Mitsui O.S.K. Lines Ltd. Annual Report 2014

Plain-text annual report

M i t s u i O S K i L n e s L t d A n n u a l R e p o r t 2 0 1 4 Sea Change to build sustained momentum Annual Report 2014 Year ended March 31, 2014 14mol_表紙英文0729.indd 2 14mol_表紙英文0729.indd 2 2014/07/30 14:48 2014/07/30 14:48 Sea Change to build sustained momentum MOL returned to proﬁ tability in ﬁ scal 2013 and regained solid footing for a growth trajectory through successful execution of Business Structural Reforms and the single-year management plan “RISE2013.” Fiscal 2014 marks MOL’s 130th anniversary. Under the newly initiated midterm management plan “STEER FOR 2020,” the Company will build momentum toward solid growth by innovat- ing its business portfolio, business model and business areas while continuing to enhance its core competence as a marine transport company. MOL GROUP CORPORATE PRINCIPLES As a multi-modal transport group, we will actively seize opportunities that contrib- ute to global economic growth and development by meeting and responding to our customers’ needs and to this new era. We will strive to maximize corporate value by always being creative, continually pursuing higher operating efﬁ ciency and promoting an open and visible man- agement style that is guid- ed by the highest ethical and social standards. We will promote and pro- tect our environment by maintaining strict, safe operation and navigation standards. Forward-Looking Statements This annual report contains forward-looking statements concerning MOL’s future plans, strategies and performance. These statements represent assumptions and beliefs based on information currently (*) available and are not historical facts. Furthermore, forward-looking statements are subject to a number of risks and uncertainties that include, but are not limited to, economic conditions, worldwide competition in the shipping industry, customer demand, foreign currency exchange rates, price of bunker, tax laws and other regulations. MOL therefore cautions readers that actual results may differ materially from these predictions. (*) As of June 24, 2014 unless otherwise speciﬁ ed. 14mol_英文_本文納品後修正.indd c1 14mol_英文_本文納品後修正.indd c1 2014/08/21 13:59 2014/08/21 13:59 MOL’s Communication Tools MOL produces the following publications as a means of promoting communication with stakeholders: The latest versions of all reports can be found on our website. http://www.mol.co.jp/ir-e/ http://www.mol.co.jp/csr-e/ Annual Report MOL Investor Guidebook Market Data Environmental and Social Report Contents 2 8 10 12 14 16 Feature: The Seascape Financial Highlights Key Indicators To Our Shareholders New Midterm Management Plan Message from the President 24 MOL at a Glance 26 Market Position in the Industry 28 Overview of Operations 51 Management Foundation Underpinning MOL 52 Board of Directors, Corporate Auditors and Executive Ofﬁ cers 54 MOL’s Approach to Governance, Safety and CSR 56 Corporate Governance 60 Risk Management 62 Safe Operation 65 Corporate Social Responsibility (CSR) 69 Financial Section The MOL Group 112 114 Worldwide Ofﬁ ces 115 Shareholder Information 14mol_英文_本文納品後修正.indd 1 14mol_英文_本文納品後修正.indd 1 2014/08/21 13:59 2014/08/21 13:59 2 Mitsui O.S.K. Lines Feature: The Seascape Shipping: Making the world smaller and economy bigger. Nearly 50 years ago in 1965, the global population was 3.3 billion and global seaborne trade was 1.7 billion tons, which means there was around half a ton of cargo per person. Seaborne trade has since outpaced population growth. In 2002, the population increased to 6.3 billion, but seaborne trade grew even faster to 6.4 billion tons, surpassing one ton per person. In 2011, seaborne trade exceeded 1.3 tons per person, and the gap is only continuing to widen. There’s a rea- son why. More and more countries, and the people liv- ing in them, have begun participating in the rich bounty of global trade. Even in this day and age, when offshoring is said to have peaked out, the frontier still exists in global trade and marine shipping. For example, countries with newly developed resources often seek consumers in faraway lands and burgeoning populations often seek inexpen- sive, bulk foodstuffs from fertile agricultural regions, however distant. In addition, emerging nations build up their infrastructure, and the people living there often drive up imports as they seek to improve their own quali- ty of life. And as the inﬂ uence of IT spreads, global inter- dependence is deepening, spawning an increasing web of cargo ﬂ ows within and between regions for wide- ranging products and components. The majority of that movement is conveyed through marine shipping. As long as the world economy grows, or rather, as long as marine shipping continues to support the growth-oriented global economy, seaborne trade will continue to expand. The marine shipping industry is intrinsically a growth industry. 14mol_英文_本文納品後修正.indd 2 14mol_英文_本文納品後修正.indd 2 2014/08/21 13:59 2014/08/21 13:59 Annual Report 2014 3 The marine shipping industry creates value by transporting things across the ocean, all sorts of things. Nowadays, most of what we use in our daily lives—from food and clothes to appliances, automobiles and even energy—is produced somewhere else in the world and only reaches us after a long journey through the global supply chain. Value is created by delivering what people need where they need it, enriching the lives of both the senders and the receivers. This was ﬁ rst made possible by marine shipping, which is an inexpensive means of large-volume shipping. Marine shipping has made the world smaller and the economy bigger. World Population & Global Seaborne Trafﬁ c 16 14 12 10 8 6 4 2 0 Seaborne Traffic (bn t) World Population (bn) estimate (2014–) 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 Source : World population= UN, Seaborne trafﬁ c = Feamley/Clarksons (~2013), MOL estimation based on assumption that the trend of trafﬁ c per capita in the past continues in the future (2014–) 14mol_英文_本文納品後修正.indd 3 14mol_英文_本文納品後修正.indd 3 2014/08/21 13:59 2014/08/21 13:59 4 Mitsui O.S.K. Lines Feature: The Seascape 130 years & MOL is still changing ! The history of MOL, which has grown in response to expanding seaborne trade, is also a history of innova- tion. In 1961, we launched the world’s ﬁ rst automated ship. In 1965, we launched Japan’s ﬁ rst specialized car carrier. In 1968, we commenced service of full contain- erships. In the 1980s, we were quick to enter the ship- ping business for methanol, LNG and petroleum products. Moreover, we developed specialized vessels of optimal size to meet customer needs for shipping iron ore, coal, wood chips, crude oil and other prod- ucts. In 2007, MOL took delivery of the world’s largest iron ore carrier, opening a route for shuttle transport of iron ore from Brazil to Japan. It bears the same name— the Brasil Maru—as the ship that served as a bridge for emigrants from Japan to Brazil in the old days. Recently we have been working on the Senpaku ISHIN project, a next-generation vessel concept to reduce environmental load, and in 2012, we launched the world’s ﬁ rst hybrid car carrier. In the midst of making this history, OSK Lines and Mitsui Steamship merged in 1964 to form Mitsui O.S.K. Lines, Ltd. (MOL), which went on to merge with Navix Line in 1999 to form the present Mitsui O.S.K. Lines. Through these mergers, we constructed a business portfolio ﬁ t to meet global demand for seaborne trade and strengthened our management foundation. In 2014, MOL launched “STEER FOR 2020,” its mid- term management plan based on analysis of the chang- ing business environment, with the aim of achieving solid growth through innovation. 14mol_英文_本文納品後修正.indd 4 14mol_英文_本文納品後修正.indd 4 2014/08/21 13:59 2014/08/21 13:59 Annual Report 2014 5 In April 2014, MOL celebrated its 130th anniversary. Marine shipping is a growth industry and yet, over the 150-year history of modern marine shipping, more than a few shipping companies have collapsed. Why has MOL continued to grow amid what can admittedly be a hostile environment? MOL has advanced by adapting its businesses to the changing business environment ever since Osaka Shosen Kaisha (OSK Lines), its corporate predecessor, was established in 1884. During the intervening years, MOL has been invigorated with the addition of distinct corporate cultures through two major mergers, creating the robust spirit of innovation and resilience unique to hybrids. And now, once again, the ﬂ ow of cargo is on the verge of a major sea change. With its eye on 2020, MOL is already adjusting its course to prepare for major changes six years down the line. MOL’s 130 years: Challenge and Innovation 1964 Mitsui O.S.K. Lines (MOL) was founded by a merger of OSK Line and Mitsui Steamship AMERICA MARU (700TEU) 1968 Full containership service commenced OSK Line’s former headquarters building (Osaka) 1884 Osaka Shosen Kaisha (OSK Line) is founded. 1995 The ﬁ rst double hull very large crude carrier (VLCC), the ATLANTIC LIBERTY, is launched. 1989 Navix Line is established by the merger of Japan Line and Yamashita-Shinnihon Steamship 1999 New Mitsui O.S.K. Lines is established by the merger of MOL and Navix Line. 2012 The world’s ﬁ rst hybrid car carrier, the EMERALD ACE, is launched. 1961 World's ﬁ rst automated ship, the KINKASAN MARU, is launched. 1965 Japan's ﬁ rst specialized car carrier, the OPPAMA MARU, is launched. 1984 LNG carrier, the SENSHU MARU is launched. 1983 Japan's ﬁ rst specialized methanol tanker, the KOHZAN MARU, is launched. 2007 The World's largest iron ore carrier, the BRASIL MARU, is launched. 2009 Next-generation vessel concept Senpaku ISHIN project announced. 2014 MOL celebrated its 130th anniversary. 14mol_英文_本文納品後修正.indd 5 14mol_英文_本文納品後修正.indd 5 2014/08/21 13:59 2014/08/21 13:59 6 Mitsui O.S.K. Lines Feature: The Seascape Big opportunities come with challenges. There is a revolution underway that is changing global trade. The shale revolution occurring in the United States is transforming the global geopolitics of energy and bringing about a major shift in seaborne trade. In the ﬂ ows of product trade, the trend toward diversiﬁ cation is ongoing. In some cases, producing regions are moving closer to consuming regions. MOL not only must remain alert to demand mo vements, but also sensitive to prevailing conditions in global shipyards, which impact the supply-demand balance of vessels. This shifting business environment will bring opportunities to those who can anticipate the changes and meet the new challenges and risks to those who underestimate them. The shale revolution will affect many aspects of sea- borne trade. In natural gas, the United States will go from being a net importer to a net exporter, which is certain to rapidly boost demand for long-distance trans- port of LNG. In crude oil, while the decline in U.S. imports caused the crude oil tanker market to stagnate, it also shifted West African light crude, once destined for the U.S., to Asia, increasing ton-miles. LPG, a by- product of shale gas, is exported to Asia, generating great demand for marine shipping. With the advanta- geous price of domestically produced crude oil, the U.S. has already become a net exporter of petroleum prod- ucts, and production is expected to return stateside in the chemical industry, with forecasts of rising exports. Nevertheless, as these forecasts could change due to ﬂ uctuations in energy prices and other factors, we must diligently monitor the situation. The trend continues toward optimizing manufactur- ing by moving production to ideal sites worldwide. To name just one instance, the diversiﬁ cation of completed vehicle cargo ﬂ ows is necessitating changes to estab- lished business models. Being able to anticipate these changes and launch services ahead of demand will lead to business opportunities. Today, we face unprecedented opportunities to cap- ture new ﬂ ows of cargo, as well as the marine shipping market risks linked with the ongoing glut of shipbuild- ing capacity. Having seriously assessed both of these factors, you may wonder how MOL plans to achieve sustainable growth over the medium- to long-term. The midterm management plan “STEER FOR 2020” charts a clear course. 14mol_英文_本文納品後修正.indd 6 14mol_英文_本文納品後修正.indd 6 2014/08/21 13:59 2014/08/21 13:59 Annual Report 2014 7 Shale gas provides the largest source of growth in U.S. natural gas supply U.S. natural gas production by source (trillion cubic feet) 40 History 2012 Projection 30 20 10 0 1990 Shale gas Tight gas Lower 48 onshore conventional Lower 48 offshore Coalbed methane Alaska 2000 2010 2020 2030 2040 Source: U.S. Energy Information Administration | Annual Energy Outlook 2014 14mol_英文_本文納品後修正.indd 7 14mol_英文_本文納品後修正.indd 7 2014/08/21 13:59 2014/08/21 13:59 8 Mitsui O.S.K. Lines Financial Highlights For the year: Shipping and other revenues Shipping and other expenses Selling, general and administrative expenses Operating income (loss) Ordinary income (loss) Income (loss) before income taxes and minority interests Net income (loss) Free cash ﬂ ows [(a) + (b)] Cash ﬂ ows from operating activities (a) Cash ﬂ ows from investing activities (b) Tangible/intangible ﬁ xed assets increased At year-end: Total assets Net vessels, property and equipment Interest-bearing debt Net assets/Shareholders’ equity Amounts per share of common stock: Net income (loss) Cash dividends applicable to the year Management indicators: Gearing ratio (%) Net gearing ratio (%) Equity ratio (%) ROA (%) (*) ROE (%) Dividend payout ratio (%) MOL next MOL STEP 2004/3 2005/3 2006/3 2007/3 2008/3 ¥997,260 ¥1,173,332 ¥1,366,725 ¥1,568,435 ¥1,945,697 1,101,459 1,300,038 1,544,109 824,902 80,232 92,126 90,556 89,776 55,391 114,945 114,591 354 50,548 917,149 84,388 171,795 174,979 155,057 98,261 80,230 92,273 172,993 176,502 188,290 113,732 8,838 100,324 168,073 182,488 197,854 120,940 20,369 156,418 110,303 291,285 302,219 318,202 190,321 23,291 283,359 167,897 163,914 (87,667) 111,905 (155,076) (136,049) (260,068) 177,226 153,876 303,573 1,000,206 1,232,252 1,470,824 1,639,940 1,900,551 477,621 491,693 221,535 665,320 514,131 298,258 769,902 571,429 424,461 847,660 1,047,825 569,417 620,989 601,174 751,652 ¥46.14 11.00 ¥81.99 16.00 ¥94.98 18.00 ¥101.20 ¥159.14 20.00 31.00 222 202 22.1 5.4 28.7 23.8 173 157 24.2 8.8 37.8 19.5 135 120 28.9 8.4 31.5 19.0 104 94 33.6 7.8 24.8 19.8 88 79 35.8 10.8 30.9 19.5 Number of MOL Group employees: (the parent company and consolidated subsidiaries) 7,033 7,385 8,351 8,621 9,626 (*)Net income (loss) /Average total assets at the beginning and the end of the ﬁ scal year. Please refer to the notes on P. 74, for “Presentation of net assets in the balance sheet.” 14mol_英文_本文納品後修正.indd 8 14mol_英文_本文納品後修正.indd 8 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 9 MOL ADVANCE GEAR UP! MOL RISE 2013 2009/3 2010/3 2011/3 2012/3 2013/3 2014/3 Millions of yen ¥1,865,802 ¥1,347,965 ¥1,543,661 ¥1,435,221 ¥1,509,194 ¥1,729,452 1,564,486 1,228,479 1,328,960 1,368,795 1,432,014 1,587,902 90,886 92,946 100,458 104,105 197,211 204,511 197,732 126,988 (71,038) 118,984 98,547 20,939 24,235 27,776 12,722 (40,055) 91,300 123,401 121,622 95,367 58,277 46,970 (24,460) (24,320) (33,516) (26,009) (129,298) (15,766) (28,568) (137,939) (178,847) (25,285) 93,428 181,755 5,014 78,956 41,092 54,986 71,710 57,394 (25,615) 94,256 (190,022) (133,484) (134,785) (134,313) (104,241) (119,871) 223,208 204,190 220,443 175,726 164,890 186,149 1,807,080 1,861,312 1,868,741 1,946,162 2,164,611 2,364,695 1,106,746 1,209,176 1,257,823 1,293,803 1,303,967 1,379,245 702,617 695,022 775,114 735,702 724,259 740,247 869,619 1,046,865 1,094,081 717,909 619,493 783,549 STEER FOR 2020 ¥106.13 31.00 ¥10.63 3.00 ¥48.75 10.00 ¥(21.76) ¥(149.57) 5.00 − 113 99 34.5 6.9 19.5 29.2 118 105 35.4 0.7 2.0 28.2 110 100 35.4 3.2 8.8 20.5 136 123 32.8 (1.4) (4.0) − 196 158 24.7 (8.7) (30.5) − Yen ¥47.99 5.00 161 135 28.7 2.5 9.5 10.4 10,012 9,707 9,438 9,431 9,465 10,289 14mol_英文_本文納品後修正.indd 9 14mol_英文_本文納品後修正.indd 9 2014/08/21 14:00 2014/08/21 14:00 10 Mitsui O.S.K. Lines Key Indicators Shipping and Other Revenues/ Ordinary Income (Loss) Total Assets/Net Assets (¥ billions) 400 2,500 300 2,000 200 1,500 100 1,000 0 500 Ordinary Income (Loss) by Consolidated Segment (¥ billions) 1,000 800 600 400 200 240 180 120 60 0 (¥ billions) 2,000 1,500 1,000 500 0 –500 09/3 10/3 11/3 12/3 13/3 14/3 –100 0 09/3 10/3 11/3 12/3 13/3 14/3 0 -60 09/3 10/3 11/3 12/3 13/3 14/3 (cid:2) Shipping and other revenues (left scale) (cid:2) Ordinary income (loss) (right scale) (cid:2) Total assets (left scale) (cid:2) Net assets (right scale) (cid:2) Bulkships (cid:2) Other segments, etc. (cid:2) Containerships FY2013 Shipping and Other Revenues ¥1,729.4 billion FY2013 ¥54.9 billion Ordinary Income FY2013 Total Assets FY2013 Net Assets ¥2,364.6 billion ¥783.5 billion FY2013 Bulkships FY2013 Containerships FY2013 Other segments, etc. ¥57.1 billion ¥(14.5) billion ¥12.4 billion Revenues increased ¥220.2 billion year on year and ordinary income achieved a ¥83.5 billion turnaround. This result reﬂ ected a strengthening of ﬂ eet cost com- petitiveness through the Business Structural Reforms and cost reductions that rose to an entirely different stage. Other positive effects included the weaker yen and the lower bunker prices. Total assets as of March 31, 2014 were ¥200.0 billion higher than at March 31, 2013 due to increases in vessels and construction in progress attributable to investment for ﬂ eet enhancement and increases in investment securities. Net assets increased ¥164.0 bil- lion year on year due mainly to increases in retained earnings and unrealized gains on hedging derivatives. Bulkships improved signiﬁ cantly year on year and returned to proﬁ tability mainly through the Business Structural Reforms in the dry bulker segment. Containerships, meanwhile, posted a larger ordinary loss than ﬁ scal 2012 as freight rates fell due to the worsened vessel supply-demand balance accompany- ing deliveries of large ships. Cash Flows (¥ billions) ROA/ROE (%) Net Income (Loss) per Share/Cash Dividends Applicable to the Year (¥) 150 100 50 0 –50 –100 –150 09/3 11/3 12/3 13/3 14/3 10/3 (cid:2) Net income (Loss) per share (cid:2) Cash dividends applicable to the year 200 150 100 50 0 –50 –100 –150 –200 09/3 10/3 11/3 12/3 13/3 14/3 (cid:2) Cash ﬂ ows from operating activities (cid:2) Cash ﬂ ows from investing activities Free cash ﬂ ows FY2013 Net Income per Share FY2013 Cash Dividends Applicable to the Year ¥47.99 ¥5 FY2013 Cash Flows from Operating Activities FY2013 Cash Flows from Investing Activities ¥94.2 billion ¥(119.8) billion 20 10 0 –10 –20 –30 –40 09/3 10/3 11/3 12/3 13/3 14/3 ROA ROE FY2013 ROA FY2013 ROE 2.5% 9.5% MOL’s ¥236.2 billion turnaround in net income con- trasted sharply with the prior year loss when costs were incurred for Business Structural Reforms. MOL resumed dividends and paid ¥5 per share for the ﬁ s- cal year, including a ¥2 interim dividend. Operating activities provided net cash of ¥94.2 billion, up ¥15.2 billion year on year. Investing activities used net cash of ¥119.8 billion, ¥15.6 billion more than a year prior. For the third straight year, this resulted in negative free cash ﬂ ows. ROA and ROE both improved signiﬁ cantly because of the year-on-year ¥236.2 billion turnaround in net income. 14mol_英文_本文納品後修正.indd 10 14mol_英文_本文納品後修正.indd 10 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 11 Interest-bearing Debt/ Shareholders’ Equity (¥ billions) 1,200 1,000 800 600 400 200 0 09/3 10/3 11/3 12/3 13/3 14/3 Gearing Ratio/Equity Ratio Cost Reductions (%) 200 150 100 50 0 09/3 10/3 11/3 12/3 13/3 14/3 (¥ billions) 40 30 20 10 0 40 30 20 10 0 Target Result (cid:2) Interest-bearing debt (cid:2) Shareholders’ equity Gearing ratio (left scale) Equity ratio (right scale) (cid:2) Target (cid:2) Result FY2013 Interest-bearing Debt FY2013 Shareholders’ Equity ¥1,094.0 billion ¥679.1 billion FY2013 Gearing Ratio FY2013 Equity Ratio * “Shareholders’ equity” in this section comprises the total of owners’ equity and accumulated other comprehensive income (loss). 161% 28.7% FY2013 Target FY2013 Result ¥31.5 billion ¥34.0 billion Interest-bearing debt increased ¥47.2 billion to ¥1,094.0 billion, as the Company procured funds by bank loans to cover negative free cash ﬂ ows. The gearing ratio improved 35 points and the equity ratio improved 4 points, reﬂ ecting the ¥143.7 billion increase in shareholders’ equity, the ¥47.2 billion rise in interest-bearing debt, and the ¥200.0 billion increase in total assets. In ﬁ scal 2013, MOL achieved total cost reductions of ¥34.0 billion, exceeding its ¥31.5 billion target. This was accomplished by reducing bunker expenses through slow steaming, improving vessel allocation efﬁ ciency and taking other actions. Highly Stable Proﬁ ts Credit Ratings (As of July 2014) Capital Expenditure (¥ billions) Type of Rating Rating (¥ billions) 80 60 40 20 0 Short-term debt rating (CP) JCR Long-term preferred debt (issuer) rating Long-term debt rating Issuer rating R&I Short-term debt rating (CP) 11/3 12/3 13/3 14/3 Long-term individual debt rating J-1 A A A– a-1 A– 250 200 150 100 50 0 09/3 10/3 11/3 12/3 13/3 14/3 FY2013 Highly Stable Proﬁ ts ¥50.0 billion Moody’s Issuer rating Baa3 JCR R&I Moody’s A A- Baa3 FY2013 Capital Expenditure ¥169.0 billion Highly stable proﬁ ts are ﬁ rm proﬁ ts based on medi- um- to long-term contracts, and proﬁ ts from highly stable businesses. MOL generated highly stable proﬁ ts of ¥50.0 billion in ﬁ scal 2013. MOL exchanged information more closely with the credit rating agencies and explained that capital investments were expected to increase, but would be limited to investments that would generate future sta- ble proﬁ ts. The credit rating agencies were, to an extent, able to understand this explanation and main- tained our current level of credit ratings. Capital expenditure represented here is the net amount calculated by deducting proceeds from the sale of vessels when delivered from “Tangible/intangi- ble ﬁ xed assets increased” contained in the annual securities report. 14mol_英文_本文納品後修正.indd 11 14mol_英文_本文納品後修正.indd 11 2014/08/21 14:00 2014/08/21 14:00 12 Mitsui O.S.K. Lines To Our Shareholders Koichi Muto President 14mol_英文_本文納品後修正.indd 12 14mol_英文_本文納品後修正.indd 12 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 13 The future harbors both uncertainty and opportunities for growth. To ensure a rewarding future for MOL, the key will be successfully picking up on early indicators of change and making swift adjustments to ﬁ ne tune our heading. International marine shipping demand is consistently grow- ing in step with the global economy. But the speed of that growth and the type, trade and volume of cargo is highly sensitive to current economic developments in many coun- tries, changing trade structures and political events. Looking back at the past decade or so, I can see we ﬁ rmly grasped early indicators during the ﬁ rst half and took decisive action. Amidst rapid emerging market growth, this allowed us to expand the scale of our business to an unprecedented level. But we also accumulated signiﬁ cant market exposure risks during the boom market, and during the latter half this oversight became a huge burden on business performance. I assumed the role of president in June 2010. Business per- formance was favorable in ﬁ scal 2010, but then, during ﬁ s- cal 2011 and 2012, a ﬂ ood of negative factors appeared at once. These included the European ﬁ nancial crisis, natural disasters, an overvalued yen, and surging bunker prices. Above all, however, MOL’s market-linked proﬁ ts worsened due to the oversupply caused by large-scale deliveries of new vessels. It obliterated MOL’s stable proﬁ ts from medi- um- to long-term contracts, resulting in two consecutive losses. We decided to forgo paying dividends in ﬁ scal 2012, betraying our shareholders’ expectations. This is why MOL decided it was necessary to implement fundamental reforms enabling robust performance that didn’t rely on a turnaround in the external environment. In the fourth quarter of ﬁ scal 2012, we carried out Business Structural Reforms, striving to improve market-linked prof- its, especially in dry bulkers. Then, we poured our energy into successfully carrying out the single-year management plan “RISE2013”, with the aim of ensuring a return to prof- itability and regaining a growth trajectory. To you, our val- ued shareholders, I would like to announce that we have secured ordinary income of ¥54.9 billion and net income of ¥57.3 billion, and have resumed dividend payments of ¥5 per share. Since assuming ofﬁ ce and based on past experience, I have endeavored to strengthen business intelligence. We gather wide-ranging data from all possible sources, including cus- tomers and research institutes, and share this data through- out the organization. We then work to comprehend the complete picture and form a sound assessment from a broad perspective to pinpoint promising markets, risks and early indicators of change in the business environment. In ﬁ scal 2014, we are moving forward. We have already begun implementing “STEER FOR 2020,” which was for- mulated based on the aggregate business intelligence of each MOL Group director and employee. Of course there is no such thing as data that’s 100% reliable or opportunity devoid of risk. It is, however, 100% crucial that, after very carefully examining the very best data available, we make decisions, enact necessary measures and take swift action. Doing this, will enable MOL to overcome intense competi- tion and raise corporate value while fulﬁ lling a MOL Group Principle. “As a multi-modal transport group, we will actively seize opportunities that contribute to global eco- nomic growth and development by meeting and respond- ing to our customers’ needs and to this new era.” For the midterm management plan “STEER FOR 2020,” we have issued a rudder command. Our course stands in direct contrast to a business model that relies on rising markets to lift marine shipping. Instead it is set toward long-term, sta- ble proﬁ t growth as we endeavor to capture new opportu- nities in cargo ﬂ ows, meet customers’ needs and maintain their trust, and differentiate ourselves through safe opera- tions and technical capabilities. As we selectively concen- trate the investment of management resources, we will build up a sound ﬁ nancial foundation by 2020. Upon this stable foundation, we will conﬁ dently be able to continue readjusting our heading, or even issue a new rudder command, toward growth spurred by evolving strategies ten years down the line from 2020. Our new heading will be discussed and decided in tandem with the execution of the current plan and steadfastly based on robust business intelligence. MOL will strive to ensure sustainable growth and improve long-term corporate value while meeting growing seaborne shipping demand. We would like to ask for the continued understanding and support of shareholders as we work to achieve these goals. June 24, 2014 Koichi Muto President 14mol_英文_本文納品後修正.indd 13 14mol_英文_本文納品後修正.indd 13 2014/08/21 14:00 2014/08/21 14:00 14 Mitsui O.S.K. Lines New Midterm Management Plan Main theme: Solid growth through innovative changes Overall Strategies Three Innovations Innovation of Business Portfolio Innovation of Business Model Innovation of Business Domain Allocate management resources earlier and signiﬁ cantly to businesses where we expect high growth and stable long-term proﬁ ts Transform our ﬂ eet for higher market tolerability and more competitiveness Focus on businesses that offer added values and meet customer needs Create value chains by expanding business domain to both upstream and downstream of ocean shipping transport The foundation to support achievement of our goals (cid:129) Reinforce compliance (cid:129) Reconstruct our safe operation structure (cid:129) Strengthen total risk control (cid:129) Concentrate business intelligence Investments (from FY2014 to FY2019) (cid:2) For Building up Highly Stable Proﬁ ts (cid:2) For Enhancing Cost Competitiveness Additional target 500 Others 160 Ordered 500 LNG Carrier 300 Offshore business 120 Total 1,000 (Billions of yen) LNG Carrier 220 Offshore business 60 Others 140 Ordered 200 Total 130 (Billions of yen) Additional target 500 14mol_英文_本文納品後修正.indd 14 14mol_英文_本文納品後修正.indd 14 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 15 Proﬁ t Targets/Financial Targets (Billions of yen) Revenue Ordinary income (Highly stable proﬁ ts) Net income ROA *1 ROE *2 FY2013 (Result) 1,729.4 54.9 (50) 57.3 2.4% 9.5% FY2014 (Forecast)* 1,800 70 (50) 60 3% 8% Y2016 (Plan) 1,900 100 (55) 80 FY2019 (Target) 2,100 140 (75) 110 4-5% above 10% *1) ROA =Ordinary income/ Average total assets at the beginning and the end of the ﬁ scal year *2) ROE =Net income/ Average shareholders’ equity at the beginning and the end of the ﬁ scal year Equity ratio *3 Net gearing ratio *4 29% 135% 29% 141% (around FY2019) (around FY2019) 35-40% 100% *3) Equity ratio = Shareholders’ equity / Total assets *4) Net gearing ratio =(Interest bearing debt-cash and cash equivalents)/ Shareholders’ equity Exchange rate JPY/US$ Bunker price US$/MT Market level 99.79 610 100 620 100 620 100 620 Assuming not so much improvements in and after FY2014 Revenue, Ordinary Income, Net Income (consolidated) (Billions of yen) 160 140 120 100 80 60 40 20 0 100 12 30 58 13 2 55 54.9 70 12.4 57.1 -14.5 140 20 40 80 (cid:2) Others** (cid:2) Container ships (cid:2) Bulkships Others**=Ferry& domestic transport, Associated businesses, Others and Adjustment FY2014 (Forecast)* FY2013 (Result) -20 FY2016 (Plan) FY2019 (Target) Fleet Scale Bulkships Dry bulkers Tankers LNG carriers FPSO/FSRU Car carriers Containerships Others Total March 31, 2014 (Result) March 31, 2015 (Forecast)* March 31, 2017 (Plan) March 31, 2020 (Target) 776 403 180 67 1 125 119 43 938 743 390 167 67 2 117 108 43 894 730 365 160 75 10 120 105 45 880 780 365 160 120 15 120 105 45 930 *As of April 30, 2014 14mol_英文_本文納品後修正.indd 15 14mol_英文_本文納品後修正.indd 15 2014/08/21 14:00 2014/08/21 14:00 16 Mitsui O.S.K. Lines Message from the President Question 1: How would you evaluate the results of the ﬁ scal 2013 management-plan “RISE2013 ”? 1 Achieving Proﬁ t Recovery and Returning to a Growth Trajectory It was a good year, exceptional in many respects. RISE2013 was itself an exception, with a timeframe of just one year. We typically launch midterm man- agement plans with a horizon of three years, but this single-year management plan was designed with a very immediate purpose. In both ﬁ scal 2011 and ﬁ scal 2012, MOL posted losses. RISE2013 was designed to bring the Group back to proﬁ tability in ﬁ scal 2013, placing us on solid footing for future growth. We carried out Business Structural Reforms in ﬁ scal 2012 and other measures that we expected would help to regain proﬁ tability on an accounting basis. On top of that we aimed to build up cash ﬂ ow and achieve a V-shape recovery in proﬁ t, thereby strengthening our ﬁ nancial position and returning the Group to a growth trajectory. On the whole, I believe we achieved our tar- gets. Ordinary income of ¥54.9 billion fell short of our ¥60.0 billion mark, but net income surpassed our ¥50.0 billion target, reaching ¥57.3 billion. We also exceeded our targets for the equity ratio, which improved to 29% (we had targeted 26%), and net gearing ratio improved to 135% (we had targeted 154%). Looking closer, bulkships were on a clear upswing, but containerships went the other way, ending the year in a loss. We were helped by a better than expected correction in the overvalued yen and lower bunker prices. On the other hand, through the outlined initiatives to transform our business model, we achieved more efﬁ cient deployment of ships in dry bulkers, tankers and car carriers. Beneﬁ tting from the intensity of focus brought by the single year time frame, we were able to reduce costs on an entirely different stage, achieving ¥34.0 billion in reductions, surpassing our target of ¥31.5 billion. Without these initia- tives, we would not have been able to improve cash ﬂ ows and reverse ﬁ scal 2012’s ordinary loss of ¥28.5 billion with ordinary income of ¥54.9 billion in ﬁ scal 2013. More than that, by also attaining a higher level of business intelligence aimed at in RISE2013, the path for the next midterm manage- ment plan is now visible. Not only did we ﬁ nd our footing, we were able to build a springboard for MOL’s future. (¥ billions) Revenue Ordinary income/loss Bulkships Containerships Others* Net income/loss Shareholders’ equity Equity ratio Net gearing ratio Cost reduction FY2012 (Result) 1,509.1 -28.5 -24.7 -11.2 7.5 -178.8 535.4 25% 158% 29.0 Plan 1,700.0 60.0 40.0 10.0 10.0 50.0 590.0 26% 154% 31.5 FY2013 Result 1,729.4 54.9 57.1 -14.5 12.4 57.3 679.1 29% 135% 34.0 Others*=Ferry & domestic transport, Associated businesses, Others and Adjustment Business Structural Reforms 14mol_英文_本文納品後修正.indd 16 14mol_英文_本文納品後修正.indd 16 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 17 Solid Accomplishments in Bulkships Containerships and Unﬁ nished Business The segment that fell short of forecasts was con- tainerships. The original target called for ordinary income of ¥10.0 billion yen, but the ﬁ scal year ended in a loss of ¥14.5 billion. One after the other, very large vessels were delivered, pushing smaller vessels out of some routes and causing them to cascade to other routes. Despite broad efforts from shipping companies to facilitate recov- ery, this in turn destabilized freight rates, causing average rates to fall signiﬁ cantly year on year. In effect, this erased all of the gains from cost cut- ting, the weaker yen and lower bunker prices. And with the dockworker strike in Hong Kong and the incident involving the containership in the Indian Ocean, segment loss worsened ¥3.2 billion from the previous ﬁ scal year. The other segments performed well. With the Japanese economy recovering, the ferry & domes- tic transport segment increased proﬁ ts beyond plans and the associated business segment secured stable proﬁ ts, especially in real estate. MOL secured ¥50.0 billion in stable earnings in ﬁ scal 2013, virtually unchanged from the previous ﬁ scal year. What differed considerably, however, was that other earnings than stable proﬁ ts did not deteriorate into a loss and offset stable proﬁ ts. This clearly shows the success of the Business Structural Reforms and the initiatives of RISE2013 Despite the overall success of RISE2013, there remains some unﬁ nished business. More than any- thing, we need to return containerships to proﬁ t- ability. For some reasons including stagnant freight rates on North-South routes, where we have a pres- ence, our business performance lags other compa- nies we benchmark. We need to evaluate the business environment and bolster measures to recover proﬁ tability. We also need to remain sensitive to market developments. As the market improved for dry bulkers and tankers, speculative orders were again made for some vessel types in the latter half of ﬁ s- cal 2013, which is worrying. The new midterm management plan “STEER FOR 2020” was formulated in parallel with the execution of RISE2013 in light of the accomplish- ments and unﬁ nished business of the one-year plan. It helps to look at the details by segment and busi- ness division. The dry bulker division, which posted a large loss in ﬁ scal 2012, was really the key to improving business performance in ﬁ scal 2013. As a pillar of the Business Structural Reforms implemented in the fourth quarter of ﬁ scal 2012, we transferred sales and operations of free vessels to our subsid- iaries in Singapore. Although this led to large extraordinary losses, we made our ﬂ eet more cost- competitive in ﬁ scal 2013. We also gained advan- tageous cargo contracts in Singapore, a hub for both customers and information, and achieved efﬁ cient deployment of vessels. Delivery of new vessels has come off its peak and the market has pulled out of its slump. This helped vastly improve earnings and, coupled with stable proﬁ ts from long-term contracts, we were able to rebuild a structure that contributes solid proﬁ t to MOL’s business performance. Although the tanker division regrettably did not turn a proﬁ t, it was able to greatly reduce its loss and is, I believe, poised to turn a proﬁ t in the next ﬁ scal year. In crude oil tankers, we reduced losses by shrinking free tonnage and we wrote off some of our ships at the end of the ﬁ scal year. After transferring sales and operations to Singapore, chemical tankers, which were able to secure proﬁ t- able cargo and efﬁ ciently deploy vessels, and LPG tankers, which were supported by favorable mar- ket conditions, both turned a proﬁ t. The LNG carrier and offshore businesses division secured stable proﬁ ts on par with the previous ﬁ s- cal year thanks to long-term contracts, while accu- mulating new contracts for future growth thanks to tenacious activities to win orders. A particularly notable milestone was MOL’s success in Uruguay, where we became the ﬁ rst Japanese shipping com- pany to participate in an FSRU project anywhere in the world. This deﬁ nitely showcased MOL’s under- lying strength. Despite declining exports of automobiles from Japan, the car carrier division increased proﬁ ts by efﬁ ciently taking on inbound voyages and cross trades outside of Japan. Assembling the results of these four divisions, Bulkships churned out ¥57.1 billion in ordinary income. This was a sharp turnaround of ¥81.9 bil- lion yen, from the ¥24.7 billion loss in the previous ﬁ scal year. It also surpassed the RISE2013 plan of ¥40.0 billion in ordinary income by ¥17.1 billion. With the dry bulker market pulling out of the slump as expected, this was a really solid year. 14mol_英文_本文納品後修正.indd 17 14mol_英文_本文納品後修正.indd 17 2014/08/21 14:00 2014/08/21 14:00 18 Mitsui O.S.K. Lines Question 2: 2What kind of strategy does the midterm management plan’s title, “STEER FOR 2020,” represent for Mitsui O.S.K. Lines ? Making a Sharp Turn toward 2020— Solid Growth through Innovative Changes The word steer refers to adjusting the rudder of a boat to change direction toward the desired route. How do we plan to adjust the rudder and direct the ship? Hard to starboard. We named this mid- term management plan “STEER FOR 2020” to reﬂ ect the major shift in direction we take toward the ﬁ scal year ended March 31, 2020. To formulate the new plan, we ﬁ rst thoroughly analyzed the business environment. Marine shipping demand is expected to at least keep pace with the world economy, which accord- ing to the IMF is poised to grow by about 4%. It is supply, however, that will be the primary issue. Shipbuilding facilities far surpass the scale needed in the world today. And, as mentioned earlier, we saw speculative orders in the latter half of ﬁ scal 2013. We will likely need to wait a while longer before we witness a structural turnaround in the supply and demand environment. We therefore formulated the midterm manage- ment plan with the assumption that freight rates Building up Highly Stable Proﬁ ts (¥ billions) 75 80 60 40 20 0 50 55 FY2013 (Result) FY2016 (Plan) FY2019 (Target) would not rise. This stands in stark contrast to a plan where companies bet on a future bull market in marine shipping and order ships in anticipation. We then thought about how to expand proﬁ ts under those conditions. Naturally, the answer was to focus on building up stable proﬁ ts. When we looked at it that way and went on to analyze the business environment, we realized the shale revolution was delivering a one-in-a-million business opportunities with the rapid expansion of long-distance shipping demand for LNG. Accompanying this, demand for FSRUs will natu- rally grow as will demand for other offshore busi- nesses, particularly for offshore energy-related facilities. These are areas where MOL can leverage its global presence and know-how gained from being the world’s largest energy shipping company while generating stable proﬁ ts from long-term contracts. One must concentrate business where there is opportunity. Staff, funds and other management resources are, however, not inﬁ nite. We formulat- ed plans to optimally allocate limited resources to maximize return on investment. As a result, we have a plan with clear directives to selectively concentrate our investment in businesses that generate long-term stable proﬁ ts, centered especially on LNG carriers and offshore businesses. This is one of the reasons “STEER FOR 2020” is so named. We are adjusting the rudder with new conﬁ dence as we navigate toward stable proﬁ ts. The name also embodies the main theme of the midterm management plan—solid growth through innovative changes. Through the successful enact- ment of this strategy, we forecast stable proﬁ ts will increase from ¥50.0 billion in ﬁ scal 2013 to ¥75.0 billion in ﬁ scal 2019. Innovation of Business Portfolio The ﬁ rst overall strategy outlined in “STEER FOR 2020” is business portfolio innovation, which Highly Stable Proﬁ ts (cid:129) Proﬁ ts that are ﬁ xed, or expected to be ﬁ xed during this midterm management plan, from contracts of two years or more. (cid:129) Projected proﬁ ts from highly stable businesses (The segments and divisions included in “Highly Stable Proﬁ ts” are Dry bulker, Tanker, LNG carrier, Offshore business, Associated business and Others) 14mol_英文_本文納品後修正.indd 18 14mol_英文_本文納品後修正.indd 18 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 19 of vessels. Innovation of business portfolio is not simply limited to capital investment, it also naturally extends to the optimal distribution of human resources. LNG carriers and offshore businesses also require highly specialized knowledge, and the demands are likely to grow in the future. We are aiming to earn the trust of customers through our uniﬁ ed manufacturing and sales operations, with the sales division and the technical/marine safety/ ship management divisions united as a team. Innovation of Business Domain Investing in offshore businesses is also a critical link in the third overall strategy, Innovation of Business Domain. Although MOL has horizontally expanded the presence of its marine shipping business across the globe, the Company is now also looking to expand its business domains vertically to capture both upstream and downstream marine shipping businesses. In this direction, we have already started work outside the offshore businesses by strengthening the container terminal business. In ﬁ scal 2013, we built alliances with a prominent partner, establish- ing a base for future business expansion. The vessel operation and management technol- ogies MOL has accumulated will support Innovation in Business Domains, but we will also actively assemble newly needed management resources from outside the Company with the aim of expanding businesses that will be the future pil- lars of the MOL Group and contribute to stable proﬁ t growth. refers to the swift, strong allocation of manage- ment resources in ﬁ elds likely to ensure signiﬁ cant growth and long-term stable proﬁ ts, particularly in LNG carriers and offshore businesses. This capital investment will only be carried out if a long-term contract is signed and subsequent future cash ﬂ ow is ensured. Under this premise, if we are able to realize the full increase in ﬂ eet size, total capital expenditure between ﬁ scal 2014 and 2019 for LNG carriers and offshore businesses would reach ¥700.0 billion. We expect the proﬁ le of LNG carriers and offshore businesses to rise considerably in the MOL Group; nearly tripling to account for 26% of assets at the end of ﬁ scal 2019, up from 9% at the end of September 2013. This would be an unprecedented portfolio trans- formation. Securing top-notch seafarers is key to success- fully implementing these strategies. Safely operat- ing LNG carriers requires a high degree of knowledge and experience. MOL has training facil- ities and hiring desks in Croatia, Russia, India, the Philippines and other major recruitment centers. We’ve also cultivated Indonesian captains through our existing LNG carrier projects. As we expand the scope of our recruitment in many countries, we ﬁ rst deploy new recruits to MOL LNG carriers for training in preparation of new ships being deliv- ered or beginning operations. Some companies operating LNG carriers are restricting investment due to bottlenecks in recruiting seafarers. However, when exceptional demand is anticipated, MOL believes it preferable to prepare in advance after carefully analyzing cost performance. We are also able to transfer experienced seafarers from tankers and other types Innovation in Asset Portfolio by Segment 9% 31% September 30, 2013 43% 17% 25% 26% March 31, 2020 12% 37% (cid:2) LNG carriers & Offshore business (cid:2) Dry bulkers & Tankers & Car carriers (cid:2) Containerships (cid:2) Group businesses * Group businesses =Ferry & domestic transport, Associated businesses and Others 14mol_英文_本文納品後修正.indd 19 14mol_英文_本文納品後修正.indd 19 2014/08/21 14:00 2014/08/21 14:00 20 Mitsui O.S.K. Lines How does MOL aim for sustainable proﬁ t growth ? 3Question 3: Innovation of Business Model In the last answer, I explained that under “STEER FOR 2020,” we will concentrate capital investment on businesses that generate long-term stable prof- its. However, no matter how much stable proﬁ t is accumulated, we cannot achieve solid growth unless we also have a strategy for businesses that face changing markets every day. The answer to this is our second overall strate- gy, Innovation of Business Model. While we initiat- ed this strategy under RISE2013, we will further strengthen it under “STEER FOR 2020,” with the aim of constructing a structure that can mitigate the impact of market volatility and provide robust proﬁ ts regardless of market conditions. First, we will raise our resilience to market vola- tility by increasing the ratio of medium- to long- term contracts with customers and increasing the ratio of short-term charted ships, especially in dry bulkers and tankers. Although we focused our efforts on reducing the number of free vessels linked to short-term contracts with customers under RISE2013, it is the ships with a gap between contract terms and procurement periods that are actually affected by market volatility. We call this market exposure risk under “STEER FOR 2020” and by targeting a lower ratio, we aim to create a ﬂ eet of appropriate scale that also boasts greater market tolerability. Second, to ﬁ rmly reap proﬁ ts with this kind of ﬂ eet composition, it is crucial that we optimally combine trades to reduce ballast voyages as much as possible and focus efforts on transport areas where we can provide added value in response to customer needs. In dry bulkers and tankers, we will accomplish this by leveraging the business bases developed in Singapore and other optimal loca- tions around the world, as well as our diverse ves- sel types and shipping know-how. Our aim is “market plus alpha proﬁ ts.” Although the ﬂ eet composition is different for car carriers, which face changing trade patterns as automakers relocate manufacturing nearer end markets, the same strat- egy will be effective. Third is strengthening our cost competitiveness. We will implement measures that effectively cut costs by ¥70.0 billion over three years from ﬁ scal 2014, with roughly half the savings generated by containerships. Turning a Proﬁ t in the Containership Business Improving proﬁ tability in the containership busi- ness will be indispensible to achieving the proﬁ t targets of “STEER FOR 2020.” MOL plans to accomplish this by strengthening cost competitiveness, especially by lowering the unit cost associated with launching large vessels. Even while containership companies continued to order ultra-large vessels, MOL strategically delayed follow- ing suit. This was because we believed that the ﬁ rst generation of ultra-large vessels would not be par- ticularly fuel efﬁ cient. Although some companies that added new vessels appeared to see improved earnings to some extent, by waiting to place orders for new vessels, MOL has been able to add more fuel-efﬁ cient vessels to its ﬂ eet at lower prices given prevailing conditions in the shipbuilding market. Deliveries of ﬁ ve 14,000 TEU ships began in ﬁ scal 2013 and were completed in April 2014. Between ﬁ scal 2014 and 2016, we will receive deliveries of Downsize Market Exposure (Dry bulker and Tanker) 0 20 40 60 80 (%) 100 Fiscal 2013 (Results) Fiscal 2016 (Plan) Fiscal 2019 (Target) 52% 45% 35% (cid:2) Owned or mid-and long-term chartered vessels with mid-and long-term contracts (cid:2) Owned or mid-and long-term chartered vessels with short-term contracts (=Market exposure) (cid:2) Short-term chartered vessels with short-term contracts 14mol_英文_本文納品後修正.indd 20 14mol_英文_本文納品後修正.indd 20 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 21 Scenario for Earnings Recovery in Containership Business (¥ billions) 60 40 20 0 -20 Reduction of unit costs (*1) 8 Improvement in profitability (*2) 30 Fiscal 2013 (Results) -14.5 Increase in profits from Terminal / Logistics businesses Others 9 -2.5 30 Increase in profits from Terminal / Logistics businesses Others Reduction of unit costs (*1) 8 2 Improvement in profitability (*2) 4.5 -4.5 40 Fiscal 2016 (Plan) Fiscal 2019 (Target) (*1) Effects from replacement of vessels, expansion of alliance, reduction of fuel cost and so on (*2) Higher utilization, increase in revenue of non-ocean freight ten 10,000 TEU ships in series. The new vessels will reduce operational expenses per unit, as will expanding collaboration through the G6 Alliance and reduced fuel consumption, due mainly to fuller implementation of slow steaming. All in all, we expect unit cost savings will reach ¥30.0 billion over three years. We will procure these large vessels through charters. Reductions in unit cost are quantiﬁ able measures with visible effects. Regardless of how strenuously costs are reduced, however, there will be little improvement in earnings if most of the savings are lost to falling freight rates. Since large vessel deliver- ies will continue over the following two to three years, we have already incorporated gradually fall- ing freight rates into our plans. We believe, howev- er, the risk of freight rates falling much further is small. In ﬁ scal 2013, most companies posted losses and a few found themselves in ﬁ nancially dire straits. These companies cannot bear larger declines in freight rates and will likely eschew further orders of large vessels. In addition to the limited number of players, the alliances on the East-West routes are increasingly integrating. Previously each individual player thought it logical to order large vessels, but this unintentionally worsened the overall supply and demand balance, bringing about a fallacy of com- position. The increasingly integrating alliances, how- ever, make this kind of large volume ordering unlikely to occur again. Reducing unit cost is dependent upon securing cargo in line with the increasingly larger vessels. Fortunately, everything went as planned for ship- ping contracts renewed in ﬁ scal 2014, especially with the major customers we have been doing business with for many years. I believe this is the payoff of MOL’s intensely focused efforts to differ- entiate ourselves in this competitive industry. In the North-South routes, which stiﬂ ed our attempts to improve containership earnings rela- tive to our competitors, I want to lay out key mea- sures now that we have reorganized the West Africa route. Naturally, we will also consider pulling out from routes that are not forecast to improve. Complementing improved earnings in route operations, our calculations show increased earn- ings in the container terminal business, especially our U.S. west coast terminal, where construction to boost automation recently concluded. With the increased earnings in the logistics business, the containership segment on the whole should turn a proﬁ t in ﬁ scal 2014 and achieve ordinary income of ¥30.0 billion in ﬁ scal 2016. I will provide close supervision while carefully monitoring the progress of each initiative. Sustainable, Consistent Proﬁ t Growth By successfully executing the overall strategies explained in my answers to Question 2 and 3, MOL plans to post ¥100.0 billion in ordinary income and ¥80.0 billion yen in net income in ﬁ scal 2016. Looking three years further down the line, MOL aims to post ordinary income of ¥140.0 billion and net income of ¥110.0 billion in ﬁ scal 2019. Although we will be building up long-term con- tracts over the next three years in LNG carriers and offshore businesses, actual contributions to proﬁ ts will mostly happen after ﬁ scal 2016 following the delivery of new ships. Therefore, we will focus on lifting proﬁ t levels through ﬁ scal 2016 by increas- ing proﬁ ts in divisions that are already rebounding, including dry bulkers and chemical tankers, as well as fully implementing plans to strengthen cost competitiveness, especially in containerships. Achieving reinforcement of market tolerability at the same time, we will bridge now to the period after ﬁ scal 2016, when stable proﬁ ts start to build up in full swing. In this way we will seek sus- tainable and consistent growth of proﬁ ts. 14mol_英文_本文納品後修正.indd 21 14mol_英文_本文納品後修正.indd 21 2014/08/21 14:00 2014/08/21 14:00 22 Mitsui O.S.K. Lines improve shareholder value ? Question 4: 4How does MOL plan to Improving Shareholder Value through Active Investment in Long-Term Stable Proﬁ ts Under “STEER FOR 2020,” we plan to invest a total of ¥1,130 billion in our vessels and business- es: ¥1,000 billion for stable proﬁ t growth and ¥130 billion mainly for strengthening cost compet- itiveness. Considering such factors as the timing of payments and the sale of assets, that would mean net cash used in investing activities between ﬁ scal 2014 and 2019 would approximate ¥600 billion in the ﬁ rst three years and ¥400 billion in the latter three years. On the other hand, net cash provided by operating activities will increase over time due in part to stable proﬁ t growth. Cash ﬂ ows for the ﬁ rst three years will be negative, then turn positive over the latter three years, more than making up for the previous shortfall. MOL’s policy on shareholder returns is to maintain a dividend payout ratio of 20% and raise this to around 30% as our ﬁ nancial standing improves over the medium- to long-term. By ﬁ rst carrying out investment, MOL expects to achieve its ﬁ nancial tar- gets, equity ratio of 35% to 40% and net gearing ratio of 100%, no earlier than around ﬁ scal 2019. However, based on our long-term planning for the next 10 to 20 years, we have determined that now is the best time to actively invest in sources of stable proﬁ ts. Sound ﬁ nancial standing is also important for securing long-term contracts. Prioritizing capital investment for stable proﬁ t growth and improvement in ﬁ nancial standing will, I believe, lead to improved shareholder value over the medium- to long-term. This is the time frame, and I would like to ask for the understanding of our shareholders. We do not envis- age restoring shareholders’ equity by increasing capi- tal and, as for equity ﬁ nancing as a whole, the Company remains extremely cautious in view of its negative impact on our current shareholders. When we make an investment, we will pay careful attention to ensure the return on invest- ment. As for LNG carriers and offshore businesses, the barriers to entry are high and there are relatively few competitors. Because entering into long-term contracts spanning 20 to 30 years also presents risks to customers, it is difﬁ cult for shipping com- panies that do not have comprehensive credibility, including a track record of safe operations and ﬁ nancial soundness, to enter this business. I believe it is therefore certainly possible for MOL to achieve its target number of vessels by securing projects that exceed its internal hurdle rate of ROI and other indicators. ROI levels of course are not like free vessels during surging markets, but I would like to once again emphasize that in contrast with free vessels, LNG carriers will provide long-term stable income for 20 or more years. What is more, because our policy is generally to cover 80% of the total investment from loans and ﬁ nancial institu- tions are willing to ﬁ nance this substantial portion, return on equity is further enhanced. Over time proﬁ ts will increase gradually as loans are paid back and so the interest burden lightens. Our plan is to increase stable proﬁ ts by ¥25.0 billion from ﬁ scal 2013 to ﬁ scal 2019, but this is only the beginning. The contribution to proﬁ ts from the long-term contracts secured during this period will continue to grow in ﬁ scal 2020 and beyond. Through this accumulation of stable proﬁ ts and strengthening of cost competitiveness, ROA will be steadily lifted to between 4% and 5% during “STEER FOR 2020,” and ROE should reach 10% early on in the plan and we would like to maintain it at or above that level. Strengthening the Management Foundation for Sustainable Growth In “STEER FOR 2020,” we will also work hard to reinforce our management foundation. In this way, we can avoid risks that absolutely must not be taken and exploit opportunities where proper eval- uation shows the risk to be reasonable. This will support MOL’s sustainable growth and the success- ful execution of the plans outlined in “STEER FOR 2020.” First, we will reinforce compliance. Compliance is essential to continuing as a going concern. Despite our 130 years of history, illegal behavior could instantly jeopardize our very existence. It must be stamped out and I deeply regret the conduct con- nected with automobile transport that the Japan Fair Trade Commission found violated the Antimonopoly Act. I offer my sincerest apologies to 14mol_英文_本文納品後修正.indd 22 14mol_英文_本文納品後修正.indd 22 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 23 customers and society for this. We have already launched a new committee, which I chair, and we will do our very best to reinforce systems and mea- sures to ensure that everyone in the MOL Group, no matter where in the world they work, obeys every law, regulation and social norm. Second, we will reinforce our safe operation sys- tems. To fulﬁ ll our responsibility as a shipping com- pany and to be the company of choice, achieving the world’s highest level of safe operations is MOL’s essential mission. Considering that customers are calling for higher standards of safety in LNG carriers and offshore businesses, areas where we plan to expand, we will strive to reinforce our systems. Third, we will strengthen total risk control. We will work to make the volume of comprehensive risk transparent and fully implement sustainable risk management by assuming worst-case scenari- os. While no business is free of risks, we will objec- tively assess whether the risks are worth taking and carefully choose which ones to take. Fourth, we will strive to concentrate our business intelligence. Since I assumed the role of president, our business intelligence has been strengthened and this forms the foundation upon which the new mid- term management plan was formulated. Stand-alone data is of limited value on its own. We will generate value and illuminate trends by combining various sources of data. We will strengthen the systems to quickly share and assemble data from various sourc- es, including our personnel on the front lines. Intangible Assets Accumulated over 130 Years of History On April 1, 2014, MOL celebrated its 130th anni- versary. MOL is the shipping company with the world’s largest ﬂ eet, and I really feel that what enabled the Company to grow to its current posi- tion is the support of our customers. Until the 1990s, Japan had been the largest trading country and home to an abundance of clients for shipping companies. To transport the cargo entrusted to us by our clients in Japan comprising iron ore, coal, crude oil, LNG, automobiles and various export products, we developed new vessels and further reﬁ ned our comprehensive services. We then later used those capabilities to acquire clients around the world, beginning with China, and we are still continuing to grow. One of MOL’s dearest intangible assets is the trust we have steadily accumulated with our cus- tomers. Our ability to uncover customer needs then offer appropriate solutions, which was acquired through our efforts to repay their trust, is, without a doubt, another. I would consider the Company’s own DNA to be yet another of MOL’s intangible assets. By this, I mean MOL’s indomitable ﬁ ghting spirit and the ﬁ ne balance between that indomitable ﬁ ghting spirit and total risk control. MOL is a hybrid company that was created through the merger of many compa- nies: Osaka Shosen Kaisha (OSK Lines) and Mitsui Steamship, Navix Line, and Navix Line’s previous incarnations of Yamashita-Shinnihon Steamship and Japan Line. This is the source of our DNA and it is because of the very fact that MOL is a hybrid that we are resilient amidst changes in the operating environment. With the merger of these companies, we all worked together to enhance our capabilities, cultivating this indomitable ﬁ ghting spirit. While leveraging these intangible assets to the full- est extent possible, MOL is committed to improv- ing shareholder value sustainably by successfully implementing the midterm management plan “STEER FOR 2020,” which was formulated in light of the current environment of the marine shipping industry, and achieving solid growth through inno- vative changes. 14mol_英文_本文納品後修正.indd 23 14mol_英文_本文納品後修正.indd 23 2014/08/21 14:00 2014/08/21 14:00 24 Mitsui O.S.K. Lines MOL at a Glance Revenues Breakdown by Segment (Fiscal 2013 results) OTHERS 1% ASSOCIATED BUSINESSES 7% FERRY & DOMESTIC TRANSPORT 3% CONTAINERSHIPS 41% Fleet Table Performance (¥ billions) BULKSHIPS (Dry Bulkers, Tankers, LNG Carriers/ Offshore Businesses and Car Carriers) 900 600 300 0 75 50 25 0 12/3 13/3 14/3 -25 (cid:2) Revenues (left scale) (cid:2) Ordinary income (loss) (right scale) BULKSHIPS 48% Dry Bulkers 21% Tankers 10% LNG Carriers/ Offshore Businesses 3% Car Carriers 15% As of March 31, 2014 As of March 31, 2013 Number of vessels Thousand dwt Number of vessels Thousand dwt BULKSHIPS (Dry Bulkers, Tankers, LNG Carriers/Offshore Businesses and Car Carriers) Dry Bulkers 403 35,760 404 34,928 Tankers 180 16,874 194 19,037 LNG Carriers 67 5,182 69 5,310 Offshore Businesses (FPSO) 1 − 1 − Car Carriers 125 2,033 127 2,063 Containerships 119 7,091 115 6,370 Ferry & Domestic Transport Cruise Ships Others Total 40 160 44 159 1 2 5 13 2 3 10 19 938 67,117 959 67,895 (Note) Including spot-chartered ships and those owned by joint ventures CONTAINERSHIPS [Dry Bulker] Bulk carrier: AWOBASAN MARU [LNG Carrier] GRAND MEREYA [Containership] MOL COMMITMENT TraPac Jacksonville Container Terminal 14mol_英文_本文納品後修正.indd 24 14mol_英文_本文納品後修正.indd 24 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 25 CONTAINERSHIPS FERRY & DOMESTIC TRANSPORT ASSOCIATED BUSINESSES 750 500 250 0 90 60 30 0 60 30 20 0 12/3 13/3 14/3 -30 (cid:2) Revenues (left scale) (cid:2) Ordinary income (loss) (right scale) 12/3 13/3 14/3 (cid:2) Revenues (left scale) (cid:2) Ordinary income (loss) (right scale) 3 2 1 0 -1 120 90 60 30 0 12/3 13/3 14/3 (cid:2) Revenues (left scale) (cid:2) Ordinary income (loss) (right scale) 12 9 6 3 0 [Tanker] Crude oil tanker: HORAISAN [Tanker] Product tanker: GARNET EXPRESS [Offshore Business] FPSO Cidade de Angra dos Reis MV22 (photo: MODEC, INC.) [Car Carrier] ONYX ACE FERRY & DOMESTIC TRANSPORT ASSOCIATED BUSINESSES [Ferry] SUNFLOWER IVORY [Cruise Ship] NIPPON MARU 14mol_英文_本文納品後修正.indd 25 14mol_英文_本文納品後修正.indd 25 2014/08/21 14:00 2014/08/21 14:00 26 Mitsui O.S.K. Lines Market Position in the Industry MOL operates a large and balanced oceangoing ﬂ eet. In terms of its total ﬂ eet size and presence in individual market categories, MOL ranks among the world’s largest shipping companies. 1,000 938 1,200 World Major Carriers’ Fleets (All Vessel Types) (Number of vessels) 0 200 400 600 800 67 MOL (Japan) NYK (Japan) COSCO (China) K Line (Japan) APM-Maersk (Denmark) Oldendorff (Germany) China Shipping (China) MSC (Switzerland) Swiss Marine (Switzerland) Fredriksen (Norway) CMA-CGM (France) Teekay (Canada) 0 20 40 60 80 100 120 (Million deadweight tons (DWT)) (cid:2)(cid:2) Number of vessels (cid:2)(cid:2) Million deadweight tons (DWT) Source: MOL internal estimation based on each companies’ published data, Clarkson and Alphaliner (April 2014) World Major Carriers’ Revenue Portfolio by Segment (%) 0 20 40 48 60 80 41 11 100 MOL NYK K Line APM-Maersk NOL OOIL MISC Frontline Teekay Paciﬁ c Basin Golar LNG (cid:2) Bulkships (cid:2) Containerships and related business (cid:2) Other businesses Source: MOL calculations based on each company’s ﬁ nancial statements and/or website. MOL’s containerships and related business includes revenue from Containerships, Terminals and Logistics. NYK’s containerships and related business includes revenue from Containerships, Air freighters and Logistics. APM-Maersk’s containerships and related business includes revenue from Terminal business. 14mol_英文_本文納品後修正.indd 26 14mol_英文_本文納品後修正.indd 26 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 27 Dry Bulkers (Thousand deadweight tons) 0 10,000 20,000 30,000 40,000 50,000 NYK MOL Oldendorff K Line Swiss Marine COSCO 35,760 0 5,000 10,000 15,000 20,000 16,874 20 40 60 80 67 40 80 120 119 160 MOL Fredriksen SCF NYK Teekay MISC MOL NYK Nakilat(*) K Line Shell MISC 0 0 MOL NYK K Line EUKOR HOEGH WWL 0 500 1,000 1,500 2,000 2,500 Source: Companies’ published data and Clarkson (March 2014) Tankers (Thousand deadweight tons) Source: Companies’ published data and Clarkson (March 2014) LNG Carriers (Number of vessels) *Qatar Gas Transport Company Ltd. Source: MOL (March 2014) Car Carriers (Number of vessels) Source: MOL (March 2014) Containerships (Thousand TEU) Maersk MSC CMA-CGM Evergreen COSCO Hapag+CSAV(*) Hanjin APL MOL CSCL NYK OOCL Hamburg Sud Yang Ming Zim K Line UASC Hyundai (*) simple summation of each company Source: MDS (February 2014) 513 14mol_英文_本文納品後修正.indd 27 14mol_英文_本文納品後修正.indd 27 2014/08/21 14:00 2014/08/21 14:00 28 Mitsui O.S.K. Lines Overview of Operations Bulkships Dry Bulkers Kenichi Nagata Senior Managing Executive Ofﬁ cer We will solidly and sustainably contribute to the overall performance of the Company by providing services that meet customer needs, securing stable proﬁ ts and strengthening market tolerability. Consolidated Revenues Breakdown (FY2013) General Cargo Carrier/ Heavy Lifter 8% Steaming Coal Carrier 13% Wood Chip Carrier 11% General Bulk Carrier 21% Iron Ore and Coking Coal Carrier 48% Dry Bulker Fleet Table Vessel Type Standard DWT At the end of Mar.2013 At the end of Mar.2014 Use Capesize 170,000 103 107 Panamax 72,000 Handymax Small handy Steaming coal carrier 55,000 28,000 93,000 Wood chip carrier 50,000 Other (Heavy lifter, General cargo carrier) 12,000 38 68 52 41 44 58 38 67 56 40 42 53 Total 404 403 Steel raw materials (iron ore, coking coal) Iron ore, coking coal, steaming coal, grains, etc. Steaming coal, grains, salt, cement, steel products, etc. Steel products, cement, grains, ores, etc. Steaming coal Wood chips, soybean meal, etc. Steel products, plants, etc. Fiscal 2013 in Review— Looking back on “RISE2013” MOL transferred sales and operations of dry bulker free vessels*1 from Tokyo to Singapore in the fourth quarter of ﬁ scal 2012 as the centerpiece of its Business Structural Reforms. The charter contracts of about 130 free vessels were trans- ferred at prevailing market rates to our Singaporean subsidiaries,*2 with the dif- ference between the original charter rates and then current market rates recorded as extraordinary loss. As the result, the MOL Group now features one of the world’s leading cost-competitive free vessel ﬂ eets and it is based in Singapore, which has become the cur- rent hub of seaborne transport in Asia. By ﬁ rmly establishing this business base in Singapore and endeavoring to secure proﬁ table cargo throughout ﬁ scal 2013, the ﬂ eet turned a proﬁ t amid mar- ket conditions, which were on average, below the general breakeven point over the ﬁ scal year. Also backed by ﬁ rm, con- sistent proﬁ ts from long-term contracts, including those for iron ore and coking coal carriers, steaming coal carriers and wood chip carriers, the entire dry bulk division was able to achieve its target of returning to proﬁ tability. Although the market for dry bulkers remained stagnate in the ﬁ rst half of 2013, the second half brought signiﬁ - cant improvement, especially for the largest vessel class (Capesize bulkers). Oversupply prevailed during the three years from 2010 to 2012, with more than 200 new Capesize bulkers complet- ed each year. In 2013, however, the number of newly delivered vessels dropped by half and, supported by robust Chinese imports of iron ore and coal, growth of demand outstripped that of supply. This brought about a much anticipated, genuine market recovery. While we have not seen improvement of the supply-demand situation for small and medium-sized vessels (Panamax size or under), the pace of newly completed vessels has begun to decelerate and the market did perform better on the whole than the previous year. Steaming coal carriers also performed quite well thanks to an increase in the volume of coal imports amid growing use of coal-ﬁ red electric power plants to meet base load power requirements in Japan. A recovery in demand for paper in tan- dem with the rebounding Japanese econ- omy boosted proﬁ ts in wood chip carriers, which also beneﬁ ted from new contracts of transport to China and India. With such an improved operating environment, the dry bulker division did not only turn a proﬁ t, it was able to exceed the forecast (announced on April 30, 2013) by 70%. I’d now like to touch upon two accom- plishments in ﬁ scal 2013, which contribut- ed to the improvement in proﬁ ts. The ﬁ rst is the increased level of slow steaming. Slow steaming is done to keep fuel costs down, but the reduced speed can cause a multitude of issues, includ- ing incomplete combustion. With a ﬁ rm understanding of these, we discovered solutions in terms of both hardware and 14mol_英文_本文納品後修正.indd 28 14mol_英文_本文納品後修正.indd 28 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 29 Main Routes Vessels Supply (Capesize) (Number of vessels) 300 200 100 0 -100 2008 2009 2010 2011 2012 2013 24% 16% 8% 0% -8% — Iron ore — Coal, grain and others (cid:2) Deliveries (cid:2) Demolitions YOY % Source: MOL internal calculation based on IHS-Fairplay Global Seaborne Trade of Major Dry Bulk Cargo China: Dependence on Imported Iron Ore (Million tons) 2008 2009 2010 2011 2012 2013 (Million tons) 1,200 900 600 300 0 0 500 1,000 1,500 2,000 2,500 3,000 (cid:2) Iron ore (cid:2) Coking coal (cid:2) Steaming coal (cid:2) Grain Source: MOL internal calculations based on various sources 80% 60% 40% 20% 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (cid:2) Crude steel production (cid:2) Imported iron ore(*1) (cid:2) Domestic production(*2) Import dependency (%) Source: MOL estimation (*1) on the premise of 62.5% Fe content (*2) 62.5% Fe content equivalent based on MOL estimate of run-of-mine Fe content software and, in the case of chartered vessels, promoted ship owners’ under- standing about these issues. The second is tangentially related to the ﬁ rst accomplishment. We became very aware of precisely where maritime trans- port ﬁ ts into our customers’ entire supply chain. Reducing speed under some cir- cumstances can cause trouble for our cus- tomers, but if we are aware of our clients’ manufacturing processes and stock levels, reducing speed can actually help control inventory and ease port congestion. MOL has gained the trust of its customers by developing and operating vessels of the optimum size to meet the requirements of their loading and discharging ports, as well as providing proposals and services, such as cargo supervision during unloading at destination ports. By keeping in mind exactly where we ﬁ t into their supply chain, the entire dry bulker division has come to realize that there are numerous win-win initiatives that will improve service for our customers and improve earnings for the Company. I call this kind of capacity our “ship- ping proﬁ ciency.” It may seem obvious, but as someone who has been involved in this division for quite some time, I can tell you that I really notice the positive impact and I have watched this proﬁ - ciency grow. By going back and reﬂ ect- ing on the basics of transporting our valued customers’ cargo, as was dis- cussed in last year’s annual report, we have achieved it. Moving ahead, our shipping proﬁ ciency will also support the business model we are striving for under “STEER FOR 2020.” “STEER FOR 2020” and the Outlook for the First Fiscal Year The market for dry bulkers over the dura- tion of “STEER FOR 2020” is expected to escape stagnation and to remain steadily above general vessel costs. Chinese iron ore imports, a source of frequent concern due to China’s economic adjustments, look set to increase as prices of iron ore exported by major natural resource com- panies are declining. Chinese domestic iron ore will gradually be overtaken by overseas iron ore, which also serves to pre- vent air pollution in the country. Orders for building dry bulkers, on the other hand, appear to be on a gradual decline heading into 2016, and this should help correct the supply-demand imbalance and improve market conditions. In light of these factors, especially the improved market conditions, ﬁ scal 2014 proﬁ ts for the dry bulker division are forecast to surpass the level achieved in ﬁ scal 2013. However, taking into account the cur- rent surplus of shipbuilding facilities around the world, we need to be aware of the risk of an upswing in the number of completed vessels after 2016. With this awareness, we will begin to shift focus under “STEER FOR 2020.” In accordance with its overall strategy, we will work to secure stable proﬁ ts, provide ser- vices to better meet customer needs and increase our market tolerability. Our divi- sion has already adopted this route, which essentially means returning to the basics of 14mol_英文_本文納品後修正.indd 29 14mol_英文_本文納品後修正.indd 29 2014/08/21 14:00 2014/08/21 14:00 30 Mitsui O.S.K. Lines ﬁ rst securing customers’ cargo, then oper- ating vessels to transport it. Or, to put it another way, we are making a clean break from the business model where we would ﬁ rst secure vessels, then operate them or contract them out, which was possible during times of tight supply and high demand for shipbuilding. Operating ves- sels is considerably more demanding of human power than the business of simply contracting them. Functioning as a guide- line for total risk control, however, it will be able to help us suppress the rapid, excessive growth of ﬂ eets. As previously mentioned, we have built a business and operations base in Singapore for free dry bulkers. Singapore is a hub of information regarding global sea- borne transport. Many of our key custom- ers, including the three largest natural resource companies, are based in Singapore and charged with making ship- ping decisions for their businesses. We are putting a lot of effort into being their busi- ness partner and shipping company of choice, by earning their trust through technical support, our track-record in ship- ping and our local presence for face-to- face communication. With our sights on a wide range of markets, including Australia, Southeast Asia, India and China, we will secure and combine diverse cargo, achieve more efﬁ cient operations with fewer bal- last voyages and generate proﬁ ts that exceed the market average. For both our Japanese and Singaporean ﬂ eets, we continue aiming to secure and renew long-term contracts for dedicated and large vessels mainly with iron and steel mills, electric power companies and major natural resource companies. In addition to the current shipping points, which include Australia and Brazil, they are looking into new shipping routes from Mozambique and other African countries as well as the Middle East, which exports semi-processed ores. For small and medium-sized vessels, we are planning to secure as many medium-term COAs*3 as possible when the timing is right. We will maintain the current scale of the dry bulker ﬂ eet as a basic policy. Having said so, we still plan to scrap ves- sels that have been rendered obsolete by recent improvements in fuel efﬁ ciency and those that do not meet environmental reg- ulations, as we continue to gradually switch over to energy efﬁ cient vessels with low environmental loads. Replacement in advance of the regulations is also an option. Improving the quality of our vessels has recently been a key to securing long- term contracts. While medium- to long- term charted vessels at the expiry of their contracts are being redelivered, we are responding to transport demands by increasing our ﬂ exibility in terms of scale and cost by leveraging short-term char- tered ships. So while the scale of the entire ﬂ eet will not change, looking into the details, we see that medium- to long-term contracts are increasing and our resilience to market conditions is strengthening as we continue the switch over to a higher quality ﬂ eet. insurance that we pay to manage mar- ket risk. If we utilize our “shipping proﬁ - ciency,” we can secure a certain proﬁ t through slow steaming, efﬁ cient opera- tions and optimum cargo combination even if we use these vessels. I believe the greatest strength of the dry bulker division is the know-how culti- vated over the 130 years of MOL’s vessel operations. We will meet and respond to the various needs of our customers and make a tidy and steady contribution to the results of the entire MOL Group. Likewise, our primary goal for proﬁ t- Glossary ability during “STEER FOR 2020” is to maintain the division’s proﬁ ts at this high level after a rebound in ﬁ scal 2013. However, with ongoing changes to the composition of our ﬂ eet we will trans- form our proﬁ t structure to make it even more stable and less susceptible to supply-demand ﬂ uctuations. To ensure stable proﬁ ts, we will secure as many contracts as possible to owned vessels and long-term chartered vessels. On the other hand, there may be times it is cost- ly to utilize short-term chartered vessels, which however can be thought of as *1 Free vessels: Vessels that don’t operate on contracts of more than 2 years and are thus exposed to changing market condi- tions. *2 Singaporean subsidiaries: MOL Cape (Singapore) Pte. Ltd. and MOL Bulk Carriers Pte. Ltd. Both are wholly owned subsidiar- ies of MOL based in Singapore. *3 COA (Contracts of Affreightment): A type of contract to transport cargo based on weight or volume. They are usually con- cluded on a long-term basis to transport large bulk cargoes of iron ore, coal or crude oil. The contracts are based on the volume of cargo transported and the deliv- ery period, so vessels are not speciﬁ ed and the method of transporting the cargo is left to the discretion of the shipping company. Iron Ore: Global Seaborne Trade by Country/Area (Million tons) 1,200 1,000 800 600 400 200 0 (cid:2) Others (cid:2) EU27 (cid:2) Taiwan (cid:2) Korea (cid:2) Japan (cid:2) China 13 Export Source: MOL internal calculation based on Tex Report, Clarkson, Trade Statistics 11 Import 12 08 09 10 13 (cid:2) Others (cid:2) India (cid:2) Sweden (cid:2) Canada (cid:2) South Africa (cid:2) Brazil (cid:2) Australia Steaming Coal: Global Seaborne Trade by Country/Area (Million tons) 1,000 800 600 400 200 0 (cid:2) Others (cid:2) North America (cid:2) EU27 (cid:2) Taiwan (cid:2) Korea (cid:2) Japan (cid:2) India (cid:2) China/Hong Kong Source: SSY (cid:2) Others (cid:2) Russia (cid:2) U.S. (cid:2) Columbia (cid:2) South Africa (cid:2) Australia (cid:2) Indonesia 08 09 10 11 Import 12 13 13 Export 14mol_英文_本文納品後修正.indd 30 14mol_英文_本文納品後修正.indd 30 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 31 Bulkships: Dry Bulkers The Capesize Bulker LAMBERT MARU 14mol_英文_本文納品後修正.indd 31 14mol_英文_本文納品後修正.indd 31 2014/08/21 14:00 2014/08/21 14:00 32 Mitsui O.S.K. Lines Bulkships Tankers Consolidated Revenues Breakdown (FY2013) Chemical Tanker 33% LPG Tanker 5% Methanol Tanker 7% Crude Oil Tanker 26% Product Tanker 28% Tsuneo Watanabe Senior Managing Executive Ofﬁ cer We will capture new cargo ﬂ ows and build up a competitive ﬂ eet with market tolerability, by leveraging intelligence gained as a comprehensive player in tankers for strong competitive advantage. Tanker Fleet Table (Number of vessels) at the end of March 2013 at the end of March 2014 Vessel type under pool management (at the end of March 2014) Crude oil tankers Product tankers*1 Chemical tankers*2 Including methanol tankers LPG tankers Total 47 61 75 11 194 38 59 72 11 180 VLCC (very large crude carrier, 300,000 DWT) LR1 (75,000 DWT) Chemical tanker VLGC (very large gas carrier, 80,000m3) *1 Petrochemicals: gasoline, naphtha, kerosene, jet fuel and gas oil, etc. *2 Chemical products: xylene, benzene, methanol and plant oil, etc. Fiscal 2013 in Review— Looking back on “RISE2013” The tanker division operates ﬁ ve types of vessels: crude oil tankers, product tank- ers, LPG tankers, methanol tankers and chemical tankers. Under RISE2013, the single-year management plan that aimed for a turnaround in proﬁ t for the MOL Group as a whole, this division endeav- ored to improve its operating efﬁ ciency by setting up pools with other operators and worked to reduce its fuel costs by slow steaming. In addition, we contin- ued to reduce the number of costly ves- sels operated for spot trading. Also backed by the favorable market condi- tions, we could greatly narrow our loss. Nevertheless, I hereby regret to report that the tanker business did not turn a proﬁ t and instead posted a loss for the ﬁ fth consecutive ﬁ scal year. This is not, however, the whole story. After a long struggle, chemical tankers and LPG tankers did manage to turn a proﬁ t. Methanol tankers expanded their proﬁ t. And crude oil tankers turned a proﬁ t for the second half of the ﬁ scal year. From this perspective, we can safely say that we have prepared a foundation from which the division can become proﬁ table in ﬁ scal 2014. In 2013, supply pressures were limited for very large crude carriers (VLCCs)—the largest ships used to transport crude oil— with 30 new vessels delivered and 20 withdrawn worldwide, resulting in a net increase of only 10 new carriers. Moreover, global oil demand grew by 1.2% and, although the volume trans- ported by sea was virtually unchanged from 2012, ton-miles increased in tandem with rising demand for long distance shipping, resulting in a modest improve- ment in supply and demand. Despite stagnant market conditions during the summer, when demand is typically low, trade surged after November as China and other Asian countries began stockpil- ing crude oil. Trade slid again following Chinese New Year, which began on January 31, but I perceived genuine mar- ket shift as it moved beyond the break- even-point for some time even during this sluggish period. Despite a strong start in the begin- ning of the ﬁ scal year, the product tanker market remained basically range-bound after June. The weak market restrained our ability to narrow the full year loss. The market that changed most in ﬁ s- cal 2013 was LPG tankers. The shale rev- olution helped spur U.S. LPG exports. Until then, the Middle East had been the center, but U.S. exports effectively split the LPG tanker market for very large gas carriers (VLGCs). U.S. exports were bound not only for Central and South America and Europe, but also Asia via the Cape of Good Hope. This brought about an increase in ton-miles, which easily absorbed 12 new VLGCs: a rela- tively large supply pressure given the global total of about 150 VLGCs. As a result, even during periods of lower demand, market conditions hardly dete- riorated and LPG tankers turned a proﬁ t. Methanol tankers are a specialized ves- 14mol_英文_本文納品後修正.indd 32 14mol_英文_本文納品後修正.indd 32 2014/08/21 14:00 2014/08/21 14:00 Main Routes — Crude Oil — Petroleum Products Vessels Supply (VLCC) (Number of vessels) 80 60 40 20 0 -20 -40 -60 8% 6% 4% 2% 0% 2008 2009 2010 2011 2012 2013 (cid:2) Deliveries (cid:2) Withdrawal YOY % Source: MOL internal calculations based on Clarkson (Note: Double hull only) sel type ﬁ rst developed by MOL, and we operate all of our methanol tankers on long-term contracts of 10- to 15-years. In addition to achieving increased proﬁ t in ﬁ scal 2013 by cutting costs, methanol tankers secured four long-term time-char- ter agreements for a total of 10 vessels, ensuring stable proﬁ ts into the future. In chemical tankers, Contracts of Affreightment (COA)(*) account for 80% of business with spot contracts account- ing for the remaining 20%. New vessel deliveries, which remained sizable until 2012, are expected to slow down and help tighten the supply-demand balance of vessels. In COA negotiations, we received more requests for multiple year contracts and freight rates also improved. Moreover, after successfully transferring the center of sales and ship operations to Singapore in October 2012, we improved operational efﬁ cien- cy by transporting Southeast Asian vege- table oil exports to India as spot cargo on the return trip from transporting Middle Eastern exports of chemical prod- ucts to Asia. This helped chemical tank- ers move into the black. “STEER FOR 2020” and the Outlook for the First Year In 2014, approximately 25 new VLCC deliveries are expected in a market that includes about 50 ships older than 15 years. Maintenance costs for older ships rise due to tighter safe operation stan- dards, and a rising number of oil majors are avoiding these vessels. This should shorten the time before the vessels with- draw. If these aging ships are withdrawn steadily, we can expect a net increase of just about 10 VLCCs. In addition, demand for oil is expected to increase by 1.3%. Although seaborne shipping vol- ume of crude oil is expected to remain stable, ton-miles are expected to increase by 2% to 3%. This will likely improve supply and demand balance. Because most U.S. shale oil is light crude, the revolution greatly reduced light crude oil trade from West Africa to the United States. On the other hand, Annual Report 2014 33 trade in heavy crude oil from the Middle East did not decrease as much. Moreover, China and India expanded imports of crude oil from West Africa and South America in addition to the Middle East, increasing ton-miles. In product tankers, exports from the Middle East and India are expected to increase as reﬁ neries in developed nations are shuttered. Using inexpensive shale oil as feedstock, the U.S. is produc- ing cost competitive petroleum products and is likely to enter Africa and other new markets in addition to Europe and South America. U.S. exports of LPG, a by-product of shale gas, are also expect- ed to steadily expand. There are still concerns, however, about the supply trend. In ﬁ scal 2013, we saw speculative orders for types of tankers likely to experience demand growth. LPG tankers maintained good market conditions into 2014, but fairly large numbers of new vessel deliveries, relative to the size of the market, are expected between 2015 and 2016. The actual number of new vessel deliveries for product tankers in 2013 was around 70% of orders, so if the ratio of vessel deliveries to orders increases after 2014, attention will need to be paid to chang- es in the supply and demand balance. Based on this understanding of the operating environment, the tanker busi- ness, following the overall strategies laid out in “STEER FOR 2020,” will continue to take various measures to adapt its ﬂ eet to a composition that has high market tolera- bility. As a result, our plan is to reduce the size of the ﬂ eet from 180 vessels at the end of ﬁ scal 2013 to 160 vessels at the end of ﬁ scal 2016. I believe this will help control downswings in earnings and bring the entire tanker division to proﬁ tability in ﬁ scal 2014, the ﬁ rst year of “STEER FOR 2020.” That way, the division will be able to solidly contribute to increasing proﬁ t for the entire MOL Group throughout the duration of the plan. In VLCCs, we will continue focusing on mainly long-term contracts and we will reduce vessels operated for spot trading while maintaining our ability to adequately respond to our customers’ short-term contract needs. In product tankers, we will reduce market exposure by relying more on market-linked chart- ed vessels. Even in LPG tankers, which are thriving in current market conditions, 14mol_英文_本文納品後修正.indd 33 14mol_英文_本文納品後修正.indd 33 2014/08/21 14:00 2014/08/21 14:00 34 Mitsui O.S.K. Lines we are aiming to secure proﬁ ts by con- cluding well-timed medium- to long- term contracts for a portion of vessels. Methanol tankers continue to gener- ate stable proﬁ ts through their long-term contracts. Moreover, with the increase in petrochemicals being produced with shale oil as a feedstock, there may be another product suited for transport in specialized ships, just as methanol is. By conceiving of and developing such spe- cialized ships, we seek to expand busi- nesses that result in secure, stable proﬁ ts. Chemical tankers, which trans- port a wide variety of chemical products simultaneously, also provide a fertile ﬁ eld of differentiation thanks to the require- ment for extensive shipping know-how and we expect continued steady increas- es in proﬁ ts. Going forward, we believe deep sea routes will be a growth area and are already reducing the number of coastal vessels. We aim to raise our prof- it levels by increasing cargo volume and strengthening our competitiveness through investments in large vessels. Although the shale revolution has greatly changed ﬂ ows of cargoes, fore- casts and predictions remain difﬁ cult given the possibility the outlook could change dramatically due to such key fac- tors as future crude oil prices or U.S. environmental regulations. For MOL to grow while meeting our customers’ needs, it is necessary to maintain a pres- ence as a key global player in each trans- portation ﬁ eld of crude oil, petroleum products and chemicals in order to suc- ceed in the face of this variability. If our presence is diminished, we could miss out on information and lose opportuni- ties for the new ﬂ ow of cargoes. As I mentioned previously, our plan is to reduce the number of vessels to decrease our market exposure risk for the duration of “STEER FOR 2020.” To maintain our presence, simultaneously, we will use a pool management system for various types of vessels. So as not to lose touch with our customers, we are committed to a policy of handling sales and operations of the pool by playing a role as pool manager. In this way, for the duration of “STEER FOR 2020” and with the trust of our cus- tomers, which we cultivated with our long track record of safe operations, the division will maintain a competitive ﬂ eet and secure new growth opportunities through active intelligence gathering. Glossary (*) COA (Contract of Affreightment) :Please refer to p30 (*3) Crude Oil: Global Seaborne Trade by Import Area (Million tons) Global Seaborne Trade from Africa/Latin America to Asia(*) (*) Japan, China, Korea, India (Million tons) 2009 2010 2011 2012 2013 forecast 2014 forecast 2008 2009 2010 2011 2012 2013 0 400 800 1,200 1,600 2,000 0 50 100 150 200 (cid:2) China (cid:2) Japan (cid:2) North America (cid:2) Europe (cid:2) Other Asia/Paciﬁ c (cid:2) Others Source: Clarkson (cid:2) ex. Africa (cid:2) ex. Latin America Source: MOL internal calculation based on Japan METI / China Custom / Korea Customs / India MCI Petroleum Products: Global Seaborne Trade by Import Area (Million tons) LPG: Global Seaborne Trade by Export Area (Million tons) 2008 2009 2010 2011 2012 2013 forecast 2007 2008 2009 2010 2011 2012 0 200 400 600 800 1,000 0 20 40 60 80 (cid:2) Japan/China/Korea (cid:2) Other Asia/Paciﬁ c (cid:2) Europe (cid:2) Latin America (cid:2) North America (cid:2) Africa (cid:2) Others Source: Clarkson (cid:2) Middle/Near East (cid:2) Europe (cid:2) Africa (cid:2) U.S. (cid:2) Others Source : Poten & Partners LPG in World Markets Year Book 14mol_英文_本文納品後修正.indd 34 14mol_英文_本文納品後修正.indd 34 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 35 Bulkships: Tankers The VLCC CHOKAISAN 14mol_英文_本文納品後修正.indd 35 14mol_英文_本文納品後修正.indd 35 2014/08/21 14:00 2014/08/21 14:00 36 Mitsui O.S.K. Lines Bulkships LNG Carriers/Offshore Businesses Main Routes Takeshi Hashimoto Managing Executive Ofﬁ cer As we accumulate long-term and stable proﬁ ts by capturing the rapidly increasing seaborne trade of LNG, we will also actively expand offshore businesses, which have signiﬁ cant growth potential, to build a new pillar of proﬁ t. Anticipated future routes LNG: Supply Forecast by Area 5% 7% 9% 2013 34% 278 million tons 22% 23% 10% 2020 (Forecast) 413 million tons 7% 5% 20% 25% 20% 14% (cid:2) Middle East (cid:2) Africa (cid:2) S/E Asia (cid:2) Australia/PNG (cid:2) South America (cid:2) Others (cid:2) North America Source: MOL internal calculation based on Poten & Partners Fiscal 2013 in Review— Looking back on “RISE2013” Thanks to stable proﬁ ts from long-term contracts, the LNG Carrier Division post- ed ﬁ scal 2013 proﬁ t in line with the pre- vious year. The single-year management plan “RISE2013” united all of the MOL Group in the common goal of regaining proﬁ tability. Under it, we were able to fulﬁ ll the Group’s expectations as a bear- er of stable proﬁ ts unaffected by market conditions. Global seaborne trade of LNG stood at roughly 240 million tons during 2013, unchanged from the previous year. However, in detail, global volumes grew in terms of ton-miles as increased demand in Asia offset decreased demand in Europe caused by lingering economic malaise, and LNG transport from the Atlantic region to Asia expanded. The LNG carrier business is character- ized by long lead times, often several years, between the time an order for a project is received and the time the new ship is delivered and contributing to proﬁ ts. In fact, all of the projects that contributed to proﬁ ts in ﬁ scal 2013 were secured in and before 2010. In ﬁ scal 2013, we secured four contracts for nine vessels (see the below table) that will lead to stable proﬁ ts in the future, beginning with an LNG ship for the Ichthys LNG Project in Australia, an order placed in May by Osaka Gas and Kyushu Electric Power. At earliest, these projects will begin contributing to earnings in 2016, but we achieved a great accomplishment in winning multiple contracts that will generate long-term stable proﬁ ts, sailing past our competitors in terms of out- standing orders. I believe the reason MOL was select- ed for these contracts lies in our plan- ning capabilities. We’re able to FY2013: Signed Long-Term Contracts LNG Carriers Tokyo Gas Osaka Gas /Kyushu Electric Power SINOPEC SINOPEC Peteronet Offshore Businesses Petrobras Tullow Ghana GDF Suez ex.USA To Japan 1 vessel To start in FY 2017 ex.Australia To Japan 1 vessel To start in FY 2019 ex.Australia ex.Australia ex.Australia To China To China To India 4 vessels 2 vessels 1 vessel To start in FY 2016 To start in FY 2017 To start in FY 2016 Brazil Ghana Uruguay FPSO FPSO FSRU To start in FY 2016 To start in FY 2016 To start in FY 2016 14mol_英文_本文納品後修正.indd 36 14mol_英文_本文納品後修正.indd 36 2014/08/21 14:00 2014/08/21 14:00 LNG: Supply/Seaborne Trade (Million tons) 450 400 350 300 250 200 150 100 50 0 2007 2008 2009 2010 2011 2012 2013 2014* 2015* 2016* 2017* 2018* 2019* 2020* *forecast (cid:2) Japan (cid:2) Korea (cid:2) China (cid:2) Taiwan (cid:2) India (cid:2) Europe (cid:2) Middle East (cid:2) Americas (cid:2) Others Liquefaction capacity Source: MOL internal calculation based on Poten & Partners accurately assess our customers’ needs and leverage our resources to provide a comprehensive proposal that our cus- tomers can appreciate. The keys to pro- viding optimum solutions are data collection capabilities that capture the details of seaborne transport demand, acumen for discerning individual cus- tomer needs, and then, above all else, our richest in-house resources: the world’s largest ﬂ eet and talents gained supporting that ﬂ eet such as vessel man- agement know-how, shipbuilding tech- nology and ﬁ nancing, and our extensive global network. Take, for example, a project that requires a new vessel to be built. We would assess whether custom- ers can use one of our current vessels in the time before the new one is delivered. We would also grope for an optimal solution by coordinating one project with others. By being creative in our approach to raising added value for our customers, we have differentiated our- selves from the competition. I believe that ﬁ scal 2013 was the year in which these expansive capabilities came to fruition. In the offshore businesses, MOL was also able to secure three long-term con- tracts in ﬁ scal 2013. Most remarkable of all was securing the FSRU*1 project in Uruguay. Previously European companies dominated the FSRU ﬁ eld. We are the ﬁ rst Japanese shipping company to inde- pendently enter this ﬁ eld. At 263,000 cubic meters of LNG storage capacity, the FSRU will be the world’s largest, proving MOL’s true capabilities in the off- shore business ﬁ eld. Since 2006, MOL has gained experience with FSRUs through a joint venture with a European shipping company. In addition, we have succeeded in ship-to-ship*2 operations, which require technical skills common to FSRU operations, in Tomakomai, Hokkaido Prefecture. As we build up this kind of experience, we’re very proud that our track record and technical capa- bilities, which we’ve cultivated over many years in the LNG carrier business, Annual Report 2014 37 are being recognized by the customers of the FSRU project above. Fiscal 2013 marked a major turning point for the offshore business, as we were able to successfully enter the FSRU business at long last. “STEER FOR 2020” and the Outlook for the First Fiscal Year By 2020, global demand for ocean trans- porting of LNG is expected to grow to over 400 million tons per year, up from 240 million tons. The shale revolution has become a reality in North America, but large reserves of shale gas have been conﬁ rmed not only in North America but also throughout the world. In addition, conventional large-scale natural gas ﬁ elds have been discovered in eastern Africa and other regions. As the need for gas to supply base load electric power grows due to nuclear power issues in Japan and air pollution issues in China and India, future demand for natural gas seems likely to outpace the growth rate in overall energy demand. Accompanying this trend, demand for LNG carriers is expected to increase from the current 370 vessels to around 550 vessels. Considering the geographi- cal relationships between new natural gas sources and Asia, where demand will rise, ton-miles will rise beyond present levels. There are currently about 100 outstanding orders in the world, but if you include demand for replacing older ships, which is around 50 to 100 ships, it would likely mean that an additional 120 ships would be built going forward. Considering the expected growth, MOL is conﬁ dent the LNG carrier and offshore businesses can secure long-term stable proﬁ ts. So, we set these two busi- nesses at the core of “STEER FOR 2020”, which holds the innovation of MOL’s business portfolio as one of its pillars. Targets call for the two businesses to expand and comprise 26% of our assets at the end of ﬁ scal 2019, three times as much as at the end of ﬁ scal 2013. This is why MOL plans to invest ¥700 billion of ¥1,130 billion total investment in the LNG carrier and offshore businesses dur- ing the term of “STEER FOR 2020.” By expanding the LNG carrier ﬂ eet to 120 vessels by the end of ﬁ scal 2019, we will reinforce MOL’s dominant position. 14mol_英文_本文納品後修正.indd 37 14mol_英文_本文納品後修正.indd 37 2014/08/21 14:00 2014/08/21 14:00 38 Mitsui O.S.K. Lines For that reason, MOL is not only going after conventional LNG contracts, for which there is a comparatively high level of competition, but also more chal- lenging contracts. Prime examples would be projects to build LNG carriers at Chinese shipyards or the Russian Yamal LNG project which will develop the Northern Sea Route. For contracts that present a high level of technical difﬁ cul- ty, the technical, ship management and business divisions will unite to work with the aim of ensuring a higher level of proﬁ tability. We are optimizing the port- folio of the LNG carrier business by com- bining conventional LNG contracts with these more challenging ones. In parallel, it is absolutely critical that we recruit and train capable seafarers for our LNG carriers to keep pace with our expanding ﬂ eet. LNG is transported at minus 162 degrees Celsius with a por- tion of it continuously vaporizing. MOL needs seafarers who possess a high degree of knowledge and skill in terms of maintaining the correct temperature and pressure inside the tanks of LNG carrier. There are about 20 seafarers aboard each LNG carrier, but including reserves, we would need to recruit about 40 seafarers per carrier. This means we would need over 2,000 seafarers to increase the size of our ﬂ eet to over 50 carriers. To say that the recruitment and training of seafarers will be the key to success for “STEER FOR 2020” is no overstatement. Fortunately, the MOL Group boasts the world’s largest ﬂ eet and many expe- rienced seafarers. We can draw capable seafarers from across the Group, those who have worked on tankers and other types of vessels, and train them to be professional LNG carrier seafarers by giv- ing them experience, judgment and skills to safely manage ship operations through training at our practice facilities around the world or hands-on training aboard existing LNG carriers. Obviously this kind of training cannot be done overnight, so we have already begun training in preparation for the 2016 –17 period when a large number of new ships will be delivered. Manning our existing ships with trainees will tempo- rarily inﬂ ate seafarer training expenses and will suppress proﬁ ts from ﬁ scal 2014. But we regard them as upfront investments to seize a “one-in-a-million” opportunity. They will contribute to long- term stable proﬁ ts beginning in ﬁ scal 2016, when those trainees will start to stand conﬁ dently on their own two feet and new LNG carriers will be delivered. Like the LNG carrier business, the off- shore businesses collectively constitute another major source of long-term sta- ble proﬁ ts. At the start of “STEER FOR 2020,” the Offshore Business Ofﬁ ce, which had been one of the groups in the LNG Carrier Division, was upgraded to the Offshore and LNG Project Division, launching a new system to strengthen company-wide initiatives. At present, MOL has ﬁ ve contracts for FPSOs*3, one of which is in operation, and one con- tract for an FSRU. While aiming to accu- mulate additional investments in FPSOs and FSRUs, we will also explore entering the FLNG*4 business in the medium- to long-term to establish a third major busi- ness ﬁ eld following FPSOs and FSRUs. There are a wide range of ﬁ elds within offshore businesses, but MOL will focus its investments in ﬁ elds where MOL can leverage its know-how cultivated as a shipping company and can secure long- term contracts that promise stable proﬁ ts. Because FSRUs can be set up at lower cost and in shorter time than onshore LNG receiving terminals, demand is rap- idly expanding, especially in emerging markets. Due to the difﬁ culty of trans- porting natural gas compared to coal or petroleum, it typically used to be con- sumed relatively close to the production site or exported to Japan and other developed nations capable of shoulder- ing the large costs associated with build- ing LNG terminals. With the introduction of FSRUs, however, new trade patterns for LNG are emerging and demand for seaborne transport is expected to take off. Consequently, FSRUs are expected to have synergy with the LNG carrier busi- ness, and leveraging MOL’s core compe- tency of safety management expertise in LNG carriers will provide MOL with clear competitive advantage. So, going forward, we will actively expand this business. For the growth of MOL in the medi- um- to long-term, offshore businesses may prove capable of serving as the back bone of the entire Group. The already signed contracts will begin to contribute to proﬁ ts in a big way in 2016 when these projects will be in operation. I would like to develop this business as a strong second to the LNG carrier business, so both can deliver long-term stable proﬁ ts. Glossary *1 FSRU (ﬂ oating storage and regasiﬁ ca- tion unit): A facility for storing LNG off- shore, where LNG returns to its gaseous form for distribution by pipeline to land. *2 Ship-to-ship: Operation to transfer cargo between seagoing ships, such as LNG carri- ers or tankers, positioned alongside each other. When a port’s facilities are too small for large vessels, the loads are transferred offshore to or from small- and medium- sized vessels compatible with the port’s facilities. *3 FPSO (ﬂ oating production, storage and ofﬂ oading system): A facility for produc- ing oil offshore. The oil is stored in tanks in the facility and directly ofﬂ oaded to tankers for direct transport to the destination. *4 FLNG (ﬂ oating LNG): Also called LNG FPSO. A facility for producing natural gas off- shore. The natural gas is liqueﬁ ed at minus 162 degrees Celsius, stored in tanks in the facility and directly ofﬂ oaded to LNG carri- ers for direct transport to the destination. 14mol_英文_本文納品後修正.indd 38 14mol_英文_本文納品後修正.indd 38 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 39 Bulkships: LNG Carriers and Offshore Businesses The LNG Carrier LNG PIONEER 14mol_英文_本文納品後修正.indd 39 14mol_英文_本文納品後修正.indd 39 2014/08/21 14:00 2014/08/21 14:00 40 Mitsui O.S.K. Lines Bulkships Car Carriers Main Routes Junichiro Ikeda Senior Managing Executive Ofﬁ cer As we have a nimble ﬂ eet deployed globally, the trend toward local production and local consumption poses not only as a challenge, but also as an opportunity to capture increasingly diverse trade ﬂ ows. Global Car Seaborne Trade (Thousand units) (excluding CKD) 2008 2009 2010 2011 2012 2013 0 6,000 12,000 18,000 (cid:2) Exports from Japan (cid:2) Exports from Korea (cid:2) Others Source: MOL internal calculation based on Trade Statistics of Japan (MOF), etc. Fiscal 2013 in Review — Looking back on “RISE2013” Global auto sales reached 84 million units in 2013, a new record high for the third straight year. The number of vehi- cles transported by sea worldwide also reached a new record high of over 15 million units. Despite a weakening yen, however, the number of vehicles export- ed from Japan declined as Japanese automakers continued shifting manufac- turing toward end markets, stepping up local production for local consumption. Under these circumstances, we increased business in such areas as cross trade from countries other than Japan as well as inbound cargo, such as that exported from Europe to China, and worked to secure new business opportunities. As a result, we experienced a signiﬁ cant year- on-year improvement in our business performance. In the ongoing diversiﬁ cation of trade patterns, our efforts to minimize ballast voyages have come to fruition by com- bining cargo from various loading and unloading ports together. In the past, the main routes for sea- borne transport of automobiles were from Japan to Europe and the U.S. Today, however, more countries are pro- ducing and consuming automobiles, forming a rich web of trade. Export countries now span Thailand, Mexico, China, India, Indonesia, Turkey, Morocco, South Africa and beyond. In addition, ships unloading import vehicles in Europe depart after loading large vol- umes of vehicles bound for Asia and other markets. In this changing business environment, it is vital to respond ﬂ exibly to information concerning loading and discharging locations, which changes by the day. The increasing number of vehi- cles we transport on cross trades and inbound trades demonstrates our ability for it. In March 2014, MOL commenced ocean transport services for vehicles being exported from Mexico. In recent years, many automakers have been rush- ing to build and enlarge plants in Mexico, and automobile production is estimated to increase by more than 10% per year for the next several years. Around three million vehicles were pro- duced in Mexico in 2013, with about 80% of them exported. As this trend appears robust, MOL launched services to the United States, the largest destina- tion for Mexican made vehicles, creating a system to meet these increased cus- tomers’ needs. “STEER FOR 2020” and the Outlook for the First Fiscal Year Looking ahead, global auto sales are likely to grow to 86.5 million units in 2014. Growth in China and the United States is projected to remain ﬁ rm, while a sales recovery for the European market is expected in tandem with an upturn in the economy. Looking even further, global auto sales, especially in emerging nations, are 14mol_英文_本文納品後修正.indd 40 14mol_英文_本文納品後修正.indd 40 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 41 Car Export from Japan by Destination (Thousand units) (excluding CKD) 8,000 6,000 4,000 2,000 0 (cid:2) Oceania (cid:2) Latin America (cid:2) Africa (cid:2) Middle East (cid:2) Asia (cid:2) Europe (cid:2) North America Source: Trade Statistics of Japan (MOF) 2008 2009 2010 2011 2012 2013 Car Export from Emerging Countries (Thousand units) 6,000 4,000 2,000 0 (cid:2) ex. Mexico (cid:2) ex. South Africa (cid:2) ex. India (cid:2) ex. China (cid:2) ex. Thailand 2008 2009 2010 2011 2012 2013 Source: MOL internal calculations based on FOURIN data, etc. expected to remain on a solid upward trajectory with sales of 90 million units in 2015. Sales could conceivably hit the 100 million mark in 2019, the last ﬁ scal year of “STEER FOR 2020.” Naturally, the seaborne transport of automobiles would rise in tandem, but production geared to local markets is likely to con- tinue expanding while Japanese exports are expected to fall, leading to shorter transport distances. Amid these circum- stances, in ﬁ scal 2014, costs will rise due to the launch of new services from Mexico to North America and in South America. As a result, we forecast an appreciable decrease in proﬁ ts compared to the previous year. We cannot rule out the possibility that Japanese automakers will bring pro- duction back to Japan and again increase exports if they are sure that the yen will remain weak for several years. However, the trend toward local produc- tion is quite strong and unlikely to let up in the next two to three years. This trend not only affects Japan; it is also becom- ing stronger among European automak- ers as well. The shift in ﬂ ow of cargo is a risk and, at the same time, an opportuni- ty in this sense. In light of this operating environ- ment, MOL’s car carriers business will push ahead with existing strategies under the “STEER FOR 2020” plan. Our customers not only seek to increase local production, but increasingly to produce the same model in several countries. By doing so, they can respond ﬂ exibly to exchange rate ﬂ uctuations, seeking the most proﬁ table combination of produc- tion sites to sales destinations. To do this, they are establishing the necessary manufacturing network. Thus, we must try to change our shipping routes pliably in responding to customers’ needs. At the same time, we must offer services that help customers reduce their logistics costs in case they have other routing alternatives such as railroads and other forms of cargo transportation. While providing services that completely meet these changing transport needs, MOL continues its tireless efforts to thorough- ly reduce ballast voyages by ﬁ nding the best combination of freight among these diverse trade patterns. Success in this endeavor will fully leverage the strengths of our car carrier ﬂ eet. The company has continued to align its ﬂ eet by making car carriers capable of transporting 6,400 small pas- senger cars MOL’s standard. These car carriers have high usability in various sea lanes and ports across the globe, and now account for over 60% of the vessels in our car carrier ﬂ eet. This makes it easi- er for us to dispatch a replacement ves- sel of the same size in response to problems that hinder shipping schedules such as bad weather or port congestion. Customers can safely entrust us with their shipping needs. Another one of our strengths lies in our global network of sales and market- ing bases spanning Asia, Australia, South Africa, Europe, South America and North America. Being able to share the latest information across this network allows us to offer our services to customers anywhere in the world. Through its more efﬁ cient operations, MOL is also maxi- mizing synergy with its consolidated sub- sidiary Nissan Motor Car Carrier Co., Ltd. MOL’s swift decision-making is also one of its strengths. Beginning cross- trade transport in the 1990s signiﬁ ed our strength as a pioneer as well, and this was underpinned by swift decision- making. When it comes to increasing cargo volume through cross trade, we don’t get caught up in short-term proﬁ tability. Instead, we assess the potential of mid- to long-term developments. Upfront investment is often essential. Sometimes you need to initiate service to discover the full potential. As a result, MOL has managed to uncover opportunities for shipments that would have gone unno- ticed if we had not rapidly decided to launch service. For example, after increasing the frequency of service in inter-South East Asia routes, we realized that besides the cargo we had been con- tracted to transport, there was a lot of additional cargo moving around, such as used construction machinery and trailers. And with our new previously mentioned 14mol_英文_本文納品後修正.indd 41 14mol_英文_本文納品後修正.indd 41 2014/08/21 14:00 2014/08/21 14:00 42 Mitsui O.S.K. Lines service out of Mexico, we quickly uncov- ered various unmet transport needs that we had not been able to grasp before beginning the service. In addition, even when a single cross-trade shipment does not break even, it can still be a catalyst to create sustainable services when linked with other cargo trends. We are able to achieve ﬁ rst-mover advantage and create services that other competitors cannot match by identifying new emerging needs as well as the future growth poten- tial of shipping routes, swiftly making decisions, and rapidly building our ship- ping track record. The development of inland infrastruc- ture in emerging markets helps increase our loading volumes there. MOL will adhere to its existing policies for develop- ment and implement them as necessary. In India, we relatively recently got into the inland transport business as well as the automobile terminal business at Ennore Port. Also, we are engaged in operating terminals in Australia and Turkey. However, we believe it is imperative that each endeavor maximizes synergies with our main business of maritime transport or strengthens relationships with custom- ers expanding into those areas. “STEER FOR 2020” will continue MOL’s aim for improving both proﬁ tability and customer satisfaction. We will contin- ue to meet the challenge of increasingly complex and diverse seaborne trade. We will dare not to plant the conventional pivot foot, but rather create a resilient system that adapts adroitly to our cus- tomers’ needs by changing our shipping routes ﬂ exibly as we pursue ever more efﬁ cient vessel allocation and operation. 14mol_英文_本文納品後修正.indd 42 14mol_英文_本文納品後修正.indd 42 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 43 Bulkships: Car Carriers The Car Carrier CRYSTAL ACE 14mol_英文_本文納品後修正.indd 43 14mol_英文_本文納品後修正.indd 43 2014/08/21 14:00 2014/08/21 14:00 44 Mitsui O.S.K. Lines Containerships Revenue Breakdown by Trade (Results of FY2013) North America Trade 37% Asia Trade 20% North-South Trade 13% Europe Trade 29% Main Routes (cid:3) Container Terminal Business Toshiya Konishi Managing Executive Ofﬁ cer Working to secure cost competitiveness and a source of stable proﬁ ts, we will transform our containership business into the one that can sustainably generate proﬁ ts. Fiscal 2013 in Review— Looking back on “RISE2013” In ﬁ scal 2013, the containership business reduced costs by about ¥20.0 billion thanks mainly to fuller implementation of slow steaming and other measures to reduce fuel expenses, the G6 Alliance’s expansion to the Asia-North America East Coast route in May 2013 to improve operating efﬁ ciency, and reductions in container handling and on-carriage expenses. A weaker yen and lower bun- ker prices also played a role, but all of these factors were negated by falling freight rates. And with the loss caused from the incident of the containership MOL Comfort in June 2013, we record- ed an ordinary loss of ¥14.5 billion. This division must still work toward the goal of recovering proﬁ tability as set forth in “RISE2013.” I would like to take this opportunity to once again express my most sincere apolo- gies to all of our customers and everyone affected by the MOL Comfort incident. Global seaborne trade remained ﬁ rm overall. In 2013, Asian exports to North America grew 3.4%, supported by a sta- ble U.S. economy. After the European economy bottomed out, exports to Europe recovered in the second half of the year, climbing 4.8% for the full year. Despite economic uncertainty and politi- cal unease in some countries, Inter-Asia trade and North-South trade both expanded, helping raise global contain- ership trade 3.9% during 2013. On the other hand, global vessel sup- ply rose 5.5% as signiﬁ cant numbers of ultra-large containerships with capacity exceeding 10,000 TEU were delivered for the third year in a row. This further delayed an improvement in the supply- demand balance and also had a destabi- lizing effect on freight rate levels. Freight rates greatly declined, especially in the ﬁ rst half of the year, in both Asia-Europe routes, which had persistent deliveries of large containerships, and Asia-South America East Coast routes, to which the replaced vessels cascaded over. Although we did our best to maintain stable reve- nue by securing more long term freight contracts and by adjusting our capacity to reduced demand during slack sea- sons, average freight rates across all routes in ﬁ scal 2013 tumbled 8% year on year. As I said before, this essentially erased our gains from cost-cutting and other factors, and was a major reason our loss expanded by ¥3.2 billion. Many other containership companies around the world also fell into the red amid this harsh environment. Of the 15 major shipping companies that disclose their earnings, only three were able to post a proﬁ t in ﬁ scal 2013. The less com- petitive companies have reached the point where they cannot bear any fur- ther decreases in freight rates. Even though the containership division posted a loss, our ranking by proﬁ t margin is improving thanks to the cost-cutting measures set out in the division’s own medium-term plan “Operation CORE,” 14mol_英文_本文納品後修正.indd 44 14mol_英文_本文納品後修正.indd 44 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 45 Containership Seaborne Trade (1995 = 100) Asia-North America Container Trade Cargo Movements (Excluding Canada cargo) (Million TEU) 400 300 200 100 0 Source: MOL internal calculations based on the Clarkson Shipping Review & Outlook Spring 2014 15 10 5 0 2008 2009 2010 2011 2012 2013 1995 2000 2005 2010 2013(estimated) Source: Piers/JoC etc. (cid:2) Eastbound (cid:2) Westbound Global Containership Capacity by TEU Size Range (Thousand TEU) Asia-Europe Container Trade Cargo Movements (Including Mediterranean cargo) (Million TEU) 20,000 15,000 10,000 5,000 0 (cid:2) 12,000TEU~ (cid:2) 10,000- 11,999TEU (cid:2) 8,000- 9,999TEU (cid:2) 5,100- 7,999TEU (cid:2) 3,000- 5,099TEU (cid:2) ~2,999TEU yoy % 2008 2009 2010 2011 2012 2013 Source: MOL internal calculations based on Alphaliner / IHS-Fairplay 20% 15% 10% 5% 0% 15 10 5 0 (cid:2) Westbound (cid:2) Eastbound Source: Drewry 2008 2009 2010 2011 2012 2013 launched in 2012. I believe the key to improving proﬁ tability for the division is in pursuing the goals set out in “Operation CORE,” including reinforce- ment of our brand value by disclosing and improving key performance indica- tors, such as on-time performance per- centages. “STEER FOR 2020” and the Outlook for the First Year Through “STEER FOR 2020” the contain- ership business will more fully implement the strategies already laid out in “Operation CORE.” In short, we aim to improve proﬁ tability by reducing unit cost, the cost to transport one container, as we formulate plans based on the assumption that freight rates will contin- ue to decline gradually in the medium- to long-term. The centerpiece of the unit cost reduction measures is launching larger vessels to reduce the vessel cost and fuel expenses per unit. Together with higher fuel and operating efﬁ ciency through slow-steaming, comprehensive operation management and the G6 Alliance’s expansion to Asia-North America West Coast routes and Transatlantic routes in May 2014, this will reinforce our cost- competitiveness by a total of ¥30.0 bil- lion over the three-year period from ﬁ scal 2014 to 2016. We already added four of the latest model 14,000-TEU capacity container- ships to our ﬂ eet in ﬁ scal 2013 and one in April 2014, all of which already began operating on Asia-Europe routes. From July 2014 to ﬁ scal 2016, we will succes- sively roll out ten 10,000-TEU capacity containerships to operate Asia-Europe and Asia-North America West Coast routes. And by reducing the number of less fuel-efﬁ cient small and medium- sized vessels, we will further improve the whole ﬂ eet’s cost competitiveness. In addition, we plan to improve prof- itability ¥8.0 billion by increasing reve- nue from non-ocean-freight charges and raising our slot utilization rates over three years under “STEER FOR 2020.” During that same time, we also plan to increase stable income by ¥9.0 billion from the container terminal and logistics businesses. Putting all these together, we plan to achieve ¥30.0 billion in ordinary income in the containership business in ﬁ scal 2016. In ﬁ scal 2014, the ﬁ rst year of the plan, we forecast a return to proﬁ t with ¥2.0 billion in ordinary income. To ensure we succeed, we are streamlining operations in North-South routes, where inefﬁ ciencies prevented us from improv- ing proﬁ ts as much as competitors in ﬁ s- cal 2013. These efforts include the switch over in June 2014 to the direct Asia-West Africa route around the Cape of Good Hope instead of transhipment via the Mediterranean. The major contributor to increasing stable earnings in the container terminal business is our U.S. subsidiary TraPac, Inc., which carried out construction at 14mol_英文_本文納品後修正.indd 45 14mol_英文_本文納品後修正.indd 45 2014/08/21 14:00 2014/08/21 14:00 46 Mitsui O.S.K. Lines Share by Major Carrier Alliance of the North America Routes Share by Major Carrier Alliance of the Europe Routes Others 12% CMA-CGM 6% MSC 7% Maersk 9% Evergreen 9% Others 11% G6 20% CKYHE 23% CKYH 24% G6 33% Maersk 20% MSC 15% CMA-CGM 11% Source: Alphaliner Monthly Monitor June 2014 Source: Alphaliner Monthly Monitor June 2014 the Port of Los Angeles in ﬁ scal 2013 to increase automation using IT technology. This increasing cost-competitiveness will boost proﬁ ts in ﬁ scal 2014. In addition, the container terminal at Rotterdam Port, 20% of which is owned by MOL, will begin operations in October 2014. Furthermore, with the aim of expanding our overseas terminal business in the long-term, we transferred a portion of shares of TraPac, Inc.’s holding company to the major Canadian fund Brookﬁ eld Asset Management Inc. in January 2014 to form a strategic alliance. By leverag- ing both the MOL Group’s high-quality, high-efﬁ ciency terminal operation know- how and Brookﬁ eld’s practical knowl- edge gained from solid accomplishments in the infrastructure business in emerg- ing markets, we plan on expanding our business into ports across Central and South America and beyond. To understand the proﬁ tability of the containership business in the medium- to long-term, it is important to consider how the trend of further introduction of larger vessels will proceed. Looking back on the trend toward larger vessels, it took around 20 years to go from 800 TEU to 4,000 TEU capacity ships, about 10 years to go from 4,000 TEU to 8,000 TEU capacity ships but just four years to go from 8,000 TEU to 14,000 TEU capacity ships. Higher fuel efﬁ ciency is the major driver of the switch to larger vessels and this trend has greatly acceler- ated since the sharp rise in crude oil pric- es. With each shipping company chasing larger vessels, this trend has led to a so- called fallacy of composition. This has resulted in an overabundance of vessels and falling freight rates, forcing many shipping companies to languish in unproﬁ tability. We, however, expect this trend toward larger vessels to hit the brakes soon. First, we have reached the limit of cost reductions enabled by larger vessels. Cost reductions are biggest when the routes are long and the ports are few, so while large vessels are used on European routes, they are still restricted by the physical limitations of the Suez Canal. The largest containerships at present have a capacity of 18,000 TEU, but it is our view that it would not be economi- cal to build vessels larger than this given the amount of steel necessary to ensure a vessel’s integrity, in addition to the technical and structural difﬁ culties. And second, it is unlikely that the number of large vessels will continue to rise. Since beneﬁ ting from the economies of scale by using large vessels depends on maxi- mizing an efﬁ cient slot utilization rate, it clearly would not be economical to have ultra-large vessels deployed on every loop in East-West routes. We can expect improvement in busi- ness environment and proﬁ tability for containerships after 2016 and 2017, when the large vessels ordered to date will be delivered. The containership busi- ness will transform into a business that can sustainably generate proﬁ ts as we earn more trust from customers by con- tinuously improving the quality of our transportation and as we strive to secure stable sources of income and cost-com- petitiveness through “STEER FOR 2020.” Glossary (*) The G6 alliance: An alliance of six compa- nies and represents the integration of TNWA [MOL (Japan), APL (Singapore) and Hyundai (Korea)] and the Grand Alliance [NYK (Japan), Hapag-Lloyd (Germany) and OOCL (Hong Kong)]. The alliance began operating jointly in Asia–Europe (Northern Europe and Mediterranean) routes in March 2012 and expanded its framework to include North American East Coast routes in May 2013 and North America West Coast routes and Atlantic routes in May 2014. 14mol_英文_本文納品後修正.indd 46 14mol_英文_本文納品後修正.indd 46 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 47 Containerships TraPac Los Angeles Container Terminal 14mol_英文_本文納品後修正.indd 47 14mol_英文_本文納品後修正.indd 47 2014/08/21 14:00 2014/08/21 14:00 48 Mitsui O.S.K. Lines Ferry & Domestic Transport Hirokazu Hatta Managing Executive Ofﬁ cer Pouring our efforts into enhancing our services to better meet customer needs while reinforcing our operational safety and transportation quality, we will strive to capture burgeoning domestic transport demand. Fiscal 2013 in Review— Looking back on “RISE2013” The ferry & domestic transport segment comprises the ferry business, which transports passengers, automobiles and trucks along Japan’s largest network, and the domestic transport business, which transports cement, heavy oil, steel, coal, salt and other cargoes. In ﬁ s- cal 2013, we recorded ¥2.2 billion in ordinary income. This ¥0.9 billion increase from the previous year resulted in part because Abenomics thankfully helped the Japanese economy recover and the ferry business completed a series of route rationalizations in April 2013. The results exceeded start-of-ﬁ scal-year expectations by ¥0.8 billion and we were able to contribute to the MOL Group’s target of achieving proﬁ t recovery as outlined in “RISE2013.” The ferry division saw a year-on-year increase of 4% in passengers, 3% in automobiles and 4% in trucks transport- ed. In addition to a strong performance for cargo transport, we were able to suc- cessfully shore up signiﬁ cant passenger demand by boosting TV commercials, improving internal ship services such as adding local specialties to our menus, and strengthening product tie-ups with bus companies and airlines. Turning to domestic transport via general cargo ships, the transport of steel boomed due to the rebounding economy in addition to demand arising from recovery efforts for the Great East Japan Earthquake. An obvious shortage of vessels emerged, but the MOL Group was able to actively capture this demand by more efﬁ ciently deploying ships. “STEER FOR 2020” and the Outlook for the First Fiscal Year I believe the ferry & domestic transport segment will continue to strongly expand in 2014 and beyond, helped by ﬁ rm trade arising from Japan’s recover- ing economy and full-scale reconstruc- tion work. Amid a shortage of truck drivers and an increase of labor practices aimed at reducing overtime, there is growing awareness by truck operators that using night-time ferry operations is superior in terms of cost, safety and environmental impact. This will accelerate the shift from inland transport to ferries, providing us with another major opportunity. As for passengers, we will continue our efforts to raise brand awareness through adver- tisements and promote attractive travel packages, aiming to create new demand. Going forward, we will align our ﬂ eet with the goal of switching over to more energy efﬁ cient vessels while working to promote our environmental performance and lower costs. As for domestic transport, we aim to expand the scope of our business opera- tions supported by the solid partnerships we have formed with ship owners in Japan, even though the shortage of ves- sels and crew members appears likely to continue due to expanding demand. This segment will continue to contrib- ute to proﬁ t growth for the MOL Group throughout the entire period of “STEER FOR 2020.” We will pour our efforts into enhancing our services to better meet customer needs while also reinforcing our safe operations and transportation quality. We foresee ordinary income of ¥3.0 billion for ﬁ scal 2014. 14mol_英文_本文納品後修正.indd 48 14mol_英文_本文納品後修正.indd 48 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 49 Ferry & Domestic Transport The Ferry SUNFLOWER FURANO 14mol_英文_本文納品後修正.indd 49 14mol_英文_本文納品後修正.indd 49 2014/08/21 14:00 2014/08/21 14:00 50 Mitsui O.S.K. Lines Associated Businesses Hirokazu Hatta Managing Executive Ofﬁ cer While meeting market needs and growing demand in Japan and other Asian countries, we will serve as a bearer of stable proﬁ t to underpin the Group’s proﬁ t growth. Fiscal 2013 in Review— Looking back on “RISE2013” This segment comprises MOL’s real estate, tugboat, cruise ship, trading and other businesses. Real estate, especially Daibiru Corporation, accounts for a large portion of proﬁ ts and is a main pillar supporting the segment’s stable proﬁ ts. In Daibiru Corporation’s main operating areas of Tokyo and Osaka, signs of a mar- ket rebound accompanying the broader economic rebound did appear, but failed to lead rent levels higher during ﬁ scal 2013. Nevertheless, Daibiru sustained solid business performance with well above average occupancy at its ofﬁ ce buildings. Cruise ship passengers increased from summer 2013 onward, thanks in part to the rebounding economy. This narrowed losses, but did not result in a turnaround. Business performance for tugboats and trading companies remained ﬁ rm. Overall, the associated businesses recorded ordinary income of ¥11.1 bil- lion, achieving increased revenues and earnings. “STEER FOR 2020” and the Outlook for the First Fiscal Year The associated business shall underpin the entire MOL Group’s proﬁ t growth with real estate and tugboats remaining major sources of stable proﬁ ts. We are committed to further improving earnings across all ﬁ elds. Daibiru embarked on a new medium- term management plan entitled “Design 100” Project Phase-I in April 2013. This ﬁ ve-year plan, which continues through the end of ﬁ scal 2017, aims to expand revenues and proﬁ ts by approximately 20%, thus allowing the company to continue making steady contributions to MOL Group’s stable earnings. The Daibiru-Honkan Building, which was completed in Osaka in February 2013, has exceeded original targets and is per- forming strongly. Daibiru will concen- trate efforts on securing even more tenants and improving occupancy levels. The company is currently engrossed in negotiations with prospective tenants for the Shin Daibiru Building, which is slated for completion in March 2015. Turning overseas, Daibiru expanded into Ho Chi Minh City, Vietnam in January 2012 with the purchase of a high-grade building and maintained high occupancy. The company is now moving forward to acquire another property in the country. The tugboat business, serving at the very frontline of shipping, will continue to take the lead in reinforcing the Group’s safe operating structure as outlined in “STEER FOR 2020.” It will expand its business in domestic ports and also strive to capture new demand in ports through- out economically booming Southeast Asia by leveraging the MOL Group’s track record and wealth of experience. In addi- tion, we will continue to seek growth opportunities in related ﬁ elds of offshore businesses and realize innovation throughout our business domain in accor- dance with “STEER FOR 2020.” The cruise ship business has been struggling ﬁ nancially, but its loss has been narrowing. We acknowledge for- eign competitors have been making inroads, but they have also been raising awareness of cruises and done a lot to expand the cruise ship market in Japan. Mitsui O.S.K. Passenger Line, Ltd. will continue to differentiate itself through personalized, top-notch service. The cruise ship business is one of the few B-to-C businesses within the MOL Group. The cruise business can signiﬁ - cantly raise the visibility of the Group and increase the Group’s ability to com- municate with its stakeholders. I am eager to increase earnings and stabilize this unique business by signiﬁ cantly increasing the number of passengers experiencing our cruises. Our trading business will expand proﬁ ts mainly by selling equipment to raise vessels’ environmental and safety performance. They have developed an improved Propeller Boss Cap Fin (PBCF)(*), which is a device to improve energy-efﬁ - ciency that has been equipped on over 2,500 ships worldwide as of ﬁ scal 2013. The division forecasts ordinary income for ﬁ scal 2014 to be ¥10.5 billion. Glossary (*) PBCF: A device to improve propeller efﬁ - ciency developed by the corporate group centered in MOL. It reduces fuel consump- tion by 4-5% operating at the same speed. Associated Businesses Daibiru-Honkon Building 14mol_英文_本文納品後修正.indd 50 14mol_英文_本文納品後修正.indd 50 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 51 Management Foundation Underpinning MOL: Corporate Governance and Corporate Social Responsibility Contents 52 Board Of Directors, Corporate Auditors And Executive Ofﬁ cers 54 MOL’s Approach to Governance, Safety and CSR 56 Corporate Governance 60 Risk Management 62 Safe Operation 65 Corporate Social Responsibility (CSR) 14mol_英文_本文納品後修正.indd 51 14mol_英文_本文納品後修正.indd 51 2014/08/21 14:00 2014/08/21 14:00 52 Mitsui O.S.K. Lines Board Of Directors, Corporate Auditors And Executive Ofﬁ cers Koichi Muto Representative Director Born 1953 Apr. 1976 Joined Mitsui O.S.K. Lines, Ltd. Jun. 2002 General Manager of Bulk Carrier Division Jan. 2003 General Manager of Corporate Planning Division Jun. 2004 Executive Ofﬁ cer, General Manager of Corporate Planning Division Jun. 2006 Managing Executive Ofﬁ cer Jun. 2007 Director, Managing Executive Ofﬁ cer Jun. 2008 Director, Senior Managing Executive Ofﬁ cer Jun. 2010 Representative Director, President Executive Ofﬁ cer (current) Apr. 1978 Joined Mitsui O.S.K. Lines, Ltd. Jun. 2004 General Manager of Tanker Division Jun. 2006 Executive Ofﬁ cer Jun. 2008 Managing Executive Ofﬁ cer Jun. 2010 Director, Managing Executive Ofﬁ cer Jun. 2011 Director, Senior Managing Executive Ofﬁ cer (current) Tsuneo Watanabe Director Born 1955 Junichiro Ikeda Director Born 1956 Apr. 1979 Joined Mitsui O.S.K. Lines, Ltd. Jun. 2003 General Manager of Logistics Business Division Jun. 2008 Executive Ofﬁ cer, Managing Director of MOL Europe B.V. Jun. 2011 Managing Executive Ofﬁ cer Jun. 2013 Director, Managing Executive Ofﬁ cer (current) Apr. 1975 Joined Mitsui O.S.K. Lines, Ltd. Jun. 2001 General Manager of LNG Carrier Division (A) Jun. 2004 General Manager of LNG Carrier Division Jun. 2005 Executive Ofﬁ cer, General Manager of LNG Carrier Division Jun. 2008 Managing Executive Ofﬁ cer Jun. 2010 Senior Managing Executive Ofﬁ cer Kazuhiro Sato Representative Director Born 1953 Jun. 2013 Representative Director, Executive Vice President Executive Ofﬁ cer (current) Apr. 1979 Joined Mitsui O.S.K. Lines, Ltd. Jun. 2004 General Manager of Human Resources Division Jun. 2007 General Manager of Liner Division Jun. 2008 Executive Ofﬁ cer Jun. 2010 Managing Executive Ofﬁ cer Jun. 2013 Director, Senior Managing Executive Ofﬁ cer (current) Apr. 1981 Joined Mitsui O.S.K. Lines, Ltd. Jun. 2006 General Manager of Corporate Planning Division Jun. 2008 Executive Ofﬁ cer Jun. 2011 Managing Executive Ofﬁ cer Jun. 2014 Director, Managing Executive Ofﬁ cer (current) Masahiro Tanabe Director Born 1957 Shizuo Takahashi Director Born 1959 Jun. 2008 Director of Mitsui O.S.K. Lines, Ltd. (current) Jan. 2014 President of Capital Market Promotion Foundation (current) Jun. 2011 Director of Mitsui O.S.K. Lines, Ltd. (current) Nov. 2012 Chairman of NWIC Co., Ltd. (current) Takeshi Komura Director Born 1939 Masayuki Matsushima Born 1945 Director Jun. 2014 Director of Mitsui O.S.K. Lines, Ltd. (current) Jun. 2014 Advisor to the Board of Toshiba Corporation (current) Atsutoshi Nishida Director Born 1943 14mol_英文_本文納品後修正.indd 52 14mol_英文_本文納品後修正.indd 52 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 53 Takaaki Inoue Managing Executive Ofﬁ cer (Tanker Safety Management Ofﬁ ce, MOL LNG Transport Co., Ltd., Marine Safety Division) Takashi Maruyama Executive Ofﬁ cer (General Manager of Finance Division) Akihiko Ono Executive Ofﬁ cer (General Manager of Corporate Planning Division) Toshiyuki Sonobe Executive Ofﬁ cer (Managing Director of Mitsui O.S.K. Bulk Shipping (Asia Oceania) Pte. Ltd., Southeast Asia) Yoshikazu Kawagoe Executive Ofﬁ cer (General Manager of Technical Division) Hideo Horiguchi Executive Ofﬁ cer (General Manager of Accounting Division) Akio Mitsuta Executive Ofﬁ cer (Tanker Division) Koichi Yashima Executive Ofﬁ cer (Human Resources Division) Mitsujiro Akasaka Executive Ofﬁ cer Managing Director of MOL (Asia) Ltd. Toshikazu Inaoka Executive Ofﬁ cer (Dry Bulk Carrier Supervising Ofﬁ ce,MOL Ship Management Co., Ltd., Marine Safety Division, General Manager of Dry Bulk Carrier Supervising Ofﬁ ce) Naotoshi Omoto Executive Ofﬁ cer (General Manager of Car Carrier Division) Toshiaki Tanaka Executive Ofﬁ cer (General Manager of Coal and Iron Ore Carrier Division) Corporate Auditors Executive Ofﬁ cers Masaaki Tsuda Corporate Auditor Born 1959 Koichi Muto President Apr. 1981 Joined Mitsui O.S.K. Lines, Ltd. Jun. 2006 General Manager of General Affairs Division Jun. 2011 Corporate Auditor of Mitsui O.S.K. Lines, Ltd. (current) Takehiko Ota Corporate Auditor Born 1960 Apr. 1984 Joined Mitsui O.S.K. Lines, Ltd. Jun. 2008 General Manager of Investor Relations Ofﬁ ce Jun. 2013 Corporate Auditor of Mitsui O.S.K. Lines, Ltd. (current) Hiroyuki Itami Corporate Auditor Born 1945 Oct. 2008 Professor and Dean of Tokyo University of Science, Graduate School of Innovation Studies (current) Jun. 2011 Corporate Auditor of Mitsui O.S.K. Lines, Ltd. (current) Hideki Yamashita Corporate Auditor Born 1941 Apr. 1982 Attorney-At –Law (current) Apr. 1985 Established YAMASHITA & TOYAMA LAW AND PATENT OFFICE Mar. 1993 Patent Attorney (current) Jun. 2011 Corporate Auditor of Mitsui O.S.K. Lines, Ltd. (current) Kazuhiro Sato Executive Vice President Executive Ofﬁ cer (Assistant to President) Tsuneo Watanabe Senior Managing Executive Ofﬁ cer (Tanker Division, Tanker Safety Management Ofﬁ ce) Kenichi Nagata Senior Managing Executive Ofﬁ cer (Research Ofﬁ ce,Coal and Iron Ore Carrier Division, Bulk Carrier Ofﬁ ce, Dry Bulk Carrier Supervising Ofﬁ ce) Junichiro Ikeda Senior Managing Executive Ofﬁ cer (Human Resources Division, Liner Division, Car Carrier Division) Masaaki Nemoto Senior Managing Executive Ofﬁ cer (Dry Bulk Carrier Supervising Ofﬁ ce, Tanker Safety Management Ofﬁ ce, MOL Ship Management Co., Ltd., MOL LNG Transport Co., Ltd.,Human Resources Division, Marine Safety Division, Tanker Safety Management Ofﬁ ce) Masahiro Tanabe Managing Executive Ofﬁ cer (Finance Division, Accounting Division, Investor Relations Ofﬁ ce) Shizuo Takahashi Managing Executive Ofﬁ cer (Internal Audit Ofﬁ ce, Secretaries Ofﬁ ce, Corporate Planning Division, Public Relations Ofﬁ ce, MOL Information Systems, Ltd., Compliance) Kiyotaka Yoshida Managing Executive Ofﬁ cer (Technical Division) Hirokazu Hatta Managing Executive Ofﬁ cer (General Affairs Division, Group Business Division, Kansai Area) Takeshi Hashimoto Managing Executive Ofﬁ cer (LNG Carrier Division, Offshore and LNG Project Division,MOL LNG Transport Co., Ltd.) Tetsuro Nishio Managing Executive Ofﬁ cer (Dedicated Bulk Carrier Division) Toshiya Konishi Managing Executive Ofﬁ cer (Liner Division) 14mol_英文_本文納品後修正.indd 53 14mol_英文_本文納品後修正.indd 53 2014/08/21 14:00 2014/08/21 14:00 54 Mitsui O.S.K. Lines MOL’s Approach to Governance, Safety and CSR We will continue to build a highly transparent management foundation that brings both order and growth dynamics. Shizuo Takahashi Managing Executive Ofﬁ cer Corporate Governance that Supports Growth Dynamics MOL believes there are two sides to effective corporate gov- ernance. The ﬁ rst is defensive, focused on eliminating risks and ensuring business is conducted in line with social norms and corporate ethics. The other side is offensive, striving to maximize corporate value by accurately evaluating latent risks in the process of pursing business opportunities, then actively taking those risks deemed reasonable. In short, a company needs both wheels of governance. One brings order, the other provides growth dynamics. Only after both wheels are ﬁ rmly in place, can a company gain the trust of its customers, stockholders, business partners, employees, local communities and wide-ranging stakeholders to sustainably conduct business operations. MOL greatly shored up its management structure in the ﬁ ve years leading up to 2002. Taking a lead position among Japanese companies, MOL established an advanced, highly transparent corporate governance structure by, for example, inviting external directors and introducing an executive ofﬁ - cer system. While you could say we are now reaping the beneﬁ ts of those efforts, MOL has only arrived at its current position through a process of continuous improvement and evolution. We have worked hard to enhance corporate value. The fruit of these efforts can be found in the growth we achieved through the successful implementation of a series of mid-term management plans. We were also able to over- come the oppressive business environment from around 2011 to 2012 and return to a growth trajectory through the Business Structural Reforms of 2012. This can be attributed to the proper functioning of corporate governance. However, we must deeply reﬂ ect on the fact that during the boom period, before the onset of the ﬁ nancial crisis, we compounded signiﬁ cant market exposure risks, as well as the fact that car carriers became involved in cartel-related viola- tions. Under the new midterm management plan, “STEER FOR 2020,” the strengthening of total risk control and compliance is regarded as a priority issue around which the entire MOL Group is coming together to carry out. Safe Operation as the Wellspring of Competitiveness A major premise for our business activities lies in the follow- ing MOL Group Corporate Principle: “We will promote and protect our environment by maintaining strict, safe operation and navigation standards.” Everyone at the Group knows that there is no completion date on maintaining strict, safe operation and navigation standards. We need to endlessly focus our efforts on making continuous improvements. This is why we established the Operational Safety Committee chaired by the president of MOL. This is also the reason top management is proactively taking the lead in evaluating and determining important matters related to safe operation. Maintaining strict, safe operation is also directly connect- ed to the quality of service we provide our customers. For this reason, MOL has set achieving the Four Zeroes (an unblemished record in terms of serious marine incidents, oil pollution, fatal accidents and cargo damage) as a permanent target. We are striving for transparency by monitoring stan- dard quantitative key performance indicators (KPIs), such as the number of work-related accidents, operational stoppage time and operational stoppage accident rate. And by proac- tively disclosing MOL’s shipping quality to stakeholders, MOL is doing its utmost to be the carrier of choice. 14mol_英文_本文納品後修正.indd 54 14mol_英文_本文納品後修正.indd 54 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 55 As we place more focus on LNG carrier shipping and off- shore businesses going forward under “STEER FOR 2020,” customers and society at large will demand an even higher level of safe operation. MOL’s ability to deliver this will, through marketing, likely become a powerful point of differ- entiation, setting us apart from other companies. MOL will not become complacent with the track record it has cultivat- ed thus far. We will always place safe operation as our ulti- mate core competence. And in securing human resources as we expand the LNG carrier business, we will continue to actively promote the employing and training of superior marine and inland personnel. We aim to be the company of choice. Tightening Global Environmental Regulations as a Business Chance In the world of international seaborne trade, the 21st centu- ry is said to be the era of environmental regulation. New reg- ulations are steadily being introduced to prevent global warming, conserve biodiversity, and protect the sea and the air. In responding concretely, MOL views these evolving regu- lations as a business opportunity. MOL will leverage its practi- cal environmental technologies and know-how to attain a competitive advantage and advance toward further growth. To this effect, we have launched the Senpaku ISHIN project, have set targets for introducing environmental technologies and we are making ﬁ rm strides toward achieving our goals. For example, the hybrid car carrier Emerald Ace, delivered in 2012, earned plaudits from automakers striving to lower environmental load over the entire product lifecycle. Social Contribution Activities Centered on MOL’s Main Businesses and Sharing Global Values In terms of social contribution, MOL especially promotes activities that synergize with our areas of business. For exam- ple, over half of the seafarers aboard our vessels are Filipinos. Their homeland lies in the freq uent path of typhoons so, unfortunately, the Philippines is often visited by calamity. When this happens, we swiftly conduct on-site disaster relief operations and support reconstruction by providing relief supplies and funds to help people return to their normal lives. On a different continent altogether, MOL participates in a support project by the U.N. Development Programme to combat the pirate problem in the waters around Somalia. We are working hard to enable the young people of Somalia to ﬁ nd employment in proper lines of work by solving underly- ing problems through the establishment of inland social infrastructure. The nations of Africa are expected to grow and we will continue to leverage the unique strengths of maritime shipping to promote stability, for example, by trans- porting desks and chairs to be used in schools for free and cooperating in shipments of mobile libraries. Taking the long view, these initiatives will serve as the cornerstone of our sus- tainable growth and through them, our Group employees from all around the world can really feel that our business activities are contributing to the betterment of people’s lives through marine shipping. Furthermore, as a company expanding globally, we share universal values. It is important to show that MOL acts in accordance with those values. MOL was quick to participate in the United Nations Global Compact in 2005 and has endeavored to support and carry out the Global Compact’s 10 principles, which span the four ﬁ elds of human rights, labour, environment and anti-corruption. MOL’s Fighting Spirit is in Its DNA MOL’s views as explained above regarding governance, safe operation, CSR and the environment are based on a corpo- rate culture fostered throughout a 130-year history. Above all, I believe that MOL’s unique DNA is essentially its indomi- table ﬁ ghting spirit. Unyieldingly taking on new challenges is what I believe enables MOL’s sustainable corporate activities. To remain sustainable, it is necessary to set high targets and tirelessly pursue them. Reasonable risks must also be taken to be sustainable. Under “STEER FOR 2020,” we will greatly reduce our market exposure risks as we set course to pursue long-term stable proﬁ ts, especially in LNG carriers and offshore busi- nesses. The decision to shift its investment focus to LNG car- riers and offshore businesses with a signiﬁ cant ¥700 billion investment is a remarkably bold decision. This kind of decision, however, is made based on the results of business intelligence, which the Company consid- ers vital to governance. I want to stress that “STEER FOR 2020” is the result of a thorough decision-making process. Management, including outside directors, comprehensively examined the arguments analyzing relevant data from many angles, starting with front-line data collected by MOL’s employees. They only arrived at their decision after thor- oughgoing debate and completing a careful governance pro- cess that included quantitative and qualitative risk assessment. This year, MOL celebrates its 130th anniversary. From its forebears, open communication has been steadfastly handed down over all these years. Open communication remains a value the Company prides itself on, and a virtue essential to new endeavors. Valuing such endeavors, I would like to cre- ate a highly transparent management foundation that brings both order and growth dynamics. Rather than governance that merely constrains everyone to a predetermined mold, this two-sided form of corporate governance will enable us to anticipate long-term trends and customer needs to achieve the continued creation of corporate value. 14mol_英文_本文納品後修正.indd 55 14mol_英文_本文納品後修正.indd 55 2014/08/21 14:00 2014/08/21 14:00 56 Mitsui O.S.K. Lines Corporate Governance MOL’s Philosophy and Past Management Reforms The MOL Group established the MOL Group Corporate Principles in March 2001. One of the pledges in our Corporate Principles states, “We will strive to maximize corporate value by always being creative, continually pursuing higher operating efﬁ ciency and promoting an open and visible management style that is guided by the highest ethical and social standards.” In order to realize the ideals set forth in the principles, MOL reformed its corporate governance structure, instituting manage- ment reforms that brought outside directors onto the board, sep- arated management and executive functions, and set standards for accountability, risk management and compliance. These reforms were implemented as shown in the timeline below. Corporate Governance Organization MOL has established a corporate governance system that maxi- mizes shareholder proﬁ ts through the most appropriate alloca- tion of management resources, with higher transparency of corporate management as shown in the chart on the next page. The Board of Directors (with the participation of independent outside directors, who are indispensible to corporate governance) supervises and encourages business operations, which are carried out by the President as chief executive ofﬁ cer. In addition, as a company with a board of corporate auditors, four corporate auditors, including two outside auditors, conduct business and accounting audits. At MOL, we believe that the essence of corporate governance lies not in its structure or organization, but in whether or not it func- tions effectively. The framework described in the preceding para- graph is operated in the manner outlined in the following sections. The Board of Directors The Board of Directors, as the Company’s highest-ranking deci- sion-making body, discusses and decides on basic policy and the most important matters connected with MOL Group manage- ment. It consists of nine directors, including three outside direc- tors. In principle, the Board of Directors convenes around 10 times a year, and as necessary. Major investment projects, such as the construction of new vessels, are submitted to the Board of Directors at the basic poli- cy formulation stage. The directors thoroughly evaluate and dis- cuss the pros and cons of the projects and make decisions on their feasibility from many perspectives. Transferring the authori- ty to implement projects within the scope of the basic policy to executive ofﬁ cers supervised by the President speeds decision- making on individual projects. Deliberation on Corporate Strategy and Vision A major feature of the Board of Directors is deliberation on corpo- rate strategy and vision. At each meeting, the board focuses on a particular topic concerning management strategies, MOL’s long- term vision or other subjects involving management. These discus- sions provide an opportunity for lively debates that include the outside directors and corporate auditors, thus helping to ensure that the perspective of shareholders is reﬂ ected in how MOL is managed. With regard to the midterm management plan, the Board began deliberations centered on the theme of “shale revolution and energy transportation” in February 2013 and continued with the deliberations as outlined below. The prudent deliberations extended to an analysis of the business environment and open discussions on the direction of the plan based on opinions and information about new business opportunities. The fruit of this comprehensive deliberation is reﬂ ected in “STEER FOR 2020.” Themes discussed in corporate strategy and vision deliberations held in ﬁ scal 2013 (4 times) May 2013 Prospects for offshore businesses and MOL’s initiatives October 2013 November 2013 Business environment analysis for formulating the next midterm management plan Technical innovation in marine shipping February 2014 Outline of next midterm management plan Executive Committee and Committees MOL established the Executive Committee in 2000 as part of reforms to its management organization. As the second step of those reforms, in 2002 the Company expanded the jurisdiction of the Executive Committee regarding execution of business activities, and also transferred the authority to implement proj- ects within the scope of the basic policy approved by the Board of Directors to executive ofﬁ cers supervised by the President to speed up decision-making on individual projects. MOL has also established the following committees to study and discuss important matters that will be submitted to the Executive Committee for discussion and projects straddling divi- sions, as sub-committees of the Executive Committee. y r o t s i H 1997 Outside auditors increased from one to two out of a total of four auditors 1998 George Hayashi (former APL chairman) invited to join the Board of Directors (became Director and Vice President in 1999, following revision of the Shipping Act) 2000 Management organization reform 1. Introduced a system of executive ofﬁ cers 2. Abolished the Managing Directors Committee and established an Executive Committee (reduced the membership from 21 to 10) 3. Reformed the Board of Directors (redeﬁ ned its duties as the highest-ranking decision-making body and the supervision of business activities) and reduced membership from 28 to 12 4. Elected two outside directors 5. Established the Corporate Visionary Meeting Established the IR Ofﬁ ce Started holding the Annual General Shareholders’ Meeting on a day relatively free of other shareholders’ meetings 2001 Established the MOL Group Corporate Principles Added one more outside director, increasing the num- ber of outside directors to three Established Compliance Policy and a Compliance Committee 14mol_英文_本文納品後修正.indd 56 14mol_英文_本文納品後修正.indd 56 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 57 ■ STEER Committee Executes and follows up on midterm management plans for MOL and the MOL Group, and examines and discusses matters related to the MOL Group’s management strategy. ■ Budget Committee Formulates basic policy on budget preparation for MOL and the MOL Group and sets targets; ascertains the status of implemen- tation at MOL and in the MOL Group of the overall budget; and studies and discusses results evaluation and other matters. ■ Investment and Finance Committee Studies and discusses items that will be submitted to the Executive Committee such as matters related to investment and ﬁ nance and guarantees of obligations, the ﬂ eet control plan for individual vessels, and important matters relating to Group company management. ■ Operational Safety Committee Chaired by the President, this committee studies and discusses basic policies and measures for ensuring safe operation of MOL Group-operated vessels through rigorous attention to every detail. As subordinate organizations of this committee, there are the Safety Assurance Committee, which monitors efforts to strengthen Corporate Governance Organization (as of June 24, 2014) the safe operation system, conﬁ rms progress and achievements thereof, and discusses advice for making necessary revisions to measures; and the Ship Standard Speciﬁ cation Committee, which discusses standard speciﬁ cations for MOL vessels and MOL Ship Management Standards. ■ CSR and Environment Committee Studies and discusses corporate social responsibility (CSR), and matters related to company systems for reducing global environ- mental impact. ■ Compliance Committee Studies and discusses the enhancement of the compliance sys- tem and actions for dealing with compliance violations, and mat- ters related to establishing a structure for protecting and managing personal information, among other topics. ■ Review Committee of Recurrence Prevention Measures for Anti-competitive Practices Studies and formulates policies to prevent a recurrence of cartel activity as well as to ensure the strict execution of the policies. ■ Business Reconstruction Committee Studies and discusses matters relating to rehabilitation plans for depressed businesses. General Shareholders’ Meeting Elect and appoint/dismiss Board of Directors [11] Outside directors: 3 Internal directors: 6 Total: 9 Elect and appoint/supervise Submit basic management policies and other issues for discussion Executive Committee [45] Internal directors and Executive officers: 9 Business audit Accounting audit Accounting audit Elect and appoint/dismiss Elect and appoint/dismiss Corporate Auditors Outside auditors: 2 Internal auditors: 2 Total: 4 Corporate Auditor Office Accounting Auditors Provide direction on important business issues Submit to Executive Committee after preliminary deliberations Committees Under the Executive Committee STEER Committee [16], Budget Committee [2], Investment and Finance Committee [39], Operational Safety Committee [3], CSR and Environment Committee [2], Compliance Committee [2], Review Committee of Recurrence Prevention Measures for Anti-competitive Practices [New], Business Reconstruction Committee [9] Submit report on important business and other issues Executive Officers Director/Executive officers: 6 Executive officers: 19 Total: 25 Divisions / Offices / Branches / Vessels / Group companies Provide direction Audit plan, Audit report Communicate and coordinate with corporate auditors and independent public accountant Internal Audit Office Business audit Accounting audit Numbers in brackets show the number of meetings of the Board of Directors, Executive Committee and their sub-committees during fiscal 2013. The STEER Committee, an organization under the Executive Committee, was called the RISE Committee in fiscal 2013 and met 16 times. 2002 2006 Second stage of management reforms Reforms reinforced roles of the Board of Directors concerning determination of basic strategies and monitoring risk management while providing for faster decision-making at the business execution level 1. Board of Directors was reorganized to carry out three important functions: (1) deliberation on issues requiring approval by the directors; (2) receipt of reports on business operations; and (3) deliberation on corporate strategy and vision 2. Reviewed and consolidated issues submitted to the Board of Directors 3. Expanded jurisdiction of the Executive Committee regarding execution of busi- ness activities Decided basic policy on the establishment of inter- nal control systems in response to enforcement of the new Japanese Companies Act In response to the enforcement of the Financial Instruments and Exchange Act, the Internal Control Planning Ofﬁ ce was established in the Corporate Planning Division 2007 The Internal Control Planning Ofﬁ ce enhanced inter- nal control systems for the purpose of ensuring the accuracy of ﬁ nancial reporting, in accordance with the Financial Instruments and Exchange Act. 2008 We have been using management evalua- tions of internal controls relating to ﬁ nan- cial reporting required by the Financial Instruments and Exchange Law since ﬁ scal 2008, audits by the Internal Audit Ofﬁ ce and advice based on the results of those audits, to improve internal controls throughout the Group. 2009 We submitted an internal control report to the Kanto Local Finance Bureau in Japan containing an assessment by management that internal controls over ﬁ nancial report- ing at MOL were effective. 2011 Revised the MOL’s Compliance Policy and Rules of Conduct 2014 Revised the Compliance Policy, Revised the Compliance Policy, establishing a chief compli- establishing a chief compli- ance ofﬁ cer (COO) ance ofﬁ cer (COO) 14mol_英文_本文納品後修正.indd 57 14mol_英文_本文納品後修正.indd 57 2014/08/21 14:00 2014/08/21 14:00 58 Mitsui O.S.K. Lines Functions of Outside Directors and Reasons for Appointment As part of efforts to strengthen corporate governance, MOL appoints outside directors, with the aim of bolstering oversight of the execution of business operations by bringing an outside perspective to management. MOL has appointed three outside directors whose experience encompasses macroeconomic management, ﬁ nance, and businesses in Japan. MOL has adjudged that all three individuals are indepen- dent and have neutral positions with no conﬂ icts of interest with the Company. The outside directors draw on their individual experience and insight to check the appropriateness of management and the status of execution of business operations from the shareholders’ standpoint. At the same time, they express valuable opinions about management as a whole. In these ways, the outside directors play a major role in enhancing the operation of the Board of Directors. Outside Director Newly Elected in 2014 Name Position Reason for Appointment Atsutoshi Nishida Advisor to the Board of TOSHIBA CORPORATION MOL adjudged that he can offer advice from the shareholders’ per- spective, with an objective view independent from that of internal executive management, based on his abundant experience and extensive knowledge as a corpo- rate executive. (As of June 25, 2014) Functions of Outside Corporate Auditors and Reasons for Appointment The Board of Directors has nine members, including three outside directors who are completely independent and have no conﬂ icts of interest with MOL. Likewise, there are four corporate auditors, who are responsible for performing statutory auditing functions, including two outside corporate auditors who are completely independent and have no conﬂ icts of interest with MOL. At a time when the auditing systems of corporations are taking on added importance, it goes without saying that the independence of auditors from management and policy execution is assured. Our corporate auditors work closely with the Internal Audit Ofﬁ ce and independent public accountants to assure effective corporate governance. They also work on strengthen- ing corporate governance and compliance throughout the group. Outside Corporate Auditor Newly Elected in 2014 Name Position Reason for Appointment Hideki Yamashita Attorney-at-Law & Patent Attorney, YAMASHITA & TOYAMA LAW AND PATENT OFFICE MOL adjudged that he has a neutral position with no conﬂ icts of interest with the Company, and that he has wide-ranging experience and knowledge for checking the appropriateness of management decisions and supervising the execution of business operations from the shareholders’ perspective based on his specialist knowledge as an attorney at law. (As of June 24, 2014) Director and Corporate Auditor Compensation The Board of Directors, including the outside directors, deter- mines compensation for the directors and corporate auditors. Compensation paid to directors and corporate auditors in ﬁ scal 2013 is shown in the following table. The Company has granted stock options to all directors, exec- utive ofﬁ cers, general managers of divisions and branch ofﬁ ces and managers in similar positions, as well as to presidents of consolidated subsidiaries, to motivate them to carry out opera- tions for the beneﬁ t of shareholders. Compensation for Directors and Corporate Auditors No. of people remunerated Total remuneration (¥ millions) (Thousands of U.S.$) Directors (Excluding outside directors) Corporate auditors (Excluding outside corporate auditors) Outside directors and outside corporate auditors 9 3 5 ¥331 $3,224 62 57 610 563 Compensation for Independent Public Accountants Compensation for auditing services Compensation for auditing-related services Total Compliance (¥ millions) (Thousands of U.S.$) ¥105 3 ¥108 $1,020 35 $1,056 The Company is aware of the crucial role that compliance plays in living up to its broad corporate social responsibilities, and that compliance with the letter of the law is at the core of this role. We have established a Compliance Committee, which is headed by a corporate ofﬁ cer appointed by the Executive Committee, and formu- lated the Compliance Policy to assure strict adherence to rules and reg- ulations. General managers of divisions and ofﬁ ces are appointed as Compliance Ofﬁ cers. They are responsible for enforcing compliance regulations and are also required to report to the Compliance Committee Secretariat Ofﬁ ce in the event of a compliance breach. The Internal Audit Ofﬁ ce, a body that operates independently of the Company’s divisions and ofﬁ ces, provides a counseling service. The Internal Audit Ofﬁ ce undertakes investigations of breaches and reports the results to the Compliance Committee. In addition to the existing counseling service, in ﬁ scal 2011 we established an external compli- ance advisory service desk, which we entrusted an attorney to run. The Company works to assure a proper relationship with its independent public accountants. Compensation paid to indepen- dent public accountants in ﬁ scal 2013 is shown in the table above. Regarding the Japan Fair Trade Commission's Announcement According to the announcement made by the Japan Fair Trade Commission (JFTC) on March 18, 2014, MOL was found to have violated Article 3 of the Antimonopoly Act (Unreasonable Restraint of Trade). The Company, however, was exempted from Cease and Desist Orders and Surcharge Payment Orders because it had already ceased the questioned conduct before the on-site investigation and the JFTC granted MOL's application under the JFTC's leniency program. Nevertheless, we still 14mol_英文_本文納品後修正.indd 58 14mol_英文_本文納品後修正.indd 58 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 59 consider this legal violation to be a very serious matter and have cut executive compensation of the Chairman, the President, and the Senior Managing Executive Ofﬁ cer responsible. In addition, we are working to reinforce compliance through new measures, including those described below, as each and every executive and employee should conduct their activities each day with the deeply ingrained understanding that compliance is a major requisite for corporate activities. (cid:129) Established the Review Committee of Recurrence Prevention Measures for Anti-competitive Practices, which is headed by the President, to examine and execute concrete policies to prevent a recurrence (cid:129) Established a chief compliance ofﬁ cer (cid:129) Revised company rules and reinforced education and training Internal Control System Since the ﬁ scal year ended March 2009, the Financial Instruments and Exchange Act has obligated publicly listed companies to pre- pare a report evaluating their internal controls over ﬁ nancial reporting by management (Internal Control Reporting System) and to have this evaluation audited by auditors outside the Company. This internal control reporting system involves management them- selves conﬁ rming the effectiveness of the framework for disclosing information such as appropriate and proper ﬁ nancial reporting through methods that visualize and evaluate operations, and an audit by auditors from outside the Company. Using the occasion of this system reform, MOL went beyond the scope required of it by law, and is promoting activities to fur- ther enhance MOL Group management effectiveness, efﬁ ciency and transparency, namely ensuring the appropriateness of busi- ness operations and the trustworthiness of ﬁ nancial reporting. In ﬁ scal 2013, MOL again assessed the status of the internal con- trols over ﬁ nancial reporting and the operation thereof, conﬁ rming that there were no major ﬂ aws in the MOL Group’s internal controls over ﬁ nancial reporting. Going forward, the MOL Group will contin- ue working to enhance its internal control system. Independent Directors/ Corporate Auditors Due to partial amendments to the Securities Listing Regulations that came into force in December 2009, publicly listed companies are required to secure independent director(s)/corporate auditor(s) from the standpoint of protecting general investors (Rule 436-2 of the Securities Listing Regulations). An independent director/corporate auditor means an outside director or outside corporate auditor who is unlikely to have a conﬂ ict of interest with general investors. Independent directors/corporate auditors are expected to act to pro- tect the interests of general investors. For instance, they are expected to state necessary opinions to ensure the interests of general share- holders are taken into consideration in a situation where a decision is made concerning business operations in the Board of Directors or other decision-making body of a publicly listed company. MOL has designated its three outside directors and two out- side corporate auditors as independent directors/corporate audi- tors, respectively, because there is no concern about a conﬂ ict of interest with general investors in conformity with the criteria for independent directors/corporate auditors of listed securities exchanges. Each of these individuals plays a major role in corpo- rate governance by checking the appropriateness of manage- ment decisions and supervising the execution of business operations from the shareholders’ perspective based on their experience and insight. Annual General Shareholders’ Meeting MOL aims to hold open General Shareholders’ Meetings. In addi- tion to sending the notice of the general meeting of sharehold- ers out about three weeks before the meeting, MOL avoids dates when many Japanese companies hold their annual meetings so that as many shareholders as possible can attend. MOL has also enabled shareholders to exercise their voting rights by mobile phone and the Internet since the June 2006 annual meeting, in addition to postal voting, so that shareholders who cannot attend the annual meeting can vote on proposals. Furthermore, since the June 2006 annual meeting, MOL has used the electronic voting platform for institutional investors so that proxy voting rights holders can exercise voting rights. Moreover, a summary of questions received about matters reported and pro- posed at the annual meeting is posted on MOL’s website after the conclusion of the meeting in the interest of fair disclosure. Accountability MOL believes that timely, full and fair disclosure of corporate and ﬁ nancial information is an important aspect of corporate gover- nance. In addition to being accountable to shareholders and investors by providing information, the Company makes every effort possible to reﬂ ect their opinions in management. The distinguishing feature of our investor relations activities is that the President takes the lead in their implementation. In ﬁ scal 2013, the President participated in the Company’s presentations of quarterly results and attended meetings with domestic and foreign investors. This reﬂ ects his conviction that it is the chief executive ofﬁ cer’s respon- sibility to explain future corporate strategies to investors. The Company is also aware of the need for full and fair disclosure to all investors, whether in Japan or overseas. At the same time its quarterly ﬁ nancial results in Japanese are released over the Tokyo Stock Exchange’s TDnet, the Company posts them to its website with an accompanying English translation. The Japanese and English drafts of presentation materials are also posted on the website. This information is e-mailed on the same day to foreign investors registered with the Company. MOL actively disseminates information about management strategy, investment plans, market conditions and other information through its website. Japan’s Stewardship Code was enacted in February 2014. MOL has already been proactively holding constructive dialogues with insti- tutional investors and there will be no change to that policy. Feedback is regularly provided to management with regard to the content of discussions held with investors and analysts. Going forward, MOL will further bolster the quality and quantity of communication while being mindfully aware of fair disclosure. The responsibility to provide information is not limited to man- agement and ﬁ nancial issues. MOL’s basic stance is to quickly disclose information, even if it is negative such as information on accidents, to all stakeholders. Furthermore, we hold regular drills for respond- ing to the media in emergencies and are working to strengthen our ability to be able to quickly and properly disclose information. MOL will continue working to raise conﬁ dence in its business policies and management through close communication with various stakeholders. 14mol_英文_本文納品後修正.indd 59 14mol_英文_本文納品後修正.indd 59 2014/08/21 14:00 2014/08/21 14:00 60 Mitsui O.S.K. Lines Risk Management The Company identiﬁ es the risks surrounding the MOL Group, such as ﬂ uctuations of freight rates, with the aim of managing and reducing these risks. In the midterm management plan "STEER FOR 2020," MOL has designated the reinforcement of total risk control as one measure to strengthen its management foundation and support the successful execution of the plan. To fully exercise sustainable risk management, the Company trans- parently quantiﬁ es its comprehensive risk. Fluctuations of Cargo Volume, Fleet Supply and Freight Rates The global shipping business, like many other industries, is great- ly affected by trends in the global economic cycle, and is thus subject to both macroeconomic risk, as well as business risk asso- ciated with trends in speciﬁ c industries. There are a multitude of factors that are subject to change, such as ﬂ uctuations in the economies of individual countries, changes in trade structures, vessel supply-demand balance, market conditions and cargo vol- umes. Achieving the best performance hinges on objectively ana- lyzing information so as to continually increase the probability of generating higher earnings. With this in mind, MOL has adopted a strategy of “diversifying operations to reduce risk” and “raising highly stable proﬁ ts” by aligning its ﬂ eet to match international marine transport demand in the transport of both raw materials and ﬁ nished goods. In this way, we strive to maximize returns Fleet Composition (As of March 31, 2014) Others 43 5% Containerships 119 13% Car Carriers 125 13% LNG Carriers 67 7% Others 178 0% Containerships 7,091 11% Car Carriers 2,033 3% LNG Carriers 5,182 8% Number of Vessels Deadweight (1,000 DWT) Dry Bulkers 403 43% Tankers 180 19% Dry Bulkers 35,760 53% Tankers 16,874 25% and sustain proﬁ t growth. In accordance with our internal mar- ket risk management regulations, we appropriately reduce risks related to ﬂ uctuation, especially those arising from freight rates, bunker prices, exchange rates, and interest rates. The Investment and Finance Committee also identiﬁ es, analyzes and evaluates risks related to such material issues as investment in ships. Diversifying Operations to Reduce Risk MOL operates a “full-line marine transport group.” As of the end of March 2014, we operated around 940 vessels, ranging from dry bulkers, tankers, and LNG carriers to car carriers and containerships, capable of transporting a diverse range of raw materials and ﬁ nished goods. Each type of ship and each type of cargo have particular supply and demand trends, and create par- ticular markets. While some of these markets are highly correlat- ed with each other, others are negatively correlated depending mainly on the economic environment, so the impact in one sec- tor offsets the impact in another. By assessing the suitability of a particular vessel type for medium- to long-term contracts and market exposure the Company expects, MOL constructs an opti- mum business portfolio, which allows the Company to pursue higher proﬁ ts while mitigating risks. Building up Highly Stable Proﬁ ts Through the Use of Medium- and Long-Term Contracts and Other Means The Company pursues medium- and long-term contracts won based on long-standing relationships of trust with customers. These contracts ensure a stable future cash ﬂ ow that will help reduce the risk that market ﬂ uctuations could have on its results. International marine transportation is expanding, but consid- ering the ongoing glut of shipbuilding capacity, more time will likely need to elapse before a structural turnaround is realized in the market environment. The Company aims to conclude con- tracts that are not largely affected by changes in the external business environment and constitute a stable source of proﬁ t. By expanding these contracts from a long-term perspective, MOL will create an even steadier earnings structure. To achieve this objective, one of the options we will look closely at as a matter of priority is M&A deals in growing sectors which enjoy a rela- tively stable cash ﬂ ow. Exchange Rate Fluctuations Although MOL has concluded transport contracts on a yen- denominated basis with some Japanese clients, most transactions in the international marine transport business are concluded on a U.S. dollar-denominated basis. Despite our best efforts to incur expenses in U.S. dollars, U.S. dollar-denominated revenue cur- rently exceeds U.S. dollar-denominated expenses, so when the yen strengthens against the U.S. dollar this can have a negative impact on Group earnings. In ﬁ scal 2014, we project that each ¥1-per-dollar change in the yen-U.S. dollar exchange rate will have an impact of approximately ¥2.1 billion on consolidated ordinary income. 14mol_英文_本文納品後修正.indd 60 14mol_英文_本文納品後修正.indd 60 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 61 Interest Rate Fluctuations MOL depends mainly on the issuance of corporate bonds and funds borrowed from banks and other ﬁ nancial institutions to meet working capital and capital expenditure requirements. Loans are denominated in either yen or U.S. dollars, with funds procured at variable interest rates affected by interest rate ﬂ uctu- ations. As of March 31, 2014, interest-bearing debt totaled ¥1,094.0 billion, and around 50% of that loan principal is locked in at a ﬁ xed interest rate. As a result, an increase of 1 percentage point in market interest rates on both yen-denominated and U.S. dollar-denominated interest-bearing liabilities would impact annual consolidated ordinary income by no larger than approxi- mately ¥5.0 billion. Although MOL has beneﬁ ted from ultra-low interest rates in the aftermath of the ﬁ nancial crisis, the Company is taking steps to mitigate the risk of a future interest rate rise. It plans to ﬂ exibly adjust the ratio of variable-rate and ﬁ xed-rate loans through interest rate swaps and other means according to changes in ﬁ nancial conditions, taking into consid- eration the balance between variable- and ﬁ xed-rate interest. Bunker Price Fluctuations The market price of bunker is generally linked to the price of crude oil, and any increase in bunker prices has a negative impact on earnings for the MOL Group. The Group operates a ﬂ eet of approximately 940 vessels, whose annual fuel consump- tion amounts to around 6 million tons of bunker. The Company is able to pass on about 60% of the risk to customers. Therefore, an increase of US$1 per metric ton in the average annual price of bunker would lower earnings by approximately ¥0.24 billion (net of hedging) at the maximum. Sensitivity of Earnings to Exchange Rate/Interest Rate/ Bunker Price Fluctuations Exchange Rate (¥/US$) A ¥1 appreciation reduces ordinary income by approximately ¥2.1 billion Interest Rate (%) A 1 point rise in both yen- and U.S. dollar-denominated interest-bearing debt reduces ordinary income by approximately ¥5.0 billion Bunker Price (US$/MT) A US$1/MT increase reduces ordinary income by approximately ¥0.24 billion Average Bunker Price (US$/MT) 800 600 400 200 0 00/3 01/3 02/3 03/3 04/3 05/3 06/3 07/3 08/3 09/3 10/3 11/3 12/3 13/3 14/3 Stricter restrictions to reduce sulfur oxide emissions generated by ships could be introduced as soon as 2020. These restrictions would require the use of low-sulfur fuel oil containing less than 0.5% sulfur across all ocean regions, which could have an impact on fuel costs. In the event fuel costs rise, the Company intends to pass on these higher costs by raising freight rates and other fees. Vessel Operations MOL operates a ﬂ eet of approximately 940 vessels and it is there- fore impossible to ignore the risks related to various incidents that may occur on the high seas. In order to prevent accidents, the Company has introduced a variety of measures such as safety standards, a safety management system, comprehensive crew education and training, and establishment of organizations to support safe operations. Furthermore, MOL has arranged sufﬁ cient insurance coverage so that its ﬁ nancial results will not be materially impacted, should the Company or a third party suffer damages in the unlikely event of an MOL-operated vessel being involved in a collision, sinking, ﬁ re or other marine incident. Group Company Operational Management The MOL Group Corporate Principles serve as the basis for set- ting regulations at MOL Group companies. Each Group company submits required reports to MOL in a timely manner in accor- dance with Group Company Management Regulations. After properly ascertaining the ﬁ nancial conditions and business risks, the Company, as a shareholder, requests Group companies obtain permission prior to executing important management matters. Natural Disaster or Similar Event An earthquake, other natural disaster or an outbreak of an infec- tious disease (hereinafter “disaster or similar event”) could affect MOL-operated vessels, ofﬁ ces and facilities, as well as employ- ees, hampering business operations. MOL puts the highest priority on ensuring the safety of its vessels and personnel in the event of a disaster or similar event. The Company has formulated a business continuity plan docu- menting procedures to enable it to continue providing core ocean transport services and quickly restore operations in the unlikely event that they are suspended. This business continuity plan establishes organizations and delegates authority for duties relating to maintaining the safe operation of vessels, execution of transportation contracts and charter agreements, ﬁ nancial preparation, securing required personnel, and other matters. Furthermore, for some years MOL has been conducting regular disaster-preparedness drills on and off premise at Head Ofﬁ ce, aboard ships and throughout the Group’s other facilities, as well as taking other measures to ensure preparedness. By addressing issues arising from these drills, MOL believes that it maintains a high state of readiness. Nevertheless, in the event of a disaster or similar event in which MOL cannot completely avoid damage, the Company’s business performance may be affected. 14mol_英文_本文納品後修正.indd 61 14mol_英文_本文納品後修正.indd 61 2014/08/21 14:00 2014/08/21 14:00 62 Mitsui O.S.K. Lines Safe Operation Safe operation is of the utmost importance and lies at the heart of MOL’s management. In the new midterm management plan "STEER FOR 2020," we set the reconstruction of our safe operating system as an integral initiative to strengthen our management foundation, which supports the successful execution of the plan. We will continue to restrengthen our safe operating system to ensure the thorough implementation of measures to prevent serious marine incidents as we strive to become the world leader in safe operation. Safe Operation Management Safe Operation Management Structure MOL has an Operational Safety Committee, which is chaired by the President of MOL. Under this committee are the Safety Assurance Committee and the Ship Standard Speciﬁ cation Committee. The Operational Safety Committee discusses and determines basic policies and measures for ensuring safe operation of vessels through rigorous attention to every detail. The Safety Operations Headquarters, which consists of marine technical and ship management divisions, is responsible for implementing speciﬁ c measures, with progress overseen by the Safety Assurance Committee. The Ship Standard Speciﬁ cation Committee discuss- es and determines MOL Safety Standards and owned ship maintenance standards from a fail-safe *1 perspective. Organizational Structure Supporting Safe Operation Executive Committee Operational Safety Committee Safety Assurance Committee Ship Standard Speciﬁ cation Committee Safety Operations Headquarters • Marine Safety Division • MOL Ship Management Co., Ltd. • Tanker Safety Management Ofﬁ ce • MOL LNG Transport Co., Ltd. • Dry Bulk Carrier Supervising Ofﬁ ce • Car Carrier Division, Marine Technical Group • MOL Liner Ltd., Liner Fleet Supervising and Marine Operation Emergency Response System MOL continues to strengthen its systems so that it can provide an accurate response in the unlikely event of an emergency. ■ Safety Operation Supporting Center (SOSC) The SOSC is staffed at all times by two marine technical specialists, including an experienced MOL captain, and supports the safe navigation of MOL-operated ves- sels around the clock 365 days a year. The center monitors the position and move- ment of more than 900 MOL Group- afﬁ liated vessels in real time, providing assistance from the captain’s perspective by supplying information on abnormal weather and tsunamis and on piracy and terrorism incidents to relevant personnel on the ship and land. At the same time as serving as an information portal support- ing the safe operation of MOL ships, the center also functions as a help desk for urgent inquiries from ships regarding safe operation. Since its establishment, the center has helped to steadily reduce the number of incidents involving adverse weather or emergency entry*2. Safety Operation Supporting Center (SOSC) ■ Accident Response Drills MOL regularly conducts accident response drills on vessels while at sea. These drills sim- ulate various situations such as an on-board ﬁ re or water immersion, or act of piracy or terrorism, so that seafarers can respond swiftly and appropriately in an emergency. Head Ofﬁ ce conducts serious marine inci- dent emergency response drills twice a year with the cooperation of the Regional Coast Guard Headquarters. The drills involve MOL’s President, other corporate ofﬁ cers, represen- tatives of relevant departments and ship management companies, and vessels. In November 2013, we conducted an emer- gency response drill with the premise of a Evacuation drill on board pirate attack on a car carrier in the seas off Somalia. In May 2014, we conducted an emergency response drill with the premise of a bulk carrier running aground in the Seto Inland Sea with a ﬁ re in the engine room. Furthermore, MOL Group companies that operate ferries and cruise ships conduct emergency response drills, including evacua- tion guidance, on a regular basis, as they put the highest priority on ensuring custom- er safety in an emergency. Safe Operation Measures Efforts to ensure safe operation will never end. Coupled with the revision and con- tinuation of policies already in place to strengthen safe operation, MOL will thoroughly imple- ment policies to prevent a recurrence of recent serious marine incidents. Making Processes for Realizing Safe Operation Visible MOL has introduced objective numerical indicators for measuring safety levels, and also set the following numerical targets, including the Four Zeroes. 1. Four Zeroes (an unblemished record in terms of serious marine incidents, oil pollution, fatal accidents and cargo damage) 2. LTIF *3 (Lost Time Injury Frequency): 0.25 or below 3. Operational stoppage time *4: 24 hours/ship or below 14mol_英文_本文納品後修正.indd 62 14mol_英文_本文納品後修正.indd 62 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 63 4. Operational stoppage accident rate *5: 1.0/ship or below Lost Time Injury Frequency (LTIF) 1.8 1.5 1.2 0.9 2013 average for all industries: 1.58 MOL target: 0.25 or below 0.6 0.42 0.38 0.44 0.31 0.24 0.3 0 2009 2010 2011 2012 2013 Operational Stoppage Accidents Average Time and Frequency (Hour/ship) (Number of accidents/ship) 40 30 20 10 0 Average operational stoppage time: 24 hours or below 22.59 22.96 19.82 19.04 25.04 0.64 0.83 0.66 0.52 0.40 Operational stoppage accident rate target: 1.00 or below 2009 2010 2011 2012 2013 Average operational stoppage time (hour/ship) (left scale) Operational stoppage accident rate (accidents/ship) (right scale) 2.0 1.5 1.0 0.5 0 In ﬁ scal 2014, MOL will work on three important targets: (1) eradicate work-relat- ed accidents causing death, and reduce work-related accidents causing injury, (2) eradicate collisions and groundings, and (3) eradicate machinery trouble resulting in a dead ship condition (a ship being unable to move under its own power). Preventing New or a Recurrence of Serious Incidents MOL is constantly, repeatedly implement- ing and raising awareness of fundamental matters while striving to thoroughly keep fresh the memory of serious incidents we have experienced and prevent a recurrence of serious incidents while giving due con- sideration to improving teamwork, safety awareness, awareness of relevant parties and vessel management quality. We will continue to adapt our accident prevention system by making improvements related to both seafarer training and ship facilities to break the chain of errors in which minor factors combine and ultimately lead to major maritime accidents. In terms of seafarer training, we are thoroughly implementing drills prior to boarding and supervising the instruction of less experienced seafarers. We are also enhancing land-based education and training curriculum and programs such as “Hazard experience” training sessions and BRM drills*6. These measures are geared towards enhancing the ability of seafarers to perceive danger and promoting team- work. In addition, we are working to raise safety awareness among seafarers by col- lecting information from each vessel in operation on examples of incidents and problems as well as close calls*7 and by using videos, photos and illustrations to appeal to the visual sense of seafarers. In terms of ship facilities, we are working to equip ships with error-resistant equipment and promoting the adoption of informa- tion technology. This involves promoting the fail-safe design concept by providing shipyards and equipment manufacturers with feedback from vessels in operation on areas of non-conformance and areas in need of improvement. It is the MOL Group’s ultimate goal to eradicate work-related accidents causing death. MOL analyzes the factors and causes behind accidents from various angles and uses the results to make improvements in ship facilities. It also asks employees on land and at sea to discuss and propose preventive measures for examples of serious incidents and prob- lems as if they were each wholly responsi- ble as part of efforts to prevent accidents. Glossary *1 Fail-safe: Equipment and systems designed to operate safely at all times, even when trouble occurs due to operator error or malfunction. *2 Emergency entry: Entering foreign territory due to severe weather on the sea, serious hull or engine distress, or the injury of a crew member. *3 LTIF (Lost time injury frequency): Number of work-related accidents per one million hours worked that resulted in time lost from work of one day or more. Average for all industries (2013) was 1.58; for shipping industry, 1.54; for transportation equipment manufacturing industry, 0.47. (Source: 2013 Survey on Industrial Accidents issued by the Ministry of Health, Labour and Welfare) *4 Operational stoppage time: Expresses the amount of ship operational stoppage time due to an accident per ship per year. *5 Operational stoppage accident rate: Expresses the number of accidents that result in ship operational stoppage per ship per year. *6 Bridge resource management drill: Simulating an incident on a vessel operation simulator to enable seafarers to acquire response techniques. It includes MOL’s original programs. *7 Close calls: Risky incidents that came very close to causing a more serious accident. MOL COMFORT Marine Incident On June 17, 2013, MOL COMFORT (an 8000-TEU type container- ship built in 2008) suffered a crack amidships while under way from Singapore to Jeddah, Saudi Arabia, in the Indian Ocean. This made it impossible for the vessel to continue on under its own power. Subsequently, the vessel fractured into two parts and the aft part of the containership sank on June 27 and the fore part later sank on July 11. Since directly after the incident, MOL has been continuing a thorough investigation to ﬁ nd the cause with the cooperation of the shipbuilder, the classiﬁ cation society and other parties in addi- tion to implementing various safety measures. The Company strengthened the hull structures of seven sister vessels operated by MOL. MOL decided to take extra preventive measures to achieve roughly twice the strength of Class NK hull strength standard in compliance with the Rules of the International Association of Classiﬁ cation Societies Ltd. (IACS). The Company is also continuing operational precautions to reduce the stress on the hull. MOL has examined the outer bottom shell plates of all the large container- ships it operates and conﬁ rmed there were no safety issues. We, with industry professionals and experts, are also fully cooperating with the study by the Committee on Large Container Ship Safety initiated by the Japanese Ministry of Land, Infrastructure, Transport, and Tourism acting as secretariat. Although the committee has not reached a conclusion about the deﬁ nite cause, MOL has already implemented the recommended safety measures outlined in the interim report released in December 2013. We will continue to cooperate with the parties concerned to ensure safe operation. 14mol_英文_本文納品後修正.indd 63 14mol_英文_本文納品後修正.indd 63 2014/08/21 14:00 2014/08/21 14:00 64 Mitsui O.S.K. Lines Cooperation for Safe Operation The MOL Group works together with ves- sels, shipowners, and ship management companies to work toward achieving the world’s highest level of safe operation of all owned and chartered vessels by shar- ing safety-related information. The Company regularly broadcasts “Safety Alerts”— information pertaining to safe operation, including work-related inci- dents involving casualties—to every vessel. MOL conducts “Safety Operation Meetings” and “Safety Campaigns” involving vessels, shipowners, ship man- agement companies and even the sales division to deepen understanding of its safety standards and to discuss safety improvements. MOL also inspects vessels to check whether its safety standards are understood well and put into effect. If there is a need to make improvements, MOL will take corrective actions, commu- nicating with the vessel, shipowner and ship management company in the process. Recruiting and Training Excellent Personnel to Support Safe Operation To ensure safe operation, it is crucial we regularly employ and train excellent sea- farers who meet the Company's technical standards. We secure excellent human resources from around the world and mold these recruits into seafarers possess- ing the high morale and vastly superior technical skills and knowledge MOL demands by tailoring their compensation and working environment on and off the ship, in addition to conducting top-notch training and education. We have intro- duced a scholarship and other programs to support students aspiring to be seafar- ers. In addition, the Company operates MOL Training Centers in eight locations spanning six countries. We conduct a wide variety of training from lectures for learning theories to practical training using various simulators. The Company has introduced unique programs and is carrying out initiatives to foster MOL seamanship. These programs include the Cadet Actual Deployment for Education with Tutorial (CADET) Training, which is a cadet training program where- by practical training is conducted on oper- ated vessels. There is also the OJT Instructor Program where highly experi- enced captains and chief engineers board the ship while at sea and give advice and technical guidance right there on the spot. The MOL Training Centers, where excellent seafarers around the world are trained MOLTC (Montenegro) MOLTC (MSU-Russia) MOLTC (Japan) MOLMC*(Japan) *MOL Marine Consulting MOLTC (MOL Mi-India) MOLTC (MANET-India) MOLTC (STIP-Indonesia) MOLTC (Philippines) Third-Party Evaluations Safe Operation, Including Evaluations of Seafarer Educational Programs ■ LNG Carrier Standard Training Course acquired certiﬁ cation from DNV* The LNG Carrier Standard Training Course implemented globally by MOL was certiﬁ ed by Norway's Det Norske Veritas AS (DNV)* in 2007 for compli- ance with the LNG carrier crew ability standards advocated by SIGTTO.** * Now DNV GL ** Society of International Gas Tanker & Terminal Operators Ltd . ■ Management program for seafarer education and training acquired certiﬁ cation from DNV* MOL’s management program for seafar- er education and training was recog- nized to be effective and certiﬁ ed in its tanker and LNG carrier operations by DNV* in 2012 for compliance with the Competence Management System (CMS). 14mol_英文_本文納品後修正.indd 64 14mol_英文_本文納品後修正.indd 64 2014/08/21 14:00 2014/08/21 14:00 Corporate Social Responsibility (CSR) Annual Report 2014 65 Participating in the UN Global Compact The MOL Group Basic Procurement Policy MOL’s Approach to CSR In our view, CSR means conducting business management that adequately takes into account laws and regulations, social norms, safety and environmental issues, human rights and other considerations, and devel- oping together with society sustainably and harmoniously while earning the support and trust of stakeholders, including sharehold- ers, customers, business partners, employ- ees and local communities. CSR Overview Raise corporate value, contribute to stake- holders, help solve social issues and con- tribute to society’s sustainable growth Trust of Stakeholders Support of Stakeholders Business Activities CSR Activities Safe operation; environmental measures; compli- ance; corporate governance; risk management; accountability; fair trading; respect for human rights; employment, labor, occupational health and safety, health management and employee satisfaction; social contribution activities Long-term Vision Midterm Management Plan CSR activities are broad and, from time to time, the strength and priori- ty of those activities change depending on the operating environ- ment, global circumstances and region where business is being developed. With business activities spread across the globe, MOL believes that building good relationships with various stakeholders worldwide and contrib- uting to the realization of sustainable growth of society are vital as it seeks to realize the ideas set forth in the MOL Group Corporate Principles. In order to contribute to an inter- national framework for realizing these goals, MOL became the ﬁ rst Japanese shipping company to participate in the United Nations (UN) Global Compact in 2005. Since then, MOL has worked to support and practice the 10 principles in 4 areas of the UN Global Compact, which shares the same values as MOL’s Rules of Conduct, which were estab- lished as a set of guidelines for executives and employees. MOL Group Corporate Principles 10 Principles of the Global Compact In order to fulﬁ ll these responsibilities, MOL deliberates on CSR-related policies and measures, primarily through the three com- mittees under the Executive Committee. The MOL Group’s initiatives and poli- cies regarding overall CSR are deliberated on by the CSR and Environment Committee, which then sets single-year, medium- and long-term targets and con- ducts regular reviews. The Operational Safety Committee dis- cusses basic policies and measures for ensuring safe operation of MOL Group- operated vessels through rigorous atten- tion to every detail. The Compliance Committee discusses basic policies and measures for enhancing the compliance system, dealing with compliance violations, and establishing a structure for protecting and managing personal information. Human Rights Principle 1. Business should support and respect the protection of internationally proclaimed human rights; and Principle 2. Make sure that they are not complicit in human rights abuses. Labour Principle 3. Principle 4. Principle 5. Principle 6. Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; The elimination of all forms of forced and compulsory labour; The effective abolition of child labour; and The elimination of discrimination in respect of employment and occupation. Environment Principle 7. Principle 8. Principle 9. Businesses should support a precautionary approach to environmental challenges; Undertake initiatives to promote greater environmental responsibility; and Encourage the development and diffusion of environmentally friendly technologies. Anti-Corruption Principle 10. Businesses should work against corruption in all its forms, including extortion and bribery. Organizational Framework for CSR Initiatives Chief Executive Ofﬁ cer (President) Executive Committee CSR and Environment Committee Operational Safety Committee Compliance Committee We formulated the MOL Group Basic Procurement Policy in 2012. This clearly documents our CSR activity policy regard- ing the Group’s procurement activities. To embed this policy in the MOL Group, we work throughout our supply chain to observe laws and regulations and social norms, incorporate consideration for envi- ronmental protection in our activities, pur- sue safety, engage in fair trading and build trust, with the understanding and coopera- tion of business partners. In this way, we aim to contribute towards the realization of sustainable societies together. The MOL Group Basic Procurement Policy The MOL Group procures goods and/or services in accordance with the following basic policy: 1. We comply with applicable laws, regulations and social norms, and pay due consideration to the protection of the environment. 2. We procure goods and/or services, including the delivery or execution of such goods and/or services, that meet high safety standards. 3. We conduct fair trade, and endeavor to establish trusting relationships with contractors. We work to make sure that our contrac- tors understand our Basic Procurement Policy, with the aim of contributing towards the realization of sustainable societies together. CSR Objective of Midterm Management Plan 1. Thoroughly implement safe operation and provide safe, secure, stable, high- quality services. 2. Deepen initiatives to ensure thorough compliance. 3. Promote personnel training and diver- sity to strengthen comprehensive Group capabilities. 4. Make further progress on solving social issues and promoting environment initiatives as an environmentally advanced company. 5. Actively disclose sustainability data. 6. Promote social contribution activities related to MOL’s businesses. 14mol_英文_本文納品後修正.indd 65 14mol_英文_本文納品後修正.indd 65 2014/08/21 14:00 2014/08/21 14:00 66 Mitsui O.S.K. Lines Environmental Protection Environmental Management Systems and Certiﬁ cations MOL has two unique environmental man- agement systems—MOL EMS21 and the MOL Group Environmental Target System. Through these systems we have taken steps to reduce our environmental burden. MOL EMS21: We introduced our environ- mental management system—MOL EMS21—in April 2001. In January 2003, we expanded its scope to all our operated vessels (except charter vessels on contracts of one year or less), and acquired interna- tionally recognized ISO 14001 certiﬁ - cation. MOL Group Environmental Target System: This system applies to MOL’s 53 main Group companies in Japan and 29 overseas afﬁ liates and subsidiaries. It serves as a framework for Group-wide environmental protection activities. MOL Group companies in Japan are working hard on complying with the “green man- agement” environmental certiﬁ cation sys- tem promoted by the Japanese Ministry of Land, Infrastructure, Transport and Tourism. A total of 14 MOL Group compa- nies have earned this certiﬁ cation. Prevention of Global Warming and Air Pollution Although shipping is a more energy efﬁ - cient mode than other modes of trans- port, vessels burn fossil fuels and inevitably emit carbon dioxide (CO2), which is a cause of global warming, as well as nitrogen oxide (NOx), sulfur oxide (SOx), soot and other emissions, which are linked to acid rain and atmospheric pollution. The MOL Group is fully aware of the effects on air quality associated with its business activities and thus proactively works to reduce the impact on an ongoing basis. Environmental Technologies: MOL is engaged in various research, development and innovation of technologies for ships. (Please refer to page 67 and our website at the following URL: http://www.mol. co.jp/csr-e/environment/ishin/ ) Increasing Transportation Efﬁ ciency with Larger Ships and Improved Propulsion: MOL believes that the intro- duction of larger vessels and improvement of propulsion are effective measures to fulﬁ ll the social responsibility of the shipping industry to meet burgeoning international demand for ocean shipping and, at the same time, to prevent global warming. With this in mind, MOL is conducting research and applying those results to vessels. ECO SAILING Thoroughly Adopted: MOL practices an approach we call ECO SAILING to save fuel and reduce environ- mental impact. We rigorously apply the principles of ECO SAILING whenever we operate vessels. Speciﬁ cally, we 1) deceler- ate to the most economical navigation speeds, 2) take advantage of weather and sea condition forecasts, 3) take the opti- mum trim, 4) select optimum routes, 5) reduce vessels’ wetted surfaces, 6) opti- mize operation and maintenance of main engines, auxiliary equipment and other machinery, 7) develop energy efﬁ cient ship designs, and 8) equip vessels with Propeller Boss Cap Fins (PBCF*). PBCF efﬁ ciently recovers energy loss from the hub vortex generated behind a ship’s propel- ler. This is an MOL pro- prietary technology that uses the same number of ﬁ ns attached to the rear end of the propeller shaft. Modal Shift: Approximately 20% of Japan’s CO2 emis- sions are accounted for by the transporta- tion sector. In order to reduce these emissions, the Japanese Ministry of Land, Infrastructure, Transport and Tourism and other concerned agencies have set up pro- grams to establish a transportation system with a low environmental burden and have promoted the so-called “Modal Shift” of using rail transport, shipping and other low- impact modes of transport. The MOL Group stands ready to do its utmost to facilitate this modal shift by providing Japan’s largest lineup of ferry and coastal shipping services. Reducing NOx/SOx/Soot/Smoke and Dust: MOL controls NOx emissions through the installation of electronically controlled engines. Regarding SOx, MOL has set a standard of using bunker oil with a maximum sulfur content below the current 3.5% mandate for general sea areas in the International Convention for the Prevention of Pollution from Ships (MARPOL Convention). In respect of soot contained in ship exhaust gases, MOL teamed up with Akasaka Diesels Limited to develop a diesel particulate ﬁ lter (DPF). This DPF has been trialed aboard an MOL Group-operated coastal ferry, where it was shown to remove more than 80% of particulate matter from diesel emissions. Approaches to Marine Environmental and Biodiversity Protection Responding to Ballast Water Management Convention: Ballast water is discharged when cargo is loaded. It may have an impact on local ecosystems by introducing foreign marine organisms from another location as well as the preservation and sustainable use of biodiversity. This potential cross-border transportation of foreign marine organisms in ballast water has been highlighted as an international issue since the late 1980s. As a result, the Ballast Water Management Convention was adopted by the International Maritime Organization (IMO) in 2004, and work is proceeding on ratiﬁ cation ahead of enforcement. We have developed a ballast water puriﬁ cation system and conducted on-board demonstrations in cooperation with manufacturers and other concerned parties. In addition, care is exercised to reduce the impact of normal operation of our ves- sels on the oceans. MOL strictly adheres to all marine pollution treaties, including the MARPOL Convention, as well as applicable laws and regulations around the world. The Company has stringent internal rules to prevent oil discharges and to ensure the proper disposal of lubricating oil and bilge water (which includes oil and other pollut- ants) to protect the marine environment. Regarding anti-fouling ship bottom paints, MOL has switched to tin-free paints. These are just part of our efforts to help protect biodiversity. 14mol_英文_本文納品後修正.indd 66 14mol_英文_本文納品後修正.indd 66 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 67 The Senpaku ISHIN project, our concept for next-generation vessels (cid:129) The Senpaku ISHIN project, our concept for next-generation vessels, is a ground-breaking initiative that helps protect the environment in a substantive way by reducing carbon diox- ide emissions using feasible technologies. (cid:129) MOL announced concepts for ISHIN-I, ISHIN-II and ISHIN-III as a series of next-generation vessels. (cid:129) MOL took delivery of the vessels marking major steps toward realizing the Company’s concepts of ISHIN-I and ISHIN-III. ISHIN- II An LNG-powered ferry Features (cid:129) Using LNG as fuel means the vessel has cleaner exhaust gases and greatly reduces CO2 emissions. (cid:129) While in port and at berth, the ship uses electricity sup- plied from shore and rechargeable batteries to achieve zero emissions. (cid:129) Emphasis on comfort (cid:129) CO2 reduction: 50% ISHIN- I A hybrid car carrier which uses renewable energy In June 2012, MOL took deliv- ery of the EMERALD ACE, a new car carrier equipped with a hybrid electric power supply system, taking a step toward realizing the Company’s ISHIN-I image of future car carriers. ISHIN- III A very large ore carrier with high-efﬁ ciency waste heat recovery system In June 2014, MOL took deliv- ery of the AZUL BRISA, a new bulk carrier with high-efﬁ ciency waste heat recovery system, taking a step toward realizing the Company’s ISHIN-III image of future very large ore carriers. Journey to ISHIN—Development Roadmap Diverse technologies are employed for ISHIN-I/II/III. We created the roadmap for the research, development and ﬁ eld trials of all of the component technology and routinely monitor progress with the aim of rapidly launching the completed vessels. Component Technology Optimum Trim Operation Waste Heat Recovery (WHR) from the main engine Power Assist Sail Diesel Particulate Filter (DPF) system development to reduce PMs in the exhaust gases H2 FY2013 H1 FY2014 H2 FY2014 (cid:129) Complete tank tests of ship model of each type of vessels (cid:129) Running trial of the actual vessels operated by MOL (cid:129) Complete tests on the actual vessels (cid:129) Integrate test results, and tune up the individual trim chart of each type of vessel (cid:129) Prepare to introduce Optimum Trim Operation into actual vessels (developing interface with loading computer, etc.) (cid:129) Examine performance of each WHR device (cid:129) Examine actual performance of WHR system on sea trial, and delivery (cid:129) Evaluate working condition of WHR and effect of bunker saving under operation (cid:129) Evaluation of energy efﬁ ciency improvement and conﬁ rmation of proper operation through the onshore demonstration test (cid:129) Consideration of appropriate ship types where sails can be installed and have signiﬁ cant effect in bunker saving (cid:129) Study of details on energy efﬁ ciency improvement (cid:129) Develop ﬁ ne-tuned DPF (cid:129) Verify the performance of DPF installed in the test engine at MOL Technology Research Center (TRC) (cid:129) Replace DPF installed on actual vessel with ﬁ ne-tuned one (cid:129) Continue the performance test at TRC and verify PM measuring methods (cid:129) Continue test for examination of durability of ﬁ ne-tuned DPF installed on actual vessels (one year) (cid:129) Continue the performance test at TRC and verify PM measuring methods (cid:2) Implemented (cid:2) Implementation scheduled Third-Party Evaluations Environment ■ DBJ Environmental Rating In 2011, MOL became the ﬁ rst company in the ocean shipping industry to acquire the "DBJ Environmental Ratings" from the Development Bank of Japan Inc. (DBJ). MOL received the highest rating from DBJ, which cited MOL's "particularly forward-looking approaches to environmental consciousness." ■ Carbon Disclosure Leadership Index (CDLI) Commendation In 2012, MOL was praised for the content of the information it revealed in the survey conducted by the NPO Carbon Disclosure Project (CDP) regarding the disclosure of greenhouse gas emis- sions and climate change strategies. MOL was selected for inclu- sion in CDLI. ■ SMBC Environmental Assessment Loan In 2012, MOL acquired the top rating for Sumitomo Mitsui Banking Corporation (SMBC) Environmental Assessment Loan because of the remarkable environmental friendliness in its corporate management. 14mol_英文_本文納品後修正.indd 67 14mol_英文_本文納品後修正.indd 67 2014/08/21 14:00 2014/08/21 14:00 68 Mitsui O.S.K. Lines Social Contribution Activities MOL aims to be a company that grows sustainably and harmoniously with society. We therefore carefully consider social issues to tackle, and work to help solve them based on the following three princi- ples. Guided by these principles, we pro- actively undertake social contribution activities that only a shipping company with a global network can. Global Social Contribution Activities Three Principles of MOL’s Social Contribution Activities I. Contribute to the UN Millennium Development Goals* as a company growing in step with the global economy and social development. II. Contribute to protecting biodiversity and preserv- ing nature as a company that impacts the envi- ronment to an extent and as a company that does business on the ocean, a rich repository of living organisms. III. Contribute to local communities as a good corporate citizen. * One of the common frameworks that integrates the Millennium Declaration adopted at the United Nations Millennium Summit held in September 2000, and the International Development Goals that were adopted at major international conference and summits in the 1990’s. The Millennium Development Goals consist of speciﬁ c numerical targets to be achieved by 2015 in eight ﬁ elds, including “achieve universal primary education” and “reduce child mortality.” Japan (cid:129) Contributions to Reconstruction Efforts from the Great East Japan Earthquake 1. Transport of SDF vehicles and personnel by ferry 2. Free emergency support of rescue supplies 3. Transport of international rescue supplies 4. Support voyages by the cruise ship Fuji Maru 5. Donation of refrigerated container (cid:129) Helping clean up beaches (cid:129) Helping plant trees and thin forests Contributions to Biodiversity and Nature Conservation Thailand and Malaysia: Planted mangrove forests Hong Kong: Cleaned up the seashore India: Participated in the “Say NO to Plastic Bags” campaign and afforestation activities The United States: Implemented affor- estation and conservation activities Burkina Faso Transport of desks and chairs by sea Cambodia Transport of medical vehicles by sea Opening of new market facility Somalia MOL and six other compa- nies* provided US$1 million in funding to the Somalia Support Project, run by the United Nations Development Programme (UNDP). * Shell, BP, Maersk, Stena, NYK, K Line and MOL Tanzania Transport of children’s clothes by sea The Philippines Helping construct a day care center Kenya Zambia Transport of children’s shoes by sea South Africa Transport of mobile libraries by sea Vietnam Transport of wheelchairs by sea Paraguay (cid:129) Transport of ﬁ re engines by sea (cid:129) Transport of children’s wheelchairs by sea Third-Party Evaluations Overall CSR, including evaluation of socially responsible investment (SRI) ■ CSR Rating by the Dow Jones Sustainability Indices (DJSI) Since 2003, MOL has been included in the DJSI Asia Paciﬁ c, a des- ignation reserved for companies capable of sustaining growth over the long term while maintaining excellence in environmental, social, and investor relations programs. ■ The Morningstar Socially Responsible Investment Index (MS-SRI) Since 2003, MOL has been selected by Morningstar Japan K.K. for superior social responsibility and included in the MS-SRI. ■ The Global 100 Top Sustainable Companies In 2011, MOL was selected for inclusion in the Global 100 Index pub- lished every year by the Canadian company Corporate Knights Inc. ■ CSR Rating by the FTSE4Good Global Index FTSE is a global index company owned by the London Stock Exchange. Since 2003, FTSE has included MOL in one of its major indices, the FTSE4Good Global Index, which is a socially responsible investment index. ■ SMBC Sustainability Assessment Loan In 2013, MOL became the ﬁ rst company to receive an SMBC Sustainability Assessment Loan from Sumitomo Mitsui Banking Corporation (SMBC), winning speciﬁ c praise for timely and accurate disclosure of environmental, social, and governance (ESG) issues and for its initiatives on sustainability. 14mol_英文_本文納品後修正.indd 68 14mol_英文_本文納品後修正.indd 68 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 69 Financial Section Contents 70 Management’s Discussion and Analysis 74 11-year Summary 76 Consolidated Balance Sheets 78 Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income 79 Consolidated Statements of Changes in Net Assets 80 Consolidated Statements of Cash Flows 81 Notes to Consolidated Financial Statements 111 Independent Auditor’s Report 14mol_英文_本文納品後修正.indd 69 14mol_英文_本文納品後修正.indd 69 2014/08/21 14:00 2014/08/21 14:00 70 Mitsui O.S.K. Lines Management’s Discussion and Analysis We will actively implement strategic investments, while remaining vigilant of the ﬁ nancial stability and investment efﬁ ciency targeted in “STEER FOR 2020”. Masahiro Tanabe Managing Executive Ofﬁ cer Fiscal 2013 Business Performance The global economy in ﬁ scal 2013 remained ﬁ rm overall as econ- omies in developed nations continue to bounce back despite some uncertainty surrounding a few emerging markets. Helped by the economy, seaborne trade also expanded steadily on the whole, though cargo ﬂ ows diversiﬁ ed in line with changes of global trade structures. The market for dry bulkers, especially large ships, improved compared with the previous ﬁ scal year due mainly to a drop in completion of new vessels and robust trans- port demand for iron ore. The tanker market also saw year-on- year improvement thanks in part to a winter surge in the VLCC market. However, the supply-demand situation stopped short of a full-ﬂ edged improvement except for certain vessel types. In containerships, while trade volume recovered, pressure remained strong from the delivery of large new vessels and freight rate lev- els fell from the last ﬁ scal year. The overvalued yen continued its correction and MOL’s aver- age exchange rate rose ¥17.48 to ¥99.70 to the U.S. dollar. Bunker prices fell US$52 to US$610 per metric ton. Amid these circumstances and in line with “RISE2013,” we implemented measures to reduce costs up to ¥34.0 billion, reduce free ton- nage and dispose of costly ships. When coupled with the effects of the Business Structural Reforms executed at the end of ﬁ scal 2012, this resulted in improved business performance in ﬁ scal 2013. Ordinary income rose to ¥54.9 billion, a reversal of the ¥28.5 billion loss in the previous ﬁ scal year. Net income achieved an even sharper turnaround, rising to ¥57.3 billion from the year earlier loss of ¥178.8 billion. With this marked improvement, we achieved the V-shaped recovery aimed for in the management plan. Even in the difﬁ cult business environment, MOL has contin- ued investing in future growth. In ﬁ scal 2013, contracts were concluded for nine new LNG carriers for Japanese utilities and overseas customers. Long-term contracts were also signed for four dry bulkers and ten methanol tankers. Moreover, in the off- shore businesses, we decided to participate in two contracts for the FPSO business (one planned off the coast of Ghana and the other off the coast of Brazil), and also inked a contract for an FSRU business in Uruguay. Cash Flows and Financial Indicators In ﬁ scal 2013, cash ﬂ ows provided by operating activities totaled ¥94.2 billion and cash ﬂ ows used in investing activities amount- ed to ¥119.8 billion, mainly for LNG carriers and offshore busi- nesses. As a result, free cash ﬂ ows in ﬁ scal 2013 were negative ¥25.6 billion. Since ﬁ scal 2012, we intentionally built up cash on hand to be prepared for any unexpected difﬁ culties in the market for raising funds. In addition, due to the weakening of the yen, there was an increase in the yen value of liabilities denominated in foreign currencies. As a result, interest-bearing debt at the end of ﬁ scal 2013 stood at ¥1,094.0, or ¥47.2 billion higher than the end of the previous ﬁ scal year. Cash ﬂ ows used in investing activ- ities in ﬁ scal 2013 were originally forecast to be ¥165.0 billion, but thanks to taking such active measures as utilizing off-balance sheet ﬁ nancing, that amount was reduced to ¥119.8 billion. Thanks to the return to proﬁ t in ﬁ scal 2013, the equity ratio, which had fallen to 25% at the end of the previous ﬁ scal year due to an extraordinary loss for the Business Structural Reforms, improved to 29%. The gearing ratio, which had risen to 196% in ﬁ scal 2012, improved to 161% (135% for the net gearing ratio) 14mol_英文_本文納品後修正.indd 70 14mol_英文_本文納品後修正.indd 70 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 71 at March 31, 2014. In ﬁ scal 2014, cash ﬂ ows used in investing activities are expected to total ¥220.0 billion, exceeding the ¥110.0 billion projected for cash ﬂ ows provided by operating activities. Of that ¥220.0 billion, ¥115.0 billion is ﬁ rm, linked to construction in progress, such as expenses for already ordered LNG carriers. The remaining ¥105.0 billion of forecast investment consists of expenses related to additional long-term contracts MOL is aiming to secure in LNG carriers and offshore businesses. This additional investment will only be paid out when contracts are concluded. This plan stands in contrast to the former front-loaded invest- ment pattern of ﬁ rst ordering ships when prices were low, then waiting for the market to improve. Credit Ratings and Strategic Investments In ﬁ scal 2012, MOL’s ﬁ nancial ﬁ gures worsened and it was downgraded by the credit rating agencies. In ﬁ scal 2013, we sought to prevent a further downgrade and exchanged informa- tion more closely with the credit rating agencies. We explained that cash ﬂ ows used in investing were expected to remain at high levels, but would be limited to investments that would gen- erate future stable proﬁ ts. The credit rating agencies were, to an extent, able to understand this explanation and maintained our current level of credit ratings. CREDIT RATINGS (As of June 2014) JCR R&I Moody’s Credit Ratings A A- Baa3 Returning to and maintaining ﬁ nancial soundness is a high priority for MOL. In ﬁ scal 2013, we strove to improve our ﬁ nan- cial soundness by reducing net cash used in investing by actively utilizing off-balance sheet techniques. We will continue this in ﬁ scal 2014. However, business portfolio transformation is also essential for MOL’s future growth, as outlined in the new mid- term management plan “STEER FOR 2020.” To achieve this transformation, we will concentrate investment and manage- ment resources into businesses that expect growth, such as LNG carriers and offshore businesses, where we can secure long-term stable proﬁ ts. The development of offshore resources, LNG as a source of alternative energy and the shale revolution in the United States are all now gaining a lot of attention. We recog- nize that the next two to three years will bring once-in-a-million business opportunities. Because it takes over three years to go from initial investment to the start of operation, interest-bearing debt temporarily swells before earnings are generated. If MOL were unable to secure a targeted contract, that portion of investment would not be undertaken so the forecast additional investment of ¥105.0 bil- lion for ﬁ scal 2014 might not be incurred. Looking narrowly at our ﬁ nancial position, reduced investment means MOL would be able to more rapidly achieve an equity ratio of 35% to 40% and a gearing ratio of one or below, both set as ﬁ scal 2019 targets of “STEER FOR 2020.” However, without future growth or progress in building up stable proﬁ ts, we cannot expect an increase in shareholder value. MOL plans to actively execute these additional strategic investments to take advantage of opportune timing, while remaining vigilant of the capital efﬁ ciency targeted in “STEER FOR 2020.” Fund Raising, Financial Soundness and Shareholder Returns MOL is committed to strengthening its ﬁ nancial soundness by achieving an equity ratio of 35%. One way to attain this impor- tant target is by striving to thoroughly move things off the bal- ance sheet, including by switching from owned vessels to chartered vessels. In regards to LNG carriers and offshore busi- nesses we continue to work on, the Company will also introduce project ﬁ nancing according to each contract’s characteristics. Through these and other measurers, MOL is also focusing on maintaining its corporate credibility. In dry bulkers and tankers, we are working under a policy of reducing current market exposure risks. Going forward, we will balance cargo contracts with vessels and use short- and medium- term chartered vessels when it is necessary to procure vessels. In terms of shareholder returns, our dividend policy remains unchanged. We will link our dividend payments to our business performance, while considering such factors as cash ﬂ ows for the ﬁ scal year, using 20% as a guideline for the consolidated div- idend payout ratio. After recovering ﬁ nancial soundness as fast as possible, however, we will strive to increase the payout ratio as one of our medium- to long-term management goals. U.S. Dollar-Denominated Convertible Bonds MOL resolved at the meeting of the Board of Directors held on April 8, 2014 to issue US$300 million Zero Coupon Convertible Bonds due 2018 and US$200 million Zero Coupon Convertible Bonds due 2020, for a total of US$500 million. These bonds were issued on April 24, 2014. This was the ﬁ rst time for a Japanese company to issue two sets of convertible bonds denominated in U.S. dollars, and the US$500 million was also the largest amount of convertible bonds ever to be issued by a Japanese company. Upon the issuance of the convertible bonds, MOL introduced two mechanisms (explained below) to mitigate the dilution of the earnings per share, in consideration of our shareholders. 1. Contingent Conversion: Bonds can only be converted into shares before the three-month period prior to the redemption date, if the share price exceeds 130% of the conversion price. 2. Net Share Settlement: During the three-month period prior to the redemption date, the issuer can decide to redeem the face value of the bond in cash and issue new shares equivalent only to the excess value (market price less the face value) even 14mol_英文_本文納品後修正.indd 71 14mol_英文_本文納品後修正.indd 71 2014/08/21 14:00 2014/08/21 14:00 72 Mitsui O.S.K. Lines when a bondholder requests conversion of the full value into shares. A scenario illustrates the beneﬁ ts of the net share settlement If all of the investors of the four-year US$300 million bonds request conversion when the share price is US$8.01 (assumes the share price rose to 150% of the US$5.34 conversion price), the Company would issue: Without net share settlement feature: 56.2 million shares (equivalent to US$300 million), resulting in dilution of 4.49% With net share settlement feature: 18.7 million shares (equivalent to US$150 million) with the remaining US$300 million paid in cash, resulting in dilution of 1.54%. Assuming the net share settlement feature will be applied, these bonds were issued in four and six year maturities to avoid overlap with other ordinary bonds during the redemption period. We plan to allocate the proceeds from the convertible bonds to support an early portion of capital investment for offshore businesses and vessels, including LNG carriers for which contracts have already been concluded. Because projects for LNG carriers and offshore businesses are primarily long-term contracts, we are routinely able to receive loans from banks and other ﬁ nancial institutions at later stages of the projects using the cash that will be generated from the long-term contracts. These convertible bonds were issued for the limited purposes of funding expenses before the projects begin and fulﬁ lling the need for U.S. dollar funds to ﬁ nance a portion of equity in the projects, and because these bonds were advantageous since they could be procured without a coupon while suppressing the risk of dilution. There has been no change in MOL’s long-standing, extremely cautious stance toward equity ﬁ nance. Response to Revised Accounting for Retirement Beneﬁ t and Pension Management Policy From the end of ﬁ scal 2013, MOL began recognizing unrecog- nized actuarial differences that had previously been off the bal- ance sheet, due to revisions to accounting standards for retirement beneﬁ ts. Under net assets on the consolidated bal- ance sheet, ¥1.2 billion was recorded as remeasurements of deﬁ ned beneﬁ t plans. At the end of ﬁ scal 2013, there was a ¥8.3 billion surplus of net deﬁ ned beneﬁ t assets to net deﬁ ned beneﬁ t liabilities on a consolidated basis. MOL BOND ISSUANCE (As of July 1, 2014) Date of Redemption Date of Issue Years Interest Rate Straight bonds No. 16 2015.7.10 Straight bonds No. 14 2016.6.21 2012.7.12 2011.6.21 Straight bonds No. 13 2016.12.16 2009.12.17 Straight bonds No. 17 2017.7.12 2012.7.12 Euro US$ Zero Coupon Convertible bonds 2018.4.24 2014.4.24 Straight bonds No. 12 2019.5.27 2009.5.27 Euro US$ Zero Coupon Convertible bonds 2020.4.24 2014.4.24 Straight bonds No. 15 2021.6.21 Straight bonds No. 18 2022.7.12 Straight bonds No. 19 2024.6.19 2011.6.21 2012.7.12 2014.6.19 3 5 7 5 4 10 6 10 10 10 Total Amount of Issue Outstanding ¥15.0 billion ¥15.0 billion ¥10.0 billion ¥10.0 billion ¥20.0 billion ¥20.0 billion ¥20.0 billion ¥20.0 billion 0.296% 0.573% 1.106% 0.461% Zero coupon US$300 million US$300 million 1.999% ¥20.0 billion ¥18.5 billion Zero coupon US$200 million US$200 million 1.361% 1.139% 0.970% ¥20.0 billion ¥17.8 billion ¥10.0 billion ¥9.2 billion ¥29.6 billion ¥29.6 billion 14mol_英文_本文納品後修正.indd 72 14mol_英文_本文納品後修正.indd 72 2014/08/21 14:00 2014/08/21 14:00 Annual Report 2014 73 Ordinary Income (Loss)/Net Income (Loss) (¥ billions) Cash Flows (¥ billions) 200 100 0 -100 -200 09/3 10/3 11/3 12/3 13/3 14/3 200 150 100 50 0 -50 -100 -150 -200 09/3 10/3 11/3 12/3 13/3 14/3 (cid:2) Ordinary Income (Loss) (cid:2) Net Income (Loss) (cid:2) Cash ﬂ ows from operating activities Free cash ﬂ ows (cid:2) Cash ﬂ ows from investing activities Interest-bearing Debt/Shareholders’ Equity (¥ billions) Gearing Ratio/Equity Ratio (%) 1,200 1,000 800 600 400 200 0 09/3 10/3 11/3 12/3 13/3 14/3 200 150 100 50 0 09/3 10/3 11/3 12/3 13/3 14/3 40 30 20 10 0 (cid:2) Interest-bearing debt (cid:2) Shareholders’ equity* * “Shareholders’ equity” in this section com- prises the total of owners’ equity and accu- mulated other comprehensive income (loss). Gearing ratio (left scale) Net gearing ratio (left scale) Equity ratio (right scale) Capital Expenditure* (¥ billions) 250 200 150 100 50 0 09/3 10/3 11/3 12/3 13/3 14/3 * Capital expenditure is the actual amount calculated by deducting pro- ceeds from the sale of vessels when delivered from “Tangible/intangible ﬁ xed assets increased” contained in the annual securities report. 14mol_英文_本文納品後修正.indd 73 14mol_英文_本文納品後修正.indd 73 2014/08/21 14:00 2014/08/21 14:00 74 Mitsui O.S.K. Lines 11-year Summary Mitsui O.S.K. Lines, Ltd. Years ended March 31 2014 2013 2012 2011 For the year: Shipping and other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,729,452 ¥1,509,194 ¥1,435,221 ¥1,543,661 Shipping and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,587,902 1,432,014 1,368,795 1,328,960 Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . 100,458 92,946 90,886 91,300 Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,092 (15,766) (24,460) 123,401 Equity in earnings (losses) of unconsolidated subsidiaries and afﬁ liated companies, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,234) (4,936) 3,300 8,174 Ordinary income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,986 (28,568) (24,320) 121,622 Income (Loss) before income taxes and minority interests . . . . . . . . . . . 71,710 (137,939) (33,516) 95,367 Income taxes, current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,796) (11,325) (9,546) (36,431) Income taxes, deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,526 (24,799) 20,814 Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,046) (4,784) (3,761) 2,797 (3,456) Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,394 (178,847) (26,009) 58,277 At year-end: Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 533,640 514,246 386,936 344,444 Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 430,045 425,725 322,851 374,269 Net vessels, property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,379,245 1,303,967 1,293,803 1,257,823 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,364,695 2,164,611 1,946,162 1,868,741 Long-term debt due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 920,538 861,728 739,188 559,541 Net assets/Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 783,549 619,493 717,909 740,247 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 502,833 447,830 629,667 664,645 Amounts per share of common stock: Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 47.99 ¥(149.57) ¥(21.76) Net assets/Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 567.90 447.76 533.27 Cash dividends applicable to the year . . . . . . . . . . . . . . . . . . . . . . . . . . 5.00 – 5.00 ¥48.75 552.83 10.00 (Translation of foreign currencies) The Japanese yen amounts for 2014 have been translated into U.S. dollars using the prevailing exchange rate at March 31, 2014, which was ¥102.92 to U.S.$1.00, solely for the convenience of readers. (The convenience translations should not be construed as representations that the Japanese yen amounts have been, could have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange.) (Presentation of net assets in the balance sheet) Effective from the year ended March 31, 2007, the Company adopted the new accounting standard for presentation of net assets in the balance sheet and related guidance (ASBJ Statement No.5, “Accounting Standard for Presentation of Net Assets in the Balance Sheet” issued by the Accounting Standards Board of Japan on December 9, 2005) and Guidance on Accounting Standard for Presentation of Net Assets in the Balance Sheet (ASBJ Guidance No.8 issued by the Accounting Standards Board of Japan on December 9, 2005). Net assets are comprised of shareholders’ equity as deﬁ ned up to the year ended March 31, 2006, minority interests, share subscription rights and unrealized gains (losses) on hedging derivatives, net of tax. (Ordinary income (loss)) Ordinary income (loss) is calculated by adjusting operating income for gains on management of surplus funds (interest income, etc.) and the cost of raising funds (interest expense, etc.) 商船三井英文財務p74入稿.indd 74 商船三井英文財務p74入稿.indd 74 2014/08/21 14:01 2014/08/21 14:01 Annual Report 2014 75 Millions of yen Thousands of U.S. dollars 2010 2009 2008 2007 2006 2005 2004 2014 ¥1,347,965 ¥1,865,802 ¥1,945,697 ¥1,568,435 ¥1,366,725 ¥1,173,332 ¥ 997,260 $16,803,848 1,228,479 1,564,486 1,544,109 1,300,038 1,101,459 917,149 824,902 15,428,508 98,547 20,939 104,105 110,303 100,324 92,273 84,388 197,211 291,285 168,073 172,993 171,795 80,232 92,126 976,078 399,262 5,363 16,000 18,199 16,171 16,817 11,764 6,613 (11,990) 24,235 204,511 302,219 182,488 176,503 174,979 27,776 197,732 318,202 197,854 188,290 155,057 90,556 89,776 534,260 696,755 (8,078) (3,764) (3,212) (65,074) (115,183) (63,042) (61,200) (52,587) (35,346) (134,046) (638) (5,032) (5,694) (7,004) (7,468) (6,404) (7,570) (5,788) (1,205) (3,004) 2,152 (1,191) 43,976 (49,029) 12,722 126,988 190,321 120,940 113,732 98,261 55,391 557,656 352,030 428,598 506,078 405,474 340,355 299,835 299,544 5,184,998 355,185 440,910 528,390 482,810 433,023 429,695 398,091 4,178,439 1,209,176 1,106,746 1,047,825 847,660 769,902 665,320 477,621 13,401,137 1,861,312 1,807,080 1,900,551 1,639,940 1,470,824 1,232,252 1,000,206 22,976,049 594,711 499,193 459,280 398,534 399,617 340,598 311,021 8,944,209 735,702 695,022 751,652 620,989 424,461 298,258 221,535 7,613,185 616,736 623,626 536,096 375,443 275,689 182,143 101,991 4,885,668 Yen ¥10.63 ¥106.13 ¥159.14 ¥101.20 551.70 3.00 521.23 31.00 567.74 31.00 459.55 20.00 ¥94.98 354.01 18.00 ¥81.99 248.40 16.00 ¥46.14 185.06 11.00 U.S.dollars $0.466 5.518 0.049 商船三井英文財務p75_111入稿.indd 75 商船三井英文財務p75_111入稿.indd 75 2014/08/21 14:02 2014/08/21 14:02 76 Mitsui O.S.K. Lines Consolidated Balance Sheets ASSETS Current assets: Millions of yen Thousands of U.S. dollars (Note 1) 2014 2013 2014 Cash and cash equivalents (Note 3） . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Marketable securities (Notes 3 and 4） . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade receivables (Note 3） . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories (Note 5） . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred and prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax assets (Note 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 180,126 ¥ 200,636 $ 1,750,155 – 146,787 (697) 59,349 73,285 1,629 73,161 2,938 145,408 (590) 59,437 56,274 1,908 48,235 – 1,426,224 (6,772) 576,652 712,058 15,828 710,853 533,640 514,246 5,184,998 Vessels, property and equipment (Notes 7 and 13): Vessels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buildings and structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equipment, mainly containers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vessels and other property under construction . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net vessels, property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,434,505 1,386,355 13,938,059 281,720 76,228 215,610 148,972 2,157,035 (777,790) 1,379,245 273,946 65,544 214,615 109,917 2,050,377 (746,410) 1,303,967 2,737,272 740,653 2,094,928 1,447,454 20,958,366 (7,557,229) 13,401,137 Investments and other assets: Investment securities (Notes 3, 4 and 7） . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,061 103,756 1,079,100 Investments in and advances to unconsolidated subsidiaries and afﬁ liated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term loans receivable (Note 3） . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible ﬁ xed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax assets (Note 15） . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net deﬁ ned beneﬁ t assets (Note 16) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total investments and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . See accompanying notes. 124,303 37,519 29,385 3,769 21,200 124,573 451,810 91,093 23,117 22,929 4,034 – 101,469 346,398 1,207,763 364,545 285,513 36,621 205,985 1,210,387 4,389,914 ¥2,364,695 ¥2,164,611 $22,976,049 商船三井英文財務p75_111入稿.indd 76 商船三井英文財務p75_111入稿.indd 76 2014/08/21 14:02 2014/08/21 14:02 Annual Report 2014 77 LIABILITIES AND NET ASSETS Current liabilities: Short-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total short-term debt (Notes 3 and 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term bank loans due within one year . . . . . . . . . . . . . . . . . . . . . . . . . Bonds due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total long-term debt due within one year (Notes 3 and 7) . . . . . . . . . . . . . Trade payables (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Advances received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liabilities (Note 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-current liabilities: Long-term bank loans due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . Bonds due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total long-term debt due after one year (Notes 3 and 7) . . . . . . . . . . . . . . Employees’ severance and retirement beneﬁ ts (Note 16) . . . . . . . . . . . . . . Directors’ and corporate auditors’ retirement beneﬁ ts . . . . . . . . . . . . . . . . Reserve for periodic drydocking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liabilities (Note 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net deﬁ ned beneﬁ t liabilities (Note 16) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commitments and contingent liabilities (Note 8) Net assets (Note 9): Owners’ equity Common stock; Authorized — 3,154,000,000 shares Issued — 1,206,286,115 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total owners’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive income (loss) Unrealized holding gains on available-for-sale securities, net of tax . . . . . Unrealized gains (losses) on hedging derivatives, net of tax . . . . . . . . . . . . Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . Remeasurements of deﬁ ned beneﬁ t plans, net of tax . . . . . . . . . . . . . . . . Total accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . Share subscription rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities and net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen Thousands of U.S. dollars (Note 1) 2014 2013 2014 ¥ 14,697 ¥ 49,250 $ 142,800 – 14,697 90,492 45,000 135,492 143,196 37,696 6,909 1,716 90,339 430,045 740,038 180,500 920,538 – 1,852 14,191 81,130 12,936 120,454 1,151,101 1,581,146 65,400 44,517 502,833 (6,982) 605,768 32,810 39,711 (315) 1,186 73,392 2,391 101,998 783,549 2,000 51,250 88,296 25,000 113,296 142,585 26,661 7,048 1,118 83,767 425,725 648,228 213,500 861,728 13,472 2,028 14,758 71,132 – 156,275 1,119,393 1,545,118 65,400 44,483 447,830 (6,998) 550,715 24,753 (196) (39,849) – (15,292) 2,115 81,955 – 142,800 879,246 437,233 1,316,479 1,391,333 366,265 67,130 16,673 877,759 4,178,439 7,190,420 1,753,789 8,944,209 – 17,995 137,884 788,282 125,690 1,170,365 11,184,425 15,362,864 635,445 432,540 4,885,668 (67,839) 5,885,814 318,792 385,843 (3,061) 11,524 713,098 23,232 991,041 619,493 7,613,185 ¥2,364,695 ¥2,164,611 $22,976,049 商船三井英文財務p75_111入稿.indd 77 商船三井英文財務p75_111入稿.indd 77 2014/08/21 14:02 2014/08/21 14:02 78 Mitsui O.S.K. Lines Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income Mitsui O.S.K. Lines, Ltd. Years ended March 31, 2014 and 2013 (Consolidated Statements of Operations) Shipping and other revenues (Note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shipping and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income (expenses): Interest and dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in losses of afﬁ liated companies, net . . . . . . . . . . . . . . . . . . . . . . . . . Others, net (Notes 10 and 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (Loss) before income taxes and minority interests . . . . . . . . . . Income taxes (Note 15): Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (Loss) before minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Consolidated Statements of Comprehensive Income) Income (Loss) before minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (Note 19): 　Unrealized holding gains on 　 available-for-sale securities, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Unrealized gains on hedging derivatives, net of tax . . . . . . . . . . . . . . . . . . 　Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Share of other comprehensive income (loss) of associates 　 accounted for using equity method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen Thousands of U.S. dollars (Note 1) 2014 2013 2014 ¥1,729,452 ¥1,509,194 $16,803,848 1,587,902 1,432,014 15,428,508 141,550 100,458 41,092 9,341 (12,583) (1,234) 35,094 30,618 71,710 (13,796) 4,526 62,440 (5,046) 77,180 92,946 (15,766) 5,166 (13,021) (4,936) (109,382) (122,173) (137,939) (11,325) (24,799) (174,063) (4,784) 1,375,340 976,078 399,262 90,760 (122,260) (11,990) 340,983 297,493 696,755 (134,046) 43,976 606,685 (49,029) ¥ 57,394 ¥ (178,847) $ 557,656 Millions of yen Thousands of U.S. dollars (Note 1) 2014 2013 2014 ¥ 62,440 ¥(174,063) $ 606,685 8,847 32,725 31,158 19,285 92,015 9,093 56,413 14,909 1,104 81,519 85,960 317,965 302,740 187,379 894,044 Comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥154,455 ¥ (92,544) $1,500,729 Comprehensive income (loss) Comprehensive income (loss) attributable to owners of the parent . . . . . . . . Comprehensive income attributable to minority interests . . . . . . . . . . . . . . . . ¥144,892 ¥ (99,159) $1,407,811 9,563 6,615 92,918 (Amounts per share of common stock) Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted net income (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends applicable to the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yen U.S. dollars (Note 1) ¥47.99 47.97 5.00 ¥(149.57) – – $0.466 0.466 0.049 See accompanying notes. 商船三井英文財務p75_111入稿.indd 78 商船三井英文財務p75_111入稿.indd 78 2014/08/21 14:02 2014/08/21 14:02 Consolidated Statements of Changes in Net Assets Mitsui O.S.K. Lines, Ltd. Years ended March 31, 2014 and 2013 Annual Report 2014 79 Millions of yen Unrealized holding gains on available- for-sale securities, net of tax Unrealized (gains) losses on hedging derivatives, net of tax Remeasure- ments of deﬁ ned beneﬁ t plans, net of tax Foreign currency translation adjustments Treasury stock, at cost Share subscription rights Minority interests Total net assets Common stock Capital surplus Retained earnings Balance at April 1, 2012 ¥65,400 ¥44,487 ¥629,667 ¥(7,152) ¥16,888 ¥(54,936) ¥(56,932) ¥ – ¥2,006 ¥ 78,481 ¥717,909 　Due to change in 　 consolidated subsidiaries . . . . . 　Net loss . . . . . . . . . . . . . . . . . . . . . 　Purchases of treasury stock . . . . 　Disposal of treasury stock . . . . . . 　Dividends paid . . . . . . . . . . . . . . . 　Net changes of items other than 　 owner’s equity during the year . . Balance at March 31 and April 1, 2013 . . . . 　Due to change in 　 consolidated subsidiaries . . . . . 　Net income . . . . . . . . . . . . . . . . . . 　Purchases of treasury stock . . . . 　Disposal of treasury stock . . . . . . 　Dividends paid . . . . . . . . . . . . . . . 　Net changes of items other than 　 owner’s equity during the year . . – – – – – – – (0) – (178,847) – (4) – – – – (2,990) – – – (21) 175 – – – – – – – – – – – – – – – – – 7,865 54,740 17,083 – – – – – – – – – – – – – – – – (0) (178,847) (21) 171 (2,990) 109 3,474 83,271 ¥65,400 ¥44,483 ¥447,830 ¥(6,998) ¥24,753 ¥ (196) ¥(39,849) ¥ – ¥2,115 ¥ 81,955 ¥619,493 – – – – – – – – – 34 – – 1 57,394 – – (2,392) – – – (62) 78 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 1 57,394 (62) 112 (2,392) 8,057 39,907 39,534 1,186 276 20,043 109,003 Balance at March 31, 2014 . . . . . ¥65,400 ¥44,517 ¥502,833 ¥(6,982) ¥32,810 ¥39,711 ¥ (315) ¥1,186 ¥2,391 ¥101,998 ¥783,549 Thousands of U.S. dollars (Note 1) Unrealized holding gains on available- for-sale securities, net of tax Unrealized (gains) losses on hedging derivatives, net of tax Remeasure- ments of deﬁ ned beneﬁ t plans, net of tax Foreign currency translation adjustments Treasury stock, at cost Share subscription rights Minority interests Total net assets Common stock Capital surplus Retained earnings Balance at April 1, 2013 . . . . . . $635,445 $432,209 $4,351,244 $(67,995) $240,507 $ (1,904) $(387,184) $ – $20,550 $796,298 $6,019,170 　Due to change in 　 consolidated subsidiaries . . . . 　Net income . . . . . . . . . . . . . . 　Purchases of treasury stock . . . 　Disposal of treasury stock. . . . . 　Dividends paid . . . . . . . . . . . . 　Net changes of items other than 　 owner’s equity during the year . . – – – – – – – – – 331 – – 9 557,656 – – (23,241) – – – (602) 758 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 9 557,656 (602) 1,089 (23,241) 78,285 387,747 384,123 11,524 2,682 194,743 1,059,104 Balance at March 31, 2014 . . . . $635,445 $432,540 $4,885,668 $(67,839) $318,792 $385,843 $ (3,061) $11,524 $23,232 $991,041 $7,613,185 See accompanying notes. 商船三井英文財務p75_111入稿.indd 79 商船三井英文財務p75_111入稿.indd 79 2014/08/21 14:02 2014/08/21 14:02 80 Mitsui O.S.K. Lines Consolidated Statements of Cash Flows Mitsui O.S.K. Lines, Ltd. Years ended March 31, 2014 and 2013 Cash ﬂ ows from operating activities: Income (Loss) before income taxes and minority interests . . . . . . . . . . . . . . . Adjustments to reconcile income (loss) before income taxes and minority interests to net cash provided by operating activities 　Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Impairment loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Cost of business structural reforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Equity in losses of afﬁ liated companies, net . . . . . . . . . . . . . . . . . . . . . . . . . 　Various provisions (reversals) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Decrease (Increase) in net deﬁ ned beneﬁ t assets . . . . . . . . . . . . . . . . . . . . . 　Increase (Decrease) in net deﬁ ned beneﬁ t liabilities . . . . . . . . . . . . . . . . . . 　Interest and dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Loss (Gain) on sale of investment securities . . . . . . . . . . . . . . . . . . . . . . . . 　Gain on sale of securities issued by subsidiaries and afﬁ liated companies . . . . 　Gain on sale and disposal of vessels, property and equipment . . . . . . . . . 　Exchange loss (gain), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Changes in operating assets and liabilities: 　　Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　　Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　　Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Others, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Sub total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Cash received for interest and dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Cash refunded (paid) for corporate income tax, resident tax and enterprise tax Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash ﬂ ows from investing activities: 　Purchase of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Proceeds from sale of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . 　Payments for purchase of vessels and other tangible and intangible ﬁ xed assets . . . . 　Proceeds from sale of vessels and other tangible and intangible ﬁ xed assets . . . . 　Proceeds from sales of investments in subsidiaries . . . . . . . . . . . . . . . . . . . 　Net decrease (increase) in short-term loans receivables . . . . . . . . . . . . . . . 　Disbursements for long-term loans receivables . . . . . . . . . . . . . . . . . . . . . . 　Collections of long-term loans receivables . . . . . . . . . . . . . . . . . . . . . . . . . . 　Others, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash ﬂ ows from ﬁ nancing activities: 　Net increase (decrease) in short-term loans . . . . . . . . . . . . . . . . . . . . . . . . . 　Net increase (decrease) in commercial paper . . . . . . . . . . . . . . . . . . . . . . . . 　Proceeds from long-term bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Repayments of long-term bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Proceeds from issuance of bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Redemption of bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Sale of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Cash dividends paid by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Cash dividends paid to minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . 　Others, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used in) ﬁ nancing activities . . . . . . . . . . . . . . . . . . . . . Effect of exchange rate changes on cash and equivalents . . . . . . . . . . Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . Net cash increase from new consolidation/de-consolidation of subsidiaries. . . Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . See accompanying notes. Millions of yen Thousands of U.S. dollars (Note 1) 2014 2013 2014 ¥ 71,710 ¥(137,939) $ 696,755 83,984 6,448 – 1,234 (13,899) (19,536) 13,035 (9,341) 12,583 (986) (21,732) (391) (15,671) 5,042 1,046 (3,875) (4,866) 104,785 13,346 (13,167) (10,708) 94,256 (22,888) 7,318 (183,888) 78,267 9,676 359 (13,939) 4,585 639 (119,871) (31,725) (2,000) 159,602 (117,237) 15,000 (25,000) (62) 13 (2,408) (1,321) (1,956) (7,094) 10,582 (22,127) 200,636 1,617 94,685 10,978 101,463 4,936 529 – – (5,166) 13,021 99 (62) (8,375) 2,842 (11,661) (5,001) 6,878 14,434 81,661 9,233 (12,695) 757 78,956 (16,853) 1,126 (165,544) 80,198 – (197) (5,152) 2,863 (682) (104,241) 9,661 (3,000) 216,407 (117,417) 55,000 (7,337) (21) 25 (3,047) (2,999) (8,504) 138,768 4,316 117,799 82,837 – 816,012 62,651 – 11,990 (135,047) (189,817) 126,652 (90,760) 122,260 (9,580) (211,154) (3,799) (152,264) 48,990 10,163 (37,651) (47,280) 1,018,121 129,673 (127,934) (104,042) 915,818 (222,386) 71,104 (1,786,708) 760,464 94,015 3,488 (135,435) 44,549 6,208 (1,164,701) (308,249) (19,433) 1,550,738 (1,139,108) 145,744 (242,907) (602) 126 (23,397) (12,835) (19,004) (68,927) 102,818 (214,992) 1,949,436 15,711 ¥ 180,126 ¥ 200,636 $ 1,750,155 商船三井英文財務p75_111入稿.indd 80 商船三井英文財務p75_111入稿.indd 80 2014/08/21 14:02 2014/08/21 14:02 Notes to Consolidated Financial Statements Mitsui O.S.K. Lines, Ltd. March 31, 2014 and 2013 Annual Report 2014 81 1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS The accompanying consolidated ﬁ nancial statements have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Act and its related accounting regulations, and in conformity with accounting princi- ples generally accepted in Japan (together “Japanese GAAP”), which are different in certain respects as to application and disclo- sure requirements of International Financial Reporting Standards. The accounts of overseas subsidiaries are made revisions according to ASBJ PITF No.18. The accompanying consolidated ﬁ nan- cial statements have been restructured and translated into English (with some expanded descriptions) from the consolidated ﬁ nan- cial statements of Mitsui O.S.K. Lines, Ltd. (the “Company”) prepared in accordance with Japanese GAAP and ﬁ led with the appropriate Local Finance Bureau of the Ministry of Finance as required by the Financial Instruments and Exchange Act. Some sup- plementary information included in the statutory Japanese language consolidated ﬁ nancial statements, but not required for fair pre- sentation, is not presented in the accompanying consolidated ﬁ nancial statements. The translations of the Japanese yen amounts into U.S. dollars are included solely for the convenience of readers outside Japan, using the prevailing exchange rate at March 31, 2014, which was ¥102.92 to U.S. $1.00. The convenience translations should not be construed as representations that the Japanese yen amounts have been, could have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) PRINCIPLES OF CONSOLIDATION All companies are required to consolidate all signiﬁ cant investees which are controlled through substantial ownership of majority voting rights or existence of certain conditions. The consolidated ﬁ nancial statements include the accounts of the Company and 357 subsidiaries for the year ended March 31, 2014 (349 subsidiaries for the year ended March 31, 2013). All signiﬁ cant inter-company balances, transactions and all material unrealized proﬁ t within the consolidated group have been eliminated in consolidation. Investments in unconsolidated subsidiaries and afﬁ liated companies (20% to 50% owned and certain others 15% to 20% owned) are accounted for by the equity method. Companies accounted for using the equity method include 73 afﬁ liated compa- nies for the year ended March 31, 2014, and 65 afﬁ liated companies for the year ended March 31, 2013. Investments in other sub- sidiaries (114 for the year ended March 31, 2014 and 107 for the year ended March 31, 2013) and afﬁ liated companies (69 and 68 for the respective years) were stated at cost since total revenues, total assets, the Company’s equity in net income and retained earnings and others in such companies were not material. In the elimination of investments in subsidiaries, the assets and liabilities of the subsidiaries, including the portion attributable to minority shareholders, are recorded based on the fair value at the time the Company acquired control of the respective subsidiaries. The difference between acquisition cost and net assets acquired is treated as goodwill and negative goodwill and is amortized principally over 5 years on a straight-line basis. Net amortized amount is included in “Selling, general and administrative expenses” or “Other income” of the consolidated statements of operations. Meanwhile, the negative goodwill incurred after April 1, 2010 is recognized as “Other income” at the time of occurrence in accordance with the revised Japanese GAAP. (2) TRANSLATION OF FOREIGN CURRENCY Revenues earned and expenses incurred in currencies other than Japanese yen of the Company and its subsidiaries keeping their books in Japanese yen are translated into Japanese yen either at a monthly exchange rate or at the rate prevailing on the date of the transaction. Monetary assets and liabilities denominated in currencies other than Japanese yen are translated into yen at the exchange rate prevailing at the balance sheet date. Subsidiaries keeping their books in a currency other than Japanese yen translate the revenues and expenses and assets and lia- bilities in foreign currencies into the currency used for ﬁ nancial reporting in accordance with accounting principles generally accepted in their respective countries. All the items in ﬁ nancial statements of subsidiaries, which are stated in currencies other than Japanese yen, were translated into Japanese yen at the year-end exchange rate, except for owners’ equity which is translated at historical rates. Translation differences arising from the application of more than one exchange rate are presented as foreign currency translation adjustments in the net assets section of the consolidated balance sheets. 商船三井英文財務p75_111入稿.indd 81 商船三井英文財務p75_111入稿.indd 81 2014/08/21 14:02 2014/08/21 14:02 82 Mitsui O.S.K. Lines (3) CASH AND CASH EQUIVALENTS In preparing the consolidated statements of cash ﬂ ows, cash on hand, readily-available deposits and short-term highly liquid invest- ments with maturities not exceeding three months at the time of purchase are considered to be cash and cash equivalents. (4) FREIGHT REVENUES AND RELATED EXPENSES 1. Containerships Freight revenues and the related voyage expenses are recognized by the multiple transportation progress method. 2. Vessels other than containerships Freight revenues and the related voyage expenses are recognized mainly by the completed-voyage method. (5) SECURITIES Securities are classiﬁ ed into (a) securities held for trading purposes (hereafter, “trading securities”), (b) debt securities intended to be held to maturity (hereafter, “held-to-maturity debt securities”), (c) equity securities issued by subsidiaries and afﬁ liated compa- nies, or (d) for all other securities that are not classiﬁ ed in any of the above categories (hereafter, “available-for-sale securities”). Trading securities are stated at fair market value. Unrealized gains and losses from market value ﬂ uctuations are recognized as gains or losses in the period of the change. Held-to-maturity debt securities are stated at amortized cost, net of the amount consid- ered not collectible. Equity securities issued by subsidiaries and afﬁ liated companies which are not consolidated or accounted for using the equity method are stated at moving-average cost. Available-for-sale securities with fair market values are stated at fair market values, and the corresponding unrealized holding gains or losses, net of applicable income taxes, are reported as separate component of net assets. Other securities with no available fair market value are stated at moving-average cost. If the market value of held-to-maturity debt securities, equity securities issued by unconsolidated subsidiaries and afﬁ liated companies not on the equity method, and available-for-sale securities, declines signiﬁ cantly, such securities are stated at fair market value and the difference between fair market value and the carrying amount is recognized as loss in the period of the decline. If the fair market value of held-to-maturity debt securities, equity securities issued by unconsolidated subsidiaries and afﬁ liated companies not on the equity method, and available-for-sale securities is not readily available, such securities should be written down to net assets value with a corresponding charge in the statements of operations in the event net assets value declines signiﬁ cantly. In these cases, such fair market value or the net assets value will be the carrying amount of the securities at the beginning of the next year. (6) INVENTORIES Inventories are stated principally at cost determined by the moving-average method (with regard to the book value of inventories on the balance sheet, by writing the inventories down based on their decrease in proﬁ tability of assets). (7) DEPRECIATION OF VESSELS, PROPERTY AND EQUIPMENT Depreciation of vessels and buildings is computed mainly by the straight-line method. Depreciation of other property and equip- ment is computed mainly by the declining-balance method. Depreciation of ﬁ nance lease that transfer ownership to lessees is computed mainly by the identical to depreciation method applied to self-owned non-current assets. Depreciation of ﬁ nance lease that do not transfer ownership to lessees is computed mainly by straight-line method on the assumption that the lease term is the useful life and an estimated residual is zero. With regard to ﬁ nance lease that do not transfer ownership for which the starting date for the lease transaction is prior to March 31, 2008, they are continuously accounted for by a method corresponding to that used for ordinary operating lease contracts. (8) AMORTIZATION OF BOND ISSUE EXPENSE AND STOCK ISSUE EXPENSE Bond issue expense and stock issue expense are charged to income as incurred. (9) INTEREST CAPITALIZATION In cases where a vessel’s construction period is long and the amount of interest accruing during this period is signiﬁ cant, such inter- est expenses are capitalized as a part of the acquisition cost which amounted to ¥2,802 million ($27,225 thousand) for the year ended March 31, 2014 and ¥1,228 million for the year ended March 31, 2013. (10) ALLOWANCE FOR DOUBTFUL ACCOUNTS Allowance for doubtful accounts is provided in an amount sufﬁ cient to cover probable losses on collection. It consists of the esti- mated uncollectible amount with respect to certain identiﬁ ed doubtful receivables and an amount calculated using the actual per- centage of the Company’s collection losses. (11) DIRECTORS’ AND CORPORATE AUDITORS’ RETIREMENT BENEFITS The Company and its domestic subsidiaries recognize liabilities for retirement beneﬁ ts for directors and corporate auditors at an amount required in accordance with the internal regulations. Effective from the shareholders’ meeting of the Company, held on June 23, 2005, the Company abolished the retirement bene- ﬁ ts plan for directors and corporate auditors. Accordingly, the Company recognizes liabilities for retirement beneﬁ t for directors and corporate auditors till the completion of the shareholders’ meeting on June 23, 2005, which will be paid upon their retirement. 商船三井英文財務p75_111入稿.indd 82 商船三井英文財務p75_111入稿.indd 82 2014/08/21 14:02 2014/08/21 14:02 Annual Report 2014 83 (12) EMPLOYEES’ SEVERANCE AND RETIREMENT BENEFITS The Company has the deﬁ ned beneﬁ t pension plans for employees engaged in shore and sea services. Employees engaged in sea service who retire prior to a certain age are also entitled to a lump-sum payment. Some subsidiaries have the deﬁ ned beneﬁ t pen- sion plans which cover all or a part of the retirement beneﬁ ts and some other subsidiaries have established reserves for a lump-sum payment for retirement beneﬁ ts. The Company has a retirement beneﬁ t trust scheme. Under the accounting standards for employees’ severance and retirement beneﬁ ts, liabilities and expenses for employees’ sever- ance and retirement beneﬁ ts are determined based on the amounts actuarially calculated using certain assumptions. The Company and its consolidated subsidiaries (the “Group”) recognized net deﬁ ned beneﬁ t assets and net deﬁ ned beneﬁ t lia- bilities for employees’ severance and retirement beneﬁ ts at March 31, 2014 and 2013 based on the estimated amounts of pro- jected beneﬁ t obligation and the fair value of the plan assets at those dates. Actuarial gains and losses are recognized in the statements of operations using the straight-line method over the average of the estimated remaining service lives of mainly 10 years commencing with the following period. Past service costs are chieﬂ y accounted for as expenses in lump-sum at the time of occurrence. (13) INCOME TAXES The Group recognizes tax effects of temporary differences between the ﬁ nancial statement basis and the tax basis of assets and liabilities. The provision for income taxes is computed based on the pretax income included in the consolidated statements of oper- ations. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax conse- quences of temporary differences. (14) AMOUNTS PER SHARE OF COMMON STOCK Net income (loss) per share of common stock is computed based upon the weighted-average number of shares outstanding during the year. Fully diluted net income per share of common stock assumes exercise of the outstanding stock options at the beginning of the year or at the date of issuance. For the year ended March 31, 2013, fully diluted net income per share is not disclosed because of the Company’s net loss position. Cash dividends per share have been presented on an accrual basis and include dividends to be approved after the balance sheet date, but applicable to the year then ended. (15) DERIVATIVES AND HEDGE ACCOUNTING Companies are required to state derivative ﬁ nancial instruments at fair value and to recognize changes in the fair value as gains or losses unless derivative ﬁ nancial instruments are used for hedging purposes. If derivative ﬁ nancial instruments are used as hedging instruments and meet certain hedging criteria, the Group defers recogni- tion of gains or losses resulting from changes in fair value of derivative ﬁ nancial instruments until the related losses or gains on the hedged items are recognized. If interest rate swap contracts are used as hedging instruments and meet certain hedging criteria, the net amount to be paid or received under the interest rate swap contract is added to or deducted from the interest on the assets or liabilities for which the swap contract was executed (“special treatment”). If foreign exchange forward contracts are used as hedging instruments and meet certain hedging criteria, hedged foreign cur- rency assets and liabilities are translated at the rate of these contracts (“allocation method”). The following summarizes hedging derivative ﬁ nancial instruments used by the Group and items hedged: Hedging instruments: Hedged items: Loans payable in foreign currencies Foreign currency future transactions Forward foreign exchange contracts Foreign currency future transactions Currency option contracts Currency swap contracts Foreign currency future transactions Foreign currency loans payable Interest rate swap contracts Interest on loans and bonds payable Crude oil swap contracts Commodities futures Freight futures Fuel oil Fuel oil Freight The derivative transactions are executed and managed by the Company in accordance with the established policies in order to hedge the Group’s exposure to interest rate increases, fuel oil increases, freight decreases, and foreign currency exchange rate risk. 商船三井英文財務p75_111入稿.indd 83 商船三井英文財務p75_111入稿.indd 83 2014/08/21 14:02 2014/08/21 14:02 84 Mitsui O.S.K. Lines The Company evaluates hedge effectiveness by comparing the cumulative changes in cash ﬂ ows from or the changes in fair value of hedged items and the cumulative changes in cash ﬂ ows from or the changes in fair value of hedging instruments. (16) RECLASSIFICATIONS Certain prior year amounts have been reclassiﬁ ed to conform to the 2014 presentation. (17) CHANGES IN ACCOUNTING POLICIES (Application of accounting standards for retirement beneﬁ ts) The Group has applied the Accounting Standard for Retirement Beneﬁ ts (ASBJ Statement No. 26, May 17, 2012) and the Guidance on Accounting Standard for Retirement Beneﬁ ts (ASBJ Guidance No. 25, May 17, 2012), except for the provisions of the main clauses of Paragraph 35 of the Accounting Standard for Retirement Beneﬁ ts and Paragraph 67 of the Guidance on Accounting Standard for Retirement Beneﬁ ts, effective from the year ended March 31, 2014. Accordingly, the Group has changed its account- ing policy to one that recognizes the difference between retirement beneﬁ t obligations and plan assets as net deﬁ ned beneﬁ t liabili- ties or net deﬁ ned beneﬁ t assets and recorded unrecognized actuarial gains and losses and unrecognized prior service costs under net deﬁ ned beneﬁ t liabilities or net deﬁ ned beneﬁ t assets. Application of the Accounting Standard for Retirement Beneﬁ ts and Guidance on Accounting Standard for Retirement Beneﬁ ts is in line with the transitional measures provided in Paragraph 37 of the Accounting Standard for Retirement Beneﬁ ts. In accordance with such measures, the effect of the change has been added to or deducted from remeasurements of deﬁ ned beneﬁ t plans under accumulated other comprehensive income (loss) as of March 31, 2014. As a result of the change, as of March 31, 2014, net deﬁ ned beneﬁ t liabilities of 12,936 million yen ($125,690 thousand) and net deﬁ ned beneﬁ t assets of 21,200 million yen ($205,985 thousand) were recognized. Also, accumulated other comprehensive income (loss) was increased by 1,186 million yen ($11,524 thousand). (18) CHANGE IN ACCOUNTING POLICIES WITH AMENDMENT OF RESPECTIVE LAW OR REGULATION THAT ARE NOT DISTINGUISHABLE FROM CHANGE IN ACCOUNTING ESTIMATES (Change in depreciation method) From the year ended March 31, 2013, in accordance with the amendment in corporate tax law, the Company and its domestic sub- sidiaries have changed its depreciation method for property and equipment. Assets acquired on or after April 1, 2012 are depreci- ated using the method prescribed in amended corporate tax law. The effect on the consolidated ﬁ nancial statements of the change is not material. (19) ACCOUNTING STANDARDS ISSUED BUT NOT YET APPLIED Accounting Standard for Retirement Beneﬁ ts (ASBJ Statement No.26, May 17, 2012) and Guidance on Accounting Standard for Retirement Beneﬁ ts (ASBJ Guidance No.25, May 17, 2012) 1. Summary Methods for recognizing unrealized actuarial gains and losses and past service costs, methods for calculating retirement beneﬁ t obligations and current service costs and expansion of disclosures have been amended. 2. Effective dates Amendments relating to assessment of retirement beneﬁ t obligations and current service costs are effective from the year ending on or after March 31, 2015. As transitional treatments are provided in these new standards, they were not applied retrospectively to consolidated ﬁ nancial statements in prior years. 3. Effect of application of the standard The Group is currently under assessment of the effects of these new standards on the consolidated ﬁ nancial statements. (20) CHANGES IN ACCOUNTING ESTIMATES (Change of estimated useful life) As a part of the Business Structural Reforms executed in the previous year, the Group reviewed the policy on use of vessels based on actual operating experience. Then, the Group found that vessels can be used longer than their conventional estimated useful lives. Therefore, starting from the year ended March 31, 2014, the period of useful lives of dry bulkers and car carriers were changed from 15 years to 20 years, and tankers from 13-18 years to 20-25 years, respectively. As a result, operating income and income before income taxes and minority interests for the year was increased by ¥10,684 million ($103,809 thousand), respectively. 商船三井英文財務p75_111入稿.indd 84 商船三井英文財務p75_111入稿.indd 84 2014/08/21 14:02 2014/08/21 14:02 Annual Report 2014 85 3. FINANCIAL INSTRUMENTS (1) Qualitative information on ﬁ nancial instruments I. Policies for using ﬁ nancial instruments We raise capital investment funds to acquire vessels and other ﬁ xed assets primarily through bank loans and corporate bonds. In addition, we secure short-term operating funds through commercial papers and bank loans. Furthermore, we have established commitment line with Japanese banks in preparation for supplementing liquidity in emergency situations. Derivatives are utilized to hedge risks as discussed below and are executed within the scope of real requirements. Our policy is not to use derivatives for speculative purposes. II. Details of ﬁ nancial instruments / Risk and its management Trade receivables are exposed to the credit risks of customers. We strive to mitigate such risks in accordance with internal regula- tions. Besides, trade receivables denominated in foreign currencies are exposed to the foreign currency exchange rate risk. We avoid the risk mainly by, in principle, utilizing forward exchange contracts which cover the net position (The difference between trade receivables and trade payables dominated in foreign currencies). Investment securities are mainly stocks of companies with which we have business relationships. These investment securities are exposed to the price ﬂ uctuation risk. We identify the market value of listed stocks on a quarterly basis. Trade payables are due within a year. Short-term loans and commercial papers are primarily used for raising short-term operating funds, while long-term loans and bonds are mainly for capital investments. Although several items with variable interest rates are exposed to the interest rate risk, a certain portion of such variable interest rates is ﬁ xed with the use of interest rate swaps. Long-term loans and bonds denominated in foreign currencies are exposed to the foreign currency exchange rate risk, a part of which is avoided by using currency swaps. Our major derivative transactions and hedged risks are as follows. * Forward foreign exchange contracts / Currency swap contracts : To cover exchange volatility of foreign-currency-denominated trade receivables, trade payables, long-term loans, and corpo- rate bonds. * Interest rate swap contracts : To avoid interest rate risk arising out of interest payment of long-term loans and corporate bonds. * Crude oil swap contracts / Commodities futures : To hedge ﬂ uctuation of fuel oil price. With regard to the detail of hedge accounting (hedging instruments, hedged items, the way of evaluating hedge effective- ness), see Note 2 (15) to the consolidated ﬁ nancial statements. Derivative transactions are executed and managed in accordance with our internal regulations and dealt only with highly rated ﬁ nancial institutions to mitigate credit risks. On the other hand, as trade payables, loan payables, bonds, and commercial papers are exposed to the risk of ﬁ nancing for repayment, we manage the risk by planning cash management program monthly, having established commitment line with several ﬁ nancial institutions, and adjusting funding period (balancing short-term/long-term combination), in consideration of market circumstances. III. Supplemental information on fair value Fair value of ﬁ nancial instruments that are actively traded in organized ﬁ nancial markets is determined by market value. For those where there are no active markets, it is determined by reasonable estimation. Reasonably estimated value might vary depending on condition of calculation as several variation factors are included in the calculation. On the other hand, derivative transactions mentioned in following (2) do not indicate the market risk of such derivatives. 商船三井英文財務p75_111入稿.indd 85 商船三井英文財務p75_111入稿.indd 85 2014/08/21 14:02 2014/08/21 14:02 86 Mitsui O.S.K. Lines (2) Fair Values of ﬁ nancial instruments Book values and fair values of the ﬁ nancial instruments on the consolidated balance sheet at March 31, 2014 are the following; Millions of yen Book Value Fair Value Difference Assets Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 180,126 ¥ 180,126 ¥ – Time deposits with a maturity of more than three months . . . . . . . . . . . . . . . . Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment securities Available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term loans receivable(*1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,023 146,787 1,445 103,417 41,015 1,023 146,787 1,445 103,417 46,748 ¥ 473,813 ¥ 479,546 – – – – 5,733 ¥5,733 Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 143,196 ¥ 143,196 ¥ – Short-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonds(*2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term bank loans(*3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,697 225,500 830,530 14,697 230,953 833,094 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,213,923 ¥1,221,940 Derivative ﬁ nancial instruments(*4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 83,295 ¥ 82,895 – 5,453 2,564 ¥8,017 ¥ (400) Thousands of U.S. dollars (Note 1) Book Value Fair Value Difference Assets Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,750,155 $ 1,750,155 $ – Time deposits with a maturity of more than three months . . . . . . . . . . . . . . . . 9,940 9,940 Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,426,224 1,426,224 Short-term loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,040 14,040 Investment securities Available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,004,829 1,004,829 Long-term loans receivable(*1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398,513 454,217 Total Liabilities $ 4,603,701 $ 4,659,405 – – – – 55,704 $55,704 Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,391,333 $ 1,391,333 $ – Short-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142,800 142,800 Bonds(*2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,191,022 2,244,005 Long-term bank loans(*3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,069,666 8,094,578 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,794,821 $11,872,716 Derivative ﬁ nancial instruments(*4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 809,318 $ 805,431 – 52,983 24,912 $77,895 $ (3,887) *1 The book value of long-term loans receivable includes current portion amounting to ¥3,496 million ($33,968 thousand). *2 The book value of bonds includes current portion amounting to ¥45,000 million ($437,233 thousand). *3 The book value of long-term bank loans includes current portion amounting to¥90,492 million ($879,246 thousand). *4 Amounts of derivative ﬁ nancial instruments are net of asset and liability. Negative amount stated with ( ) means that the net amount is liability. 商船三井英文財務p75_111入稿.indd 86 商船三井英文財務p75_111入稿.indd 86 2014/08/21 14:02 2014/08/21 14:02 Annual Report 2014 87 Book values and fair values of the ﬁ nancial instruments on the consolidated balance sheet at March 31, 2013 are the following; Millions of yen Book Value Fair Value Difference Assets Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 200,636 ¥ 200,636 ¥ – Time deposits with a maturity of more than three months . . . . . . . . . . . . . . . . Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,139 145,408 1,139 145,408 Marketable securities Available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment securities Available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term loans receivable(*1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Liabilities 2,938 1,188 92,785 24,759 2,938 1,188 92,785 30,955 ¥ 468,853 ¥ 475,049 – – – – – 6,196 ¥6,196 Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 142,585 ¥ 142,585 ¥ – Short-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonds(*2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term bank loans(*3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,250 2,000 238,500 736,524 49,250 2,000 242,650 739,244 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,168,859 ¥1,175,729 Derivative ﬁ nancial instruments(*4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 36,966 ¥ 36,518 – – 4,150 2,720 ¥6,870 ¥ (448) *1 The book value of long-term loans receivable includes current portion amounting to ¥1,642 million. *2 The book value of bonds includes current portion amounting to ¥25,000 million. *3 The book value of long-term bank loans includes current portion amounting to ¥88,296 million. *4 Amounts of derivative ﬁ nancial instruments are net of asset and liability. Negative amount stated with ( ) means that the net amount is liability. The following is a description of the valuation methodologies used for the assets and liabilities measured at the fair value. Cash and cash equivalents, Time deposits with a maturity of more than three months, Trade receivables and Short-term loans receivable Since these assets are settled in a short term and their fair value is almost equal to the book value, the fair value is evaluated at the book value. Marketable securities and Investment securities The fair value of stocks is evaluated at market prices at stock exchange as of the end of the year and the fair value of bonds is eval- uated at market prices at stock exchange or provided by ﬁ nancial institutions as of the end of the years. Long-term loans receivable The fair value of long-term loans receivable with variable interests rate is evaluated at the book value because the interest rate reﬂ ects the market rate in a short term and their fair value is almost equal to the book value, unless the creditworthiness of the bor- rower has changed signiﬁ cantly since the loan origination. The fair value of long-term loans receivable with ﬁ xed interest rates, for each category of loans based on types of loans, and maturity length, is evaluated by discounting the total amount of principal and interest using the rate which would apply if similar loans were newly made. Trade payables, Short-term loans and Commercial paper Since these liabilities are settled in a short term and their fair value is almost equal to the book value, the fair value is evaluated at the book value. Bonds The fair value of corporate bonds with market price is evaluated based on their market price. The fair value of variable interest rates corporate bonds without market price is evaluated at the book value because the interest rate reﬂ ects the market rate in a short term and there has been no signiﬁ cant change in the creditworthiness of us before and after the issue. 商船三井英文財務p75_111入稿.indd 87 商船三井英文財務p75_111入稿.indd 87 2014/08/21 14:02 2014/08/21 14:02 88 Mitsui O.S.K. Lines Long-term bank loans The fair value of long-term bank loans with variable interest rates is evaluated at the book value because the interest rate reﬂ ects the market rate in a short term and there has been no signiﬁ cant change in the creditworthiness of us before and after such bank loans were made. The fair value of long-term bank loans with ﬁ xed interest rates, for each category of bank loans based on types of bank loans, and maturity length, is evaluated by discounting the total amount of principal and interest using the rate which would apply if similar bank loans were newly made. The fair value of long-term bank loans qualifying for allocation method of interest and currency swap is evaluated at the book value because such bank loans were deemed as the variable interest rates bank loans and the interest rate reﬂ ects the market rate in a short term. Derivative ﬁ nancial instruments Please refer to Note 6 to the consolidated ﬁ nancial statements. The following table summarizes ﬁ nancial instruments whose fair value is extremely difﬁ cult to estimate. Millions of yen Thousands of U.S. dollars (Note 1) Book Value Book Value Book Value 2014 2013 2014 Unlisted stocks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥7,627 ¥ 7,764 $74,106 Unlisted foreign bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 17 3,200 7 – 165 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥7,644 ¥10,971 $74,271 The above items are not included in the amount presented under the line “Investments securities” in the table summarizing fair value of ﬁ nancial instruments, because the fair value is extremely difﬁ cult to estimate as they have no quoted market price and the future cash ﬂ ow cannot be estimated. At March 31, 2014, the aggregate annual maturity of monetary claims and securities was as follows; Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . Time deposits with a maturity of more than three months . . . Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . Marketable securities and investments securities Available-for-sale securities Within a year ¥180,126 1,023 146,787 1,445 (Governmental/municipal bonds) . . . . . . . . . . . . . . . . . . . 10 Available-for-sale securities (Corporate bonds) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . – 3,496 – 23,134 200 6,745 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥332,887 ¥23,134 ¥6,945 Millions of yen After one year through ﬁ ve years ¥ – – After ﬁ ve years through ten years ¥ – – After ten years ¥ – – – – – – – – – – – – 7,640 ¥7,640 Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . Time deposits with a maturity of more than three months . . . Thousands of U.S. dollars (Note 1) After one year through ﬁ ve years $ – – After ﬁ ve years through ten years $ – – Within a year $1,750,155 9,940 After ten years $ – – Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,426,224 Short-term loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . 14,040 Marketable securities and investments securities Available-for-sale securities (Governmental/municipal bonds) . . . . . . . . . . . . . . . . . . . 97 Available-for-sale securities – – – – – – – – – (Corporate bonds) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . – 33,968 – 224,777 1,943 65,536 – 74,232 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,234,424 $224,777 $67,479 $74,232 商船三井英文財務p75_111入稿.indd 88 商船三井英文財務p75_111入稿.indd 88 2014/08/21 14:02 2014/08/21 14:02 Annual Report 2014 89 At March 31, 2013, the aggregate annual maturity of monetary claims and securities was as follows; Millions of yen After one year through ﬁ ve years After ﬁ ve years through ten years Within a year After ten years Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥200,636 ¥ – ¥ – ¥ – Time deposits with a maturity of more than three months . . . Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . Marketable securities and investments securities Held-to-maturity debt securities (Other) . . . . . . . . . . . . . . . Available-for-sale securities (Governmental/municipal bonds) . . . . . . . . . . . . . . . . . . . Available-for-sale securities (Corporate bonds) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . 1,139 145,408 1,188 – – 3,000 1,642 – – – – 10 – 16,099 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥353,013 ¥16,109 – – – – – 200 2,321 ¥2,521 – – – 3,200 – – 4,697 ¥7,897 4. SECURITIES A. The following tables summarize acquisition costs, book values and fair values of securities with available fair values at March 31, 2014 and 2013. Available-for-sale securities: Securities with book values exceeding acquisition costs at March 31, 2014 Type Millions of yen Acquisition cost Book Value Difference Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥41,698 ¥93,782 ¥52,084 Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210 – 226 – 16 – Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥41,908 ¥94,008 ¥52,100 Type Thousands of U.S. dollars (Note 1) Acquisition cost Book Value Difference Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $405,150 $911,212 $506,062 Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total 2,040 – 2,196 – 156 – $407,190 $913,408 $506,218 Securities with book values exceeding acquisition costs at March 31, 2013 Type Millions of yen Acquisition cost Book Value Difference Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥33,088 3,060 – ¥73,550 3,166 – ¥40,462 106 – Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥36,148 ¥76,716 ¥40,568 商船三井英文財務p75_111入稿.indd 89 商船三井英文財務p75_111入稿.indd 89 2014/08/21 14:02 2014/08/21 14:02 90 Mitsui O.S.K. Lines Securities with book values not exceeding acquisition costs at March 31, 2014 Type Millions of yen Acquisition cost Book Value Difference Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥11,545 ¥9,409 ¥(2,136) Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – – – – Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥11,545 ¥9,409 ¥(2,136) Type Thousands of U.S. dollars (Note 1) Acquisition cost Book Value Difference Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $112,175 $91,421 $(20,754) Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – – – – Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $112,175 $91,421 $(20,754) Securities with book values not exceeding acquisition costs at March 31, 2013 Type Millions of yen Acquisition cost Book Value Difference Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥22,581 ¥19,007 ¥(3,574) Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – – – – Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥22,581 ¥19,007 ¥(3,574) B. Total sales of available-for-sale securities sold in the years ended March 31, 2014 and 2013 and the related gains and losses were as follows: Proceeds from sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥3,880 1,200 214 ¥932 309 369 Millions of yen 2014 2013 Thousands of U.S. dollars (Note 1) 2014 $37,699 11,660 2,079 C. Impairment losses of securities For the years ended March 31, 2014 and 2013, the Company reduced the book value on the securities and booked the reductions as impairment losses of ¥106 million ($1,030 thousand) and ¥2,892 million, respectively. With regard to the impairment losses, the Company principally reduces the book value on the securities to the amount which is considered the recoverability etc. in the event the fair market value declines more than 50% in comparison with the acquisition cost. 商船三井英文財務p75_111入稿.indd 90 商船三井英文財務p75_111入稿.indd 90 2014/08/21 14:02 2014/08/21 14:02 Annual Report 2014 91 5. INVENTORIES Inventories as of March 31, 2014 and 2013 consisted of the following: Fuel and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen Thousands of U.S. dollars (Note 1) 2014 ¥58,211 1,138 ¥59,349 2013 2014 ¥58,326 $565,595 1,111 11,057 ¥59,437 $576,652 6. DERIVATIVE TRANSACTIONS The Group enters into derivative transactions to hedge the Group’s exposure to interest rate increases, fuel oil increases, freight decreases, and currency exchange ﬂ uctuations, in accordance with the guidance determined by the management of the Company. I. Hedge accounting not applied The following tables summarize the outstanding contract amounts and fair values of ﬁ nancial derivatives of the Group at March 31, 2014 and 2013, for which hedge accounting has not been applied. Millions of yen Thousands of U.S. dollars (Note 1) 2014 2013 2014 (1) Currency related: Forward currency exchange contracts Sell (U.S. dollar): Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥15,438 ¥11,286 $150,000 Fair values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) (2,046) (10) Buy (U.S. dollar): Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 25 ¥ 13 $ 243 Fair values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0 Buy (Others): Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 22 ¥ 2 $ 214 Fair values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 0 10 Currency swaps contracts Buy (U.S. dollar): Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ – ¥ 5,102 $ – Fair values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – (651) – Millions of yen Thousands of U.S. dollars (Note 1) 2014 2013 2014 (2) Interest related Interest rate swaps Receive ﬂ oating, pay ﬁ xed Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥39,046 (1,966) ¥46,899 $379,382 (2,769) (19,102) Receive ﬁ xed, pay ﬂ oating Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ – ¥ 291 $ – Fair values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 2 – Note: Fair values are measured based on forward exchange rates prevailing at the end of the year and information provided by ﬁ nancial institutions, etc. 商船三井英文財務p75_111入稿.indd 91 商船三井英文財務p75_111入稿.indd 91 2014/08/21 14:02 2014/08/21 14:02 92 Mitsui O.S.K. Lines II. Hedge accounting applied The following tables summarize the outstanding contract amounts and fair values of ﬁ nancial derivatives of the Group at March 31, 2014 and 2013, for which hedge accounting has been applied. Millions of yen Thousands of U.S. dollars (Note 1) 2014 2013 2014 (1) Deferral hedge accounting a. Forward currency exchange contracts to hedge the risk for the foreign currency transactions Sell (U.S. dollar): Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 16,386 ¥ 26,969 $ 159,211 Fair values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (415) (1,947) (4,032) Buy (U.S. dollar): Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 18,661 ¥ 62,906 $ 181,316 Fair values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,460 9,189 43,335 b. Currency swaps contracts to hedge the risk for charterages Sell (U.S. dollar): Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 8,022 ¥ 1,686 $ 77,944 Fair values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (435) (162) (4,227) Buy (U.S. dollar): Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥507,607 ¥491,628 $4,932,054 Fair values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,264 50,309 857,598 c. Interest rate swaps to hedge the risk for the long-term bank loans and charterages Receive ﬂ oating, pay ﬁ xed Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥228,282 ¥197,060 $2,218,053 Fair values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,133) (16,246) (69,306) Receive ﬁ xed, pay ﬂ oating Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 5,810 ¥ 10,698 $ 56,452 Fair values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 289 1,321 d. Commodities futures to hedge the risk for the fuel oil Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 23,486 ¥ 40,680 $ 228,197 Fair values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 461 997 4,479 e. Freight futures to hedge the risk for the freight Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 649 ¥ – $ 6,306 Fair values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (77) – (748) Millions of yen Thousands of U.S. dollars (Note 1) 2014 2013 2014 (2) Special treatment Interest rate swaps to hedge the risk for the long-term bank loans Receive ﬂ oating, pay ﬁ xed Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥18,687 ¥3,719 $181,568 Fair values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (400) (447) (3,887) Millions of yen Thousands of U.S. dollars (Note 1) 2014 2013 2014 (3) Allocation method Currency swaps to hedge the risk for the foreign bonds and long-term bank loans Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥31,788 ¥27,827 $308,861 Fair values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – Notes: 1. Fair values are measured based on forward exchange rates prevailing at the end of the year and information provided by ﬁ nancial institutions, etc. 2. Currency swaps which allocation method are applied to are recorded as the combined amount of such currency swaps and their hedge items. Therefore, their fair values are included in fair values of such hedge items. 商船三井英文財務p75_111入稿.indd 92 商船三井英文財務p75_111入稿.indd 92 2014/08/21 14:02 2014/08/21 14:02 Annual Report 2014 93 7. SHORT-TERM DEBT AND LONG-TERM DEBT (1) SHORT-TERM DEBT Short-term debt amounting to ¥14,697 million ($142,800 thousand) and ¥51,250 million at March 31, 2014 and 2013, respec- tively, were principally unsecured. The interest rates on short-term debt were mainly set on a ﬂ oating rate basis. (2) LONG-TERM DEBT Long-term debt at March 31, 2014 and 2013 consisted of the following: Bonds: 1.428% yen bonds due 2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ – ¥ 15,000 $ – Millions of yen Thousands of U.S. dollars (Note 1) 2014 2013 2014 1.760% yen bonds due 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.278% yen bonds due 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.590% yen bonds due 2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.296% yen bonds due 2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.573% yen bonds due 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.070% yen bonds due 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.106% yen bonds due 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.461% yen bonds due 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.999% yen bonds due 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.670% yen bonds due 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.400% yen bonds due 2020. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.361% yen bonds due 2021. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.650% yen bonds due 2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.139% yen bonds due 2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.070% yen bonds due 2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.850% yen bonds due 2024. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Secured loans from: Japan Development Bank due through 2027 at interest rates of 0.19% to 4.20% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other ﬁ nancial institutions due through 2031 at interest rates of 0.35% to 6.70% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unsecured loans from: Other ﬁ nancial institutions due through 2031 at interest rates of 0.08% to 5.20% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amount due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 30,000 15,000 15,000 10,000 15,000 20,000 20,000 18,500 10,000 15,000 17,800 5,000 9,200 10,000 15,000 10,000 30,000 15,000 15,000 10,000 15,000 20,000 20,000 18,500 10,000 15,000 20,000 5,000 10,000 10,000 – 291,489 145,744 145,744 97,163 145,744 194,326 194,326 179,751 97,163 145,744 172,950 48,581 89,390 97,163 – 145,744 62,177 59,453 604,129 82,319 55,649 799,835 686,034 1,056,030 135,492 621,422 975,024 113,296 6,665,702 10,260,688 1,316,479 ¥ 920,538 ¥861,728 $ 8,944,209 At March 31, 2014, the aggregate annual maturity of long-term debt was as follows: Year ending March 31 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen ¥ 135,492 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 and thereafter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149,855 138,823 101,985 110,493 419,382 Thousands of U.S. dollars (Note 1) $ 1,316,479 1,456,034 1,348,844 990,915 1,073,581 4,074,835 ¥1,056,030 $10,260,688 商船三井英文財務p75_111入稿.indd 93 商船三井英文財務p75_111入稿.indd 93 2014/08/21 14:02 2014/08/21 14:02 94 Mitsui O.S.K. Lines (3) ASSETS PLEDGED AND SECURED DEBT At March 31, 2014, the following assets were pledged as collateral for short-term debt and long-term debt. Assets pledged Vessels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen ¥177,092 Thousands of U.S. dollars (Note 1) $1,720,676 Buildings and structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vessels and other property under construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 72,953 60,148 1,322 708,832 584,415 ¥310,329 $3,015,245 Secured debt Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen ¥ 50 Thousands of U.S. dollars (Note 1) $ 486 Long-term debt due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,906 132,540 115,682 1,287,796 ¥144,496 $1,403,964 8. COMMITMENTS AND CONTINGENT LIABILITIES (A) COMMITMENT At March 31, 2014 and 2013, the Company had loan commitment agreements with certain afﬁ liated companies. The nonexercised portion of loan commitments was as follows: Total loan limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥14,409 ¥14,107 $140,002 Loan executions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – The nonexercised portion of loan commitments . . . . . . . . . . . . . . . . . . . . . . . . ¥14,409 ¥14,107 $140,002 Millions of yen Thousands of U.S. dollars (Note 1) 2014 2013 2014 (B) CONTINGENT LIABILITIES At March 31, 2014 and 2013, the Company and its consolidated subsidiaries were contingently liable mainly as guarantors or co- guarantors of indebtedness of related and other companies in the aggregate amount of ¥78,169 million ($759,512 thousand) and ¥80,458 million, respectively. 9. NET ASSETS Net assets comprises four sections, which are the owners’ equity, accumulated other comprehensive income, share subscription rights and minority interests. Under the Japanese Companies Act (“the Act”) and regulations, the entire amount paid for new shares is required to be desig- nated as common stock. However, a company may, by a resolution of the board of directors, designate an amount not exceeding one-half of the price of the new shares as additional paid-in-capital, which is included in capital surplus. Under the Act, in cases where a dividend distribution of surplus is made, the smaller of an amount equal to 10% of the divi- dend or the excess, if any, of 25% of common stock over the total of additional paid-in-capital and legal earnings reserve must be set aside as additional paid-in-capital or legal earnings reserve. Legal earnings reserve is included in retained earnings in the accom- panying consolidated balance sheets. Under the Act, appropriations (legal earnings reserve and additional paid-in-capital could be used to eliminate or reduce a deﬁ - cit or could be capitalized ) generally require a resolution of the shareholders’ meeting. 商船三井英文財務p75_111入稿.indd 94 商船三井英文財務p75_111入稿.indd 94 2014/08/21 14:02 2014/08/21 14:02 Annual Report 2014 95 (A) SHARES ISSUED AND OUTSTANDING Changes in number of shares issued and outstanding during the years ended March 31, 2014 and 2013 were as follows: Balance at April 1, 2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shares of common stock (Thousands) 1,206,286 Shares of treasury stock (Thousands) 10,975 – – 82 (555) Balance at March 31 and April 1, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,206,286 10,502 Increase during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 145 (274) Balance at March 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,206,286 10,373 (B) SHARE SUBSCRIPTION RIGHTS Share subscription rights at March 31, 2014 and 2013 consisted of the following: Stock options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (C) DIVIDENDS (1) Dividends paid for the year ended March 31, 2014 were as follows: Millions of yen 2014 2013 ¥2,391 ¥2,391 ¥2,115 ¥2,115 Thousands of U.S. dollars (Note 1) 2014 $23,232 $23,232 Approved at the board of directors held on October 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen ¥2,392 ¥2,392 Thousands of U.S. dollars (Note 1) $23,241 $23,241 (2) Dividends included in the retained earnings at March 31, 2014 and to be paid in subsequent periods were as follows: Approved at the shareholders’ meeting held on June 24, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen ¥3,587 ¥3,587 Thousands of U.S. dollars (Note 1) $34,852 $34,852 10. IMPAIRMENT LOSS For the year ended March 31, 2014, the Group recorded an impairment loss on the following asset group. Application Assets to be disposed of by sale Assets for operations Type Vessels and Other Vessels Millions of yen ¥ 498 Thousands of U.S. dollars (Note 1) $ 4,839 5,950 57,812 For the year ended March 31, 2013, the Group recorded an impairment loss on the following asset group. Application Assets to be disposed of by sale Type Vessels and Other Millions of yen ¥10,978 The Group grouped operating assets based on management accounting categories, and also grouped assets to be disposed of by sale and idle assets by structure. For the year ended March 31, 2014 and 2013, with regard to the target price of assets to be disposed of by sale which fell below book value, the Group reduced the book value on these assets to recoverable amounts and booked the reductions as impair- ment losses. The recoverable amount for this asset group is evaluated based on the asset’s net selling price. And the asset’s net selling price is appraised based on the target price of assets to be disposed of by sale. 商船三井英文財務p75_111入稿.indd 95 商船三井英文財務p75_111入稿.indd 95 2014/08/21 14:02 2014/08/21 14:02 96 Mitsui O.S.K. Lines For the year ended March 31, 2014, since proﬁ tability of the overseas consolidated subsidiary’s assets for operations signiﬁ - cantly deteriorated, the Group reduced the book value on these assets to recoverable amounts and booked the reductions as impairment losses. The recoverable amount for this asset group is evaluated based on the value in use. The value in use is calculated from the projected future cash ﬂ ows discounted at a rate of 7%. 11. OTHER INCOME (EXPENSES): OTHERS, NET - BREAKDOWN Millions of yen Thousands of U.S. dollars (Note 1) 2014 2013 2014 Others, net: Exchange gain (loss), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥11,392 ¥ (3,297) $110,688 Amortization of goodwill, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of vessels, investment securities and others . . . . . . . . . . . . . . . Gain on sale of securities issued by subsidiaries and afﬁ liated companies . . . Loss on sale and disposal of vessels, investment securities and others . . . . . . Loss arising from dissolution of subsidiaries and afﬁ liated companies . . . . . . Loss on write-down of investment securities and others . . . . . . . . . . . . . . . . Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Special retirement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss arising from marine accident. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cancellation fee for chartered ships, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190 8,295 21,857 (7,041) (1) (106) (218) (76) (2,397) 572 (6,448) 220 12,459 62 (4,187) (152) (2,892) (90) (79) – 1,744 (10,978) Cost of business structural reforms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – (101,463) 1,846 80,597 212,369 (68,412) (10) (1,030) (2,118) (738) (23,290) 5,558 (62,651) – Sundries, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,075 (729) 88,174 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥35,094 ¥(109,382) $340,983 Note: Breakdown of cost of business structural reforms Proﬁ ts and losses associated with the business structural reforms in the dry bulker and tanker businesses such as loss on transfer of time charter contracts, impairment loss, loss on sale of vessels and gain/loss on cancellation of derivatives were collectively recorded as cost of business structural reforms. Breakdown of the cost was as follows: Loss on transfer of time charter contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥103,422 Impairment loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on sale of vessels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on cancellation of derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,279 1,341 (10,346) (233) Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥101,463 Millions of yen 2013 (Impairment Loss) For the year ended March 31, 2013, the Group recorded an impairment loss on the following asset group: Application Assets to be disposed of by sale Type Vessels Millions of yen ¥7,279 The Group grouped operating assets based on management accounting categories, and also grouped assets to be disposed of by sale and idle assets by structure. For the year ended March 31, 2013, with regard to the target price of assets to be disposed of by sale which fell below book value, the Group reduced the book value on these assets to recoverable amounts and booked the reduc- tions as cost of business structural reforms. The recoverable amount for this asset group is evaluated based on the asset’s net selling price. And the asset’s net selling price is appraised based on the target price of assets to be disposed of by sale. 商船三井英文財務p75_111入稿.indd 96 商船三井英文財務p75_111入稿.indd 96 2014/08/21 14:02 2014/08/21 14:02 Annual Report 2014 97 12. LEASES AS LESSEE: (A) INFORMATION ON FINANCE LEASES ACCOUNTED FOR AS OPERATING LEASES: (1) A summary of assumed amounts of acquisition cost, accumulated depreciation and net book value at March 31, 2014 of ﬁ nance leases that do not transfer ownership to the lessee was as follows: Acquisition cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equipment, mainly containers ¥16,243 15,855 ¥ 388 Millions of yen Others ¥190 144 ¥ 46 Total ¥16,433 15,999 ¥ 434 Thousands of U.S. dollars (Note 1) Equipment, mainly containers $157,822 154,052 $ 3,770 Others $1,846 1,399 $ 447 Total $159,668 155,451 $ 4,217 A summary of assumed amounts of acquisition cost, accumulated depreciation and net book value at March 31, 2013 of ﬁ nance leases that do not transfer ownership to the lessee was as follows: Acquisition cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) Future lease payments at March 31, 2014 and 2013 Millions of yen Equipment, mainly containers ¥26,337 25,171 ¥ 1,166 Total ¥26,337 25,171 ¥ 1,166 Amount due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amount due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) Lease payments, depreciation equivalent and interest equivalent Lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation equivalent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest equivalent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen 2014 2013 ¥1,221 122 ¥1,343 ¥2,041 1,177 ¥3,218 Thousands of U.S. dollars (Note 1) 2014 ¥11,864 1,185 ¥13,049 Millions of yen Thousands of U.S. dollars (Note 1) 2014 ¥2,234 796 49 2013 ¥2,713 1,322 79 2014 $21,706 7,734 476 (4) Calculation of depreciation equivalent Assumed depreciation amounts are computed using the declining-balance method or the straight-line method over the lease terms assuming no residual value. (5) Calculation of interest equivalent The excess of total lease payments over acquisition cost equivalents is regarded as amounts representing interest payable equiva- lents and is allocated to each period using the interest method. 商船三井英文財務p75_111入稿.indd 97 商船三井英文財務p75_111入稿.indd 97 2014/08/21 14:02 2014/08/21 14:02 98 Mitsui O.S.K. Lines (6) Impairment loss There was no impairment loss on ﬁ nance lease accounted for as operating leases. (B) FUTURE LEASE PAYMENTS UNDER OPERATING LEASES FOR ONLY NON-CANCELABLE CONTRACTS AT MARCH 31, 2014 AND 2013: Amount due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amount due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen Thousands of U.S. dollars (Note 1) 2014 ¥ 48,825 256,912 ¥305,737 2013 2014 ¥ 43,810 $ 474,398 252,281 2,496,230 ¥296,091 $2,970,628 AS LESSOR: (A) FUTURE LEASE INCOME UNDER OPERATING LEASES FOR ONLY NON-CANCELABLE CONTRACTS AT MARCH 31, 2014 AND 2013: Amount due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amount due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen Thousands of U.S. dollars (Note 1) 2014 ¥13,021 40,325 ¥53,346 2013 ¥13,571 47,167 ¥60,738 2014 $126,516 391,809 $518,325 13. RENTAL PROPERTIES The Company and some of its consolidated subsidiaries own real estate for ofﬁ ce lease (including lands) in Tokyo, Osaka and other areas. Information about the book value and the fair value of such rental properties was as follows: Book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥280,121 ¥279,130 $2,721,735 Fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381,024 368,128 3,702,138 Notes: 1. Book value was calculated as the amount equivalent to the cost for acquisition deducting accumulated depreciation. 2. Fair value is mainly based upon the amount appraised by outside independent real estate appraisers. In addition, information about rental revenue and expense from rental properties was as follows: Millions of yen Thousands of U.S. dollars (Note 1) 2014 2013 2014 Rental revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rental expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen Thousands of U.S. dollars (Note 1) 2014 ¥26,992 15,447 ¥11,545 2013 2014 ¥26,193 $262,262 14,776 150,087 ¥11,417 $112,175 Note: Rental revenue is mainly recorded as “shipping and other revenues” and rental expense (depreciation expense, repairs and maintenance fee, utilities, personnel cost, tax and public charge, etc.) is mainly recorded as “shipping and other expenses”. 商船三井英文財務p75_111入稿.indd 98 商船三井英文財務p75_111入稿.indd 98 2014/08/21 14:02 2014/08/21 14:02 Annual Report 2014 99 14. SEGMENT AND RELATED INFORMATION (A) SEGMENT INFORMATION: For the year ended March 31, 2014: Bulkships Reportable segment Container- ships Ferry & Domestic transport Associated business Sub Total Others Total Adjustment Consolidated Millions of yen 1. Revenues: (1) Revenues from customers, unconsolidated subsidiaries and afﬁ liated companies . . . . . . . . . . ¥ 836,409 ¥713,503 ¥55,603 ¥116,599 ¥1,722,114 ¥ 7,338 ¥1,729,452 ¥ – ¥1,729,452 (2) Inter-segment revenues . . . . . . . . 588 1,887 202 20,608 23,285 7,246 30,531 (30,531) – Total revenues . . . . . . . . . . . . . . . ¥ 836,997 ¥715,390 ¥55,805 ¥137,207 ¥1,745,399 ¥ 14,584 ¥1,759,983 ¥ (30,531) ¥1,729,452 Segment income (loss) . . . . . . . . ¥ 57,122 ¥ (14,554) ¥ 2,236 ¥ 11,146 ¥ 55,950 ¥ 4,577 ¥ 60,527 ¥ (5,541) ¥ 54,986 Segment assets . . . . . . . . . . . . . . ¥1,501,313 ¥449,725 ¥35,089 ¥386,852 ¥2,372,979 ¥325,937 ¥2,698,916 ¥(334,221) ¥2,364,695 2. Others (1) Depreciation and amortization . . ¥ 55,546 ¥ 15,014 ¥ 3,303 ¥ 8,623 ¥ 82,486 ¥ 326 ¥ 82,812 ¥ 1,172 ¥ 83,984 (2) Amortization of goodwill, net . . . (3) Interest income . . . . . . . . . . . . . . (4) Interest expenses. . . . . . . . . . . . . (5) Equity in earnings (losses) of afﬁ liated companies, net . . . . . . . (6) Investment in afﬁ liates . . . . . . . . (7) Tangible/intangible ﬁ xed assets increased . . . . . . . . . . . . . . . . . . (619) 1,565 9,837 (3,009) 97,802 18 172 2,454 1,404 3,385 305 6 204 179 1,777 105 75 (191) 1,818 1,935 14,430 1 1,191 743 (190) 3,009 15,173 – (690) (2,590) (190) 2,319 12,583 193 (1,233) (1) (1,234) 1,506 104,470 2,308 106,778 – – (1,234) 106,778 140,189 28,511 1,424 10,484 180,608 146 180,754 5,395 186,149 For the year ended March 31, 2014: Bulkships Reportable segment Container- ships Ferry & Domestic transport Associated business Sub Total Others Total Adjustment Consolidated Thousands of U.S. dollars (Note 1) 1. Revenues: (1) Revenues from customers, unconsolidated subsidiaries and afﬁ liated companies . . . . . . . . . . $ 8,126,788 $6,932,598 $540,255 $1,132,909 $16,732,550 $ 71,298 $16,803,848 $ – $16,803,848 (2) Inter-segment revenues . . . . . . . . 5,713 18,335 1,963 200,233 226,244 70,404 296,648 (296,648) – Total revenues . . . . . . . . . . . . . . . $ 8,132,501 $6,950,933 $542,218 $1,333,142 $16,958,794 $ 141,702 $17,100,496 $ (296,648) $16,803,848 Segment income (loss) . . . . . . . . $ 555,013 $ (141,411) $ 21,726 $ 108,298 $ 543,626 $ 44,472 $ 588,098 $ (53,838) $ 534,260 Segment assets . . . . . . . . . . . . . . $14,587,184 $4,369,656 $340,935 $3,758,764 $23,056,539 $3,166,897 $26,223,436 $(3,247,387) $22,976,049 2. Others (1) Depreciation and amortization . . $ 539,700 $ 145,880 $ 32,093 $ 83,784 $ 801,457 $ 3,168 $ 804,625 $ 11,387 $ 816,012 (2) Amortization of goodwill, net . . . (3) Interest income . . . . . . . . . . . . . . (4) Interest expenses. . . . . . . . . . . . . (5) Equity in earnings (losses) of (6,014) 15,206 95,579 175 2,963 1,671 58 1,020 729 (1,856) 10 17,664 11,572 (1,846) 29,236 – (6,704) (1,846) 22,532 23,844 1,982 18,801 140,206 7,219 147,425 (25,165) 122,260 afﬁ liated companies, net . . . . . . . (29,236) 13,642 1,739 1,875 (11,980) (10) (11,990) (6) Investment in afﬁ liates . . . . . . . . 950,271 32,890 17,266 14,633 1,015,060 22,425 1,037,485 – – (11,990) 1,037,485 (7) Tangible/intangible ﬁ xed assets increased . . . . . . . . . . . . . . . . . . 1,362,116 277,021 13,836 101,866 1,754,839 1,418 1,756,257 52,420 1,808,677 As noted in Note 2 (20) “Changes in accounting estimates”, in the year ended March 31, 2014, the period of estimated useful lives of dry bulkers and car carriers were changed from 15 years to 20 years, and tankers from 13-18 years to 20-25 years, respectively. As a result, operating income, segment income, and income before income taxes and minority interests for the year ended March 31, 2014 was increased by ¥10,684 million ($103,809 thousand). 商船三井英文財務p75_111入稿.indd 99 商船三井英文財務p75_111入稿.indd 99 2014/08/21 14:02 2014/08/21 14:02 100 Mitsui O.S.K. Lines For the year ended March 31, 2013: Bulkships Reportable segment Container- ships Ferry & Domestic transport Associated business Sub Total Others Total Adjustment Consolidated Millions of yen 1. Revenues: (1) Revenues from customers, unconsolidated subsidiaries and afﬁ liated companies . . . . . . . . . . ¥ 731,269 ¥606,589 ¥54,285 ¥109,650 ¥1,501,793 ¥ 7,401 ¥1,509,194 ¥ – ¥1,509,194 (2) Inter-segment revenues . . . . . . . . 735 1,678 193 18,377 20,983 7,061 28,044 (28,044) – Total revenues . . . . . . . . . . . . . . . ¥ 732,004 ¥608,267 ¥54,478 ¥128,027 ¥1,522,776 ¥ 14,462 ¥1,537,238 ¥ (28,044) ¥1,509,194 Segment income (loss) . . . . . . . . ¥ (24,800) ¥ (11,291) ¥ 1,283 ¥ 10,746 ¥ (24,062) ¥ 2,449 ¥ (21,613) ¥ (6,955) ¥ (28,568) Segment assets . . . . . . . . . . . . . . ¥1,298,682 ¥403,167 ¥36,420 ¥379,969 ¥2,118,238 ¥303,650 ¥2,421,888 ¥(257,277) ¥2,164,611 2. Others (1) Depreciation and amortization . . ¥ 66,689 ¥ 14,901 ¥ 3,530 ¥ 7,964 ¥ 93,084 ¥ 410 ¥ 93,494 ¥ 1,191 ¥ 94,685 (2) Amortization of goodwill, net . . . (3) Interest income . . . . . . . . . . . . . . (573) 1,144 34 178 (4) Interest expenses. . . . . . . . . . . . . 10,785 2,501 (5) Equity in earnings (losses) of afﬁ liated companies, net . . . . . . . (6,551) 1,258 (6) Cost of business structural reforms. . 101,463 – 273 37 331 153 – 63 97 (203) 1,456 1,957 15,574 (17) 1,252 858 (220) 2,708 16,432 – (1,034) (3,411) 140 – (5,000) 101,463 64 – (4,936) 101,463 (7) Investment in afﬁ liates . . . . . . . . 66,624 6,031 1,625 1,190 75,470 2,282 77,752 (220) 1,674 13,021 (4,936) 101,463 77,752 – – – (8) Tangible/intangible ﬁ xed assets increased . . . . . . . . . . . . . . . . . . 128,440 11,463 1,102 20,339 161,344 622 161,966 2,924 164,890 (Segment income (loss)) Segment income (loss) is calculated by adjusting operating income for gains on management of surplus funds (interest income, etc.) and the cost of raising funds (interest expense, etc.) (B) RELATED INFORMATION: (1) Information about geographic areas: Our service areas are not necessarily consistent with our customer’s location in our core ocean transport business. That’s why the revenues of geographic areas are revenues, wherever they may be earned, of companies registered in countries in the geographic areas. For the year ended March 31, 2014: Japan North America Europe Asia Others Consolidated Revenues . . . . . . . . . . . . . . . . . . . . . . ¥1,496,846 Tangible ﬁ xed assets. . . . . . . . . . . . . . ¥1,220,942 ¥19,559 ¥33,589 ¥43,094 ¥ 3,940 ¥169,890 ¥113,904 ¥ 63 ¥6,870 ¥1,729,452 ¥1,379,245 Millions of yen For the year ended March 31, 2014: Japan North America Europe Asia Others Consolidated Revenues . . . . . . . . . . . . . . . . . . . . . . $14,543,781 $190,041 $418,714 $1,650,700 $ 612 $16,803,848 Tangible ﬁ xed assets. . . . . . . . . . . . . . $11,863,020 $326,360 $ 38,282 $1,106,724 $66,751 $13,401,137 Thousands of U.S. dollars (Note 1) For the year ended March 31, 2013: Japan North America Europe Asia Others Consolidated Revenues . . . . . . . . . . . . . . . . . . . . . . ¥1,400,961 Tangible ﬁ xed assets. . . . . . . . . . . . . . ¥1,211,948 ¥17,422 ¥23,456 ¥35,220 ¥ 3,651 ¥55,591 ¥64,844 ¥ – ¥68 ¥1,509,194 ¥1,303,967 Millions of yen 商船三井英文財務p75_111入稿.indd 100 商船三井英文財務p75_111入稿.indd 100 2014/08/21 14:02 2014/08/21 14:02 Annual Report 2014 101 (2) Information about impairment loss by reportable segment: For the year ended March 31, 2014: Bulkships Millions of yen Reportable segment Container- ships Ferry & Domestic transport Associated business Sub Total Others Adjustment and elimination Consolidated Impairment loss . . . . . . . . . . . . . . . . ¥6,368 ¥ – ¥80 ¥ – ¥6,448 ¥ – ¥ – ¥6,448 For the year ended March 31, 2014: Bulkships Thousands of U.S. dollars (Note 1) Reportable segment Container- ships Ferry & Domestic transport Associated business Sub Total Others Adjustment and elimination Consolidated Impairment loss . . . . . . . . . . . . . . . . $61,874 $ – $777 $ – $62,651 $ – $ – $62,651 For the year ended March 31, 2013: Bulkships Millions of yen Reportable segment Container- ships Ferry & Domestic transport Associated business Sub Total Others Adjustment and elimination Consolidated Impairment loss . . . . . . . . . . . . . . . . ¥8,407 ¥ – ¥368 ¥ – ¥8,775 ¥278 ¥1,925 ¥10,978 Note: Other than the amounts written above, impairment loss associated with bulkships segment (¥7,279 million) was included in cost of business structural reforms. (3) Information about goodwill (negative goodwill) by reportable segment: For the year ended March 31, 2014: Bulkships Millions of yen Reportable segment Container- ships Ferry & Domestic transport Associated business Sub Total Others Adjustment and elimination Consolidated Goodwill (Negative goodwill) at the end of current year . . . . . . . . . ¥(379) ¥(1) ¥398 ¥1,554 ¥1,572 ¥1 ¥ – ¥1,573 For the year ended March 31, 2014: Bulkships Thousands of U.S. dollars (Note 1) Reportable segment Container- ships Ferry & Domestic transport Associated business Sub Total Others Adjustment and elimination Consolidated Goodwill (Negative goodwill) at the end of current year . . . . . . . . . $(3,682) $(10) $3,867 $15,099 $15,274 $10 $ – $15,284 For the year ended March 31, 2013: Bulkships Millions of yen Reportable segment Container- ships Ferry & Domestic transport Associated business Sub Total Others Adjustment and elimination Consolidated Goodwill (Negative goodwill) at the end of current year . . . . . . . . . ¥(1,014) ¥16 ¥704 ¥1,397 ¥1,103 ¥2 ¥ – ¥1,105 商船三井英文財務p75_111入稿.indd 101 商船三井英文財務p75_111入稿.indd 101 2014/08/21 14:02 2014/08/21 14:02 102 Mitsui O.S.K. Lines 15. INCOME TAXES The Company is subject to a number of taxes based on income, which, in the aggregate, indicate statutory rates in Japan of approximately 34.25% for the years ended March 31, 2014 and 2013. (A) Signiﬁ cant components of deferred tax assets and liabilities at March 31, 2014 and 2013 were as follows: Millions of yen Thousands of U.S. dollars (Note 1) 2014 2013 2014 Deferred tax assets: Excess bad debt expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 787 ¥ 1,772 $ 7,647 Reserve for bonuses expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retirement beneﬁ ts expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net deﬁ ned beneﬁ t liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retirement allowances for directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Write-down of securities and other investments . . . . . . . . . . . . . . . . . . . . . . Accrued business tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating loss carried forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrealized gain on sale of ﬁ xed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,590 – 2,726 655 1,791 410 54,982 1,675 1,351 5,003 70,970 (64,817) 6,153 1,463 4,287 – 728 1,576 423 69,292 1,699 1,212 3,287 85,739 (77,693) 8,046 15,449 – 26,487 6,364 17,402 3,984 534,221 16,275 13,127 48,610 689,566 (629,781) 59,785 Deferred tax liabilities:: Reserve deductible for tax purposes when appropriated for deferred gain on real properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,920) (1,815) (18,655) Reserve deductible for tax purposes when appropriated for special depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrealized holding gains on available-for-sale securities . . . . . . . . . . . . . . . . Gain on securities contributed to employee retirement beneﬁ t trust . . . . . . . Revaluation reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings of consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . Unrealized gains on hedging derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (760) (19,391) (3,667) (14,566) (11,591) (31,373) (333) (83,601) (889) (15,200) (3,698) (14,811) (16,489) (21,127) (325) (7,384) (188,408) (35,630) (141,527) (112,621) (304,829) (3,237) (74,354) (812,291) Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥(77,448) ¥ (66,308) $(752,506) Following the promulgation on March 31, 2014 of the “Act for Partial Revision of the Income Tax Act” (Act No. 10 of 2014), the special reconstruction corporation tax, a surtax for reconstruction funding after the Great East Japan Earthquake will not be imposed for the ﬁ scal years beginning on or after April 1, 2014. In line with these revisions, the Company changed the statutory tax rate to calculate deferred tax assets and liabilities from 34.25% to 31.75% for temporary differences which are expected to reverse from the ﬁ scal years beginning on or after April 1, 2014. The effect on the consolidated ﬁ nancial statements of the change is not material. 商船三井英文財務p75_111入稿.indd 102 商船三井英文財務p75_111入稿.indd 102 2014/08/21 14:02 2014/08/21 14:02 Annual Report 2014 103 (B) Signiﬁ cant difference between the statutory tax rate and the effective tax rate for the ﬁ nancial statement purpose for the year ended March 31, 2014 was as follows: Statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-deductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax exempt revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect on tonnage tax system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect on net loss carried forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect on elimination of dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect on elimination of loss on valuation of stocks of subsidiaries and afﬁ liates . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 34.3 % 0.5 % (4.3)% (6.6)% (18.3)% 10.6 % (2.6)% (0.7)% 12.9 % * For the year ended March 31, 2013, the difference between the statutory tax rate and the effective tax rate is not stated as the Company recorded loss before income taxes and minority interests. 16. EMPLOYEES’ SEVERANCE AND RETIREMENT BENEFITS (A) DEFINED BENEFIT PLANS (1) MOVEMENTS IN RETIREMENT BENEFIT OBLIGATIONS EXCEPT PLAN APPLIED SIMPLIFIED METHOD Balance at April 1, 2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥42,258 Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Beneﬁ ts paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Past service costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,484 837 (326) (2,510) – Millions of yen Thousands of U.S. dollars (Note 1) $410,591 14,419 8,133 (3,168) (24,388) – Balance at March 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥41,743 $405,587 (2) MOVEMENTS IN PLAN ASSETS EXCEPT PLAN APPLIED SIMPLIFIED METHOD Balance at April 1, 2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥56,636 Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contributions paid by the employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Beneﬁ ts paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,133 3,191 1,189 (2,243) Millions of yen Thousands of U.S. dollars (Note 1) $550,291 11,009 31,005 11,553 (21,794) Balance at March 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥59,906 $582,064 (3) MOVEMENTS IN NET LIABILITY FOR RETIREMENT BENEFITS BASED ON THE SIMPLIFIED METHOD Balance at April 1, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥10,918 Millions of yen Thousands of U.S. dollars (Note 1) $106,082 Retirement beneﬁ t costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Beneﬁ ts paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contributions paid by the employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,237 (1,473) (783) 12,019 (14,312) (7,608) Balance at March 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 9,899 $ 96,181 商船三井英文財務p75_111入稿.indd 103 商船三井英文財務p75_111入稿.indd 103 2014/08/21 14:02 2014/08/21 14:02 104 Mitsui O.S.K. Lines (4) RECONCILIATION FROM RETIREMENT BENEFIT OBLIGATIONS AND PLAN ASSETS TO LIABILITY (ASSET) FOR RETIREMENT BENEFITS INCLUDING PLAN APPLIED SIMPLIFIED METHOD Funded retirement beneﬁ t obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 49,534 Millions of yen Plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unfunded retirement beneﬁ t obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total net liability (asset) for retirement beneﬁ ts at March 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . Asset for retirement beneﬁ ts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (68,750) (19,216) 10,952 (8,264) 12,936 Thousands of U.S. dollars (Note 1) $ 481,286 (667,994) (186,708) 106,413 (80,295) 125,690 Liability for retirement beneﬁ ts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total net liability (asset) for retirement beneﬁ ts at March 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . (21,200) ¥ (8,264) (205,985) $ (80,295) (5) RETIREMENT BENEFIT COSTS Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,484 Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net actuarial loss amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Past service costs amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retirement beneﬁ t costs calculated by the simpliﬁ ed method . . . . . . . . . . . . . . . . . . . . . . . . . . Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 837 (1,133) (1,111) – 1,237 287 Millions of yen Thousands of U.S. dollars (Note 1) $ 14,419 8,133 (11,009) (10,795) – 12,019 2,789 Total retirement beneﬁ t costs for the year ended March 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,601 $ 15,556 (6) BREAKDOWN OF ITEMS RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME Unrealized past service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecognized actuarial differences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen ¥ – Thousands of U.S. dollars (Note 1) $ – (1,763) ¥(1,763) (17,130) $(17,130) (7) PLAN ASSETS 1. Plan assets comprise: Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jointly invested assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retirement beneﬁ t trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54% 22% 17% 6% 1% 100% 36% 2. Long-term expected rate of return Current and target asset allocations, historical and expected returns on various categories of plan assets have been considered in determining the long-term expected rate of return. 商船三井英文財務p75_111入稿.indd 104 商船三井英文財務p75_111入稿.indd 104 2014/08/21 14:02 2014/08/21 14:02 Annual Report 2014 105 (8) ACTUARIAL ASSUMPTIONS The discount rate for the year ended March 31, 2014 used by the Company is mainly 2.0%. Also, the rate of expected return on plan assets for the year ended March 31, 2014 is mainly 2.0%. (B) DEFINED CONTRIBUTION PLANS The estimated amount of contributions to deﬁ ned contribution plans at March 31, 2014 was ¥855 million ($8,307 thousand). Employees’ severance and retirement beneﬁ ts included in the liability section of the consolidated balance sheets at March 31, 2013 consisted of the following: Projected beneﬁ t obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 61,280 Unrecognized actuarial differences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid pension expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less fair value of pension assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (712) 17,576 (64,672) Employees’ severance and retirement beneﬁ ts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 13,472 Millions of yen 2013 Included in the consolidated statements of operations for the year ended March 31, 2013 was severance and retirement beneﬁ t expenses, which comprised the following: Millions of yen 2013 Service costs — beneﬁ ts earned during the year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 3,054 Interest cost on projected beneﬁ t obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of actuarial differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 873 (1,087) 239 1,102 Employees’ severance and retirement beneﬁ ts expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 4,181 * “Others” represents special retirement and expenses related to the deﬁ ned contribution pension plan of the Group. The discount rate for the year ended March 31, 2013 used by the Company is mainly 2.0%. Also, the rate of expected return on plan assets for the year ended March 31, 2013 is mainly 2.0%. The estimated amount of all retirement beneﬁ ts to be paid at the future retirement date is allocated equally to each service year using the estimated number of total service years. 商船三井英文財務p75_111入稿.indd 105 商船三井英文財務p75_111入稿.indd 105 2014/08/21 14:02 2014/08/21 14:02 106 Mitsui O.S.K. Lines 17. STOCK OPTIONS (A) EXPENSED AMOUNT Expensed amounts on stock options for the years ended March 31, 2014 and 2013 were as follows: Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen Thousands of U.S. dollars (Note 1) 2014 2013 2014 ¥275 ¥275 ¥110 ¥110 $2,672 $2,672 (B) TERMS AND CONDITIONS The following table summarizes terms and conditions of stock options for the years when they were granted: Number of grantees 2003 2004 2005 2006 Directors: 11 Executive ofﬁ cers: 16 Employees: 37 Presidents of the Company’s domestic consolidated subsidiaries: 34 Directors: 11 Executive ofﬁ cers: 16 Employees: 32 Presidents of the Company’s domestic consolidated subsidiaries: 34 Directors: 11 Executive ofﬁ cers: 17 Employees: 38 Presidents of the Company’s domestic consolidated subsidiaries: 34 Directors: 11 Executive ofﬁ cers: 17 Employees: 34 Presidents of the Company’s domestic consolidated subsidiaries: 37 Number of stock options Common stock 1,590,000 Common stock 1,570,000 Common stock 1,650,000 Common stock 1,670,000 Grant date August 8, 2003 August 5, 2004 August 5, 2005 August 11, 2006 Vesting conditions Service period Exercise period No provisions No provisions No provisions No provisions No provisions No provisions No provisions No provisions From June 20, 2004 to June 25, 2013 From June 20, 2005 to June 24, 2014 From June 20, 2006 to June 23, 2015 From June 20, 2007 to June 22, 2016 Number of grantees 2007 2008 2009 2010 Directors: 11 Executive ofﬁ cers: 20 Employees: 33 Presidents of the Company’s domestic consolidated subsidiaries: 36 Directors: 11 Executive ofﬁ cers: 20 Employees: 38 Presidents of the Company’s domestic consolidated subsidiaries: 36 Directors: 11 Executive ofﬁ cers: 20 Employees: 33 Presidents of the Company’s domestic consolidated subsidiaries: 35 Directors: 10 Executive ofﬁ cers: 21 Employees: 36 Presidents of the Company’s domestic consolidated subsidiaries: 33 Number of stock options Common stock 1,710,000 Common stock 1,760,000 Common stock 1,640,000 Common stock 1,710,000 Grant date August 10, 2007 August 8, 2008 August 14, 2009 August 16, 2010 Vesting conditions Service period Exercise period No provisions No provisions No provisions No provisions No provisions No provisions No provisions No provisions From June 20, 2008 to June 21, 2017 From July 25, 2009 to June 24, 2018 From July 31, 2011 to June 22, 2019 From July 31, 2012 to June 21, 2020 Number of grantees 2011 2012 2013 Directors: 10 Executive ofﬁ cers: 22 Employees: 34 Presidents of the Company’s domestic consolidated subsidiaries: 33 Directors: 9 Executive ofﬁ cers: 22 Employees: 33 Presidents of the Company’s domestic consolidated subsidiaries: 30 Directors: 9 Executive ofﬁ cers: 18 Employees: 38 Presidents of the Company’s domestic consolidated subsidiaries: 33 Number of stock options Common stock 1,720,000 Common stock 1,640,000 Common stock 1,600,000 Grant date August 9, 2011 August 13, 2012 August 16, 2013 Vesting conditions Service period Exercise period No provisions No provisions No provisions No provisions No provisions No provisions From July 26, 2013 to June 22, 2021 From July 28, 2014 to June 21, 2022 From August 2, 2015 to June 20, 2023 商船三井英文財務p75_111入稿.indd 106 商船三井英文財務p75_111入稿.indd 106 2014/08/21 14:02 2014/08/21 14:02 Annual Report 2014 107 (C) CHANGES IN NUMBER AND UNIT PRICES The following tables summarize changes in number and unit prices of stock options for the years when they were granted: (1) Changes in number of stock options Non-vested stock options 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Balance at March 31, 2013 . . . . . . . Options granted during the year . . Options expired during the year . . . Options vested during the year . . . Balance at March 31, 2014 . . . . . . . – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 1,720,000 1,640,000 – – – – – – 1,720,000 – 1,600,000 – – – – – – 1,640,000 1,600,000 Vested stock options 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Balance at March 31, 2013 . . . . . . . 14,000 286,000 878,000 1,443,000 1,680,000 1,750,000 1,630,000 1,710,000 – Options vested during the year . . . – Options exercised during the year . . 10,000 Options expired during the year . . . 4,000 – – – – – – – – – – – – – – – – – – – 1,720,000 – – – – Balance at March 31, 2014 . . . . . . . – 286,000 878,000 1,443,000 1,680,000 1,750,000 1,630,000 1,710,000 1,720,000 – – – – – – – – – – (2) Unit prices of stock options exercised during the year Exercise price ¥377 ¥644 ¥762 ¥841 ¥1,962 ¥1,569 ¥639 ¥642 ¥468 ¥277 ¥447 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Average market price of share at exercise . . . . . . . . . . . . . . . . . . . ¥410 Fair value per stock option at grant date . . . . . . . . . . . . . . . . . – – – – – – – – – – – – – ¥219 ¥ 352 ¥ 217 ¥136 ¥208 ¥ 87 ¥ 67 ¥172 (D) KEY FIGURES FOR FAIR VALUE PER STOCK OPTION The Company utilized the Black Scholes Model for calculating fair value per stock option. Key ﬁ gures of the calculation were as follows: Stock price volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49.0% Expected remaining term of the option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 years and 11 months Expected dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥0 per share 0.36% 2013 18. MATERIAL NON-CASH TRANSACTIONS Amounts of lease assets and lease obligations recognized for the years ended March 31, 2014 and 2013 were ¥355 million ($3,449 thousand) and ¥495 million, respectively. 商船三井英文財務p75_111入稿.indd 107 商船三井英文財務p75_111入稿.indd 107 2014/08/21 14:02 2014/08/21 14:02 108 Mitsui O.S.K. Lines 19. COMPREHENSIVE INCOME For the years ended March 31, 2014 and 2013, the amounts reclassiﬁ ed to net income (loss) that were recognized in other compre- hensive income and tax effects for each component of other comprehensive income were as follows: Millions of yen Thousands of U.S. dollars (Note 1) 2014 2013 2014 Unrealized holding gains on available-for-sale securities, net of tax: Increase during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥13,764 ¥10,770 $133,735 Reclassiﬁ cation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sub-total, before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrealized gains on hedging derivatives, net of tax: Increase during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reclassiﬁ cation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments of acquisition cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sub-total, before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (780) 12,984 (4,137) 8,847 48,719 (9,896) 3,425 42,248 (9,523) 32,725 2,801 13,571 (4,478) 9,093 70,181 17,796 2,712 90,689 (34,276) 56,413 (7,579) 126,156 (40,196) 85,960 473,368 (96,152) 33,278 410,494 (92,529) 317,965 Foreign currency translation adjustments: Increase during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,158 14,902 302,740 Reclassiﬁ cation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 7 – 31,158 14,909 302,740 Share of other comprehensive income of associates accounted for using equity method: Increase (Decrease) during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reclassiﬁ cation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments of acquisition cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,039 5,654 (408) 19,285 ¥92,015 (3,560) 4,664 – 1,104 ¥81,519 136,407 54,936 (3,964) 187,379 $894,044 20. RELATED PARTY TRANSACTIONS For the year ended March 31, 2014 Category Afﬁ liated company Name of company Daiichi Chuo Kisen Kaisha Address Chuo-ku, Tokyo Millions of yen Paid-in capital Business description ¥28,958 Marine transporta- tion Millions of yen Thousands of U.S. dollars (Note 1) Transactions during the year ended March 31, 2014 Balance at March 31, 2014 Transactions during the year ended March 31, 2014 Balance at March 31, 2014 Ratio of the Group’s voting rights Directly 26.96% Relation with related party Interlocking directorate Ship chartering Description of transaction Underwriting of capital increase Transacted amount Account Amount – ¥15,000 – Transacted amount $145,744 Amount – Notes: 1. With regard to underwriting of capital increase, the Company underwrote capital increase through a third-party allotment of new shares of Daiichi Chuo Kisen Kaisha at ¥1,000 per share. 2. Consumption taxes are not included in transacted amount. 商船三井英文財務p75_111入稿.indd 108 商船三井英文財務p75_111入稿.indd 108 2014/08/21 14:02 2014/08/21 14:02 Annual Report 2014 109 Millions of yen Transactions during the year ended March 31, 2013 Balance at March 31, 2013 Description of transaction Underwriting of capital increase Loans of capital Transacted amount Account Amount – ¥15,000 38,400 – For the year ended March 31, 2013 Category Afﬁ liated company Name of company Daiichi Chuo Kisen Kaisha Address Chuo-ku, Tokyo Millions of yen Paid-in capital Business description ¥20,758 Marine transporta- tion Ratio of the Group’s voting rights Directly 26.96% Relation with related party Interlocking directorate Ship chartering Loans of capita Notes: 1. (1) With regard to underwriting of capital increase, the Company underwrote capital increase through a third-party allotment of new shares of Daiichi Chuo Kisen Kaisha at ¥1,000 per share. (2) With regard to loans of capital, interest rates on loans were decided after considering market interest rates. Furthermore, collateral was not accepted. 2. Consumption taxes are not included in transacted amount. 21. SUBSEQUENT EVENT The Company, by a resolution of a Board of Directors’ meeting held on April 8, 2014, issued Euro US dollar Zero Coupon Convertible Bond due 2018 and Euro US dollar Zero Coupon Convertible Bond due 2020. All payments were made on April 24, 2014. An outline of these bonds is as follows. (1) Securities offered (2) Total issue amount (3) Issue prices (4) Offer prices (5) Coupon (6) Closing and issue date (7) Redemption prices (8) Redemption at maturity Early redemption and cancellation by acquisition (9) Particulars of stock acquisition rights i. Class of share to be issued upon exercise of the stock acquisition rights Euro US dollar Zero Coupon Convertible Bond due 2018 US$300,000,000 Euro US dollar Zero Coupon Convertible Bond due 2020 US$200,000,000 100.0% of principal amount 102.5% of principal amount Zero April 24, 2014 100% of principal amount April 24, 2018 Early redemption and cancellation by acquisition by the bonds under certain circumstances was provided in the Information Memorandum. Same as to the left Same as to the left Same as to the left Same as to the left Same as to the left April 24, 2020 Same as to the left Common stock of the Company Same as to the left ii. Total number of stock acquisition rights 3,000 units US$5.34 2,000 units US$4.80 iii. Conversion price iv. Exercise period Supplementary provisions v. Amount to be paid upon exercise of the stock acquisition rights vi. Capital and capital reserve increased in the case stocks are issued by exercising stock acquisition rights (10) Security or guarantee (11) Use of proceeds Same as to the left Same as to the left From May 8, 2014 to April 9, 2020 From May 8, 2014 to April 10, 2018 *Before three months prior to redemption date, the said stock acquisition rights shall not be exercised unless the stock price exceeds 130% of the conversion price for a certain period. *After three months prior to redemption date, the Company will have a right to acquire the bonds in exchange for 100% of principal amount in cash and common stock for value exceeded principal amount. The bonds in respect of the relevant stock acquisition rights shall be contributed upon exercising of each stock acquisition right, and the price of the bonds shall be equal to the principal amount of the bonds. The amount of capital increased in case the stocks are issued by exercising stock acquisition rights shall be half of the maximum increase of capital, etc., calcu- lated in accordance with Article 17 of the “Company Calculation Ordinance,” and any amount less than one yen arising from such calculation shall be rounded up. The increase in capital reserve shall be obtained by subtracting the capital increased from the maximum increase of capital, etc. None Proceeds from issuance of the bonds will be used as capital investment for ships, including LNG carriers, which are expected to be built and completed from now, and the offshore business. 商船三井英文財務p75_111入稿.indd 109 商船三井英文財務p75_111入稿.indd 109 2014/08/21 14:02 2014/08/21 14:02 110 Mitsui O.S.K. Lines 22. OTHERS The Group is subject to investigations by overseas competition law authorities including those of the U.S. and Europe for violation of competition laws of those countries regarding price control negotiations for ocean transport services of completely built-up vehicles. In addition, a class-action lawsuit was ﬁ led in the U.S. and other countries against the Group for damage claims and for a cease and desist order for the questioned conduct. Meanwhile, the effect of these investigations and lawsuit on the ﬁ nancial results of Group is uncertain as its ﬁ nancial impact is not estimable at this stage. In Japan, the Company had been under investigation by the Japan Fair Trade Commission (the “JFTC”) since September 2012 for violation of the Japanese Antimonopoly Act regarding certain car carrier shipping trades. However, the Company was exempted from all of the Cease and Desist Orders and Surcharge Payment Orders issued by the JFTC in March 2014 because the JFTC a ccepted an application made by the Company under the JFTC’s leniency program. Meanwhile, Nissan Motor Car Carrier Co., Ltd., which is a consolidated subsidiary of the Company, also made an application under the JFTC’s leniency program and secured a reduc tion of its surcharge, but was not exempted from the Cease and Desist Order and Surcharge Payment Order. 商船三井英文財務p75_111入稿.indd 110 商船三井英文財務p75_111入稿.indd 110 2014/08/21 14:02 2014/08/21 14:02 Independent Auditor’s Report Annual Report 2014 111 商船三井英文財務p75_111入稿.indd 111 商船三井英文財務p75_111入稿.indd 111 2014/08/21 14:02 2014/08/21 14:02 112 Mitsui O.S.K. Lines The MOL Group Mitsui O.S.K. Lines, Ltd. March 31, 2014 ■ Consolidated Subsidiaries ▲ Afﬁ liated Companies Accounted for by the Equity Method Bulkships Containerships Registered Ofﬁ ce MOL's Voting Rights (%)* Paid-in Capital (Thousands) ■ BGT Ltd. ■ BLNG Inc. ■ Chugoku Shipping Agencies Ltd. ■ El Sol Shipping Ltd. S.A. ■ Euro Marine Carrier B.V. ■ Euro Marine Logistics N.V. ■ Lakler S.A. ■ MOL LNG Transport Co., Ltd. ■ MCGC International Ltd. ■ Mitsui O.S.K. Bulk Shipping (Asia Oceania) Pte. Ltd. ■ Mitsui O.S.K. Bulk Shipping (Europe) Ltd. ■ Mitsui O.S.K. Bulk Shipping (USA), LLC ■ Mitsui O.S.K. Kinkai, Ltd. ■ MOG LNG Transport S.A. ■ MOL Bridge Finance S.A. ■ MOL Bulk Carriers Pte. Ltd. ■ MOL-NIC Transport Ltd. ■ MOL Cape (Singapore) Pte. Ltd. ■ MOL Netherlands Bulkship B.V. ■ Nissan Carrier Europe B.V. ■ Nissan Motor Car Carrier Co., Ltd. ■ Phoenix Tankers Pte. Ltd. ■ Samba Offshore S.A. ■ Shining Shipping S.A. ■ Shipowner/Chartering companies ( 199 companies) in Panama, Cayman Islands, Liberia, Singapore, Hong Kong, Cyprus, Malta, Isle of Man, Marshall Islands and the UK ■ Tokyo Marine Asia Pte Ltd ■ Tokyo Marine Co., Ltd. ■ Unix Line Pte Ltd. ■ World Logistics Service (U.S.A.), Inc. ■ Others ( 3 companies) ▲ Act Maritime Co., Ltd. ▲ Aramo Shipping (Singapore) Pte Ltd. ▲ Asahi Tanker Co., Ltd. ▲ Carioca MV27 B.V. ▲ Cernambi Norte MV26 B.V. ▲ Cernambi Sul MV24 B.V. ▲ Daiichi Chuo Kisen Kaisha ▲ Gearbulk Holding Limited ▲ LNG Fukurokuju Shipping Corporation ▲ LNG Jurojin Shipping Corporation ▲ M.S.Tanker Shipping Limited ▲ T.E.N. Ghana MV25 B.V. ▲ Trans Paciﬁ c Shipping 2 Ltd. ▲ Shipowner/Chartering companies (49 companies) in Liberia, Panama, Bahamas, Malta, Netherlands, Indonesia, Marshall Islands and Cayman Islands ■ Asia Utoc Pte. Ltd. ■ Bangpoo Intermodal Systems Co., Ltd. ■ Chiba Utoc Corporation ■ Hong Kong Logistics Co., Ltd. ■ International Container Transport Co., Ltd. ■ International Transportation Inc. ■ MOL Logistics (Taiwan) Co., Ltd. ■ Mitsui O.S.K. Lines (Australia) Pty. Ltd. ■ Mitsui O.S.K. Lines (Japan) Ltd. ■ Mitsui O.S.K. Lines (SEA) Pte Ltd. ■ Mitsui O.S.K. Lines (Thailand) Co., Ltd. ■ MOL (America) Inc. ■ MOL (Brasil) Ltda. ■ MOL (China) Co., Ltd. ■ MOL (Europe) B.V. ■ MOL (Europe) Ltd. ■ MOL (Singapore) Pte. Ltd. ■ MOL Consolidation Service Limited ■ MOL Consolidation Service Ltd. (China) ■ MOL Container Center (Thailand) Co., Ltd. ■ MOL Liner, Limited ■ MOL Logistics (Deutschland) GmbH ■ MOL Logistics (Europe) B.V. ■ MOL Logistics (H.K.) Ltd. ■ MOL Logistics (Japan) Co., Ltd. ■ MOL Logistics (Netherlands) B.V. ■ MOL Logistics (Singapore) Pte. Ltd. ■ MOL Logistics (Thailand) Co., Ltd. ■ MOL Logistics (UK) Ltd. ■ MOL Logistics (USA) Inc. ■ MOL Logistics Holding (Europe) B.V. ■ MOL South Africa (Proprietary) Limited ■ Shanghai Huajia International Freight Forwarding Co., Ltd. ■ Shipowner companies (14 companies) in Panama, Marshall Islands, Liberia and Hong Kong Liberia U.S.A. Japan Panama Netherlands Belgium Uruguay Japan Bahamas Singapore U.K. U.S.A. Japan Panama Panama Singapore Liberia Singapore Netherlands Netherlands Japan Singapore Panama Panama Singapore Japan Singapore U.S.A. Japan Singapore Japan Netherlands Netherlands Netherlands Japan Bermuda Bahamas Bahamas Hong Kong Netherlands Bahamas Singapore Thailand Japan Hong Kong Japan U.S.A. Taiwan Australia Japan Singapore Thailand U.S.A. Brazil China Netherlands U.K. Singapore Hong Kong China Thailand Hong Kong Germany Netherlands Hong Kong Japan Netherlands Singapore Thailand U.K. U.S.A. Netherlands South Africa China 100.00 75.00 100.00 100.00 75.50 50.00 100.00 100.00 80.10 100.00 100.00 100.00 100.00 100.00 100.00 100.00 75.00 100.00 100.00 100.00 70.01 100.00 100.00 100.00 100.00 100.00 100.00 100.00 49.00 50.00 24.75 20.60 20.60 20.60 26.96 49.00 30.00 30.00 50.00 20.00 50.00 67.43 74.62 100.00 100.00 51.00 100.00 100.00 100.00 100.00 100.00 47.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 75.06 100.00 100.00 98.00 100.00 100.00 100.00 100.00 76.00 US$5 US$1 ¥10,000 US$10 A91 A900 US$20 ¥40,000 US$1 S$2,350 US$8,402 - ¥660,000 ¥200 US$8 US$3,500 US$13,061 US$14,752 A18 A195 ¥640,000 US$379,311 US$10 US$10 S$138,018 ¥100,000 US$344 US$200 ¥90,000 US$20,743 ¥600,045 A100 A100 A100 ¥28,958,410 US$61,225 ¥1,000 ¥1,000 HK$2,000 A100 ¥2,023,820 S$200 BT130,000 ¥90,000 HK$58,600 ¥100,000 US$0 NT$7,500 A$1,000 ¥100,000 S$200 BT20,000 US$6 R$2,403 US$1,960 A456 £1,500 S$5,000 HK$1,000 RMB8,000 BT10,000 HK$40,000 A537 A414 HK$3,676 ¥756,250 A3,049 S$700 BT20,000 £400 US$9,814 A19 R3,000 US$1,720 14mol_英文_p112_114入稿.indd 112 14mol_英文_p112_114入稿.indd 112 2014/08/21 14:01 2014/08/21 14:01 Annual Report 2014 113 Registered Ofﬁ ce MOL's Voting Rights (%)* Paid-in Capital (Thousands) Japan Thailand U.S.A. U.S.A. Japan Singapore Japan Japan Japan China Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Hong Kong Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Vietnam Japan Japan Japan Japan Hong Kong Vietnam Netherlands Japan Liberia Japan Japan Japan Japan Netherlands U.S.A. Japan Japan Japan U.S.A. Japan Panama Japan U.S.A. Singapore 79.98 100.00 100.00 100.00 67.55 100.00 100.00 100.00 31.98 22.05 100.00 100.00 100.00 100.00 100.00 ¥300,000 BT77,500 US$3,000 - ¥2,155,300 S$2,000 ¥50,000 ¥50,000 ¥100,000 US$1,240 ¥54,600 ¥50,000 ¥30,000 ¥100,000 ¥650,000 100.00 ¥1,577,400 38.73 ¥880,000 51.07 100.00 100.00 100.00 100.00 100.00 86.27 100.00 100.00 95.25 100.00 100.00 100.00 62.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 87.26 100.00 100.00 99.39 50.00 36.00 25.00 40.00 100.00 100.00 100.00 100.00 100.00 100.00 80.42 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 ¥12,227,847 ¥17,000 ¥95,400 ¥172,000 ¥50,000 ¥26,500 ¥99,960 ¥236,000 ¥60,000 ¥32,000 US$0 ¥20,000 ¥14,400 ¥50,000 ¥50,000 ¥200,000 ¥100,000 ¥300,000 ¥100,000 ¥95,000 ¥490,000 ¥250,000 ¥134,203 VND48,166,000 ¥20,000 ¥14,950 ¥290,000 ¥100,000 HK$12,400 US$4,500 A8,444 ¥100,000 US$3 ¥10,000 ¥100,000 ¥50,000 ¥350,000 A17,245 US$200 ¥30,000 ¥10,000 ¥20,000 US$20 ¥100,000 US$135 ¥50,000 US$100 US$2,000 Japan 24.00 ¥200,000 ■ Shosen Koun Co., Ltd. ■ Thai Intermodal Systems Co., Ltd. ■ TraPac, LLC ■ TraPac Jacksonville, LLC ■ Utoc Corporation ■ Utoc Engineering Pte Ltd. ■ Utoc Logistics Corporation ■ Utoc Stevedoring Corporation ■ Others (9 companies) ▲ Shanghai Kakyakusen Kaisha, Ltd. ▲ Shanghai Longfei International Logistics Co., Ltd. ▲ Other company (1 company) ■ Blue Sea Network Co., Ltd. ■ Blue Highway Express Kyushu Co., Ltd ■ Blue Highway Service K.K. ■ Ferry Sunﬂ ower Limited. ■ MOL Naikou, Ltd. ■ Shipowner company (1 company) in Panama ■ MOL Ferry Co., Ltd. ■ Others (7 companies) ▲ Meimon Taiyo Ferry Co., Ltd. ▲ Others (2 companies) ■ Daibiru Corporation ■ Daibiru Facility Management Ltd. ■ Green Kaiji Kaisha, Ltd. ■ Green Shipping, Ltd. ■ Hokuso Kohatsu K.K. ■ Ikuta & Marine Co., Ltd. ■ Japan Express Co., Ltd. (Kobe) ■ Japan Express Co., Ltd. (Yokohama) ■ Japan Express Packing & Transport Co., Ltd. ■ Japan Hydrographic Charts & Publications Co., Ltd. ■ Jentower Limited ■ Kosan Kanri Service Co., Ltd. ■ Kosan Kanri Service • West Co.,Ltd ■ Kitanihon Tug-boat Co., Ltd. ■ Kobe Towing Co., Ltd. ■ Kusakabe Maritime Engineering Co., Ltd. ■ MOL Career Support, Ltd. ■ Mitsui O.S.K. Kosan Co., Ltd. ■ Mitsui O.S.K. Passenger Line, Ltd. ■ MOL Kaiji Co., Ltd. ■ MOL Techno-Trade, Ltd. ■ M.O. Tourist Co., Ltd. ■ Nihon Tug-Boat Co., Ltd. ■ Chartering company (1 company) in Panama ■ Saigon Tower Co., Ltd. ■ Tanshin Building Service Co., Ltd. ■ Ube Port Service Co., Ltd. ▲ Nippon Charter Cruise, Ltd. ▲ Shinyo Kaiun Corporation ▲ South China Towing Co., Ltd. ▲ Tan Cang-Cai Mep Towage Services Co., Ltd. ■ Euromol B.V. ■ MOL Ocean Expert Co., Ltd. ■ Linkman Holdings Inc. ■ MOL Cableship Ltd. ■ MOL Marine Consulting, Ltd. ■ MOL Ship Tech Inc. ■ Mitsui Kinkai Kisen Co., Ltd. ■ Mitsui O.S.K. Holdings (Benelux) B.V. ■ MM Holdings (Americas), Inc ■ MOL Accounting Co., Ltd. ■ MOL Adjustment, Ltd. ■ MOL Engineering Co., Ltd. ■ MOL FG, Inc. ■ MOL Information Systems, Ltd. ■ MOL Manning Service S.A. ■ MOL Ship Management Co., Ltd. ■ MOL SI, Inc. ■ MOL Treasury Management Pte. Ltd. ■ Shipowner/Chartering companies (4 companies) in Panama ▲ Minaminippon Shipbuilding Co., Ltd. Ferry & Domestic Transport Associated Business Others *MOL includes MOL and its subsidiaries 14mol_英文_p112_114入稿.indd 113 14mol_英文_p112_114入稿.indd 113 2014/08/21 14:01 2014/08/21 14:01 114 Mitsui O.S.K. Lines Worldwide Ofﬁ ces Head Ofﬁ ce 1-1, Toranomon 2-chome, Minato-ku, Tokyo 105-8688, Japan P.O. Box 5, Shiba, Tokyo Tel: 81-3-3587-6224 Fax: 81-3-3587-7734 Branch Ofﬁ ces Nagoya, Kansai, Hiroshima, Kyushu Japan Mitsui O.S.K. Lines (Japan), Ltd. Head Ofﬁ ce (Tokyo): Yokohama: Nagoya: Osaka: Kyushu: Tel: 81-3-3587-7684 Tel: 81-45-212-7710 Tel: 81-52-564-7000 Tel: 81-6-6446-6501 Tel: 81-92-262-0701 Fax: 81-3-3587-7730 Fax: 81-45-212-7735 Fax: 81-52-564-7047 Fax: 81-6-6446-6513 Fax: 81-92-262-0720 Africa MOL South Africa (Pty) Ltd. Head Ofﬁ ce (Cape Town): Tel: 27-21-441-2200 Fax: 27-21-419-1040 Mitsui O.S.K. Lines (Nigeria) Ltd. Head Ofﬁ ce (Lagos): Tel: 234-1-2806556 Fax: 234-1-2806559 MOL (Ghana) Ltd. Head Ofﬁ ce (Tema): Tel: 233-22-212084 Fax: 233-22-210807 Middle East Mitsui O.S.K. Lines Ltd. Middle East Headquarters Dubai: Tel: 971-4-3573566 Fax: 971-4-3573066 MOL (UAE) L.L.C. Head Ofﬁ ce (Dubai): Tel: 971-4-3573566 Fax: 971-4-3573066 Mitsui O.S.K. Bulk Shipping (Asia, Oceania) Pte. Ltd. Doha: Muscat: Tel: 974-4-836541 Tel: 968-2440-0950 Fax: 974-4-836563 Fax: 968-2440-0953 North America MOL (America) Inc. Head Ofﬁ ce (Chicago): Atlanta: Long Beach: New Jersey: San Francisco: Seattle: MOL (Canada) Inc. Head ofﬁ ce (Toronto): Tel: 1-630-812-3700 Tel: 1-678-855-7700 Tel: 1-562-983-6200 Tel: 1-732-512-5200 Tel: 1-925-603-7200 Tel: 1-206-444-6905 Fax: 1-630-812-3703 Fax: 1-678-855-7747 Fax: 1-562-983-6292 Fax: 1-732-512-5300 Fax: 1-925-603-7229 Fax: 1-206-444-6909 Tel:1-905-629-5925 FAX: 1-905-629-5914 MOL (Europe) Ltd. Beirut: Tel: 961-3-809812 Oceania Mitsui O.S.K. Lines (Australia) Pty. Ltd. Head Ofﬁ ce (Sydney): Tel: 61-2-9320-1600 Fax: 61-2-9320-1601 Mitsui O.S.K. Lines (New Zealand) Ltd. Head Ofﬁ ce (Auckland): Tel: 64-9-300-5820 Fax: 64-9-309-1439 Mitsui O.S.K. Bulk Shipping (USA) Inc. Head Ofﬁ ce (New Jersey): Tel: 1-201-395-5800 Tel: 1-832-615-6470 Houston: Tel: 1-562-528-7500 Long Beach: Fax: 1-201-395-5820 Fax: 1-832-615-6480 Fax: 1-562-528-7515 MOL Logistics (USA) Inc. Head Ofﬁ ce (New York): Los Angeles: Tel: 1-516-403-2100 Tel: 1-310-787-8351 Fax: 1-516-626-6092 Fax: 1-310-787-8168 Central and South America MOL (Brasil) Ltda. Head Ofﬁ ce (Sao Paulo): Tel: 55-11-3145-3972 Fax: 55-11-3145-3945 MOL (Chile) Ltda. Head Ofﬁ ce (Santiago): Tel: 56-2-630-1950 Fax: 56-2-231-5622 Corporativo MOL de Mexico S.A. de C.V. Head Ofﬁ ce (Mexico City): Tel: 52-55-5010-5200 Fax: 52-55-5010-5220 MOL (Panama) Inc. Head Ofﬁ ce (Panama): Tel: 11-507-300-3200 Fax: 11-507-300-3212 Mitsui O.S.K. Bulk Shipping (USA) Inc. Sao Paulo: Tel: 55-11-3145-3980 Fax: 55-11-3145-3946 MOL (Peru) S.A.C. Head Ofﬁ ce (Lima): Europe MOL (Europe) B.V. Head Ofﬁ ce (Rotterdam): Antwerp: Genoa: Hamburg: Le Havre: Vienna: Tel: 51-1-611-9400 Fax: 51-1-611-9429 Tel: 31-10-201-3200 Tel: 32-3-2024860 Tel: 39-10-2901711 Tel: 49-40-356110 Tel: 33-2-32-74-24-00 Fax: 33-2-32-74-24-39 Tel: 43-1-877-6971 Fax: 31-10-201-3158 Fax: 32-3-2024870 Fax: 39-10-5960450 Fax: 49-40-352506 Fax: 43-1-876-4725 MOL (Europe) Ltd. Head Ofﬁ ce (Southampton): Tel: 44-2380-714500 Fax: 44-2380-714519 Mitsui O.S.K. Bulk Shipping (Europe) Ltd. Head Ofﬁ ce (London): Hamburg: Tel: 44-20-7265-7676 Fax: 44-20-7265-7699 Tel: 49-40-3609-7410 Fax: 49-40-3609-7450 MOL Logistics (Deutschland) GmbH Head Ofﬁ ce (Dusseldorf): Tel: 49-211-418830 Fax: 49-211-4183340 MOL Logistics (Netherlands) B.V. Head Ofﬁ ce (Tilburg): Tel: 31-13-537-33-73 Fax: 31-13-537-35-75 MOL Logistics (U.K.) Ltd. Head Ofﬁ ce (London): Tel: 44-1895-459700 Fax: 44-1895-449600 Mitsui O.S.K. Bulk Shipping (Asia, Oceania) Pte. Ltd. Melbourne: Perth: Brisbane: Tel: 61-3-9691-3224 Tel: 61-8-9278-2499 Tel: 61-7-3007-2115 Fax: 61-3-9691-3223 Fax: 61-8-9278-2727 Fax: 61-7-3007-2101 MOL Logistics (Australia) Pty. Ltd. Head Ofﬁ ce (Melbourne): Tel: 61-3-9335-8555 Fax: 61-3-9335-8598 Asia MOL Liner Ltd. Head Ofﬁ ce (Hong Kong): Tel: 852-2823-6800 Fax: 852-2865-0906 Mitsui O.S.K. Lines (India) Private Limited Head Ofﬁ ce (Mumbai): Tel: 91-22-4054-6300 Fax: 91-22-4054-6301 Mitsui O.S.K. Lines Lanka (Private) Ltd. Head Ofﬁ ce (Colombo): Tel: 94-11-2304721 Fax: 94-11-2304730 MOL (Singapore) Pte. Ltd. Head Ofﬁ ce (Singapore): Tel: 65-6225-2811 Fax: 65-6225-6096 Mitsui O.S.K. Lines (Malaysia) Sdn. Bhd. Head Ofﬁ ce (Kuala Lumpur): Tel: 60-3-5623-9666 Fax: 60-3-5623-9600 P.T. Mitsui O.S.K. Lines Indonesia Head Ofﬁ ce (Jakarta): Tel: 62-21-521-1740 Fax: 62-21-521-1741 Mitsui O.S.K. Lines (Thailand) Co., Ltd. Head Ofﬁ ce (Bangkok): Tel: 66-2-234-6252 Fax: 66-2-237-9021 MOL Philippines, Inc. Head Ofﬁ ce (Manila): Tel: 632-888-6531 Fax: 632-884-1766 Mitsui O.S.K. Lines (Vietnam) Ltd. Head Ofﬁ ce (Ho Chi Minh): Tel: 84-83-8219219 Mitsui O.S.K. Lines (Cambodia) Co., Ltd. Head Ofﬁ ce (Phnom Penh): Tel: 855-23-223-036 Fax: 84-83-8219317 Fax: 855-23-223-040 Mitsui O.S.K. Lines Pakistan (Pvt.) Ltd. Head Ofﬁ ce (Karachi): Tel: 92-21-35205397 Fax: 9221-35202559 MOL (China) Co., Ltd. Head Ofﬁ ce (Shanghai): Beijing: Tianjin: Shenzhen: MOL (Taiwan) Co., Ltd. Head Ofﬁ ce (Taipei): Tel: 86-21-2320-6000 Fax: 86-21-2320-6331 Tel: 86-10-8529-9121 Fax: 86-10-8529-9126 Tel: 86-22-8331-1331 Fax: 86-22-8331-1318 Tel: 86-755-2598-2200 Fax: 86-755-2598-2210 Tel: 886-2-2537-8000 Fax: 886-2-2537-8098 Mitsui O.S.K. Bulk Shipping (Asia, Oceania) Pte. Ltd. Head Ofﬁ ce (Singapore): Bangkok: Kuala Lumpur: Seoul: Mumbai: Chennai: Tel: 65-323-1303 Tel: 66-2-634-0807 Tel: 60-3-5623-9772 Tel: 82-2-5672718 Tel: 91-22-4071-4500 Fax: 91-22-4071-4557 Tel: 91-44-4208-1020 Fax: 91-44-4208-1020 Fax: 65-323-1305 Fax: 66-2-634-0806 Fax: 60-3-5623-3107 Fax: 82-2-5672719 14mol_英文_p112_114入稿.indd 114 14mol_英文_p112_114入稿.indd 114 2014/08/21 14:01 2014/08/21 14:01 Shareholder Information Annual Report 2014 115 Capital: Head ofﬁ ce: ¥65,400,351,028 1-1, Toranomon 2-chome, Minato-ku, Tokyo 105-8688, Japan Number of MOL employees: 882 Number of MOL Group employees: (The parent company and consolidated subsidiaries) 10,289 Total number of shares authorized: 3,154,000,000 Number of shares issued: 1,206,286,115 Number of shareholders: 109,304 Shares listed in: Tokyo, Nagoya Share transfer agent: Sumitomo Mitsui Trust Bank, Limited 8-4, Izumi 2-chome, Suginami-ku, Tokyo 168-0063, Japan Communications materials: Annual Report (English/Japanese) Investor Guidebook (English/Japanese) Market Data (English/Japanese) News Releases (English/Japanese) Website (English/Japanese) Quarterly Newsletter Open Sea (English/Website) Monthly Newsletter Unabara (Japanese) Environmental and Social Report (English/Japanese) (As of March 31, 2014) Stock Price Range (Tokyo Stock Exchange) and Volume of Stock Trade (¥) 800 700 600 500 400 300 200 100 0 Fiscal 2011 High ¥477 ¥220 Low Fiscal 2012 High　 ¥369 ¥177 Low Fiscal 2013 High ¥482 ¥287 Low 11 /4 5 6 7 8 9 10 11 12 12 /1 2 3 4 5 6 7 8 9 10 11 12 13 /1 2 3 4 5 6 7 8 9 10 11 12 14 /1 2 6543 700 600 500 400 300 200 100 0 (Million shares) 800 14mol_英文_本文納品後修正.indd 115 14mol_英文_本文納品後修正.indd 115 2014/08/21 14:00 2014/08/21 14:00 M i t s u i O . S . K . i L n e s , L t d . A n n u a l R e p o r t 2 0 1 4 For further information, please contact: Investor Relations Ofﬁ ce Mitsui O.S.K. Lines, Ltd. 1-1, Toranomon 2-chome, Minato-ku, Tokyo 105-8688, Japan Telephone: +81-3-3587-6224 Facsimile: +81-3-3587-7734 E-mail: URL: iromo@molgroup.com http://www.mol.co.jp/en/ This annual report is printed on Forest Stewardship Council™ (FSC)-certiﬁ ed paper made of wood from responsibly managed forests. It was also printed using vegetable oil inks. Printed in Japan 14mol_表紙英文0729.indd 1 14mol_表紙英文0729.indd 1 2014/07/30 14:48 2014/07/30 14:48

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