project
execution plans, profitability and, ultimately, its financial strength.The Group
monitors global economic and social trends for a potential impact on business andstrives to reduce such risk through rigorous contract negotiations. Due diligence is
executed for subcontractors, vendors and service providers and remedial action in
the supply chain is taken if necessary.

(b) Earthquakes and natural disasters, terrorism,
wars and other force majeure events

With reference to the rather fresh concept of “Strategic Risk Management,” I should say that,(g) Compliance-related risk

Through this one-team approach, Chiyoda strives to create additional shareholder value in(c) Fluctuations in equipment and material costs(h) Information security risk

Under certain contracts, the Group is exposed to material/equipment cost
ﬂuctuation risk due to the time difference between plant or material quotation andpurchase. Specifically the price of steel, which constitutes a major part of plant
construction, could be severely impacted by a rise in commodity prices such ascoal and iron ore. Future market prices of copper, nickel, aluminum and zinc aresimilarly unpredictable. The Group avoids such risks (or minimizes the impact) bydiversifying supply sources, placing early orders, maintaining alliances with major
vendors/suppliers and identifying market trends.

The Group takes great care in managing information obtained from clients,
subcontractors, equipment and materials suppliers and other service providers.
The information is necessary in the performance of its business. The Group also
possesses confidential information related to technologies, sales, and otherbusinesses. Many core corporate operations and business transactions are
conducted by making full use of the IT systems at global subsidiaries. The Group
operations are subject to system failure, information leakage and loss of importantbusiness information due to infection by computer viruses, external unauthorizedaccess and cyber-attacks. The Group, including the main subsidiaries and global
headquarters, holds an ISMS (Information Security Management System) certificate
and performs competent information security management which includes training,
auditing, and defensive and minimizing measures under its business continuity
plan.

(e) Plant accidents
Safety risk, the consequences of which could be serious for the Group’s operating
capability, is inherent in the construction industry. Safety is of paramountimportance to the Group, reinforced by the maxim “Safety is the Core Value”.

39

Some construction projects may involve payment settlements (subcontractors,
vendors and suppliers) in a currency that does not correspond with the currency
received from the client for the work. In such cases, exchange rate ﬂuctuations canhave an impact on earnings. The Group avoids/minimizes exchange rate risk byreserving construction payments against such risk in multiple foreign currencies
and by entering into exchange rate forward contracts.

Force Majeure events such as earthquakes, natural disasters, terrorism and wars
have the potential to materially impact project sites or business locations.
Disruption issues may include personnel life crisis, delays in equipment andmaterials delivery and/or suspension of field work. The Group puts life and safety
first and has the Crisis Management Unit, to compile and analyze information toprevent human suffering or harm. The Group has established, and is reinforcing, thecrisis management system, which advocates the employment of professional
security advisors in the regions requiring particular attention. Additionally, the Group
maintains the risk management system to rapidly react to various situations and torespond to an emergency immediately, including consulting with the clients and/or
the parties concerned to minimize force majeure risk. The Group has formulated a
Business Continuity Plan (BCP) for unexpected events including as a massive
earthquake to act smoothly in the initial stage and execute priority tasks. In thatway, the Group has been prepared to ensure business continuity by conducting
emergency response training.

A project may experience a delay and a cost impact if sufficient construction labor,
equipment and materials or other resources required for a project cannot be
sufficiently procured. The Group avoids such risk (or minimizes the impact) byapplying diverse construction methods including modular construction, in the areas
where materials and/or adequately qualified labor are scarce and by establishingcommunication and collaboration with reliable subcontractors, vendors andsuppliers. If a plant’s construction is suspended due to labor disputes and the like,the Group minimizes risk by taking appropriate action in cooperation with clientsand the local authorities.

Division Director
Corporate Risk Management Division(f) Exchange rate ﬂuctuations

The Group’s global operations are required to comply with local laws, acts andregulations in the respective countries and regions where its head office,subsidiaries, business offices and construction execution sites are located, both athome and abroad. Penalties or suspicious action resulting from non-compliancecould have a serious impact on a project’s execution or the business operation of
the Group.
To prevent and/or minimize such compliance-related risk, the Group runs
training courses for employees including assembled induction and e-learning.
Those are intended for them to understand and strictly observe the updated laws,
acts, regulations or rules related to its business operations including those forhuman rights and anti-bribery. The Group also makes every effort to comprehend
the present trend of stakeholders including the authorities concerned and clients,
both at home and abroad. Additionally, the Group has incorporated complianceresponse in its operating processes based on its Code of Conduct by establishinga Compliance Committee under the direct control of the Executive Committee andthe Compliance Committee of the Chiyoda Group under its wing, consisting ofGroup company representatives.

(d) Possible shortages of construction
workers/equipment and materials

Yasuyuki Maeda

Through comprehensive Risk Identification and Management procedures,
reinforced by close collaboration with clients, designers, subcontractors andvendors, all the risks are identified at every stage of project delivery, from feasibility
through design and construction, and measures to negate or mitigate the identified
risks are implemented.

(i) Business investment risk
The Group makes business investment to pursue the growth strategy such as theestablishment of a new company or the purchase of the existing company toconstruct a new business model. The Group is exposed to several risks, such aschanges in the business environment, lower earnings obtained than planned, adownturn in business and incurring extra costs. Prior to deciding on business
investment, the Group does assess the feasibility through our standards and rules.
After making an investment, the Group regularly monitors the progress in thebusiness and provide various types of support as necessary, to avoid or minimize
any loss.

at Chiyoda, we ensure that corporate management leaders are able to manage risks and seize
opportunities and to make strategic decisions in business ﬁelds of volatility, uncertainty, complexity andambiguity, based on the well-run “Business Risk Management” by all organizations as described below.
our continuing challenges.

I have been studying the various methodologies aThat concept is illustrated by ISO 31000, an

company can employ to manage business risk,

International standard initiated in Japan. Using thisincluding financial, operational, legal, reputational,

approach, we have created a corporate-wide risk

environmental and social, some identified as shared

map of 97 items, measured by probability, repeatabili-risks and some more specific. In my opinion, one ofty and magnitude of impact, further ranked by priority,

the most effective ways to approach corporate risk

for which individual countermeasures have been

management could be to align the different types ofidentified, subject to regular reviews and updates.

risk with the company’s organizations and functions.

A project manager assesses risks to avoid or to

Chiyoda has taken the unique approach of

mitigate potential negative impact in the execution

dividing business risk into two major categories:

of a project. Exposure to such risks often ends at

Project Risk and Non-Project Risk. This aligns withthe completion of the project contract, thus

our matrix organization, which is divided into two

confining the nature of Project Risk to a specificaxes: Project Operations and Shared Services, eachperiod of time. On the other hand, Non-Project Riskwith six separate divisions. All the divisions within

can be lifetime in its nature and is more closely

these two groups implement an independent risk

related to the sustainability of the Company. The

management approach that directly identifies andsharing of supply services, appointment ofcreates responses to their own specific risks daily.

top-quality engineers and determination to remain

In reality, Project Risk is the larger contributor toat the cutting edge of technology for each project

corporate risk at Chiyoda. But by considering Projectand service we provide should always be efficient

Risk and Non-Project Risk together, the Corporate

and add value. A joint management approach

Risk Management team looks to achieve a balanceacross Project Risk and Non-Project Risk is the key

between risks and opportunities for the Company.

to our success.

40

CHIYODA CORPORATIONANNUAL REPORT FY2016

CORPORATE INFORMATION(As of March 31, 2017)

CORPORATE DATAGLOBAL NETWORK

Chiyoda Global Headquarters	Minato Mirai Grand Central Tower
4-6-2, Minatomirai, Nishi-ku, Yokohama 220-8765, Japan
Tel: (81) 45-225-7777 (voice guidance)
Established

January 20, 1948

Paid-in Capital¥43,396 million

Number of Employees

1,505 (Non-consolidated), 5,367 (Consolidated)

Annual Fiscal Close

March 31

Shareholders’ Meeting

June

Organization Chart(As of April 1, 2017)

Chiyoda’s global network enables project life cycle

construction through to operation and maintenance.

engineering to be offered all over the world. Chiyoda

With a view toward meeting the ever-changing needs

has expanded its network to provide prompt supportof our customers, we offer services by utilizing local

for customers’ business activities on a global scale.

offices and group companies with thorough knowl-

Our services cover the entire life cycles of projects—edge of the latest local and global circumstances infrom planning, engineering, procurement andcountries around the world.

Board of Directors

Sales BaseEngineering Center

Procurement Center

Project Execution BaseOperation Support

Audit & Supervisory Committee

Xodus Group (Holdings) Ltd.

Executive Committee

Milan Representative Office

President

Chiyoda Corporation Netherlands B.V.

Secretarial OfficeInternal Audit Unit

Corporate Risk Management Division

Global Project Management Division

Chiyoda International Corporation
Offshore & Upstream Project Operations

SQEI Management Unit
Compliance Unit

Project Administration Unit
Project Management Unit

Offshore & Upstream Business Development Unit
Offshore & Upstream Strategic Project Development Unit

Crisis Management Unit

IT Management Unit

Offshore & Upstream Project Unit

Global Human Resource Planning Unit
Work Process Innovation Task Team
Chiyoda Global Taskforce Team
Change the Mindset

Beijing Office
Chiyoda Corporation (Shanghai)
UK

The Netherlands

Gas & LNG Project Operations No. 1
Gas & LNG Project Unit No. 1
Strategic Project Development Unit

Iran
Saudi Arabia

Qatar
UAE

China
India

Gas & LNG Project Operations No. 2
Gas & LNG Project Unit No. 2

Corporate Planning & Management DivisionCorporate Planning Unit
IR, PR & CSR Sec.
Corporate Services Unit
Human Relations Unit
Finance & Accounting Unit
Legal & Project Audit Unit
Group Operation Unit

Technology & Engineering Division
Engineering Operation Unit
Gas & LNG Process Engineering Unit
Refinery, Petrochemical &New Energy Process Engineering Unit
Integrity Management Unit
Mechanical Engineering Unit
Control System Engineering Unit
Electrical System &Smart Grid Engineering Unit
Piping Engineering Unit
Civil Engineering Unit

Business Development Division
Strategic Business Planning &Administration Unit

PLC* Planning & Administration Unit
Procurement Unit

Corporate Relations Sec.
Business Development Unit 1
Business Development Unit 2

Construction Unit
Commissioning Unit

* PLC: Project Logistics & Construction** TIP: Technology Development, Investment and Project

41

Project Logistics & Construction Division

Technology Development, Investment andProject Operations
TIP** Planning & Administration Unit
Strategic Business & Investment Management Unit
Hydrogen Supply Chain Development Unit
Green Infrastructure Project Unit
Environmental Project Unit
Technology Development Unit
Research & Development Center

ChAS & Life Science Project Operations
ChAS/Life Science Business Planning & Administration Unit
ChAS Marketing Unit
Advanced Process Engineering Unit
Plant Diagnosis Unit
AI Solution Unit
Consulting Unit
Pharmaceutical Industries Project Unit
Space & Bio Engineering Unit

Korea

Japan
Chiyoda Global Headquarters

USA

MyanmarThailand The Philippines
Chiyoda Philippines Corporation
Malaysia
Singapore
Indonesia

Downstream & Non Hydrocarbon Project Operations
Downstream & Chemical Project Unit
International Downstream and Transport Infrastructure
Project Unit
Metals & Mining Project Unit
Global Collaboration Unit

Korea Representative Office

Chiyoda Tehran Office

Italy

BrazilMozambique

Chiyoda Mozambique Limitada
L&T-Chiyoda Limited

Abu Dhabi Office
Chiyoda-CCC Engineering (Pte.) Limited
Middle East Headquarters Doha Office
Chiyoda Almana Engineering LLC
Chiyoda Petrostar Ltd.

Australia

Chiyoda Oceania Pty. Limited

PT. Chiyoda International Indonesia
Chiyoda Human Resources International (Pte.) Limited
Chiyoda Singapore (Pte.) Limited

Chiyoda Malaysia Sdn. Bhd.
Chiyoda Sarawak Sdn. Bhd.
Chiyoda (Thailand) Limited
Chiyoda & Public Works Co., Ltd.

Chiyoda do Brasil Representações Ltda.

42

CHIYODA CORPORATIONANNUAL REPORT FY2016

STOCK INFORMATION(As of March 31, 2017)

Minato Mirai Grand Central Tower
4-6-2, Minatomirai, Nishi-ku,
Yokohama 220-8765, Japan

Authorized Shares

570,000,000

Capital Stock Issued

260,324,529

Number of Shareholders

20,380

Number of Shares per Unit

1,000

Stock Code

ISIN: JP3528600004
SEDOL1: 6191704 JP
TSE: 6366

Tel: (81)45-225-7777 (voice guidance)

http://www.chiyoda-corp.com/en/

Number of
Shares Owned(Thousands of Shares)

Ratio of
Shares Owned(%)

Mitsubishi Corporation

86,931

33.57

The Master Trust Bank of Japan, Ltd. (Trust account)

20,652

7.97

Japan Trustee Services Bank, Ltd. (Trust account)

11,593

4.48

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

9,033

3.49

Trust & Custody Services Bank, Ltd.

6,631

2.56

Mitsubishi UFJ Trust and Banking Corporation

4,274

1.65

STATE STREET BANK AND TRUST COMPANY

3,707

1.43

Japan Trustee Services Bank, Ltd. (Trust account 9)

3,568

1.38

Japan Trustee Services Bank, Ltd. (Trust account 5)

2,970

1.15

Meiji Yasuda Life Insurance Company

2,265

0.87

Major Shareholders

Breakdown by Shareholder

Total Number of
Shares Issued:

260,325
thousand

MEMO
Financial Institutions
Securities Companies
Other Corporations
Foreign Investors and Others
Individuals and Others

Note: Ratio of Shares Owned excludes treasury shares of 1,351,100.

Monthly Share Price (April 2013 – March 2017)
Share Price (left)

27.81%
3.62%
36.05%
14.29%
18.23%

on the Tokyo Stock Exchange

Volume (right)(Yen)(Thousands of shares)

2,000

150,000

1.500
100,000

1,000

50,000
500

0

0

2013

43

2014

2015

2016

2017

CORPORATE PHILOSOPHY
Enhance our business in aiming for harmony between energy and the environment,
and contribute to the sustainable development of society as an integrated engineering company
through the use of our collective wisdom and painstakingly developed technology.

CONSOLIDATED FINANCIAL STATEMENTS FY2016
For the year ended March 31, 2017, and Independent Auditor’s Report

CHIYODA CORPORATIONCONSOLIDATED FINANCIAL STATEMENTS FY2016

Chiyoda Corporation and Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETS
Consolidated Balance Sheet
March 31, 2017

(March 31, 2017)

Millions of Yen
2017
2016

ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 14)
Short-term investments (Note 14)
Notes and accounts receivable—trade (Note 14)
Costs and estimated earnings on long-term construction
contracts (Notes 4 and 14)
Costs of construction contracts in process
Accounts receivable—other
Jointly controlled assets of joint venture (Note 14)
Deferred tax assets (Note 11)
Prepaid expenses and other (Note 21)
Allowance for doubtful accounts
Total current assets
PROPERTY, PLANT AND EQUIPMENT:Land
Buildings and structures
Machinery and equipment
Tools, furniture and fixtures
Construction in progress
Total
Accumulated depreciation
Net property, plant and equipment
INVESTMENTS AND OTHER ASSETS:
Investment securities (Notes 5 and 14)
Investments in and advances to unconsolidated
subsidiaries and associated companies (Note 7)
Goodwill (Note 6)
SoftwareAsset for retirement benefits (Note 9)
Deferred tax assets (Note 11)
Other assets
Allowance for doubtful accounts
Total investments and other assets

Thousands of
U.S. Dollars(Note 1)2017

CURRENT LIABILITIES:
Short-term borrowings (Notes 8 and 14)
Current portion of long-term debt (Notes 8 and 14)
Notes and accounts payable—trade (Note 14)
Advance receipts on construction contracts
Income taxes payable (Note 14)
Deposits received
Allowance for warranty costs for completed works
Allowance for losses on construction contracts
Provision for loss on business of subsidiaries and associatedcompanies
Accrued expenses and other¥ 138,889
4,483
40,377¥ 136,919
7,795
35,651$ 1,240,081
40,034
360,50919,487
24,2207,761
164,283
9,586
17,696(1,541)33,64435,053
7,112
179,360
12,8898,888(2,285)

173,999
216,257
69,295
1,466,813
85,593
158,006(13,762)425,244455,030

3,796,828

5,266
13,892547
7,236
22
26,965(13,806)

5,266
13,887635
7,439
22
27,251(13,309)47,018124,044
4,888
64,607203
240,763(123,276)

13,158

13,942

117,487

COMMITMENTS AND CONTINGENT LIABILITIES(Notes 8, 13, 15, 16 and 21)

2,748

14,11324,540

5,616
2,051
5,989
84
4,967
1,806
(336)

29,650
3,931
7,079
94
2,894
1,861
(379)

50,14318,31753,481758
44,353
16,126(3,002)

22,92859,247204,718

EQUITY (Notes 10 and 19):
Common stock—authorized, 570,000 thousand shares;
issued, 260,324 thousand shares in 2017 and 2016
Capital surplus
Retained earnings
Treasury stock—at cost, 1,351 thousand shares in 2017 and
1,340 thousand shares in 2016
Accumulated other comprehensive income (loss):
Unrealized gain on available-for-sale securities
Deferred gain (loss) on derivatives under hedge accounting
Foreign currency translation adjustments
Defined retirement benefit plans
Total
Noncontrolling interests

Total current liabilities
LONG-TERM LIABILITIES:Long-term debt (Notes 8 and 14)
Liability for retirement benefits (Note 9)
Provision for treatment of PCB waste
Asset retirement obligations
Other
Total long-term liabilities

Total equity
TOTAL¥ 461,331¥ 528,219

Millions of Yen
2017
2016

LIABILITIES AND EQUITY$ 4,119,033

TOTAL

¥

203
10,023160,096
85,187
668
1,087
319
3,315

¥

333
45
150,078
135,667
2,841
1,209
337
3,160

Thousands of
U.S. Dollars(Note 1)
2017
$

1,819
89,491
1,429,436
760,599
5,972
9,708
2,855
29,59922,91917,36017,432

204,638
155,008

301,182

311,106

2,689,131

30
1,522
338
1,010
121

10,036
2,134
340
996
1,477

275
13,593
3,025
9,018
1,085

3,023

14,98526,99843,396
37,112
72,132

43,396
37,112
115,839

387,467
331,362644,043(1,431)(1,422)(12,777)

379
499
2,656
592
155,339
1,785

2,386
(1,618)4,171
300
200,166
1,961

3,392
4,460
23,722
5,290
1,386,963
15,940157,125

202,128

1,402,903¥ 461,331¥ 528,219$ 4,119,033

See notes to consolidated financial statements.

-2-

01

02

CHIYODA CORPORATION

Chiyoda Corporation and Consolidated Subsidiaries

CONSOLIDATED FINANCIAL STATEMENTS FY2016

Chiyoda Corporation and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF INCOMECONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Years Ended March 31, 2017 and 2016)(Years Ended March 31, 2017 and 2016)

Consolidated Statement of Operations
Year Ended March 31, 2017

Consolidated Statement of Comprehensive Income
Year Ended March 31, 2017

Millions of Yen
2017
2016
REVENUE
COST OF REVENUE
Gross profit
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES(Note 12)
Operating income
OTHER (EXPENSES) INCOME:
Interest and dividend income
Gain on sales of investment securities
Interest expense
Equity in losses of associated companies (Note 7)
Foreign exchange loss
Loss on valuation of investment securities
Impairment loss (Note 6)
Provision for loss on business of subsidiaries andassociated companies (Note 7)
Loss on sales of shares of subsidiaries and associatedcompanies
Other—net

Thousands of
U.S. Dollars(Note 1)
2017

¥ 603,745¥ 611,548$ 5,390,587

565,521570,028

5,049,303

38,223

41,520341,284

22,54325,505201,284

15,68016,015140,000

2,487
1,937
(209)
(17,106)(3,455)
(393)
(766)

2,484
2,686
(216)
(1,318)(665)

22,207
17,296(1,868)(152,733)(30,848)(3,513)(6,839)(4,431)(22,919)(204,638)(1,146)
(477)

(93)

(10,234)(4,262)Other expenses—net(42,048)(1,554)(375,435)(LOSS) INCOME BEFORE INCOME TAXES(26,368)

14,460(235,435)

INCOME TAXES (Note 11):
Current
Deferred

15,026
(143)

8,708
2,255

134,164(1,278)14,883

10,963

132,885(41,251)3,496(368,321)

(135)

121

(1,207)

Total income taxes
NET (LOSS) INCOME
NET (LOSS) INCOME ATTRIBUTABLE TONONCONTROLLING INTERESTS
NET (LOSS) INCOME ATTRIBUTABLE TOOWNERS
OF THE PARENT
ChiyodaCorporation
and Consolidated Subsidiaries¥ (41,116)

¥

3,375

$

Millions of Yen
2017
2016
NET (LOSS) INCOME

Thousands of
U.S. Dollars(Note 1)2017

¥ (41,251)¥ 3,496$ (368,321)(2,006)2,129(1,102)291(451)(4,831)441(1,135)(775)(83)(17,917)
19,017(9,843)
2,603(4,030)(1,139)(6,385)(10,170)

COMPREHENSIVE LOSS

¥ (42,391)¥ (2,888)$ (378,491)

TOTAL COMPREHENSIVE LOSS ATTRIBUTABLE TO:
Owners of the parent
Noncontrolling interests¥ (42,228)(162)¥ (2,844)(44)$ (377,039)(1,452)OTHER COMPREHENSIVE LOSS (Note 17):
Unrealized loss on available-for-sale securities
Deferred gain on derivatives under hedge accounting
Foreign currency translation adjustments
Defined retirement benefit plans
Share of other comprehensive loss of associates
Total other comprehensive loss

See notes to consolidated financial statements.

(367,113)

Consolidated Statement of Operations
Year Ended March 31, 2017

-3PER SHARE OF COMMON STOCK (Notes 2.z and 18):
Basic net (loss) income
Cash dividends applicable to the year2017
¥ (158.76 )
6.00

Yen

2016

U.S. Dollars
2017(Continued)¥ 13.03
10.00$ (1.42 )
0.05

-5-

See notes to consolidated financial statements.
03

04

CHIYODA CORPORATIONCONSOLIDATED FINANCIAL STATEMENTS FY2016

Chiyoda Corporation and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Consolidated Statement of Changes in Equity
Year Ended March 31, 2017

(Years Ended March 31, 2017 and 2016)

Thousands

BALANCE, APRIL 1, 2015
Net income attributable to ownersof the parent
Cash dividends, ¥13.00 per share
Purchase of treasury stock
Net change in the year
BALANCE, MARCH 31, 2016
Net loss attributable to ownersof the parent
Cash dividends, ¥10.00 per share
Purchase of treasury stock
Net change in the year
BALANCE, MARCH 31, 2017

BALANCE, MARCH 31, 2016

Outstanding
Number of
Shares ofCommonStockCommonStockCapitalSurplusRetained
Earnings

Treasury
Stock

Millions of Yen
Accumulated Other Comprehensive Income (Loss)
Unrealized
Deferred Gain
Gain on(Loss) on
ForeignDefinedAvailableDerivatives
Currency
Retirement
Benefitfor-Sale
under Hedge
Translation
Securities
Accounting
Adjustments
Plans

259,001¥ 43,396¥ 37,112¥ 115,831¥ (1,405)¥ 7,218

3,375(3,367)(16)258,984

43,396

37,112

115,839¥ 43,396¥ 37,112¥

72,132

(8)
¥

Total
Equity¥ 1,076¥ 206,395¥ 2,010¥ 208,405

(49)

3,375
(3,367)(16)(6,269)1,961

202,128(4,831)445(1,057)

(775)

3,375
(3,367)(16)(6,219)2,386(1,618)

4,171

300

200,166

291(41,116)(2,589)(8)(1,111)(175)(41,116)(2,589)(8)(1,287)592¥ 155,339¥ 1,785¥ 157,125

Total

Noncontrolling
Interests

Total
Equity$ 2,686$ 1,787,205$ 17,509$ 1,804,714(1,568)(367,113)(23,123)(79)(11,494)$ 15,940$ 1,402,903(2,006)¥ (1,431)¥ 5,229

Noncontrolling
Interests

379

¥

2,118

(1,514)499¥ 2,656¥

CommonStockCapitalSurplusRetained
Earnings

Treasury
Stock

Thousands of U.S. Dollars (Note 1)
Accumulated Other Comprehensive Income (Loss)
Unrealized
Deferred Gain
Gain on(Loss) on
ForeignDefinedAvailableDerivatives
Currency
Retirement
Benefitfor-Sale
under Hedge
Translation
Securities
Accounting
Adjustments
Plans$ 387,467$ 331,362$ 1,034,280$ (12,697)$ 21,309

Net loss attributable to ownersof the parent
Cash dividends, $0.09 per share
Purchase of treasury stock
Net change in the year
BALANCE, MARCH 31, 2017

(1,422)(41,116)(2,589)(11)258,973(16)¥ (2,064)

Total(367,113)(23,123)$ 387,467$ 331,362$

644,043(79)$ (12,777)$ (14,452)(17,917)
$

3,392

$

$ 37,247

18,912(13,524)

2,603(367,113)(23,123)(79)(9,926)

4,460$ 23,722$ 5,290$ 1,386,963

See notes to consolidated financial statements.

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05

06

CHIYODA CORPORATION

Chiyoda Corporation and Consolidated Subsidiaries

Chiyoda Corporation and Consolidated Subsidiaries

Consolidated Statement of Cash Flows
Year Ended March 31, 2017

Consolidated Statement of Cash Flows
Year Ended March 31, 2017

CONSOLIDATED STATEMENTS OF CASH FLOWS(Years Ended March 31, 2017 and 2016)

Millions of Yen
2017
2016
OPERATING ACTIVITIES:(Loss) income before income taxes
Adjustments for:
Income taxes paid
Depreciation
Impairment loss
Amortization of goodwill(Decrease) increase in allowance for doubtful accounts
Decrease in allowance for warranty costs for completed
works
Increase (decrease) in allowance for losses on construction
contracts
Decrease in liability for retirement benefits
Foreign exchange (gain) loss—net
Increase in provision for loss on business of subsidiaries
and associated companies
Loss on sales of shares of subsidiaries and associatedcompanies
Equity in losses of associated companies
Gain on sales of investment securities
Loss on valuation of investment securities
Changes in operating assets and liabilities:
Decrease (increase) in trade notes and accounts
receivable, and costs and estimated earnings onlong-term construction contracts
Decrease in costs of construction contracts in process
Increase in trade notes and accounts payable(Decrease) increase in advance receipts on construction
contracts(Increase) decrease in accounts receivable—other
Decrease in jointly controlled assets of joint venture
Increase in interest and dividend receivable
Other—net
Total adjustments

Thousands of
U.S. Dollars(Note 1)2017

¥ (26,368)¥ 14,460$ (235,435)(13,821)
3,643
766
547
(701)

(1,673)
3,589
4,431
1,256
2,387

(123,409)
32,5296,839
4,886(6,262)

(15)

(21)

(139)

154
(428)
(186)

(826)
(117)
813

1,380
(3,822)(1,665)22,919204,638

1,146
17,106(1,937)393

10,234
152,733(17,296)
3,513

1,318
(2,686)

Net cash (used in) provided by operating activities—(Forward)¥

INVESTING ACTIVITIES:Net decrease (increase) in time deposits
Purchases of property, plant and equipment
Purchases of intangible assets
Payments for purchases of investment securities
Proceeds from sales of investment securities
Payments of loans receivable
Proceeds from collections of loans
Other—net(16,491)
24,543
13,293

72,69596,305
101,798(48,668)(1,901)
13,666(1,029)11
21,993

12,184
5,158
3,501
(812)
(8,781)
41,065(434,543)(16,978)
122,019(9,189)98
196,369(4,375)$¥55,526(39,066)

3,043
(649)
(1,451)(351)
15,554(12,188)
6,382
95(7,739)(806)(1,801)(21,998)
5,463
(382)
489
25

27,170(5,803)(12,963)(3,134)
138,879(108,825)
56,982853

10,433(26,750)

93,159(50)(3)(2,586)
(52)

(498)
(4)
(3,362)
(76)

(450)
(33)
(23,096)(464)(2,693)(3,942)(24,045)

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
ON CASH AND CASH EQUIVALENTS(1,395)(1,159)(12,462)

NET INCREASE IN CASH AND CASH EQUIVALENTS

1,969

23,673

17,584

136,919

113,246

1,222,496¥ 138,889¥ 136,919$ 1,240,081

Net cash provided by (used in) investing
activities
FINANCING ACTIVITIES:Net decrease in short-term borrowings
Repayments of long-term debt
Payments of cash dividends
Other—net
Net cash used in financing activities

8,141
10,786
11,401Millions of Yen
2017
2016

Thousands of
U.S. Dollars(Note 1)
2017

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR
See notes to consolidated financial statements.

Net cash (used in) provided by operating
activities—(Forward)

¥

-7-

07

CONSOLIDATED FINANCIAL STATEMENTS FY2016(4,375)¥ 55,526$(39,066)(Continued)-8-(Concluded)

08

Chiyoda Corporation and Consolidated Subsidiaries

CHIYODA CORPORATIONCONSOLIDATED FINANCIAL STATEMENTS FY2016

Notes to Consolidated
Financial Statements
NOTES
TO CONSOLIDATEDFINANCIAL STATEMENTS
Year Ended March 31, 2017
1.

Most of the foreign consolidated subsidiaries have a December 31 year-end, which is different from that of theCompany. As a result, adjustments have been made for any significant transactions which took place during
the period between the year-end of these subsidiaries and the year-end of the Company.

BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in accordance with the provisions set forthin the Japanese Financial Instruments and Exchange Act and its related accounting regulations and in accordancewith accounting principles generally accepted in Japan ("Japanese GAAP"), which are different in certain respects
as to the application and disclosure requirements of International Financial Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to
the consolidated financial statements issued domestically in order to present them in a form which is more familiar
to readers outside Japan. In addition, certain reclassifications have been made in the 2016 consolidated financial
statements to conform to the classifications used in 2017.

The excess of the cost of acquisition over the fair value of the net assets of an acquired subsidiary at the date ofacquisition is amortized over a period of 5 to 20 years.
All significant intercompany balances and transactions have been eliminated in consolidation. All material
unrealized profit included in assets resulting from transactions within the Group is also eliminated.
b.

Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial
Statements—Under Accounting Standards Board of Japan ("ASBJ") Practical Issues Task Force ("PITF")
No. 18, "Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for theConsolidated Financial Statements," the accounting policies and procedures applied to a parent company andits subsidiaries for similar transactions and events under similar circumstances should in principle be unified
for the preparation of the consolidated financial statements. However, financial statements prepared by foreignsubsidiaries in accordance with either International Financial Reporting Standards or generally accepted
accounting principles in the United States of America (Financial Accounting Standards Board AccountingStandards Codification) tentatively may be used for the consolidation process, except for the following items
that should be adjusted in the consolidation process so that net income is accounted for in accordance withJapanese GAAP, unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of
actuarial gain or loss of pensions that has been recorded in equity through other comprehensive income;(c) expensing capitalized development costs of R&D; and (d) cancellation of the fair value model ofaccounting for property, plant and equipment and investment properties and incorporation of the cost model ofaccounting.

c.

Unification of Accounting Policies Applied to Foreign Associated Companies for the Equity Method—
ASBJ Statement No. 16, "Accounting Standard for Equity Method of Accounting for Investments," requires
adjustments to be made to conform the associate's accounting policies for similar transactions and events undersimilar circumstances to those of the parent company when the associate's financial statements are used inapplying the equity method unless it is impracticable to determine such adjustments. In addition, financial
statements prepared by foreign associated companies in accordance with either International Financial
Reporting Standards or generally accepted accounting principles in the United States of America tentatively
may be used in applying the equity method if the following items are adjusted so that net income is accounted
for in accordance with Japanese GAAP, unless they are not material: (a) amortization of goodwill;(b) scheduled amortization of actuarial gain or loss of pensions that has been recorded in equity through othercomprehensive income; (c) expensing capitalized development costs of R&D; and (d) cancellation of the fairvalue model of accounting for property, plant and equipment and investment properties and incorporation of
the cost model of accounting.

d.

Construction Contracts—Under Japanese GAAP, construction revenue and construction costs are recognizedby the percentage-of-completion method if the outcome of a construction contract can be estimated reliably.
When total construction revenue, total construction costs and the stage of completion of the contract at thebalance sheet date can be reliably measured, the outcome of a construction contract is deemed to be estimatedreliably. If the outcome of a construction contract cannot be reliably estimated, the completed-contract methodshould be applied. When it is probable that the total construction costs will exceed total construction revenue,
an estimated loss on the contract should be immediately recognized by providing for a loss on such
construction contracts.

The consolidated financial statements are stated in Japanese yen, the currency of the country in which Chiyoda
Corporation (the "Company") is incorporated and principally operates. The translations of Japanese yen amounts
into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at therate of ¥112 to $1, the approximate rate of exchange at March 31, 2017. Such translations should not be construed
as representations that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate.
Japanese yen figures less than a million yen are rounded down to the nearest million, except for per share data.
U.S. dollar figures less than a thousand U.S. dollars are rounded down to the nearest thousand, except for per share
data.
2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa.

Consolidation—The consolidated financial statements as of March 31, 2017, include the accounts of theCompany and its 30 (30 in 2016) significant subsidiaries (together, the "Group").
Under the control and influence concepts, those companies in which the Company, directly or indirectly, isable to exercise control over operations are fully consolidated, and those companies over which the Group has
the ability to exercise significant influence are accounted for by the equity method.
Investments in seven (seven in 2016) associated companies are accounted for by the equity method.
Investments in the remaining unconsolidated subsidiaries and associated companies are stated at cost. If theequity method of accounting had been applied to the investments in these companies, the effect on theaccompanying consolidated financial statements would not be material.

-9-- 10 -

09

10

CHIYODA CORPORATIONCONSOLIDATED FINANCIAL STATEMENTS FY2016

Concerning the construction contracts, the Group applies the following accounting methods:k.

Long-Lived Assets—The Group reviews its long-lived assets for impairment whenever events or changes incircumstance indicate the carrying amount of an asset or asset group may not be recoverable. An impairment
loss is recognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted future
cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The
impairment loss would be measured as the amount by which the carrying amount of the asset exceeds its
recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual
disposition of the asset or the net selling price at disposition.

l.

Software—Software for internal use is amortized on a straight-line basis over its estimated useful life (fiveyears at the maximum).

Unbilled costs on contracts, which are accounted for by the completed-contract method, are stated as costsof construction contracts in process.
Payments received in excess of costs and estimated earnings on contracts, which are accounted for by thepercentage-of-completion method, and payments received on the other contracts, are presented as current
liabilities.
Costs of preparation work for unsuccessful proposals and other projects that are not realized are charged toincome, as incurred, and are included in cost of revenue.
e.

Cash Equivalents—Cash equivalents are short-term investments that are readily convertible into cash andexposed to insignificant risk of changes in value. Cash equivalents include time deposits, certificates ofdeposit, and commercial paper, all of which mature or become due within three months of the date ofacquisition.

f.

Short-Term Investments—Short-term investments are time deposits, which will mature three months after thedate of acquisition. Short-term investments are exposed to insignificant risk of changes in value.

g.

Investment Securities—All marketable securities are classified as available-for-sale securities and are reported
at fair value, with unrealized gains and losses, net of applicable taxes, reported in a separate component ofequity. The cost of securities sold is determined based on the moving-average method.
Nonmarketable available-for-sale securities are stated at cost determined by the moving-average method or atamortized cost. For other-than-temporary declines in fair value, investment securities are reduced to net
realizable value by a charge to income.

h.

Jointly Controlled Assets of Joint Venture—The jointly controlled assets of the joint venture consist of jointly
controlled cash recognized based on the Company's share of the venture.

i.

Allowance for Doubtful Accounts—The allowance for doubtful accounts is stated in amounts considered to beappropriate based on the Group's past credit loss experience and an evaluation of potential losses in thereceivables outstanding.

j.

Property, Plant and Equipment—Property, plant and equipment are stated at cost. Depreciation is computedby the declining-balance method, except for buildings owned by the Company and structures acquired on orafter April 1, 2016, that are depreciated using the straight-line method, at rates based on the estimated useful
lives of the assets. The range of useful lives is from 8 to 57 years for buildings and structures, from 4 to 17
years for machinery and equipment, and from 4 to 15 years for tools, furniture, and fixtures. Equipment held
for lease is depreciated by the straight-line method over the respective lease periods.
Pursuant to an amendment to the Corporate Tax Act, the Company adopted ASBJ PITF No. 32, "Practical
Solution on a change in depreciation method due to Tax Reform 2016," and changed its depreciation method
for structures acquired on or after April 1, 2016, from the declining-balance method to the straight-line
method. The effect of this change on profit and loss is immaterial.

- 11 -

11

m. Other Assets—Intangible assets are carried at cost less accumulated amortization, which is calculated by thestraight-line method over their estimated useful lives.
n.

Allowance for Warranty Costs for Completed Work—The allowance for warranty costs for completed work isprovided based on past rate experience.

o.

Allowance for Losses on Construction Contracts—The allowance for losses on construction contracts isprovided for an estimated amount of probable losses to be incurred in future years in respect of construction
projects in progress. When there are losses on completed-contract method applied contracts, the allowance forlosses on construction contracts is offset against the costs of construction contracts in process in the balance
sheet.

p.

Provision for Loss on Business of Subsidiaries and Associated Companies—The provision for loss on
business of subsidiaries and associated companies is provided for an estimated amount of probable losses atthe end of the fiscal year based on consideration of the financial conditions and business results, etc., of thesubsidiaries and associated companies.

q.

Provision for Treatment of PCB Waste—Provision for treatment of PCB (Poly Chlorinated Biphenyl) waste
is provided based on estimated costs of the treatment for PCB products and equipment as well as theircollection and transportation fees.

r.

Retirement and Pension Plans—The Company and consolidated subsidiaries have funded or unfunded
defined benefit pension plans and defined contribution pension plans for employees. Certain consolidated
subsidiaries have defined benefit corporate pension plans or severance lump-sum payment plans, and calculate
retirement benefit expenses by using the simplified method.
The Company and its domestic consolidated subsidiaries account for the liability for retirement benefits basedon the projected benefit obligations and plan assets at the balance sheet date. The projected benefit obligations
are attributed to periods on a benefit formula basis. Actuarial gains and losses are amortized on a straight-line
basis over 10 years within the average remaining service period.
Actuarial gains and losses that are yet to be recognized in profit or loss are recognized within equity(accumulated other comprehensive income), after adjusting for tax effects, are recognized in profit or loss overa certain period no longer than the expected average remaining service period of the employees.

- 12 -

12

CHIYODA CORPORATIONs.

CONSOLIDATED FINANCIAL STATEMENTS FY2016

Asset Retirement Obligations—Under Japanese GAAP, an asset retirement obligation is defined as a legal
obligation imposed either by law or contract that results from the acquisition, construction, development andnormal operation of a tangible fixed asset and is associated with the retirement of such tangible fixed asset.
The asset retirement obligation is recognized as the sum of the discounted cash flows required for the future
asset retirement and is recorded in the period in which the obligation is incurred if a reasonable estimate can be
made. If a reasonable estimate of the asset retirement obligation cannot be made in the period the asset
retirement obligation is incurred, the liability should be recognized when a reasonable estimate of the asset
retirement obligation can be made. Upon initial recognition of a liability for an asset retirement obligation, an
asset retirement cost is capitalized by increasing the carrying amount of the related fixed asset by the amountof the liability. The asset retirement cost is subsequently allocated to expense through depreciation over theremaining useful life of the asset. Over time, the liability is accreted to its present value each period. Any
subsequent revisions to the timing or the amount of the original estimate of undiscounted cash flows arereflected as an adjustment to the carrying amount of the liability and the capitalized amount of the related asset
retirement cost.

t.

Research and Development Costs—Research and development costs are charged to income as incurred.

u.

Leases—Japanese GAAP require that all finance lease transactions be capitalized by recognizing lease assets
and lease obligations in the balance sheet.

Derivative financial instruments are classified and accounted for as follows:(1) All derivatives are recognized as either assets or liabilities and measured at fair value, with gains or losses
recognized in the consolidated statement of operations.
(2) For derivatives used for hedging purposes, if such derivatives qualify for hedge accounting because ofhigh correlation and effectiveness between the hedging instruments and the hedged items, gains or losses
on derivatives are deferred until maturity of the hedged transactions.
Foreign currency forward contracts are utilized to hedge foreign exchange risks. Certain assets and liabilities
on construction contracts denominated in foreign currencies are translated at the contracted rates if the forward
contracts qualify for hedge accounting.
Foreign currency deposits are held to hedge foreign exchange risks derived from forecasted purchases of fixed
assets denominated in foreign currency.
Interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured
at market value but the differential paid or received under the swap agreements is recognized and included ininterest expense.
z.

All other leases are accounted for as operating leases.
v.

Income Taxes—The provision for income taxes is computed based on the pretax income included in the
consolidated statement of operations. The asset and liability approach is used to recognize deferred tax assets
and liabilities for the expected future tax consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted income
tax rates to the temporary differences.

Diluted net income per share reflects the potential dilution that could occur if securities were exercised orconverted into common stock. Diluted net income per share of common stock assumes full conversion of theoutstanding convertible notes and bonds at the beginning of the year (or at the time of issuance) with anapplicable adjustment for related interest expense, net of tax, and full exercise of outstanding warrants.

The Company and its wholly-owned domestic subsidiaries file a tax return under the consolidated
corporate-tax system, which allows companies to base tax payments on the combined profits or losses of theparent company and its wholly-owned domestic subsidiaries.
w.

x.

y.

Foreign Currency Transactions—All short-term and long-term monetary receivables and payables
denominated in foreign currencies are translated into Japanese yen at the exchange rates at the balance sheet
date. Foreign exchange gains and losses from translation are recognized in the consolidated statement ofoperations to the extent that they are not hedged by foreign currency forward contracts.

Diluted net income per share is not disclosed because there was no potential stock having a dilutive effect for
the fiscal years ended March 31, 2017 and 2016.
Cash dividends per share presented in the accompanying consolidated statement of operations are dividends
applicable to the respective fiscal years, including dividends to be paid after the end of the year.
3.

CHANGES IN PRESENTATION

Foreign Currency Financial Statements—Balance sheet accounts of consolidated foreign subsidiaries aretranslated into Japanese yen at the current exchange rate as of the balance sheet date except for equity, which
is translated at the historical rate. Differences arising from such translation are shown as "Foreign currencytranslation adjustments" under accumulated other comprehensive income in a separate component of equity.
Revenue and expense accounts of consolidated foreign subsidiaries are translated into Japanese yen at thecurrent exchange rate as of the balance sheet date.

(Consolidated Balance Sheet)

Derivatives and Hedging Activities—The Group uses derivative financial instruments, including foreign
currency forward contracts and interest swap contracts, as a means of hedging exposure to foreign currency
risks and interest rate risks. The Group does not enter into derivatives for trading or speculative purposes.

(Consolidated Statement of Cash Flows)- 13 -

13

Per Share Information—Basic net income per share is computed by dividing net income available to commonshareholders by the weighted-average number of common shares outstanding for the period, retroactively
adjusted for stock splits.

"Deferred tax assets," included within "Other assets" of the investments and other assets section until the previous
consolidated fiscal year, is separately stated from the fiscal year ended March 31, 2017, as it has exceeded 1% of
the total assets. The prior period consolidated financial statements have been reclassified in accordance with thenew presentation.

"Increase (decrease) in deposits received" included within operating activities, which had previously been
separately presented, is included in "Other" from the fiscal year ended March 31, 2017, as its materiality has
decreased. The prior period consolidated financial statements have been reclassified in accordance with the newpresentation.

- 14 -

14

CHIYODA CORPORATION

4.

CONSOLIDATED FINANCIAL STATEMENTS FY2016

The information for the available-for-sale securities which were sold during the years ended March 31, 2017 and2016, was as follows:

CONSTRUCTION CONTRACTS
Costs and estimated earnings recognized with respect to construction contracts which are accounted for by thepercentage-of-completion method at March 31, 2017 and 2016, were as follows:
Thousands of
U.S. Dollars
2017

Millions of Yen
2017
2016

5.

March 31, 2017

Costs and estimated earnings
Amounts billed¥ 539,987(520,499)¥ 550,114(516,469)$ 4,821,314(4,647,314)

Securities classified as—
Available-for-sale—equity securities

Net

¥

¥

$

March 31, 2016

19,48733,644

173,999¥ 9,962¥ 1,937

Proceeds

Millions of Yen
RealizedGains¥ 5,467¥ 2,686

INVESTMENT SECURITIESInvestment securities at March 31, 2017 and 2016, consisted of the following:

Non-current—Equity securities¥ 2,748

Securities classified as—
Available-for-sale—equity securities

Thousands of
U.S. Dollars
2017

Millions of Yen
2017
2016
¥ 14,113$ 24,540

Cost
Securities classified as—
Available-for-sale—equity securities

Securities classified as—
Available-for-sale—equity securities
Fair
Value

6.

$ 88,947

Impairment loss on long-lived assets for the fiscal year ended March 31, 2017, was as follows:
¥ 680

¥ 421

¥ 1,100

Cost

Millions of Yen
Unrealized
Unrealized
Gains
LossesFair
Value¥ 8,697¥ 3,382¥ 12,080

Cost

Thousands of U.S. Dollars
Unrealized
Unrealized
Gains
LossesMarch 31, 2017

Securities classified as—
Available-for-sale—equity securities$ 17,296

IMPAIRMENT LOSS OF LONG-LIVED ASSETSMarch 31, 2017

March 31, 2016

Securities classified as—
Available-for-sale—equity securities

Realized
LossesThousands of U.S. Dollars
Realized
Realized
Proceeds
Gains
LossesMarch 31, 2017
Millions of Yen
Unrealized
Unrealized
Gains
LossesRealized
LossesMarch 31, 2017

The costs and aggregate fair values of investment securities at March 31, 2017 and 2016, were as follows:$ 6,072- 15 -

15

Proceeds

Millions of Yen
RealizedGains$ 3,759$5

Location
The United Kingdom
Indonesia

Used Status

Categoryof Assets——

Goodwill
Goodwill

Impairment Loss
Thousands ofMillions of Yen
U.S. Dollars
¥ 469
296

$ 4,191
2,647

Regarding the goodwill recorded in the acquisition of the shares of subsidiaries in UK and Indonesia, the Group
concluded that excess earning power have been damaged, as the business plan considered at the time of recognitionof the goodwill is lower than the performance of each business carried out by the Group subsidiaries in UK andIndonesia.

Fair
Value
$ 9,826- 16 -

16

CHIYODA CORPORATIONCONSOLIDATED FINANCIAL STATEMENTS FY2016

Impairment loss on long-lived assets for the fiscal year ended March 31, 2016, was as follows:

Long-term debt at March 31, 2017 and 2016, consisted of the following:

March 31, 2016

Location

Used Status

Category of Assets——

Goodwill

Millions of Yen
2017
2016

Impairment Loss
Thousands ofMillions of Yen
U.S. Dollars¥ 4,431$ 39,217

During the year ended March 31, 2016, the goodwill in relation to the Group subsidiary in UK was impaired in theamount of ¥4,431 million as other expense following a fall in the long term cash flow forecasts resulting from thedecline in the price of oil. The carrying amount of goodwill was written down to its recoverable amount. The
recoverable amount was measured at its value in use and the discount rate used for computation of the present valueof future cash flows was 16.9%.
7.

Thousands of
U.S. Dollars
2017¥ 4,959656¥ 28,957
693$ 44,280
5,862

Total

¥ 5,616¥ 29,650$ 50,143

SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings as of March 31, 2017 and 2016, mainly consisted of notes to banks. The weighted averageinterest rates of short-term borrowings as of March 31, 2017 and 2016, were 2.0% and 1.9%, respectively.

¥ 10,014
67
10,081(45)$ 89,357
409
89,767(89,491)

Long-term debt, less current portion¥¥ 10,036

$

30

275

Millions of Yen

Thousands of
U.S. Dollars

2018
2019
2020
2021
2022
2023 and thereafter¥ 10,004
2$ 89,321
22

1

13

Total

¥ 10,008$ 89,357

Millions of Yen

Thousands of
U.S. Dollars

Commitment-line contracts¥ 15,000$ 133,928

Unused commitments¥ 15,000$ 133,928

Commitment-line contracts at March 31, 2017, were as follows:

EMAS CHIYODA Subsea Limited ("ECS"), an associated company of Chiyoda Corporation accounted for by theequity method, experienced financial hardship, brought about by a greater than anticipated slowdown of the subsea
market, and filed for bankruptcy protection under Chapter 11 of the U.S Bankruptcy Code in February 2017. The
Company recorded its share of ECS's net loss in "equity in losses of associated companies" of ¥15,005 million
during the year ended March 31, 2017. In addition, given the current financial state of ECS and its imminentbankruptcy filing, the Company recognized a "provision for loss on business of subsidiaries and associatedcompanies" of ¥22,919 million during the year ended March 31, 2017, related to loans and guarantee obligation.
8.

¥ 10,008
45
10,053(10,023)

Year Ending
March 31

Investments in and advances to unconsolidated subsidiaries and associated companies at March 31, 2017 and 2016,
were as follows:

Investments
Long-term receivables

Long-term loans principally from banks, due seriallythrough 2024, with interest rates ranging from
1.3% to 2.0% at 2017 and 2016—Unsecured
Obligations under finance leases
Total
Less current portion

Annual maturities of long-term debt, excluding finance leases, at March 31, 2017, were as follows:

INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES AND ASSOCIATEDCOMPANIES

Millions of Yen
2017
2016

Thousands of
U.S. Dollars
2017

9.

RETIREMENT AND PENSION PLANS
The Company and consolidated subsidiaries have funded or unfunded defined benefit pension plans and defined
contribution pension plans for employees.
Under defined benefit corporate pension plans, all of which are funded, employees are entitled to certain lump-sum
payments or pension payments based on cumulated points which are granted in accordance with years ofcontinuous employment, occupational classification and performance evaluation. Under severance lump-sum
payment plans, employees are entitled to certain lump-sum payments based on salary and service period.
Certain consolidated subsidiaries have defined benefit corporate pension plans or severance lump-sum payment
plans, and calculate retirement benefit expenses by using the simplified method.

- 17 -

17- 18 -

18

CHIYODA CORPORATIONCONSOLIDATED FINANCIAL STATEMENTS FY2016(1) The changes in defined benefit obligation for the years ended March 31, 2017 and 2016, were as follows:
Millions of Yen
2017
2016
Balance at beginning of year
Current service cost
Interest cost
Actuarial (gains) losses
Benefits paid
Prior service cost
Others¥ 21,732
1,048
179
(46)
(1,630)

Balance at end of year

Thousands of
U.S. Dollars
2017$ 194,039
9,359
1,598
(415)
(14,553)(25)¥ 22,151
966
228
229
(1,999)32
122¥ 21,257¥ 21,732$ 189,796(231)(4) Reconciliation between the liability recorded in the consolidated balance sheet and the balances of defined
benefit obligation and plan assets:
Millions of Yen
2017
2016
Funded defined benefit obligation
Plan assets
Total
Unfunded defined benefit obligation¥ 22,151(21,245)905
531¥ 22,892(21,429)
1,463
576$ 197,782(189,694)
8,087
4,746

Net liability arising from defined
benefit obligation

¥

¥

$

(2) The changes in plan assets for the years ended March 31, 2017 and 2016, were as follows:
Millions of Yen
2017
2016
Balance at beginning of year
Expected return on plan assets
Actuarial losses (gains)
Contributions from the employer
Benefits paid
Others¥ 20,314
336
126
1,007
(1,614)(41)

Balance at end of year

¥ 20,128¥ 21,815
418
(852)
947
(1,990)(24)¥ 20,314

Thousands of
U.S. Dollars
2017$ 181,377
3,007
1,132
8,992
(14,419)(371)

Millions of Yen
2017
2016
Balance at beginning of year
Benefit costs
Benefits paid
Contribution to the plans
Others

¥ 621
205
(435)
(79)
(2)

¥ 700
288
(97)
(91)
(179)

$ 5,547
1,830(3,889)(706)(25)

Balance at end of year

¥ 308

¥ 621

$ 2,757- 19 -

19

Thousands of
U.S. Dollars
2017

1,437

2,039

Millions of Yen
2017
2016

12,834

Thousands of
U.S. Dollars
2017

Liability for retirement benefits
Asset for retirement benefits¥ 1,522(84)¥ 2,134(94)$ 13,593(758)

Net liability arising from defined
benefit obligation¥ 1,437¥ 2,039$ 12,834(5) The components of net periodic benefit costs for the years ended March 31, 2017 and 2016, were as follows:
Millions of Yen
2017
2016

$ 179,719(3) The changes in the liability recorded in the consolidated balance sheet by using the simplified method for theyears ended March 31, 2017 and 2016, were as follows:

Thousands of
U.S. Dollars
2017

Service cost
Interest cost
Expected return on plan assets
Recognized actuarial losses
Amortization of prior service cost
Benefit costs in simplified method¥ 1,048
179
(336)
243

Net periodic benefit costs

Thousands of
U.S. Dollars
2017
$

205

¥ 966
228
(418)
11
(114)
288

9,359
1,598
(3,007)2,171¥ 1,338¥ 963$ 11,952

1,830(6) Amounts recognized in other comprehensive income (before income tax effect) in respect of defined
retirement benefit plans for the years ended March 31, 2017 and 2016, were as follows:
Millions of Yen
2017
2016
Prior service cost
Actuarial losses (gains)

¥ 412

Total

¥ 412

¥

Thousands of
U.S. Dollars
2017

(146)
(1,070)$ 3,683¥ (1,217)$ 3,683- 20 -

20

CHIYODA CORPORATIONCONSOLIDATED FINANCIAL STATEMENTS FY2016(7) Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect ofdefined retirement benefit plans as of March 31, 2017 and 2016, were as follows:a.

Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to theyear-end dividend upon resolution at the shareholders' meeting. Additionally, for companies that meet certain
criteria, an Audit & Supervisory Board may declare dividends (except for dividends-in-kind) at any time
during the fiscal year if the company has prescribed so in its articles of incorporation. The Board of Directorsof a company with an audit and supervisory committee (as implemented under the Companies Act effective
May 1, 2015) may also declare dividends at any time because such company, by its nature, meets the criteria
under the Companies Act. The Company is organized as a company with an audit and supervisory committee,
effective June 23, 2016. However, the Company does not meet all the above criteria.

Thousands of
U.S. Dollars
2017

Millions of Yen
2017
2016
Unrecognized actuarial gains¥ (805)¥ (393)$ (7,195)

Total¥ (805)¥ (393)$ (7,195)

The Companies Act permits companies to distribute dividends in kind (noncash assets) to shareholders subject
to a certain limitation and additional requirements.

(8) Plan assetsa.

Components of plan assets

Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if thearticles of incorporation of the company so stipulate. The Companies Act provides certain limitations on theamounts available for dividends or the purchase of treasury stock. The limitation is defined as the amountavailable for distribution to the shareholders, but the amount of net assets after dividends must be maintained
at no less than ¥3 million.

Plan assets as of March 31, 2017 and 2016, consisted of the following:

b.

2017

2016

Debt investments
Equity investments
General accounts
Others

29 %
34
25
12

26 %
35
25
13

Total

100 %

100 %

b.

Method of determining the expected rate of return on plan assetsc.

(9) Assumptions used for the years ended March 31, 2017 and 2016, were set forth as follows:

Discount rate
Expected rate of return on plan assets

2017

2016

Mainly 0.7%
Mainly 1.6%

Mainly 0.7%
Mainly 1.9%

(10) Payables to defined contribution plans of the Company and consolidated subsidiaries for the years ended
March 31, 2017 and 2016, were ¥604 million ($5,399 thousand) and ¥653 million, respectively.
EQUITY

Increases/Decreases and Transfer of Common Stock, Reserve, and Surplus
The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve(a component of retained earnings) or as additional paid-in capital (a component of capital surplus), dependingon the equity account charged upon the payment of such dividends, until the aggregate amount of legal reserve
and additional paid-in capital equals 25% of the common stock. Under the Companies Act, the total amount ofadditional paid-in capital and legal reserve may be reversed without limitation. The Companies Act also
provides that common stock, legal reserve, additional paid-in capital, other capital surplus, and retained
earnings can be transferred among the accounts within equity under certain conditions upon resolution of theshareholders.

The expected rate of return on plan assets is determined considering the long-term rates of return which
are expected currently and in the future from the various components of the plan assets.

10.

Dividends

Treasury Stock and Treasury Stock Acquisition Rights
The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stockby resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amountavailable for distribution to the shareholders, which is determined by a specific formula.
Under the Companies Act, stock acquisition rights are presented as a separate component of equity.
The Companies Act also provides that companies can purchase both treasury stock acquisition rights andtreasury stock. Such treasury stock acquisition rights are presented as a separate component of equity or
deducted directly from stock acquisition rights.

Japanese companies are subject to the Companies Act of Japan (the "Companies Act"). The significant provisions
in the Companies Act that affect financial and accounting matters are summarized below:- 21 -

21- 22 -

22

CHIYODA CORPORATION

11.

CONSOLIDATED FINANCIAL STATEMENTS FY2016

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in theaccompanying consolidated statements of operations for the years ended March 31, 2017 and 2016, is as follows:

INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in theaggregate, resulted in normal effective statutory tax rates of approximately 31% and 33% for the years ended March
31, 2017 and 2016, respectively.

Normal effective statutory tax rate
Expenses not deductible for income tax purposes
Nontaxable dividend income
Jointly controlled assets of joint venture
Difference in tax base between corporate income tax and enterprise tax
Change in valuation allowance
Higher income tax rates applicable to subsidiaries
Effect of reduction of income tax rates on deferred tax assets
Equity in losses of associated companies
Other—net

The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred tax assets
and liabilities at March 31, 2017 and 2016, were as follows:
Millions of Yen
2017
2016
Deferred tax assets:
Provision for loss on business of subsidiaries andassociated companies
Tax loss carryforwards
Cost of revenue
Adjustment of percentage of completion for foreign
construction
Allowance for employees' bonus
Allowance for losses on construction contracts
Costs of construction contracts in process
Future deductible depreciation
Allowance for doubtful accounts
Deferred loss on derivatives under hedge accounting
Other
Less valuation allowance
Total

¥

7,008
6,140
5,834
5,427
950
925
767
550
391

4,589
4,737

$

62,57854,82552,09248,459
8,487
8,265
6,849
4,918
3,493

3,055
(15,675)

1,067
970
600
674
610
671
3,428
(1,694)27,285(139,951)

15,37815,655

137,304

226
40
557

987
171

2,023
358
4,974

824

1,159

7,357

¥ 14,554¥ 14,495$ 129,946

Deferred tax liabilities:
Deferred gain on derivatives under hedge accounting
Unrealized gain on available-for-sale securities
Other
Total
Net deferred tax assets¥

Thousands of
U.S. Dollars
2017

Millions of Yen
2017
2016
Current assets—Deferred tax assets
Investments and other assets—Deferred tax assets
Long-term liabilities—Other- 23 -

23¥ 9,586
4,967¥ 12,889
2,894
1,287

$ 85,593
44,353

2016

*

33 %
1
(3)
4
4
16
15
5
2
(1)

Actual effective tax rate76 %* As loss before income taxes is provided, the amount is abbreviated.
New tax reform laws enacted in 2016 in Japan do not impact on effective rates which are used for calculating
deferred tax assets and liabilities, however, there are reclassifications between national tax and local tax. The effectof this change on the consolidated financial statements is immaterial.
12.

RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to income were ¥2,075 million ($18,534 thousand) and ¥1,908 million forthe years ended March 31, 2017 and 2016, respectively.

13.

LEASESThe Group leases certain machinery, computer equipment, and other assets.
Future minimum payments under noncancelable operating leases were as follows:
Millions of Yen
2017
2016

Net deferred tax assets as of March 31, 2017 and 2016, were recorded in the accompanying consolidated balance
sheet as follows:
Thousands of
U.S. Dollars
2017

2017

14.

Due within one year
Due after one year

¥

763
1,730

Total

¥ 2,493

¥

731
1,691

¥ 2,423

Thousands of
U.S. Dollars
2017
$

6,814
15,451$ 22,265

FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES(1) Group Policy for Financial Instruments
The Group uses financial instruments for cash surpluses, if any, invested in low-risk financial assets, such ascommercial paper. For operating capital, the Group uses bank loans. Derivatives are used, not for speculative
purposes, but to manage exposure to the market risk of fluctuation in foreign currency exchange rates andinterest rates.

- 24 -

24

CHIYODA CORPORATIONCONSOLIDATED FINANCIAL STATEMENTS FY2016(2) Nature and Extent of Risks Arising from Financial Instruments
Receivables, such as trade notes and trade accounts, are exposed to customer credit risk. Although receivables
in foreign currencies are exposed to the market risk of fluctuation in foreign currency exchange rates, theposition, net of payables in foreign currencies, is hedged by using foreign currency forward contracts.
Cash equivalents include commercial paper, which have short maturities and are used for cash surpluses.
Short-term investments include time deposits, which will mature three months after the date of acquisition.
Both commercial paper and time deposits are exposed to default risk of the issuing company.
Investment securities are equity securities related to the business, which the Group operates. Marketablesecurities are exposed to the risk of fluctuations in stock prices.
Payment terms of payables, such as trade notes and trade accounts, are generally less than one year. Althoughpayables in foreign currencies are exposed to the market risk of fluctuation in foreign currency exchange rates,
those risks are netted against the balance of receivables denominated in the same foreign currency as noted
above.
Bank loans are used for operating capital. Although they are exposed to the market risks from changes ininterest rates, the risk is hedged by using interest rate swap contracts.
Derivatives are foreign currency forward contracts and interest rate swap contracts, which are used to manage
exposure to market risks from changes in foreign currency exchange rates of receivables and payables, andfrom changes in interest rates, respectively. Please see Notes 2.y and 15 for more details about derivatives.

Foreign currency forward contracts are controlled under internal guidelines. The position related to particularconstruction contracts is identified and is reviewed monthly. Reconciliation of the transaction and balanceswith customers' confirmation replies is made, and the transactions related to foreign currency forward
contracts are executed and accounted for under internal guidelines.
Marketable and investment securities are managed by monitoring the market values and financial position ofissuers on a regular basis. The Group assesses the stock price risk quantitatively so as to account for significant
declines in market value as impairment losses.
Liquidity risk management
Liquidity risk comprises the risk that the Group cannot meet its contractual obligations in full on their maturity
dates. The Group manages its liquidity risk by holding adequate volumes of liquid assets along with timely
adequate financial planning.
(4) Fair Values of Financial Instruments
Fair values of financial instruments are based on quoted prices in active markets. If a quoted price is notavailable, another rational valuation technique is used instead. Also, please see Note 15 for the details of fairvalue for derivatives.
(a) Fair values of financial instruments
March 31, 2017(3) Risk Management for Financial Instruments

Carrying
AmountCredit risk management
Credit risk is the risk of economic loss arising from a counterparty's failure to repay or service debt according
to the contractual terms. The Group manages its credit risk from receivables on the basis of internal guidelines,
which include monitoring of payment terms and balances of major customers to identify the default risk ofcustomers at an early stage.
Commercial paper and time deposits are exposed to insignificant default risk because transactions are limited
to companies with high credit ratings.
With respect to foreign currency forward contracts, the Group limits the counterparties to those derivatives tomajor financial institutions that can bear losses arising from credit risk.
Market risk management (risk of foreign exchange and interest rates)
Foreign currency trade receivables and payables are exposed to market risk resulting from fluctuations inforeign currency exchange rates. Such foreign exchange risk is hedged principally with foreign currency
forward contracts.
Interest expense associated with long-term debts is exposed to market risk resulting from changes in interest
rates. Such risk is hedged by interest rate swap contracts.

- 25 -

25

Millions of Yen
Fair Value

Cash and cash equivalents
Short-term investments
Notes and accounts receivable—trade
Allowance for doubtful accounts*
Costs and estimated earnings onlong-term construction contracts
Jointly controlled assets of joint venture
Investment securities¥ 138,889
4,483
40,377(1,517)¥ 138,889
4,483
40,377(1,517)

19,487
164,283
1,100

19,487
164,283
1,100

Total

¥ 367,104¥ 367,104

Short-term borrowings
Current portion of long-term debt
Notes and accounts payable—trade
Income taxes payable
Long-term debt

¥

¥

Total

¥ 170,977

203
10,004160,096668
4

203
10,028160,096668
4¥ 171,002

Unrealized
Gain (Loss)

¥ 24

¥ 24

- 26 -

26

CHIYODA CORPORATIONCONSOLIDATED FINANCIAL STATEMENTS FY2016

March 31, 2016
Carrying
AmountMillions of Yen
Fair Value

Cash and cash equivalents
Short-term investments
Notes and accounts receivable—trade
Allowance for doubtful accounts*
Costs and estimated earnings onlong-term construction contracts
Jointly controlled assets of joint venture
Investment securities¥ 136,919
7,795
35,651(2,283)¥ 136,919
7,795
35,651(2,283)33,644
179,360
12,08033,644
179,360
12,080Total¥ 403,169¥ 403,169

Short-term borrowings
Current portion of long-term debt
Notes and accounts payable—trade
Income taxes payable
Long-term debt

¥

¥

Total

¥ 163,268

333
5
150,078
2,841
10,009Cash and Cash Equivalents, Short-Term Investments, Notes and Accounts Receivable—Trade, and Costs
and Estimated Earnings on Long-Term Construction Contracts
Unrealized
Gain (Loss)

Jointly Controlled Assets of Joint Venture
The jointly controlled assets of the joint venture consists of cash recognized based on the Company's
share of the venture. The carrying values of jointly controlled assets of the joint venture approximate fairvalue because of their short maturities.
Investment Securities
The fair values of investment securities are measured at the quoted market price of the stock exchange forthe equity instruments. Fair value information for investment securities by classification is included in
Note 5.

333
5150,078
2,841
10,062¥ 52¥ 163,320¥ 52

The above schedules do not include investment securities whose fair value cannot be reliably determined.
Short-Term Borrowings, Notes and Accounts Payable—Trade and Income Taxes Payable
The carrying values of the accounts mentioned above approximate fair value because of their shortmaturities.
Current Portion of Long-Term Debt (Bank Loans) and Long-Term Debt (Bank Loans)

March 31, 2017
Thousands of U.S. Dollars
Carrying
Unrealized
AmountFair Value
Gain (Loss)
Cash and cash equivalents
Short-term investments
Notes and accounts receivable—trade
Allowance for doubtful accounts*
Costs and estimated earnings onlong-term construction contracts
Jointly controlled assets of joint venture
Investment securities$ 1,240,081
40,034
360,509(13,548)$ 1,240,081
40,034
360,509(13,548)

173,999
1,466,813
9,826

173,999
1,466,813
9,826

Total

$ 3,277,716$ 3,277,716

Short-term borrowings
Current portion of long-term debt
Notes and accounts payable—trade
Income taxes payable
Long-term debt

$

$

Total

$ 1,526,586

1,819
89,321
1,429,436
5,972
36

1,819
89,5381,429,436
5,972
36$ 1,526,803* Allowance for doubtful accounts corresponding to trade receivable is deducted.

- 27 -

27

The carrying values of the accounts mentioned above approximate fair value because of their shortmaturities.

The fair value of fixed rate loans is calculated by discounting total principal and interest payments topresent value using a discount rate equal to the rate that would be charged if the loan was newly
borrowed. The fair value of floating rate loans, which are subject to a specific method for interest rate
swaps, is calculated by discounting total principal and interest payments, which are handled together withinterest rate swaps, to present value using a discount rate equal to the rate that would be charged if theloan was newly borrowed.
Derivatives
Fair value information for derivatives is included in Note 15.
(b) Carrying amount of financial instruments whose fair values cannot be reliably determined

$ 217

$ 217

Investment securities that do not have a quoted
market price in an active market
Investments in equity instruments that do nothave a quoted market price in an active market
Investments in unconsolidated subsidiaries andassociated companies that do not have a quoted
market price in an active market

Thousands of
U.S. Dollars
2017

Millions of Yen
2017
2016
¥ 1,645¥

2,030$ 14,690

2

2

23

4,959

28,95744,280The impairment losses on investment securities for the year ended March 31, 2017, were ¥393 million($3,513 thousand).

- 28 -

28

CHIYODA CORPORATIONCONSOLIDATED FINANCIAL STATEMENTS FY2016(5) Maturity Analysis for Financial Assets and Securities with Contractual Maturities
March 31, 2017
Due in1 Yearor Less

15.

Millions of Yen
Due after
Due after
1 Year
5 Years
throughthrough
5 Years
10 Years¥ 138,847
4,483
58,338164,283¥8

Total¥ 365,953¥8

Due in1 Yearor Less

Millions of Yen
Due after
Due after
1 Year
5 Years
throughthrough
5 Years
10 Years

Cash and cash equivalents
Short-term investments
Notes and accounts receivable, and costs andestimated earnings on long-term construction
contracts
Jointly controlled assets of joint venture¥ 136,625
7,795
67,010179,360¥3Total¥ 390,791¥3

March 31, 2017

Derivative Transactions to Which Hedge Accounting Is Not Applied
March 31, 2017

Contract
AmountCash and cash equivalents
Short-term investments
Notes and accounts receivable, and costs andestimated earnings on long-term construction
contracts*
Jointly controlled assets of joint venture

March 31, 2016

DERIVATIVES

Thousands of U.S. Dollars
Due after
Due after
Due in1 Year
5 Years
1 Yearthroughthroughor Less
5 Years
10 Years

Cash and cash equivalents
Short-term investments
Notes and accounts receivable, and costs andestimated earnings on long-term construction
contracts*
Jointly controlled assets of joint venture$ 1,239,712
40,034
520,881
1,466,813

$ 79

Total

$ 3,267,441$ 79Millions of Yen
Contract
AmountFair
Due after
Value
One Year(Loss)

Foreign currency forward contracts:
Selling U.S.$/buying yen
Selling Euro/buying yen
Selling GBP/buying yen
Selling AUD/buying yen
Buying U.S.$/selling yen
Selling U.S.$/buying Euro
Selling U.S.$/buying KRW¥ 42,679
7,071
1,471
6,199
30
166
637

¥ 328

Total

¥ 58,256¥ 358

Unrealized
Gain (Loss)¥ (62)
(5)
(1)
6
(1)
(14)
(25)

¥ (62)
(5)
(1)
6
(1)
(14)
(25)

¥ (103)¥ (103)

Millions of Yen
Contract
AmountFair
Due after
Value
One Year(Loss)

Unrealized
Gain (Loss)

30

March 31, 2016

Contract
AmountForeign currency forward contracts:
Selling U.S.$/buying yen
Selling Euro/buying yen
Selling GBP/buying yen
Selling AUD/buying yen
Selling MYR/buying yen
Buying Euro/selling U.S.$
Buying AUD/selling Euro
Buying U.S.$/selling Euro
Buying AUD/selling GBP
Buying U.S.$/selling GBP¥ 42,188
6,438
5,088
8,665
1,392
98
575
191
1,029
195

¥ 207

Total

¥ 65,863

¥ 221

13

¥ (87)(1)¥ (87)
(1)

23
(55)
(21)
(3)
(1)
6

23
(55)
(21)
(3)
(1)
6

¥ (141)¥ (141)* Allowance for doubtful accounts is deducted.
Please see Note 8 for annual maturities of long-term debt.

- 29 -

29- 30 -

30

CHIYODA CORPORATIONCONSOLIDATED FINANCIAL STATEMENTS FY2016

March 31, 2017

March 31, 2016

Contract
AmountThousands of U.S. Dollars
Contract
AmountFair
Due after
Value
One Year(Loss)

Foreign currency forward contracts:
Selling U.S.$/buying yen
Selling Euro/buying yen
Selling GBP/buying yen
Selling AUD/buying yen
Buying U.S.$/selling yen
Selling U.S.$/buying Euro
Selling U.S.$/buying KRW$ 381,069
63,135
13,13655,351
271
1,490
5,695

$ 2,931

Total$ 520,151$ 3,203271

Unrealized
Gain (Loss)$ (558)
(45)
(9)
60
(10)
(128)
(231)

$ (558)
(45)
(9)
60
(10)
(128)
(231)

Foreign currency forward contracts—
Accounted for under deferred hedge
accounting method:
Selling U.S.$/buying yen
Buying U.S.$/selling yen
Buying Euro/selling yen
Buying Euro/selling U.S.$
Buying KRW/selling U.S.$$ (923)$ (923)Total

Derivative Transactions to Which Hedge Accounting Is Applied

Other*1:
Selling U.S.$/buying yen
Buying U.S.$/selling yen
Buying Euro/selling yen

March 31, 2017

Hedged Item
Foreign currency forward contracts—
Accounted for under deferred hedge
accounting method:
Selling U.S.$/buying yen
Buying U.S.$/selling yen
Buying Euro/selling yen
Buying SEK/selling yen

Foreign currency
forecasted
transaction

Receivables

Total
Interest rate swaps*2 (fixed rate payment,
floating rate receipt)

Long-term debt

Total

Fair
Value
(Loss)

Receivables
PayablesTotal
Interest rate swaps*2 (fixed rate payment,
floating rate receipt)

¥

3,554
237
4
30

¥ 657
141

¥

3,825

¥ 799

¥

519
11

¥

531

¥

6,491
473
302
1,292
1,293

¥

¥

9,852

¥

1,792

¥

415
64
22

¥

22

502

¥

22

¥
Long-term debt

1,465
226
100

¥ 10,000¥ 10,000¥ 10,000¥ 10,000

Fair
Value
(Loss)¥ (266)
(23)
(12)
(106)
33
¥ (376)¥ (28)(6)(1)¥ (37)¥ 10,000¥ 10,000- 31 -

31

Millions of Yen
Contract
AmountContract
Due after
AmountOne Year

Foreign currency
forecasted
transaction

Total

Total
Other*1:
Selling U.S.$/buying yen
Buying Euro/selling yen

Hedged Item

Millions of Yen
Contract
AmountContract
Due after
AmountOne Year- 32 -

32

CHIYODA CORPORATIONCONSOLIDATED FINANCIAL STATEMENTS FY2016

March 31, 201717.
Thousands of U.S. Dollars
Contract
AmountFairContract
Due after
Value
AmountOne Year(Loss)

Hedged Item
Foreign currency forward contracts—
Accounted for under deferred hedge
accounting method:
Selling U.S.$/buying yen
Buying U.S.$/selling yen
Buying Euro/selling yen
Buying SEK/selling yen

Foreign currency
forecasted
transaction

Total
Other*1:
Selling U.S.$/buying yen
Buying Euro/selling yen

Receivables

Total
Interest rate swaps*2 (fixed rate payment,
floating rate receipt)

Long-term debt

$ 31,736
2,117
36
269

$ 5,874
1,260$ 34,160$ 7,135

$

4,638
101

$

4,746

$ (251)
(61)
(5)
(14)
$ (332)*2 Interest rate swap contracts accounted for under a specific method, are treated as part of the hedged long-term
debt and thus their fair values are integrally computed with those of the hedged long-term debt. See Note 14 forthe fair value of long-term debt.
CONTINGENT LIABILITIESMillions of Yen- 33 -

33

Unrealized loss on available-for-sale securities:
Losses arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect
Total
Deferred gain on derivatives under hedge
accounting:
Gains arising during the year
Reclassification adjustments to profit or loss
Adjustment to acquisition cost of assets
Amount before income tax effect
Income tax effect

Total
Defined retirement benefit plans:
Adjustments arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect
Total

At March 31, 2017, the Group had the following contingent liabilities:

Guarantees on employees' housing loans and others
Performance bond for unconsolidated subsidiaries
and associated companies

Millions of Yen
2017
2016

Foreign currency translation adjustments—
Adjustments arising during the year

$ 89,285*1 Foreign currency forward contracts, which are applied to the foreign currency translation at the contract rate of
the assets and liabilities on construction contracts denominated in foreign currencies.

16.

The components of other comprehensive loss for the years ended March 31, 2017 and 2016, were as follows:

Total$ 89,285

Total

OTHER COMPREHENSIVE LOSS

¥

43
1,300

Thousands of
U.S. Dollars$

384
11,608

Share of other comprehensive loss of associates:
Loss arising during the year
Reclassification adjustments to profit or loss
Total
Total other comprehensive loss

Thousands of
U.S. Dollars
2017¥ (1,410)(1,543)(2,954)947¥ (4,365)(2,686)(7,052)2,220$ (12,593)(13,782)(26,375)
8,458¥ (2,006)¥ (4,831)$ (17,917)

¥

895
351
1,780
3,027
(897)

¥

534
202
(80)
656
(214)

$

¥ 2,129¥441$ 19,017¥ (1,102)¥ (1,135)$(9,843)¥ (1,102)¥ (1,135)$(9,843)

¥

169
243
412
(120)

¥ (1,082)(135)(1,217)
441

$

1,512
2,171
3,683
(1,080)

¥

291

¥

(775)

$

2,603

¥ (1,380)
928

¥

(83)

$ (12,323)
8,292

¥

¥

(83)

$

(451)

¥ (1,139)¥ (6,385)

7,998
3,138
15,89827,034(8,017)(4,030)$ (10,170)- 34 -

34

CHIYODA CORPORATION

18.

CONSOLIDATED FINANCIAL STATEMENTS FY2016

NET (LOSS) INCOME PER SHARE

20.

A reconciliation of the differences between basic and diluted net (loss) income per share ("EPS") for the years
ended March 31, 2017 and 2016, was as follows:Year Ended March 31, 2017

Basic EPS—Net loss available
to common shareholders

Millionsof Yen
Net Loss
Attributableto Owners of
the Parent

Thousandsof Shares¥ (41,116)

258,979

Yen

U.S. Dollars

Under Japanese accounting standards, an entity is required to report financial and descriptive information about its
reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet
specified criteria. Operating segments are components of an entity about which separate financial information isavailable and such information is evaluated regularly by the chief operating decision maker in deciding how toallocate resources and in assessing performance. Generally, segment information is required to be reported on thesame basis as is used internally for evaluating operating segment performance and deciding how to allocate
resources to operating segments.
(1) Description of Reportable Segments

WeightedAverage
SharesEPS¥ (158.76 )$ (1.42 )There is no dilutive effect for the year ended March 31, 2017.

The Group's reportable segments are those for which separate financial information is available and regular
evaluation by the Company's management is being performed in order to decide how resources are allocatedwithin the Group. The Group globally provides "Engineering" services, including planning, engineering,
construction, procurement, commissioning, and maintenance, adapting the most appropriate functions of eachrelated company.
(2) Methods of Measurement for the Amounts of Sales, Profit (Loss), Assets, Liabilities, and Other Items for
Each Reportable Segment

Year Ended March 31, 2016

Basic EPS—Net income available
to common shareholders

SEGMENT INFORMATION

Millionsof YenNet Income
Attributableto Owners of
the Parent

Thousandsof Shares
WeightedAverage
SharesEPS¥ 3,375

258,990¥ 13.03

Yen

The accounting policies of each reportable segment are consistent with those disclosed in Note 2, "Summaryof Significant Accounting Policies."
The profit in reporting segments is based on the operating income. Intersegment income and transfers aremeasured at the quoted market price.
(3) Information about Sales, Profit, Assets, Liabilities, and Other Items
Year Ended March 31, 2017

There is no dilutive effect for the year ended March 31, 2016.
19.

Year-end cash dividends, ¥6.00 ($0.05) per share- 35 -

35

Other*1

Total

Reconciliations*2

Sales:
Sales to external customers
Intersegment sales or transfers¥ 600,244
21¥ 3,501
5,380¥ 603,745
5,401¥ (5,401)

Total¥ 600,265¥ 8,881¥ 609,147¥ (5,401)¥ 603,745

Segment profit
Segment assets
Segment liabilities
Other:
Depreciation
Amortization of goodwill
Investment in associatedcompanies
Increase in property, plantand equipment andintangible assets

¥

¥

¥

¥

¥

SUBSEQUENT EVENT
The following appropriation of retained earnings at March 31, 2017, was approved at the Company's shareholders'meeting held on June 26, 2017:
Millions of Yen

Thousands of
U.S. Dollars¥ 1,553$ 13,873

Millions of Yen

Reportable
Segment
Engineering

15,416455,596294,553
3,620
517

265
4,893
1,549
22
29

2,868
2,109

21

15,682
460,489
296,102

(2)
841
8,103

Consolidated*3¥ 603,745

15,680461,331304,206

3,643
547

3,643
547

2,868

2,868

2,131

2,131

- 36 -

36

CHIYODA CORPORATIONCONSOLIDATED FINANCIAL STATEMENTS FY2016

Year Ended March 31, 2016

Notes for the year ended March 31, 2017:
Millions of Yen

Reportable
Segment
Engineering

Other*1

Reconciliations*2

Total

Consolidated*3

Sales:
Sales to external customers
Intersegment sales or transfers¥ 607,693
21

¥

3,855
6,229

¥ 611,548
6,250¥ (6,250)

Total¥ 607,715¥ 10,084¥ 617,799¥ (6,250)¥ 611,548

Segment profit
Segment assets
Segment liabilities
Other:
Depreciation
Amortization of goodwill
Investment in associatedcompanies
Increase in property, plantand equipment andintangible assets

¥

¥

¥

¥

¥

15,662522,693
316,597

328
4,771
1,476

3,568
1,226

21
29

26,9292,677

20

15,990527,464
318,074

24
755
8,016

¥ 611,548

16,015528,219
326,091

3,589
1,256

3,589
1,256

26,92926,929

2,698

2,698

Year Ended March 31, 2017

*2 The details of the reconciliations are as follows:(1) The reconciliation in segment profit of ¥(2) million ($(21) thousand) is the elimination ofintersegment trades.
(2) The reconciliation in segment assets of ¥841 million ($7,516 thousand) is the result of the eliminationof intersegment trades of ¥(1,909) million ($(17,050) thousand) and the Group's assets of¥2,751 million ($24,566 thousand), which are not included in the reportable segment.
(3) The reconciliation in segment liabilities of ¥8,103 million ($72,354 thousand) is the result of theelimination of intersegment trades of ¥(1,896) million ($(16,931) thousand) and the Group's liabilitiesof ¥10,000 million ($89,285 thousand), which are not included in the reportable segment.
*3 The calculation of the segment profit is based on the operating income in the consolidated statement ofoperations.
Notes for the year ended March 31, 2016:*1 "Other" represents industry segments, which are not included in the reportable segment, consisting of
temporary staffing services and travel services.
*2 The details of the reconciliations are as follows:

Thousands of U.S. Dollars(1) The reconciliation in segment profit of ¥24 million is the elimination of intersegment trades.

Reportable
Segment
Engineering

Other*1

Total

Reconciliations*2

Sales:
Sales to external customers
Intersegment sales or transfers$ 5,359,327
189$ 31,260
48,037$ 5,390,587
48,227$ (48,227)

Total$ 5,359,517$ 79,297$ 5,438,815$ (48,227) $ 5,390,587

Segment profit
Segment assets
Segment liabilities
Other:
Depreciation
Amortization of goodwill
Investment in associatedcompanies
Increase in property, plantand equipment andintangible assets

$

$

$

$

137,648
4,067,824
2,629,945
32,326
4,618

2,373
43,692
13,830202
267

25,615
18,836- 37 -

37*1 "Other" represents industry segments, which are not included in the reportable segment, consisting of
temporary staffing services and travel services.

194

140,021
4,111,517
2,643,776

Consolidated*3$ 5,390,587(21) $ 140,000
7,516
4,119,033
72,353
2,716,130

32,5294,886

32,5294,886

25,61525,61519,03019,030(2) The reconciliation in segment assets of ¥755 million is the result of the elimination of intersegment
trades of ¥(1,994) million and the Group's assets of ¥2,749 million, which are not included in thereportable segment.
(3) The reconciliation in segment liabilities of ¥8,016 million is the result of the elimination ofintersegment trades of ¥(1,983) million and the Group's liabilities of ¥10,000 million, which are notincluded in the reportable segment.
*3 The calculation of the segment profit is based on the operating income in the consolidated statement ofoperations.
Related Information(1) Information about Products and Services
The engineering business represents more than 90% of the total sales of the Group. Accordingly, thepresentation of the information about each service is not required under Japanese GAAP.

- 38 -

38

CHIYODA CORPORATIONCONSOLIDATED FINANCIAL STATEMENTS FY2016(3) Information about Major Customers(2) Information about Geographical Areas(a) Revenue

Year Ended March 31, 2017

Year Ended March 31, 2017
Millions of Yen

Thousands of
U.S. Dollars

Japan
Australia
RussiaU.S.A.
Others¥ 102,434
96,046
147,418
155,142
102,703$

914,595
857,556
1,316,239
1,385,203
916,992

Total¥ 603,745$ 5,390,587

Year Ended March 31, 2016
Millions of Yen
Japan
Australia
RussiaU.S.A.
Vietnam
Others¥ 111,464
143,980
117,274
79,75071,88587,193Total¥ 611,548

Year Ended March 31, 2017
Millions of Yen

Thousands of
U.S. Dollars

Japan
Asia
Others¥ 11,338
1,493
326$ 101,235
13,338
2,912

Total

¥ 13,158$ 117,487

Japan
Asia
Others¥ 11,732
1,704
504

Total

¥ 13,942- 39 -39

OJSC Yamal LNG
Cameron LNG LLC
Ichthys Lng Pty Ltd.

Engineering
Engineering
Engineering¥ 145,868
130,509
88,950Name

Related Segment

Millions of Yen
Revenue

Ichthys Lng Pty Ltd.
OJSC Yamal LNG
Nghi Son Refinery andPetrochemical LLC
Cameron LNG LLCEngineering
Engineering¥ 134,100
116,803

Engineering
Engineering

71,867
63,619$ 1,302,392
1,165,258
794,196

Year Ended March 31, 2016

Impairment loss of goodwill as of March 31, 2017 and 2016, was as follows:(b) Property, plant and equipment

Millions of Yen

Related Segment

Thousands of
U.S. Dollars
Revenue(4) Information about Impairment Loss on Fixed Assets by Reportable Segment

Note: Revenue is classified by country or region based on the location of construction sites.

Year Ended March 31, 2016

Name

Millions of Yen
Revenue

Millions of Yen
2017
2016

Thousands of
U.S. Dollars
2017

Engineering¥ 766¥ 4,431$ 6,839

Total

¥ 766

¥ 4,431$ 6,839(5) Information about Goodwill by Reportable Segment
The ending balance of goodwill as of March 31, 2017 and 2016, was as follows:
Millions of Yen
2017
2016

Thousands of
U.S. Dollars
2017

Engineering
Other*¥ 1,676374¥ 3,527404$ 14,969
3,347

Total

¥ 2,051¥ 3,931$ 18,317* Other involves temporary staffing services.

- 40 -

40

CHIYODA CORPORATIONCONSOLIDATED FINANCIAL STATEMENTS FY2016

INDEPENDENT AUDITOR’S REPORT
21.

RELATED PARTY DISCLOSURES
The material transactions of the Group with unconsolidated subsidiaries and associated companies for the year ended March
31, 2017, were as follows:

Loan of funds*2
Guarantee obligation*1,*3

Millions of Yen

Thousands of
U.S. Dollars¥ 12,101
13,632$ 108,045
121,720

The material balances due to or from these unconsolidated subsidiaries and associated companies at March 31, 2017, were as
follows:

Prepaid expenses and other*3

Millions of Yen

Thousands of
U.S. Dollars¥ 6,396$ 57,113*1 This is a guarantee for bonds, etc. related to constructions of associated company guaranteed by the Company.
*2 Regarding loan of funds applicable interest rates are rationally determined upon taking into account the market rate ofinterest.
*3 ¥18,907 million ($168,816 thousand) of the provision for loss on business of subsidiaries and associated companies isprovided for loans and guarantee obligation.

******

41

42

Minato Mirai Grand Central Tower
4-6-2, Minatomirai, Nishi-ku,
Yokohama 220-8765, Japan
Tel: (81)45-225-7777 (voice guidance)

http://www.chiyoda-corp.com/en/

CORPORATE PHILOSOPHY
Enhance our business in aiming for harmony between energy and the environment,
and contribute to the sustainable development of society as an integrated engineering company
through the use of our collective wisdom and painstakingly developed technology.