FAQ
- Q1 What is the business of TonenGeneral Sekiyu?
- A Our company operates three refineries with a combined capacity of 661 kbd as well as integrated chemical facilities producing olefins, aromatics and specialty chemical products. The company imports crude oil and other feedstocks to manufacture a wide range of fuel and chemical products. We supply products to our parent company ExxonMobil Y.K. for sale through their Esso and Mobil branded outlets and also sell to customers under our own General brand. The Company also exports both Chemical and fuel products.
TonenGeneral conducts its business within the ExxonMobil Group global network using consistent, integrated strategies for the purchase of crude and feedstocks, crude refining and product supply, marketing, and chemical manufacturing and sales. TonenGeneral benefits from diverse access to supplies as well as international marketing outlets provided as a member of the ExxonMobil Group. Shown below is a simplified business structure chart for the TonenGeneral consolidated group.
- Q2 TonenGeneral entrusts many of its marketing and administrative operations to affiliated companies. How will profits be secured for TonenGeneral?
- A We have agreed to fair cost based compensation arrangements for services conducted. These arrangements are periodically reported to TonenGeneral's board of directors to enable the directors to conduct effective oversight at the management level. In addition, the statutory auditors of TonenGeneral have the right of access to the business records and the management of ExxonMobil Y.K. to verify whether business is being conducted properly. Concerning product pricing, all transactions with members of the ExxonMobil Group are conducted under rigorously assessed arms length transfer pricing principles. Concerning product pricing to ExxonMobil Y.K., we have decades of experience in establishing fair market based transfer prices. We continue to agree with ExxonMobil Y.K. on product transfer pricing intended to reflect actual market conditions.
- Q3 What is TonenGeneral’s strategy for operation of retail sites?
- A We continue to focus on our highly productive self-service stations and further strengthening of the value of our successful “Express” brand. In order to further differentiate our offerings from those of our competitors, we will further enhance the growing and successful alliance network with Seven-Eleven Japan.
- Q4 What kind of business indicator do you place a special emphasis on?
- A TonenGeneral views Return on Capital Employed (ROCE) as the best measure of capital productivity in our capital-intensive, long-term industry. ROCE is defined as net income before interest and after tax divided by the average of opening and closing capital employed (the sum of shareholders' equity and net debt). Like most measures of this type, it is meaningful if examination company performance over a reasonably long period, rather than quarter-to-quarter or even year-to-year, and therefore matches well with our long-term perspective in managing the business. This indicator measures capital efficiency by indexing returns (earnings) against all the capital used in the business, whether equity or debt, thereby giving a clear picture of whether management's past decisions have added value. This is important because our goal is not to increase profits at all cost, but to increase the efficiency of our profitability.
- Q5 What are you doing in terms of safety and the environment?
- A As an oil refining, chemical manaufacturing and sales company, we consider safety and the environment to be matters of the highest importance. We are making full use of the world-class safety and environmental know-how that the ExxonMobil group has accumulated worldwide through its many years in business. Specifically, we are executing the Operations Integrity Management System (OIMS), and actively implementing the Loss Prevention System (LPS), a system for proactively preventing accidents.
Click here for details of OIMS and LPS systems
- Q6 What is TonenGeneral’s inventory valuation method?
- A As a result of accounting standard revisions, the use of LIFO (Last-In First-Out) will no longer be permitted beginning with accounting periods starting on or after April 1, 2010. TonenGeneral changed its crude and product inventory valuation method from LIFO to the weighted average cost (WAC) method in 2011. Under the weighted average cost method, the current period cost of goods sold and the closing inventory are evaluated using the average cost of the opening inventory and of crude and products acquired during the current period. Under the weighted average cost method, if crude prices increase (or decrease) during the period, as relatively low (or high) cost of goods sold are flowed to income, an inventory gain (or loss) tends to be realized.
If prices and volumes remained approximately the same as those in place in September 2011,the conversion gain from LIFO to WAC and on-going WAC gain resulting from the increase in crude and product prices in 2011 are estimated at about 189 billion yen (pre-tax) in total in 2011.
- Q7 How do fluctuations in crude prices affect TonenGeneral's results?
- A The following two factors need to be considered regarding the effects of fluctuation of crude prices on TonenGeneral's performance.
1. Crude prices as our raw material costs
For TonenGeneral's operations in the petroleum business, primarily involving refining and marketing, crude oil is the primary raw material, and fluctuations in crude oil prices are registered as fluctuations in raw material costs. Profitability of our petroleum product business is based, among other things, on the difference between crude oil prices and refined product prices (the "margin"). Therefore, our profitability depends on the extent to which changes in crude oil costs are reflected in the prices of the products that we sell, regardless of the absolute level of either crude oil or refined product prices.
2. Inventory related effects under WAC
As mentioned in Q6, under the weighted average cost method, if crude prices increase (or decrease), TonenGeneral tends to recognize inventory related gain (or loss). US$10 per barrel increase in crude and product prices is estimated to cause about 17 billion yen of inventory gain, though the sensitivity would change subject to timing of crude and product price fluctuations, foreign exchange and inventory volume.
While up to 2010, TonenGeneral recognized crude oil costs when we become owners of the crude, which is usually at loading in crude-producing countries, we changed our crude cost recognition timing to the arrival basis from 2011, the same practices as other Japanese oil companies. As a result, with effect from the first quarter of 2011, adjustments to compensate for this difference in crude cost recognition timing are no longer necessary to compare TonenGeneral performance with other Japanese oil companies.
- Q8 What are TonenGeneral's thoughts on return to shareholders?
- A Our basic policy is to deliver stable to growing dividends to shareholders provided that this can be accomplished, while maintaining a sound financial structure, and giving due consideration to consolidated cash flow trends and future capital investments. We continue with our view that the company's cash flow that cannot be reinvested in our business in a way that meets our rigorous return standards should be returned to shareholders.
- Q9 Where can I find the Company’s historical dividends and dividend projection for the current year?
- A Please refer to this link for the Company’s historical dividends and dividend projection for the current year.
- Q10 As a result of the merger, ExxonMobil Y.K., a major shareholder, will have stronger controlling power over the company. Won't this be detrimental to returns for minority shareholders?
- A No. We respect the principle of shareholder equality, and TonenGeneral's fundamental mission is to take measures that will be of equal benefit to all of our shareholders. We also have an important obligation to contribute to our other stakeholders-customers, employees, local communities, and society as a whole. In addition, the ExxonMobil relationship brings many benefits to the company, including access to technical, operating, management, and financial best practices on a global scale.
- Q11 My 1,000 General Sekiyu's shares became 370 TonenGeneral's at the time of the 2000 merger of Tonen Corporation and General Sekiyu K.K. How do I buy additional shares up to 1,000 shares? (or sell those shares?)
- A Shareholders who own less than 1,000 shares have no disadvantage to others in terms of dividends but can not exercise voting rights at shareholders meetings, and can not execute normal trades at the share market as the trading unit of TonenGeneral share is 1,000 shares.
A shareholder who holds less than one thousand shares can either (1) sell all of those shares to the company, in a transaction called "KAITORI", or (2) buy additional shares from the company to complete a unit of 1,000 shares, in a transaction called "KAIMASHI".
For more detailed information, shareholders should call the securities firm in which they have a transfer account (For shares less than 1,000 in a special account, please call 0120-232-711, the toll-free dial of Mitsubishi UFJ Trust and Banking Corporation).
- Q12 What is a special account?
- A An account with trust banks opened by stock issuers to secure rights of shares which were not deposited in book-entry transfer of stocks (Hofuri) through a securities firm before implementation of the "dematerialized" book-entry transfer system..
The new "dematerialized" book-entry transfer system for stocks was implemented from January 5, 2009. A special account is not an account to trade stocks. Shareholders must open their own trade accounts with securities firms and transfer their shares to the account in order to sell the shares registered in a special account. Please note that it takes some days to transfer the shares.
If you have inquiries on transfer of shares registered in a special account or requests related to "KAITORI" and "KAIMASHI" transactions, please call 0120-232-711, Mitsubishi UFJ Trust and Banking Corporation, special account manager.
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