Mitsui O.S.K. Lines Ltd. Annual Report 2016

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 6 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/ Reinvent Annual Report 2016 Year ended March 31, 2016 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 16mol_表紙英文.indd 1-2 16mol_表紙英文.indd 1-2 2016/07/27 17:12 2016/07/27 17:12 Reinvent MOL GROUP CORPORATE PRINCIPLES [Dry Bulker] Capesize Bulker: VEGA DREAM [Tanker] VLCC: OMEGA TRADER [LNG Carrier] GRAND MEREYA [Car Carrier] VALIANT ACE [Containership] MOL MODERN As a multi-modal transport group, we will: [Terminal] Los Angeles Container Terminal MOL ASSOCIATED BUSINESSES 6% FERRY & DOMESTIC TRANSPORT 3% CONTAINERSHIPS 42% FY2015 Revenues ¥1,712.2 Billion BULKSHIPS 49% Dry Bulkers 21% Tankers 10 % LNG Carriers/ Offshore Businesses 4 % Car Carriers 14 % (cid:129) actively contribute to global economic growth and development, anticipating the needs of our customers and the challenges of this new era (cid:129) strive to maximize corporate value through creativity, operating efﬁ ciency and promotion of ethical and transparent management (cid:129) nurture and protect the natural environment by maintaining the highest standards of operational safety and navigation Others 2% Containerships 11% Car Carriers 13% LNG Carriers 8% Tankers 20% [Ferry] SUNFLOWER SAPPORO [Cruise ship] NIPPON MARU Number of ships (883) Dry Bulkers 46% Containerships 10% Car Carriers 3% LNG Carriers 9% Tankers 26% Dead weight tons (63 Million) Dry Bulkers 52% 16mol_英文_納品pdf用.indd a3-b1 16mol_英文_納品pdf用.indd a3-b1 2016/07/27 16:12 2016/07/27 16:12 Business Activities Year in Review Performance (¥ billions) B u l k s h p s i ( D r y B u k e r s , l T a n k e r s , L N G C a r r i e r s / O f f s h o r e B u s i n e s s e s a n d C a r C a r r i e r s ) C o n t a i n e r s h p s i F e r r y & T r a n s p o r t D o m e s t i c B u s i n e s s e s A s s o c i a t e d Dry Bulkers With one of the world’s largest ﬂ eets, MOL reliably transports such dry bulk cargo as iron ore, coal, grains, wood, wood chips, cement, fertilizer and salt. Our ﬂ eet includes highly versatile bulk carriers and specialized vessels for speciﬁ c cargo types. Tankers With one of the world’s largest ﬂ eets, MOL is expanding activities globally. Our ﬂ eet includes crude oil tankers; product tankers that carry naphtha, gasoline and other reﬁ ned petroleum products; chemical tankers that carry liquid chemical products; and LPG tankers that carry liqueﬁ ed petroleum gas. LNG Carriers/ Offshore Businesses With one of the world’s largest LNG carrier ﬂ eets, MOL safely transports liqueﬁ ed natural gas (LNG), which is experiencing growing global demand. In addition, we are active in offshore businesses, including FSPOs and FSRUs, which are poised for continued growth. Car Carriers MOL is stably expanding transport services to meet the changing needs of auto- makers as they move production to optimal sites around the world. We operate globally with specialized car carriers that can effectively transport any type of vehicle from passenger cars to construction machinery. Through MOL’s global network of sea routes, we transport containers loaded with electric products, auto- motive parts, clothes, furniture, food products and many other products to deliver them around the world. We are expanding our network with wider port coverage and increased service frequency, not only on our self-operated routes but also in joint operations with partners, e.g. by forming the G6 Alliance with ﬁ ve other major shipping companies. In addition, we are actively developing the terminal and logistics businesses—parts of the container ship- ping value chain—for use as a tool to differentiate ourselves from peers. MOL develops the ferry business, which transports both passengers and vehicles (automobiles, trucks, etc.) and simultaneously raises our proﬁ le as the leader of an eco-friendly modal shift in domestic logistics. We also promote the coastal shipping business, connecting important domestic sites and transporting large amounts of raw materials and energy for industry. The coastal bulker business was transferred under the bulkship business in ﬁ scal 2016, and the name of the segment was subsequently changed to Ferries & Coastal RoRo Ships. (RoRo: Roll-on/Roll-off) Leveraging the knowhow accumulated over more than 130 years in the marine transport business, we are promoting various businesses in related activities including real estate, tugboats, cruise ship (the NIPPON MARU), and trading. 75 50 25 0 120 90 60 30 0 [Dry Bulker] Capesize Bulker: VEGA DREAM [Tanker] VLCC: OMEGA TRADER Dry Bulkers We worked to secure proﬁ ts from long-term ﬁ xed-rate freight contracts for carriers of iron ore, woodchips, steaming coal and others. Efforts continued to improve operation efﬁ ciency and cut costs. Nevertheless, performance in the dry bulker division signiﬁ cantly deteriorated due to the stagnant spot market and factors such as decreased Chinese imports of coal, resulting in an ordinary loss for the ﬁ scal year. 900 600 300 Tankers Crude oil tanker and product tanker markets were strong overall, with demand remaining high. Ocean transport beneﬁ tted from growth in actual demand and increases of China’s strategic reserves. Ordinary income rose considerably also underpinned by efforts to cut costs and improve operation efﬁ ciency by setting up pools with other operators. LNG Carriers/Offshore Businesses The LNG carrier division continued to secure ﬁ rm proﬁ ts through long- term transport contracts, leading to a year-on-year improvement in ordinary income. 0 15/3 14/3 Revenues (left scale) Ordinary income (loss) (right scale) 16/3 [LNG Carrier] GRAND MEREYA Car Carriers [Car Carrier] VALIANT ACE [Containership] MOL MODERN [Terminal] Los Angeles Container Terminal [Ferry] SUNFLOWER SAPPORO [Cruise ship] NIPPON MARU Transport of completed cars to the U.S., where economic conditions remained strong, was ﬁ rm. Meanwhile, transport weakened to emerg- ing countries and resource-producing countries as falling crude oil prices slowed these economies. As a result, ordinary income in the car carrier division decreased despite efforts to improve operation efﬁ ciency in response to changing trade patterns. On Trans-Paciﬁ c routes, although cargo volumes from Asia were ﬁ rm overall, the supply-demand balance weakened because of the increase in vessels, and the freight market signiﬁ cantly fell on routes to both the west and east coasts of North America. Cargo volumes from Asia to Europe weakened signiﬁ cantly and despite efforts to reduce capacity with fewer sailings, the gap between supply and demand could not be closed and the freight market maintained record-lows throughout the ﬁ scal year. The freight markets on Intra-Asia routes also slumped on weak cargo volumes. Under this business environment, despite our efforts to implement various rationalization measures for each route and cut operation costs, the division’s loss increased year on year. 800 600 400 200 0 Volumes of passengers and cargo decreased on the Eastern Japan route after a vessel was removed from service for repairs following a vehicle deck ﬁ re in July 2015. However, volumes on other routes were ﬁ rm for both passengers and cargo. Cargo volume for steel materials remained weak reﬂ ecting inventory adjustments. As a result, although revenue from the ferry and domestic transport businesses decreased overall, a fall in the bunker price and other factors made it possible to secure proﬁ ts at almost the same level as the previous ﬁ scal year. Daibiru Corporation, the core of the real estate business, maintained stable sales, but ordinary income decreased year on year due mainly to an increase in temporary costs associated with Shin-Daibiru which was completed in March 2015. Sales from the trading businesses fell and proﬁ tability deteriorated in some parts of the construction business. On the other hand, the tugboat business showed ﬁ rm performance, though ordinary income for the segment decreased year-on-year. Underlined words are explained in the Glossary on page 18. 14/3 15/3 16/3 -30 Revenues (left scale) Ordinary income (loss) (right scale) 60 40 20 0 14/3 Revenues (left scale) Ordinary income (loss) (right scale) 16/3 15/3 120 90 60 30 0 14/3 Revenues (left scale) Ordinary income (loss) (right scale) 16/3 15/3 6 4 2 0 12 9 6 3 0 16mol_英文_納品pdf用.indd b2-b3 16mol_英文_納品pdf用.indd b2-b3 2016/07/27 16:12 2016/07/27 16:12 Performance (¥ billions) Business Environment FY2015 Revenues ¥838.8 billion 2% Increase YoY Ordinary income ¥54.8 billion 1% Increase YoY Dry Bulker Market (BDI*1) (Jan 4, 1985=1,000) 1,600 1,200 800 400 Long-Term Vision To develop the MOL Group into an excellent and resilient organization that leads the world shipping industry What is MOL CHART? MOL CHART represents the values that are to be shared by all members of the MOL Group worldwide. These values shall be common guidelines to pursue the best course of action for the highest quality of output for our stakeholders and to achieve MOL’s corporate goal and long term vision. Innovate through insight C hallenge Honesty A ccountability Do the right thing Commit to acting with a sense of ownership Gain the trust of customers R eliability Teamwork Build a strong team Ordinary income Net gearing ratio Total assets MOL’s ﬂ eet (number of vessels) ¥1,712.2 billion ¥36.2 billion ¥2,219.5 billion ¥646.9 billion Equity ratio 24.4% 164% 883 0 14/4 15/4 16/4 Source: MOL internal calculation based on TDS and others *1 Baltic Dry Index VLCC*2 Market (World Scale*3) (AG - Japan) (WS) 150 100 50 FY2015 Performance 0 14/4 15/4 16/4 WS for 2014/2015 has been translated by the Flat Rate of 2016. Source: Researched by MOL *2 Very large crude carrier (300,000-DWT class) *3 The most-widely used freight index for tankers Shipping and other revenues Containership Market (CCFI*4) (Jan 1, 1998=1,000) Europe Trade U.S. West Coast Trade U.S. East Coast Trade South America Trade 0 14/4 Source: SSE *4 China Containerized Freight Index 15/4 16/4 Net assets FY2015 Revenues ¥719.1 billion 9% Decrease YoY Ordinary loss ¥(29.8) billion — FY2015 Revenues ¥49.6 billion 11% Decrease YoY Ordinary income ¥4.4 billion Constant YoY FY2015 Revenues ¥96.6 billion 11% Decrease YoY Ordinary income ¥10.1 billion 7% Decrease YoY 1,800 1,200 600 B u l k s h p s i ( D r y B u k e r s , l T a n k e r s , L N G C a r r i e r s / O f f s h o r e B u s i n e s s e s a n d C a r C a r r i e r s ) C o n t a i n e r s h p s i F e r r y & T r a n s p o r t D o m e s t i c B u s i n e s s e s A s s o c i a t e d 16mol_英文_納品pdf用.indd b4-b5 16mol_英文_納品pdf用.indd b4-b5 2016/07/27 17:42 2016/07/27 17:42 (cid:129)Business Structural Reforms (cid:129)Single-year Management Plan (cid:129)Business Portfolio MOL implemented a new round of Business Structural Reforms for dry bulkers and containerships in ﬁ scal 2015, recording ¥179.3 billion in related expenses. We simultaneously formulated a single-year manage- ment plan for ﬁ scal 2016 that includes the successful completion of the Business Structural Reforms and are currently focusing all our energies on this. Over the next few pages, we will detail the Business Structural Reforms and the single-year management plan while also explaining MOL’s business portfolio, which is designed to achieve sustainable growth amid protracted severe market conditions. 4 Mitsui O.S.K. Lines 16mol_英文_納品pdf用.indd 4-5 16mol_英文_納品pdf用.indd 4-5 Annual Report 2016 5 2016/07/27 16:12 2016/07/27 16:12 1 Question Can you tell us about the content of the Business Structural Reforms and the background behind them? Answer 1 ¥179.3Billion Fiscal 2015 Business Structural Reform Expenses: In ﬁ scal 2015, MOL recorded steady proﬁ ts from many divisions, including car carriers, ferries, and tankers (which beneﬁ tted from a strong market), in addition to about ¥60.0 billion in proﬁ ts from long-term contracts and highly stable businesses (highly stable proﬁ ts). Nevertheless, there were businesses that sharply cut into these proﬁ ts. Basically, the market and freight rates for dry bulkers (spot operations) and containerships remained at unprecedented lows. We decided to reform these two divi- sions despite incurring large expenses, and with the current Business Structural Reforms, we aim to return to a growth trajectory. 6 Mitsui O.S.K. Lines 16mol_英文_納品pdf用.indd 6-7 16mol_英文_納品pdf用.indd 6-7 Annual Report 2016 7 2016/07/27 16:12 2016/07/27 16:12 MOL’s Earnings Structure and the Necessity of the Business Structural Reforms Content of the Business Structural Reforms Fiscal 2015 Ordinary Proﬁ t: ¥36.2 Billion Highly Stable Proﬁ ts: Other proﬁ ts The dry bulker market and containership freight rates remained at historic lows in ﬁ scal 2015. About ¥60.0 Billion Dry Bulkers (Business Structural Reform Expenses ¥117.4 Billion) Greatly downsize market exposure (redeliver chartered vessels and sell owned vessels) Reduce vessel costs on our remaining core ﬂ eet of small and medium-sized vessels down to a level in line with the current market Market Exposure 0 March 31, 2016 March 31, 2017 (plan) 100% 43% 26% Losses Recorded Owned or mid- and long-term chartered vessels with mid- and long-term contracts Owned or mid- and long-term chartered vessels with short-term contracts (= Market exposure) Short-term chartered vessels with short-term contracts (= Vessels with market tolerability) (cid:129) Dry Bulkers (cid:129) Tankers (medium- to long-term contracts) (spot operations) (cid:129) Tankers (medium- to long-term contracts) (cid:129) LNG Carriers (cid:129) Offshore Businesses (cid:129) Real Estate (cid:129) Car Carriers (cid:129) Terminals (cid:129) Logistics (cid:129) Ferries (cid:129) Coastal Shipping Return to proﬁ tability in ﬁ scal 2016 due to the Business Structural Reforms Dry Bulkers (spot operations) Containerships Containerships (Business Structural Reform Expenses ¥61.9 Billion) • In addition to highly stable proﬁ ts mainly from long-term contracts, there were other business, such as car carriers and ferries, that posted proﬁ ts, but the loss- es from dry bulkers (the spot operation portion) and containerships sharply cut into them. • We do not currently foresee a full recovery for either the dry bulker market or containership freight rates. Implementing sweeping measures for these busi- nesses is one of our top priorities. Conduct impairment loss on vessels owned by MOL Dispose of surplus vessels after rationalization of routes Due to the further worsening of containership freight rates, the division is unlikely to improve its proﬁ tability in ﬁ scal 2016, but MOL will greatly eliminate its structural inferiority. 8 Mitsui O.S.K. Lines 16mol_英文_納品pdf用.indd 8-9 16mol_英文_納品pdf用.indd 8-9 Underlined words are explained in the Glossary on page 18. Annual Report 2016 9 2016/07/27 16:12 2016/07/27 16:12 2 Question Can you go over the single-year management plan for us? Answer 2 Onward While we will continue to promote the Three Innovations outlined in our midterm management plan “STEER FOR 2020,” which has ﬁ scal 2016 as its last year, we expect to miss our proﬁ t and ﬁ nancial targets by wide margins. We have formulated a single-year management plan to priori- tize the successful completion of the Business Structural Reforms in ﬁ scal 2016 and are currently carrying it out. 10 Mitsui O.S.K. Lines 16mol_英文_納品pdf用.indd 10-11 16mol_英文_納品pdf用.indd 10-11 Annual Report 2016 11 2016/07/27 16:12 2016/07/27 16:12 Progress Made in the Midterm Management Plan “STEER FOR 2020” Steady progress made in Innovation of Business Portfolio Signiﬁ cant progress in Innovation of Business Model by implementing the Business Structural Reforms Going forward, we will accelerate Innovation of Business Domain s n o i t a v o n n I e e r h T Business Portfolio Concentrate investment in businesses with long-term highly stable proﬁ ts, such as LNG carriers and offshore businesses Business Model Evolve to a ﬂ eet composition with high market tolerability and competitiveness Implement Business Structural Reforms Business Domain Create a value chain by expanding marine transport business domain to both upstream and downstream 1. Miss proﬁ ts and ﬁ nancial targets by a wide margin due to weakness in dry bulkers and containerships 2. Prioritize the completion of Business Structural Reforms in ﬁ scal 2016 Continue to promote the Three Innovations, but formulate and execute a single-year management plan instead of a midterm management plan Implementation of the Single- Year Management Plan Successfully complete Business Structural Reforms Strengthen sales capabilities Accelerate Innovation of Business Domain Dry Bulkers 1 2 3 Optimize ﬂ eet size Reduce vessel costs Focus on cargo transport based on long-term, stable relationships with customers Containerships (bring down vessel costs) 1 Rationalize routes and optimize ﬂ eet size Enhance yield management 2 Accelerate Innovation of Business Domain Distribute management resources to ferries and other domestic transport businesses as well as logistics, terminals and real estate businesses in key strategic areas Strengthen Sales Structure to Meet Customer Needs (cid:129)Establish the Energy Transport Business Unit Unify sales policies for energy-related customers (cid:129)Strengthen interdivisional and global cooperation Leverage chief executive representatives and chief country representatives t x e N e h t o t n O n a P l t n e m e g a n a M m r e t d M i 12 Mitsui O.S.K. Lines 16mol_英文_納品pdf用.indd 12-13 16mol_英文_納品pdf用.indd 12-13 Underlined words are explained in the Glossary on page 18. Annual Report 2016 13 2016/07/27 16:12 2016/07/27 16:12 3 Question Although you predict the dry bulker market and containership freight rates will remain troubled for the time being, do you forecast sustainable growth for MOL? 3 Answer In regard to dry bulkers and containerships, which needed the Business Structural Reforms, we currently expect it will take some time for the markets to make a full recovery. However, MOL still cur- rently has a business portfolio that serves as a sufﬁ cient base for sta- ble growth. Through the Business Structural Reforms and the single- year management plan, we will work to further optimize our business portfolio and return to a sustainable growth trajectory. Realigned, Resilient, Reliable MOL 14 Mitsui O.S.K. Lines 16mol_英文_納品pdf用.indd 14-15 16mol_英文_納品pdf用.indd 14-15 Annual Report 2016 15 2016/07/27 16:12 2016/07/27 16:12 Our Fleet As of March 31, 2016 As of March 31, 2017 (Forecast) Number of vessels Number of vessels Dry bulkers (including steaming coal carriers and coastal bulkers) Tankers LNG carriers (including ethane carriers) Offshore businesses (FPSO) Car carriers Containerships Ferries & coastal RoRo ships Cruise ships Others Total 403 175 69 3 120 95 15 1 2 883 351 168 81 5 118 87 17 827 Note. Figures include short-term chartered vessels (ﬁ ve years or less) and vessels owned by joint ventures. The MOL Group’s Business Portfolio Highly Specialized Ferries & Coastal RoRo Ships Chemical Tankers Offshore Businesses (medium-to long- term contracts) LNG Carriers (medium- to long- term contracts) Methanol Tankers Associated Businesses (maritime-related) Terminals & Logistics Associated Businesses (real estate) Wood Chip Carriers Steaming Coal Carriers Crude Oil Tankers Capesize Bulkers (medium- to long- term contracts) F i r m P r o f i t s Car Carriers LPG Tankers Product Tankers Heavy Lifters and General Cargo Carriers Capesize Bulkers (spot operations) V a r i a b l e P r o f i t s Small and Medium-Sized Bulkers (medium- to long-term contracts) Small and Medium- Sized Bulkers (spot operations) Containerships * In plotting the vertical axis (highly to less specialized), each business was considered comprehensively after taking account of the following perspectives. Less Specialized • Niche or mass market • Competitive environment • MOL’s relative superiority • Versatility of vessel type Implement the Business Structural Reforms Small and Medium-Sized Bulkers (spot operations) Basically withdraw from spot operations with no speciﬁ ed cargo Capesize Bulkers (spot operations) Downsize the number of vessels on spot operations Containerships • Greatly reduce owned vessel costs • Dispose of surplus vessels from rationalization of routes • Aim to stabilize proﬁ ts by enhancing the synergies with the terminal and logistics businesses 16 Mitsui O.S.K. Lines MOL16_英文_出校データ戻し.indd 16-17 MOL16_英文_出校データ戻し.indd 16-17 Annual Report 2016 17 2016/09/07 15:02 2016/09/07 15:02 Glossary (In alphabetical order) Ballast Voyage Sailing to the next loading port without any cargo loaded. Ballast Water Ocean water that is taken in by the vessel to maintain ideal buoyancy and control the vessel when not fully loaded with cargo. Usually, ballast water is taken on when cargo is unload- ed, and is discharged when cargo is loaded. Ethane Carriers Ethane is the second most abundant component of natural gas after methane. Depending on the ﬁ eld, ethane can com- prise 5–20% of natural gas. Ethane has a heating value about 1.75 times higher per volume than methane and is a gas at standard temperature and pressure. At present, it is used mainly as a raw material for reﬁ ning the important basic chemical ethylene. Ethane carriers are specialized for trans- porting liqueﬁ ed ethane, which has been cooled to around minus 92 degrees Celsius, and equipped with reliquefaction system. LNG carriers transport cargo at minus 162 degrees, and LPG tankers transport cargo at minus 42 degrees, so eth- ane carriers fall somewhere between the two. FPSO (Floating Production, Storage and Ofﬂ oading system) A ﬂ oating facility for producing oil offshore. The oil is stored in tanks in the facility and directly ofﬂ oaded to tankers for direct transport to the destination. [Offshore Business] FPSO: Cidade de Angra dos Reis MV22 (photo: MODEC, INC.) FSRU (Floating Storage and Re-gasiﬁ cation Unit) A ﬂ oating facility for storing and regasiﬁ cation of LNG off- shore, which is then pressurized and piped ashore. Plans to introduce FSRUs in regions around the world are making steady progress as they can be set up in less time and less cost than conventional onshore receiving terminals. Highly Stable Proﬁ ts Proﬁ ts that are ﬁ xed, from contracts of two years or more, and projected proﬁ ts from highly stable business. Highly stable proﬁ ts are currently provided by the following segments: Dry bulkers, Tankers, and LNG carriers/Offshore businesses under mid- and long-term contracts (two years or more), Associated businesses and Others. Market Exposure Vessels operating under contracts of less than two years, which are owned or mid-and long-term chartered vessels. These vessels are subject to spot markets ﬂ uctuations. Pool Arrangement Ship operators and owners pool certain ships to conduct joint operations. Roll-on Roll-off (RoRo) Ships Featuring a ramp, these ships have a vehicle deck to hold trucks, trailers and other vehicles. Cranes and other loading equipment are not used in loading; instead vehicles are driven onto the ship. In general, while ferries transport passengers and personal-use automobiles in addition to freight vehicles, RoRo ships mainly transport freight vehicles. Ton-mile Transporting one ton of cargo one mile. Expressing the volume of cargo calculated by multiplying transported weight and transported mile together. As opposed to just reporting cargo weight without reference to distance, ton-mile provides a complete picture of total transport activity, reﬂ ecting the demand fulﬁ lled by vessels or other transport modes. Yield Management In the containership business, this refers to a management technique to maximize proﬁ tability for the round-trip voyage of each container. Freight rates are set and sales activities con- ducted to maximize net proceeds (gross proﬁ ts calculated by deducting direct costs from freight revenues) rather than freight rates themselves. Direct costs include loading and unloading costs, feeder costs, and the costs of returning empty containers (calculated to reﬂ ect the aspect of surplus and shortage of containers at each point). Contents Management Strategy Management Foundation Underpinning MOL 20 25 30 32 34 46 Message from the CEO The CEO and Analyst Dialogue MOL’s History: “Spirit of Challenge and Innovation” Market Position in the Industry Overview of Operations 56 58 60 64 67 69 Board of Directors, Audit & Supervisory Board Members and Executive Ofﬁ cers Message from an Outside Director Corporate Governance Safe Operation Risk Management Corporate Social Responsibility (CSR) Feature: Expanding MOL Group’s Business in Asian Growth Markets Financial Section 48 Financial and Non-Financial Highlights 73 Financial Section 50 Key Indicators 52 Message from the CFO 110 The MOL Group 112 Worldwide Ofﬁ ces 113 Shareholder Information Editorial Policy In this annual report, we have included a main feature to help readers understand the Business Structural Reforms that MOL implemented in the fourth quarter of ﬁ scal 2015 and the single-year management plan to be implemented in 2016. We have also included an additional feature about our focus on business devel- opment in Asia. With the smooth, steady implementation of these measures, we will accelerate back toward a growth trajectory. 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/ Annual Report Investor Guidebook Market Data http://www.mol.co.jp/csr-e/ Safety, Environmental and Social Report 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 21, 2016 unless otherwise speciﬁ ed. [Offshore Business] FSRU: (CG image) (photo: ENGIE) 18 Mitsui O.S.K. Lines 16mol_英文_納品pdf用.indd 18-19 16mol_英文_納品pdf用.indd 18-19 Annual Report 2016 19 2016/07/27 16:12 2016/07/27 16:12 　 Message from the CEO Junichiro Ikeda President & CEO 20 Mitsui O.S.K. Lines 16mol_英文_納品pdf用.indd 20-21 16mol_英文_納品pdf用.indd 20-21 We aim to successfully carry out Business Structural Reforms through our single-year management plan and swiftly return to a growth trajectory. Progress Made in the First Two Years of the Midterm Management Plan The three-year medium-term management plan “STEER FOR 2020” began in April 2014 and out- lined “three innovations” MOL needs to advance: Innovation of Business Portfolio, Innovation of Business Model, and Innovation of Business Domain. Two years have since passed. In regard to the ﬁ rst two innovations, we were able to achieve major accomplishments as evidenced by the secur- ing of long-term contracts in LNG carriers and offshore businesses. We have also made steady progress with Innovation of Business Domain, where we began various initiatives, including strengthening the logistics and terminal businesses. However, with signiﬁ cant shifts in trade and the global economy, it is essential that we accelerate these initiatives. Despite these shifts, our overall strategy remains sound and centers on successfully carrying out the three innovations out- lined in “STEER FOR 2020.” This alone, however, is no longer sufﬁ cient. Historically low market conditions for dry bulkers and containerships have forced us to make large revisions to the proﬁ t and ﬁ nancial targets of the medium-term management plan. We are still headed in the right direction over the medium- to long-term, but short-term earnings for the period have diverged greatly from the plan’s targets, making it virtually impossible to achieve the plan’s ﬁ nal targets. This is the assessment we reached looking back on the ﬁ rst three quarters of ﬁ scal 2015. Then in the fourth quarter of ﬁ scal 2015, with the aim of improving earnings from ﬁ scal 2016 onwards, we pressed ahead with the Business Structural Reforms, recording a total extraordinary loss of ¥179.3 billion: ¥117.4 billion related to dry bulkers and ¥61.9 billion related to containerships. Annual Report 2016 21 2016/07/27 16:12 2016/07/27 16:12 Message from the CEO Business Structural Reforms in light of Global Shift from Resource-Driven Economies The gap between vessel supply and vessel demand has given rise to the historic market stagnation facing dry bulkers and containerships. Behind this gap, however, lies a more profound shift from resource-driven econo- mies. This can be seen in the deceleration of emerging economies due to falling crude oil, iron ore and other resource prices, as well as slowing growth in China. Realizing that these structural changes were not tempo- rary, but actually marked an inﬂ ection point in the global economy, we knew the weakening business envi- ronment would not end in just one or two years. This was a major reason we carried out the Business Structural Reforms. The end of resource-driven economies does not mean that needs for resources will disappear. It means that we can no longer expect the same dramatic growth as when China, a mega consumer and producer, was integrated into the global economy between the 1990s and the mid-2010s. Fleets expanded in the marine transport industry to meet that exponential growth. But now, with China largely integrated into the global economy, we cannot expect the same kind of extraordinary growth that marked most of the last two decades. Without another country to replace China as the dynamo of the global economy, we have deter- mined it is necessary to adjust the management of marine transport operations in line with the prevailing stable or low growth environment. In the current round of Business Structural Reforms, which is based on the abovementioned assumptions, we will signiﬁ cantly reduce our dry bulker ﬂ eet engaged in spot cargo transport by selling vessels or terminat- ing charter-in contracts to withdraw from free vessel operations in markets unsupported by cargo demand. We are going to shrink our ﬂ eet in line with the number of cargo contracts we have been able to stably secure. And as for our remaining core ﬂ eet, we will lower vessel costs to a level in line with the current mar- ket. As for containerships, due mainly to the historic stagnant market conditions and the high number of outstanding orders for new deliveries, we cannot foresee a full-scale recovery for the time being. Because of this, we have recorded an impairment loss on ﬁ xed assets, mainly mid-size containerships, while selling and redelivering ships made unnecessary by the rationalization of unproﬁ table routes. We launched a single-year management plan to provide the time to fully implement the Business Structural Reforms and to prudently assess the business environment after completing these top priority reforms. Launch of the Single-Year Management Plan Foremost, what we aim for in this single-year plan is the successful implementation of the Business Structural Reforms. In regard to quickly redelivering surplus vessels, we will continue to negotiate and reach agreements with chartered vessel owners and other relevant parties. In the dry bulker business, we will greatly reduce the number of vessels vulnerable to the market exposure of free vessel operations while focusing management resources on business with long-term, stable customers and bringing about a shift toward sustainable busi- nesses. In containerships, we will steadily reduce surplus vessels and further promote rationalization of unproﬁ table routes. In addition, we will revitalize the sales capabilities lost from past excessive cost reductions and fully reassess MOL’s yield management, which controls the container imbalance in round-trip voyages. In addition, to establish a platform promoting stronger Companywide sales capabilities, we implemented organizational reforms. At our head ofﬁ ce, we moved dry bulkers, tankers, LNG carriers and offshore business- es, which are all included in bulkships, to a business unit system. The newly established Dry Bulk Business Unit is to optimize the dry bulker ﬂ eet portfolio, which includes a range of sizes from Capesize to Small Handy, and to promote more efﬁ cient use of management resources. Aiming to unify MOL’s sales policy toward energy-related customers, we also established the Energy Transport Business Unit to precisely meet customer needs for pro- curement amid diversifying energy sources, including crude oil, LNG and steaming coal. In terms of global organizational reforms, to strengthen partnerships in each region and unleash the Group’s collective capabilities, from the latter half of 2015, we established a chief executive representative at three locations around the world and, under these general representatives, we established country represen- tatives for select countries in Asia, the Middle East and Oceania. With this representative system, we concen- trate the best of each sales department, in other words the competitive strengths that differentiate us, to precisely meet customer needs with just one contact point. In the end, when someone thinks logistics, we want MOL to be the ﬁ rst company that comes to mind. In response to the environmental changes I’ve already touched on, we will accelerate Innovation of Business Domain while maintaining the marine transport industry as the core of our business. Path Back to a Growth Trajectory The world economy will undoubtedly continue to grow as will seaborne trade. However, we have to realize that this growth will be gradual. Looking at it in a positive light, you could say that it is stable. More pessimis- tically, however, this means there will be persistent low growth. In addition, we have to admit that it is currently difﬁ cult to predict which marine ﬁ elds can expect strong growth. Under these conditions, I think it’s important that MOL effectively manage its business portfolio. Looking at global marine transport companies, it’s safe to say that there are only a very small number of full-line marine transport groups like MOL. Looking back at the severe business environment of ﬁ scal 2015, it’s clear that managing our business portfolio as a full-line marine transport group dampened the negative impact. Simply stated, the tanker business, which had been struggling for the past ﬁ ve or six years, was able to post results this ﬁ scal year that offset the poor performance of dry bulkers and underpinned the proﬁ ts of the whole Group. LNG carriers and offshore businesses produced ﬁ rm proﬁ ts, and we predict earnings for these businesses will really boom in the next two or three years. And while car carriers saw proﬁ t decline this ﬁ scal year, they were still able to secure ﬁ rm proﬁ ts. MOL’s diverse business ﬁ elds, including Group companies MOL Ferry and Daibiru, contribute to consolidated earnings in various ways. In ﬁ scal 2015, we recorded a net loss due to Business Structural Reforms but were in the black for operating income and ordinary income. This was also attributable to having a range of departments ﬁ rmly augment the weaker ones by managing a range of businesses in our business portfolio. Of course, this does not mean that we should just operate all kinds of different businesses and wait for a growth ﬁ eld to spontaneously appear. In each business ﬁ eld, we need to clearly deﬁ ne the factors that differentiate us, reinforce our sales capabilities and then prepare for a new order going forward. I think it’s important that MOL effectively manage its business portfolio. 22 Mitsui O.S.K. Lines Underlined words are explained in the Glossary on page 18. Annual Report 2016 23 MOL16_英文_出校データ戻し.indd 22-23 MOL16_英文_出校データ戻し.indd 22-23 2016/08/02 13:36 2016/08/02 13:36 Message from the CEO The CEO and Analyst Dialogue In the 2000s, our Capesize bulker ﬂ eet posted large proﬁ ts and was perceived as MOL’s star business. And in more recent years LNG carriers, for which it could be said MOL has relative superiority, were able to con- clude many long-term contracts. While this shows that we had star businesses in each era, it could also sug- gest that we merely beneﬁ tted from the special circumstances arising from exceptional events, such as China’s commodity import boom and the U.S. shale revolution. Reaching the end of resource-driven econo- mies, it’s now difﬁ cult to expect the emergence of another massive star business segment. On the other hand, customers certainly do have various transport needs, and there are ﬁ elds where stable growth is expected. For example, we can identify several promising niche business ﬁ elds, including methanol and chemical tankers. MOL boasts high competitiveness in these ﬁ elds, holding the No. 1 and No. 3 posi- tions. I believe we still have potential for greater growth in these areas. In addition, as for our domestic ferry business, the modal shift is fully underway due to the shortage of truck drivers and heightened environmental awareness of customers, and we expect this business to remain stable going forward. Furthermore, we have been focusing on expanding the container terminal business, which we also expect to maintain comparatively ﬁ rm earnings. We have actively expanded this business, including a strategic alli- ance with Brookﬁ eld Asset Management, a global asset manager with a remarkable track record in the infra- structure business; an automated terminal at the Port of Los Angeles; the start of operations of a large-scale automated terminal at Rotterdam Port; and the establishment of our independent terminal at Cai Mep Port, Vietnam. In ﬁ scal 2018, another container terminal in Vietnam is slated to begin operations at Lach Huyen Port, steadily advancing the Innovation of Business Domain. Opportunities abound. In ﬁ elds expected to grow, MOL continues to invest resources to stimulate busi- nesses where MOL is highly competitive. If we hold steady, I ﬁ rmly believe we will be able to effectively adapt to the new global structure. For that reason, we need to carefully analyze a wide range of information while polishing our business intelligence. Implementing the Business Structural Reforms has strengthened our foundation. Although the container- ship business needs more time to return to the black, we are discovering ways to ensure our highly stable proﬁ ts. Going forward, I hope to further strengthen the long-term relationships of trust we have established over many years by accurately responding to our increasingly globalized customers and their increasingly complex and varied transport needs. We have already started to build the necessary framework for this under the single-year management plan and will continue to work to steadily enhance this framework. In Closing Our greatest duty in ﬁ scal 2016 is to successfully implement the Business Structural Reforms through the sin- gle-year management plan and rebuild the foundation needed to outperform our global competition. Through its efforts and ingenuity, MOL has overcome many large undulations in the past. To this day, we have managed to keep growing. Going forward, each of us, executives and employees alike, will continue to work to swiftly return to a growth trajectory. And we will aim to fully meet the expectations of our stakeholders. MOL’s Transformation: What will MOL look like after the Business Structural Reforms? Junichiro Ikeda Masato Sakaguchi Hajime Hitotsuyanagi Presidesnt & CEO Analyst, Asset Management Division Mitsubishi UFJ Trust and Banking Corporation Senior Analyst, Equity Research Dept. Daiwa Securities Co. Ltd. Question1 What rationale lies behind launching this new round of Business Structural Reforms so closely on the heels of the ﬁ scal 2012 reforms? Hitotsuyanagi: First, I would like to ask about the reason and background behind launching the current round of Business Structural Reforms not even ﬁ ve years after the Business Structural Reforms conducted in ﬁ scal 2012. Ikeda: MOL conducted Business Structural Reforms for the dry bulker division in ﬁ scal 2012 and record- ed a large loss. Afterward, in this short time frame, we again had to implement the current round of Business Structural Reforms and record another loss. For this, I would like to sincerely apologize to our shareholders. The main point of the previous set of Business Structural Reforms was to reshape our business model by moving our base for spot operations of dry bulkers to the main hub of Singapore and securing cargo contracts to reduce market expo- sure. In that sense, the current round of Business Structural Reforms aims to accelerate that move to thoroughly minimize market exposure. This time, however, the outlook for the market is strikingly different. During the previous round of reforms we thought the dry bulker market would recover in two to three years. However as seen in ﬁ scal 2015, we faced a steep market downturn that deﬁ ed our initial predictions. Ultimately, I believe the cause of this downturn is the broader, structural problem posed by the end of resource driven economies. We realized that the dramatic growth in transport demand that had been sup- porting the dry bulker market—that is to say the demand growth coinciding with the integration of China into the global economy—is over and that there will now instead be persistently low growth. We determined that it will be extremely difﬁ cult for the market to fully recover for the time being. Since structural factors were at the root of the market stagnation, we absolutely needed to reform our business structure once again. We couldn’t rely on the same business model as ﬁ ve years ago when we maintained ﬂ eet size in anticipation of a certain degree of market recovery. That is why this time we decided to be more thorough and vastly shrink our ﬂ eet size. We will again transform our business model, focusing on the core area where we have Underlined words are explained in the Glossary on page 18. 24 Mitsui O.S.K. Lines MOL16_英文_出校データ戻し.indd 24-25 MOL16_英文_出校データ戻し.indd 24-25 Annual Report 2016 25 2016/08/02 13:36 2016/08/02 13:36 The CEO and Analyst Dialogue expertise and maintain stable business based on long-term relationships with customers. This is how we arrived at this round of Business Structural Reforms. H: I see. So you’ve considerably revised the ﬂ eet portfolio. When this current ﬁ scal year is over, to what extent will MOL resemble the company you envision? I: How rapidly we can reduce the size of our ﬂ eet depends on talks concerning redelivering the ves- sels with the ship owners of chartered vessels. Right now, we are committed to achieving our goals in the current ﬁ scal year and are in the midst of earnest negotiations. If we can reach an agree- ment on redelivering vessels, the market exposure of our dry bulkers will be reduced. In addition, the vessel costs associated with MOL’s remaining core ﬂ eet will be reduced to current market levels, so even if current market conditions persist, the core ﬂ eet will not generate a loss. On the other hand, some issues remain in the composition of our containership ﬂ eet. In the cur- rent round of Business Structural Reforms, we disposed of surplus containerships, recording impairment losses mainly related to owned vessels. Unlike dry bulkers, however, we were unable to completely transform the ﬂ eet. But I do feel that we have now come signiﬁ cantly closer to the industry average in terms of cost competitiveness. Unfortunately, we are not yet at a level where we can outperform all of our competitors so I cannot say that we have attained our ideal position. Going forward, we will continue to comprehensively restructure the containership business, focusing especially on strengthening our sales capabilities. Question2 What is the basic strategy for the containership business after the Business Structural Reforms? Sakaguchi: Can I take this to mean that even after the Business Structural Reforms have been carried out, there will be no change in the basic strategy for containerships. I: The basic strategy remains largely unchanged. There is no change in our goal of ranking in the top third of the industry in terms of cost competitive- ness, and we are working hard to reach that goal. However, one issue in terms of earnings is our sales capabilities. In ﬁ scal 2012, we felt that our sales capabilities simply couldn’t be beat by our competi- tors. Entering ﬁ scal 2015, it became apparent that our performance, even among the three largest shipping companies in Japan, was inferior. We came to the conclusion that one of the causes behind this was our sales capabilities. For example, our slot utilization rates have continued to slide in comparison with our competitors, and this situation has become more pronounced. During the previous year, we seriously analyzed this. Based on what we learned, we are currently about midway in our efforts to reinforce our sales capabilities. S: Looking at containerships from a medium- term perspective, if we assume that the exter- nal environment remains unchanged, how long do you think it will take for MOL to return to the black through its own efforts? I: The current market conditions are such that the entire industry is bleeding red ink. At this rate, the industry itself may be at an unsustainable level, so I think this trend will reverse in some way. However, MOL is not just anticipating a market recovery; it is also still advancing initiatives to enhance its cost competitiveness. Fully leveraging the 20,000 TEU vessels slated for delivery from 2017 onwards will also play a part. Underlined words are explained in the Glossary on page 18. 26 Mitsui O.S.K. Lines MOL16_英文_出校データ戻し.indd 26-27 MOL16_英文_出校データ戻し.indd 26-27 In addition, we can also expect the terminal and logistics businesses in the containerships segment to provide greater contributions to earnings. Automation is proceeding smoothly at our contain- er terminal in Los Angeles, which is expected to begin lowering costs in full from the latter half of 2016 and to enhance proﬁ tability by winning over new customers. Moreover, we can expect our ter- minal in Cai Mep, Vietnam and other locations to also accumulate proﬁ ts. Add to this the steadily growing logistics business, and we expect to return to the black in around two to three years if we forecast a moderate market recovery. Question3 How do debates with outside directors improve outcomes? S: MOL is seen as one of the pioneering compa- nies in Japan for corporate governance, due in part to its introduction of an outside director system in 2000. Nevertheless, the Company was again forced to implement Business Structural Reforms resulting in a large loss in ﬁ scal 2015 Can you tell me what kind of discussions took place with outside directors at the Board of Directors meetings leading to the implementa- tion of Business Structural Reforms this time? I: As you point out, we introduced outside directors at a relatively early stage. I feel we have also been leaders in fostering an open atmosphere conducive to earnest discussion. At Board of Directors meet- ings, we welcome frank comments and questions from outside directors based on their backgrounds and experiences. These include questions spanning a range of previously unconsidered angles, often addressing the basics of whether a business deci- sion was indeed fundamentally sound. They have a broad, comprehensive view of the global economy, trade structures, and the future investment climate. When we decide on an investment, we have received truly eye-opening remarks from outside directors in areas previously overlooked despite inci- sive deliberation, such as the outlook for crude oil and energy demand going forward or how environ- mental issues will pan out. MOL’s Board of Directors typically meets for three hours, with one hour of each meeting set aside for the Deliberation on Corporate Strategy and Vision. This is not a deliberation on individual agenda items but rather a free-form discussion with a set theme about our business strategies going forward. Here, too, the outside director’s remarks serve as an invaluable resource. Speciﬁ cally, when we discussed the expansion of offshore businesses, we received a comment that went to the core of the issue, asking how we felt about the fact that this is a large investment and would mean making a bold entry into a very different ﬁ eld from our existing marine transport business model. This com- ment made a lasting impression. And in regard to containerships, we have also received comments about whether this segment can even survive as a business. There was a consis- tently harsh exchange when we were coming up with ideas about how to improve the situation in relation to the Business Structural Reforms. The outside directors would always talk about relative inferiority. They’d ask where the problem is, if we had done a careful analysis and, if not, insist one be done. The matter that was the most difﬁ cult to perceive was the problem surrounding our sales capabilities. Admitting to ourselves that we were lacking in our sales capabilities was a tall mental hurdle to overcome. To a large degree, I think it was an outside director’s strict admonition in ﬁ scal 2015 that brought us to the point where we could make this realization. In determining the current round of Business Structural Reforms, we have also beneﬁ ted from the counsel of the outside directors. Annual Report 2016 27 2016/08/02 13:36 2016/08/02 13:36 The CEO and Analyst Dialogue S: In last year’s annual report, you said, “we are currently working to reinforce total risk control.” If everything turns out as hoped, I believe MOL will be able to minimize losses even if the market experiences a downswing again in the near future. Please tell us about whether MOL has established a system capa- ble of dealing with future market troubles and the status of these efforts. I: Total risk control involves comparing the largest possible loss we could incur against our risk-free assets. There are both market risks and asset risks. We periodically assess whether we have an appro- priate level of market exposure, looking at market risks in terms of how the market has historically evolved over the long term past and asset risks in terms of how asset prices of vessels have ﬂ uctuat- ed. While monitoring our present position, we decide whether we can or cannot take on more risk. On the other hand, timing is also an important factor in making investments. We can’t just say shy away from all investment in a particular year because we don’t want to assume any additional risk at all. These competing demands are weighed and decided by the Board of Directors through vig- orous debate. In the past, there were situations where we had to make investments intuitively based on experience as we did not have any kind of formal system in place. Now, however, we make extensive use of quantitative analysis and I feel the process has become more transparent. Question4 Are there beneﬁ ts to being a full-line marine transport group? H: Based on our talk so far, I really want to ask about how the board members feel about MOL being a full-line marine transport group. Do they feel MOL should stay this course? Can you tell me about the debate regarding the issue? I: Quite frankly, the debate did not begin with the assumption that MOL should remain a full-line marine transport group. Nobody thinks MOL has to be a full-line marine transport group so therefore it must retain the containership business. We have always tried to ascertain how meaningful a contri- bution each business will make to the Group. By doing this, we were in the end, able to accumulate enough businesses to constitute a full-line marine transport group. However, I do think that our port- folio management has been a clear strength in the current market, enabling us to hedge our risks. Anyway, there was no assumption that MOL must remain a full-line marine transport group. Instead, debate obviously focused on whether or not we saw a path forward in the containership business. I feel that there undoubtedly is enduring value in the business and industry, as well as growth potential. Even now, though, we continue to regularly debate MOL’s current strengths, namely whether it can achieve solid returns on its business assets and competitive strengths. Underlined words are explained in the Glossary on page 18. Question5 What will MOL look like in a few years time? S: What do you think will be different about MOL in three or ﬁ ve years from now? I: Looking beyond the next three or ﬁ ve years, MOL’s unchanging challenge is laid out in the Company’s long-term vision “To make the MOL Group an excellent and resilient organization that leads the world shipping industry.” I’d like to explain the speciﬁ c changes of our business metaphorically, borrowing from baseball. As MOL entered the 2000s, the Capesize bulker business was a homerun slugger. Capesize bulkers consistently hit the ball out of the park, driving up our score. Though the glory days of Capesize bulkers have passed, they continue to hold the key place in our batting order due to their long-term contracts. But you probably want to know who our up and com- ing new players are. They are the LNG carriers and offshore businesses, which are growing and after two or three years, will be solid batters in our cen- tral lineup. However, these solid batters are not homerun sluggers or power hitters at the height of their glory days like Capesize bulkers, but rather reliable batters with stable batting averages. In the long term, we would like to ﬁ nd another star batter to replace Capesize bulkers, but I think it will be a while before this new star enters the lineup. Basically, I think we should assume that the business environment will not be like it had been before. On the other hand, MOL already has many busi- nesses that are hitting respectably, in the range of average hitters. Several ﬁ elds that we had relegated somewhat to the periphery—such as terminals, logistics, ferries, domestic transport and real estate—have already grown to the point of each pulling in several billion yen annually. In addition, several niche businesses have also started making steady contributions to earnings. One example is specialized methanol tankers, for which MOL has the No. 1 market share globally. We should contin- ue to invest resources in these businesses and work to add polish to their competitive strengths. Then we might achieve a strong baseball team uniﬁ ed through great teamwork and reliable batting. Moreover, we have opportunities in new ﬁ elds, while planting a pivot foot in the marine transport industry. Our options include M&A when we see an opportunity to utilize our core competence and break into new ﬁ elds. Furthermore, in regard to environmental regulations, which control the fate of the marine transport industry, I believe we must showcase our strengths to our customers and adopt a proactive stance toward environmental measures. In the IT ﬁ eld, we will continue to invest human resources as we need to achieve break- throughs in these ﬁ elds using AI and other technol- ogies. I think this basically covers our game plan for the next three or ﬁ ve years. S: Since becoming President, I’m sure you’ve met with many shareholders and investors. What stands out most from these conversa- tions? I: That would have to be the advice to be brutally honest, to provide the unembellished truth. Given a certain topic, how can you speak most objectively about it? You need to earn trust and show how you’re responsive. When asked during a conversa- tion, most people cannot help but to try to empha- size the positive. At this point, I think it is necessary to provide information to shareholders and inves- tors while being very careful about not misleading them. I have been asked very pointed questions, but these turned out to be great opportunities to discipline myself for which I am very grateful. H & S: We are also glad to hear that. Thank you for your time today. I: Thank you. 28 Mitsui O.S.K. Lines MOL16_英文_出校データ戻し.indd 28-29 MOL16_英文_出校データ戻し.indd 28-29 Annual Report 2016 29 2016/08/02 13:36 2016/08/02 13:36 MOL’s History: Spirit of Challenge and Innovation 1884 The Birth of Osaka Shosen Kaisha (OSK Line) The founding of MOL can be traced back to Osaka Shosen Kaisha (OSK Line), which was established in 1884 by 55 ship owners of Seto Inland Sea area in Western Japan and their in-kind contributions of 93 vessels. Osaka Shosen Kaisha (OSK Line) 1973 1985 Competitiveness of Japanese Flagged Vessels Challenged by the Yen’s Sharp Appreciation Following the Plaza Accord and Floating Exchange Rates In 1973, Japan switched from a ﬁ xed exchange rate system where one U.S. dollar equaled ¥360 to a ﬂ oating exchange rate system. With the signing of the Plaza Accord in 1985, the yen appreciated sharply from around ¥240 per U.S. dollar to about ¥120. This caused the competitiveness of Japanese ﬂ agged ves- sels to nosedive. MOL began promoting mixed crews of Japanese and foreign national seafarers, and reduced a large number of Japanese seafarers as part of its restructuring process. 1995 Commenced First Alliance in Containership Services (The Global Alliance) In containerships, massive investments are required for vessel construc- tion, operating a number of sea routes and other aspects of the busi- ness. MOL commenced the industry’s ﬁ rst global alliance with container shipping companies based in the United States, Europe and Hong Kong, to augment each other’s network of trade routes. The allied companies also worked to enhance customer service by sharing space on containerships and increasing the ports of call and the fre- quency of stops. 2004 Daibiru Corporation becomes a consolidated subsidiary of MOL. 2010 The ﬁ rst participation in FPSO 2013 Japan’s ﬁ rst participa- tion in FSRU project 1999 New Mitsui O.S.K. Lines is established by the merger of MOL and Navix Line. 1996 MOL acquires a share in chemical tanker operator Tokyo Marine 2012 The world’s ﬁ rst hybrid car carrier, the EMERALD ACE, is launched. 1989 Navix Line is established by the merger of Japan Line and Yamashita-Shinnihon Steamship. Early 2000 s AMERICA MARU (700TEU) 1964 Mitsui O.S.K. Lines (MOL) is founded by a merger of OSK Line and Mitsui Steamship. 1968 Full containership service commenced. 1942 Mitsui & Co., Ltd. spins off its shipping department to create Mitsui Steamship Co., Ltd. 1961 World’s ﬁ rst automated ship, the KINKASAN MARU, is launched. 1945 1970 1983 Japan’s ﬁ rst specialized methanol tanker, the KOHZAN MARU is launched. 1984 The Devastation and Recovery of Japan’s Merchant Fleets from World War II Japan’s private merchant shipping ﬂ eets were conscripted into military transport, losing a total of around 2,400 vessels and over 30,000 seafarers. While recovering from its defeat in the war, Japan becomes a major trading country that imports iron ore, petroleum and other resources while exporting automobiles, electrical appliances and other products. Growing in tandem with the rebounding Japanese economy, MOL provides much needed marine transport, promoting diversiﬁ cation and specialization of its businesses to ultimately develop into a full-line marine transport group boasting a wide range of vessel types. 1965 Japan’s ﬁ rst specialized car carrier, the OPPAMA MARU, is launched. Launched the SENSHU MARU, an LNG Carrier Demand, mainly from electric power companies, increased for imports of liqueﬁ ed natural gas (LNG), an energy source with a low environ- mental burden. Requiring transport at minus 162 degrees Celsius, LNG is technically challenging to transport. MOL rose to the challenge, entering the LNG transport ﬁ eld in 1983. Since then, MOL’s ﬂ eet of LNG carriers has expanded to a world-leading 92 (including outstand- ing orders) as of March 31, 2016. The History of Our “Spirit of Challenge and Innovation” Throughout its more than 130 years of history, MOL has grown into one of the world’s largest full-line marine transport groups by anticipating the needs of its customers and the demands of the future, while overcoming various challenges along the way. What has supported us has been our “spirit of challenge and innovation”. Going forward, we will nurture this spirit and maintain course into the next 130 years. Aggressive Investment in Resource and Energy Transport After the 1999 merg- er with Navix Lines, which was particularly strong in transporting natural resources and energy, MOL aggres- sively invested in these ﬁ elds, predict- ing China’s economic development and increased demand for resources. We continued to scale up our ﬂ eet of LNG carriers, crude oil tankers, and dry bulkers which transport iron ore, coal, etc. 2007 The World’s largest iron ore carrier, the BRASIL MARU, is launched. Mid 2000 s 2015 China’s Commodity Import Boom Surges and Wanes MOL’s aggressive investment in the ﬁ eld of natural resource and energy transport was successful. With the unprecedented marine transport boom brought about by China’s commodity import boom, we recorded histor- ic proﬁ ts in ﬁ scal 2007. However, amid slowing econom- ic growth worldwide and the oversupply of vessels following the economic crisis in 2008, the marine trans- port market stumbled and has continued to struggle with ongoing stagnation. To respond to this vastly differ- ent business environment, MOL implemented two major reforms: one in ﬁ scal 2012 and one in ﬁ scal 2015. In ﬁ s- cal 2016, we will steadily implement the single-year management plan and sail past these rough seas. 30 Mitsui O.S.K. Lines MOL16_英文_出校データ戻し.indd 30-31 MOL16_英文_出校データ戻し.indd 30-31 Underlined words are explained in the Glossary on page 18. Annual Report 2016 31 2016/08/02 13:36 2016/08/02 13:36 Market Position in the Industry MOL operates a balanced oceangoing ﬂ eet. In terms of its total ﬂ eet size and presence in individual market categories, MOL ranks among the world’s top class shipping companies. World Major Carriers’ Fleets (All Vessel Types) (Number of vessels) 0 200 400 600 800 1,000 1,200 63 883 China COSCO (China) NYK (Japan) MOL (Japan) K Line (Japan) APM-Maersk (Denmark) Oldendorff (Germany) MSC (Switzerland) Fredriksen (Norway) China Merchants (China) CMA-CGM (France) Teekay (Canada) Swiss Marine (Switzerland) 0 20 40 60 80 100 120 (Million deadweight tons (DWT)) ■■ Number of vessels ■■ Million deadweight tons (DWT) Source: MOL internal estimation based on each companies’ published data, Clarkson and Alphaliner (March 2016) Car Carriers (Number of vessels) Global Major Carriers’ Fleet Composition (by DWT) 20 40 60 80 100 52 26 9 3 10 Source: MOL (March 2016) Note: Excluding spot-chartered vessels Containerships (Thousand TEU) (%) 0 Global Seaborne Trade MOL NYK K Line APM-Maersk China COSCO Evergreen Teekay Frontline Paciﬁ c Basin ■ Dry Bulker ■ Tanker ■ LNG Carrier ■ Car Carrier ■ Containership Source: World seaborne trade = MOL estimates based on Clarkson data and others Fleet composition = MOL estimated based on each company’s published data and Clarkson/MDS (Excluding passenger ships, ferries and tugs) Source: Alphaliner (April 2016) NYK MOL K Line EUKOR GLOVIS HOEGH Maersk MSC CMA-CGM China COSCO Evergreen Hapag-Lloyd Hamburg-Sud Hanjin OOCL UASC MOL APL Yang Ming NYK Hyundai K Line Dry Bulkers (Thousand deadweight tons) 0 NYK Oldendorff China COSCO MOL K Line 10,000 20,000 30,000 40,000 50,000 32,719 Source: Companies’ published data and Clarkson (March 2016) Swiss Marine Tankers (Thousand deadweight tons) China COSCO MOL Teekay NYK China Merchants SCF Source: Companies’ published data and Clarkson (March 2016) LNG Carriers (Number of vessels) ■■ In operation ■■ On Order *Qatar Gas Transport Company Ltd. Source: MOL (March 2016) Note: The numbers include the vessels which are owned by each company (wholly or par- tially) and the vessels for which vessel opera- tion is entrusted to each company. MOL NYK Nakilat* K Line Teekay MISC 0 0 0 5,000 10,000 15,000 20,000 16,587 25 50 75 69 100 23 92 40 80 120 160 116 0 600 1,200 1,800 2,400 3,000 546 32 Mitsui O.S.K. Lines MOL16_英文_出校データ戻し.indd 32-33 MOL16_英文_出校データ戻し.indd 32-33 Annual Report 2016 33 2016/08/02 13:36 2016/08/02 13:36 Overview of Operations Bulkships Dry Bulkers Consolidated Revenues Breakdown (FY2015) General Cargo Carrier/ Heavy Lifter 8% Steaming Coal Carrier* 10% Wood Chip Carrier 10% General Bulk Carrier 26% Iron Ore and Coking Coal Carrier 46% * From FY 2016, Steaming Coal Carrier business is included in the Energy Transport Business Unit. Dry Bulker Fleet Table (Number of vessels) Vessel Type Standard DWT At the end of Mar.2016 At the end of Mar.2015 Use Capesize 180,000 Panamax 80,000 Handymax 55,000 Small handy 33,000 Wood chip carriers 54,000 Others (Heavy lifter, General cargo carriers) Total 12,000 92 31 60 52 41 54 104 37 72 56 43 55 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. Wood chips, soybean meal, etc. Steel products, plants, etc. 330 367 Portfolio Highly Specialized F i r m P r o f i t s Wood Chip Carriers Heavy Lifters and General Cargo Carriers Capesize Bulkers Small and Medium-Sized Bulkers V a r i a b l e P r o f i t s Less Specialized 34 Mitsui O.S.K. Lines MOL16_英文_出校データ戻し.indd 34-35 MOL16_英文_出校データ戻し.indd 34-35 Kenichi Nagata Executive Vice President Director General of Dry Bulk Business Unit Fiscal 2015 in Review The dry bulker market in ﬁ scal 2015 remained at historic lows even into the new year. Autumn did not bring the expected seasonal boost in demand. As for Capesize bulkers, on the supply side, there was a slight overall increase in the number of vessels as deliveries declined and more vessels were demolished due to persis- tently weak market conditions. On the demand side, howev- er, crude steel production fell in China, where the economy continues to slow, causing iron ore imports to stagnate. Sentiment soured amid weakness in forward freight agree- ments (FFAs) and iron ore and other commodity markets. In addition, full-scale operations of 400,000-ton very large iron-ore Valemax carriers commenced, further reducing activity in the spot market. All these factors seem to have contributed to the sluggish market conditions. The number of scrapped Panamax bulkers did, however, increase greatly and deliveries of new vessels slowed. In contrast, new deliv- eries of small-sized vessels greatly eclipsed demolitions. With Chinese coal imports declining due to environmental con- cerns, the market remained weak for small- and medium- sized dry bulkers as overcapacity persisted. We made diligent efforts to secure highly stable proﬁ ts with long-term transport contracts, improve operational efﬁ - ciency and cut costs. Reﬂ ecting the severe market conditions, however, proﬁ tability signiﬁ cantly worsened year on year and, for the ﬁ rst time since ﬁ scal 2012, this resulted in a loss. Fiscal 2016 Initiatives We implemented a new round of Business Structural Reforms in the fourth quarter of ﬁ scal 2015 and recorded an extraordinary loss, which included ¥117.4 billion for such related expenses as redelivering chartered-in vessels before maturity of charter contracts and selling owned vessels. We conducted the ﬁ rst set of Business Structural Reforms back in ﬁ scal 2012. The central achievement of those reforms was shifting sales and operations of free ves- sels to the shipping hub Singapore, simultaneously raising the competitiveness of the ﬂ eet by lowering vessel costs to then current market prices. At the same time, we focused on raising the ratio of our ﬂ eet that is covered by cargo trans- port contracts. This was eventually raised from 40% to over 60% during the course of the three years that followed. Since then, however, market conditions have worsened much more than we predicted, including the Baltic Dry Index hitting record lows as cargo ﬂ ows stagnated with the slowdown in China’s growth. Considering the external environment, it is unlikely for the time being that market conditions will recover to the point we had predicted in ﬁ scal 2012. Determining the need to react swiftly to this new reality, we again implemented a round of reforms. In this round, as for small- and medium-sized dry bulkers, we will essentially withdraw from operating free vessels on the spot market that are not backed by cargo demand. In other words, we will considerably streamline our ﬂ eet to a level in line with the number of cargo contracts we have accumulated. Our main aim is to concentrate on deﬁ nitively meeting the cargo transport needs of our customers. At the same time, we are further enhancing our competitiveness by lowering the vessel costs of our remaining core ﬂ eet to match the current market. In addi- tion, we will reduce free vessels for Capesize bulkers as well. In ﬁ scal 2016, we will steadily carry out the single-year man- agement plan with the goal of completing the current set of Business Structural Reforms. We will continue to tirelessly focus our efforts on returning to proﬁ tability, recognizing the need to swiftly return to a growth trajectory by eliminating the factors that had negatively impacted the highly stable proﬁ ts that our long-term transport contracts generate. Global Seaborne Trade of Major Dry Bulk Cargoes (Millions tons) 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2010 2011 2012 2013 2014 2015 (cid:2) Iron Ore (cid:2) Coking Coal (cid:2) Steaming Coal (cid:2) Grain Source: Clarkson YOY % Vessels Supply (Capesize) (Number of vessels) 300 200 100 0 -100 2010 2011 2012 2013 2014 2015 12% 10% 8% 6% 4% 2% 0% -2% 24% 16% 8% 0% -8% Underlined words are explained in the Glossary on page 18. (cid:2) Deliveries (cid:2) Demolitions Source: MOL internal calculation based on IHS-Fairplay YOY % Sustainability Highlights Installing Ballast Water Treatment Systems in Advance of new Environmental Regulations Ballast water, which is discharged while loading cargo, can transport marine organisms around the world, negatively impacting marine ecosystems and biodiversity. Accordingly, the International Maritime Organization (IMO) adopted the Ballast Water Management Convention in February 2004, and its ratiﬁ cation is under way. MOL developed a Ballast Water treatment system in collaboration with manufacturers and, in ﬁ scal 2014, set a policy of installing the system on the Company’s vessels before the convention takes effect. With a vigilant eye on the ratiﬁ cation of the convention, we have been installing the system and, in ﬁ scal 2015, complet- ed installation on 30 vessels including dry bulkers. Ballast voyage departure port Destination port Marine organisms Destruction of the marine ecosystem Unloading cargo and taking in ballast water Loading cargo and discharging ballast water [Dry Bulker] Capesize Bulker: AZUL BRISA Annual Report 2016 35 2016/08/02 13:36 2016/08/02 13:36 The LPG tanker business remained healthy in ﬁ scal 2015. A major Chinese client became, as both a cargo owner and a ship- owner, a member of the pool of very large LPG carriers (VLGCs) jointly operated by MOL’s subsidiary Phoenix Tankers Pte Ltd. This increased the ﬂ eet size to a world-leading 29 vessels and secured new cargo on the United-States/China route. Fiscal 2016 Initiatives Although China is expected to continue stockpiling strategic reserves of crude oil in ﬁ scal 2016 and beyond, we foresee the number of new VLCC deliveries increasing year on year and the market softening. The division’s policy is to continue reducing market exposure and prioritize the accumulation of long-term, highly stable proﬁ ts. We will continue seizing favorable market conditions and promoting the shift toward medium- and long- term transport contracts. The parcel chemical transport business operated by Tokyo Marine Asia Pte Ltd. can be cited as a ﬁ eld expected to accumu- late ﬁ rm proﬁ ts going forward. This business entails transporting small lots of various chemical products on ships ﬁ tted with segre- gated stainless steel tanks. This is a business that highly favors experience and knowhow related to the safe transport of chemi- cal products and a proven track record in vessel management and seafarer training. Moreover, this is a very difﬁ cult ﬁ eld to enter as it is necessary to have a ﬂ eet of the right size to ensure effective deployment of vessels. Going forward, in this business, we will strive to stabilize and improve proﬁ tability by consolidat- ing small lots of high value-added cargo while using contracts of affreightment (COA) as a central pillar. We also plan to expand the scale of our ﬂ eet by replacing existing vessels and securing up to 13 new vessels while enhancing cost competitiveness by using larger vessels. The methanol tanker business, which MOL spearheaded globally in 1982, is stable with operations under long-term con- tracts, and we are building up our ﬂ eet. Upon delivery of those still under construction, our ﬂ eet will expand to 19 vessels. Since the shale revolution, expansions of North American methanol plants, which use inexpensive shale gas, have been planned. If those expansions are successfully achieved around 2020, we pre- dict transport demand for methanol will expand even more greatly. We believe this business can continue to steadily contrib- ute to proﬁ ts as a pillar of highly stable proﬁ ts. The tanker division’s ﬂ eet is currently one of the world’s larg- est and we will continue our strenuous efforts to maintain and improve our competitiveness while building brand power as a tanker shipping company by investing in ﬁ elds expected to pro- vide stable growth. Crude Oil: Global Seaborne Trade by Import Country/Area (Million tons) 2,000 1,500 1,000 500 0 2010 2012 2013 2014 2015 2016 (cid:2) China (cid:2) Japan (cid:2) Other Asia/Paciﬁ c (cid:2) Europe (cid:2) North America (cid:2) Others Source: Clarkson 2011 Vessels Supply (VLCC) (Number of vessels) 75 50 25 0 -25 2010 2011 2012 2013 2014 2015 (forecast) 15% 10% 5% 0% -5% (cid:2) Deliveries (cid:2) Demolitions Source: MOL internal calculations based on IHS-Fairplay YOY % Sustainability Highlights World’s First Methanol-Powered Carriers on Order MOL has ordered three methanol carriers equipped with dual-fuel low-speed diesel engines that use meth- anol as a propellant—a world’s ﬁ rst—with delivery scheduled during ﬁ scal 2016. The main diesel engine emits less CO2 and NOX than normal engines that use heavy fuel oil. And because methanol does not contain SOX, its low environmental load makes this fuel a pref- erable alternative to heavy oil. Energy Transport Business Unit Establishment of the “Energy Transport Business Unit” Energy needs are diversifying. This includes the need to respond to deregulation sweeping the electric power industry. The Group established the “Energy Transport Business Unit” to comprehensively meet the complex needs of major customers, both in Japan and overseas, for petroleum, coal, LNG, ethane, methanol, LPG and other forms of energy. We reorganized the Sales Division to optimally place personnel and strengthen cooperation between sections. To ensure we propose and provide transport services most appropriate for customer needs, we will continue to enhance our sales capabilities and cost competitiveness. Fiscal 2015 in Review In ﬁ scal 2015, the tanker division achieved a huge increase in proﬁ t due to favorable market conditions across all vessel types. Thanks to an increase in real, non-speculative, oil demand and a buildup in China’s strategic reserves amid falling crude prices, crude oil transport demand also increased. Due to the shale revolution, West African light crude, which had been exported to the United States, is now being exported to India and China, leading to an increase in ton-miles. All of these factors have helped to greatly improve market conditions for crude oil tankers. We have worked hard to seize these favorable conditions and amass medium- to long-term contracts. In product tankers, operating rates at reﬁ neries have remained high globally and cargo ﬂ ows for petroleum products have taken off, leading to solid business performance. This solid perfor- mance is also thanks to ﬁ rm proﬁ ts from chemical tankers operated by subsidiary Tokyo Marine Asia Pte Ltd and methanol tankers on long-term contracts. Takeshi Hashimoto Senior Managing Executive Ofﬁ cer Director General of Energy Transport Business Unit Akio Mitsuta Managing Executive Ofﬁ cer Deputy Director General of Energy Transport Business Unit Bulkships Tankers Consolidated Revenues Breakdown (FY2015) Chemical Tanker 28% LPG Tanker 9% Methanol Tanker 10% Crude Oil Tanker 32% Product Tanker 21% Tanker Fleet Table (Number of vessels) Portfolio Highly Specialized Methanol Tankers Chemical Tankers LPG Tankers Crude Oil Tankers F i r m P r o f i t s Product Tankers V a r i a b l e P r o f i t s At the end of Mar. 2016 At the end of Mar. 2015 Vessel type under pool management (at the end of March 2016) Crude oil tankers Product tankers*1 Chemical tankers*2 Including Methanol tankers LPG tankers 42 45 79 9 42 50 LR1 (70,000 DWT) MR (50,000 DWT) 75 Chemical tanker 9 VLGC (very large gas carrier, 80,000m3) Total 175 176 *1 Main cargoes: gasoline, naphtha, kerosene, jet fuel and gas oil, etc. *2 Main cargoes: xylene, benzene, methanol and plant oil, etc. 36 Mitsui O.S.K. Lines MOL16_英文_出校データ戻し.indd 36-37 MOL16_英文_出校データ戻し.indd 36-37 Less Specialized Underlined words are explained in the Glossary on page 18. The ﬁ rst ship equipped with a duel-fuel diesel engine—the TARANAKI SUN—was delivered in April 2016. Annual Report 2016 37 2016/08/02 13:36 2016/08/02 13:36 Bulkships LNG Carriers/ Offshore Businesses Steaming Coal Carriers New Projects Starting Operation in FY2016 LNG Carriers Osaka Gas ex.Australia To Japan 1 vessel Kansai Electric Power ex.Australia To Japan 1 vessel Exxon Mobil ex.Papua New Guinea To China 1 vessel SINOPEC (China) ex.Australia To China 2 vessels Petronet (India) ex.Australia To India 1 vessel Offshore Businesses Petrobras Brazil Tullow Ghana Ghana Ethane Carriers FPSO FPSO 1 1 Reliance (India) ex.USA To India 6 vessels Portfolio Highly Specialized Medium- to long-term contracts Offshore Businesses LNG Carriers (medium- to long- term contracts) F i r m P r o f i t s Steaming Coal Carriers T/C V a r i a b e l P r o f i t s Less Specialized Fiscal 2015 in Review We recorded large increases in revenue and income in ﬁ scal 2015 due to the delivery of four new LNG vessels and one FPSO (our third), which were all built based on secured long-term contracts, and the shedding of the previous year’s temporary expenses, including sched- uled dry-dockings. Although we have been recording stable earnings based on long-term contracts, the investments made over the last few years have clearly had an impact on this year’s performance as well. On the other hand, falling crude oil, gas and other energy prices put an end to the long-running global resource boom. With the slowdown in new development projects, we were unable to achieve remarkable progress in securing new long-term contracts in the LNG carriers and offshore businesses during ﬁ scal 2015. We expect energy prices and investments in new large- scale projects to begin recovering from the latter half of ﬁ s- cal 2016 into ﬁ scal 2017 and onwards. It may take some time before we secure contracts for new projects. Fiscal 2016 Initiatives MOL has around 30 outstanding orders for LNG and ethane carriers, all being built based on long-term contracts. Revenue and income will likely continue to increase in ﬁ scal 2016 as 14 new projects, including six for ethane carriers, are scheduled to launch. Fiscal 2016 is shaping up to be a year in which we can continue to steadily push ahead with our goal of accumulating long-term, highly stable proﬁ ts. Hiring and training efforts are also advancing on course as we seek to secure enough seafarers to match the vessels scheduled for delivery. Every related division including Marine Safety and Technical is doing their best to ensure the smooth launch of all forthcoming projects. Expanding overseas will be central to our ﬁ scal 2016 strategy. Speciﬁ cally, we are actively targeting China, India and Southeast Asian countries, where there is growth poten- tial for energy as their populations expand, and targeting Europe, which is promoting measures to lower their depen- dence on Russian energy. Through these endeavors, we will extend our global customer base nurtured through far-rang- ing projects over many years, and continue to accelerate business expansion with renewed focus on securing and accumulating highly stable proﬁ ts. The LNG carrier division is distinguished by its long track record of safe transportation and the long-standing trust of its customers. Moreover, we know how to succeed through collaboration. Our business model includes joint ventures and vessel sharing with companies in Japan and overseas. We are widely recognized for our ﬂ exible response capabili- ties, adapting to the unique requirements of each country and region, as well as our management capabilities to coor- dinate with partners, align long-term projects and manage them successfully. We are steadily elevating MOL’s LNG carri- er brand. In addition, offshore businesses are a relatively new area for MOL. Since the Offshore and LNG Project Division was established in June 2014, we have built solid relationships with partner companies and are currently engaged in six FPSO projects and one FSRU project; three facilities are already in operation with the other four under construction. We will see these projects through to fruition while main- taining our tight-knit relationships with partners, leveraging all our knowhow and strength. At the same time, we aim to expand the scale of the offshore business and will continue to steadily grow these businesses over a long-term span of ﬁ ve to ten years. 38 Mitsui O.S.K. Lines MOL16_英文_出校データ戻し.indd 38-39 MOL16_英文_出校データ戻し.indd 38-39 Coal Carrier Division Foresees Demand in Emerging Economies, in Addition to Long-term Stable Business with Domestic Customers The steaming coal carrier division, which is expanding its business mainly in mid- to long-term contracts with electric power companies in Japan, had been included in the dry bulker division but is now one of the divisions under the Energy Transport Business Unit following the most recent restructuring of our sales organization. This division will con- tinue to meet diversifying customer needs along with MOL Coastal Shipping, Ltd., which operates coastal bulkers. With the deregulation of the Japan’s electric power indus- try in 2016, the cheapest electric power fuel—coal—is getting another look. Many new plans for coal-ﬁ red electric power plants are being unveiled in Japan. While some proposals may be difﬁ cult to implement due to newly established CO2 emis- sion reduction targets, we will continue to actively expand our sales activities so we do not miss any business opportunities. In addition, to address the serious lack of electric power, there are many plans for the construction of coal-ﬁ red electric power plants in emerging economies like Southeast Asian countries and India. We can expect a large increase in over- seas demand for coal transport going forward. Looking ahead, the coal carrier division will continue to foster cooperation between the tanker division and LNG car- rier/offshore businesses division as we work to strengthen the MOL brand in the energy transport ﬁ eld. Underlined words are explained in the Glossary on page 18. LNG: Demand Forecast by Area 6% 6% 35% 2015 8% 9% 13% 14% 23% 8% 4% 11% 2020 (forecast) 10% 7% 21% (cid:2) Japan (cid:2) Korea (cid:2) Europe (cid:2) America (cid:2) China (cid:2) India (cid:2) Taiwan (cid:2) Others Source: MOL internal calculation based on Wood Mackenzie LNG: Seaborne Trade (Million tons) 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) Middle East (cid:2) Australia (cid:2) Other A/P (cid:2) North America (cid:2) Africa (cid:2) South America (cid:2) Europe Source: MOL internal calculation based on Wood Mackenzie Sustainability Highlights New Seafarer Training Program for Ethane Carriers Created to Suit the Increasing Sophistication of Liquid Gas Transport Our seafarer training program for ethane carriers was the ﬁ rst in the world to attain the Society of International Gas Tanker & Terminal Operators Ltd. (SIGTTO*) standard certiﬁ cation. MOL has for a long time carried out the LNG Carrier Standard Training Course based on SIGTTO standards. With this certiﬁ cation, MOL became the ﬁ rst shipping company in the world able to offer SIGTTO accredited standard training courses for all liqueﬁ ed gas transport, including liqueﬁ ed ethane gas (LEG) and LPG, at its own training centers. [Steaming Coal Carrier] SOMA MARU Annual Report 2016 39 2016/08/02 13:36 2016/08/02 13:36 Bulkships Car Carriers Portfolio Highly Specialized Naotoshi Omoto Managing Executive Ofﬁ cer F i r m P r o f i t s Car Carriers T/C V a r i a b l e P r o f i t s Less Specialized Fiscal 2015 in Review Global auto sales exceeded 89 million units in calendar 2015, a record high. This increase was headed by China, where measures were intro- duced to lower taxes on small-sized vehicles, and the United States, where sales remained ﬁ rm throughout the year. On the other hand, the number of vehicles transported by sea worldwide stayed level at around 15 million units. The number of vehicles exported from Japan, however, surpassed the originally projected 4 million units on increased U.S. demand for imports as Japanese automakers favored domestic production due to a weaker yen. Shipments to emerging and oil-producing nations ﬂ agged as slumping crude oil prices placed downward pressure on their economies. Ultimately, the car carrier division saw income fall from the previous ﬁ scal year despite efforts to minimize ballast voyages and to reduce operating costs. The Company has long been active in shipping cargo between points outside of Japan as well as shipping imports to Japan. Volumes in cross trades and imports achieved major progress. One example is a contract with a major European automaker to export vehicles from a Mediterranean port. Previously, vehicles produced in southern and central Europe were transported by rail to northern European ports and then exported to Asia. Our new service allows the automakers to use maritime transport from this Mediterranean port, which is closer to production bases, thereby lowering their inland shipping costs. We also acquired a multi-year contract to transport vehicles for a major U.S. automaker that is ramping up production in India. We achieved an impressive record for these kind of cross trades and inbound trades in ﬁ scal 2015. On the other hand, due mainly to unstable local rail con- ditions, we haven’t yet been able to achieve the earnings originally projected for the Mexican vehicle export service launched in April 2014. However, global automakers prize Mexico as a production base for U.S. auto imports and major automakers will continue to ramp up operations in the coun- try going forward, leading to stable earnings in the medium- to long-term. MOL will continue raising transport quality and steadily implementing measures to improve proﬁ ts while working with customers to consider total logistic solutions, including lowering costs for rail, truck and other forms of inland transportation. Fiscal 2016 Initiatives In recent years, trade patterns for vehicles have been growing more complex as Japanese automakers launched overseas manufacturing bases and then expanded production to cover solid demand from neighboring regions. We have uniﬁ ed our car carrier ﬂ eet—one of the largest in the world—around a standard vessel size with high usability in various sea lanes and ports across the globe. This has enabled us to respond ﬂ exibly to diversifying customer needs and trade patterns. MOL is bucking the industry trend toward larger vessels fol- lowing expansion of the Panama Canal and is instead pursing its own strategy. In non-marine vehicle transport, we are advancing in areas such as logistics. We have already racked up accomplishments in the vehicle terminal business in India, the United Kingdom and the Netherlands, as well as the inland transport business in Thailand, Indonesia and China. Going forward, we are considering making an entry into such regions as Mexico and Turkey where the production and import of vehicles is expected to expand. Long-distance vehicle transport bound from Japan for North America and Europe appears to have peaked. We are entering a period of transition toward cross-trade transport. Always mindful of automakers’ strategies, MOL is optimizing the car carrier ﬂ eet for more efﬁ ciency. We are striving to improve customer satisfaction by enhancing our sales capa- bilities across our global network. Underlined words are explained in the Glossary on page 18. 40 Mitsui O.S.K. Lines MOL16_英文_出校データ戻し.indd 40-41 MOL16_英文_出校データ戻し.indd 40-41 Main Routes Global Car Seaborne Trade (Thousand units) (excluding CKD) 16,000 12,000 8,000 4,000 0 2010 2011 2012 2013 2014 2015 Car Export from Japan by Destination (Thousand units) (excluding CKD) Car Export from Emerging Countries (Thousand units) (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. 6,000 4,500 3,000 1,500 0 2010 2011 2012 2013 2014 2015 6,000 4,000 2,000 0 2010 2011 2012 2013 2014 2015 (cid:2) North America (cid:2) Europe (cid:2) Middle East (cid:2) Oceania (cid:2) Asia (cid:2) Latin America (cid:2) Africa Source: MOL internal calculation based on Trade Statistics of Japan (MOF) (cid:2) ex. Thailand (cid:2) ex. China (cid:2) ex. India (cid:2) ex. Mexico (cid:2) ex. South Africa Source: MOL internal estimation based on FOURIN data, etc. Sustainability Highlights Bow Design for Next-Gen Car Carrier FLEXIE Expected to Lower CO2 Emissions About 2% The next-generation car carrier FLEXIE is scheduled to be delivered in 2017. Wind resistance is reduced by making the bow round, cutting CO2 emissions about 2% com- pared with current car carriers. The new bow shape is the result of joint research among MOL, MOL Techno-Trade, Ltd. and Akishima Laboratories (Mitsui Zosen) Inc. Next-gen car carrier FLEXIE [Car Carrier] EUPHONY ACE Annual Report 2016 41 2016/08/02 13:36 2016/08/02 13:36 Containerships Containerships Revenue Breakdown by Trade (FY2015) Intra-Asia Trade 18% North-South Trade 10% Europe Trade 27% Portfolio Highly Specialized Terminals & Logistics ロジスティクス T/C F i r m P r o f i t s V a r i a b e l P r o f i t s Containerships Less Specialized Fiscal 2015 in Review The containership business posted a loss of ¥29.8 billion in ﬁ scal 2015 as the market stagnated at unprecedented lows for Asia-Europe trade and Asia-South America East Coast trade, causing the loss to expand year over year. On the Asia-Europe route, the gap between supply and demand widened with shipping companies delivering new Ultra Large Container Ships (ULCSs) in brisk succession even as cargo shipments bound for Europe declined. On the Asia-South America East Coast route, there was a steep drop in cargo bound for Brazil due to a rapid downturn in the economy sparked by falling natural resource prices. On the Asia-South America East Coast route in particular, MOL has comparatively large capacity and was severely impacted by the decline in trade. To meet the challenge posed by this decline, we began joint operations with Maersk and MSC from July 2015 and pursued such rationalization efforts as reducing the number of ports of call and replacing vessels to improve operating efﬁ ciency. 42 Mitsui O.S.K. Lines MOL16_英文_出校データ戻し.indd 42-43 MOL16_英文_出校データ戻し.indd 42-43 Liner Division Akihiko Ono Managing Executive Ofﬁ cer North America Trade 45% Nevertheless, these efforts were unable to make up for the worsening market conditions. We implemented Business Structural Reforms in the fourth quarter ﬁ scal 2015, recording ¥61.9 billion in related expenses as an extraordinary loss. These expenses mainly comprise of an impairment loss on relatively costly mid-size containerships. To improve proﬁ tability on the Asia-South America East Coast route, we carried out even greater ratio- nalization of our service in February 2016, halving capacity, and are disposing of surplus vessels. As a result of the reforms, we expect to essentially eliminate the structural disadvantage MOL had relative to other companies. Fiscal 2016 Initiatives In addition to improving our proﬁ tability through the previ- ously mentioned Business Structural Reforms, we are work- ing to improve the quality of business and enhance yield management in ﬁ scal 2016. As a result of prioritizing cost cuts and the deep integration of sales functions over the last few years, our approach became overly standardized, mak- ing it difﬁ cult for MOL to differentiate our brand from our competitors. We are now in the process of reinforcing our worldwide sales and customer service organization in order to improve our capability to provide the high level of service our customers require. Since the beginning of 2016, the entire Liner division has adopted shared targets and focused efforts on the initiatives outlined under the vision of “C.A.R.E.”: Care for our cus- tomers, Assure quality, Reinforce sales and Enhance custom- er service. Additionally, in regards to yield management, which aims to maximize round trip proﬁ tability, we will strengthen our forecasting accuracy in order to more pre- cisely predict and communicate container ﬂ ows in a manner which will allow us to reduce equipment repositioning expense. The newly established Shipment Management Center (SMC), located in the United States, serves as a good example of our progress towards improving customer service and enhancing yield management. The SMC functions as a high-level customer response unit offering the capability to quickly generate revenue paying cargo for surplus equipment. Furthermore, we began development of a new enterprise system last year. Regarding the functions that contribute to improved customer service and enhanced yield management, development is progressing ahead of schedule. First, we are unit- ing our global customer information on a single system and cre- ating a customer relations management (CRM) system for use across the entire organization. We are working to enhance cus- tomer service by improving system functions that automatically notify customers of their cargo status, as well as enhancements for searching bookings and contracts. In addition, from the per- spective of improving yield management, we are using the latest tools to promote the analysis and sharing of data in order to improve turnover of our overall container ﬂ eet. Terminals & Logistics Port Projects & Logistics Business Division Toshiya Konishi Managing Executive Ofﬁ cer The Port Projects & Logistics Business Division, which is expected to grow and secure relatively ﬁ rm proﬁ ts, separated from the Liner Division at the end of April 2015 to enable expanded busi- ness activities. In the terminal (port projects) business, we are continuing to raise operating efﬁ ciency at major ports by actively introducing the latest technology. These efforts include expand- ing automated operation at our terminal at the Port of Los Angeles and jointly funding a leading-edge fully-automated ter- minal at Rotterdam Port, which opened in September 2015. In addition, we began work on expanding the terminal we operate at the Port of Kobe in July 2016 and will continue to actively pro- mote new terminal businesses in Vietnam, Thailand and other Southeast Asian countries. In the logistics business, MOL Logistics established a local subsidiary in Myanmar in May 2016. The company is also enhancing its services and actively working to expand its loca- tions in growth regions, primarily in other Southeast Asian coun- tries. In heavy cargo transport, we are expanding our business by providing optimal transport and one-stop services encompassing containerships, multipurpose cargo ships and RoRo ships under the uniﬁ ed brand “MOL Project & Heavy Cargo,” which launched in March 2015. Global Containership Capacity by TEU Size Range (Thousand TEU) 20,000 15,000 10,000 5,000 0 2010 2011 2012 2013 2014 2015 20% 15% 10% 5% 0% (cid:2) 14,000TEU~ (cid:2) 11,000-13,999TEU (cid:2) 8,000-10,999TEU (cid:2) 5,100-7,999TEU (cid:2) 4,300-5,099TEU (cid:2) ~4,299TEU Source: MOL internal calculations based on Alphaliner / IHS-Fairplay YOY % Asia-North America Container Trade Cargo Movements (Million TEU) (Excluding Canada cargo) 15 10 5 0 2010 2011 2012 2013 2014 2015 (cid:2) Outbound (cid:2) Inbound Source: Piers/JoC etc Asia-Europe Container Trade Cargo Movements (Million TEU) (Including Mediterranean cargo) 15 10 5 0 2010 2011 2012 2013 2014 2015 (cid:2) Outbound (cid:2) Inbound Source: Drewry Underlined words are explained in the Glossary on page 18. TraPac Container Terminal in Los Angeles Annual Report 2016 43 2016/08/02 13:36 2016/08/02 13:36 Ferries & Coastal RoRo Ships Toshiyuki Sonobe Managing Executive Ofﬁ cer Portfolio Highly Specialized Ferries & Coastal RoRo Ships Associated Businesses (maritime-related) F i r m P r o f i t s Associated Businesses (real estate) T/C V a r i a b e l P r o f i t s Less Specialized Fiscal 2015 in Review For the half year beginning August 2015, our ferry services on the Eastern Japan route connecting a port northeast of Tokyo with Hokkaido were forced into irregular operations with one fewer vessel due to the ﬁ re that occurred on the SUNFLOWER DAISETSU. This lowered capacity, reducing the number of automobiles and trucks transported as well as the number of passengers. Although lower fuel prices contributed to lower costs, revenue fell from the previous year, and ordinary income held steady at ¥4.4 billion. A shortage of truck drivers, a graying population and enforce- ment of legitimate labor management in the trucking sector have all helped accelerate a modal shift in long distance transport from inland transport to ferries. As the Japanese economy recovers, cargo vol- umes are expected to continue to rise. Amid this environment, we decided in ﬁ scal 2015 to replace the Sustainability Highlights Ferry Sunﬂ ower Offers Pleasant Voyages while Reducing Environmental Load To offer more comfortable and relaxing voyages, our new vessels scheduled for delivery in 2018 will each have 94 rooms, 20% more than our current vessels, and each room will have a toilet, shower, refrigerator and sink. The vessels will also provide 150% more public space, including a spacious, open entry way on the third ﬂ oor that lets the breeze through. To play a greater role in the eco-friendly modal shift in Japan, the new ferries will have 16% more space for loading trucks. We are also working to lower their environ- mental load by adopting a new propulsion system. [Ferry] SUNFLOWER SATSUMA existing two ferries which operate the Western Japan route with new, upgraded vessels in ﬁ scal 2018. This is not our only effort to capture demand for ferry transportation and actively expand business. Two new vessels, ordered in the previous ﬁ scal year, are expected to launch in ﬁ scal 2017. Fiscal 2016 Initiatives Proﬁ t for the division is projected to rise year on year in ﬁ scal 2016. After enhancing onboard ﬁ reﬁ ghting equipment, the SUNFLOWER DAISETSU returned to service in February 2016, returning the Eastern Japan service to normal four-vessel operations. To prevent another ﬁ re from occurring, we coop- erated with the relevant committees to further strengthen the safe operating structure. This entailed conducting a com- prehensive review of safety measures, including seafarer drill plans, and conducting a follow-up review. In addition, we are creating more attractive services for pas- senger transportation. We are working to enhance facilities, including renovating several guest cabins and greatly expanding the number of individual rooms. We are also strengthening packages and promotions to uncover new demand and raise brand awareness through advertising efforts. The strength of MOL’s ferries and Coastal RoRo ships business lies in offering Japan’s most extensive maritime net- work. We connect each area of the country, from Tomakomai, Hokkaido in the north to Shibushi, Kagoshima in the south. Transporting over a million passengers annually, we serve as an artery for domestic distribution and support Japan’s economy. We are working to expand services to meet customer needs while reinforcing safe operations and transportation quality. We will continue to strive to reinforce MOL’s brand as the leader of an eco-friendly modal shift in domestic logistics. Associated Businesses Toshiyuki Sonobe Managing Executive Ofﬁ cer Fiscal 2015 in Review This segment comprises MOL’s real estate, tugboat, cruise ship, trad- ing and other businesses. Real estate, especially Daibiru Corporation, is a main pillar supporting MOL’s highly stable proﬁ ts. Daibiru sustained steady revenues as the ofﬁ ce leasing mar- ket continued to improve, especially in Tokyo, its main market. However, revenue and income fell for associated businesses over- all in ﬁ scal 2015 due mainly to depreciation expenses incurred from the Shin-Daibiru Building, which was completed in Osaka in March 2015. Revenues decreased to ¥96.6 billion, and ordinary income slid to ¥10.1 billion. The cruise ship business improved its proﬁ tability thanks to higher numbers of passengers amid rising interest in cruises and an active domestic market stimulated by increased calls to Japanese ports by foreign luxury cruise ships. In the trading busi- ness, sales fell for Propeller Boss Cap Fins (PBCFs), a device to improve energy-efﬁ ciency, as investments in energy-saving tech- nology were scaled back due to lower crude prices. Meanwhile, the tugboat business continued to sustain solid ﬁ gures. Fiscal 2016 Initiatives In ﬁ scal 2016, ordinary income is expected to improve markedly to ¥12.0 billion primarily because there will be no more initial expens- es associated with the completion of the Shin-Daibiru Building in Osaka. The occupancy rate is already at 95%, and we anticipate steady contributions to earnings from ﬁ scal 2016 onwards. Daibiru embarked on a new medium-term management plan entitled “Design 100” Project in April 2013. This ﬁ ve-year plan, which continues through the end of ﬁ scal 2017, aims to expand proﬁ ts by approximately 20% compared to ﬁ scal 2012 through investments totaling ¥100.0 billion. In the three years since the plan launched, we’ve invested ¥50.0 billion, including overseas projects, and plan to allot 20–30% of total investment to over- seas projects going forward. We aim to increase the share of overseas sales to 5–10% overall. Vietnam is an excellent example of Daibiru’s overseas proj- ects. MOL established a liner route with Vietnam in 1915 so we have had deep, long-lasting relations with this country, and more recently we became the only Japanese shipping company autho- rized by the government to set up an independent Vietnamese sales agency, wholly owned by MOL. Leveraging MOL’s network and local brand power, Daibiru successfully entered the Vietnamese market with its ﬁ rst overseas project in 2012. We are currently considering further expanding business in Vietnam and elsewhere in our strategic focus area of Southeast Asia. Shin-Daibiru Building Sustainability Highlights The Shin-Daibiru Building Received an AAA Rating from the Japan Habitat Evaluation and Certiﬁ cation Program (JHEP) The Shin-Daibiru Building, which was completed in March 2015, received an AAA rating from the Japan Habitat Evaluation and Certiﬁ cation Program (JHEP). This program, which is run by the Ecosystem Conservation Society—Japan, quantiﬁ ably evaluates and certiﬁ es initiatives that contribute to the preser- vation and recovery of biodiversity. The Shin-Daibiru Building uses local grasses and trees for about half of the landscaping on its premises. Zelkova, Camellia, Maple and other trees over 50 years old that were grown in the long adored roof arboretum of the for- mer Shin-Daibiru Building were transplanted to a green space of over 3,000 square meters, which now provides a relaxing sanctuary amidst the many ofﬁ ce buildings. In the cruise ship business, we will continue working to increase the number of passengers by differentiating our busi- ness through meticulous, high-class service with the aim of increasing recognition of the MOL brand and improving our proﬁ tability. In the tugboat business, we will continue to con- sider entering ﬁ elds related to offshore businesses, such as specialty tugboats that assist in building wind power facilities. In addition, the trading business will continue pursuing research to further enhance the performance of PBCFs. 44 Mitsui O.S.K. Lines Underlined words are explained in the Glossary on page 18. Annual Report 2016 45 MOL16_英文_出校データ戻し.indd 44-45 MOL16_英文_出校データ戻し.indd 44-45 2016/08/02 13:36 2016/08/02 13:36 Feature: Expanding MOL Group’s Business in Asian Growth Markets Early Entry into Steadily Growing Vietnam Many Asian countries are growing, but Vietnam’s growth is par- ticularly robust. In addition, demand for marine transport is expected to grow exceptionally. For MOL, this is a strategically At Cai Mep Port in southern Vietnam, we operate a container ter- minal with a local part- ner. Large vessels can berth at this efﬁ cient ter- minal, which is a great boon to our customers. We also have a well- A tugboat assists a containership in the port Yasushi Furukawa Chief Country Representative of MOL Group established service where we transport loaded containers to Cai Mep from Cambodia using a river barge. Going forward, we also expect to use this terminal as a transshipment port, further increasing the number of calls by our containership service and enhancing synergistic effects with the marine transport business. In addition, we are working to develop a container terminal at Lach Huyen Port aiming to open it in 2018. It will be the only important region. In Vietnam, demand for energy and electricity is rapidly expanding. MOL has current opportunities to enter these markets, including imports of steam- ing coal for coal-ﬁ red power plant projects. Moreover, we are expect- ing demand for LNG Strengthening Our presence in Vietnam Laos Thai Cambodia China Hanoi •CornerStone Building Real estate business Lach Huyen (cid:129)Haiphong International Container Terminal Terminal business starting operations in 2018 Vietnam Cai Mep As Vietnam’s economy grows, we will capture demand for resources, energy and infrastructure. (cid:129)Tan Cang - Cai Mep International Terminal Terminal business (cid:129)Tan Cang - Cai Mep Towage Services Tugboat business Ho Chi Minh (cid:129)Mitsui O.S.K. Lines (Vietnam) Marine transport business including containerships, dry bulkers and car carriers, etc (cid:129)MOL Logistics (Vietnam) Logistics business (cid:129)Saigon Tower Real estate business 46 Mitsui O.S.K. Lines MOL16_英文_出校データ戻し.indd 46-47 MOL16_英文_出校データ戻し.indd 46-47 imports to increase in the future. In addition, while Vietnam cur- port in the northern region of the country where large vessels rently exports crude oil, new reﬁ ning facilities are now under con- can berth. Japanese manufacturing companies are lining up to struction. If the reﬁ ning industry takes off, product tankers could make entry into the northern region, and we expect the impor- be needed to export reﬁ ned oil products and there may even be tance of this region as an export base to increase going forward. cases when they import crude oil. There is also plenty of room for the automotive market to grow, and vehicle imports will continue to grow steadily going forward. In Vietnam, MOL already has an established presence in containership services, terminals and tug Logistics and Real Estate Businesses Lift Our Presence in Vietnam boats as well as imports of vehicles on car carriers and exports of MOL Logistics (Vietnam) Inc. is focusing on enhancing and paper-making raw materials on wood chip carriers. Mitsui O.S.K. expanding its transport services within Vietnam. Headquartered Kinkai, Ltd. handles transport of steel products. As Vietnam’s economy continues to develop, we are eager to expand our busi- ness by leveraging the total power of the MOL Group. The relationship between MOL and Vietnam goes back 120 years to 1896, when we shipped rice from Saigon to Japan. In 2006, we became the only Japanese shipping company autho- rized by the government to set up an independent Vietnamese sales agency, wholly owned by MOL. And by joining with power- ful partners, we are making progress in the terminal and tug boat businesses. From an early stage, we have developed periph- eral businesses to complement marine transport through these and other efforts. Our Terminal Business Leverages Synergies with the Marine Transport Business Saigon Tower in Ho Chi Minh City, the company develops a wide range of services, includ- ing marine and air trans- port, inland domestic transport, warehousing, and import customs clear- ance. It now has eight locations after adding locations in Hanoi and Haiphong. In 2013, the MOL Logistics established a local subsidiary in neigh- boring Cambodia and is working to meet cross- border logistics needs, fur- Container Terminal in Cai Mep ther raising the proﬁ le of MOL in Southeast Asia. In addition, our real estate business, Daibiru, acquired Saigon Tower in Ho Chi Minh City in 2012 and the CornerStone Building in Hanoi in 2014. With a comprehensive business model that handles everything from ownership to management, this busi- ness supports the MOL Group’s ﬁ rm proﬁ ts. Going forward, we will continue to bolster cooperation, leveraging the total power of the MOL Group to continue con- tributing to Vietnam’s economic growth. Annual Report 2016 47 2016/08/02 13:36 2016/08/02 13:36 Financial and Non-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 Proﬁ t (loss) attributable to owners of parent Free cash ﬂ ows [(a) + (b)] Cash ﬂ ows from operating activities (a) Cash ﬂ ows from investing activities (b) Depreciation and amortization At year-end: Total assets Net vessels, property and equipment Interest-bearing debt Net assets Shareholders’ equity Amounts per share of common stock: Proﬁ t (loss) attributable to owners of parent Net assets Cash dividends applicable to the year Management indicators: Gearing ratio (%) Net gearing ratio (%) Equity ratio (%) ROA (%)(*) ROE (%) Dividend payout ratio (%) MOL STEP MOL ADVANCE GEAR UP! MOL RISE 2013 STEER FOR 2020 2006/3 2007/3 2008/3 2009/3 2010/3 2011/3 2012/3 2013/3 2014/3 2015/3 2016/3 Millions of yen ¥1,366,725 ¥1,568,435 ¥1,945,697 ¥1,865,802 ¥1,347,965 ¥1,543,661 ¥1,435,221 ¥1,509,194 ¥1,729,452 ¥1,817,070 ¥1,712,223 1,101,459 1,300,038 1,544,109 1,564,486 1,228,479 1,328,960 1,368,795 1,432,014 1,587,902 1,683,795 1,594,569 92,273 172,993 176,502 188,290 113,732 8,838 163,914 100,324 168,073 182,488 197,854 120,940 20,369 156,418 110,303 291,285 302,219 318,202 190,321 23,291 283,359 104,105 197,211 204,511 197,732 126,988 (71,038) 118,984 98,547 20,939 24,235 27,776 12,722 (40,055) 93,428 91,300 123,401 121,622 95,367 58,277 46,970 181,755 90,886 (24,460) (24,320) (33,516) (26,009) (129,298) 5,014 92,946 (15,766) (28,568) (137,939) (178,847) (25,285) 78,956 41,092 54,986 71,710 57,394 (25,615) 94,256 17,250 51,330 58,332 42,356 (66,656) 92,495 (155,076) (136,049) (260,068) (190,022) (133,484) (134,785) (134,313) (104,241) (119,871) (159,151) 65,700 68,581 74,481 78,156 88,366 77,446 85,624 94,685 83,984 87,804 2,324 36,269 (154,385) (170,448) 182,509 209,190 (26,681) 92,772 100,458 116,025 115,330 1,470,824 1,639,940 1,900,551 1,807,080 1,861,312 1,868,741 1,946,162 2,164,611 2,364,695 2,624,050 2,219,587 769,902 571,429 424,461 424,461 847,660 569,417 620,989 550,764 1,047,825 1,106,746 1,209,176 1,257,823 1,293,803 1,303,967 1,379,245 1,498,028 1,376,432 601,174 751,652 679,315 702,617 695,022 623,714 775,114 735,702 659,507 724,259 740,247 660,795 869,619 717,909 637,422 1,046,865 1,094,081 1,183,401 1,044,980 619,493 535,423 783,549 679,160 892,435 782,557 646,925 540,951 ¥94.98 354.01 18.00 ¥101.20 ¥159.14 ¥106.13 459.55 20.00 567.74 31.00 521.23 31.00 ¥10.63 551.70 3.00 ¥48.75 552.83 10.00 (¥21.76) (¥149.57) 533.27 5.00 447.76 − ¥47.99 567.90 5.00 ¥ 35.42 ¥ (142.50) 654.26 7.00 452.28 5.00 Yen 135 120 28.9 13.1 31.5 19.0 104 94 33.6 11.7 24.8 19.8 88 79 35.8 17.1 30.9 19.5 CO2 Emissions of MOL Fleet (Thousand tons) 17,457 18,392 20,065 Number of MOL Group employees: (the parent company and consolidated subsidiaries) 8,351 8,621 9,626 (*) Ordinary income (loss) /Average total assets at the beginning and the end of the ﬁ scal year. 48 Mitsui O.S.K. Lines MOL16_英文_出校データ戻し.indd 48-49 MOL16_英文_出校データ戻し.indd 48-49 113 99 34.5 11.0 19.5 29.2 20,374 10,012 118 105 35.4 1.3 2.0 28.2 110 100 35.4 6.5 8.8 20.5 136 123 32.8 (1.3) (4.0) − 196 158 24.7 (1.4) (30.5) − 161 135 28.7 2.4 9.5 10.4 151 135 29.8 2.1 5.8 19.8 193 164 24.4 1.5 (25.8) − 18,684 20,053 19,435 19,053 9,707 9,438 9,431 9,465 18,860 10,289 18,803 10,508 18,676 10,500 Annual Report 2016 49 2016/08/02 13:36 2016/08/02 13:36 Key Indicators Shipping and Other Revenues/ Ordinary Income (Loss) Total Assets/Net Assets Ordinary Income (Loss) by Segment Interest-bearing Debt / Net Interest- bearing Debt / Shareholders’ Equity Gearing Ratio / Net Gearing Ratio / Equity Ratio Credit Ratings (As of June 2016) (¥ billions) (¥ billions) (¥ billions) (¥ billions) (%) Type of Rating Rating 2,000 1,500 1,000 500 0 –500 400 3,000 1,000 150 300 2,400 200 1,800 100 1,200 0 600 800 600 400 200 100 50 0 11/3 12/3 13/3 14/3 15/3 16/3 –100 0 11/3 12/3 13/3 14/3 15/3 16/3 0 -50 11/3 12/3 13/3 14/3 15/3 16/3 (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 FY2015 Shipping and Other Revenues ¥1,712.2 billion ¥36.2 billion Ordinary Income FY2015 Total Assets Net Assets ¥2,219.5 billion ¥646.9 billion FY2015 Bulkships Containerships Other segments, etc. ¥54.8 billion ¥(29.8) billion ¥11.2 billion Shipping and other revenues decreased ¥104.8 billion year on year and ordinary income decreased ¥15.0 bil- lion due to unprecedented stagnation in the dry bulker market and in containership freight rates despite tail- winds from the weaker yen, lower bunker prices and strong market conditions for tankers. Total assets as of March 31, 2016 were ¥404.4 billion lower than at March 31, 2015 due to decreases in ves- sels and investment securities. Net assets decreased ¥245.5 billion year on year due mainly to decreases in retained earnings. In the bulkships segment, the higher proﬁ ts of the tankers and the LNG carriers/offshore businesses offset the lower proﬁ ts of dry bulkers and car carriers. The containerships segment posted a larger ordinary loss than ﬁ scal 2014. 1,200 1,000 800 600 400 200 0 11/3 12/3 13/3 14/3 15/3 16/3 200 150 100 50 0 11/3 12/3 13/3 14/3 15/3 16/3 40 30 20 10 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) Long-term individual debt rating Moody’s Corporate family rating (cid:2) Shareholders’ Equity Gearing Ratio (left scale) Net Gearing Ratio (left scale) Equity Ratio (right scale) (cid:2) Interest-bearing Debt (cid:2) Net Interest-bearing Debt FY2015 Interest-bearing Debt Net Interest-bearing Debt* Shareholders’ Equity** ¥1,044.9 billion ¥885.5 billion ¥540.9 billion * Interest-bearing debt – cash & cash equivalents ** “Shareholders’ equity” in this section comprises the total of FY2015 Gearing Ratio Net Gearing Ratio Equity Ratio 193% 164% 24% owners’ equity and accumulated other comprehensive income (loss). Interest-bearing debt decreased ¥138.4 billion to ¥1,044.9 billion due to a decrease in short-term borrow- ings and corporate bonds. Shareholders’ equity decreased ¥241.6 billion to ¥540.9 billion due to lower retained earnings following the Business Structural Reforms. The net gearing ratio worsened 29 points and the equi- ty ratio worsened 5 points, reﬂ ecting the ¥241.6 billion decrease in shareholders’ equity, the ¥138.4 billion fall in interest-bearing debt, and the ¥404.4 billion decrease in total assets. JCR R&I Moody’s J-1* A–* A–* BBB a-2 BBB Ba1* A–* BBB Ba1* ROA/ROE (%) Capital Expenditure CO2 Emissions of MOL Fleet (¥ billions) (thousand tons) 20 10 0 –10 –20 –30 –40 ROA ROE FY2015 ROA ROE 250 200 150 100 50 0 11/3 12/3 13/3 14/3 15/3 16/3 25,000 20,000 15,000 10,000 5,000 0 11/3 12/3 13/3 14/3 15/3 16/3 11/3 12/3 13/3 14/3 15/3 16/3 1.5% (25.8)% FY2015 Capital Expenditure ¥104.8 billion FY2015 CO2 Emissions of MOL Fleet 18,676 thousand tons Net cash provided by operating activities was up ¥116.6 billion year on year, while cash used in investing activi- ties narrowed by ¥132.4 billion, to ¥26.6 billion; result- ing in positive free cash ﬂ ows. ROA and ROE were both lower as ordinary income and net income both fell due mainly to the lower market and the recording of an extraordinary loss following the Business Structural Reforms. Capital expenditure represented here is the net amount calculated by deducting proceeds from the sale of ves- sels when delivered from “Tangible/intangible ﬁ xed assets increased” contained in the annual securities report. The listed CO2 emissions were mainly from bunker A and C used as fuel for vessels operated by the MOL Group. Net Income (Loss)* per Share/Cash Dividends Applicable to the Year/ Dividend Payout Ratio Cash Flows (¥) 150 100 50 0 –50 –100 –150 11/3 12/3 13/3 14/3 15/3 16/3 (%) (¥ billions) 30 20 10 0 250 200 150 100 50 0 -50 -100 -150 (cid:2) Net income (Loss)* per share (left scale) (cid:2) Cash Dividends Applicable to the Year (left scale) Dividend Payout Ratio (right scale) FY2015 Net Income (Loss)* per Share ¥(142.50) Cash Dividends Applicable ¥5 to the Year Due mainly to recording expenses related to the Business Structural Reforms, net income* declined ¥212.8 billion. MOL paid ¥5 per share in dividends for the ﬁ scal year, including a ¥3.5 interim dividend, a year- on-year decrease of ¥2 per share. *Proﬁ t (loss) attributable to owners of the parent 50 Mitsui O.S.K. Lines MOL16_英文_出校データ戻し.indd 50-51 MOL16_英文_出校データ戻し.indd 50-51 -200 11/3 12/3 (cid:2) Cash ﬂ ows from operating activities (cid:2) Cash ﬂ ows from investing activities 13/3 14/3 15/3 16/3 Free cash ﬂ ows FY2015 Cash Flows from Operating Activities Cash Flows from Investing Activities ¥209.1 billion ¥(26.6) billion MOL’s credit ratings are currently under downward pressure due mainly to the ﬁ nancial burden of the Business Structural Reforms and the protracted stagna- tion of the marine transport market. Going forward, MOL will continue to provide explanations to the credit rating agencies about its growth strategies and path to improved ﬁ nancial standing with the continued aim of improving its credit ratings. (*)Credit monitor rating Annual Report 2016 51 2016/08/02 13:36 2016/08/02 13:36 Message from the CFO Masahiro Tanabe Senior Managing Executive Ofﬁ cer Assessment of the Fiscal 2015 Financial Results Fiscal 2015 brought a welcome tailwind with the continued fall in bunker prices and the persistently weak yen, in addi- tion to signiﬁ cant earnings contributions from the strong tanker market. Yet, especially in the latter half of the year, we faced ﬁ erce headwinds with rates stagnating at historic lows in the dry bulker and container freight markets. As a result, consolidated ordinary income fell 29% year on year to ¥36.2 billion. In bulkships, although the spot market for dry bulkers remained weak due to a slump in Brazilian iron ore exports and decreased coal imports into China, the spot market for tankers remained ﬁ rm due in part to falling crude oil prices and the subsequent increase in actual demand for petro- leum, as well as demand for strategic reserves in China. In addition, MOL beneﬁ tted from the highly stable proﬁ ts of dry bulkers, tankers and LNG carriers on medium- to long- term contracts that are resilient to market ﬂ uctuations. As a result, this segment secured ¥54.8 billion in ordinary income, roughly the same as in the previous ﬁ scal year. Containerships recorded an ordinary loss of ¥29.8 billion, widening the loss from the previous ﬁ scal year. Despite the far-reaching rationalization of unproﬁ table routes undertak- en throughout the year, in addition to falling bunker prices that helped improve proﬁ tability, the stagnant freight rates plagued almost every route, worsening proﬁ tability more than we assumed. Financial Foundation Following the Business Structural Reforms At the end of ﬁ scal 2015, interest-bearing debt declined ¥138.4 billion from ¥1,183.4 billion at the end of the previous ﬁ scal year to ¥1,044.9 billion. Following the Business Structural Reforms, the other ﬁ nancial indicators worsened, including a decline in the equity ratio to 24% and an increase in the net gearing ratio to 164%. From ﬁ scal 2016 onwards, we will continue working to recover and enhance shareholders' equity through the accu- mulation of proﬁ ts. On the other hand, we will continue Shareholders’ Equity (¥ billions) 1,400 1,200 1,000 800 600 400 200 0 1,183.4 1,054.6 1,044.9 782.5 885.5 1,144.7 978.5 540.9 565.6 FY2014 Result FY2015 Result FY2016 Outlook (cid:2) Interest-bearing Debt (cid:2) Net Interest-bearing Debt*1 (cid:2) Shareholders’ Equity *1 Interest-bearing debt – cash & cash equivalents 52 Mitsui O.S.K. Lines MOL16_英文_出校データ戻し.indd 52-53 MOL16_英文_出校データ戻し.indd 52-53 investing in businesses that will generate future long-term, highly stable proﬁ ts, especially LNG carriers and offshore busi- nesses. Those areas where we have made aggressive invest- ments in the past few years will reap the reward from ﬁ scal 2017 and begin to expand earnings. We believe these two businesses will contribute to improved ﬁ nancial soundness. Status of Cash Flows In ﬁ scal 2015, we recorded ¥179.3 billion in expenses related to Business Structural Reforms, mainly for impairment loss, fees for canceling chartered vessel contracts, and loss on sales of vessels. The impairment loss did not affect cash ﬂ ows. In addition, the actual payment of fees for canceling chartered vessels are being made in the next ﬁ scal year. As a result, free cash ﬂ ows for the year increased signiﬁ cantly also helped by recovering funds through the utilization of off-balance sheet structures and project ﬁ nance for already invested projects. On the other hand, in ﬁ scal 2016, we expect negative free cash ﬂ ows. Cash ﬂ ows from operating activities will decline sharply due in part to making payments to cancel chartered vessel contracts. In addition, cash ﬂ ows from investing activities will increase, especially in LNG carriers and offshore businesses. Business Structural Reforms will affect cash ﬂ ows over the course of ﬁ scal 2015 and 2016, but looking at the total of the two years, we expect free cash ﬂ ows to remain positive. Impact of Exchange Rates and Bunker Prices on Financial Results As for exchange rates, our ﬁ nancial results are primarily impacted by the Japanese yen-U.S. dollar exchange rate. This is because freight revenues are primarily denominated in U.S. dollars while a certain portion of costs are in yen. In ﬁ scal 2016, we project that each ¥1-per-dollar change against the assumed ¥108-to-U.S. dollar yearly average exchange rate will have an impact of approximately ¥1.0 billion in ordinary proﬁ t. (If the yen weakens, it will improve proﬁ tability.) Turning to bunker prices, the yearly average price was assumed to be US$230 per metric ton, and we calculated at the beginning of the ﬁ scal year that every dollar deviation would have an impact of ¥170 million. (If the price falls, it will improve proﬁ tability.) We will continue to strategically utilize hedging in order to control the effect of ﬂ uctuating bunker prices going forward. With the progress made in placing hedges, the degree of impact from ﬂ uctuating bun- ker prices will become smaller. Outlook for Operating Results in Fiscal 2016 We are expecting consolidated ordinary income to decrease 45% year on year to ¥20.0 billion and proﬁ t attributable to owners of parent to amount to ¥20.0 billion in comparison to a loss of ¥170.4 billion in the previous ﬁ scal year, on the Underlined words are explained in the Glossary on page 18. Gearing Ratio / Equity Ratio (Net) Gearing Ratio Equity Ratio 40% 250% 200% 150% 100% 193% 164% 24% 202% 173% 25% 30% 151% 135% FY2014 Result FY2015 Result FY2016 Outlook Gearing Ratio*2 Net Gearing Ratio*3 Equity Ratio *2 Interest - bearing debt / Shareholder’s equity *3 (Interest – bearing debt –cash & cash equivalents) /Shareholders’ equity Cash Flows (¥ billions) (250) (200) (150) (100) (50) 0 FY2015– 2016 Total 212.0 (159.1) (119.8) (113.0) 94.2 92.4 106.0 (56.5) FY2015– 2016 Average FY2013 Result FY2014 Result FY2015-2016 (2 fiscal years) Forecast 30% 20% 250 200 150 100 50 0 (cid:2) CFs from Investing Activities (left axis) (cid:2) CFs from Operating Activities (right axis) Impact of Exchange Rate Fluctuations (Model) Impact of Bunker Prices Fluctuations (Model) Impact=1+2 Revenues Expenses Proﬁ t 2 U.S. Dollar Revenue Exposure I m p a c t U.S. Dollar Expense Imbalance 1 Japanese Yen Revenue Japanese Yen Expense T o t a l C o n s u m p t i o n Hedged portion Recoverable by Surcharge, etc. Annual Report 2016 53 2016/08/02 13:36 2016/08/02 13:36 Message from the CFO assumption that the exchange rate will be ¥108 to the U.S. dollar and bunker prices will be US$230, as mentioned previ- ously. their performance, we forecast ordinary income of ¥20.0 bil- lion for the Company overall, a worsening of ¥16.2 billion year on year. In bulkships, dry bulkers are expected to return to proﬁ t- ability as the positive effects steadily appear following the Business Structural Reforms. To an extent, however, we expect these positive effects to be cancelled out due in part to worsening spot market conditions, a strong yen and the conclusion of a few highly proﬁ table long-term contracts. In addition, taking into consideration the softening tanker mar- ket and reduced car exports to resource exporting countries, we forecast proﬁ t will decline ¥19.8 billion year on year in bulkships overall. In containerships, we expect several factors to improve proﬁ tability, including the positive impacts of the Business Structural Reforms, the rationalization of unproﬁ table routes conducted in the previous ﬁ scal year, and falling bunker pric- es. However, this will likely be cancelled out by a steep decline in freight rates, especially on the Asia-North America route, and we forecast that overall segment loss will widen ¥2.1 billion year on year in containerships. However, as we expect ferries, real estate, and other divisions to improve FY2015 FY2016 Variable Factors (Outlook) Dry bulkers (¥ billions) Impact of business structural reforms Impact of spot market (3.0) Impact of maturity of long-term contaracts /COA renewal (6.0) Others (2.0) +26.0 Increase in ship costs (before business structural reforms) (4.0) Impact of foreign exchange, etc (3.0) FY2015 Consolidated Ordinary Income (Loss) by Segment (Billions of yen) FY2015 Result FY2016 Outlook* Bulkships Containerships Ferry/Coastal RoRo Ships Associated business Other Corporate/Eliminate Total Exchange rate Bunker price 54.8 (29.8) 4.4 10.1 3.5 (6.9) 36.2 35.0 (32.0) 5.5 12.0 1.5 (2.0) 20.0 ¥120.62/$ ¥108.00/$ $265/MT $230/MT *As of April 28, 2016 Containerships (¥ billions) Impact of business structural reforms Impact of market, etc Impact of route/ fleet rationalization +10.0 (29.8) Impact of bunker prices +11.0 (34.0) (32.0) +11.0 Management Foundation Underpinning MOL: Corporate Governance and Corporate Social Responsibility FY2016 Outlook FY2015 FY2016 Outlook 56 Board Of Directors, Audit & Supervisory Board Members and Executive Ofﬁ cers Status of Credit Ratings MOL’s credit ratings are currently under downward pressure due mainly to the ﬁ nancial burden of the Business Structural Reforms and the protracted severe business environment. We are exchanging information more closely with the credit rat- ing agencies. With the aim of recovering our credit ratings going forward, I think we need to ﬁ rmly achieve the proﬁ t targets. We need to carefully explain our timeline and course to implement our growth strategies, and we need to be sure to provide updates on the accompanying improvement in our ﬁ nancial standing. MOL currently is promoting investment focused on LNG carriers and offshore businesses, which are based on sound long-term transport contracts with highly credible customers. These investments have received a certain level of positive feedback from credit agencies as a possible source of future growth that will contribute to the accumulation of long-term, highly stable proﬁ ts. In regard to the ﬁ nancial burden associ- ated with the lag time before new projects begin contributing to earnings, we will continue to work on measures to ﬁ rmly reduce the ﬁ nancial burden while maintaining necessary investment. We will work to moderate cash ﬂ ow used in investing activities and control interest-bearing debt mainly by utilizing off-balance sheet structures. Moreover, we have many options for fund procurement, a wealth of knowhow and strong relationships with ﬁ nancial institutions. We will choose the best method to procure funds, such as utilizing project ﬁ nance. Underlined words are explained in the Glossary on page 18. 54 Mitsui O.S.K. Lines MOL16_英文_出校データ戻し.indd 54-55 MOL16_英文_出校データ戻し.indd 54-55 58 Message from an Outside Director 60 64 67 69 Corporate Governance Safe Operation Risk Management Corporate Social Responsibility (CSR) Annual Report 2016 55 2016/08/02 13:36 2016/08/02 13:36 Board of Directors, Audit & Supervisory Board Members and Executive Ofﬁ cers (At the end of June, 2016) Board of Directors Audit & Supervisory Board Members Koichi Muto Representative Director Born 1953 Junichiro Ikeda Representative Director Born 1956 Kenichi Nagata Representative Director Born 1956 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 and Executive Ofﬁ cer Jun. 2015 Representative Director, Chairman of the Board, 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 Jun. 2015 Representative Director, President, Chief Executive Ofﬁ cer (current) Apr. 1979 Joined Mitsui O.S.K. Lines, Ltd Jun. 2005 General Manager of Coal and Iron Ore Carrier Division Jun. 2007 Executive Ofﬁ cer, General Manager of Coal and Iron Ore Carrier Division Jun. 2009 Managing Executive Ofﬁ cer Jun. 2013 Senior Managing Executive Ofﬁ cer Jun. 2015 Representative Director, Executive Vice President, Executive Ofﬁ cer (current) Masahiro Tanabe Director Born 1957 Shizuo Takahashi Director Born 1959 Takeshi Hashimoto Director Born 1957 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 Apr. 1981 Joined Mitsui O.S.K. Lines, Ltd. Jun. 2006 General Manager of Corporate Planning Division Jun. 2008 Executive Ofﬁ cer, General Manager of Corporate Apr. 1982 Joined Mitsui O.S.K. Lines, Ltd Jun. 2008 General Manager of LNG Carrier Division Jun. 2009 Executive Ofﬁ cer, General Manager of LNG Carrier (Europe) B.V. Jun. 2011 Managing Executive Ofﬁ cer Jun. 2013 Director, Managing Executive Ofﬁ cer Jun. 2015 Director, Senior Managing Executive Ofﬁ cer (current) Planning Division Jun. 2010 Executive Ofﬁ cer Jun. 2011 Managing Executive Ofﬁ cer Jun. 2014 Director, Managing Executive Ofﬁ cer Jun. 2015 Director, Senior Managing Executive Ofﬁ cer (current) Division Jun. 2011 Executive Ofﬁ cer Jun. 2012 Managing Executive Ofﬁ cer Jun. 2015 Director, Managing Executive Ofﬁ cer Apr. 2016 Senior Managing Executive Ofﬁ cer Jun. 2016 Director, Senior Managing Executive Ofﬁ cer (current) Independent Ofﬁ cers Masayuki Matsushima Outside Director Hideto Fujii Outside Director Etsuko Katsu Outside Director Jun. 2011 Jun. 2011 Nov. 2012 Sept. 2014 Jun. 2016 Director of Mitsui O.S.K. Lines, Ltd. (current) Outside Director of Mitsui Fudosan Co., Ltd (current) Chairman of NWIC Co., Ltd. (current) Senior Advisor of Integral Corporation (current) Outside Director of JGC Corporation (current) Jun. 2015 Adviser of Sumitomo Corporation (current) Jun. 2016 Director of Mitsui O.S.K. Lines, Ltd. (current) Apr. 2003 Professor of School of Political Science and Economics, Meiji University (current) Jan. 2013 Board Member of Japan-United States Educational Commission (current) Mar. 2015 Vice President of Center for Entrance Examination Standardization (current) Jun. 2016 Director of Mitsui O.S.K. Lines, Ltd. (current) 56 Mitsui O.S.K. Lines MOL16_英文_出校データ戻し.indd 56-57 MOL16_英文_出校データ戻し.indd 56-57 Takashi Nakashima Born 1959 Audit & Supervisory Board Member Takehiko Ota Audit & Supervisory Board Member Born 1960 Apr. 1982 Joined Mitsui O.S.K. Lines, Ltd. Jun. 2009 General Manager of Research Ofﬁ ce Jun. 2011 General Manager of General Affairs Division Jun. 2015 Audit & Supervisory Board Member of Mitsui O.S.K. Lines, Ltd. (current) Independent Ofﬁ cers Apr. 1984 Joined Mitsui O.S.K. Lines, Ltd. Jun. 2008 General Manager of Investor Relations Ofﬁ ce Jun. 2013 Audit & Supervisory Board Member of Mitsui O.S.K. Lines, Ltd. (current) Hiroyuki Itami Outside Audit & Supervisory Board Member Hideki Yamashita Outside Audit & Supervisory Board Member Apr. 2008 Professor of Tokyo University of Science, Graduate School of Innovation Studies (current) Jun. 2010 Outside Corporate Auditor of JFE Holdings, Inc. (Current) Jun. 2011 Audit & Supervisory Board Member of Mitsui O.S.K. Lines, Ltd. (current) Apr. 1982 Attorney-at-Law (current) Apr. 1985 Established YAMASHITA & TOYAMA LAW AND PATENT OFFICE Mar. 1993 Patent Attorney (current) Mar. 2012 Outside Corporate Auditor of I-cell Networks Corporation (Currernt) Jun. 2014 Audit & Supervisory Board Member of Mitsui O.S.K. Lines, Ltd. (current) Masanori Kobayashi Executive Ofﬁ cer (Safety Operations Headquarters, Tanker Safety Management Ofﬁ ce, LNG Safety Management Ofﬁ ce, Marine Safety Division) Yutaka Hinooka Executive Ofﬁ cer (General Manager of Liner Division) Masato Koike Executive Ofﬁ cer (General Manager of Tanker Division) Koichi Yashima Managing Executive Ofﬁ cer (Human Resources Division, General Affairs Division) Hideo Horiguchi Executive Ofﬁ cer (Accounting Division) Mitsujiro Akasaka Executive Ofﬁ cer (Chief Executive Representative in Asia, Middle East & Oceania, Masanori Kato Executive Ofﬁ cer Managing Director of Mitsui O.S.K. (Safety Operations Headquarters, Bulk Shipping (Asia Oceania) Pte. Ltd.) Human Resources Division, Marine Safety Division, Dry Bulk Carrier Supervising Ofﬁ ce) Toshiaki Tanaka Executive Ofﬁ cer (Dry Bulk Business Unit, Dry Bulk Carrier Division (A), Dry Bulk Carrier Supervising Ofﬁ ce) Nobuo Ishihara Executive Ofﬁ cer (Chief Executive Representative in Europe & Africa, Managing Director of Mitsui O.S.K. Bulk Shipping (Europe) Ltd.) Kenta Matsuzaka Executive Ofﬁ cer (Offshore and LNG Project Division, Executive Ofﬁ cers Koichi Muto Chairman Junichiro Ikeda President, Chief Executive Ofﬁ cer Kenichi Nagata Executive Vice President Takeshi Hashimoto Senior Managing Executive Ofﬁ cer Yoshikazu Kawagoe Managing Executive Ofﬁ cer (Energy Transport Business Unit, (Technical Division) Energy Business Strategy Ofﬁ ce, Steaming Coal Carrier Division, LNG Carrier Division, Offshore and LNG Project Division, LNG Safety (Assistant to President, Dry Bulk Management Ofﬁ ce) Business Unit, Dry Bulk Business Planning & Co-ordination Ofﬁ ce, Dry Bulk Carrier Division (B)) Masaaki Nemoto Senior Managing Executive Ofﬁ cer (Safety Operations Headquarters, Human Resources Division, Marine Safety Division, Dry Bulk Carrier Supervising Ofﬁ ce, Tanker Safety Management Ofﬁ ce, LNG Safety Management Ofﬁ ce) Masahiro Tanabe Senior Managing Executive Ofﬁ cer Toshiya Konishi Managing Executive Ofﬁ cer (Port Projects & Logistics Business Division, Chief Executive Representative in Americas) Takashi Maruyama Managing Executive Ofﬁ cer (Finance Division, Investor Relations Ofﬁ ce) Akihiko Ono Managing Executive Ofﬁ cer (Liner Division) (Finance Division, Accounting Division Investor Relations Ofﬁ ce, Liner Akio Mitsuta Managing Executive Ofﬁ cer Division, Port Projects & Logistics (Energy Transport Business Unit, Business Division, Group Business Tanker Division, Tanker Safety Division, Research Ofﬁ ce) Management Ofﬁ ce) Shizuo Takahashi Senior Managing Executive Ofﬁ cer Naotoshi Omoto Managing Executive Ofﬁ cer (Chief Compliance Ofﬁ cer, Chief (Car Carrier Division) Information Ofﬁ cer, Safety Operations Headquarters, Internal Audit Ofﬁ ce, Secretaries Ofﬁ ce, Corporate Planning Division, Public Relations Ofﬁ ce, MOL Information Systems, Ltd.) Toshiyuki Sonobe Managing Executive Ofﬁ cer (Group Business Division, Kansai Area, General Manager of LNG Carrier Japan Logistics Business Promotion) Division) Annual Report 2016 57 2016/08/02 13:37 2016/08/02 13:37 Message from an Outside Director As an outside director, I’d like to frankly express my opinion to help implement the Business Structural Reforms and improve corporate value. Masayuki Matsushima Outside Director Regarding Fiscal 2015 Business Structural Reforms In ﬁ scal 2012, my second year as one of MOL’s outside directors, the Company carried out the ﬁ rst Business Structural Reforms, shifting operations of free vessels in dry bulkers to Singapore and recording around ¥100.0 billion in business structural reform costs. At the time, we believed that if we booked this loss, the Company’s operational structure would improve, and we would eventually be able to make a remarkable recovery. However, market conditions worsened more severely than expected and, as a result, the Company was again forced to implement Business Structural Reforms, which led to the loss of around ¥180.0 billion. In regard to this, I truly regret my actions as an outside director. At this point, I believe that we must ensure the success of the ﬁ scal 2015 Business Structural Reforms and that this is truly the last round of reforms. Implementing these will be painful, but each employee and each executive must share this sense of crisis as we come together to face this challenge head on with indomitable determination. We say that corporations are, at their hearts, people. Well, MOL has excellent human resources. I ﬁ rmly believe that if everyone focuses their efforts toward one objective, we will see clear results. Participating in the Deliberation on Corporate Strategy and Vision While we have discussed various themes at the Deliberation on Corporate Strategy and Vision, we have also had repeated discussions on containerships, and these are connected to the current round of Business Structural Reforms. The containerships business is in the red even if you sum up the results throughout the past decade. We have repeatedly discussed ways to fundamentally strengthen the earn- ings structure for containerships, as opposed to merely tweaking existing measures to improve proﬁ tabil- ity. With each round of discussion, we delved further into the details, going from an objective analysis of circumstances to proposals of speciﬁ c strategies. At the deliberations, I asked how big the containership ﬂ eet should be and if the current portfolio of routes was sufﬁ cient. It took some time, but after some debate at the Deliberation on Corporate Strategy and Vision, the resulting ideas were incorporated into the Business Structural Reforms. I’m now eagerly awaiting the results of these ideas. Customer-centric Perspective, Global Perspective: These I Expect of MOL I have been saying that I would like business activities to be conducted from both a customer-centric perspective and a global perspective. Recently, I strongly feel that MOL has moved to a position where customer perspectives are valued. MOL has broken away from the past where the soaring marine trans- port market allowed less focus on customers. Take, for example, an electric power company. As a cus- tomer they might want to import coal or they might want to import LNG. In April 2016, MOL established the Energy Transport Business Unit, which bridges various segments, including tankers, LNG carriers and steaming coal carriers. I believe this was the result of the kind of debate I mentioned earlier. Moreover, I hope MOL becomes a company with high levels of customer satisfaction, a company that provides ﬁ nely turned solutions by leveraging the latest, highly innovative technology, including artiﬁ cial intelligence. Global perspectives refer to leveraging MOL’s expansive global network and enhancing partnerships between regions or within countries to more effectively capture cargo demand or otherwise leverage MOL’s collective strengths. This also reﬂ ects our debates, and in June 2015, MOL established chief execu- tive representatives for the three major regions of the Americas; Europe and Africa; and Asia, the Middle East and Oceania. Moreover, in April 2016, MOL established country representatives for key countries under the chief executive representatives. Each representative can broadly conduct sales activities throughout their region or country, as well as across business ﬁ elds. In addition, there are more opportu- nities to meet global customer needs through cooperation between representatives. Because we have established the necessary framework, going forward I would like MOL to really invigorate this and actu- ally rack up some accomplishments. Regarding My Role as Outside Director and the Establishment of the Nomination Advisory Committee and the Remuneration Advisory Committee Outside directors are not omnipotent. While I do think that having outside directors is a good idea and increases transparency, it is delusional to expect them to be a magic wand that makes everything go smoothly. The issue is not about how many outside directors you have got. Rather, it’s about how the Board of Directors is functioning as a whole, including outside directors. I believe that the duty of outside direc- tors is to do what inside ofﬁ cers cannot do—in other words, using their outside perspective to provide frank, objective comments. On the other hand, looking at MOL, I would assess the functioning of the Board of Directors as exceeding expectations. Sufﬁ cient documents and data are provided before meetings, allowing both the inside and outside directors to engage in earnest discussion. This increases management transparency, activating checks and balances. Moreover, in September 2015, MOL established the Nomination Advisory Committee and the Remuneration Advisory Committee, enabling even deeper communication. I think both these committees are major assets for the Company. Going forward, I would like to continue frankly expressing my opinions with the aim of supporting the successful implementation of the Business Structural Reforms and improving corporate value. MOL’s Deliberation on Corporate Strategy and Vision At MOL, three hours are set aside for every board meeting, with one of the hours allotted to Deliberation on Corporate Strategy and Vision. At the Deliberation on Corporate Strategy and Vision, a theme is selected related to our management strategy, long-term vision or management in general. A free exchange of opinions ensues at these deliberations which include outside directors and outside Audit & Supervisory Board members. FY2015 Deliberation on Corporate Strategy and Vision: Agenda Topics FY2015 Agenda April, May, July MOL’s corporate governance September, October December The advancement of global personnel Portfolio of the tanker business and business policy going forward January, February The future of containership business March Business strategy for LNG carriers and offshore businesses 58 Mitsui O.S.K. Lines MOL16_英文_出校データ戻し.indd 58-59 MOL16_英文_出校データ戻し.indd 58-59 Annual Report 2016 59 2016/08/02 13:37 2016/08/02 13:37 Corporate Governance Governance at a Glance System of governance Total directors Outside directors (ratio) Total audit & supervisory board members Outside audit & supervisory board mem- bers (ratio) Independent ofﬁ cers (directors and audit & supervisory board members) Meetings of the Board of Directors held in ﬁ scal 2015 Term of directors Stock option system Retirement beneﬁ t system Anti-takeover measures Compliance rules External compliance advisory service desk History Company with an audit & supervisory board 9 3 (1/3) 4 2 (1/2) 5 10 1 year Yes No No Yes Yes 2000 Management organization reform 1. Introduced a system of executive ofﬁ cers 2. Established an Executive Committee 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 Compliance Policy and a Compliance Committee 2011 Revised MOL’s Compliance Policy and Rules of Conduct 2014 Revised the Compliance Policy, establishing a chief compliance ofﬁ cer (CCO) 2015 Established the Nomination Advisory Committee and Remuneration Advisory Committee Corporate Governance—Enabling Sustainable Growth and Raising Corporate Value Effective corporate governance has two sides. The defensive side focuses 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 oppor- tunities, then actively taking those risks deemed reasonable. A company needs both wheels of governance. One brings order, the other provides growth dynamics. With both wheels ﬁ rmly in place, a company can gain the trust of its customers, stockhold- ers, business partners, employees, local communities and other stakeholders to sustainably conduct business. MOL greatly shored up its management structure in the years surrounding 2000. Taking a lead position among Japanese com- panies, MOL established an advanced, highly transparent corpo- rate governance structure by, for example, inviting outside directors and introducing an executive ofﬁ cer system. We are reaping the beneﬁ ts of those efforts, yet MOL has only arrived at its current position through a process of continuous improve- ment and evolution. We work hard to enhance corporate value. 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 indispensable to corporate gover- nance) supervises and encourages business operations, which are carried out by the President as chief executive ofﬁ cer. In addition, as a company with an Audit & Supervisory Board, business and accounting audits are conducted by four audit & supervisory board members, including two outside members. In 2015, we established the Nomination Advisory Committee and Remuneration Advisory Committee, further strengthening corporate governance. Operating under the Board of Directors, these committees are chaired by outside directors and take an objective viewpoint emphasizing the perspectives of stakeholders in performing their respective roles. The Nomination Advisory Committee considers the selection of directors and executive ofﬁ cers, while the Remuneration Advisory Committee deliberates on compensation for directors, including incentives to increase corporate value over the long term. To make even better use of the Board of Directors, we are working to carefully select and revise issues taken up by the board so that it can dedicate more of its meeting time to the MOL Group Long-Term Vision, strategy direction and manage- ment oversight. Accordingly, we have expanded the scope of authority transferred to the Executive Committee to accelerate decision-making related to business operations. At MOL, we believe that the essence of corporate governance lies not in its structure or organization, but in whether or not it functions effectively. The framework described in the preceding paragraph 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 over a certain size, such as the con- struction of new vessels, are submitted to the Board of Directors at the basic policy formulation stage. The directors thoroughly evaluate and discuss the pros and cons of the projects and make decisions on their feasibility from many perspectives. Transferring the authority to implement projects within the scope of the basic policy to executive ofﬁ cers supervised by the President speeds decision-making on individual projects. And the Board of Directors holds Deliberation on Corporate Strategy and Vision. At each meeting, the board focuses on a 60 Mitsui O.S.K. Lines MOL16_英文_出校データ戻し.indd 60-61 MOL16_英文_出校データ戻し.indd 60-61 particular topic concerning management strategies, MOL’s long- term vision or other subjects involving management. These dis- cussions provide an opportunity for lively debates that include the outside directors and audit & supervisory board members, thus helping to ensure that the perspective of shareholders is reﬂ ected in how MOL is managed. Executive Committee and Committees Within the scope of the basic policy approved by the Board of Directors, MOL transfers signiﬁ cant authority to implement proj- ects to the Executive Committee. This helps to speed up deci- sion-making on individual projects by the executive ofﬁ cers supervised by the President. MOL has also established the following sub-committees of the Executive Committee to study and discuss especially impor- tant matters and projects straddling divisions that will be submit- ted to the Executive Committee for discussion. (See the chart below.) Functions of Outside Directors and Reasons for Appointment As part of efforts to strengthen corporate governance, MOL has been appointing outside directors since 2000, 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 the realms of ﬁ nance, business, and academia 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 Corporate Governance Organization (as of June 21, 2016) experience and insight to check the appropriateness of manage- ment 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 opera- tion of the Board of Directors. Reasons for Appointment of Outside Directors Name Position Reason for Appointment Masayuki Matsushima Outside Director of Mitsui Fudosan Co., Ltd. Chairman of NWIC Co., Ltd. Senior Advisor of Integral Corporation Outside Director of JGC Corporation Hideto Fujii Adviser of Sumitomo Corporation Etsuko Katsu Professor of School of Political Science and Economics, Meiji University Vice President of Center for Entrance Examination Standardization Board Member of Japan- United States Educational Commission (As of June 30, 2016) MOL adjudged that he has a neutral position with no conﬂ icts of interest with the Company as well as extensive, wide-ranging experience in and knowledge of ﬁ nance and other sectors. He will thus be able to bring a global perspective to the Company’s management and appropriately supervise business execution. MOL adjudged that he has a neutral position with no conﬂ icts of interest with the Company as well as extensive, wide-ranging experience in and knowledge of the management of Japan’s economy and monetary policy. He will thus be able to help maintain and strengthen the Company’s corporate governance from an independent and fair perspective. MOL adjudged that she has a neutral position with no conﬂ icts of interest with the Company as well as experience and insight in university management and global human resource development. She is also an expert in international ﬁ nance. She will thus be able to offer advice on the Company’s management and business execution from an independent perspective and contribute to the maintenance and reinforcement of corporate governance. Elect and appoint/dismiss Meeting of the Board of Directors [10] Outside directors: 3 Internal directors: 6 Total: 9 Elect and appoint/supervise General Shareholders’ Meeting Business audit Accounting audit Accounting audit Elect and appoint/dismiss Elect and appoint/dismiss Audit & Supervisory Board Outside members: 2 Internal members: 2 Total: 4 Audit & Supervisory Board office Accounting Auditors Nomination Advisory Committee Outside directors: 3 Internal directors: 2 Total: 5 Remuneration Advisory Committee Outside directors: 3 Internal directors: 2 Total: 5 Executive Committee [47] Internal directors and Executive officers: 8 Submit basic management policies and other issues for discussion Submit to Executive Committee after preliminary deliberations Provide direction on important business issues Committees Under the Executive Committee STEER Committee, Budget Committee, Investment and Finance Committee, Operational Safety Committee, CSR Committee, Technology, Innovation and Environment Committee,Compliance Committee, Global Strategic Planning Committee Submit report on important business and other issues Executive Officers Director/Executive officers: 6 Executive officers: 18 Total: 24 Divisions / Offices / Branches / Vessels / Group companies Numbers in brackets show the number of meetings of the Board of Directors, Executive Committee during fiscal 2015. Provide direction Audit plan, Audit report Communicate and coordinate with corporate auditors and independent public accountant Internal Audit Office Business audit Accounting audit Annual Report 2016 61 2016/08/02 13:37 2016/08/02 13:37 Corporate Governance Functions of Outside Audit & Supervisory Board Members and Reasons for Appointment MOL has appointed four audit & supervisory board members, who are responsible for performing statutory auditing functions, including two outside audit & supervisory board members who are completely independent and have no conﬂ icts of interest with MOL. At a time when corporate auditing systems are taking on added importance, it goes without saying that the indepen- dence of members from management and policy execution is assured. Our audit & supervisory board members work closely with the Internal Audit Ofﬁ ce and independent public accoun- tants to assure effective corporate governance. They also work on strengthening corporate governance and compliance throughout the group. Reasons for Appointment of Outside Audit & Supervisory Board Members Name Position Reason for Appointment Hiroyuki Itami Professor of Tokyo University of Science, Graduate School of Innovation Studies Outside Corporate Auditor, JFE Holdings, Inc Hideki Yamashita Attorney-at-Law and Patent Attorney, YAMASHITA & TOYAMA LAW AND PATENT OFFICE, Outside Corporate Auditor, I-Cell Networks 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 a scholar of business administration. 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 30, 2016) Compensation for Directors, Audit & Supervisory Board Members and Independent Public Accountants The Board of Directors, including the outside directors, deter- mines compensation for the directors and audit & supervisory board members. Compensation paid to directors and audit & supervisory board members in ﬁ scal 2015 is shown in the follow- ing 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 Audit & Supervisory Board Members No. of people remunerated Total remuneration (¥ millions) (Thousands of U.S.$) Directors (Excluding outside directors) Audit & Supervisory Board Members (Excluding outside members) Outside directors and outside members 8 3 5 ¥328 $2,918 64 45 573 402 Compensation for Independent Public Accountants Compensation for audit operations (¥ millions) Compensation for non-audit operations (¥ millions) Total (¥ millions) (Thousands of U.S.$) Parent company Consolidated subsidiaries Total ¥108 103 ¥212 ¥4 2 ¥7 ¥113 $1,006 106 990 ¥219 $1,947 Independent Ofﬁ cers MOL has designated its three outside directors and two outside audit & supervisory board members as independent ofﬁ cers because there is no concern about a conﬂ ict of interest with gen- eral investors in conformity with the criteria for independent ofﬁ - cers of listed securities exchanges. Each of these individuals plays a major role in corporate governance by checking the appropri- ateness of management decisions and supervising the execution of business operations from the shareholders’ perspective based on their experience and insight. Internal Control System MOL has established a basic policy on the establishment of inter- nal control systems* and goes beyond the scope required by law to promote activities to further enhance MOL Group management effectiveness, efﬁ ciency and transparency, namely ensuring the appropriateness of business operations and the trustworthiness of ﬁ nancial reporting. We have chosen two extracts from the policy and introduce them below: 1. Compliance and 2. Role of the audit & supervisory board members. *Established by resolution of the Board of Directors in 2006, partially amended in 2015 1. Compliance The Company has established a Compliance Committee, which is headed by the Chief Compliance Ofﬁ cer, and formulated a Compliance Policy. 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 in the event of a compliance breach. The Internal Audit Ofﬁ ce, a body that operates indepen- dently of the Company’s divisions and ofﬁ ces, provides a coun- seling 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, we established an external compliance advisory service desk, which we entrusted an outside attorney to run. The desk provides anonymous counseling services. 2. Role of the Audit & Supervisory Board Members The MOL Group has established rules for reporting to its audit & supervisory board members, creating a system in which directors, executive ofﬁ cers and employees report to the audit & supervisory board members on the Company’s operations and important mat- ters that may impact business performance. These rules also safe- guard appropriate frameworks for reporting legal violations and other compliance issues to audit & supervisory board members. Furthermore, the representative directors strive to regularly meet through its website. As recommended by the Corporate Governance Code, MOL proactively holds constructive dialogues with institutional inves- tors and there will be no change to this policy. Feedback is regu- larly 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 communica- tion while being mindfully aware of fair disclosure. The responsibility to provide information is not limited to management 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 responding 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. IR Activities in Fiscal 2015 (April 2015–March 2016) Activity Frequency Details For securities analysts and institutional investors Business performance presentations 4 times Quarterly results/forecasts For overseas institutional investors For individual investors President’s small meetings Overseas investor road shows Conferences held by securities companies Corporate presentations for individual investors 2 times Held for analysts in Japan 5 times 5 times 3 times Once in North America, twice in Europe, twice in Asia (Hong Kong and Singapore) Attended conferences in Japan and held individual Meetings Attended seminars for individual investors in Tokyo, Osaka and Nagoya: once in each city. IR Materials (available on MOL’s website) Material Japanese English Financial reports Stock exchange ﬁ lings (ﬁ nancial highlights, etc.) Business performance presentation materials (including summaries of Q&A sessions) Annual reports Securities reports Quarterly reports Business reports for shareholders Safety, Environmental and Social reports Investor guidebooks Market data Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No No Yes Yes Yes Yes with audit & supervisory board members, and the Internal Audit Ofﬁ ce works in coordination with the audit & supervisory board members to provide assistance. In these ways, the Company actively cooperates with the audit & supervisory board members to facilitate effective auditing. Measures Ensuring Compliance with the Antimonopoly Act In 2014, the Japan Fair Trade Commission (JFTC) found MOL had violated Article 3 of the Antimonopoly Act. Considering this violation to be a very serious matter, we established the Review Committee of Recurrence Prevention Measures for Anti- competitive Practices, headed by the President. The committee has examined and executed various concrete policies to prevent a recurrence of cartel activities, includ- ing revising the compliance system and reforming the corporate culture. The mea- sures resolved by the Review Committee of Recurrence Prevention Measures for Anti-competitive Practices are now being carried on by the Compliance Committee. For more detailed compliance information, see the Safety, Environmental and Social Report. 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, in addition to postal vot- ing, so that shareholders who cannot attend the annual meeting can vote on proposals. Furthermore, 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 proposed 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 2015, the President participated in the Company’s presentations of quarterly results and attended meetings with domestic and foreign 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 transla- tion. 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 strat- egy, investment plans, market conditions and other information 62 Mitsui O.S.K. Lines MOL16_英文_出校データ戻し.indd 62-63 MOL16_英文_出校データ戻し.indd 62-63 Annual Report 2016 63 2016/08/02 13:37 2016/08/02 13:37 Safe Operation Safe operation is of the utmost importance and lies at the heart of MOL’s management. Unfortunately, while at sea, a ﬁ re occurred on MOL Ferry’s SUNFLOWER DAISETSU in July 2015, and one seafarer lost his life. In light of this tragedy, we will redouble our efforts going forward to fortify our safe operating system and 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 reorganized the division responsible for safe operation in February 2015. This move was aimed at integrating and horizon- tally disseminating information among different types of vessels while maintaining a structure that focuses on the front-line oper- ation of every vessel type, reinforcing company-wide operational safety measures, and developing an organizational structure that focuses all the authority necessary to be responsible for the entire Group’s safe vessel operations into the Marine Safety Division. Under the new structure, all land-based and ocean- going personnel are united to strive to maximize operating safe- ty, with the goal of becoming the world leader in safe operation. Organizational Structure Supporting Safe Operation Executive Committee Operational Safety Committee Safety Assurance Committee Ship Standard Speciﬁ cation Committee Manning Committee Safety Operations Headquarters • Marine Safety Division • Ship management coordinating divisions • Marine technical teams supporting vessel operations for business divisions • In-house ship management companies leading working- level ship management * *MOL Ship Management Co., Ltd., and MOL LNG Transport Co., Ltd. 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 experi- enced MOL captain. They use the FMS. Safety system, which was developed in cooperation with Weathernews Inc., to monitor weather and related developments where our vessels are operat- Safety Operation Supporting Center (SOSC) ing. FMS.Safety is used to check on the weather, sea, and other conditions surrounding the around 880 vessels operated by MOL Group companies 24 hours a day 365 days a year. There is always someone ready and at hand if a ship captain needs assistance. The system collects information on weather, international media reports, and other factors that might affect vessels under way so that the SOSC stands ready to offer timely information and advice and help prevent serious accidents before they happen. ■ Accident Response Drills MOL regularly con- ducts accident response drills on vessels while at sea. These drills simulate various situations such as an onboard ﬁ re or water immersion, or act of piracy or terror- ism, so that seafar- ers can respond swiftly and appropriately in an emergency. Head Ofﬁ ce conducts serious marine incident 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, representatives of relevant departments and ship management companies, and vessels. In November 2015, we conducted an emergency response drill based on the premise of our LNG carrier colliding with a containership while underway in Tokyo Bay. In May 2016, we conducted an emergency response drill based on the premise of our VLCC colliding with a containership while underway offshore the eastern coast of Himeshima in Oita Prefecture. We will continue to conduct drills on a regular basis and further strengthen our emergency response system. Evacuation drill on board Safe Operation Measures Efforts to ensure safe operation will never end. Coupled with the revision and continuation of policies already in place to strength- en safe operation, MOL will thoroughly implement policies to prevent a recurrence of 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, includ- ing the Four Zeroes. 1. Four Zeroes (an unblemished record in terms of serious marine incidents, oil pollution, fatal accidents and cargo damage) 2. LTIF*1 (Lost Time Injury Frequency): 0.25 or below 3. Operational stoppage time*2: 24 hours/ship or below 4. Operational stoppage accident rate*3: 1.0/ship or below In ﬁ scal 2015, MOL worked on three important targets: areas in need of improvement. (1) Eradicate work-related accidents causing death, and reduce It is the MOL Group’s ultimate goal to eradicate work-related work-related accidents causing injury, (2) Eradicate collisions and groundings, and (3) Eradicate machinery trouble resulting in a dead ship condi- tion (a ship being unable to move under its own power). However, we were regrettably unable to achieve the Four Zeroes due to the previously mentioned ﬁ re that occurred aboard the ferry. We will nevertheless continue to work toward achieving these targets. 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 problems as if they were each wholly responsible as part of efforts to prevent accidents. In light of the fact that one seafarer lost his life in a ferry ﬁ re, we are committed to redoubling our efforts to prevent accidents. Preventing New or a Recurrence of Serious Incidents MOL is constantly, repeatedly implementing and raising aware- ness 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 consid- eration to improving teamwork, safety awareness, awareness of relevant parties and vessel management quality. We will continue to adapt our accident prevention system by making improve- ments related to both seafarer training and ship facilities to break the chain of errors in which minor factors combine and ultimate- ly 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 educa- tion and training curriculum and programs such as “hazard expe- rience” training sessions and BRM drills.*4 These measures are geared towards enhancing the ability of seafarers to perceive danger and promoting teamwork. In addition, we are working to raise safety awareness among seafarers by collecting information from each vessel in operation on examples of incidents and prob- lems as well as close calls*5 and by using videos, photos and illus- trations 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 information technolo- gy. This involves promoting the fail-safe design concept by pro- viding shipyards and equipment manufacturers with feedback from vessels in operation on areas of non-conformance and Lost Time Injury Frequency (LTIF) 1.8 1.5 1.2 0.9 0.6 0.3 0 2014 average for all industries: (1.66) MOL target: （~2014: 0.25 or below, 2015~: 0.7 or below） 0.38 0.44 0.31 0.30 0.53 2011 2012 2013 2014 2015 (Fiscal year) Cooperation for Safe Operation The MOL Group works together with vessels, shipowners, and ship management companies to work toward achieving the world’s highest level of safe operation of all owned and char- tered vessels by sharing safety-related information. The Company regularly broadcasts “Safety Alerts”—information pertaining to safe operation, including work-related incidents involving casual- ties—to every vessel. MOL conducts “Safety Operation Meetings” and “Safety Campaigns” involving vessels, shipown- ers, ship management companies and even the sales division to deepen understanding of its safety standards and to discuss safe- ty 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, communicating with the vessel, shipowner and ship management company in the process. For detailed safe operation, see the Safety, Environmental and Social Report. ESG-based IR Meetings In March 2016, many institutional investors attended a meeting we held entitled "Achieving the World’s Safest Operations." We explained our safety measures in regard to both our facilities and Operational Stoppage Accidents Average Time and Frequency (Hour/ship) (Number of accidents/ship) 40 30 20 10 0 Average operational stoppage time target: 24 hours or below 28.45 25.04 19.82 0.40 19.04 0.66 0.52 0.51 25.56 0.99 2.0 1.5 1.0 0.5 Operational stoppage accident rate target: 1.00 or below 2011 2012 2013 2014 2015 (Fiscal year) 0 Average operational stoppage time (hour/ship) (left scale) Operational stoppage accident rate (accidents/ship) (right scale) 64 Mitsui O.S.K. Lines MOL16_英文_出校データ戻し.indd 64-65 MOL16_英文_出校データ戻し.indd 64-65 Annual Report 2016 65 2016/08/02 13:37 2016/08/02 13:37 Safe Operation Risk Management ■ Management program for seafarer education and training acquired certiﬁ cation from DNV GL AS MOL’s management program for seafarer education and training was recognized to be effective and certiﬁ ed in its tanker and LNG carrier operations by DNV GL AS in 2012 for compliance with the Competence Management System (CMS). Glossary *1 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. In the scope of calcula- tions, we originally included only workplace illnesses and injuries requiring disembarka- tion from the ship. The LTIF criteria was strengthened from ﬁ scal 2015, and now includes any workplace illness or injury that prevents a worker from resuming even a reduced workload on that day, regardless of whether the illness or injury requires disembarkation. Average for all industries (2014) was 1.66; for shipping industry, 1.33; for transportation equipment manufacturing industry, 0.51. (Source: 2014 Survey on Industrial Accidents issued by the Ministry of Health, Labour and Welfare) *2 Operational stoppage time: Expresses the amount of ship operational stoppage time due to an accident per ship per year. *3 Operational stoppage accident rate: Expresses the number of accidents that result in ship operational stoppage per ship per year. *4 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. *5 Close calls: Risky incidents that came very close to causing a more serious accident. our personnel, as well as how we have learned from previous marine incidents to strengthen our safety initiatives. They were also given a tour of our SOSC during the meeting. This was also a valuable opportunity for us to explain how MOL creates long- term value. Establishing a Self-Operated University of Merchant Marines in the Philippines Filipino seafarers form the core of the crews on MOL's operated vessels. As operation technology grows increasingly sophisticat- ed, we expect to see more activity for these seafarers. As the cul- mination of MOL’s initiatives aimed at safe operations, we will establish the largest self-operated university of merchant marines in the Asia-Paciﬁ c region as we plan to reinforce efforts to secure and train excellent seafarers and achieve the world's safest oper- ations. For detailed new Maritime Academy in Philippines, see the Safety, Environmental and Social Report. Third party evaluations Safe Operation, Including Evaluations of Seafarer Educational Programs ■ Standard Training Courses for liqueﬁ ed gas transportation certiﬁ ed by DNV GL AS The LNG Carrier Standard Training Course and the LEG/LPG Carrier Standard Training Course implemented globally by MOL were certiﬁ ed by Norway’s Det Norske Veritas (DNV) GL AS in 2007 for compliance with the LNG carrier crew ability standards and in 2016 for compliance with the LEG/LPG advocated by SIGTTO.** ** Society of International Gas Tanker & Terminal Operators Ltd. 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. MOL has designated the reinforcement of total risk control as one measure to strengthen its manage- ment foundation and support the successful execution of the plan. To fully exercise sustainable risk management, the Company transparently 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 and sustain proﬁ t growth. In accordance with our internal mar- ket risk management regulations, we appropriately reduce risks Variation of Procurement and Contract terms (as of March 2016) 0 20% 40% 60% 80% 100% Dry Bulkers (373 ships) Tankers (175) LNG Carriers (69) Car Carriers (120) Containerships (95) 45% 45% 10% 34% 54% 12% 100% 98% 2% 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 2016, we operated around 880 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. 75% 25% Exchange Rate Fluctuations Owned or mid- and long-term chartered vessels with mid- and long-term contracts Owned or mid- and long-term chartered vessels with short-term contracts Short-term chartered vessels with short-term contracts Market Exposure % by Vessel type (as of March 2016) Total number of Fleet Market Exposure Capsize Mid-and small-size bulkers VLCC Product Tanker LPG Tanker 92 143 33 45 9 26% 52% 18% 78% 33% 66 Mitsui O.S.K. Lines MOL16_英文_出校データ戻し.indd 66-67 MOL16_英文_出校データ戻し.indd 66-67 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 2016, we project that each ¥1-per-dollar change in the yen-U.S. dollar exchange rate will have an impact of approximately ¥1.0 billion on consolidated ordinary income. Underlined words are explained in the Glossary on page 18. Annual Report 2016 67 2016/08/02 13:37 2016/08/02 13:37 Risk Management Corporate Social Responsibility (CSR) 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, 2016, interest-bearing debt totaled ¥1,045.0 billion, and around 60% 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 ¥3.0 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 880 vessels, whose annual fuel consump- tion amounts to around 5.5 million tons of bunker. The Company is able to pass on about 60% of the risk to customers. Therefore, an increase of US$1 per metric ton in the average annual price of bunker would lower earnings by approximately ¥0.17 billion (net of hedging) at the maximum. Sensitivity of Earnings to Exchange Rate/Interest Rate/Bunker Price Fluctuations Exchange Rate (¥/US$) A ¥1 appreciation reduces ordinary income by approximately ¥1.0 billion Interest Rate (%) A 1 percent rise in both yen- and U.S. dollar-denominated interest-bearing debt reduces ordinary income by approximately ¥3.0 billion Bunker Price (US$/MT) A US$1/MT increase reduces ordinary income by approximately ¥0.17 billion Average Bunker Price (Consumption price) (US$/MT) 800 600 400 200 0 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 15/3 16/3 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 880 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. MOL’s Approach to CSR 10 Principles of the Global Compact 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 developing together with society sustainably and harmoniously while earning the support and trust of stake- holders, including shareholders, customers, business partners, employees and local communities. In order to fulﬁ ll these responsibilities, MOL deliberates on CSR-related policies and measures, primarily through the three committees under the Executive Committee. Human Rights Labour 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. Principle 3. Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle 4. The elimination of all forms of forced and compulsory labour; Principle 5. The effective abolition of child labour; and Principle 6. The elimination of discrimination in respect of employment and occupation. Principle 7. Businesses should support a precautionary approach to environmental challenges; The MOL Group’s initiatives and policies regarding overall CSR Environment Principle 8. Undertake initiatives to promote greater environmental responsibility; and are deliberated on by the CSR Committee, which then sets sin- gle-year, medium- and long-term targets and conducts regular reviews. The Operational Safety Committee discusses basic policies and measures for ensuring the safe operation of MOL Group- operated vessels through rigorous attention to every detail. The Compliance Committee discusses basic policies and measures for enhancing the compliance system, dealing with compliance vio- lations, and establishing a structure for protecting and managing personal information. For more information on MOL CHART, see the left side of the four page spread on the inside cover under the title, “Long-Term Vision: To make the MOL Group an excellent and resilient organi- zation that leads the world shipping industry.” Organizational Framework for CSR Initiatives Chief Executive Ofﬁ cer (President) Executive Committee CSR Committee Operational Safety Committee Compliance Committee Participating in the UN Global Compact CSR activities are broad and, from time to time, the strength and priority of those activities change depending on the operating environment, global circumstances and region where business is being developed. With business activities spread across the globe, MOL believes that building good relationships with vari- ous stakeholders worldwide and contributing 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 international framework for realizing these goals, MOL became the ﬁ rst Japanese shipping company to par- ticipate in the United Nations (UN) Global Compact in 2005. Since then, MOL has worked to support and practice the 10 prin- ciples in 4 areas of the UN Global Compact, which shares the same values as MOL’s Rules of Conduct, which were established as a set of guidelines for executives and employees. Principle 9. 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. The MOL Group Basic Procurement Policy We formulated the MOL Group Basic Procurement Policy in 2012. This clearly documents our CSR activity policy regarding 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 environmental protection in our activities, pursue safety, engage in fair trading and build trust, with the understanding and cooperation of business partners. In this way, we aim to con- tribute 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 execu- tion of such goods and/or services, that meet high safety standards. 3. We conduct fair trade, and endeavor to establish trusting relation- ships with contractors. We work to make sure that our contractors understand our Basic Procurement Policy, with the aim of contributing towards the realiza- tion of sustainable societies together. Medium-Term CSR Objectives 1. Thoroughly implement safe operation and provide safe, secure, sta- ble, high-quality services. 2. Deepen initiatives to ensure thorough compliance. 3. Strengthen initiatives on corporate governance. 4. Promote personnel training and diversity to strengthen comprehen- sive Group capabilities. 5. Make further progress on solving social issues and promoting environ- ment initiatives as an environmentally advanced company. 6. Actively disclose sustainability data. 7. Promote social contribution activities related to MOL’s businesses. For more detailed CSR information, see the Safety, Environmental and Social Report. 68 Mitsui O.S.K. Lines MOL16_英文_出校データ戻し.indd 68-69 MOL16_英文_出校データ戻し.indd 68-69 Annual Report 2016 69 2016/08/02 13:37 2016/08/02 13:37 Environmental Management System To precisely grasp and manage the environmental risks and opportunities in our businesses, we established the environmen- tal management system MOL EMS21 in April 2001, and since then we have made ongoing efforts to improve it. Every year, the CSR and Environment Ofﬁ ce conducts an internal audit based on MOL EMS21. The chairman, who is responsible for environmen- tal management, receives the results of the internal audit and conﬁ rms whether the system is functioning effectively. Since 2003, we have had a third-party audit by DNV GL Business Assurance Japan KK every year, and a renewal audit every three years, and have earned ISO 14001 certiﬁ cation for our environmental management system. The results of our ﬁ scal 2015 audit showed no non-conformity. The MOL Group Environmental Target System We have implemented the Group Environmental Target System, targeting major Group companies in Japan (52) and overseas (20). Every year, each company sets environmental targets to reduce the environmental impact of our business activities based on speciﬁ c guidelines that are in line with the midterm manage- ment plan, and establishes action plans to achieve those targets. Along with those targets, we collect each company’s data on its own environmental impact (fuel consumption, electric power consumption, paper usage, waste, and so on). For more detailed diversity information, see the Safety, Environmental and Social Report. For more detailed environmental initiatives information, see the Safety, Environmental and Social Report. Corporate Social Responsibility (CSR) Diversity The MOL Group operates globally, employing approximately 20,000 employees and seafarers of many diverse nationalities. We are working to create and improve inclusive work environ- ments that allow diverse human resources—including women and individuals of all nationalities—to realize their full potential and excel. By thus promoting diversity and inclusion, we aim to heighten the comprehensive strength of the Group. Initiatives on the Environment Key Environmental Issues In March 2014, we identiﬁ ed the highest-priority environmental issues and set about addressing those issues in a proactive man- ner. To identify these priorities, we analyzed issues from interna- tional conditions regarding environmental issues; the opinions of stakeholders including customers, investors, and so on; as well as our own internal viewpoints. Finally, through discussions in the CSR Committee, we identiﬁ ed the following ﬁ ve issues. ➊ Comply with environmental regulations ➋ Utilize technologies to reduce environmental impact ➌ Disclose environmental data ➍ Ensure safe operation ➎ Contribute to conservation of biodiversity Organizational Structure for Environmental Initiatives To effectively promote environmental initiatives based on the MOL Environmental Policy, the CSR Committee, a sub-committee of the Executive Committee, oversees planning and promotion of environment-related measures under the direction of the presi- dent. The CSR Committee assesses environment-related risks and opportunities involving MOL, identiﬁ es the highest-priority issues in the Group’s environmental management, and sets environ- mental targets, striving to achieve environment-friendly business activities. Organizational Structure to Promote the Environmental Executive Committee CSR Committee Technology, Innovation and Environment Committee (Secretariat ofﬁ ce: Corporate Planning Division, CSR and Environment Ofﬁ ce) Director responsible for environmental manage- ment (Chairman of CSR Committee) Executive Ofﬁ cer of CSR Committee (Vice- Chairman of CSR Committee) Divisions/Ofﬁ ces Divisions/Ofﬁ ces General Manager (Personnel responsible for environmental management) 70 Mitsui O.S.K. Lines MOL16_英文_出校データ戻し.indd 70-71 MOL16_英文_出校データ戻し.indd 70-71 Environmental Regulations Schedule of Environmental Regulations by IMO, etc Regulations Tackling Global Warming GHG emissions 2015 2016 2017 2018 2019 2020 2025 EEDI*1 Phase 1 Phase 2 Phase 3 SEEMP*2 Mandatory * Introduction of MRV (Monitoring, Reporting and Veriﬁ cation of actual fuel consumption) and MBM (Market-Based Measures) is under study toward further reduction of GHG emissions. Preventing Air Pollution NOx emissions*3 General Sea Areas Tier II ECA*4 Tier II Tier III SOx emissions*5 General Sea Areas Sulfur limit 3.5% ECA Sulfur limit 0.1% Marine Environment Protection Ballast Water Management Convention*7 General Sea Areas Regulation by USGC*8 (Adopted in 2004: not ratiﬁ ed) Expected to be mandatory (Enforced in 2012) Mandatory Minimizing the transfer of invasive aquatic species by shipping*9 (Guideline adopted in 2011) Ship Recycling Convention*10 (Adopted in 2009: not ratiﬁ ed) Sulfur limit 0.5%*6 *1 EEDI (Energy Efﬁ ciency Design Index) is a measure of ships energy efﬁ ciency (g/ton-mile The required EEDI of each Phase is as follows: Phase 0=0%, Phase 1=10%, Phase 2=20% (Applied to new ships) *2 SEEMP (Ship Energy Efﬁ ciency Management Plan) is required to be drawn up to show optimal measures of operation that should be adjusted to the characteristics of individual ships, and to be kept on board a ship. (Applied to both new and existing ships) *3 The regulation for reduction of NOx in exhaust gases: Tier I is applied to ships laid down in 2000-2010, Tier II to ships laid down in/after 2011, and Tier III to ships laid down in/after 2016. *4 The existing ECAs (Emission Control Areas) are: 1.Within 200 miles off the coast of USA and Canada (NOx/SOx) 2.The USA Caribbean Sea area (NOx/SOx) 3.The Baltic Sea and the North Sea areas. (SOx) *5 The regulations for reduction of SOx contained in fuel oil. (Applied to both new and existing ships) *6 A review in 2018 on the availability of the required fuel oil may conclude to postpone the application to 2025. *7 The convention shall enter in force 12 months after the following conditions are met, and it is increasingly likely that it enters into force in 2017. (Applied to both new ships and, after certain grace periods, to existing ships) Environmental Investments and CO2 Reductions Environmental Investments (Billions of yen) Conditions: Ratiﬁ cation by not less than 30 countries representing a combined total G/T of more than 35% of the world’s merchant ﬂ eet. (As of May 2016, 50 countries representing a combined total G/T of 34.81% have ratiﬁ ed.) *8 Regional regulation by U.S. Coast Guard. *9 The guideline aimed at minimizing transfer of invasive aquatic species attaching to the bottom of ships, recommending installation of the systems on vessels to keep the bottom clean without marine organisms and other measures. (It remains as a voluntary guideline during the review period.) *10 The convention prohibits and restricts the ﬁ tting and use of treaty-speciﬁ ed hazardous materials, and requires vessels to prepare, record and update inventory lists showing the quantity and location of hazardous materials on ships over a ship's lifetime. The convention shall enter into force 24 months after the following conditions are met: Conditions: Ratiﬁ cation by not less than 15 countries representing a combined total G/T of more than 40% of the world’s merchant ﬂ eet and an annual ship recycling volume not less than 3% of the combined tonnage of the ratifying countries .(As of March 2016, 3 countries have ratiﬁ ed.) CO2 and Cost Reductions from Environmental Measures Environment-related R&D activities ¥0.7 ¥0.3 CO2 emissions reductions (1,000t) Fiscal 2014 Fiscal 2015 (FY) Utilization and expansion of existing environmental technologies Responses to environmental regulations Initiatives to save bunker fuel Initiatives of Group companies 2.1 0.5 0.9 0.2 0.9 2.2 1.0 0.3 Total ¥4.3 ¥4.6 Cost Reductions (¥ billions) 2013 279 ¥5.5 2014 348 ¥5.5 2015 303 ¥3.1 Underlined words are explained in the Glossary on page 18. Annual Report 2016 71 2016/08/02 13:37 2016/08/02 13:37 Corporate Social Responsibility (CSR) Third-Party Evaluations Environment Related ■ ISO 14001 Certiﬁ cation MOL has used its own environmental man- agement system MOL EMS21 since April 2001, and also holds ISO 14001 certiﬁ cation, an international standard for environmental management. (Since 2003) ■ ISO 50001 Certiﬁ cation MOL acquired ISO 50001 certiﬁ cation for its energy management system and ISO 14001 certiﬁ cation for its environmental management system. (2014) Certiﬁ ed companies: MOL Ship Management Co., Ltd. (2014), MOL Ship Management (Singapore) Pte. Ltd. (2014), MOL Ship Management (Hong Kong) Company Ltd. (2014) and Magsaysay MOL Ship Management, Inc. (2015) ■ Recognized by CDP as Leader in Climate Change Transparency and in Corporate Action on Climate Change MOL was recognized as a leader for the depth and quality of the climate change data it has disclosed for independent assessment through CDP, an international non-proﬁ t organization. This marks the third time and second consecutive year MOL has received this distinction. Social Contribution Activities MOL aims to be a company that grows sustainably and harmoni- ously with society. We proactively undertake social contribution activities that only a shipping company with a global network can. We are also focusing our efforts on activities in which our employ- ees themselves participate. Examples include the following: 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. ■ 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. ■ 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. • Transporting used children’s shoes and donating used containers to Zambia • Hosting a discussion between the mayor of Miyako City, Iwate Prefecture and young people aboard the NIPPON MARU cruise ship • Hosting a charity event in the employee cafeteria to address global food challenges For more detailed Social Contribution information, see the Safety, Environmental and Social Report. ■ SMBC Sustainability Assessment Loan In 2016, MOL received the highest rating for SMBC Sustainability Assessment Loans from Sumitomo Mitsui Banking Corporation (SMBC), winning speciﬁ c praise for timely and accurate disclosure of environmental, social, and gover- nance (ESG) issues and for its initiatives on sustainability. ■ SMBC Nadeshiko Assessment Loan MOL became the ﬁ rst company in the marine transport industry to be approved for an SMBC Nadeshiko Loan by Sumitomo Mitsui Banking Corporation (SMBC), receiving praise for being a growth company where women can be expected to play an active role thanks to our initiatives aiming to create a workplace where women can play a more active role. Financial Section Contents 74 Consolidated Balance Sheets 76 Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income 77 Consolidated Statements of Changes in Net Assets 78 Consolidated Statements of Cash Flows 79 Notes to Consolidated Financial Statements 109 Independent Auditor’s Report 72 Mitsui O.S.K. Lines 16mol_英文_納品pdf用.indd 72-73 16mol_英文_納品pdf用.indd 72-73 Annual Report 2016 73 2016/07/27 16:13 2016/07/27 16:13 Consolidated Balance Sheets Mitsui O.S.K. Lines, Ltd. March 31, 2016 and 2015 ASSETS Current assets: Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 LIABILITIES AND NET ASSETS Current liabilities: Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 Cash and cash equivalents (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 159,450 ¥ 128,802 $ 1,415,069 Trade payables (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 127,172 ¥ 167,002 $ 1,128,612 Trade receivables (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,293 178,845 1,156,310 Bonds due within one year (Notes 3 and 7) . . . . . . . . . . . . . . . . . . . . . . . Inventories (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred and prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax assets (Note 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,860 66,101 1,449 72,297 (975) 456,475 49,026 75,937 2,107 78,617 (1,538) 511,796 247,249 586,626 12,859 641,614 (8,653) 4,051,074 Vessels, property and equipment, net of accumulated depreciation (Notes 7 and 13): Vessels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buildings and structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Machinery, equipment and vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Furniture and ﬁ xtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vessels and other property under construction . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 822,270 159,483 22,828 4,482 221,614 143,342 2,413 906,984 165,930 21,387 5,928 221,993 173,279 2,527 7,297,391 1,415,362 202,591 39,776 1,966,755 1,272,116 21,415 Net vessels, property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,376,432 1,498,028 12,215,406 Investments, intangibles and other assets: Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment securities (Notes 3, 4 and 7) . . . . . . . . . . . . . . . . . . . . . . . . . Long-term loans receivable (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net deﬁ ned beneﬁ t assets (Note 16) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax assets (Note 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total investments, intangibles and other assets . . . . . . . . . . . . . . . . . . . . 33,483 215,056 49,015 3,565 13,292 4,422 69,908 (2,061) 386,680 37,068 268,811 74,959 3,692 24,063 3,954 203,184 (1,505) 614,226 297,151 1,908,555 434,993 31,638 117,962 39,244 620,413 (18,291) 3,431,665 Short-term loans (Notes 3 and 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued income taxes (Note 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Advances received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liabilities (Note 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for directors' bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for loss on business liquidation . . . . . . . . . . . . . . . . . . . . . . . . . Provision for contract loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial paper (Notes 3 and 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-current liabilities: Bonds due after one year (Notes 3 and 7) . . . . . . . . . . . . . . . . . . . . . . . . Long-term bank loans (Notes 3 and 7) . . . . . . . . . . . . . . . . . . . . . . . . . . Lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liabilities (Note 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Directors' and corporate auditors' retirement beneﬁ ts . . . . . . . . . . . . . . . Reserve for periodic drydocking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 Unrealized holding gains on available-for-sale securities, net of tax . . . . . Unrealized gains 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 . . . . . . . . . . . . . . . . . . . Share subscription rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-controlling interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000 107,976 4,872 29,327 712 4,485 130 71,008 8,604 — 64,508 463,794 220,840 648,117 20,948 81,553 1,659 14,854 13,442 107,445 1,108,868 1,572,662 65,400 45,389 354,180 (6,848) 458,121 20,950 35,034 26,886 (40) 82,830 2,682 103,292 646,925 15,000 179,389 7,639 36,280 593 4,764 242 — — 5,500 88,938 505,347 270,185 688,332 22,928 109,043 1,803 15,803 13,660 104,514 1,226,268 1,731,615 399,361 958,253 43,237 260,268 6,319 39,803 1,154 630,174 76,358 — 572,489 4,116,028 1,959,886 5,751,837 185,907 723,758 14,723 131,825 119,294 953,629 9,840,859 13,956,887 65,400 44,469 533,485 (6,823) 636,531 44,261 68,770 27,673 5,322 146,026 2,553 107,325 892,435 580,405 402,813 3,143,237 (60,774) 4,065,681 185,925 310,916 238,605 (355) 735,091 23,802 916,684 5,741,258 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥2,219,587 ¥2,624,050 $19,698,145 Total liabilities and net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥2,219,587 ¥2,624,050 $19,698,145 See accompanying notes. 74 Mitsui O.S.K. Lines Annual Report 2016 75 16MOL英文財務p73_109_0727.indd 74-75 16MOL英文財務p73_109_0727.indd 74-75 2016/07/27 16:14 2016/07/27 16:14 Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income Mitsui O.S.K. Lines, Ltd. Years ended March 31, 2016 and 2015 (Consolidated Statements of Operations) Shipping and other revenues (Note 14) . . . . . . . . . . . . . . . . . . . . . . . . . Shipping and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating income: Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in earnings of afﬁ liated companies . . . . . . . . . . . . . . . . . . . . . . . . Foreign exchange gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating expenses: Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ordinary income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other gains: Gain on sales of vessels, property, equipment and others . . . . . . . . . . . . Gain on sales of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on cancellation fee for chartered ships . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total other gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other losses: Loss on sales and disposals of vessels, property, equipment and others . . Loss on valuation of shares of subsidiaries and associates . . . . . . . . . . . . Impairment loss (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Costs of business structural reforms (Note 11) . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total other losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (Loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes (Note 15): Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income attributable to non-controlling interests . . . . . . . . . . . . . . . . . . Net income (loss) attributable to owners of parent . . . . . . . . . . . . . . . (Consolidated Statements of Comprehensive Income) Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (Note 18): Unrealized holding gains (losses) 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 . . . . . . . . . . . . . . . Share of other comprehensive loss of associates accounted for using equity method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen 2016 ¥1,712,223 1,594,569 117,654 115,330 2,324 2015 ¥1,817,070 1,683,795 133,275 116,025 17,250 Thousands of U.S. dollars (Note 1) 2016 $15,195,447 14,151,304 1,044,143 1,023,518 20,625 4,079 6,131 9,178 23,908 7,452 50,748 14,576 2,227 16,803 36,269 9,431 12,934 4,060 3,587 30,012 629 26,228 — 179,291 14,518 220,666 (154,385) 11,134 261 (165,780) 4,668 ¥ (170,448) 2,705 6,920 4,930 25,523 8,688 48,766 12,556 2,130 14,686 51,330 16,225 135 2,229 7,563 26,152 897 — 10,198 — 8,055 19,150 58,332 12,440 (2,577) 48,469 6,113 ¥ 42,356 36,200 54,411 81,452 212,176 66,134 450,373 129,357 19,765 149,122 321,876 83,697 114,785 36,031 31,834 266,347 5,582 232,765 — 1,591,152 128,843 1,958,342 (1,370,119) 98,811 2,316 (1,471,246) 41,427 $ (1,512,673) Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 ¥(165,780) ¥ 48,469 $(1,471,246) (24,187) (31,368) (1,520) (5,369) (3,475) (65,919) ¥(231,699) 12,892 46,674 20,802 4,134 (214,652) (278,381) (13,490) (47,648) (9,981) 74,521 ¥122,990 (30,840) (585,011) $(2,056,257) Comprehensive income (loss) Comprehensive income (loss) attributable to owners of parent . . . . . . . . . . Comprehensive income attributable to non-controlling interests . . . . . . . . . ¥(233,644) 1,945 ¥114,990 8,000 $(2,073,518) 17,261 (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) ¥(142.50) — 5.00 ¥35.42 32.98 7.00 $(1.26) — 0.04 See accompanying notes. 76 Mitsui O.S.K. Lines Consolidated Statements of Changes in Net Assets Mitsui O.S.K. Lines, Ltd. Years ended March 31, 2016 and 2015 Millions of yen Unrealized Unrealized holding gains gains on available- on hedging for-sale derivatives, securities, net of tax net of tax ¥(6,982) ¥ 32,810 ¥ 39,711 Treasury stock, at cost Remeasure- ments of deﬁ ned beneﬁ t plans, net of tax ¥1,186 Foreign currency translation adjustments ¥ (315) Share subscription rights ¥2,391 ¥101,998 Non-controlling interests Total net assets ¥783,549 — — ¥(6,982) ¥ 32,810 ¥ 39,711 — — ¥ (315) — ¥1,186 — — ¥2,391 ¥101,998 (4,567) ¥778,982 Common stock ¥65,400 Capital Retained surplus earnings ¥44,517 ¥502,833 — ¥65,400 — (4,567) ¥44,517 ¥498,266 — — — — — — — — — — — — (7,172) — 42,356 — 205 — — (48) — — (121) — (49) — — 19 — — — — (56) 196 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — (19) — — — — — — — — — — — — — — — — (7,172) 42,356 205 (121) (56) 99 — — 11,451 29,059 27,988 4,136 181 5,327 78,142 ¥65,400 ¥44,469 ¥533,485 ¥(6,823) ¥ 44,261 ¥ 68,770 ¥27,673 ¥5,322 ¥2,553 ¥107,325 ¥892,435 — ¥65,400 — — ¥44,469 ¥533,485 — — ¥(6,823) ¥ 44,261 ¥ 68,770 — — ¥27,673 — ¥5,322 — — ¥2,553 ¥107,325 — ¥892,435 — — — — — — — — — — — (8,971) — (170,448) — — — — 920 — 141 — (27) — 7 — — — — (47) 15 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — (7) — — — — — — — — — — — — — — — — (8,971) (170,448) — 141 (47) (12) 920 — ¥65,400 — — ¥45,389 ¥354,180 — (23,311) (33,736) ¥(6,848) ¥ 20,950 ¥ 35,034 (787) ¥26,886 (5,362) ¥ (40) 136 (4,033) ¥2,682 ¥103,292 (67,093) ¥646,925 Thousands of U.S. dollars (Note 1) Foreign currency Treasury translation stock, at adjustments cost $580,405 $394,648 $4,734,514 $(60,552) $ 392,803 $ 610,312 $245,589 Common stock Retained earnings Capital surplus Unrealized holding gains on available- for-sale securities, net of tax Unrealized gains on hedging derivatives, net of tax — — $580,405 $394,648 $4,734,514 $(60,552) $ 392,803 $ 610,312 $245,589 — — — — — Remeasure- ments of deﬁ ned beneﬁ t plans, net of tax $47,231 Share subscription rights $22,657 $952,476 Non-controlling interests Total net assets $7,920,083 — $47,231 — — $22,657 $952,476 — $7,920,083 — — — — — — — — — — — (79,615) — (1,512,673) — 62 — — — — — — — 1,251 — (240) — (417) 133 8,165 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — (62) — — — — (79,615) — — — — — — — (1,512,673) — — — — — — 1,251 (417) (107) 8,165 — (6,984) $580,405 $402,813 $3,143,237 $(60,774) $ 185,925 $ 310,916 $238,605 — (206,878) (299,396) — — (47,586) $ (355) 1,207 (35,792) $23,802 $916,684 (595,429) $5,741,258 Annual Report 2016 77 Balance at April 1, 2014 . . . . . . . Cumulative effects of changes in accounting policies . . . . . . . . . Restated balance . . . . . . . . . . . Issuance of new shares—exercise of subscription rights to shares . . Dividends paid . . . . . . . . . . . . . . . Net income (loss) attributable to owners of parent . . . . . . . . . . . . . . . . . Due to change in consolidated subsidiaries . . . . . . . . . . . . . . . . . Due to change in afﬁ liated companies accounted for by the equity method . . . . . . . . . . . . . . . Purchases of treasury stock . . . . . . Disposal of treasury stock . . . . . . . Purchases of shares of consolidated subsidiaries . . . . . . . Net changes of items other than owner's equity during the year . . Balance at March 31 and April 1, 2015 . . . . Cumulative effects of changes in accounting policies . . . . . . . . . Restated balance . . . . . . . . . . . Issuance of new shares—exercise of subscription rights to shares . . Dividends paid . . . . . . . . . . . . . . . Net income (loss) attributable to owners of parent . . . . . . . . . . . . . . . . . Due to change in consolidated subsidiaries . . . . . . . . . . . . . . . . . Due to change in afﬁ liated companies accounted for by the equity method . . . . . . . . . . . . . . . Purchases of treasury stock . . . . . . Disposal of treasury stock . . . . . . . Purchases of shares of consolidated subsidiaries . . . . . . . Net changes of items other than owner's equity during the year . . . . . . Balance at March 31, 2016 . . . . . Balance at April 1, 2015 . . . . . . . Cumulative effects of changes in accounting policies . . . . . . . . . Restated balance . . . . . . . . . . . Issuance of new shares— exercise of subscription rights to shares . . . . . . . . . . . . . . . . . Dividends paid . . . . . . . . . . . . . Net income (loss) attributable to owners of parent . . . . . . . . Due to change in consolidated subsidiaries . . . . . . . . . . . . . . . Due to change in afﬁ liated companies accounted for by the equity method . . . . . . . . . . . . . . . Purchases of treasury stock . . . . . . Disposal of treasury stock . . . . . . . Purchases of shares of consolidated subsidiaries . . . . . . . Net changes of items other than owner's equity during the year . . . . . . . . . . . . . . . . . Balance at March 31, 2016 . . . . . See accompanying notes. 16MOL英文財務p73_109_0727.indd 76-77 16MOL英文財務p73_109_0727.indd 76-77 2016/07/27 16:14 2016/07/27 16:14 Consolidated Statements of Cash Flows Mitsui O.S.K. Lines, Ltd. Years ended March 31, 2016 and 2015 Notes to Consolidated Financial Statements Mitsui O.S.K. Lines, Ltd. Years ended March 31, 2016 and 2015 Cash ﬂ ows from operating activities: Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile income (loss) before income taxes to net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Costs of business structural reforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in losses (earnings) 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 sales of investment securities . . . . . . . . . . . . . . . . . . . . . . Loss (Gain) on sales and disposal of vessels, property and equipment . . . Loss on valuation of shares of subsidiaries and associates . . . . . . . . . . . . Foreign exchange loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in operating assets and liabilities: Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sub total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest and dividend income received . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expenses paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . Cash ﬂ ows from investing activities: Purchase of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sales and redemption of investment securities . . . . . . . . . Purchase of vessels, property and equipment and intangible assets . . . . . . . . . . . . Proceeds from sales of vessels, property and equipment and intangible assets . . . Purchase of shares of subsidiaries resulting in change in scope of consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sales of shares of 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 bank 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends paid by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends paid to non-controlling interests . . . . . . . . . . . . . . . . . . . Others, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used in) ﬁ nancing activities . . . . . . . . . . . . . . . . . . . . Effect of foreign exchange rate changes on cash and cash 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. 78 Mitsui O.S.K. Lines Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 ¥(154,385) ¥ 58,332 $(1,370,119) 92,772 — 179,291 (9,178) (1,096) (454) (233) (10,210) 14,576 (12,915) (8,643) 26,228 (25,084) 47,462 21,185 (38,943) 91,997 12,627 224,997 14,099 (14,306) (15,600) 209,190 (7,919) 16,371 (123,840) 69,202 — 11,137 (5,459) (32,984) 49,311 (2,500) (26,681) (40,010) (5,500) 80,885 (152,552) — (15,600) (47) 29 (8,928) (1,116) (5,896) (148,735) (3,126) 30,648 128,802 — ¥ 159,450 87,804 10,198 — (4,930) 2,356 (1,560) 377 (9,625) 12,556 (134) (13,380) — (24,801) (28,223) 11,750 19,756 13,417 (25,161) 108,732 12,411 (13,107) (15,541) 92,495 (14,594) 1,770 (186,317) 74,184 (6,258) 8,706 (4,526) (59,942) 27,957 (131) (159,151) 59,030 5,500 107,951 (203,117) 95,280 (45,000) (57) 68 (7,177) (3,959) (2,008) 6,511 8,006 (52,139) 180,126 815 ¥ 128,802 823,323 — 1,591,152 (81,452) (9,727) (4,029) (2,068) (90,611) 129,357 (114,617) (76,704) 232,765 (222,613) 421,211 188,010 (345,607) 816,445 112,062 1,996,778 125,124 (126,961) (138,445) 1,856,496 (70,279) 145,288 (1,099,042) 614,146 — 98,837 (48,447) (292,723) 437,620 (22,186) (236,786) (355,076) (48,811) 717,829 (1,353,852) — (138,445) (417) 257 (79,233) (9,904) (52,325) (1,319,977) (27,742) 271,991 1,143,078 — $ 1,415,069 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, 2016, which was ¥112.68 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 The consolidated ﬁ nancial statements include the accounts of the Company and 362 subsidiaries for the year ended March 31, 2016 (371 subsidiaries for the year ended March 31, 2015). 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 are accounted for by the equity method. Companies accounted for using the equity method include 76 afﬁ liated companies for the year ended March 31, 2016, and 70 afﬁ liated com- panies for the year ended March 31, 2015. Investments in other subsidiaries and afﬁ liated companies 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. The difference between acquisition cost and net assets acquired is treated as goodwill and is amortized principally over 5 years on a straight-line basis. Amortized amount is included in “Selling, general and administrative expenses” of the consolidated statements of operations. (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. (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. Annual Report 2016 79 16MOL英文財務p73_109_0727.indd 78-79 16MOL英文財務p73_109_0727.indd 78-79 2016/07/27 16:14 2016/07/27 16:14 (4) FREIGHT REVENUES AND RELATED EXPENSES 1. Containerships (14) PROVISION FOR CONTRACT LOSS The Company recognizes provision for contract loss to cover potential losses with higher probability for the future performance of Freight revenues and the related voyage expenses are recognized by the multiple transportation progress method. contract due to a decision made over contract, etc. 2. Vessels other than containerships (15) DIRECTORS’ AND CORPORATE AUDITORS’ RETIREMENT BENEFITS Freight revenues and the related voyage expenses are recognized mainly by the completed-voyage method. The domestic subsidiaries of the Company recognize liabilities for retirement beneﬁ ts for directors and corporate auditors at an (5) SECURITIES amount required in accordance with the internal regulations. Securities are classiﬁ ed into (a) securities held for trading purposes (hereafter, “trading securities”), (b) debt securities intended to (16) RESERVE FOR PERIODIC DRYDOCKING be held to maturity (hereafter, “held-to-maturity debt securities”), (c) equity securities issued by subsidiaries and afﬁ liated compa- Reserve for periodic drydocking is based on the estimated amount of expenditures for periodic drydocking in the future. nies, or (d) for all other securities that are not classiﬁ ed in any of the above categories (hereafter, “available-for-sale securities”). (17) EMPLOYEES’ SEVERANCE AND RETIREMENT BENEFITS Trading securities are stated at fair market value. Unrealized gains and losses from market value ﬂ uctuations are recognized as The Company and its consolidated subsidiaries (the “Group”) recognized net deﬁ ned beneﬁ t assets and net deﬁ ned beneﬁ t liabili- gains or losses in the period of the change. Held-to-maturity debt securities are stated at amortized cost, net of the amount consid- ties for employees’ severance and retirement beneﬁ ts and retirement beneﬁ ts based on the estimated amounts of projected beneﬁ t ered not collectible. Equity securities issued by subsidiaries and afﬁ liated companies which are not consolidated or accounted for obligation and the fair value of the plan assets at end of the year. Projected beneﬁ t obligations are attributed to each period by the using the equity method are stated at moving-average cost. Available-for-sale securities with fair market values are stated at fair straight-line method. market values, and the corresponding unrealized holding gains or losses, net of applicable income taxes, are reported as separate Actuarial gains and losses are recognized in the statements of operations using the straight-line method over the average of the component of net assets. Other securities with no available fair market value are stated at moving-average cost. estimated remaining service lives of mainly 10 years commencing with the following period. Past service costs are chieﬂ y accounted If the market value of held-to-maturity debt securities, equity securities issued by unconsolidated subsidiaries and afﬁ liated com- for as expenses in lump-sum at the time of occurrence. panies not on the equity method, and available-for-sale securities, declines signiﬁ cantly, such securities are stated at fair market (18) INCOME TAXES value and the difference between fair market value and the carrying amount is recognized as loss in the period of the decline. If the The Group recognizes tax effects of temporary differences between the ﬁ nancial statement basis and the tax basis of assets and lia- fair market value of held-to-maturity debt securities, equity securities issued by unconsolidated subsidiaries and afﬁ liated companies bilities. The provision for income taxes is computed based on the pretax income included in the consolidated statements of opera- not on the equity method, and available-for-sale securities is not readily available, such securities should be written down to net tions. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax assets value with a corresponding charge in the statements of operations in the event net assets value declines signiﬁ cantly. In these consequences of temporary differences. 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. (19) AMOUNTS PER SHARE OF COMMON STOCK (6) INVENTORIES Net income per share of common stock is computed based upon the weighted-average number of shares outstanding during the Inventories are stated principally at cost determined by the moving-average method (with regard to the book value of inventories year. on the balance sheet, by writing the inventories down based on their decrease in proﬁ tability of assets). Fully diluted net income per share of common stock assumes exercise of the outstanding stock options at the beginning of the (7) DEPRECIATION AND AMORTIZATION year or at the date of issuance. For the year ended March 31, 2016 fully diluted net income per share is not disclosed because of Depreciation of vessels and buildings is computed mainly by the straight-line method. Depreciation of other property and equip- the Company’s net loss position. ment is computed mainly by the declining-balance method. Amortization of intangible assets is computed by the straight-line Cash dividends per share have been presented on an accrual basis and include dividends to be approved after the balance sheet method. Computer software is amortized by the straight-line method based principally on the length of period it can be used inter- nally (ﬁ ve years). date, but applicable to the year then ended. (20) DERIVATIVES AND HEDGE ACCOUNTING Depreciation of ﬁ nance lease that transfer ownership to lessees is computed mainly by the identical to depreciation method Companies are required to state derivative ﬁ nancial instruments at fair value and to recognize changes in the fair value as gains or applied to self-owned non-current assets. Depreciation of ﬁ nance lease that do not transfer ownership to lessees is computed losses unless derivative ﬁ nancial instruments are used for hedging purposes. mainly by straight-line method on the assumption that the lease term is the useful life and the estimated residual is zero. With If derivative ﬁ nancial instruments are used as hedging instruments and meet certain hedging criteria, the Group defers recogni- regard to ﬁ nance lease that do not transfer ownership for which the starting date for the lease transaction is prior to March 31, tion of gains or losses resulting from changes in fair value of derivative ﬁ nancial instruments until the related losses or gains on the 2008, they are continuously accounted for by a method corresponding to that used for ordinary operating lease contracts. hedged items are recognized. (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 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”). In cases where a vessel’s construction period is long and the amount of interest accruing during this period is signiﬁ cant, such inter- If foreign exchange forward contracts are used as hedging instruments and meet certain hedging criteria, hedged foreign cur- est expenses are capitalized as a part of the acquisition cost which amounted to ¥2,847 million ($25,266 thousand) for the year rency assets and liabilities are translated at the rate of these contracts (“allocation method”). ended March 31, 2016 and ¥5,139 million for the year ended March 31, 2015. (10) ALLOWANCE FOR DOUBTFUL ACCOUNTS The following summarizes hedging derivative ﬁ nancial instruments used by the Group and items hedged: Allowance for doubtful accounts is provided in an amount sufﬁ cient to cover probable losses on collection. It consists of the esti- Hedging instruments: Hedged items: mated uncollectible amount with respect to certain identiﬁ ed doubtful receivables and an amount calculated using the actual per- Loans payable in foreign currencies Foreign currency future transactions centage of the Company’s collection losses. (11) ALLOWANCE FOR BONUSES Allowance for bonuses to employees is based on the estimated amount of future payments attributed to the ﬁ scal year. (12) ALLOWANCE FOR DIRECTORS’ BONUSES The Company and several domestic consolidated subsidiaries record allowance for bonuses to directors based on the estimated amount of future payments. (13) PROVISION FOR LOSS ON BUSINESS LIQUIDATION Provision for loss on business liquidation is recorded for estimated losses arising from the business liquidations to be carried out by certain consolidated subsidiaries of the Company. 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. 80 Mitsui O.S.K. Lines Annual Report 2016 81 16MOL英文財務p73_109_0727.indd 80-81 16MOL英文財務p73_109_0727.indd 80-81 2016/07/27 16:14 2016/07/27 16:14 The Company evaluates hedge effectiveness by comparing the cumulative changes in cash ﬂ ows from or the changes in fair 3. FINANCIAL INSTRUMENTS value of hedged items and the cumulative changes in cash ﬂ ows from or the changes in fair value of hedging instruments. (21) RECLASSIFICATIONS Certain prior year amounts have been reclassiﬁ ed to conform to the 2016 presentation. (22) CHANGES IN ACCOUNTING POLICIES (Application of Accounting Standards for Business Combinations) The Group adopted “Revised Accounting Standard for Business Combinations” (ASBJ Statement No.21, September 13, 2013 (here- inafter, “Statement No.21”)), “Revised Accounting Standard for Consolidated Financial Statements” (ASBJ Statement No.22, September 13, 2013 (hereinafter, “Statement No.22”)) and “Revised Accounting Standard for Business Divestitures” (ASBJ Statement No.7, September 13, 2013 (hereinafter, “Statement No.7”)) (together, the “Business Combination Accounting Standards”), from the year ended March 31, 2016. As a result, the Company changed its accounting policies to recognize in capi- tal surplus the differences arising from the changes in the Company’s ownership interest of subsidiaries over which the Company continues to maintain control and to record acquisition related costs as expenses in the ﬁ scal year in which the costs are incurred. In addition, the Company changed its accounting policy for the reallocation of acquisition costs due to the completion following pro- visional accounting to reﬂ ect such reallocation in the consolidated ﬁ nancial statements for the ﬁ scal year in which the business combination took place. The Company also changed the presentation of net income and the term “non-controlling interests” is used instead of “minority interests”. Certain amounts in the prior year comparative information were reclassiﬁ ed to conform to such changes in the current year presentation. In the consolidated statement of cash ﬂ ows, cash ﬂ ows from acquisition or disposal of shares of subsidiaries with no changes in the scope of consolidation are included in “Cash ﬂ ows from ﬁ nancing activities” and cash ﬂ ows from acquisition related costs for shares of subsidiaries with changes in the scope of consolidation or costs related to acquisition or disposal of shares of subsidiaries with no changes in the scope of consolidation are included in “Cash ﬂ ows from operating activities”. With regard to the application of the Business Combination Accounting Standards, the Company followed the provisional treat- ments in article 58-2 (4) of Statement No.21, article 44-5 (4) of Statement No.22 and article 57-4 (4) of Statement No.7 with appli- cation from the beginning of the current ﬁ scal year prospectively. The effect of these changes on the consolidated ﬁ nancial statement is immaterial. (23) ACCOUNTING STANDARDS ISSUED BUT NOT YET APPLIED Revised Implementation Guidance on Recoverability of Deferred Tax Assets (ASBJ Guidance No.26, March 28 , 2016). 1. Overview Following the framework in Auditing Committee Report No. 66 “Audit Treatment regarding the Judgment of Recoverability of Deferred Tax Assets”, which prescribes estimation of deferred tax assets according to the classiﬁ cation of the entity by one of ﬁ ve types, the following treatments were changed as necessary: 1. Treatment for an entity that does not meet any of the criteria in types 1 to 5; 2. Criteria for types 2 and 3; 3. Treatment for deductible temporary differences which an entity classiﬁ ed as type 2 is unable to schedule; 4. Treatment for the period which an entity classiﬁ ed as type 3 is able to reasonably estimate with respect to future taxable income before consideration of taxable or deductible temporary differences that exist at the end of the current ﬁ scal year; and 5. Treatment when an entity classiﬁ ed as type 4 also meets the criteria for types 2 or 3. 2. Effective dates This standard will be effective from the beginning of the year ending March 31, 2017. 3. Effect of application of the standard The Group is currently under assessment of the effect of this new standard on the consolidated ﬁ nancial statements. (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 primarily through bank loans. Furthermore, we have established commitment line with Japanese banks to maintain a sufﬁ cient amount of working capital and prepare supplementary liquidity for 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 bank 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 bank 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 effectiveness), see Note 2 (20) 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 lines 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. 82 Mitsui O.S.K. Lines Annual Report 2016 83 16MOL英文財務p73_109_0727.indd 82-83 16MOL英文財務p73_109_0727.indd 82-83 2016/07/27 16:14 2016/07/27 16:14 (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, 2015 were the following; Book values and fair values of the ﬁ nancial instruments on the consolidated balance sheet at March 31, 2016 were the following; Millions of yen Book Value Fair Value Difference Assets Millions of yen Book Value Fair Value Difference Assets Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 159,450 ¥ 159,450 ¥ — 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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,810 130,293 10,988 87,319 59,132 6,810 130,293 10,988 87,319 64,561 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 453,992 ¥ 459,421 — — — — 5,429 ¥ 5,429 Liabilities Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 127,172 ¥ 127,172 ¥ — Short-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonds(*2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term bank loans(*3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,275 265,840 725,818 30,275 261,864 746,600 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,149,105 ¥1,165,911 Derivative ﬁ nancial instruments(*4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 16,405 ¥ 16,187 — (3,976) 20,782 ¥16,806 ¥ (218) Assets Thousands of U.S. dollars (Note 1) Book Value Fair Value Difference Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 128,802 ¥ 128,802 ¥ — 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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,821 178,845 5,556 120,583 76,265 2,821 178,845 5,556 120,583 82,282 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 512,872 ¥ 518,889 — — — — 6,017 ¥ 6,017 Liabilities Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 167,002 ¥ 167,002 ¥ — Short-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonds(*2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term bank loans(*3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,203 5,500 285,185 793,518 74,203 5,500 288,298 807,099 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,325,408 ¥1,342,102 Derivative ﬁ nancial instruments(*4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 153,519 ¥ 153,082 — — 3,113 13,581 ¥16,694 ¥ (437) *1 The book value of long-term loans receivable includes current portion amounting to ¥1,306 million. *2 The book value of bonds includes current portion amounting to ¥15,000 million. *3 The book value of long-term bank loans includes current portion amounting to ¥105,186 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. Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,415,069 $ 1,415,069 $ — The following is a description of the valuation methodologies used for the assets and liabilities measured at the fair value. Time deposits with a maturity of more than three months . . . . . . . . . . . . . . . . 60,437 60,437 Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,156,310 1,156,310 Short-term loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,515 97,515 Investment securities Available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term loans receivable(*1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 774,929 524,778 774,929 572,959 — — — — 48,181 Cash and cash equivalents, Time deposits with a maturity of more than three months, Trade receivables and Short-term loans receivable The fair value of above assets is evaluated at the book value because they are settled within a short term period and the fair value is almost equal to book value. Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,029,038 $ 4,077,219 $ 48,181 Investment securities Liabilities The fair value of stocks is evaluated at market prices at stock exchange as of the end of the years and the fair value of bonds is Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,128,612 $ 1,128,612 $ — evaluated at market prices at the stock exchange or at the value provided by ﬁ nancial institutions as of the end of the years. Short-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonds(*2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term bank loans(*3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268,681 2,359,247 6,441,409 268,681 2,323,962 6,625,843 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,197,949 $10,347,098 Derivative ﬁ nancial instruments(*4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 145,589 $ 143,655 — (35,285) 184,434 $149,149 $ (1,934) *1 The book value of long-term loans receivable includes current portion amounting to ¥10,117 million ($89,785 thousand). *2 The book value of bonds includes current portion amounting to ¥45,000 million ($399,361 thousand). *3 The book value of long-term bank loans includes current portion amounting to ¥77,701 million ($689,572 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. 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 the fair value is almost equal to the book value, unless the creditworthiness of the bor- rower has changed signiﬁ cantly because the loan was made. The fair value of long-term loans receivable with ﬁ xed interest rates, for each category of loans based on the type of loans, and maturity length, is evaluated by discounting the total amount of princi- pal and interest using the rate which would apply if similar loans were newly made. Trade payables, Short-term loans and Commercial paper The fair value of above liabilities is evaluated at the book value, because they are settled within a short term period and the fair value is almost equal to the book value. Bonds The fair value of corporate bonds with market price is evaluated on their market price. The fair value of variable interest rates cor- porate 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. 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 84 Mitsui O.S.K. Lines Annual Report 2016 85 16MOL英文財務p73_109_0727.indd 84-85 16MOL英文財務p73_109_0727.indd 84-85 2016/07/27 16:14 2016/07/27 16:14 the market rate in a short term and there has been no signiﬁ cant change in the Company’s creditworthiness 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 to be newly made. The fair value of long-term bank loans qualifying for allocation method of 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 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. Unlisted stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in unconsolidated subsidiaries and afﬁ liated companies . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen Thousands of U.S. dollars (Note 1) Book Value Book Value Book Value 2016 ¥ 7,063 120,668 6 2015 2016 ¥ 7,821 $ 62,682 140,395 1,070,891 12 53 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 (Governmental/municipal bonds) . . . . . . . . . . . . . . . . . . . . Available-for-sale securities (Corporate bonds) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . Within a year ¥128,802 2,821 178,845 5,556 — — 1,306 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥317,330 Millions of yen After one year through ﬁ ve years ¥ — — After ﬁ ve years through ten years ¥ — — After ten years ¥ — — — — 10 200 — — — — — — — — 44,390 ¥44,600 2,805 ¥2,805 27,764 ¥27,764 4. SECURITIES Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥127,737 ¥148,228 $1,133,626 A. The following tables summarize acquisition costs, book values and fair values of securities with available fair values at March 31, 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. 2016 and 2015. Available-for-sale securities: Securities with book values exceeding acquisition costs at March 31, 2016 At March 31, 2016, the aggregate annual maturity of monetary claims and securities was as follows; Type Millions of yen Acquisition cost Book Value Difference Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥33,086 ¥66,378 ¥33,292 Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210 225 15 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥33,296 ¥66,603 ¥33,307 Type Thousands of U.S. dollars (Note 1) Acquisition cost Book Value Difference Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $293,628 $589,084 $295,456 Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,864 1,997 133 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $295,492 $591,081 $295,589 Securities with book values exceeding acquisition costs at March 31, 2015 Millions of yen After one year through ﬁ ve years After ﬁ ve years through ten years ¥ — — ¥ — — After ten years ¥ — — — — 10 200 9,572 ¥9,782 — — — — — — — — 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 (Governmental/municipal bonds) . . . . . . . . . . . . . . . . . . . . Available-for-sale securities (Corporate bonds) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . Time deposits with a maturity of more than three months . . . Within a year ¥159,450 6,810 130,293 10,988 — — 10,117 ¥317,658 Within a year $1,415,069 60,437 4,283 ¥4,283 35,160 ¥35,160 Type Millions of yen Acquisition cost Book Value Difference Thousands of U.S. dollars (Note 1) After one year through ﬁ ve years $ — — After ﬁ ve years through ten years $ — — After ten years $ — — Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥48,766 ¥115,824 ¥67,058 Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 215 15 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥48,966 ¥116,039 ¥67,073 Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,156,310 Short-term loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . 97,515 Marketable securities and investments securities Available-for-sale securities (Governmental/municipal bonds) . . . . . . . . . . . . . . . . . . . . Available-for-sale securities (Corporate bonds) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . — — 89,785 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,819,116 — — 89 1,775 84,949 $86,813 — — — — — — — — 38,010 $38,010 312,034 $312,034 At March 31, 2015, the aggregate annual maturity of monetary claims and securities was as follows; 86 Mitsui O.S.K. Lines Annual Report 2016 87 16MOL英文財務p73_109_0727.indd 86-87 16MOL英文財務p73_109_0727.indd 86-87 2016/07/27 16:14 2016/07/27 16:14 Securities with book values not exceeding acquisition costs at March 31, 2016 6. DERIVATIVE TRANSACTIONS Type Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Type Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities with book values not exceeding acquisition costs at March 31, 2015 Millions of yen Acquisition cost Book Value Difference ¥23,494 ¥23,494 ¥20,716 ¥20,716 ¥(2,778) ¥(2,778) Thousands of U.S. dollars (Note 1) Acquisition cost Book Value Difference $208,502 $208,502 $183,848 $183,848 $(24,654) $(24,654) Type Millions of yen Acquisition cost Book Value Difference Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥5,456 10 ¥5,466 ¥4,534 10 ¥4,544 ¥(922) 0 ¥(922) B. Total sales of available-for-sale securities sold in the years ended March 31, 2016 and 2015 and the related gains and losses were as follows: 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, 2016 and 2015, for which hedge accounting has not been applied. (1) Currency related: Forward currency exchange contracts Sell (U.S. dollar): Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buy (U.S. dollar): Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buy (Others): Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 ¥ 1 0 ¥260 (9) ¥ 24 1 ¥ — — ¥467 1 ¥ 24 0 $ 9 0 $2,307 (80) $ 213 9 Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 Proceeds from sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C. Impairment losses of securities Millions of yen Thousands of U.S. dollars (Note 1) 2016 ¥15,279 12,934 2 2015 ¥290 135 — 2016 $135,596 114,785 18 (2) Interest related Interest rate swaps Receive ﬂ oating, pay ﬁ xed Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥25,435 (2,090) ¥40,183 $225,728 (1,213) (18,548) For the year ended March 31, 2016, the Company reduced the book value on the securities and booked the reductions as impair- Receive ﬁ xed, pay ﬂ oating ment losses of ¥26,285 million ($233,271 thousand). No impairment loss on the securities was recognized for the year ended March 31, 2015. 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 Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 9,034 ¥ — $ 80,174 Fair values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 — 1,775 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. cost. 5. INVENTORIES Inventories as of March 31, 2016 and 2015 consisted of the following: Fuel and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen Thousands of U.S. dollars (Note 1) 2016 ¥26,603 1,257 ¥27,860 2015 2016 ¥48,030 $236,093 996 11,156 ¥49,026 $247,249 88 Mitsui O.S.K. Lines Annual Report 2016 89 16MOL英文財務p73_109_0727.indd 88-89 16MOL英文財務p73_109_0727.indd 88-89 2016/07/27 16:14 2016/07/27 16:14 II. Hedge accounting applied 7. SHORT-TERM DEBT AND LONG-TERM DEBT The following tables summarize the outstanding contract amounts and fair values of ﬁ nancial derivatives of the Group at March 31, (1) SHORT-TERM DEBT 2016 and 2015, for which hedge accounting has been applied. Short-term debt at March 31, 2016 and 2015 consisted of the following: Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 (1) Deferral hedge accounting a. Forward currency exchange contracts to hedge the risk for the foreign currency transactions Sell (U.S. dollar): Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 49,932 ¥ — $ 443,131 Fair values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (854) — (7,579) Buy (U.S. dollar): Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 55,421 ¥ — $ 491,844 Fair values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,323) — (20,616) b. Currency swaps contracts to hedge the risk for charterages Sell (U.S. dollar): Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 6,458 ¥ 7,669 $ 57,313 Fair values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,397) (1,664) (12,398) Buy (U.S. dollar): Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥185,023 ¥453,024 $1,642,022 Fair values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,596 182,171 440,149 c. Interest rate swaps to hedge the risk for the long-term bank loans and charterages Receive ﬂ oating, pay ﬁ xed Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥307,776 ¥290,387 $2,731,416 Fair values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,858) (21,451) (229,482) d. Crude oil swaps to hedge the risk for the fuel oil Receive ﬂ oating, pay ﬁ xed Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,365 ¥ — $ 12,114 Fair values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (779) — (6,913) e. Commodities futures to hedge the risk for the fuel oil Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,305 ¥ 11,907 $ 11,581 Fair values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (83) (4,324) (737) Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 (2) Special treatment Interest rate swaps to hedge the risk for the long-term bank loans Receive ﬂ oating, pay ﬁ xed Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥20,758 ¥20,550 $184,221 Fair values. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (218) (437) (1,935) Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 (3) Allocation method Currency swaps to hedge the risk for the foreign bonds and long-term bank loans Contracts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥13,700 ¥31,781 $121,583 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. Short-term bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥30,275 Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥30,275 Millions of yen 2016 Thousands of U.S. dollars (Note 1) 2016 $268,681 — $268,681 2015 ¥74,203 5,500 ¥79,703 Average interest rates on short-term bank loans at March 31, 2016 and 2015 were 0.46% and 0.55%, respectively. Average interest rate on commercial paper at March 31, 2015 was 0.09%. (2) LONG-TERM DEBT Long-term debt at March 31, 2016 and 2015 consisted of the following: Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 Bonds: 0.296% yen bonds due July 10, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ — ¥ 15,000 $ — 0.573% yen bonds due June 21, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.070% yen bonds due September 30, 2016. . . . . . . . . . . . . . . . . . . . . . . . . 1.106% yen bonds due December 17, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . 0.461% yen bonds due July 12, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.000% U.S. dollars bonds due April 24, 2018* . . . . . . . . . . . . . . . . . . . . . . 1.999% yen bonds due May 27, 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.673% yen bonds due September 13, 2019. . . . . . . . . . . . . . . . . . . . . . . . . 1.398% yen bonds due May 28, 2020. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.000% U.S. dollars bonds due April 24, 2020* . . . . . . . . . . . . . . . . . . . . . . 1.361% yen bonds due June 21, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.652% yen bonds due May 27, 2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.139% yen bonds due July 12, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.071% yen bonds due January 23, 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.845% yen bonds due March 4, 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.970% yen bonds due June 19, 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.803% yen bonds due March 3, 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term bank loans due within one year: 10,000 15,000 20,000 20,000 33,804 18,500 10,000 15,000 22,536 17,800 5,000 8,700 10,000 15,000 29,500 15,000 10,000 15,000 20,000 20,000 36,051 18,500 10,000 15,000 24,034 17,800 5,000 9,200 10,000 15,000 29,600 15,000 88,747 133,120 177,494 177,494 300,000 164,182 88,747 133,120 200,000 157,969 44,373 77,210 88,747 133,120 261,804 133,120 Long-term bank loans due within one year at average interest rate of 0.87% and 0.64% at March 31, 2016 and 2015, respectively.. . . . . . . . . . . . . . . . . 77,701 105,186 689,572 Long-term bank loans due after one year: Long-term bank loans due through 2034 at average interest rate of 1.50% and 1.20% at March 31, 2016 and 2015, respectively.. . . . . . . . . . . . . . . . . Amount due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *Zero coupon convertible bonds, details are as follows. 648,117 991,658 122,701 688,332 1,078,703 120,186 5,751,837 8,800,656 1,088,933 ¥868,957 ¥ 958,517 $7,711,723 (1) Exercise period (2) Conversion price The 2018 Bonds The 2020 Bonds From May 8, 2014 to April 10, 2018 U.S.$ 5.31 per share From May 8, 2014 to April 9, 2020 U.S.$ 4.78 per share 90 Mitsui O.S.K. Lines Annual Report 2016 91 16MOL英文財務p73_109_0727.indd 90-91 16MOL英文財務p73_109_0727.indd 90-91 2016/07/27 16:14 2016/07/27 16:14 At March 31, 2016, the aggregate annual maturity of long-term debt was as follows: 9. NET ASSETS Year ending March 31 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen ¥122,701 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 and thereafter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,405 142,326 82,406 115,366 413,454 Thousands of U.S. dollars (Note 1) $1,088,933 1,024,184 1,263,099 731,328 1,023,837 3,669,275 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥991,658 $8,800,656 (3) ASSETS PLEDGED AND SECURED DEBT At March 31, 2016 and 2015, the following assets were pledged as collateral for short-term debt and long-term debt. Assets pledged Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 Vessels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥245,710 ¥202,454 $2,180,600 Vessels and other property under construction . . . . . . . . . . . . . . . . . . . . . . . . . . Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,108 76,623 90,908 73,811 231,700 680,006 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥348,441 ¥367,173 $3,092,306 Secured debt Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 Net assets comprises four sections, which are the owners’ equity, accumulated other comprehensive income, share subscription rights and non-controlling 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. (A) SHARES ISSUED AND OUTSTANDING Changes in number of shares issued and outstanding during the years ended March 31, 2016 and 2015 were as follows: Balance at April 1, 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shares of common stock (Thousands) 1,206,286 Shares of treasury stock (Thousands) 10,373 — — 150 (337) Balance at March 31 and April 1, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,206,286 10,186 Increase during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 140 (104) Short-term bank debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ — ¥ 10 $ — Balance at March 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,206,286 10,222 Long-term bank debt due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term bank debt due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,500 158,772 13,759 156,237 128,683 1,409,052 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥173,272 ¥170,006 $1,537,735 (B) SHARE SUBSCRIPTION RIGHTS Share subscription rights at March 31, 2016 and 2015 consisted of the following: 8. COMMITMENTS AND CONTINGENT LIABILITIES (A) COMMITMENT At March 31, 2016 and 2015, the Company had loan commitment agreements with certain afﬁ liated companies. The nonexercised portion of loan commitments was as follows: Total loan limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan executions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The nonexercised portion of loan commitments . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen Thousands of U.S. dollars (Note 1) 2016 ¥13,522 9,578 ¥ 3,944 2015 2016 ¥15,622 $120,000 — 85,000 ¥15,622 $ 35,000 (B) CONTINGENT LIABILITIES At March 31, 2016 and 2015, 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 ¥148,653 million ($1,319,249 thousand) and ¥112,360 million, respectively. Stock options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (C) DIVIDENDS (1) Dividends paid for the year ended March 31, 2016 were as follows: Millions of yen 2016 2015 ¥2,682 ¥2,682 ¥2,553 ¥2,553 Thousands of U.S. dollars (Note 1) 2016 $23,802 $23,802 Approved at the shareholders’ meeting held on June 23, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . Approved at the board of directors held on October 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen ¥4,785 Thousands of U.S. dollars (Note 1) $42,465 ¥4,186 ¥8,971 $37,150 $79,615 (2) Dividends included in the retained earnings at March 31, 2016 and to be paid in subsequent periods were as follows: Approved at the shareholders’ meeting held on June 21, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen ¥1,794 Thousands of U.S. dollars (Note 1) $15,921 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥1,794 $15,921 92 Mitsui O.S.K. Lines Annual Report 2016 93 16MOL英文財務p73_109_0727.indd 92-93 16MOL英文財務p73_109_0727.indd 92-93 2016/07/27 16:14 2016/07/27 16:14 10. IMPAIRMENT LOSS For the year ended March 31, 2015, the Group recorded an impairment loss on the following asset group. 12. LEASES AS LESSEE: Assets to be disposed of by sale Application Type Vessels and Other Millions of yen ¥10,198 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, 2015, 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 impairment losses. The recoverable amount for this asset group was evaluated based on the asset’s net selling price. And the asset’s net selling price was appraised based on the target price of assets to be disposed of by sale. (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, 2016 of ﬁ nance leases that do not transfer ownership to the lessee was as follows: Acquisition cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11. BREAKDOWN OF COSTS OF BUSINESS STRUCTURAL REFORMS The Company recognized costs of business structural reforms arising from the business structural reforms for bulk carriers and con- Acquisition cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . tainerships which mainly consist of impairment loss and provision for loss on business liquidation. A breakdown of the costs was as follows: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A summary of assumed amounts of acquisition cost, accumulated depreciation and net book value at March 31, 2015 of ﬁ nance leases that do not transfer ownership to the lessee was as follows: Impairment loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for loss on business liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on cancellation fee for chartered vessels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen ¥ 90,308 Thousands of U.S. dollars (Note 1) $ 801,455 71,008 9,459 8,516 630,174 83,946 75,577 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥179,291 $1,591,152 (IMPAIRMENT LOSS) For the year ended March 31, 2016, the Group recorded an impairment loss on the following asset group. Application Assets for operations Assets to be disposed of by sale Type Vessels and Other Vessels and Other Millions of yen ¥56,449 Thousands of U.S. dollars (Note 1) $500,967 33,859 300,488 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, 2016, since proﬁ tability of the assets related to Containerships segment for operations signiﬁ - cantly deteriorated, the Group reduced the book value on these assets to recoverable amounts and booked the reductions as costs Acquisition cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) Future lease payments at March 31, 2016 and 2015 Amount due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amount due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Furniture and ﬁ xtures ¥— — ¥— Millions of yen Machinery, equipment and vehicles ¥190 179 ¥ 11 Thousands of U.S. dollars (Note 1) Furniture and ﬁ xtures Machinery, equipment and vehicles $— — $— $1,686 1,588 $ 98 Total ¥190 179 ¥ 11 Total $1,686 1,588 $ 98 Furniture and ﬁ xtures ¥2,425 2,401 ¥ 24 Millions of yen Machinery, equipment and vehicles ¥190 162 ¥ 28 Total ¥2,615 2,563 ¥ 52 Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 ¥13 — ¥13 ¥123 13 ¥136 $115 — $115 Millions of yen 2016 ¥126 41 2 Thousands of U.S. dollars (Note 1) 2016 $1,118 364 18 2015 ¥1,340 385 41 of business structural reforms. (3) Lease payments, depreciation equivalent and interest equivalent For the year ended March 31, 2016, with regard to the target price of assets related to Bulkships segment 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 costs of business structural reforms. The recoverable amount for this asset group was evaluated based on the asset’s net selling price. And the asset’s net selling Lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . price was appraised based on the appraisal value reasonably calculated by a third party and the target price of assets to be disposed Depreciation equivalent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . of by sale. Interest equivalent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 Mitsui O.S.K. Lines Annual Report 2016 95 16MOL英文財務p73_109_0727.indd 94-95 16MOL英文財務p73_109_0727.indd 94-95 2016/07/27 16:14 2016/07/27 16:14 (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. (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, 2016 AND 2015: Amount due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amount due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen Thousands of U.S. dollars (Note 1) 2016 ¥ 51,195 286,547 ¥337,742 2015 2016 ¥ 54,586 $ 454,339 264,331 2,543,016 ¥318,917 $2,997,355 AS LESSOR: (A) FUTURE LEASE INCOME UNDER OPERATING LEASES FOR ONLY NON-CANCELABLE CONTRACTS AT MARCH 31, 2016 AND 2015: Amount due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amount due after one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen Thousands of U.S. dollars (Note 1) 2016 ¥14,146 42,867 ¥57,013 2015 ¥13,212 46,912 ¥60,124 2016 $125,542 380,431 $505,973 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: For the year ended March 31 Book value Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 Balance at beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥317,018 ¥280,120 $2,813,436 Changes during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value at end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,926) 311,092 444,844 36,898 317,018 432,440 (52,591) 2,760,845 3,947,852 Notes: 1. Book value is the acquisition cost, net of accumulated depreciation. 2. Fair value is mainly based on the amount appraised by outside independent real estate appraisers. 3. Of changes during the year ended March 31, 2015, the primary increase was mainly due to completion of the Shin- Daibiru Building (¥20,822 million), acquisition of the Corner Stone Building (¥11,135 million), and the acquisition of land near Akihabara Station from the Tokyo Metropolitan Government (¥7,151 million), while the primary decrease was mainly due to the depreciation of existing properties (¥6,176 million). 4. Of changes during the year ended March 31, 2016, the primary increase was mainly due to the renewal construction of ofﬁ ce buildings (¥1,367 million ($12,132 thousand)), and the additional acquisition of land near Akihabara Station (¥724 million ($6,425 thousand)), while the primary decrease was mainly due to the depreciation of existing properties (¥7,782 million ($69,063 thousand)). In addition, information for rental revenue and expense from rental properties was as follows: Rental revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rental expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen Thousands of U.S. dollars (Note 1) 2016 ¥28,492 17,917 ¥10,575 2015 ¥27,058 16,041 ¥11,017 2016 $252,858 159,008 $ 93,850 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”. 96 Mitsui O.S.K. Lines Annual Report 2016 97 16MOL英文財務p73_109_0727.indd 96-97 16MOL英文財務p73_109_0727.indd 96-97 2016/07/27 16:14 2016/07/27 16:14 14. SEGMENT AND RELATED INFORMATION (A) SEGMENT INFORMATION: Millions of yen For the year ended March 31, 2015: Bulkships Millions of yen Reportable segment Container- ships Ferry & Domestic transport Associated business Sub Total Others Total Adjustment Consolidated For the year ended March 31, 2016: Bulkships Reportable segment Container- ships Ferry & Domestic transport Associated business Sub Total Others Total Adjustment Consolidated 1. Revenues: (1) Revenues from customers, unconsolidated subsidiaries and afﬁ liated companies . . . . . . . . . . ¥ 857,290 ¥787,068 ¥56,032 ¥108,389 ¥1,808,779 ¥ 8,291 ¥1,817,070 ¥ — ¥1,817,070 1. Revenues: (1) Revenues from customers, unconsolidated subsidiaries and afﬁ liated companies . . . . . . . . . . ¥ 838,893 ¥719,109 ¥49,618 ¥ 96,606 ¥1,704,226 ¥ 7,997 ¥1,712,223 ¥ — ¥1,712,223 (2) Inter-segment revenues . . . . . . . . 251 2,026 188 30,373 32,838 5,312 38,150 (38,150) — Total revenues . . . . . . . . . . . . . . . ¥ 839,144 ¥721,135 ¥49,806 ¥126,979 ¥1,737,064 ¥ 13,309 ¥1,750,373 ¥ (38,150) ¥1,712,223 Segment income (loss) . . . . . . . . ¥ 54,857 ¥ (29,831) ¥ 4,424 ¥ 10,172 ¥ 39,622 ¥ 3,550 ¥ 43,172 ¥ (6,903) ¥ 36,269 Segment assets . . . . . . . . . . . . . . ¥1,526,583 ¥397,081 ¥44,097 ¥416,454 ¥2,384,215 ¥162,725 ¥2,546,940 ¥(327,353) ¥2,219,587 2. Others (1) Depreciation and amortization . . ¥ 62,112 ¥ 16,907 ¥ 2,022 ¥ 10,091 ¥ 91,132 ¥ 273 ¥ 91,405 ¥ 1,367 ¥ 92,772 (2) Amortization of goodwill . . . . . . (3) Interest income . . . . . . . . . . . . . . (4) Interest expense . . . . . . . . . . . . . (5) Equity in earnings (losses) of afﬁ liated companies, net . . . . . . . (6) Costs of business structural reforms. . . . . . . . . . . . . . . . . . . . 12 2,761 12,934 63 665 2,022 7,813 706 117,411 61,880 — 21 143 453 — 132 74 207 3,521 1,738 16,837 255 — 9,227 179,291 1 1,785 1,034 (49) — 208 5,306 17,871 9,178 179,291 (7) Investment in afﬁ liates . . . . . . . . 91,287 14,131 2,094 2,083 109,595 1,896 111,491 — (1,227) (3,295) — — — 208 4,079 14,576 9,178 179,291 111,491 (8) Increase in vessels, property and equipment and intangible assets . 87,116 15,526 5,866 5,177 113,685 124 113,809 1,903 115,712 (2) Inter-segment revenues . . . . . . . . 526 2,063 272 39,775 42,636 5,920 48,556 (48,556) — Total revenues . . . . . . . . . . . . . . . ¥ 857,816 ¥789,131 ¥56,304 ¥148,164 ¥1,851,415 ¥ 14,211 ¥1,865,626 ¥ (48,556) ¥1,817,070 Segment income (loss) . . . . . . . . ¥ 54,105 ¥ (24,147) ¥ 4,462 ¥ 10,925 ¥ 45,345 ¥ 4,183 ¥ 49,528 ¥ 1,802 ¥ 51,330 Segment assets . . . . . . . . . . . . . . ¥1,719,714 ¥496,487 ¥40,535 ¥426,130 ¥2,682,866 ¥346,183 ¥3,029,049 ¥(404,999) ¥2,624,050 2. Others (1) Depreciation and amortization . . ¥ 59,234 ¥ 16,109 ¥ 2,279 ¥ 8,511 ¥ 86,133 ¥ 283 ¥ 86,416 ¥ 1,388 ¥ 87,804 (2) Amortization of goodwill, net . . . (3) Interest income . . . . . . . . . . . . . . (4) Interest expense . . . . . . . . . . . . . (5) Equity in earnings (losses) of afﬁ liated companies, net . . . . . . . (307) 2,019 10,632 3,286 (6) Investment in afﬁ liates . . . . . . . . 110,452 17 261 2,314 1,096 4,873 45 3 170 225 1,694 130 62 1,780 269 1,971 (115) 2,345 14,896 (9) 1,390 723 (124) 3,735 15,619 — (1,030) (3,063) (124) 2,705 12,556 4,876 54 4,930 118,990 1,967 120,957 — — 4,930 120,957 (7) Increase in vessels, property and equipment and intangible assets . 138,059 21,783 3,193 32,341 195,376 182 195,558 587 196,145 (Segment income (loss)) Segment income (loss) is calculated by adjusting ordinary income (loss). (B) RELATED INFORMATION: (1) Information about geographic areas: Thousands of U.S. dollars (Note 1) That’s why the revenues of geographic areas are revenues, wherever they may be earned, of companies registered in countries Our service areas are not necessarily consistent with our customer’s location in our core ocean transport business. For the year ended March 31, 2016: Bulkships Reportable segment Container- ships Ferry & Domestic transport Associated business Sub Total Others Total Adjustment Consolidated 1. Revenues: (1) Revenues from customers, unconsolidated subsidiaries and afﬁ liated companies . . . . . . . . . . $ 7,444,915 $6,381,869 $440,344 $ 857,348 $15,124,476 $ 70,971 $15,195,447 $ — $15,195,447 in the geographic areas. For the year ended March 31, 2016: Japan North America Europe Asia Others Consolidated Revenues . . . . . . . . . . . . . . . . . . . . . . ¥1,432,969 Vessels, property and equipment . . . . ¥1,082,305 ¥28,185 ¥41,748 ¥35,759 ¥ 3,455 ¥214,875 ¥214,263 ¥ 435 ¥34,661 ¥1,712,223 ¥1,376,432 Millions of yen (2) Inter-segment revenues . . . . . . . . 2,227 17,980 1,669 269,551 291,427 47,143 338,570 (338,570) — Thousands of U.S. dollars (Note 1) Total revenues . . . . . . . . . . . . . . . $ 7,447,142 $6,399,849 $442,013 $1,126,899 $15,415,903 $ 118,114 $15,534,017 $ (338,570) $15,195,447 For the year ended March 31, 2016: Japan North America Europe Asia Others Consolidated Segment income (loss) . . . . . . . . $ 486,839 $ (264,741) $ 39,262 $ 90,273 $ 351,633 $ 31,505 $ 383,138 $ (61,262) $ 321,876 Segment assets . . . . . . . . . . . . . . $13,547,950 $3,523,971 $391,347 $3,695,900 $21,159,168 $1,444,133 $22,603,301 $(2,905,156) $19,698,145 Revenues . . . . . . . . . . . . . . . . . . . . . . $12,717,155 $250,133 $317,350 $1,906,949 $ 3,860 $15,195,447 Vessels, property and equipment . . . . $ 9,605,121 $370,501 $ 30,662 $1,901,517 $307,605 $12,215,406 2. Others (1) Depreciation and amortization . . $ 551,225 $ 150,044 $ 17,945 $ 89,554 $ 808,768 $ 2,423 $ 811,191 $ 12,132 $ 823,323 (2) Amortization of goodwill . . . . . . (3) Interest income . . . . . . . . . . . . . . (4) Interest expense . . . . . . . . . . . . . (5) Equity in earnings (losses) of afﬁ liated companies, net . . . . . . . (6) Costs of business structural reforms. . . . . . . . . . . . . . . . . . . . 107 24,503 114,785 559 5,902 — 186 1,171 657 1,837 31,248 17,945 1,269 15,424 149,423 9 15,841 9,177 1,846 47,089 158,600 — (10,889) (29,243) 69,338 6,266 4,020 2,263 81,887 (435) 81,452 1,041,986 549,166 — — 1,591,152 — 1,591,152 (7) Investment in afﬁ liates . . . . . . . . 810,144 125,408 18,584 18,486 972,622 16,826 989,448 1,846 36,200 129,357 81,452 1,591,152 989,448 — — — For the year ended March 31, 2015: Japan North America Europe Asia Others Consolidated Revenues . . . . . . . . . . . . . . . . . . . . . . ¥1,538,042 Vessels, property and equipment . . . . ¥1,229,237 ¥25,044 ¥42,750 ¥37,939 ¥ 4,055 ¥215,453 ¥197,392 ¥ 592 ¥24,594 ¥1,817,070 ¥1,498,028 Millions of yen (2) Information about impairment loss by reportable segment: Millions of yen Reportable segment Container- ships Ferry & Domestic transport Associated business Sub Total Others Adjustment and elimination Consolidated (8) Increase in vessels, property and equipment and intangible assets . 773,127 137,788 52,059 45,945 1,008,919 1,101 1,010,020 16,888 1,026,908 For the year ended March 31, 2016: Bulkships 98 Mitsui O.S.K. Lines Annual Report 2016 99 16MOL英文財務p73_109_0727.indd 98-99 16MOL英文財務p73_109_0727.indd 98-99 2016/07/27 16:14 2016/07/27 16:14 Impairment loss . . . . . . . . . . . . . . . . ¥33,859 ¥56,449 ¥— ¥— ¥90,308 ¥— ¥— ¥90,308 Thousands of U.S. dollars (Note 1) 15. INCOME TAXES For the year ended March 31, 2016: Bulkships Reportable segment Container- ships Ferry & Domestic transport Associated business Sub Total Others Adjustment and elimination Consolidated Impairment loss . . . . . . . . . . . . . . . . $300,488 $500,967 $— $— $801,455 $— $— $801,455 Note: Above Impairment loss for the year ended March 31, 2016 was included in Costs of business structural reforms (other losses) in consolidated statements of operations. For the year ended March 31, 2015: Bulkships Millions of yen Reportable segment Container- ships Ferry & Domestic transport Associated business Sub Total Others Adjustment and elimination Consolidated Impairment loss . . . . . . . . . . . . . . . . ¥10,049 ¥ — ¥50 ¥ — ¥10,099 ¥ — ¥99 ¥10,198 (3) Information about goodwill by reportable segment: For the year ended March 31, 2016: Bulkships Millions of yen Reportable segment Container- ships Ferry & Domestic transport Associated business Sub Total Others Adjustment and elimination Consolidated Goodwill at the end of current year . . . . . . . . . . . . . . . . . . . . . . . ¥89 ¥14 ¥— ¥2,317 ¥2,420 ¥0 ¥— ¥2,420 For the year ended March 31, 2016: 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 at the end of current year . . . . . . . . . . . . . . . . . . . . . . . $790 $124 $— $20,563 $21,477 $0 $— $21,477 For the year ended March 31, 2015: Bulkships Millions of yen Reportable segment Container- ships Ferry & Domestic transport Associated business Sub Total Others Adjustment and elimination Consolidated Goodwill at the end of current year . . . . . . . . . . . . . . . . . . . . . . . ¥128 ¥364 ¥ — ¥2,508 ¥3,000 ¥1 ¥ — ¥3,001 The Company is subject to a number of taxes based on income, which, in the aggregate, indicate statutory rates in Japan of approximately 29.8% for the year ended March 31, 2016 and 31.8% for the year ended March 31, 2015. (A) Signiﬁ cant components of deferred tax assets and liabilities at March 31, 2016 and 2015 were as follows: Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 Deferred tax assets: Operating loss carried forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 53,931 ¥ 53,557 $ 478,621 Write-down of securities and other investments. . . . . . . . . . . . . . . . . . . . . . . Reserve for bonuses expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Excess bad debt expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net deﬁ ned beneﬁ t liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retirement allowances for directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrealized gain on sale of ﬁ xed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for loss on business liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for contract loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,519 1,412 26,346 892 4,651 559 1,435 20,237 1,204 5,911 118,097 (110,911) 7,186 1,861 1,546 661 1,011 2,386 526 1,548 — — 4,750 67,846 13,481 12,531 233,813 7,916 41,276 4,961 12,735 179,597 10,685 52,458 1,048,074 (61,414) (984,300) 6,432 63,774 Deferred tax liabilities: Reserve deductible for tax purposes when appropriated for deferred gain on real properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,749) (1,897) (15,522) (604) (555) (5,360) (11,806) (2,714) (17,179) (8,496) (39,531) (1,501) (83,580) (22,760) (2,809) (15,436) (10,073) (53,880) (2,597) (110,007) (104,775) (24,086) (152,458) (75,399) (350,826) (13,322) (741,748) Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥(76,394) ¥(103,575) $ (677,974) On March 29, 2016, amendments to the Japanese tax regulations were enacted into law. Based on the amendments, the statutory income tax rates utilized for the measurement of deferred tax assets and liabilities expected to be settled or realized from April 1, 2016 to March 31, 2018 and on or after April 1, 2018 are changed from 29.5% for the year ended March 31, 2016 to 28.8% and 28.5%, respectively, as of March 31, 2016. Due to these changes in statutory income tax rates, net deferred tax liabilities (after deducting the deferred tax assets) decreased by ¥1,520 million ($13,490 thousand) as of March 31, 2016, deferred income tax expense recognized for the ﬁ scal year ended March 31, 2016 decreased by ¥521 million ($4,624 thousand), unrealized holding gains on available-for-sale securities increased by ¥464 million ($4,118 thousand) , unrealized gains on hedging derivatives increased by ¥531 million ($4,712 thousand) and remeasurements of deﬁ ned beneﬁ t plans increased by ¥3 million ($27 thousand). 100 Mitsui O.S.K. Lines Annual Report 2016 101 16MOL英文財務p73_109_0727.indd 100-101 16MOL英文財務p73_109_0727.indd 100-101 2016/07/27 16:14 2016/07/27 16:14 (B) Reconciliation of the statutory tax rate to the effective tax rate for the year ended March 31, 2015, was as follow: (3) MOVEMENTS IN NET LIABILITY FOR RETIREMENT BENEFITS BASED ON THE SIMPLIFIED METHOD Statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . Non-deductible expenses . . . . . . . . . . . . . . . Tax exempt revenues . . . . . . . . . . . . . . . . . . 2015 31.8% 0.5% (7.8)% Effect on tonnage tax system . . . . . . . . . . . . (12.2)% Effect on elimination of dividend income . . . Equity in earnings of unconsolidated subsidiaries and afﬁ liated companies . . . . . . Effect on elimination of loss on valuation of stocks of subsidiaries and afﬁ liates . . . . . . . Effect on difference of effective tax rate for consolidated subsidiaries . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . 22.9% (2.3)% (5.0)% (10.3)% (0.7)% 16.9% *Reconciliation of the statutory tax rate to the effective tax rate for the year ended March 31, 2016, is not stated as the Company recorded loss before income taxes. 16. EMPLOYEES’ SEVERANCE AND RETIREMENT BENEFITS (A) OUTLINE OF EMPLOYEES’ SEVERANCE AND RETIREMENT BENEFITS The Group has funded and un-funded deﬁ ned beneﬁ t pension plans and deﬁ ned contribution pension plans. The deﬁ ned beneﬁ t corporate pension plans provide for a lump-sum payment or annuity payment determined by reference to the current rate of pay and the length of service. The Company has a retirement beneﬁ t trust. Balance at beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥10,264 ¥ 9,899 Retirement beneﬁ t costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Beneﬁ ts paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contributions paid by the employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,158 (1,510) (753) 1,824 (267) (1,192) Balance at end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥10,159 ¥10,264 $91,090 19,152 (13,401) (6,683) $90,158 Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 (4) RECONCILIATION FROM RETIREMENT BENEFIT OBLIGATIONS AND PLAN ASSETS TO LIABILITY (ASSET) FOR RETIREMENT BENEFITS INCLUDING PLAN APPLIED SIMPLIFIED METHOD Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 Funded retirement beneﬁ t obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 55,188 ¥ 53,665 $489,776 Plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unfunded retirement beneﬁ t obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total net liability (asset) for retirement beneﬁ ts at end of the year . . . . . . . . . . . Liability for retirement beneﬁ ts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asset for retirement beneﬁ ts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total net liability (asset) for retirement beneﬁ ts at end of the year . . . . . . . . . . . (66,745) (11,557) 11,707 150 13,442 (13,292) ¥ 150 (75,930) (22,265) 11,862 (10,403) 13,660 (592,341) (102,565) 103,897 1,332 119,294 (24,063) ¥ (10,403) (117,962) $ 1,332 The retirement lump-sum plans provide for a lump-sum payment, as employee retirement beneﬁ ts, determined by reference to (5) RETIREMENT BENEFIT COSTS the current rate of pay and the length of service. Certain consolidated subsidiaries calculate liabilities for retirement beneﬁ t and retirement beneﬁ t expenses, for the deﬁ ned beneﬁ t corporate pension plans and the retirement lump-sum plans based on the amount which would be payable at the year end if all eligible employees terminated their services voluntarily (the “simpliﬁ ed method”). (B) DEFINED BENEFIT PLANS (1) MOVEMENTS IN RETIREMENT BENEFIT OBLIGATIONS EXCEPT PLAN APPLIED SIMPLIFIED METHOD Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 Balance at beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥45,500 ¥41,743 $403,798 Cumulative effect of changes in accounting policies . . . . . . . . . . . . . . . . . . . . Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1,694 485 4,934 4,565 1,723 496 (733) — 15,034 4,304 43,788 Beneﬁ ts paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,844) (2,294) (51,864) Balance at end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥46,769 ¥45,500 $415,060 Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,694 ¥ 1,723 $ 15,034 Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net actuarial loss amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retirement beneﬁ t costs calculated by the simpliﬁ ed method. . . . . . . . . . . . . . . Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 485 (1,323) (1,192) 2,158 221 497 (1,198) (715) 1,476 157 4,304 (11,741) (10,579) 19,152 1,961 Total retirement beneﬁ t costs for the ﬁ scal year . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 2,043 ¥ 1,940 $ 18,131 (6) REMEASUREMENTS OF DEFINED BENEFIT PLANS Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥7,675 ¥(5,863) $68,113 Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 (2) MOVEMENTS IN PLAN ASSETS EXCEPT PLAN APPLIED SIMPLIFIED METHOD (7) ACCUMULATED REMEASUREMENTS OF DEFINED BENEFIT PLANS Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 Balance at beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥66,169 ¥59,906 $587,229 Expected return on plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contributions paid by the employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Beneﬁ ts paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return of assets of retirement beneﬁ t trust . . . . . . . . . . . . . . . . . . . . . . . . . . 1,323 (1,550) — (5,584) (3,581) 1,198 5,845 1,293 (2,073) — 11,741 (13,756) — (49,556) (31,780) Balance at end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥56,777 ¥66,169 $503,878 Unrecognized actuarial differences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥49 ¥(7,626) $435 Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 102 Mitsui O.S.K. Lines Annual Report 2016 103 16MOL英文財務p73_109_0727.indd 102-103 16MOL英文財務p73_109_0727.indd 102-103 2016/07/27 16:14 2016/07/27 16:14 (8) PLAN ASSETS 1. Plan assets comprise Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jointly invested assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retirement beneﬁ t trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 2015 34% 23% 36% 7% 0% 100% 27% 47% 22% 18% 13% 0% 100% 37% 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. (9) ACTUARIAL ASSUMPTIONS The discount rates were mainly 0.5%–1.1% for the year ended March 31, 2016 and 0.6%–1.2% for the year ended March 31, 2015. Also, the rates of expected return on plan assets were mainly 2.0% for the year ended March 31, 2016 and 2015. (C) DEFINED CONTRIBUTION PLANS The estimated amounts of contributions to deﬁ ned contribution plans were ¥816 million ($7,242 thousand) at March 31, 2016 and ¥747 million at March 31, 2015. 17. STOCK OPTIONS (A) EXPENSED AMOUNT Expensed amounts on stock options for the years ended March 31, 2016 and 2015 were as follows: Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 ¥146 ¥146 ¥195 ¥195 $1,296 $1,296 (B) TERMS AND CONDITIONS The following table summarizes terms and conditions of stock options for the years when they were granted: Number of grantees 2005 2006 2007 2008 Directors: 11 Executive ofﬁ cers: 17 Employees: 38 Presidents of the Company’s domestic consolidated subsidiaries: 34 Directors: 11 Executive ofﬁ cers: 17 Employees: 37 Presidents of the Company’s domestic consolidated subsidiaries: 37 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 ssubsidiaries: 36 Number of stock options Common stock 1,650,000 Common stock 1,700,000 Common stock 1,710,000 Common stock 1,760,000 Grant date August 5, 2005 August 11, 2006 August 10, 2007 August 8, 2008 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, 2006 to June 23, 2015 From June 20, 2007 to June 22, 2016 From June 20, 2008 to June 21, 2017 From July 25, 2009 to June 24, 2018 Number of grantees 2009 2010 2011 2012 Directors: 11 Executive ofﬁ cers: 20 Employees: 34 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 Directors: 10 Executive ofﬁ cers: 22 Employees: 35 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 Number of stock options Common stock 1,650,000 Common stock 1,710,000 Common stock 1,730,000 Common stock 1,640,000 Grant date August 14, 2009 August 16, 2010 August 9, 2011 August 13, 2012 Vesting conditions Service period Exercise period No provisions No provisions No provisions No provisions No provisions No provisions No provisions No provisions From July 31, 2011 to June 22, 2019 From July 31, 2012 to June 21, 2020 From July 26, 2013 to June 22, 2021 From July 28, 2014 to June 21, 2022 Number of grantees 2013 2014 2015 Directors: 9 Executive ofﬁ cers: 18 Employees: 38 Presidents of the Company’s domestic consolidated subsidiaries: 33 Directors: 9 Executive ofﬁ cers: 19 Employees: 33 Presidents of the Company's domestic consolidated subsidiaries: 32 Directors: 8 Executive ofﬁ cers: 18 Employees: 37 Presidents of the Company’s domestic consolidated subsidiaries: 32 Number of stock options Common stock 1,600,000 Common stock 1,480,000 Common stock 1,550,000 Grant date August 16, 2013 August 18, 2014 August 17, 2015 Vesting conditions Service period Exercise period No provisions No provisions No provisions No provisions No provisions No provisions From August 2, 2015 to June 20, 2023 From August 2, 2016 to June 23, 2024 From August 1, 2017 to June 20, 2025 104 Mitsui O.S.K. Lines Annual Report 2016 105 16MOL英文財務p73_109_0727.indd 104-105 16MOL英文財務p73_109_0727.indd 104-105 2016/07/27 16:14 2016/07/27 16:14 (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 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Balance at March 31, 2015 . . . . . . Options granted during the year . Options expired during the year . . Options vested during the year . . Balance at March 31, 2016 . . . . . . — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 1,600,000 1,480,000 — — — — — — 1,600,000 — 1,550,000 — — — — — — 1,480,000 1,550,000 Vested stock options 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Balance at March 31, 2015 . . . . . . 878,000 1,443,000 1,660,000 1,730,000 1,630,000 1,710,000 1,720,000 1,357,000 — Options vested during the year . . Options exercised during the year . — — — — — — — — Options expired during the year . . 878,000 10,000 10,000 10,000 — — — — — — — — 1,600,000 28,000 32,000 10,000 10,000 — — Balance at March 31, 2016 . . . . . . — 1,423,000 1,650,000 1,720,000 1,630,000 1,700,000 1,710,000 1,329,000 1,568,000 — — — — — — — — — — (2) Unit prices of stock options exercised during the year Exercise price ¥762 ¥841 ¥1,962 ¥1,569 ¥639 ¥642 ¥468 ¥277 ¥447 ¥412 ¥427 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Average market price of share at exercise . . . . . . . . . . . . . . . . . . Fair value per stock option at grant date. . . . . . . . . . . . . . . . . — — — — — — — ¥369 ¥309 — — — ¥219 ¥ 352 ¥ 217 ¥136 ¥203 ¥ 87 ¥ 67 ¥172 ¥132 ¥94 (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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.29% Expected remaining term of the option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 years and 11 months Expected dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥7 per share 0.15% 2015 18. COMPREHENSIVE INCOME For the years ended March 31, 2016 and 2015, 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) 2016 2015 2016 Unrealized holding gains (losses) on available-for-sale securities, net of tax: Increase (Decrease) during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥(22,226) ¥ 16,331 $(197,249) Reclassiﬁ cation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sub-total, before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrealized gains (losses) on hedging derivatives, net of tax: Increase (Decrease) during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reclassiﬁ cation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments of acquisition cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sub-total, before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency translation adjustments: Increase (Decrease) during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reclassiﬁ cation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remeasurements of deﬁ ned beneﬁ t plans: Increase (Decrease) during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reclassiﬁ cation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sub-total, before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share of other comprehensive loss of associates accounted for using equity method: Decrease during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reclassiﬁ cation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments of acquisition cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,791) (35,017) 10,830 (24,187) (31,038) (13,985) 0 (45,023) 13,655 (31,368) (5,247) 3,727 (1,520) (6,483) (1,192) (7,675) 2,306 (5,369) (8,186) 3,091 1,620 (3,475) (57) 16,274 (3,382) 12,892 97,875 (18,834) (9,136) 69,905 (23,231) 46,674 20,635 167 20,802 6,578 (715) 5,863 (1,729) 4,134 (113,516) (310,765) 96,113 (214,652) (275,453) (124,112) 0 (399,565) 121,184 (278,381) (46,565) 33,075 (13,490) (57,534) (10,579) (68,113) 20,465 (47,648) (12,827) (72,648) 3,680 (834) (9,981) 27,431 14,377 (30,840) Total other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥(65,919) ¥ 74,521 $(585,011) 106 Mitsui O.S.K. Lines Annual Report 2016 107 16MOL英文財務p73_109_0727.indd 106-107 16MOL英文財務p73_109_0727.indd 106-107 2016/07/27 16:14 2016/07/27 16:14 Independent Auditor’s Report 19. RELATED PARTY TRANSACTIONS For the years ended March 31, 2016 and 2015, there are no applicable matters to report. 20. SUBSEQUENT EVENT There is no applica ble matter. 21. 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 vehi- cles. 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 the Group is uncertain as its ﬁ nancial impact is not estimable at this stage. 108 Mitsui O.S.K. Lines Annual Report 2016 109 16MOL英文財務p73_109_0727.indd 108-109 16MOL英文財務p73_109_0727.indd 108-109 2016/07/27 16:14 2016/07/27 16:14 The MOL Group Mitsui O.S.K. Lines, Ltd. March 31, 2016 ■ Consolidated Subsidiaries ▲ Afﬁ liated Companies Accounted for by the Equity Method Registered Ofﬁ ce MOL’s Voting Rights (%)* Paid-in Capital (Thousands) Registered Ofﬁ ce MOL’s Voting Rights (%)* Paid-in Capital (Thousands) Bulkships Containerships ■ Chugoku Shipping Agencies Ltd. ■ El Sol Shipping Ltd. S.A. ■ Euro Marine Carrier B.V. ■ Euro Marine Logistics N.V. ■ Lakler S.A. ■ 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 Cape (Singapore) Pte. Ltd. ■ MOL LNG Transport Co., 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. ■ Tokyo Marine Asia Pte. Ltd ■ Tokyo Marine Co., Ltd. ■ Unix Line Pte. Ltd. ■ World Logistics Service (U.S.A.), Inc. ■ Shipowner/Chartering companies (202 companies) in Panama, Marshall Islands, Liberia, Hong Kong, Cayman Islands, Singapore, Indonesia, Isle of Man and Malta ■ Others (2 companies) ▲ Aramo Shipping (Singapore) Pte. Ltd. ▲ Asahi Tanker Co., Ltd. ▲ Carioca MV27 B.V. ▲ Cernambi Norte MV26 B.V. ▲ Cernambi Sul MV24 B.V. ▲ Gearbulk Holding AG ▲ LNG Fukurokuju Shipping Corp. ▲ LNG Jurojin Shipping Corp. ▲ M.S.Tanker Shipping Ltd. ▲ T.E.N. Ghana MV25 B.V. ▲ Tartaruga MV29 B.V. ▲ Trans Paciﬁ c Shipping 2 Ltd. ▲ Trans Paciﬁ c Shipping 5 Ltd. ▲ Trans Paciﬁ c Shipping 8 Ltd. ▲ Viken MOL AS ▲ Viken Shuttle AS ▲ Shipowner/Chartering companies (48 companies) in Panama, Marshall Islands, Hong Kong, Liberia, Cayman Islands, Bahamas, Malta, Cyprus and Singapore ■ Asia Utoc Pte. Ltd. ■ Bangkok Container Service Co., Ltd. ■ Bangpoo Intermodal Systems Co., Ltd. ■ Chiba Utoc Corp. ■ Hong Kong Logistics Co., Ltd. ■ International Container Transport Co., Ltd. ■ International Transportation Inc. ■ Mitsui O.S.K. Lines (Australia) Pty. Ltd. ■ Mitsui O.S.K. Lines (Japan) Ltd. ■ Mitsui O.S.K. Lines (Nigeria) 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) Central Support Unit SP. Zoo ■ MOL (Europe) Ltd. ■ MOL (Ghana) Ltd. ■ MOL (Singapore) Pte. Ltd. ■ MOL Consolidation Service Ltd. ■ MOL Consolidation Service Ltd. (China) ■ MOL Container Center (Thailand) Co., Ltd. ■ MOL Cote D’ivoire S.A. ■ MOL Egypt for Maritime Services Ltd. ■ MOL Liner, Ltd. ■ 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 (Taiwan) Co., Ltd. ■ MOL Logistics (Thailand) Co., Ltd. ■ MOL Logistics (UK) Ltd. ■ MOL Logistics (USA) Inc. ■ MOL Logistics Holding (Europe) B.V. ■ MOL South Africa (Pty.) Ltd. ■ Shanghai Huajia International Freight Forwarding Co., Ltd. ■ Shosen Koun Co., Ltd. ■ Thai Intermodal Systems Co., Ltd. ■ TraPac, LLC. ■ TraPac Jacksonville, LLC. Japan Panama Netherlands Belgium Uruguay Bahamas Singapore U.K. U.S.A. Japan Panama Panama Singapore Singapore Japan Netherlands Netherlands Japan Singapore Panama Panama Singapore Japan Singapore U.S.A. Singapore Japan Netherlands Netherlands Netherlands Switzerland Bahamas Bahamas Hong Kong Netherlands Netherlands Bahamas Bahamas Bahamas Norway Norway Singapore Thailand Thailand Japan Hong Kong Japan U.S.A. Australia Japan Nigeria Singapore Thailand U.S.A. Brazil China Netherlands Poland U.K. Ghana Singapore Hong Kong China Thailand Ivory Coast Egypt Hong Kong Germany Netherlands Hong Kong Japan Netherlands Singapore Taiwan Thailand U.K. U.S.A. Netherlands South Africa China Japan Thailand U.S.A. U.S.A. 100.00 100.00 75.50 50.00 100.00 80.10 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 90.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 50.00 24.75 20.60 20.60 20.60 49.00 30.00 30.00 50.00 20.00 20.60 20.00 50.00 50.00 50.00 50.00 100.00 100.00 74.62 100.00 100.00 51.00 51.00 100.00 100.00 100.00 100.00 47.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.60 100.00 49.00 100.00 100.00 100.00 100.00 75.06 100.00 100.00 100.00 99.00 100.00 100.00 100.00 100.00 76.00 79.98 100.00 100.00 100.00 ¥10,000 US$10 €91 €900 US$91,401 US$1 S$2,350 US$8,402 — ¥660,000 ¥0 US$8 US$3,500,000 US$57,752 ¥40,000 €18 €195 ¥640,000 US$379,311 US$10 US$10 S$138,018 ¥100,000 US$344 US$200 US$20,743 ¥600,045 €100 €17,503 €162,160 US$228,100 ¥1,000 ¥1,000 HK$2,000 €100 US$110 ¥3,961,100 ¥36,400 ¥35,000 US$18 US$338 S$900 THB10,000 THB130,000 ¥90,000 HK$58,600 ¥100,000 US$0 A$1,000 ¥100,000 NGN25,000 S$200 THB20,000 US$6 BRL3,603 US$1,960 €456 PLN5 £1,500 US$50 S$5,000 HK$1,000 RMB8,000 THB10,000 XOF50,000 EGP750 HK$40,000 €537 €414 HK$14,100 ¥756,250 €3,049 S$700 NT$7,500 THB20,000 £400 US$9,814 €19 ZAR3,000 US$1,720 ¥300,000 THB77,500 — — ■ Utoc Corp. ■ Utoc Engineering Pte. Ltd. ■ Utoc Logistics Corp. ■ Utoc Stevedoring Corp. ■ Shipowner companies (17 companies) in Panama, Marshall Islands, Hong Kong and Japan Singapore Japan Japan Ferry & Domestic Transport Associated Business Others Liberia ■ Others (7 companies) ▲ Rotterdam World Gateway B.V. ▲ Shanghai Kakyakusen Kaisha, Ltd. ▲ Shanghai Longfei International Logistics Co., Ltd. ▲ Tan Cang-Cai Mep International Terminal Co. Ltd. ▲ TIPS Co., Ltd. ▲ Other (1 company) ■ Blue Highway Express Kyushu Co., Ltd ■ Blue Highway Service K.K. ■ Blue Sea Network Co., Ltd. ■ Ferry Sunﬂ ower Ltd. ■ MOL Coastal Shipping, Ltd. ■ MOL Ferry Co., Ltd. ■ Shipowner company (1 company) in Panama ■ Others (5 companies) ▲ Meimon Taiyo Ferry Co., Ltd. ▲ Other (1 company) ■ Daibiru Corp. ■ 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 Hydrographic Charts & Publications Co., Ltd. ■ Jentower Ltd. ■ Kitanihon Tug-boat Co., Ltd. ■ Kobe Towing Co., Ltd. ■ Kosan Kanri Service Co., Ltd. ■ Kosan Kanri Service-West Co., Ltd. ■ M.O. Tourist Co., Ltd. ■ Mitsui O.S.K. Kosan Co., Ltd. ■ Mitsui O.S.K. Passenger Line, Ltd. ■ MOL Career Support, Ltd. ■ MOL Kaiji Co., Ltd. ■ MOL Techno-Trade, Ltd. ■ Nihon Tug-Boat Co., Ltd. ■ Saigon Tower Co., Ltd. ■ Tanshin Building Service Co., Ltd. ■ Tokai Tugboat K.K. ■ Ube Port Service Co., Ltd. ■ Vibank-Ngt Co. Ltd. ■ White Lotus Properties Ltd. ■ Chartering company (1 company) in Panama ■ Others (3 companies) ▲ Shinyo Kaiun Corp. ▲ South China Towing Co., Ltd. ▲ Tan Cang-Cai Mep Towage Services Co., Ltd. ■ Euromol B.V. ■ Linkman Holdings 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 Marine Co., Ltd. ■ MOL Ocean Expert Co., Ltd. ■ MOL Ship Management Co., Ltd. ■ MOL Ship Tech Inc. ■ MOL SI, Inc. ■ MOL Treasury Management Pte. Ltd. ■ Shipowner/Chartering companies (4 companies) in Panama ▲ Minaminippon Shipbuilding Co., Ltd. *MOL’s voting rights include voting rights of MOL and its subsidiaries Netherlands Japan China Vietnam Thailand Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan British Virgin Islands Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Japan Vietnam Japan Japan Japan Vietnam British Virgin Islands Japan Hong Kong Vietnam Netherlands Liberia Japan Netherlands U.S.A. Japan Japan Japan U.S.A. Japan Panama Japan Japan Japan Japan U.S.A. Singapore Japan 67.55 100.00 100.00 100.00 20.00 31.98 22.05 21.33 24.44 100.00 100.00 100.00 99.00 100.00 100.00 ¥2,155,300 S$2,000 ¥50,000 ¥50,000 €368,773 ¥100,000 US$1,240 VND732,966,020 THB100,000 ¥50,000 ¥30,000 ¥54,600 ¥100,000 ¥650,000 ¥1,577,400 38.73 ¥880,000 51.07 100.00 100.00 100.00 100.00 100.00 86.27 95.25 100.00 62.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 87.26 100.00 100.00 70.00 99.39 99.00 100.00 36.00 25.00 40.00 100.00 100.00 80.42 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 24.00 ¥12,227,847 ¥17,000 ¥95,400 ¥172,000 ¥50,000 ¥26,500 ¥99,960 ¥32,000 US$0 ¥50,000 ¥50,000 ¥20,000 ¥14,400 ¥250,000 ¥300,000 ¥100,000 ¥100,000 ¥95,000 ¥490,000 ¥134,203 VND124,203,000 ¥20,000 ¥10,000 ¥14,950 VND349,000,000 ¥6,910,000 ¥100,000 HK$12,400 US$4,500 €8,444 US$3 ¥350,000 €17,245 US$200 ¥30,000 ¥10,000 ¥20,000 US$20 ¥100,000 US$525 ¥100,000 ¥100,000 ¥50,000 ¥50,000 US$100 US$2,000 ¥200,000 110 Mitsui O.S.K. Lines Annual Report 2016 111 Worldwide Ofﬁ ces Shareholder Information Middle East MOL (UAE) L.L.C. Head Ofﬁ ce (Dubai): Tel: 971-4-3573566 Fax: 971-4-3573066 Capital: Head ofﬁ ce: ¥65,400,351,028 1-1, Toranomon 2-chome, Minato-ku, Tokyo 105-8688, Japan Japan Mitsui O.S.K. Lines, Ltd. Head Ofﬁ ce (Tokyo): Nagoya Branch: Kansai Branch: Hiroshima Branch: Kyushu Branch: Tel: 81-3-3587-6224 Tel: 81-52-564-7020 Tel: 81-6-6446-6522 Tel: 81-82-252-6020 Tel: 81-92-262-0701 Fax: 81-3-3587-7734 Fax: 81-52-564-7047 Fax: 81-6-6446-6513 Fax: 81-82-254-0876 Fax: 81-92-262-0720 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 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 Mitsui O.S.K. Bulk Shipping (USA) LLC. 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 Central and South America MOL (Brasil) Ltda. Head Ofﬁ ce (Sao Paulo): Tel: 55-11-3145-3980 Fax: 55-11-3145-3946 MOL (Chile) Ltda. Head Ofﬁ ce (Santiago): MOL (Panama) Inc. Head Ofﬁ ce (Panama): MOL (PERU) S.A.C. Head Ofﬁ ce (Lima): Tel: 56-2-2630-1950 Fax: 56-2-2231-5622 Tel: 11-507-300-3200 Fax: 11-507-300-3212 Tel: 51-1-611-9400 Fax: 51-1-611-9429 Corporativo MOL de Mexico S.A. de C.V. Head Ofﬁ ce (Mexico City): Tel: 52-55-5010-5200 Fax: 52-55-5010-5220 Mitsui O.S.K. Bulk Shipping (USA) LLC. Mexico City: Sao Paulo: Tel: 52-55-5550-1612 Fax: 52-55-5089-2280 Tel: 55-11-3145-3980 Fax: 55-11-3145-3946 Europe MOL (Europe) B.V. Head Ofﬁ ce (Rotterdam): Genoa: Hamburg: Le Havre: Vienna: Basel: Fax: 31-10-201-3158 Fax: 39-10-5960450 Fax: 49-40-352506 Tel: 31-10-201-3200 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 Tel: 41-61-716-8001 Fax: 43-1-876-4725 Fax: 41-61-716-8070 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: 44-20-3764-8000 Fax: 44-20-3764-8393 Tel: 49-40-3609-7410 Fax: 49-40-8430-6105 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): MOL Cote d’Ivoire Head Ofﬁ ce (Abidjan): Tel: 233-22-212084 Fax: 233-22-210807 Tel: 225-21756920 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 MOL Egypt for Shipping Agencies S.A.E. Cairo: Tel: 20-22-456-8900 Fax: 20-22-259-5857 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 (Asia, Oceania) Pte. Ltd. Melbourne: Perth: Sydney: Tel: 61-3-9691-3224 Tel: 61-8-9278-2499 Tel: 61-2-9320-1629 Fax: 61-3-9691-3223 Fax: 61-8-9278-2727 Fax: 61-2-9320-1601 Asia MOL Liner Ltd. Head Ofﬁ ce (Hong Kong): Tel: 852-2823-6800 MOL (Asia) Limited Head Ofﬁ ce (Hong Kong): Tel: 852-2823-6800 Fax: 852-2865-0906 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 MOL Myanmar Limited Head Ofﬁ ce (Yangon): Tel: 95-9-7318-9815 Fax: 95-9-5137-7174 P.T. Mitsui O.S.K. Lines Indonesia Head Ofﬁ ce (Jakarta): Tel: 62-21-5288-0008 Fax: 62-21-5292-0920 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 Mitsui O.S.K. Lines Pakistan (Pvt.) Ltd. Head Ofﬁ ce (Karachi): Tel: 92-21-35205397 Fax: 84-83-8219317 Fax: 855-23-223-040 Fax: 92-21-35202559 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: 86-755-8400-7900 Fax: 86-755-8400-7901 Tel: 886-2-2537-8000 Fax: 886-2-2537-8098 MOL (HK) Agency Ltd. Head Ofﬁ ce (Hong Kong): Tel: 852-2823-6800 Fax: 852-2529-9989 MOL (Korea) Co., Ltd. Head Ofﬁ ce (Seoul): Tel: 82-2-559-3001 Fax: 82-2-561-9490 Mitsui O.S.K. Bulk Shipping (Asia, Oceania) Pte. Ltd. Head Ofﬁ ce (Singapore): Bangkok: Kuala Lumpur: Chennai: Tel: 65-6323-1303 Tel: 66-2-634-0807 Tel: 60-3-5623-9772 Tel: 91-44-4208-1020 Fax: 91-44-4208-1020 Fax: 65-6323-1305 Fax: 66-2-634-0806 Fax: 60-3-5623-3107 Number of MOL employees: 925 Number of MOL Group employees: (The parent company and consolidated subsidiaries) 10,500 Total number of shares authorized: 3,154,000,000 Number of shares issued: 1,206,286,115 Number of shareholders: 104,202 Shares listed in: Tokyo, Nagoya Share transfer agent: (Contact information) Sumitomo Mitsui Trust Bank, Limited Stock Transfer Agency Business Planning Department 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) Safety, Environmental and Social Report (English/Japanese) (As of March 31, 2016) Stock Price Range (Tokyo Stock Exchange) and Volume of Stock Trade (¥) 800 700 600 500 400 300 200 100 0 Fiscal 2013 High ¥482 ¥287 Low Fiscal 2014 High ¥450 ¥308 Low Fiscal 2015 High ¥437 ¥183 Low 13 /4 5 6 7 8 9 10 11 12 14 /1 2 3 4 5 6 7 8 9 10 11 12 15 /1 2 3 4 5 6 7 8 9 10 11 12 16 /1 2 6543 700 600 500 400 300 200 100 0 (Million shares) 800 112 Mitsui O.S.K. Lines Annual Report 2016 113 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 6 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 E-mail: URL: iromo@molgroup.com http://www.mol.co.jp/en/ Reinvent Annual Report 2016 Year ended March 31, 2016 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 16mol_表紙英文.indd 1-2 16mol_表紙英文.indd 1-2 2016/07/27 17:12 2016/07/27 17:12

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