Performance in 2009

In 2009, the business environment in the oil industry was severe. We experienced continuation of downward trends in both domestic and overseas fuel demand associated with the weak economy. In addition, margins worsened. As a result, our business results decreased significantly compared with the previous year.

 In 2009, consolidated Net Sales amounted to 2,111.8 billion yen (a 35.5 percent decrease versus 2008), primarily due to the lower prices for petroleum products versus 2008 reflecting significant crude oil price decreases. Consolidated Operating Income was a loss of 34.6 billion yen (121.7 billion yen profit in 2008). By segments, Downstream Operating Income amounted to a loss of 38.4 billion yen (107.7 billion yen profit in 2008). Downstream results were adversely affected (negative 35 billion yen) by our prompt crude cost recognition method (positive 74.5 billion yen in 2008), described in the box below. In addition, we experienced pressure on margins associated with the decline in domestic and overseas demand for fuel products. Chemical Operating Income was 3.8 billion yen (a 72.5 percent decrease versus 2008) reflecting low margins and a decrease in sales volume in the recent severe economic conditions.

Operating Environment in Future

We will continue our efforts to strengthen our operations in a business environment that is forecast to become increasingly severe.

 The sluggish economy and energy conservation are among the factors that have accelerated the pace of decline in demand for petroleum products in Japan. Overseas, the start-up of a series of new refineries in Asia may challenge the competitiveness of product exports from Japan. At the same time, the Japanese refining sector is faced with surplus capacity, a structural problem not easily resolved.

 For these reasons, the business environment in which TonenGeneral operates is forecast to become increasingly severe in 2010. According to the Ministry of Economy, Trade and Industry's long-term energy supply and demand projections, however, Japan's rate of dependence on oil as a primary energy source is expected to remain high, accounting for one-third of total energy demand in 2030. This means that oil continues to be an important energy resource in the future and we therefore believe that stable supply of high quality oil products continues to be the important role of our company.

 We will further strengthen our ongoing self-help efforts while promoting optimization and greater efficiency in both refining and marketing in order to maintain a sound business base.

TonenGeneral's Business Strategy

With "Lead Evolution ~ Move Together" as our slogan, we will not cease our efforts this year as we build an even more effective and flexible group foundation.

 In 2009, under the ExxonMobil Japan Group's slogan "Evolution ~ Move Together," we fixed our vision 10 to 20 years in the future as we focused our energies on strengthening our competitiveness in a way only TonenGeneral can accomplish.

 In the refining operations of our oil business, we are fully leveraging the technology and the global network of the ExxonMobil Group in efforts such as making highest use of secondary facilities, maximizing the advantages of integration with our chemical business, diversifying feedstocks and optimizing marketing channels including exports.

 In our domestic marketing operations, we must also promote our efforts to build a service station network with profitability in mind. We have been promoting a shift to our high-efficiency "Express" brand self-service stations. As a result, we have reduced the number of service stations of the ExxonMobil Group Japan, including TonenGeneral, from more than 7,000 in the year 2000 to approximately 4,300 as of December 31, 2009, with Express stations accounting for nearly 20 percent of the total. This has allowed us to achieve further efficiency in our marketing operations under a declining demand environment.

 In the chemical business, we established a joint venture1 with Toray Industries, Inc. to develop, manufacture and sell battery separator film (BSF), among the most promising field in specialty chemicals. We are looking forward to outstanding business expansion by combining TonenGeneral's results to date in the BSF business with Toray Industries' knowledge and technology development capabilities.

 For 2010, we have added the word "Lead" to our 2009 slogan to express our strengthened resolve to utilize our unique technology and know-how as we produce leading business results. With "Lead Evolution ~ Move Together" as our slogan for 2010, we will continue to build an even more effective and flexible system in respond to change in business environment.

Stable Shareholder Returns

Our basic policy on shareholder returns will remain unchanged, even in the changing economic environment.

 We have set superior returns as a core management issue, with the objective of steadily enhancing shareholder value over the medium to long term. This basic policy will remain unchanged, even under the changing economic environment. We continue with our view that the company's wealth that is not otherwise required in our business in a way that meets our rigorous profitability standards should be returned to shareholders.

 In 2009, we paid a full-year dividend of 38 yen per share, equal to that of 2008. In 2010, subject to results and cash flow trends, we plan to pay a full-year dividend of 38 yen per share, equal to that of 2009.

Challenges of Climate Change

The ExxonMobil Group, including TonenGeneral, is taking active measures out of serious concern for climate change.

 Concerns about environmental issues are growing, and the ExxonMobil Group takes the issue of climate change seriously. While fully utilizing existing technology, we are developing cutting-edge technology from a medium- to long-term perspective. One example is "ExxonMobil Algae Biofuels Research and Development Program."

 As for TonenGeneral's own initiatives, we continuously promote energy conservation and energy efficiency improvement activities, which are our areas of expertise and have led to steady results. Unit energy efficiency of consumption at our refineries is consistently at the top-level in Japan.

 As previously announced, I retired from President and P. P. Ducom was elected as my successor effective March 26. I have appreciated the kindness that I received from shareholders. Under the new management system, we will redouble our efforts to enhance competitiveness in order to meet our shareholders' expectations. Moreover, we will continue to steadily evolve as a good corporate citizen. We ask for your continued support.

March 2010

Kazuo Suzuki
Representative Director, President

(Retired as of March 26, 2010)

Career history (abbreviated)