Happy New Year. This year we have been experiencing a record cold wave throughout Japan. I reckon some staff has spent busy days for safe and stable operation during the New Year's, but I am happy to be able to begin another year with each one of you.
Last years results will be coming out officially in February, but based on quick estimates, we seem to have been able to accomplish the end desired. I believe the credit belongs to the valuable efforts of all staff, affiliates, and business partners especially dealers. I would like to express my gratitude at this moment.
Today at the beginning of the year I should like to show you my observation on our delivery last year and our aspiration this year and after.

In 2005, standing at the turning point of 20 years since the amalgamation, we have adopted the "New Foundation" philosophy in Showa Shell. This philosophy is based on three determinations. Firstly, to break with the past, in a good sense, and to challenge with new ideas and creative ingenuity. Secondly, to pace Showa Shell on the path of growth under a clear strategy. And lastly, to make Showa Shell a corporate whose governance is with independence and transparency. Let me recollect last year with respect to these three determinations.

One of the examples of our new challenges last year is cost reduction. In 2005, our total operating cost including refining cost of Toa and Yokkaichi refineries was below 150 billion yen for the first time after several years of standstill. This much more significantly contributed to our growth in profits especially when the business environment was severer than ever due to soaring oil prices. I believe this is attributable to the challenges made by all staff with new ideas and creative ingenuity. When expanding business, controlling expenditures tends to be neglected. However, cost competitiveness is always one of the key success factors for any business. Therefore I would like to ask for your continued effort in strengthening cost competitiveness, leaving no sanctuary untouched.

Other examples are all-staff participatory challenges such as "People's Action 2005", based on People's Survey 2004 and comprised of 16 initiatives, and "Eco Summer 2005."

As for our second determination, last year we were able to invest in several large-scale projects, all of which we consider are necessary for our growth in the core business, as well as new businesses in the fringes. They are the materialization of the ideas that we listed in MTBP 2005-2007. As a result, our consolidated capex exceeded depreciation by a large amount for the first time in ten years. This clearly shows that Showa Shell has been able to set its path towards growth on the financial front, too.

This year, we must continue to sow the seeds of growth, harvest the early sprouts, and manure the later ones. Although we made investments with an overly optimistic outlook or without a consistent plan in the past, they are never to be repeated and also, we have no spare to do so either. Even if positive capex and revex are important factors to growth, we must remember to discipline ourselves not to take expenditures for granted.

Let me remind you of the importance of our independence in the New Foundation era. Through stock transfer in 2005, the shareholding structure of Showa Shell is now 35% by Shell Group, 15% by Saudi Aramco, and 50% by other shareholders, where the number of individual shareholders considerably increased to more than 20,000. In this circumstance, we as a publicly listed company have an obligation to meet the expectations of all of our shareholders. On top of that, we are responsible to all of our stakeholders. Our stakeholders include for example 2,000 plus pensioners and dealers as our business partners. To fulfill our obligation and responsibility, we must deliver them appropriate return by making our corporate governance independent to ensure our corporate management to best fit this local market. In other words, we cannot secure our independence without return.

Seen in this light, I think we received a passing mark last year since we expect our results to have been able to achieve the target, 50 billion yen of consolidated ordinary profit on a CCS basis. Yet, this year in 2006, we need to challenge ourselves to an even higher goal. One of the reasons why we have to do so is that it is highly possible that other motouris will perform better in 2006. Hovering high oil and petrochemical feedstock prices have a lot to do with their performance in upstream and petrochemicals, which we do not have at all or have on a smaller scale. I think we can never grow if we compare ourselves only with the rivals in the petroleum industry. Publicly listed companies who settle their accounts in March expect their ordinary profit ratio to sales to be over 6% on average, where Showa Shell's is 2% in CCS accounting and 4% even in WAVE accounting. We cannot call this satisfactory.

Next, I am going to talk about what we need to do in and after 2006. Prior to this, I will touch upon the outlook of our business environment in years to come.

Currently, petroleum is Japan's most important energy source, which takes almost 50% of the primary energy. There is no doubt this will be unchanged in the future. Recently, there has been theories emerging in the world, that highlight the finiteness of petroleum, such as the Peak Oil theory and ones questioning how much longer petroleum will be combusted considering its environmental impacts. Then came the record run up of oil prices. The most influential factor of high oil prices is the explosive consumption of petroleum in developing countries whose energy saving is poor, such as China. We had better assume that times of cheap oil might have come to an end.

Demand for gasoline in Japan may not be able to continue its steady increase as in the past at 2-3% per annum, if the number of automobiles owned hits the peak, and fuel efficiency is improved more.

Diesel gasoil has been consumed less and less, because diesel engine has been demonized for air pollution from nitrogen oxides and PM emission, but has eventually recognized as more environmentally friendly fuel from the viewpoint of CO2 emission compared with gasoline. A and C Fuels will probably continue to decrease due to changeovers to other sources of energy. LPG will either level out or decrease. Lubricants and bitumen well decrease as well.

As you can see, to be practical, demand for petroleum in Japan is not likely to increase in the future. At this time, we must face these facts and delve into how we can strengthen and grow our core downstream business in this matured market. Because there are operating companies of the Shell Group in other countries, we cannot advance into foreign markets such as China, like other motouris. At this point, I would like all staff to have a sense of crisis: Showa Shell will not be able to survive without the Japanese market or Japanese consumers.

Our predecessor, Rising Sun Sekiyu, had sold candles for illumination and kerosene used as insecticide a century ago. As Japan's heavy industries developed, just about when the commencement ceremony of the Yokkaichi Refinery was held a half-century ago, supply of industrial oil such as heavy fuel oil became our central business. Along with motorization and globalization, our main fuels then shifted to gasoline, diesel gasoil, and jet fuel.

In such manner, our forerunners have developed their business in many ways by flexibly and properly responding to the changes of the market needs. Social and economic structures have become much more complex compared to the past. Nevertheless we must continue to serve the needs of the people, and the national interest of Japan.

I have just mentioned that Showa Shell will not be able to survive without the Japanese customers or the market, but I never mean our future is not bright. Although satisfying the Japanese customers with world-class requests, is not an easily done job, they are reasonable and are significantly solvent. Thus, it may be inadvisable to seek growth in foreign markets only because the Japanese market is matured. There are even cases where Japanese firms who advanced into China request as high quality products and services as they enjoy in Japan. And to serve such clients, we must challenge to be able to satisfy the Japanese customers. Taking this into consideration, I should like to conclude that our growth and success in future are to be materialized only after we will distinctly outperform the rivals in this market, and that we must focus our efforts on satisfying the customers with the world's best standards.

I would like to share my determination for this year that we will make every possible effort to become a company who focuses on this marketplace by considering customer orientation again from the beginning. It is necessary for us to step forward, get to know our customers better. Although Japan is a narrow country, regional characteristics differ greatly from region to region. We must respond according to each of these characteristics to satisfy their demands. That is why we take dealership. Dealers know their local market better much than us. Our affiliates will play an even larger part of our business in a sense that they could be the vehicle for interfacing with and understanding the customers if they fully make use of their expertness and mobility.

Households are customers with high potential demands we must step forward to and exploit. The monthly expenditure of a normal household is approximately 200 to 300 thousand yen, of which only 10 to 20 thousand is spent at service stations, for kerosene, or LPG. That is why I have high expectations in the home solution business, such as the CIS solar modules.

It is not easy to develop new products and services, or build new business models, or even find the needs of the customers. To perform in such manner, each staff must first understand what customer orientation is and with leadership, take action from where you can start. Currently, the People's Action Team is discussing on what true customer orientation and action orientation are, to establish a specific action plan. But please remember that you yourself are the only one who can change your mindset and behaviour. I hope each staff will participate actively.

Compiling what I have said, I should like to summarise what and how Showa Shell should be in the following five points:

• Achieve aspirational goals with "small company mindset" (bureaucracy as obstacle)
• Focus on Japanese customers, market, and business partners for sustainable growth
• Fulfill responsibilities to all of stakeholders as a publicly listed company
• Be flexible and leave no sanctuary untouched in performance improvement
• Recognise and respect that People are the single most important deliverable for success of the organisation, and materialise this idea

Lastly, I should like to reassure that compliance and HSSE are Showa Shell's top priority. It is with extreme regret that we were convicted of violating the Antitrust Law in the criminal case relating to tendering practices for sale of Jet Fuel to the Self Defense Agency. At this time, our leaders must take the initiative and activate every staff to have the utmost attention to take preventive steps, so we are never to be suspected in such way.

As health management being one of the major issues of HSSE, your physical and mental health is the basis for each one of you to work at your best. I wish you and your family a happy and healthy new year.