Growth
Annual Report 2013 31, 2013 Ended March Year Positioned for
Annual Report 2013 Contents
AN OVERALL VIEW OF THE JX GROUP
2 Management Message “The JX Group has formulated the Second Medium-Term Management Plan, and over the next three years the Group will advance to a new stage in which it will 2 start a leap forward.” 4 What We Do
6 Working to Maximize Corporate Value
8 The JX Group’s Core Businesses
OVERVIEW OF FISCAL 2012
14 Financial Highlights This section provides a four-year summary of fi nancial and market data useful for checking the earnings capacity and fi nancial position of the JX Group.
16 Review of Fiscal 2012 This section introduces key topics from April 2012 to June 2013.
FUTURE GROWTH STRATEGIES
18 President Matsushita Discusses the JX Group’s Vision for Growth “We will work to maximize the corporate value of the Group by continuously
18 realizing high levels of profits and ROE as well as by strengthening our risk tolerance in response to changes in the business environment.” President Isao Matsushita gives an overview of the newly formulated Second Medium-Term Energy Management Plan (FY2013–2015) and explains the Group’s Long-Term Vision for 2020. Business 32
Oil and REVIEW OF CORE BUSINESSES Natural Gas Exploration and 30 Overview of Core Businesses Production This section provides an overview of the Group’s core businesses, including operating Business 36 results, to help readers quickly obtain knowledge of each business.
32 Three Core Businesses— Metals Business Strategies under Second Medium-Term Management Plan 40 In this section, we outline growth strategies under the Second Medium-Term Manage- ment Plan (FY2013–2015). GROWTH STRATEGY DRIVERS 44 Board of Directors and Corporate Auditors
46 Corporate Governance In this section, we explain the corporate governance system of JX Holdings, with com- ments from Mr. Hiroshi Komiyama, an outside director.
53 JX Group CSR
55 R&D Activities This section introduces the JX Group’s R&D activities.
FINANCIAL INFORMATION
58 Five-Year Financial Summary
60 Market Data
62 Operating Data
64 Review and Analysis of Fiscal 2012 Results This section provides an explanation of operating results and fi nancial position in fi scal 2012 from Senior Vice President Ichiro Uchijima, who is responsible for the Finance & Investor Relations Department.
69 Business and Other Risks
74 Consolidated Financial Statements and Notes 64
BASIC INFORMATION
108 Corporate Profiles / Organization Charts
112 Principal Group Companies
114 Investor Information
115 IR Website Guide
Cautionary Statement regarding Forward-Looking Statements This notice contains certain forward-looking statements, how- ever, actual results may diff er materially from those refl ected in any forward-looking statement, due to various factors, includ- ing but not limited to the following: (1) macroeconomic conditions and changes in the competitive environment in the energy, resources, and materials industries; (2) changes in laws and regulations; and (3) risks related to litigation and other legal proceedings.
JX Holdings, Inc. Annual Report 2013 1 Management Message
Yasushi Kimura Representative Director, Chairman of the Board
Isao Matsushita Representative Director, President
In both name and substance, the “integration” stage for JX Holdings came to an end with the completion of the First Medium-Term Management Plan. In accordance with the recently formulated Second Medium-Term Management Plan, over the next three years the JX Group will advance to a new stage in which it will “start a leap forward.”
2 JX Holdings, Inc. Annual Report 2013 AN OVERALL VIEW OF THE JX GROUP
It has already been more than three years since the establishment of JX Holdings, Inc., in April 2010. During that time, we have faced a challenging business environment, including the damage to main worksites caused by the Great East Japan Earthquake as well as the appreciation of the yen, which at one point rose to about ¥75 to the U.S. dollar. Despite the diffi cult business environment, all the employees of the JX Group worked together to implement the First Medium- Term Management Plan. Through those united eff orts, we successfully strengthened the Company to the point where we can continuously maintain ordinary income above ¥300.0 billion. Moreover, we were able to implement capital expenditures in high-growth business fi elds that were basically in line with our plan, and as a result we have established a strong platform for future growth. From fi scal 2013, we initiated the Second Medium-Term Management Plan. Under this new plan, we have posi- tioned the next three years as a period for making a major leap forward to become a world-leading integrated energy, resources, and materials business group. On that basis, we have formulated a strategy from three perspectives—Profi t- ability, Growth, and Flexibility. First, to enhance profi tability, the JX Group will secure steady profi ts from existing business by realizing overwhelming competitiveness through continuous restructuring and safe, stable operations. In addition, we will secure a steady return from ongoing investment projects. In this way, we are aiming for ordinary income of more than ¥400.0 billion in fi scal 2015. Next, to drive growth, the JX Group will continue to give priority to allocating management resources to highly profi table and high-growth business fi elds. Over the three years to fi scal 2015, we plan capital expenditures of ¥1,300 billion or more. Of this total, strategic investments will account for ¥830 billion or more. We will implement projects that will lead to future business growth. Finally, in regard to fl exibility, we will work to increase our risk tolerance in a business environment marked by increas- ing uncertainty. To that end, we will improve our net D/E (debt-to-equity) ratio to 0.9 times or less at the end of fi scal 2015. In addition to the Second Medium-Term Management Plan, the JX Group has also formulated the Long-Term Vision, which outlines the Group’s direction toward fi scal 2020. By realizing the goals of the Second Medium-Term Management Plan as well as by implementing further structural reforms and achieving ongoing business growth, the JX Group will raise the competitiveness of each business to a high level, not only domestically but also globally. In ad- dition, by maintaining a balance between petroleum and non-petroleum businesses as well as a balance between upstream and midstream/downstream businesses, the JX Group will establish a stable earnings capacity that is less aff ected by changes in the business environment. We will continue to resolutely take on the challenge of becoming a world-leading integrated energy, resources, and materials business group by achieving the goals of the Second Medium-Term Management Plan and the Long-Term Vision. We would like to ask our shareholders and other stakeholders for their continued understanding and support.
August 2013
Representative Director, Chairman of the Board Representative Director, President
JX Holdings, Inc. Annual Report 2013 3 What We Do
JX GROUP SLOGAN JX GROUP SYMBOL
JX GROUP MISSION STATEMENT
The JX Group will contribute to the development of a sustainable economy and society through innovation in the areas of energy, resources and materials.
“JX” is a name which represents the basic philosophy of the Integrated Group. “J” represents a Japanese and world-leading “integrated energy, resources and materials group,” and “X” represents challenges to the unknown, growth and development for the future, and creativity and innovation, among other things.
4 JX Holdings, Inc. Annual Report 2013 AN OVERALL VIEW OF THE JX GROUP
ORGANIZATIONAL STRUCTURE OF THE JX GROUP
The JX Group was established in 2010 through the management integration of Nippon Oil Corporation and Nippon Mining Holdings, Inc. Both of our predecessor companies had been in business for more than 100 years. Under the leadership of the holding company, JX Holdings, Inc., the Group is aiming to become a world-leading integrated energy, resources, and materials business group with three core business fields—Energy, Oil and Natural Gas Exploration and Production, and Metals.
Energy Oil and Natural Gas Metals Listed subsidiaries Exploration and Production NIPPO CORPORATION, Toho Titanium Co., Ltd.*, and others
Common function subsidiaries * From fi scal 2013, the operating results of Toho Titanium are included in the Metals Business. Independent business subsidiaries
We are engaging in a wide range of businesses extending from upstream to downstream, centered on petroleum and copper, and will work to construct an optimal portfolio by allocating management resources to highly profi table and high-growth business fi elds.
Ordinary Income Excluding Inventory Valuation Factors (FY2012)
Energy Business ¥102.8 billion 37.9%
¥271.0 billion Oil and Natural Gas E&P Business ¥93.6 billion 34.5% (FY2012) Metals Business ¥46.5 billion 17.2%
Listed subsidiaries and others ¥28.1 billion 10.4%
JX Holdings, Inc. Annual Report 2013 5 Working to Maximize Corporate Value
TARGETS OF THE JX GROUP FOR 2020
The JX Group, based on sound, transparent corporate governance, is implementing a Groupwide growth strat- egy and fl exible operational activities in response to changes in its business environment. In this way, the Group is aiming to become a world-leading integrated energy, resources, and materials business group. In March 2013, the JX Group announced the Second Medium-Term Management Plan and the Long-Term Vision, which spells out the Group’s targets for 2020. Specifi cally, the Long-Term Vision calls for the JX Group to become a “corporate group with business that is highly competitive by global standards” and to maintain a “busi- ness portfolio with a balance between petroleum and non-petroleum businesses and between upstream and midstream/downstream businesses.” The JX Group will strive to realize the Long-Term Vision by achieving the objectives of the Second Medium-Term Management Plan (FY2013-2015), building on the base of the results of the First Medium-Term Management Plan (FY2010-2012).
Further information about the Long-Term Vision: page 27
2013 Completion of First Medium- Term Management Plan Start of Second Medium-Term Management Plan Maximizingimizing GGrouprouup Please refer to page 8. Corporate ValueValue
Formulation of medium- to-long-term Group strategy Strategic allocation of management resources
Please refer to page 10. Please refer to page 12.
6 JX Holdings, Inc. Annual Report 2013 AN OVERALL VIEW OF THE JX GROUP —Becoming a world-leading integrated energy, resources, and materials business group—
Targets of the JX Group (2020) Corporate group with business that is highly competitive by global standards Energy Business Business portfolio with a balance between Integrated Energy Conversion petroleum and non-petroleum businesses Company for stable and and between upstream and midstream/ effi cient energy supply downstream businesses
Oil and Natural Gas E&P Metals Business Business Global resources and materials E&P company that company centered generates sustainable growth, on copper mainly through operatorship
Management Strategies to Achieve the Long-Term Vision Become a world-leading integrated energy, resources, and materials business group
FY2010–2012 FY2013–2015
Securing stable profi tability First Medium-Term Management Plan Second Medium-Term in existing business while —Foundation for a major Management Plan leap forward— —Start a leap forward— Realizing realizing profi t growth return through returns from Allocating management resources to strategic investments and highly profitable operations and developing operations on a priority continuing to actively basis (continued) invest for further growth Allocating management resources to Realizing Management integration highly profitable operations on return a priority basis
Securing stable profitability in existing Dramatic transformation of Petroleum business by realizing overwhelming Refining and Marketing business competitiveness through continuous restructuring
Ordinary income (loss) excluding FY2009 FY2012 FY2015 inventory valuation –15.3 271.0 More than 400.0 (Billions of yen)
JX Holdings, Inc. Annual Report 2013 7 The JX Group’s Core Businesses
Dominant Business Foundation as an Energy Conversion Company Energy As an Energy Conversion Company, we are pushing forward with initiatives targeting the stable Business and effi cient conversion of primary energy, such as crude oil, natural gas, coal, and sunlight, into optimal energy for consumers. In particular, petroleum is the foundation of economic activities, and we have a dominant share in petroleum refi ning and marketing. Moving forward, we are working to establish an even-stronger business foundation by reinforcing our competitiveness.
8 JX Holdings, Inc. Annual Report 2013 AN OVERALL VIEW OF THE JX GROUP Overview of Operations Main Products Petroleum products Gasoline, Kerosene, Diesel fuel, Heavy fuel oil, Naphtha, Lubricants, Asphalt, etc. Basic chemical products Paraxylene, Benzene, Propylene, etc. Specialty and performance chemical products Ethylidene norbornene (ENB), Functional fi lms, Cell culture, Liquid crystal polymers, etc. Other products Liquefi ed natural gas (LNG), Coal, Electric power, Fuel cells, etc.
Domestic Manufacturing Bases Refineries Muroran (scheduled to stop petroleum refi ning by March 2014), Sendai, Kashima, Negishi, Osaka, Mizushima, Marifu, Oita Plants Kawasaki, Yokohama, Chita
Business Presence
Initiatives as an Energy Conversion Company
We are pushing forward Sunlight, Wind Primary energy Crude oil LP gas Coal Natural gas power, Biomass with initiatives targeting the conversion of pri- mary energy that exists Conversion Energy Conversion Company in nature into optimal energy for consumers.
Hydrogen Gasoline Kerosene LP gas Electricity City gas Final energy Electricity, Hot water Consumer
Refi ning capacity No. 1 Paraxylene supply capacity No. 1 in Japan in Asia
1.39 million barrels per day 2.62 million tons per year * As of the end of March 2013, excluding the capacity of the Osaka Refi nery, which specializes in exports, and the condensate splitters of the Kashima and Mizushima refi neries
The JX Group’s refi ning capacity is 1.39 million barrels a day. Demand for polyester, which is made from paraxylene, is in- With refi neries in eight locations in Japan, we have estab- creasing around the world, and the JX Group has the No. 1 sup- lished an effi cient, stable supply system. ply capacity in Asia for paraxylene—2.62 million tons a year.
Domestic fuel oil sales No. 1 Number of service stations in Japan No. 1 in Japan in Japan
72 million kiloliters per year 11 thousand service stations
Share: 36% Share: 32% * Fiscal 2012, based on the government’s supply and demand statistics * As of the end of March 2013
The JX Group sells about 72 million kiloliters of fuel a year in There are about 11 thousand ENEOS-brand service stations the domestic market. We have a dominant position in the nationwide, giving us a dominant share of the domestic market, with a share of about 36%. We provide a stable sup- market, at about 32%. ply of the energy that is indispensable in the daily activities of business and people.
JX Holdings, Inc. Annual Report 2013 9 The JX Group’s Core Businesses
Oil and Natural Gas Superior Technologies and Know-How
Exploration and We are striving to increase our reserves and production over the long term by enhancing our Production competitiveness through preferential distribution of our management resources to Core Business Countries and Core Technologies.
10 JX Holdings, Inc. Annual Report 2013 AN OVERALL VIEW OF THE JX GROUP Overview of Operations Main Products Crude oil, Natural gas
Worksites U.S. Gulf of Mexico, Canada, U.K. North Sea, Vietnam, Myanmar, Malaysia, Indonesia, Thailand, East Timor, Papua New Guinea, Australia, UAE, Qatar, Japan
Business Presence
Oil and Natural Gas Development Projects
U.K. North Sea*1 Canada
Japan Qatar*2 U.S. Gulf of Mexico UAE*2 Vietnam*1 Malaysia*1 Thailand Indonesia Myanmar*2 Papua New Guinea East Timor
Australia*2 *1. Core Countries *2. Core Candidates
Crude oil and natural gas Operational bases production volume Proven / probable reserves in 14 countries 120 thousand barrels per day 800 million barrels * As of the end of March 2013 (crude oil equivalent) (crude oil equivalent) * Fiscal 2012 * As of the end of December 2012
We are engaged in exploration, development, Our production of oil and natural gas amounts The reserve of the JX Group’s equity around the and production activities in 14 countries to 120 thousand BOED (barrels of oil equiva- world is about 800 million BOE. We are working around the world. We act as an operator and lent per day). to keep the reserve replacement ratio at more take a leadership role in the implementation than 100%. of projects in such areas as Vietnam, Malaysia, and the U.K. North Sea.
JX Holdings, Inc. Annual Report 2013 11 The JX Group’s Core Businesses
Integrated Operations Centered on Copper Metals We have stakes in the world’s leading copper mines and have commenced production at Business mines that we have developed independently. With operations in copper smelting and refi n- ing, electronic materials, and recycling and environmental services, we have built fully inte- grated systems that extend from upstream to downstream, and our operations are world class in quantity and in quality.
12 JX Holdings, Inc. Annual Report 2013 AN OVERALL VIEW OF THE JX GROUP Overview of Operations Main Products Resources development Copper concentrate, Molybdenum concentrate Copper smelting and refining Refi ned copper, Precious metals, Rare metals, Sulfuric acid Electro-deposited copper foil, Treated rolled copper foil, Precision rolled products, Thin-fi lm materials, Cathode materials Electronic materials for lithium-ion batteries Recycling and environmental services Precious metals, Rare metals Titanium Titanium sponge, Titanium ingots Principal Worksites Resources development Caserones Copper and Molybdenum Deposit, Los Pelambres Copper Mine, Collahuasi Copper Mine, Escondida Copper Mine Pan Pacifi c Copper Co., Ltd. (Saganoseki Smelter & Refi nery, Hitachi Refi nery, Tamano Smelter of Hibi Kyodo Smelting Copper smelting and refining Co., Ltd.); LS-Nikko Copper Inc. (South Korea) Isohara Works, Hitachi Works, Kurami Works, Kakegawa Works of JX Metals Precision Technology Co., Ltd.; Takatsuki Works Electronic materials of JX Metals Trading Co., Ltd. Recycling and environmental services HMC (Hitachi Metal Recycling Complex) Department of Hitachi Works; JX Nippon Environmental Services Co., Ltd. Titanium Chigasaki Works, Wakamatsu Works of Toho Titanium Co., Ltd.
Business Presence
Equity-entitled copper mine production (copper content) Refi ned copper production capacity
100 thousand tons per year 1.17 million tons per year * Results in fi scal 2012 We have smelting and refi ning facilities with We have mining concessions in superior cop- advanced expertise and world-class produc- per mines that rank among the world’s top 10. tion capacities. Moreover, we have commenced production at the Caserones Copper Deposit, which we have Upstream been developing independently. At this mine, over the fi rst 10 years we plan to produce an- nual averages of 150 thousand tons of copper content in copper concentrate, 30 thousand tons of refi ned copper by the SX-EW method, and 3 thousand tons of molybdenum. Copper smelting and refi ning Resources development
Midstream
Downstream
Recycling and environmental services Electronic materials
Gold production through recycling Global market share
6 tons per year Multiple No.1 products * Fiscal 2012
On the basis of technologies cultivated in By leveraging advanced expertise and know- copper smelting and refi ning operations, we how in non-ferrous metals processing, we pro- recover non-ferrous metals from used elec- duce electronic materials that are indispensable tronic appliances. By eff ectively using “urban to advanced electronic products, such as mines,” we are contributing to the establish- smartphones and tablets. We have top global ment of a recycling-oriented society. market shares in a large number of products.
JX Holdings, Inc. Annual Report 2013 13 Financial Highlights JX Holdings, Inc. and Consolidated Subsidiaries
Millions of U.S. dollars Billions of yen (Years ended March 31) 2013 2013 2012 2011 2010*
Operating Results (For the Year)
Net sales $119,293 ¥11,219.5 ¥10,723.9 ¥9,634.4 ¥9,008.0 Operating income 2,674 251.5 327.8 334.4 130.5 Ordinary income 3,491 328.3 407.8 413.7 187.3 Ordinary income (loss) excluding inventory 2,881 271.0 291.3 356.1 (15.3) valuation factors Net income 1,696 159.5 170.6 311.7 73.1
Financial Position (At Year-End) Total assets $ 77,351 ¥ 7,274.9 ¥ 6,690.4 ¥6,260.0 ¥6,196.7 Net assets 24,747 2,327.4 2,044.8 1,886.2 1,765.7 Interest-bearing debt 27,105 2,549.3 2,282.6 2,264.6
Cash Flows (For the Year) Cash flows from operating activities $ 2,824 ¥ 265.6 ¥ 246.6 ¥ 211.4 ¥ 40.7 Cash flows from investing activities (4,531) (426.1) (198.6) (170.9) (241.3) Cash flows from financing activities 1,639 154.1 (37.3) (71.2) 113.6
U.S. dollars Yen 2013 2013 2012 2011
Per Share
Net income $ 0.68 ¥ 64.13 ¥ 68.60 ¥ 125.35 Net assets 8.31 781.30 701.31 654.77 Cash dividends 0.17 16.00 16.00 15.50 Payout ratio 24.9% 24.9% 23.3% 12.4%
2013 2012 2011
Ratios
ROE 8.7% 10.1% 19.1% Shareholders’ equity ratio 26.7 26.1 26.0 Net D/E (debt-to-equity) ratio 1.18 times 1.17 times 1.25 times
Market Data
Exchange rate (¥/$) ¥83 ¥79 ¥86 Crude oil price (Dubai spot price) ($/bbl) $107 $110 $84 Copper price (LME) (¢/lb) 356¢ 385¢ 369¢
Note: U.S. dollar amounts have been converted at the rate prevailing on March 31, 2013. * Figures for the fi scal year ended March 31, 2010, are on a pro-forma basis for Nippon Oil and consolidated subsidiaries and Nippon Mining Holdings and consolidated subsidiaries.
14 JX Holdings, Inc. Annual Report 2013 Exchange Rate Dubai Crude Oil Price
(¥/$) ( $/bbl)
100 120
90 100
80 80
70 60 OVERVIEW OF FISCAL
60 40
50 20
0 0 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 April April April April April April April April April April 2012
LME Copper Price and Inventory Level
(Thousands of tons) (¢/lb) 1,200 500
1,000 400
800 300 600 200 400
100 200
0 0 2009 2010 2011 2012 2013 April April April April April
LME inventory level (left scale) LME copper price (right scale)
Ordinary Income (Loss) Net Income and ROE Shareholders’ Equity, Net Debt, and Net D/E Ratio
(Billions of yen) (Billions of yen) (%) (Billions of yen) (Times)
500 400 30 2,500 1.30 1.25 2,299.2 413.7 407.8 400 2,040.6 356.1 311.7 2,000 1,942.7 328.3 300 2,031.1 1.17 1.18 1.20 291.3 19.1 300 271.0 20 1,628.3 1,744.2 1,500 200 187.3 200 1.10 170.6 159.5 1,000 100 10 100 10.1 1.00 8.7 500 0 73.1 (15.3) (100) 0 0 0 0 (Years ended 2010 2011 2012 2013 (Years ended 20102011 2012 2013 (As of 20112012 2013 March 31) March 31) March 31)
Ordinary income Net income (left scale) Shareholders’ equity (left scale) Ordinary income (loss) excluding inventory ROE (right scale) Net debt (left scale) valuation factors Net D/E ratio (right scale)
JX Holdings, Inc. Annual Report 2013 15 Review of Fiscal 2012 (April 2012 to June 2013)
1 2
Completion ceremony for new production facilities for cathode Ceremony to commemorate 45th anniversary of establishment of materials for automotive lithium-ion batteries Abu Dhabi Oil Co., Ltd., and start of new concession agreement
3 3
Service station after Dr. Drive renewal New Dr. Drive logo
JX Holdings JX Nippon Oil & Energy JX Nippon Oil & Gas Exploration JX Nippon Mining & Metals
April 2012 September 2012
Completed facilities for the recycling of rare metals from used Continued to be included as a member stock of the Dow Jones lithium-ion batteries on the premises of JX Nippon Tsuruga Re- Sustainability Indexes (DJSI) cycle Co., Ltd. Acquired working interest in Block M-11, a new exploration block off shore Myanmar May 2012 PPC acquired an equity interest of a copper/gold exploration Power Carbon Technology Co., Ltd., a joint venture with GS Cal- right in the Frontera Area, which stretches over the border be- tex Corporation, completed a plant for anode materials for tween Chile and Argentina lithium-ion batteries Completed new production facilities for the manufacture of cathode materials for automotive lithium-ion batteries 1 June 2012 Held the 2nd General Meeting of Shareholders October 2012
Established Ulsan Aromatics Co., Ltd., as a joint venture in Commenced joint operations in the manufacture of lubricant paraxylene production with SK Global Chemical Co., Ltd., of base oil with SK Lubricants Co., Ltd., of South Korea South Korea Acquired working interests in Block WA-435-P and its adjoining Confi rmed fumarolic gas from a survey well that was drilled for block, WA-437-P, in the North West Shelf off shore Australia the purpose of geothermal development in the Toyoha district Acquired working interests in 18 blocks, of which the Group is of Hokkaido acting as operator for 5, in the U.K. North Sea through the U.K. Continental Shelf 27th Off shore Oil and Gas Licensing Round July 2012
Acquired shares of the IKKO Group, which has a nationwide November 2012 network of service stations that can accommodate large trucks Established a lubricant production and sales company in Vietnam Pan Pacifi c Copper Co., Ltd. (PPC), a joint venture with Mitsui Decided to stop petroleum refi ning operations at the Muroran Mining & Smelting Co., Ltd., established a local subsidiary as a Refi nery at the end of March 2014 and to restructure the facility base for exploration activities in Australia as a base for the manufacture of petrochemical products and the distribution of petroleum products August 2012 Concluded a natural gas supply contract for the Hachinohe Acquired working interest in the Kinnoull oil fi eld in the U.K. thermal power station of Tohoku Electric Power Co., Inc. North Sea and transferred working interest in the Pierce oil fi eld in the U.K. North Sea
16 JX Holdings, Inc. Annual Report 2013 4 5 OVERVIEW OF FISCAL Exterior view of Kakegawa Works Mega solar power generation system at Kudamatsu Terminal
6 7 2012
Ceremony for fi rst refi ned copper from Caserones Copper Deposit Hydrogen fi lling equipment at hydrogen station integrated with gasoline service station
December 2012 March 2013
Issued ¥30 billion in No. 4 unsecured bonds Commenced operation of mega solar power generation at the Sendai Refi nery New concession agreement concluded between Abu Dhabi Oil Co., Ltd., in which the Group owns a 31.5% stake, and the Su- Formulated Second Medium-Term Management Plan and preme Petroleum Council of Abu Dhabi (SPC) came into eff ect 2 Long-Term Vision for 2020
Acquired multiple oil and gas assets in the U.K. North Sea, in- Completed mega solar power generation facilities at the Ku- cluding the Mariner oil fi eld and the Culzean gas fi eld damatsu Terminal, and decided to commence mega solar power generation operations in Kasumigaura City 5
January 2013 Began to consider a business tie-up with LIXIL Corporation re-
Announced service station strategies, such as the renewal of Dr. garding the energy business and the housing and construction Drive car care and maintenance service at service stations 3 materials business in the household sector
Reorganized precision fabricating operations through the merger Drew fi rst refi ned copper at the Caserones Copper and Molyb- of subsidiaries Sanyu Electronics Co., Ltd., Suzuki Manufactur- denum Deposit Project 6 ing Co., Ltd., and JX Metals Precision Technology Corporation to form JX Metals Precision Technology Co., Ltd. April 2013
Opened Japan’s fi rst hydrogen station integrated with a gaso- February 2013 line service station in Ebina City, Kanagawa Prefecture 7
Established J&S Fleet Holdings Corporation through the merg- Accepted human resources having expertise and knowledge er of IKKO Co., Ltd., and SUZUYO ENERGY CO., LTD. from ARABIAN OIL COMPANY, LTD.
Reached basic agreement with Idemitsu Kosan Co., Ltd., for about 2.3 million kiloliters per year of petroleum product mu- May 2013 tual supply transactions from April 2014 Commenced commercial oil production from the Finucane Made the fi nal investment decision to develop the Mariner oil South oil fi eld in the North West Shelf off shore Australia fi eld, U.K. North Sea Opened the Chukyo region’s fi rst hydrogen station integrated Completed facilities at JX Metals Precision Technology’s Ka- with a gasoline service station in Nagoya City, Aichi Prefecture kegawa Works for integrated operation of press, plating, and fabrication for the production of precision components and June 2013 connectors 4 Acquired working interests in blocks WA-320P and WA155-P (2) in the North West Shelf off shore Australia Held the 3rd General Meeting of Shareholders
JX Holdings, Inc. Annual Report 2013 17 President Matsushita Discusses the JX Group’s Vision for Growth
Isao Matsushita Representative Director, President
We have completed the reinforcement of our foundation following the management integration, and we have established a framework in which the JX Group can fully demonstrate its potential. Targeting the establishment of a more-robust management platform, we will implement a variety of measures in a timely manner.
KEY POINTS Overview of the First Medium-Term Management Plan While facing a challenging business environment, we solidifi ed the foundation for making a major leap forward under the Sec- ond Medium-Term Management Plan. Second Medium-Term Management Plan Under the Second Medium-Term Management Plan, we will work to maximize the corporate value of the Group by continu- ously realizing high levels of profi ts and ROE as well as by strengthening our risk tolerance in response to changes in the busi- ness environment. Shareholder Return and Financial Soundness We will work to sustain both growth and stability while maintaining a balance among capital investment, strength of fi nancial position, and shareholder return. We will also strive to maintain stable dividends and consider a shareholder return that appro- priately refl ects our business results. Future Direction of the JX Group We will strive to be an appealing Group that is globally competitive, is highly regarded in Asia and around the world, and has a strong presence.
18 JX Holdings, Inc. Annual Report 2013 Overview of the First Medium-Term Management Plan
With the end of fi scal 2012, the JX Group has concluded the First Medium-Term Management Q1 Plan. Would you provide an overview of the results that the JX Group has achieved in the past three years and the challenges that the Group will face in the future?
Since the establishment of the JX Group in April 2010, all of the Group’s employees have worked together, under the concept of While facing a challenging business environ- “Best Practices,” to achieve the goals of the First Medium-Term ment, we solidifi ed the foundation for making a Management Plan. Over this period, we have certainly faced major leap forward under the Second Medium- many diffi culties, and the business environment has been Term Management Plan. marked by developments that have shaken the foundation of the Group, including dramatic fl uctuations in resource prices and foreign exchange rates as well as damage to main worksites and breaks in the supply chain by the Great East Japan Earthquake in March 2011. Nevertheless, even as we tack- STRATEGIESFUTURE GROWTH led the challenging business environment, we steadily implemented the policies set out in the First Medium-Term Management Plan, and I am proud of our results. We created a business structure that can continuously generate ¥300 billion of ordinary income ex- cluding inventory valuation factors, and we solidifi ed the foundation for a major leap forward under the Second Medium-Term Management Plan.
Under the First Medium-Term Management Plan, we made steady progress in “the dramatic transformation of the Petroleum Under the First Medium-Term Management Refi ning and Marketing business” by reducing our refi ning ca- Plan, we made steady progress in the dramatic pacity as well as by generating integration synergies and en- transformation of our Petroleum Refi ning and hancing the effi ciency of our refi neries. Prior to the establishment Marketing business. of the JX Group, Japan’s total refi ning capacity was about 4.8 mil- lion barrels per day. However, domestic demand had declined due to growing consumer concern with environmental problems and energy conserva- tion, as well as a shift to alternative fuels at manufacturing facilities, and consequently the utilization rates of refi neries were declining. In this environment, the JX Group reduced refi ning capacity by 400 thousand barrels per day by October 2010. In addition, we decided to reduce refi ning capacity by an ad- ditional 180 thousand barrels per day by March 2014 through the restructuring of the Muroran Refi nery into a petrochemical factory and a base for the distribution of petro- leum products. In this way, we will increase our refi ning capacity utilization ratio on a Groupwide basis and build a competitive production system. Furthermore, through our eff orts to generate integration synergies and enhance the effi ciency of refi neries, we have surpassed our initial plan and achieved combined eff ects of ¥115.9 billion.
As a result of the solid progress we have made in “the dramatic transformation of the Petroleum Refi ning and Marketing business,” We made decisions and took action on the Caser- the JX Group is now able to allocate the cash fl ow from that busi- ones Copper and Molybdenum Deposit and other ness, as well as the Group’s management resources, to highly prof- large-scale investment projects that are expected itable and high-growth business fi elds on a priority basis. to contribute to earnings during the period of the Under the First Medium-Term Management Plan, we imple- Second Medium-Term Management Plan. mented capital expenditures of about ¥960.0 billion, of which about ¥700.0 billion was strategic investment in future growth.
JX Holdings, Inc. Annual Report 2013 19 President Matsushita Discusses the JX Group’s Vision for Growth
For example, our strategic investments included a number of large-scale investment projects that can be expected to contribute to earnings during the course of the Second Medium-Term Management Plan. These included the development of the Caserones Copper and Molybdenum Deposit in the Metals business; paraxylene and lubricant base oil projects with the SK Group, of South Korea, and the restructuring of the fl eet business, a nationwide network of service stations that can accommodate large trucks, in the En- ergy business; and progress in the Papua New Guinea LNG Project in the Oil and Natural Gas E&P business. Besides the above, large-scale projects can be expected to be a pillar of the Group’s earnings for many years. In the Energy business, we decided to construct LNG terminals and acquired concessions in coking coal development blocks in Canada. In the Oil and Natural Gas E&P business, we acquired a variety of oil and gas assets in the U.K. North Sea from Eni, a major Italian oil company. In the Metals business, we acquired a mining inter- est in the Frontera Area in Chile and Argentina.
With the business environment marked by in- However, we did not achieve our objective of a “net D/E (debt- creasing uncertainty, we need to increase our to-equity) ratio of less than 1.0 times,” which we put forth as a risk tolerance. quantitative target. Due to reconstruction following the Great East Japan Earthquake, we recorded higher extraordinary expen- ditures. In addition, resource prices increased, leading to a rise in working capital that exceeded our expectations. In the future, the Group will face height- ened uncertainty in its business environment, including such factors as the shale gas revolution. Accordingly, we will work to enhance our fl exibility and risk tolerance so that we can accommodate dramatic changes in the business environment.
Second Medium-Term Management Plan
The Second Medium-Term Management Plan started from fi scal 2013. What are the key diff er- Q2 ences between the new plan and the First Medium-Term Management Plan? Also, would you provide an overview of the plan and discuss key points of the Group’s business strategy?
The recently formulated Second Medium-Term Management Plan Under the Second Medium-Term Management rests on the “foundation for a major leap forward” that we estab- Plan, we will work to maximize the corporate lished by executing the previous plan. The basic concept of the new value of the Group by continuously realizing plan is “start a leap forward” for the purpose of becoming a world- high levels of profi ts and ROE as well as by leading integrated energy, resources, and materials business group. strengthening our risk tolerance in response to On the premise of the establishment of both proper gover- changes in the business environment. nance backed with thorough compliance and a CSR implemen- tation structure, the JX Group will execute business strategies from the perspectives of Profi tability, Growth, and Flexibility, with the aim of maximizing Group corporate value. Specifi c quantitative objectives that refl ect these perspectives are as follows. For prof- itability, we will target ordinary income of ¥400.0 billion or more and ROE of 10% or more in fi scal 2015. For growth, over the three-year period from fi scal 2013 to fi scal 2015, we plan capital expenditures of ¥1,300 billion or more. For fl exibility, we will strive to achieve a net D/E ratio of less than 0.9 times at the end of fi scal 2015. Next, I will discuss the background and the key business strategy points behind the establishment of each of these quantitative objectives.
20 JX Holdings, Inc. Annual Report 2013 Achievements under First Medium-Term Management Plan
Established a business structure that can generate ¥300.0 billion Review of Targets in ordinary income excluding inventory valuation factors Ordinary Income Excluding ROE Net D/E Ratio Inventory Valuation Factors (%) (Times)
(Billions of yen) 1,200 12 1.5 More than 10.1 1,000 10 10.0 1.25 918.4 Less 1.17 1.18 8.7 than 1.0 800 740.0 8 1.0
600 6 5.2 More 400 than 356.1 4 0.5 300.0 291.3
271.0 STRATEGIESFUTURE GROWTH 200 2
0 0 0 (FY) 2012 2010–2012 2010 2011 2012 2010–2012 (FY) 2012 2010* 2011 2012 (FY) 20122010 2011 2012 Total Total Target Result Target Result Target Plan Result
Built a base for generating ¥300.0 billion of Built a base for realizing 10% of ROE continu- Did not reach objective due to an unexpected ordinary income due to integration synergies, ously despite eff ect of positive inventory increase in expenses enhanced efficiency of refineries, and valuation Earthquake related restoration expenses: improved earnings capacity of upstream ¥100 billion business thanks to higher oil and copper prices Working capital increase: ¥700 billion Reason of working capital increase * Excluding negative goodwill of merger FY2012 Plan Result Dubai crude oil price ($/bbl) 80 109 Copper price (¢/lb) 280 356
Reduction in crude oil refi ning capacity implemented according to Dramatic transformation of Petroleum Refi ning plan. Eff ect of integration synergies and enhanced effi ciency of and Marketing business refi neries exceeded original plan Reduce crude oil refi ning capacity Integration synergies and enhanced effi ciency of refi neries
December 2008: April 2014: Initial Plan: Result: 1.79 million BD 1.21 million BD ¥109.0 billion ¥115.9 billion*
* Eff ect in fi scal 2012 in comparison with fi scal 2009 Corresponded to Sophistication of Energy Supply Structure Act
Allocate management resources to highly profi table Implemented strategic investment targeting future growth operations on a priority basis in line with plans Capital expenditures and investments (total for three years from fi scal 2010 to fi scal 2012)
¥960.0 billion, ¥958.0 billion, Initial Plan: of which ¥690.0 billion Result: of which ¥711.0 billion in strategic investments in strategic investments
Business Key details Commencement of production Metals Caserones Copper and Molybdenum Deposit Development Project FY2013 Acquired assets in U.K. North Sea (Kinnoull oil fi eld and others) FY2014 (Kinnoull oil fi eld) Oil and Natural Gas E&P Papua New Guinea LNG Project FY2014 Energy Paraxylene joint venture in South Korea FY2014
JX Holdings, Inc. Annual Report 2013 21 President Matsushita Discusses the JX Group’s Vision for Growth
First, concerning the profi t plan, ordinary income excluding The JX Group will secure stable profi tability in inventory valuation factors in fi scal 2012 was ¥271.0 billion, and existing business and realize returns from exist- we plan to steadily increase this to ¥420.0 billion by fi scal 2015. ing investment projects. In this way, we are aim- There are two key points regarding the achievement of this plan. ing for more than ¥400.0 billion in ordinary The fi rst point is to secure stable profi tability in existing busi- income excluding inventory valuation factors in ness through continuous restructuring and cost reductions in fi scal 2015. each business area as well as to build on the competitiveness that was realized under the First Medium-Term Management Plan. For example, in the Energy business, we expect continued structural declines in domestic demand for petroleum products. In response, we will work to realize further cost reduction following the integration synergies. In addition, we will strive to build a strong supply chain by bolstering the international competitiveness of our refi neries and reinforcing our sales network. In the same way, in the copper refi ning and smelting busi- ness, substantial improvement in purchasing conditions of copper concentrate, a raw material for the business, is unlikely. In this setting, we will increase production effi ciency and strive to build an operating system with world-class cost-competitiveness through the use of copper concentrate from the Caserones Copper Deposit and high-margin raw materials. The second point is to realize steady returns from the large-scale strategic investment projects that we launched under the First Medium-Term Management Plan. At the Caser- ones Copper Deposit, we commenced refi ned copper production in March 2013, and we expect to begin production of copper concentrate by the end of 2013. In addition, we are making steady progress with the Papua New Guinea LNG Project and the paraxylene joint venture with the SK Group, of South Korea, and we plan to start-up commercial produc- tion at these projects in 2014. Under the Second Medium-Term Management Plan, we will steadily advance these strategic businesses and develop them into earnings pillars.
Next, in regard to fl exibility, to increase our risk tolerance by With our business portfolio changing, we are strengthening our fi nancial position, we will work to improve the working to achieve a higher level of risk toler- net D/E ratio to less than 0.9 times in fi scal 2015. This objective ance by strengthening our fi nancial position. was formulated against a background of changes to the business portfolio of the JX Group. Under the First Medium-Term Management Plan, as a result of large-scale investments in upstream business, such as resources development, the JX Group’s overall risk asset ratio increased. Moreover, we will continue to move ahead with investments in resources development and other overseas business, and we will also need to respond fl exibly to the uncertainties in the business environment. Accordingly, the establishment of a strong fi nancial position is indispensable for the JX Group.
22 JX Holdings, Inc. Annual Report 2013 Outline of Second Medium-Term Management Plan
Basic Policy On the premise of the establishment of both proper governance backed with thorough compliance and a CSR implemen- tation structure, the JX Group will execute business strategies from the perspectives of Profi tability, Growth, and Flexibility, with the aim of maximizing Group corporate value.
Securing stable profi tability in existing business by realizing overwhelming competitiveness through Profi tability continuous restructuring and stable operations Realizing return from invested projects Allocating management resources to highly profi table operations and developing operations on Growth priority basis
Flexibility Structuring a stronger fi nancial position corresponding to changes in business environment FUTURE GROWTH STRATEGIESFUTURE GROWTH
Key Factors and Targets
Foreign Exchange Rate ¥90/$ Key Factors (FY2015) Dubai Crude Oil Price $110/bbl Copper Price (LME) 360¢/lb
Second Medium-Term (Reference) First Medium-Term Management Plan Management Plan Ordinary Income ¥400 billion or more (FY2015) ¥300 billion or more (FY2012)
Targets ROE 10% or higher (FY2015) 10% or higher (FY2012) Net D/E Ratio 0.9 times or lower (FY2015) 1.0 times or lower (FY2012)
CAPEX ¥1,300 + α billion* ¥960 billion (FY2013–2015 total) (FY2010–2012 total)
* Utilizing “α” for additional strategic investment projects corresponding to changes in business environment
Earnings Plan (Ordinary Income Excluding Inventory Valuation Factors)
(Billions of yen) 420.0 ROE: more than 10% Securing stable profitability in existing business by realizing overwhelming competitiveness Others through continuous restructuring 25.0 Caserones and others 271.0 310.0 +45.0 ROE: 8.7% Metals 130.0 Others Return from large Acquired U.K. 25.0 (5%) strategic investments assets, Papua New Others +110.0 Guinea LNG 28.1 (10%) Metals (20%) Project, and others (12%)Metals 85.0 +45.0 (15%) E&P 46.5 Paraxylene joint venture (13%) (15%) 110.0 (10%) in South Korea and others (9%) E&P +20.0 E&P 65.0 93.6 Realizing return from strategic investment for business expansion (65%) (60%) (66%) Energy Energy Energy 135.0 155.0 102.8
(FY) 2012 2015 Existing business basis with continuous restructuring 2015
JX Holdings, Inc. Annual Report 2013 23 President Matsushita Discusses the JX Group’s Vision for Growth
Finally, in regard to our capital expenditure plan, I will provide Under the current investment plan, we will ag- an overview and introduce key points for each business. gressively seize a variety of business opportuni- The First Medium-Term Management Plan made favorable prog- ties and implement strictly selected investment ress, and consequently the JX Group has built a system that can targeting sustained growth. generate more than ¥1,400.0 billion in operating cash fl ow over the next three years. Taking into account this abundant cash fl ow, we are planning capital expenditures of ¥1,300.0 billion or more over three years, of which ¥830.0 billion or more will be strategic investment, in- cluding projects for which the decision to invest has already been made during the First Medium-Term Management Plan. The key features of this capital expenditure plan in- clude aggressively seizing a range of business opportunities in Japan and overseas while balancing our petroleum and non-petroleum businesses as well as our upstream and midstream/downstream businesses. In this way, we will lay the foundation for the achievement of the Long-Term Vision. In addition, we will strive to achieve rapid imple- mentation after carefully examining the characteristics, economical effi ciency, growth potential, and risks of the investments in each business fi eld. For detailed information about each business segment’s strategies and specifi c tasks, please refer to “Three Core Businesses—Strategies under Second Medium-Term Man- agement Plan” on pages 32 to 43. The key points are as follows.
[Energy Business] In the Energy business, we will invest to (1) strengthen profi tability in petroleum refi ning and marketing as the core business, (2) enhance business as an Energy Conversion Com- pany, (3) establish a presence in overseas markets, especially in the basic chemicals and lubricants business, and (4) capture demand for high-value-added products based on original technologies in the specialty and performance chemicals business.
[Oil and Natural Gas E&P Business] In the Oil and Natural Gas E&P business, we are making steady progress in the develop- ment of projects, such as the Papua New Guinea LNG Project and the Mariner oil fi eld in the U.K. North Sea. At the same time, we will promote our exploration activities as an op- erator in our large-scale projects in Malaysia and Qatar to maintain our sustainable growth.
[Metals Business] In the Metals business, in resources development we will complete development of the Caserones Copper Deposit and subsequently consider exploration and development in concession areas that we already hold in order to further expand our equity-entitled copper mine production. In the smelting and refi ning business, the electronic materials business, and the recycling and environmental services business, we will work to boost our competitiveness by diff erentiating our products and services and reducing our costs.
24 JX Holdings, Inc. Annual Report 2013 Outline of Second Medium-Term Management Plan
Strengthen Financial Position
(Billions of yen) Net D/E ratio 1.18 1.3 times Target of Second Plan Target of First Plan 0.9 times or lower 1.0 times or lower 7,650.0 Business Portfolio Business Environment (5%) Increase of risk asset 7,274.9 Increase of Total assets ratio (Upstream 6,196.7 (9%) (20%) uncertainty business assets) (12%) (16%) (13%) (15%) Require stronger (10%) (9%) fi nancial position with Net interest- risk tolerance bearing debt 2,030.3 Less than 2,299.2 2,450.0 Shareholders’ (65%) 2,200.0 Net D/E Ratio (66%) equity 1,942.7 (60%)
1,559.0 STRATEGIESFUTURE GROWTH 0.9 times or lower by FY2015
(FY) 2009 2012 2015
Energy Oil and Natural Gas E&P Metals Others
Investment Plan (as of announcement of Second Medium-Term Management Plan in March 2013) (Billions of yen) Main contents of strategic investments 1,500 Operating cash flow Energy saving in refi neries, Electric power facility 1,300.0+α Utilization of bottom oil Electricity (install SDA) (using SDA pitch) 70.0 Petroleum Refi ning Restructuring of Muroran Refi nery Construction of LNG terminals and Marketing (convert to petrochemical factory) Gas (Hachinohe, Kushiro) 300.0 1,000 Strategic Energy Development of coking coal investments Strengthening of sales network Coal asset in Canada 830.0+α Basic Chemical Products Paraxylene joint venture in South 10.0 Korea and others Base oil project in South 1,420.0 390.0 Lubricants 220.0 Specialty and Performance Korea Chemical Products Functional chemicals 500 280.0 Oil and Resource Natural Exploration Qatar (Block A) acquisition Strict selection and execution Gas E&P 540.0 Development U.K. North Sea (Mariner oil fi eld), Papua New Guinea LNG 320.0 Resources Development Develop Caserones, Study development of Quechua, Proceed with exploration of Frontera Metals Electronic Materials, Recycling 0 and Environmental Services Enhance overseas business (FY) FY2013–2015 (total)
Energy Oil and Natural Gas E&P Metals Others
Major Projects 8. Business expansion in response to electric system reforms by Japanese government
10. Development of Mariner oil field in U.K. North Sea (2017~Start production) 4. Construction of LNG terminals (Hachinohe, Kushiro) (Fiscal 2015~Start operation)
9. Development of coking coal in Canada 3. Start-up of paraxylene joint venture in South Korea (Fiscal 2014~Start production) 7. Early generation of profit from integrated production of connectors Upstream 12. Progress with exploration at Qatar Block A (April 2013~Start operation of Kakegawa Works) Midstream/Downstream
JX Holdings, Inc. Annual Report 2013 25 President Matsushita Discusses the JX Group’s Vision for Growth
Shareholder Return and Financial Soundness
The investment plan is quite large. What are your thoughts about shareholder return and fi nan- Q3 cial soundness?
The question of how to eff ectively use limited management re- We will accelerate investment, and, at the same sources, including cash fl ow, is one of the most important issues time, we will work to sustain both growth and faced by all business. The JX Group employs a holding company stability while maintaining a balance between system to oversee its diverse business. Under this system, we will strengthening our fi nancial position and pro- allocate our limited management resources to highly profi table viding a return to shareholders. and high-growth business fi elds on a priority basis, thereby en- suring that we use our resources eff ectively. With increasing uncertainty in the business environments for energy, resources, and materials, the JX Group will work to sustain both growth and stability while main- taining a balance among capital investment, strength of fi nancial position, and share- holder return.
Our basic policy for shareholder return is unchanged from the In regard to shareholder return under the Sec- First Medium-Term Management Plan: Redistribute profi ts by ond Medium-Term Management Plan, we will refl ecting consolidated business results while striving to main- strive to maintain stable dividends and con- tain stable dividends. sider shareholder return that appropriately Based on that basic policy, during the Second Medium-Term refl ects our business results. Management Plan period (FY2013-2015), we will strive to main- tain dividends of ¥16 per share per annum while considering shareholder return in view of such factors as business results, investment plans, and fi - nancial position for each term. I believe that we should strive to provide an appropriate, timely return while confi rming the status of results and cash fl ows.
Basic Shareholder Return Policy Dividends per Share (Yen) Redistribute profi ts by refl ecting consolidated business results while striving 20 to maintain stable dividends 15.5 16.0 16.0 16.0 15 Indication of Shareholder Return for Second Medium- Term Management Plan Period 10 Based on the basic policy, during the Second Medium-Term Management Plan period (FY2013–2015), we will strive to maintain dividends of ¥16 per 5 share per annum while considering shareholder return in view of such factors as business results, investment plans, and fi nancial position for each term. 0 (FY) 2010 2011 2012 2013 (Plan)
26 JX Holdings, Inc. Annual Report 2013 Future Direction of the JX Group
Q4 Finally, please describe the future direction of the JX Group.
In conjunction with the Second Medium-Term Management Plan, we have announced the Long-Term Vision for 2020. The Long-Term Vision has two main points.
The fi rst point is that we aim to be a corporate group that is highly competitive by global standards. In other words, in the We will strive to be an appealing Group that various business fi elds in which the Group is active, we aim to be is globally competitive, is highly regarded in an appealing Group that is globally competitive, is highly regard- Asia and around the world, and has a strong FUTURE GROWTH STRATEGIESFUTURE GROWTH ed in Asia and around the world, and has a strong presence. presence.
[Energy Business] In the Energy business, we will strive to be an Integrated Energy Conversion Company that converts and supplies energy in a stable and effi cient manner. On a foundation of steady profi ts in the Petroleum Refi ning and Marketing business, we will establish an integrated energy supply structure and expand business in growth markets, centered on Asia.
[Oil and Natural Gas E&P Business] In the oil and natural gas E&P business, we are striving to become an E&P company that generates sustainable growth, mainly through operatorship. We will produce 200 thou- sand BOED (barrels of oil equivalent per day) of oil and natural gas and keep the reserve replacement ratio at more than 100% by organically linking the human resources and know-how of our worldwide network.
[Metals Business] In the Metals business, we will advance resources development targeting equity-entitled copper mine production of 350 thousand tons per year. In addition, we will establish a resource recycling business model that links copper smelting and refi ning, electronic materials, and recycling and environ- mental services. In this way, we will make further progress to- ward being a global resources and materials company.
JX Holdings, Inc. Annual Report 2013 27 President Matsushita Discusses the JX Group’s Vision for Growth
The second key point of the Long-Term Vision is balance in our By responding quickly to rapid changes in the business portfolio. In our business development initiatives and in business environment, we will strive to main- our earnings structure, we will strive to maintain a balance be- tain a balance between petroleum and non- tween petroleum and non-petroleum businesses as well as a bal- petroleum businesses, as well as between ance between upstream and midstream/downstream businesses. upstream and midstream/downstream busi- In fi scal 2012, the petroleum business accounted for 65% of nesses, in our business development initiatives ordinary income excluding inventory valuation factors, but in the and our earnings structure. future we plan to expand the non-petroleum business, which in- cludes natural gas, electric power, coal, LNG, and metals, thereby reducing the petroleum business’s share of ordinary income to 45% in fi scal 2020. In the same way, by continuing to invest aggressively in coal, oil and natural gas, and resources development, we expect to increase the share of ordinary income contributed by up- stream business from 40% in fi scal 2012 to 50% in fi scal 2020. In fi scal 2020, we will have a balance of about 50:50 between petroleum and non-petroleum as well as between upstream and midstream/downstream. As we strive to establish an earnings capacity that is less susceptible to market fl uctuations, I believe this is an appropriate ratio for the JX Group, which is aiming to become a world-leading integrated energy, resources, and materials group. We will work to realize the balance I have just described in parallel with overall profi t growth by allocating management resources to highly profi table and high-growth busi- ness fi elds on a priority basis. To that end, we will strive to not only expand the scale of upstream but also generate stable profi ts through the ongoing structural reform of mid- stream/downstream. I believe that this is one of the key challenges that we face.
Finally, the period covered by the Second Medium-Term Management Plan, which began in the current fi scal year, is positioned as a period to “start a leap forward” for the purpose of realizing the Long-Term Vision for 2020 and for becoming a world-leading integrated energy, resources, and materials group. Looking ahead, it is clear that the next three years will be crucially important for the JX Group. To achieve our objectives, we will continue to work with speed and resolutely take on the challenges that we face.
August 2013
Representative Director, President
28 JX Holdings, Inc. Annual Report 2013 Long-Term Vision (2020 Target)
Corporate group holding competitive business evaluated by global standards
Generating stable profi tability in refi ning and marketing Establishment of competitive supply chain (refi ning, logistics, marketing) Establishing integrated energy supply Energy Business structure Integrated Energy Conversion Electricity, Gas, Coal, Solar Power Generation, Fuel Cell, Hydrogen Company for stable and effi cient energy supply Enhancing business in growing markets Basic Chemicals, Lubricants, Specialty and Performance Chemicals FUTURE GROWTH STRATEGIESFUTURE GROWTH
Oil and Natural Gas E&P Metals Business Business Global resources and materials E&P company that company centered generates sustainable growth, on copper mainly through operatorship
Aiming for production volume of 200 thousand BD Aiming for equity-entitled copper mine production of 350 Utilizing worldwide human resources and thousand tons per year from copper mine interests knowledge effi ciently Establishing copper smelting and refi ning business structure Working to achieve more than 100% reserve that has world-class cost-competitiveness replacement ratio Securing world’s top share in each electronic materials market Building domestic resource recycling system and developing overseas business
Business portfolio with a balance between petroleum and non-petroleum businesses and between upstream and midstream/downstream businesses Energy Oil and Natural Gas E&P Metals Others Balance of Ordinary Income Excluding Inventory Valuation Factors Upstream business Petroleum business
65%6 55%5 45%4
FY2012 FY2015 FY2020
40% 45% 50%
Upstream Business Non-Petroleum Business Energy: Coal Energy: Electric power generation, gas, coal, solar power generation, fuel cell, E&P: All specialty and performance chemicals Metals: Resources development E&P: LNG projects (Malaysia, Indonesia, Papua New Guinea) Metals: All
JX Holdings, Inc. Annual Report 2013 29 Overview of Core Businesses
Overview of Operations
Energy Business Main Products Petroleum Gasoline, Kerosene, Diesel fuel, Heavy fuel oil, Naphtha, Lubricants, products Asphalt, etc. Basic chemical Paraxylene, Benzene, Propylene, etc. products Specialty and Ethylidene norbornene (ENB), Functional fi lms, Cell culture, Liquid performance crystal polymers, etc. chemical products Other products Liquefi ed natural gas (LNG), Coal, Electric power, Fuel cells, etc.
Domestic Manufacturing Bases Muroran (scheduled to stop petroleum refi ning by March 2014), Refineries Sendai, Kashima, Negishi, Osaka, Mizushima, Marifu, Oita Plants Kawasaki, Yokohama, Chita
Oil and Natural Gas Exploration Main Products and Production Business Crude oil, Natural gas Worksites U.S. Gulf of Mexico, Canada, U.K. North Sea, Vietnam, Myanmar, Malaysia, Indonesia, Thailand, East Timor, Papua New Guinea, Australia, UAE, Qatar, Japan
Metals Business Main Products Resources development Copper concentrate, Molybdenum concentrate Copper smelting and Refi ned copper, Precious metals, Rare metals, Sulfuric acid refining Electro-deposited copper foil, Treated rolled copper foil, Electronic materials Precision rolled products, Thin-fi lm materials, Cathode materials for lithium-ion batteries Recycling and Precious metals, Rare metals environmental services Titanium Titanium sponge, Titanium ingots Principal Worksites Caserones Copper and Molybdenum Deposit, Los Pelambres Resources development Copper Mine, Collahuasi Copper Mine, Escondida Copper Mine Pan Pacifi c Copper Co., Ltd. (Saganoseki Smelter & Refi nery, Copper smelting Hitachi Refi nery, Tamano Smelter of Hibi Kyodo Smelting Co., and refining Ltd.); LS-Nikko Copper Inc. (South Korea) Isohara Works, Hitachi Works, Kurami Works, Kakegawa Works Electronic materials of JX Metals Precision Technology Co., Ltd.; Takatsuki Works of JX Metals Trading Co., Ltd. Recycling and HMC (Hitachi Metal Recycling Complex) Department of environmental services Hitachi Works; JX Nippon Environmental Services Co., Ltd. Titanium Chigasaki Works, Wakamatsu Works of Toho Titanium Co., Ltd.
30 JX Holdings, Inc. Annual Report 2013 Review of Financial Results
(FY) 2012 2011 Change Ordinary Income (Billions of yen) Net sales (Billions of yen) 9,699.6 9,147.5 +552.1 Operating income (Billions of yen) 138.9 208.2 –69.3 300 Ordinary income (Billions of yen) 161.6 232.5 –70.9 253.7 232.5 O rdinary income excluding inventory valuation factors (Billions of yen) 102.8 112.8 –10.0 200 196.5 161.6 Domestic fuel oil sales volume (Millions of KL) 60.82 59.45 +1.37 112.8 Dubai crude oil price* ($/bbl) 109 109 0 102.8 100 Paraxylene price in Asia ($/ton) 1,510 1,555 –45 Foreign exchange rate (¥/$) 83 79 +4
* Average from March to February of the next year (nearly equal to arrived crude cost) 0 (FY) 20102011 2012
Ordinary income Ordinary income excluding inventory valuation factors
(FY) 2012 2011 Change Ordinary Income (Billions of yen) Net sales (Billions of yen) 173.1 187.8 –14.7 Operating income (Billions of yen) 80.5 90.5 –10.0 150 REVIEW OFREVIEW CORE BUSINESSES Ordinary income (Billions of yen) 93.6 97.5 –3.9
Crude oil equivalent sales volume 100 97.5 93.6 (Thousands of BD) 117 128 –11 Brent crude oil price (Jan.–Dec.) ($/bbl) 112 111 +1 59.5 Dubai crude oil price (Jan.–Dec.) ($/bbl) 109 106 +3 50 Foreign exchange rate (Jan.–Dec.) (¥/$) 80 80 0
0 (FY) 20102011 2012
(FY) 2012 2011 Change Ordinary Income Net sales (Billions of yen) 927.5 997.2 –69.7 (Billions of yen) Operating income (Billions of yen) 6.9 14.5 –7.6 100 Ordinary income (Billions of yen) 45.0 60.0 –15.0 O rdinary income excluding inventory valuation factors (Billions of yen) 46.5 63.2 –16.7 80 70.7 70.3 63.2 (Resources development) 60.0 E quity-entitled copper mine production 60 (Thousands of tons / year) 105 105 0 45.0 46.5 (Smelting and refi ning) 40 P PC refi ned copper sales volume (Thousands of tons / year) 551 566 –15 (Electronic materials) 20 T reated rolled copper foil sales volume (Thousands of km / month) 2.7 2.6 +0.1 P recision rolled products sales volume 0 (Thousands of tons / month) 3.3 3.5 –0.2 (FY) 20102011 2012 (Recycling and environmental services) Ordinary income Gold recovery volume (tons / year) 5.8 7.0 –1.2 Ordinary income excluding LME copper price (Jan.–Dec.) (¢/lb) 361 400 –39 inventory valuation factors Foreign exchange rate (Jan.–Dec.) (¥/$) 80 80 0
JX Holdings, Inc. Annual Report 2013 31 Three Core Businesses— Strategies under Second Medium-Term Management Plan
Energy Integrated Energy Conversion Company for stable and Business effi cient energy supply
BUSINESS ENVIRONMENT DURING SECOND MEDIUM-TERM MANAGEMENT PLAN Petroleum Refi ning and Marketing Business Environment In marketing, following the management integration in 2010, Continued structural decline in domestic demand for fuel we moved quickly to integrate our brands into ENEOS, and we oils and ongoing competition with imports took steps to enhance our service station network. Furthermore, Domestic demand for fuel oils, such as gasoline, kerosene, gas oil, in July 2012 we acquired all shares of the IKKO Group, which has and heavy oil A, is gradually declining as a result of energy conser- developed a nationwide network of service stations that can ac- vation initiatives and a shift toward alternative energy sources. On commodate large trucks, and, in February 2013, it implemented the other hand, competition with imported products continues. a management integration with the SUZUYO Group, which is also a major in the business. Initiatives to Date In fi scal 2012, failures in the safety test under the High Pressure Reduced petroleum refining capacity Gas Safety Act were found at the Mizushima B Refi nery, and op- Realized integration synergies and enhanced refinery efficiency erations were suspended for an extended period of time. In addi- Enhanced service station network tion, there were successive operational suspensions at multiple During the First Medium-Term Management Plan, NOE reduced refi neries due to equipment problems. We profoundly regret the refi ning capacity by 400 thousand barrels per day. Moreover, fact that such issues have occurred at refi neries and plants, we have decided to reduce refi ning capacity at the Muroran where the highest priority should be given to safety and stable Refi nery by 180 thousand barrels a day at the end of March operation. Once again, we will take a rigorous approach to com- 2014 and to restructure it into a petrochemical factory from pliance and strengthen our initiatives for safe, stable operation. June 2014. In addition, we realized a ¥115.9 billion improve- ment in income by realizing integration synergies and enhanc- ing the effi ciency of refi neries.
Electricity, Gas, Coal, New Energy, Others Business Environment Electricity wholesale (IPP) 840,000 kW (refi neries, plants) Government’s re-examination of national energy policy Electricity retail 525,000 kW (Kawasaki Natural Gas taking shape (new electric power) Power Generation Co., Ltd., others) Following the Great East Japan Earthquake, there has been a re- Electricity Mega solar power generation 3,000 kW (Sendai, Kudamatsu) examination of national energy policy, including comprehensive Wind power generation 5,000 kW (Akita, Kashima, Kawasaki) Current electric power 1,373,000 kW reforms to the electric power and gas supply systems and mea- generating capacity sures targeting further progress in the application of independent Mizushima LNG Terminal In operation and distributed power sources. Annual volume of about 1.1 million tons, joint operation with Chugoku Electric Power Co., Inc. Gas Hachinohe LNG Terminal Under construction, in operation in fi scal 2015 Initiatives to Date Annual volume of about 0.7 million tons, to be supplied to Tohoku Decided to construct Hachinohe and Kushiro LNG terminals Electric Power Co., Inc., and others Acquired concessions in coking coal development blocks Thermal coal Ownership of mining concessions in Australia in Canada About 9 million tons a year supplied to electric power companies and others Under the First Medium-Term Management Plan, NOE expanded Coal Coking coal for steel manufacturing the Mizushima LNG Terminal and decided to construct LNG ter- In 2012, acquired 25% concessions in development blocks in Cana- da (development under consideration; forecast for production: minals in Hachinohe and Kushiro. Also, we acquired concessions about 9.5 million tons a year) in coking coal development blocks in Canada from Xstrata Coal, Solar power generation / fuel cells (ENE-FARM) of Australia. In new energy, we increased sales of residential-use Increasing sales of residential-use solar power generation / fuel cell solar power generation / fuel cell systems in conjunction with Dr. New systems / home energy management system in conjunction with energy Dr. Ouchino Energy service Ouchino Energy, a residential energy consulting service. Hydrogen (accommodating the spread of fuel cell vehicles) Currently testing hydrogen fi lling equipment at service stations
32 JX Holdings, Inc. Annual Report 2013 The JX Nippon Oil & Energy Group (NOE) engages in a wide range of business activities, cen- Seiichi Isshiki tered on petroleum and petrochemicals but also including natural gas, coal, electric power, and Representative Director new energy. Moving forward, NOE will strive to contribute to the development of a sustainable and President, economy and society through the stable supply and effi cient use of limited energy resources. JX Nippon Oil & Energy Corporation
INITIATIVES UNDER SECOND MEDIUM-TERM MANAGEMENT PLAN
Strengthening profi tability in petroleum refi ning and marketing, Basic Strategy the core business of NOE
Specifi c Measures Establishing a strong supply chain Strengthening global competitiveness of refineries NOE will take steps to increase the volume of fuel sales at all as- NOE will take steps to thoroughly reduce trouble with refi nery sociated service stations, such as constructing new service sta- equipment and follow a rigorous approach to implement safe, tions and converting stations to self-service. In marketing, we will stable operations. We will also work to cut costs, such as reducing implement initiatives to further increase competitiveness. To that energy consumption through operational improvements. In ad- end, we will also renew Dr. Drive, which off ers car care and main- dition, we will implement measures to increase added value. To tenance service at service stations, and enhance the value of the that end, to facilitate the use of bottom oil, we will install equip- ENEOS brand by, for example, advancing a strategy for cards, ment to obtain middle distillates from heavy distillates (solvent such as the ENEOS Card and the ENEOS T-Card, to provide added REVIEW OFREVIEW CORE BUSINESSES de-asphalting (SDA) equipment) and restructure the Muroran value and convenience for customers. Refi nery into a petrochemical factory.
Basic Strategy Enhancing business as an Energy Conversion Company
Specifi c Measures Coal: By acquiring new domestic demand, we will work to in- In addition to strengthening profi tability in petroleum refi ning crease sales, and we will also advance the coking coal develop- and marketing, the core business, NOE is working to expand the ment project in Canada. following operations as an Energy Conversion Company that sta- bly and effi ciently converts primary energy that exists in na- New energy: In the fuel cell business, we will continue working ture—such as crude oil, natural gas, coal, and sunlight—into op- to reduce production costs and to establish the optimal mass timal energy for consumers, such as petroleum products, LP gas, production system. We will also strive to expand the Dr. Ouchino electricity, and city gas. Energy business, including through an alliance with LIXIL Corpo- ration. In addition, we will actively develop mega solar power Electricity: We are expanding business in line with the Japanese generation projects using our idle land. government’s reform of the nationwide electric power supply system. Hydrogen: In April and May 2013, we opened hydrogen sta- tions integrated with gasoline service stations. Through demon- Gas: We will enhance our supply bases and capture new de- stration testing of these hydrogen stations, we will utilize our mand through the Hachinohe and Kushiro LNG terminals, which nationwide service station network to establish a hydrogen sup- are scheduled to begin operations in 2015. ply infrastructure and construct a business model.
JX Holdings, Inc. Annual Report 2013 33 Three Core Businesses— Strategies under Second Medium-Term Management Plan
BUSINESS ENVIRONMENT DURING SECOND MEDIUM-TERM MANAGEMENT PLAN Basic Chemical Products / Lubricants Business Environment joint venture with SK Global Chemical Co., Ltd., of South Korea. Continued growth in energy and materials markets, This venture has an annual production capacity of 1.0 million centered on Asia tons (NOE share: 500 thousand tons), which will be among the Continued growth is expected in energy and materials markets, largest in the world. Currently, construction is under way, with centered on Asia. Against a background of economic growth and the start-up of production scheduled for 2014. progress in motorization in emerging countries, substantial growth Lubricants: In fi scal 2012, NOE’s domestic sales of lubricants (in- is expected in markets for paraxylene, a raw material for polyester cluding exports) totaled about 1.25 million kiloliters, and over- and PET bottles, and for automotive and industrial lubricants. seas sales were about 0.42 million kiloliters. In lubricant markets, where substantial growth is expected, we will capture this Initiatives to Date growth in demand based on our technical strength. Under the Decided to develop one million tons per year of paraxylene First Medium-Term Management Plan, in October 2012 we com- production capacity in South Korea menced the production of base oil for high-quality lubricants Commenced production of high-quality base oil for lubricants (Group III) in a joint venture with SK Lubricants Co., Ltd., of South in South Korea Korea. In addition, we have established production and sales Basic chemical products: Under the First Medium-Term Man- bases in regions where growth in demand is expected, such as agement Plan, NOE decided to produce paraxylene through a Indonesia and Vietnam.
Paraxylene Project Lubricants Project Construction of a paraxylene production facility with Commenced joint operations in the manufacture of SK Global Chemical Co., Ltd., of South Korea high-performance base oil with SK Lubricants Co., Ltd., of South Korea Production capacity 1.0 million tons per year Equity interest JX Nippon Oil & Energy: 50% –1 share; Production capacity 1.35 million KL per year SK Global Chemical: 50% + 1 share Commencement of October 2012 Amount of investment Approximately KRW1 trillion joint operations
2007: Strategic business alliance signed by Nippon Oil Corporation and SK Group. Company owning Yubase Manufacturing Asia Co., Ltd.* (YMAC) * Wholly owned subsidiary of SK Lubricants. 2011: The two parties agreed to establish a joint venture for the construction production facilities JX Nippon Oil & Energy has purchased convertible of a new paraxylene plant. bonds issued by YMAC. 2012: Ulsan Aromatics Co., Ltd., was established as a joint venture. 2014: Production is scheduled to start.
Specialty and Performance Chemical Products Business Environment Growth in demand for high-value-added products in emerging countries Demand for high-value-added products is growing, centered on emerging countries, and in this setting NOE provides distinctive prod- ucts that have high shares in the global market. These products include ethylidene norbornene (ENB), a raw material for synthetic rub- ber; functional fi lms and liquid crystal polymers for use in mobile phones and other IT products; cell incubation mediums for ndustriali cell cultures and assisted reproductive technology; and the nonwoven fabrics CLAF and MILIFE.
Principal fi nal products
Ethylidene norbornene (ENB) Rubber automotive parts (wiper rubber blades, window frame rubber, radiator hose, etc.)
Functional films Mobile phones, smartphones
Cell incubation mediums Media for industrial cell cultures, assisted reproductive technology (ART) products
Liquid crystal polymers PCs, mobile phones, digital appliances and other electric components, connector parts
CLAF and MILIFE Produce bags, housewrap, blinds, wallpaper
34 JX Holdings, Inc. Annual Report 2013 INITIATIVES UNDER SECOND MEDIUM-TERM MANAGEMENT PLAN
Basic Strategy Establishing presence in overseas markets
Specifi c Measures Lubricants: Through a joint venture with SK Lubricants, NOE is Basic chemicals: A paraxylene plant operated with SK Global able to secure a stable supply of Group III base oil that is highly Chemical will start-up operation in fi scal 2014. This will increase cost-competitive, and accordingly we will work to expand sales NOE’s paraxylene supply capacity from the current level of 2.62 further in the high-quality lubricants market. In addition, our fo- million tons per year to 3.12 million tons. We will also work to cus regions will be markets where demand will grow over the secure new business opportunities by responding appropriately long term due to the progress of motorization, including China, to major changes in the business environment, such as the pet- Thailand, Vietnam, India, Indonesia, and South America, and we rochemical raw material shift from crude oil to gas resulting from will strengthen our production and marketing systems in these the shale gas revolution. regions.
Demand for Paraxylene in Asia Demand for Lubricants
(Millions of tons) (Millions of tons)
35 60 + 6% / year 30 + 2% / year OFREVIEW CORE BUSINESSES 25 40 20
15 + 3% / year 20 10
5
0 0 (CY) 20102011 2012 20132014 2015 (CY) 2010 2015 2020
Source: NOE Global demand for lubricants Demand for lubricants in Asia Source: NOE
Basic Strategy Capturing demand for high-value-added products based on original technologies
Specifi c Measures Specialty and performance chemicals: We will expand our overseas production network for specialty and performance chemicals—ENB and petroleum resin—and work to increase sales in the fi eld of cell incubation for pharmaceutical manufac- turing, where demand is expected to increase.
ENB, which is used in rubber parts for automobiles
CLAF, a nonwoven fabric that is used in produce bags
JX Holdings, Inc. Annual Report 2013 35 Three Core Businesses— Strategies under Second Medium-Term Management Plan
Oil and Natural Gas Exploration and E&P company that generates sustainable growth, Production (E&P) Business mainly through operatorship
BUSINESS ENVIRONMENT DURING SECOND MEDIUM-TERM MANAGEMENT PLAN
Business Environment Demand for crude oil and natural gas shows firm growth, centered on emerging countries, while resource and energy prices are volatile but remain at high levels. Competition for natural resources escalates, environmental regulations are strengthened, and more-advanced technologies are needed for new oil and gas field development. Initiatives to Date Continued to advance the Papua New Guinea LNG Project Acquired multiple assets of oil and gas fi elds in the U.K. North Sea from Eni S.p.A., of Italy Production Activities NOEX is engaged in oil and natural gas production activities in 12 governments, national petroleum companies, and business part- countries around the world, including Vietnam and Malaysia, ners. In fi scal 2012, NOEX produced and sold around 117 thousand where we act as an operator. We are working to ensure stable, safe BOED (barrels of oil equivalent per day). operations while establishing strong relationships with host country
Exploration and Development Activities Reserves and production of existing oil and gas fi elds will decline Management Plan, NOEX advanced exploration activities in re- in accordance with continued production. In recent years, a num- gions around the world. We acquired large operator projects in ber of factors have combined to make it extremely diffi cult to ac- Malaysia and Qatar. We also acquired working interests in proj- quire assets at the development and production stages. These ects in the U.K. North Sea, UAE, Myanmar, and Australia and then factors include an increase in resource nationalism in resource-rich conducted exploration and development. For example, we countries, escalating competition with other countries to secure made the fi nal investment decision to develop the Finucane resources, and the rise in the price of oil. Accordingly, to expand South oil fi eld in Australia in 2012 and commenced production reserves and production volume over the medium-to-long term, in May 2013. And we made the fi nal investment decision on the our basic policy is to participate in projects from the exploration Papua New Guinea LNG Project and are advancing it toward stage. Now, the number of projects requiring advanced technolo- start-up in 2014. In addition, in December 2012, we acquired gies and higher development costs, such as deepwater and un- multiple oil and natural gas assets in the U.K. North Sea from Eni conventional oil and gas resources, is increasing. Therefore, the S.p.A., a major Italian energy company, and, in February 2013, we strengthening of technologies and appropriate risk management made the fi nal investment decision to develop the Mariner oil will be important requirements. fi eld, which is the largest of these assets. We are striving to com- Under such circumstances, during the First Medium-Term mence commercial production from the Mariner oil fi eld in 2017.
Production Volume by Project Company / Reserves by Region
Fiscal 2012 Fiscal 2012 NOEX ownership Ownership in oil/natural gas/ sales volume reserves Country and region Project company ratio LNG project (Thousands of BOED*) (Millions of BOE*) JX Nippon Oil Exploration U.S.A. Limited U.S. Gulf of Mexico 100.0% 11.6%~100.0% 4 23 JX Nippon Oil Exploration (Gulf) Limited Canada Japan Canada Oil Company Limited 100.0% 5.0% 14 253 U.K. North Sea JX Nippon Exploration and Production (U.K.) Limited 100.0% 2.1%~85.0% 6 126 Vietnam Japan Vietnam Petroleum Co., Ltd. 97.1% 46.5%~64.5% 8 Myanmar Nippon Oil Exploration (Myanmar), Ltd. 50.0% 19.3% 9 JX Nippon Oil & Gas Exploration (Malaysia), Ltd. 78.7% 75.0% 21 233 Malaysia JX Nippon Oil & Gas Exploration (Sarawak), Ltd. 76.5% 37.5% 19 Indonesia Nippon Oil Exploration (Berau), Limited 51.0% 12.2% 17 Merlin Petroleum Company 79.6% Papua New Guinea 4.7%~73.5% 5 Southern Highlands Petroleum Co., Ltd. 80.0% 99 Australia JX Nippon Oil & Gas Exploration (Australia) Pty Ltd. 100.0% 15.0%~25.0% 1 United Petroleum Development Co., Ltd. 45.0% 97.0% UAE, Qatar, and others 13 66 Abu Dhabi Oil Co., Ltd. 31.5% 100.0% Total 117 800 * NOEX net sales volume; crude oil equivalent
36 JX Holdings, Inc. Annual Report 2013 The JX Nippon Oil & Gas Exploration Group (NOEX) engages in oil and natural gas exploration, development, and production activities in 14 countries around the world, acts as an operator, Shigeo Hirai and takes a leadership role in the implementation of projects in such areas as Vietnam, Malay- Representative Director sia, and the U.K. North Sea. We are striving to increase our reserves and production over the and President, long term by enhancing our competitiveness through preferred allocation of our manage- JX Nippon Oil & Gas Exploration Corporation ment resources to Core Countries and Core Technologies.
Major Results to Fiscal 2012
Acquisition of Discovery of oil and/ Confi rmation of spread Renewal of contract Country (Block) Type interests or gas reservoir of hydrocarbon for producing oil fi eld Jan. 2011 Vietnam (16-2) Natural gas
Feb. 2011 UAE (new + renewed) Crude oil
Vietnam (05-1b/1c) Crude oil/natural gas
Mar. 2011 U.K. North Sea (Culzean) Natural gas
Apr. 2011 Australia (WA-290-P) Natural gas
Papua New Guinea (PPL219) Crude oil
May 2011 Qatar (Block A) Natural gas May 2013 Australia (Finucane South) Crude oil Commencement of production Jan. 2012 Malaysia (Deepwater Block R) Crude oil
Sep. 2012 Myanmar (M-11) Natural gas OFREVIEW CORE BUSINESSES
Oct. 2012 Australia (WA-435-P, WA-437-P) Natural gas
U.K. North Sea (new) Crude oil/natural gas Feb. 2013 Dec. 2012 U.K. North Sea (Mariner) Crude oil/natural gas Made decision on development
Exploration and Development Schedule for Principal Oil and Gas Fields
Oil/gas fi eld Schedule
Mubarraz oil fi eld (Abu Dhabi, UAE) 1973 Commencement of production 2011 Signed new concession agreement 2012 New concession agreement takes effect
Helang gas fi eld (Block SK10, Malaysia) 1990 Successful test drilling
Jintan gas fi eld (Block SK8, Malaysia) 1992 Successful test drilling
Tangguh LNG project (Indonesia) 1997 Successful test drilling
Kutubu oil fi eld (Papua New Guinea) 1990 Asset acquired
Magnus oil fi eld (U.K. North Sea) 1996 Asset acquired
Rang Dong oil fi eld (Block 15-2, Vietnam) 1994 Successful test drilling 2014 Scheduled start-up of production 2009 Final decision on investment LNG project (Papua New Guinea)
2012 Asset acquired Mariner oil fi eld (U.K. North Sea) 2017 Scheduled 2013 Final decision on investment start-up of production 2008 Successful test drilling Culzean structure (Block 22/25a, U.K. North Sea) 2012 Confirmed 2011 Confi rmed extent of reserves with appraisal wells natural gas flow
Block 05-1b/c (Vietnam) 2010 Successful test drilling
2009 Successful test drilling Block 16-2 (Vietnam) 2010 Successful test drilling
19801990 2000 2010 Exploration stage Development stage Production stage JX Holdings, Inc. Annual Report 2013 37 Three Core Businesses— Strategies under Second Medium-Term Management Plan
INITIATIVES UNDER SECOND MEDIUM-TERM MANAGEMENT PLAN
Expanding reserves and production volume, mainly through exploration, to increase Basic Strategy 1 our production volume to 200 thousand BOED by 2020
Specifi c Measures Promotion of large exploration operator projects Completion of projects under development and make We are planning to invest ¥90 billion in exploration over the fi nal investment decisions on projects under exploration three years of the Second Medium-Term Management Plan. We NOEX will steadily advance the Papua New Guinea LNG Project are acting as operator and taking a leadership role in large-scale (scheduled to commence production in 2014) and the Mariner projects in such regions as Malaysia (Block SK333, Deepwater oil fi eld in the U.K. North Sea (scheduled to commence produc- Block R) and Qatar (Block A). tion in 2017). In addition, we will try to make fi nal investment decisions on projects under exploration, such as the Culzean gas fi eld in the U.K. North Sea and the 3rd train of the Tangguh LNG Project in Indonesia, after detailed feasibility studies.
Basic Strategy 2 Establishing superiority by focusing on Core Countries and Core Technologies
Specifi c Measures and enhance our business foundation to promote those areas We strive to secure leadership in business and obtain more ac- to our future Core Countries. cess to business opportunities by preferred allocation of our From a technical aspect, we have categorized certain tech- management resources to certain areas and technologies ac- nologies as “Core Technologies,” such as the development of cumulated through operating projects. We have categorized deep-water assets (deeper than 300 meters), the utilization of areas as “Core Countries” or “Core Candidates.” In Core Coun- enhanced oil recovery (EOR), and the development of tight oil tries—Malaysia, Vietnam, and the U.K.—we expect to expand and gas. We will try to accumulate technical advantages through our activities by using the existing business foundation. Then, operating our projects. we will continue exploration, development, and resource acqui- sition activities by utilizing our knowledge and relationships Core Technologies Regions with national petroleum companies accumulated through our Deepwater Offshore Sabah, Malaysia (Deepwater Block R); business activities. In Core Candidates—UAE, Qatar, Myanmar, U.K., west of Shetland and Australia—we will further strengthen our business founda- Enhanced oil recovery Vietnam (Rang Dong oil field HCG-EOR) tion. Then, we will try to obtain access to business opportunities Tight oil / gas Qatar (Block A)
Maintaining and Expanding Production Volume over Medium Term
Production Schedule
(Thousands of BD)
225 Major oil and gas fi elds before fi nal investment 2014 Production scheduled 2017 Production scheduled decision (FID) to commence to commence 200 200 Malaysia (Layang gas fi eld) Papua New Guinea LNG U.K. North Sea (Mariner oil U.K. North Sea (Culzean gas fi eld) U.K. North Sea (Kinnoull oil fi eld) Promoting Indonesia Tangguh LNG Project 3rd Train 175 fi eld) exploration Papua New Guinea LNG Project 3rd Train projects, others 2013 Production com- 150 menced 136 Australia (Finucane South Before FID 125 oil fi eld)
100 117
75 In development
In production 50 (CY) 20122013 2014 2015 2016 2017 2018 2019 2020
38 JX Holdings, Inc. Annual Report 2013 Restructuring business portfolio quickly while responding to changes in the Basic Strategy 3 business environment
Specifi c Measures In order to maximize the value of assets while distributing risk in response to changes in the business environment, we will replace assets fl exibly and effi ciently and optimize our asset portfolio.
Overview of Papua New Guinea LNG Project
Indonesia Papua New Guinea Hides Juha Elevation: 1,700m to 2,800m Elevation: 950m Kutubu oil facility (existing) Liquids line Oil export platform to Kutubu (existing) Gas conditioning plants
Crude oil/gas Production Rich gas line LNG plant production region Kopi facility (under construction) Liquids line
Gas line to Kopi Pipeline Port Moresby Gas line REVIEW OFREVIEW CORE BUSINESSES Liquids line Overview of Project LNG tanker
Gas fi elds: Hides, Angore, and Juha Gas resources Partners (Figures show ownership ratio) Oil fi elds: Kutubu, Moran, and Gobe (using associated gas) ExxonMobil: 33.20% (operator) Pipeline Onshore: about 400km, off shore: about 400km Oil Search: 29.00% Santos: 13.53% LNG plant production capacity 6.6 million tons / year (3.3 million tons / year × two trains) Merlin Petroleum: 4.68%* Project status Under development (Production to be commenced in 2014) Papua New Guinea government / landowners: 19.58%
* JX Nippon Oil & Gas Exploration ownership: 79.6%
Acquisition of Oil and Gas Field Rights in the U.K. North Sea
Mariner oil field Magnus oil field, others
Kinnoull oil field, Andrew oil field, others
Shetland Islands
Main Features of This Oil/Gas Field Acquisition Orkney Islands Oil/gas fi eld Kinnoull oil fi eld Culzean gas fi eld Mariner oil fi eld Blocks 16/23a, 16/24a 22/25e 9/11a BP 77.06% Maersk 49.99% Statoil 65.11% (operator) (operator) (operator) JXNEPUK* JXNEPUK* JXNEPUK* Partners 22.94% 34.01% 28.89% Culzean gas field, and interests Of which, existing 6.27% Of which, existing 17.06% Of which, existing –% others Additional from Additional from Additional from this acquisition 16.67% this acquisition 16.95% this acquisition 28.89% U.K. BP 16.00% Cairn 6.00% Under development Under exploration Under development Project status (Production to be (Before FID) (Production to be commenced in 2014) commenced in 2017)
* JX Nippon Exploration and Production (U.K.) Limited
JX Holdings, Inc. Annual Report 2013 39 Three Core Businesses— Strategies under Second Medium-Term Management Plan
Metals Global resources and materials company Business centered on copper
BUSINESS ENVIRONMENT DURING SECOND MEDIUM-TERM MANAGEMENT PLAN Resources Development and Copper Smelting and Refining Businesses Business Environment In addition, in March 2013, we commenced the production of Copper demand increases, centered on Asia, and copper pric- refined copper by the SX-EW method* at the Caserones Copper and es remain high. Molybdenum Deposit in Chile, which had been in development Increasingly advanced technologies and growth in the amount of since 2010. We plan to start copper concentrate production in the funds required lead to the concentration of capital and the devel- October-to-December quarter of 2013, which will make a significant opment of oligopolies in the resources development industry. contribution to expanding equity-entitled copper mine production. Mine development is proceeding, but there is little potential In the copper smelting and refi ning business, Pan Pacifi c Cop- for signifi cant improvement in TC/RC. per Co., Ltd. (PPC)—a joint venture with Mitsui Mining & Smelting Co., Ltd.—and LS-Nikko Copper Inc., of South Korea, have a com- Initiatives to Date bined annual production capacity of 1,170 thousand tons of re- Commenced production at the Caserones Copper and fi ned copper. Thanks to economic growth in China and other Molybdenum Deposit emerging countries, demand for refi ned copper is increasing, and Acquired a mining interest in the Frontera Area the copper price has been showing healthy movement. On the In the resources development business, NMM has taken equity stakes other hand, the demand-supply balance for the raw material cop- in the Escondida Copper Mine, the Collahuasi Copper Mine, and the per concentrate has remained tight since the middle of the 2000s. Los Pelambres Copper Mine, which began operations in 1990, 1999, In the short term, the balance is improving due to the start-up of and 2000, respectively, to secure a stable supply of copper concen- new mines, but nonetheless treatment charges and refi ning trate for its copper smelting and refi ning operations. In 2012, equity- charges remain at a low level, and, as a result, we have been forced entitled copper production volume was about 100 thousand tons. to decrease refi ned copper production since fi scal 2009. Against With the recent copper price increases, these equity stakes have this backdrop, we are working to bolster our competitiveness made a signifi cant contribution to NMM’s earnings. through increased effi ciency and reduced costs. * SX-EW (solvent extraction-electrowinning) method: A copper production method by first making a copper sulfate solution by selectively extracting copper ions from a copper leaching solution (solvent extraction) and subsequently producing refined copper from the copper sulfate solution through electrowinning. Global Demand for Refined Copper and LME Copper Price Movement in TC/RC*1
(Millions of tons) (¢/lb) (¢/lb) *1. TC/RC (Treatment Charge/Refining Charge): smelting and refining charge Purchasing term decided through negotiations between smelters and 25 500 40 mining companies, with the smelter paying to the mining company, as payment for copper concentrate, an amount calculated by subtracting the 20 400 TC/RC from the LME refined copper price. 30 *2. Smelting and refining margin at the end of 2010 comprises multiple agreements in accordance with contract counterparties, contract periods, etc. 15 300 20 10 200
10 5 100 *2
0 0 0 (CY) 20032004 2005 2006 20072008 2009 2010 2011 2012 (CY) mid end mid end mid end mid end mid end mid end 2007 2008 2009 2010 2011 2012 Source: WBMS Global demand for refined copper (left scale) Periods of negotiation for coming years LME copper price (right scale) Outline of Resources Development and Copper Smelting and Refining Businesses Overseas Mines Smelting and Refi ning Alliances Caserones Copper Deposit (Chile) JX Holdings 49.5%*1 Investment 100% JX Nippon Mining & Metals Los Pelambres Copper Mine (Chile) Investment 66.0% 39.9%*1 1 15.0%* return Pan Pacifi c Copper (PPC) LS-Nikko Copper Escondida Copper Mine (Chile) 610 thousand tons / year (Japan) 560 thousand tons / year (South Korea) 1 Saganoseki Smelter & Refi nery, Hitachi Refi nery Tamano Smelter, Hibi Kyodo Smelting Co., Ltd. 3.0%* Onsan Smelting Plant 450 thousand tons / year 160 thousand tons / year*2 Collahuasi Copper Mine (Chile) Stable procure- ment of copper 1 34.0% 5.0% 3.6%* concentrate Mitsui Mining & Smelting Co., Ltd. *1. Indirect ownership of JX Nippon Mining & Metals *2. PPC owns 63.51% of the total of 260 thousand tons per year production capacity. 40 JX Holdings, Inc. Annual Report 2013 The JX Nippon Mining & Metals Group (NMM) engages in integrated copper and other non- Yoshimasa Adachi ferrous metals operations extending from its business in resources development, smelting Representative Director and refi ning, electronic materials, and recycling and environmental services. By pursuing a and President, stable supply and the eff ective use of value-bearing metal resources, NMM will dedicate it- JX Nippon Mining & self to developing a sustainable economy and society. Metals Corporation
INITIATIVES UNDER SECOND MEDIUM-TERM MANAGEMENT PLAN
(Resources Development) Basic Strategy Establishing highly profi table structure by increasing copper mine equity interests
Specifi c Measures Equity-Entitled Copper Mine Production Expanding operations, targeting 350 thousand tons per (Thousand tons / year) year of equity-entitled copper mine production Additional production from 350 NMM will advance construction work at the Caserones Project in Quechua, Frontera, etc. Chile, targeting the start-up of copper concentrate production in 300 the October-to-December quarter of 2013, and quickly move to 250 Second Medium-Term full production in fi scal 2014. We will take steps to increase cop- 200 Management Plan Caserones per mine equity interests. Specifi cally, we will consider moving to 150 the development stage at the Quechua copper deposit (Peru), 100 for which the feasibility study has already been completed, and 50 3 mines in Chile (existing) OFREVIEW CORE BUSINESSES (Los Pelambres, Escondida, Collahuasi) advance exploration at the Frontera Area (Chile/Argentina), for 0 which equity interest was acquired in September 2012. (CY) 2012 20132014 2015 2016 20172018 2019 2020
Caserones Copper and Molybdenum Deposit Production Volume
(Thousands of tons) Annual average for fi rst10 years Annual average for 28 years (mine life) Total for 28 years (mine life) Copper content in copper concentrate 150 / year 110 / year 3,140 Copper production 30 / year 10 / year 410 volume Refi ned copper (SX-EW process) Total 180 / year 120 / year 3,550 Molybdenum concentrate production volume 3 / year 3 / year 87
(Resources Development) Basic Strategy Acquiring mining equity interests utilizing original technology
Specifi c Measures this technology is currently under way at CODELCO’s Radomiro Developing next-generation smelting technology Tomic copper mine. These new technologies will allow us to ef- NMM conducted a pilot plant project for the Nikko Chloride (N- fi ciently recover metals, such as copper, gold, and silver, from Chlo) process, in Perth, Australia, and it is studying the results of low-grade copper concentrate. As a result, with competition that project with a view to using this technology with gold con- among resource developers intensifying in the area of rights ac- centrate. Concurrently, we are developing bio-mining technolo- quisition, we expect to establish a competitive edge using these gy in collaboration with CODELCO, and demonstration testing of original technologies.
(Copper Smelting and Refi ning) Basic Strategy Establishing a copper smelting and refi ning business structure with world-class cost-competitiveness
Specifi c Measures centrate from the Caserones Copper Deposit and increasing the Securing safe and stable operation, improving smelting processing of high-margin materials, such as gold and silver con- margin centrate, as well as by beginning the operation of a two-vessel We will minimize the risk of decreased production by securing system of copper concentrate and sulfuric acid multiple carriers. safe and stable operation of refi neries. Also, we will raise produc- In these ways, we will work to build an operating system with tion effi ciency and profi tability by using high-grade copper con- world-class cost-competitiveness.
JX Holdings, Inc. Annual Report 2013 41 Three Core Businesses— Strategies under Second Medium-Term Management Plan
BUSINESS ENVIRONMENT DURING SECOND MEDIUM-TERM MANAGEMENT PLAN Electronic Materials Business Business Environment facilities at the Isohara Works for cathode materials for automotive Increasing demand for electronic materials and components lithium-ion batteries, thereby establishing a framework for the stable from the fi elds of advanced IT, automobiles, and medicine supply of high-purity products of consistent quality. In addition, in April 2013, in Kakegawa City, Shizuoka Prefecture, we commenced Initiatives to Date OEM operation of a plant with an integrated manufacturing process Enhanced manufacturing facilities for cathode materials for for automotive connectors. JX Metals Precision Technology Corpora- lithium-ion batteries tion, which operates the plant, was merged with the Group’s preci- Built integrated production facility for connectors in Kakegawa City sion fabricating related companies in January 2013. From precision In the electronic materials business, NMM manufactures a di- rolled products as raw materials to connectors as fi nal products, the verse range of electronic materials by drawing on such advanced new facility will off er stable and effi cient integrated processing, technologies as high-purifi cation, high-density sintering, surface including the press, plating, and fabrication processes. treatment, and precision rolling and processing. By developing and supplying high-quality and highly functional products that Principal Electronic Materials meet market needs, we command large shares in the global Worldwide market market. In fi scal 2012, we consistently began sales of super low Product name share (As of 2011) Primary uses Treated rolled copper foil No. 1 75% Flexible printed circuit boards roughness treated rolled copper foil, ultra-thin treated rolled Sputtering targets for LSIs No. 1 60% CPUs, memory chips, etc. copper foil, thick foil (electro-deposited copper foil), and high- Sputtering targets for FPDs* No. 1 30% Transparent electrodes Sputtering targets for conductivity, high-strength copper alloys. magnetic applications No. 2 30% Hard disk drives, etc. In addition to our traditional focus on IT, we are working to in- Corson alloys (C7025) No. 1 45% Lead frames, connectors crease the share of our sales accounted for by the automotive in- Titanium copper alloys No. 1 70% High-quality connectors, etc. Connectors, springs for dustry, where the market for eco-friendly cars is recording growth. Phosphor bronze alloys No. 1 20% electronic components To that end, in September 2012 we enhanced manufacturing * FPDs: Flat panel displays
Recycling and Environmental Services Business Business Environment stantial recycled materials. In this way, we expanded our capacity. Increasing demand for related materials and resource recy- To obtain recycled materials, we have built a nationwide col- cling in line with growing concern about the realization of an lection network that comprises operating sites extending from eco-friendly society Hokkaido to Kyushu. However, in recent years a rising number of electronic component companies have shifted their operations Initiatives to Date overseas, and there has been a trend toward the reduced use of Strengthened collection of recycled materials in Taiwan metals. These factors have reinforced the trend toward a lower Operated pilot plant for recycling of lithium-ion batteries volume of recycled materials generated in Japan. In this environ- Intensifying worldwide competition for natural resources and the ment, we are enhancing our profi tability by increasing the collec- necessity to reduce the environmental burden have led to increas- tion of recycled materials overseas and by conducting detoxifi cation ing importance of recycling metal resources. In the recycling and treatment for a wider range of recycled materials. We have re- environmental services business, NMM effi ciently recovers copper, ceived shipments of materials from the Chiongpin Recycling precious metals, rare metals, and other value-bearing metals by uti- Center in Taiwan since 2010. In addition, we continue to investi- lizing its copper smelting and refi ning facilities. In 2009, we launched gate the commercialization of the recycling of lithium-ion batter- the HMC (Hitachi Metal Recycling Complex) Department of the Hi- ies, which are expected to be the focus of growing recycling tachi Works, which is located in an urban area that generates sub- demand in the future. Flow of the Recycling and Environmental Services Business
Recycled materials containing copper and precious metals (purchased)
Rendering recycled materials harmless (four core environmental services companies) JX Nippon Environmental Services Co., Ltd. JX Nippon Tomakomai Chemical Co., Ltd. (Kanto region) (Hokkaido and Tohoku regions) Collecting used products JX Nippon Tsuruga Recycle Co., Ltd. JX Nippon Mikkaichi Recycle Co., Ltd. (Kansai, Tokai, and Hokuriku regions) (Hokuriku and Chubu regions)
Metals recovery process Saganoseki Smelter & Refinery, PPC HMC Dept. of Hitachi Works, JX Nippon Mining & Metals
Consumers Electric appliances and electronic devices Electronic materials
42 JX Holdings, Inc. Annual Report 2013 INITIATIVES UNDER SECOND MEDIUM-TERM MANAGEMENT PLAN
Basic Strategy Securing world’s top share in each product market
Specifi c Measures Enhancing our overseas network Working to rapidly monetize integrated production of We will consider increasing overseas production capacity in re- connectors as well as cathode materials operations sponse to the overseas shift of domestic customers and to the NMM will strive to rapidly monetize the integrated OEM produc- needs of customers for BCP and cost cutting. tion of connectors at the Kakegawa Works, which commenced operation in 2013, and of the cathode materials business for lithi- um-ion batteries at the Isohara Works, where capacity was in- creased in 2012. Improving profitability by developing new fields and materials In the future, we will work to develop and expand sales of new materials for fi elds where growth is anticipated—advanced IT, next-generation eco-friendly vehicles, and medicine. These mate- rials will include ultra-thin electro-deposited copper foil, highly functional precision rolled products, sputtering targets for OLEDs, sputtering targets for next-generation LSIs, and new materials for medical radiation sensors. REVIEW OFREVIEW CORE BUSINESSES
Building an international resource recycling business with an environmentally Basic Strategy friendly zero emission system
Specifi c Measures Enhancing our ability to collect recycled materials overseas To respond to decreasing quantities of recycled materials gener- ated in Japan, we will strengthen collection from overseas mar- kets, such as North America in addition to Taiwan and other Asian markets. In this way, we will strive to contribute to the es- tablishment of a worldwide recycling-oriented society. Advancing and expanding new business We will work to rapidly commercialize the recycling of used lithi- um-ion batteries. Also, we will diff erentiate our operations by expanding our business in the detoxifi cation of harmful materi- als, such as waste asbestos and materials containing small amounts of PCB. Consolidating production sites for each metal and reducing costs We will take steps to consolidate production sites for each metal, including revising the HMC process. In this way, we will strive to raise production effi ciency and reduce costs.
JX Holdings, Inc. Annual Report 2013 43 Board of Directors and Corporate Auditors (As of July 1, 2013)
Representative Director, Representative Director, President Director, Senior Vice President Director, Senior Vice President Chairman of the Board Isao Matsushita Ichiro Uchijima Junichi Kawada Yasushi Kimura Responsible for Corporate Planning Responsible for General Administration Representative Director, Department II and Finance & Investor Department and Legal Aff airs Chairman of the Board, Relations Department Department JX Nippon Oil & Energy Corporation
Director, Senior Vice President Director, Senior Vice President Director Director Rentaro Tonoike Akira Omachi Seiichi Isshiki Yukio Uchida Responsible for Corporate Planning Responsible for Internal Audit Representative Director, President, Director, Executive Vice President, Department I Department and Controller Department JX Nippon Oil & Energy Corporation JX Nippon Oil & Energy Corporation
Director Director Shigeo Hirai Yoshimasa Adachi Representative Director, President, Representative Director, President, JX Nippon Oil & Gas Exploration JX Nippon Mining & Metals Corporation Corporation Representative Director, President & Chief Executive Offi cer Pan Pacifi c Copper Co., Ltd.
44 JX Holdings, Inc. Annual Report 2013 Outside Director Outside Director Outside Director Outside Director Masahiro Sakata Hiroshi Komiyama Hiroko Ota Mutsutake Otsuka 2006 Registered as Attorney-at-Law 2009 Chairman, Mitsubishi Research 2008 Professor, National Graduate 2012 Advisor, East Japan Railway (current) Institute, Inc. (current) Institute for Policy Studies Company Of Counsel, Anderson Mori & 2005 President of The University of Tokyo (current) Tomotsune (current) 1988 Professor, Department of 2006 Minister of State for Economic 2004 Director-General of the Cabinet Chemical Engineering, Faculty of and Fiscal Policy Legislation Bureau Engineering, The University of Tokyo
Corporate Auditor Corporate Auditor Outside Corporate Auditor Outside Corporate Auditor Hideo Tabuchi Tadashi Ohmura Hiroyasu Watanabe Mitsudo Urano
2004 Professor, Graduate School of 2007 Advisor, Nichirei Corporation STRATEGYGROWTH DRIVERS Finance, Accounting and Law, (current) Waseda University (current) 2002 Director-General, Japan’s National Tax Agency
Outside Corporate Auditor Outside Corporate Auditor Hideki Nakagome Toshinori Kanemoto 2006 Registered as Attorney-at-Law 2007 Registered as Attorney-at-Law (current) (current) Partner, Fuji Partnership Law Offi ce Of-Counsel, City-Yuwa Partners (Fuji Godo Houritsujimusho) (current) (current) 1996 President, International Criminal 2005 President, The Nagoya High Court Police Organization (ICPO)
JX Holdings, Inc. Annual Report 2013 45 Corporate Governance
BASIC APPROACH TO CORPORATE GOVERNANCE
JX Holdings (“the Company”) is aware that its mission is to con- and fl exibly to implement growth strategies for the JX Group as tribute to sustainable economic and social development a whole and make appropriate responses to changes in the through creation and innovation in the fi elds of energy, resourc- business environment. In addition, the Company endeavors to es, and materials. In addition, the Company is cognizant of the secure the soundness and transparency of its management to importance of promoting all its business activities as a fair and respond to the trust and confi dence of all its stakeholders. responsible player and maximizing its corporate value. The basic approach to corporate governance of the Company is to make decisions and execute operational activities quickly
CORPORATE GOVERNANCE SYSTEM AND ACTIVITIES
As the holding company, JX Holdings focuses especially on for- the holding company, the core operating subsidiaries are re- mulating medium-to-long-term strategies for the JX Group, sponsible for actual business activities in the JX Group in the strategically allocating management resources to implement Energy business, the Oil and Natural Gas Exploration and Pro- these strategies, and implementing risk management. Under duction (E&P) business, and the Metals business.
General Meeting of Shareholders
Election and Election and removal removal of the JX Holdings Election and removal of directors of corporate auditors independent auditors (audit fi r m)
Board of Directors (Chaired by Representative Director, Chairman) Board of Corporate Independent Auditors 14 directors, including 4 outside directors Audits Auditors Collaboration 6 corporate auditors, including 4 outside corporate auditors Consultation Recommendations Discussion
Election and Compensation Executive Council Internal Control Council removal of Advisory (Chaired by Representative (Chaired by Representative executive offi cers Director, President) Director, President) Committee Collaboration Collaboration Full-Time Directors, Full-Time Directors, Monitoring and (Chaired by Outside Financial audits Presidents of Core Operating Presidents of Core Operating supervision Director) Subsidiaries, and Others Subsidiaries, and Others
Approval Monitoring Approval Audits Business Operation Internal Audit Department Executive Officers (Internal Audit Division) Internal audits
Management supervision + Internal control of corporate group
Group Companies
Core Operating Subsidiaries
JX Nippon Oil & Energy JX Nippon Oil & Gas Exploration JX Nippon Mining & Metals Other Group Companies
46 JX Holdings, Inc. Annual Report 2013 Board of Directors directors utilized their extensive specialized knowledge and ex- The Board of Directors as a statutory body makes decisions and re- perience and, from an objective and impartial viewpoint, posed ports on matters stipulated in the related laws, including the Com- questions and expressed their opinions regarding resolution panies Act and the Articles of Incorporation as well as the Rules for matters, such as on important investments, and regarding re- the Board of Directors. In principle, the meetings of the Board of ports, such as those on the status of operational execution. The Directors are held once a month. The board makes decisions on attendance of outside directors at meetings of the Board of Di- important matters after due deliberation and receives reports from rectors in fi scal 2012 is shown below. other directors regarding the conduct of business activities. Name Attendance at meetings of the Board of Directors Directors are elected for a term of one year and must be ap- Etsuhiko Shoyama 13 out of 13 times (Retired June 26, 2013) proved each year by the General Meeting of Shareholders. In Masahiro Sakata 13 out of 13 times addition, to strengthen the supervision of management from an Hiroshi Komiyama 10 out of 13 times Hiroko Ota 10 out of 10 times (Appointed June 27, 2012) independent and objective perspective, among the total of 14 directors, four outside directors (including one woman) are ap- In addition, the presidents of core operating subsidiaries pointed, who are selected on the basis of their deep manage- are appointed as directors of the Company, and, in the Board ment insight and extensive experience. These four outside of Directors’ meetings, they participate in deliberations and directors meet the criteria for independent directors of both of decision making with respect to business strategy for the JX the stock exchanges on which the Company is listed—Tokyo Group as a whole. and Nagoya. At meetings of the Board of Directors, the outside
Information regarding Outside Directors Name Position and important concurrent office Reasons for election as outside directors and reasons for designating as independent directors Independent Director Mr. Masahiro Sakata served for many years in the Ministry of Finance and held other key positions, includ- Attorney-at-Law, ing that of Director-General of the Cabinet Legislation Bureau. He was elected as an outside director be- Masahiro Sakata Of Counsel at Anderson Mori & Tomotsune cause, based on his extensive specialized knowledge and experience in administrative and legal matters, he is able to provide proper guidance and advice and supervise the management of the Company from his outside perspective. Independent Director Mr. Hiroshi Komiyama specializes in the fi elds of chemical systems engineering, functional materials chem- Chairman, Mitsubishi Research Institute, Inc. istry, and global environmental engineering. He held the position of professor and conducted research for many years at the University of Tokyo and later served as president of that institution. He was elected as an Hiroshi Komiyama outside director because, based on his extensive specialized knowledge and experience in the manage- ment of a major university, he is able to provide proper guidance and advice and supervise the manage- ment of the Company from his outside perspective. GROWTH STRATEGYGROWTH DRIVERS Independent Director Ms. Hiroko Ota specializes in public economics and economic policies and has long been engaged in educa- Professor, National Graduate Institute tion and research at the National Graduate Institute for Policy Studies. In addition, she has held such posi- for Policy Studies tions as Director General for Economic Research in the Cabinet Offi ce and Minister of State for Economic and Hiroko Ota Fiscal Policy. She was elected as an outside director because, based on her extensive experience in economy and fi nance, she is able to provide proper guidance and advice and supervise the management of the Company from her outside perspective. Independent Director Mr. Mutsutake Otsuka has long been engaged in the management of East Japan Railway Company. He was Advisor, East Japan Railway Company elected as an outside director because, based on his deep insight, abundant experience, and solid accom- Mutsutake Otsuka plishments in company management, he is able to provide proper guidance and advice and supervise the management of the Company from his outside perspective.
Board of Corporate Auditors To enhance the eff ectiveness of audits, the corporate audi- Under the Companies Act, the Rules for the Board of Corporate tors attend the meetings of the Board of Directors and the Exec- Auditors, and Auditing Standards for the Corporate Auditors, the utive Council as well as other important meetings and express Board of Corporate Auditors prepares systems for comprehen- their opinions as deemed necessary. In addition, the corporate sively conducting audits by the corporate auditors and routinely auditors work to ascertain the conduct of business activities of audits the status of operational execution by the directors. Re- officers and employees by reading through important docu- ports are made regarding the progress and results of audits of ments and conducting interviews with offi cers and employees matters for which each corporate auditor is responsible at the of the Company and its subsidiaries. Furthermore, the corporate regular meetings of the Board of Corporate Auditors, which are auditors receive auditing plans, progress reports on auditing ac- held once each month; these results are shared among the cor- tivities, and information on results as well as other matters from porate auditors. the Internal Audit Department, and the independent auditors
JX Holdings, Inc. Annual Report 2013 47 Corporate Governance
periodically exchange opinions and information with them. In independent corporate auditors of both of the stock exchanges addition, full-time corporate auditors of the Company serve as on which the Company is listed—Tokyo and Nagoya. auditors of the core operating subsidiaries of the JX Group. To further upgrade the auditing functions that are performed Among the total of six corporate auditors, four outside cor- by all the corporate auditors, the Auditors Affairs Office has porate auditors, who constitute the majority, are appointed on been established as an organization that is independent from the basis of their deep management insight and extensive ex- the business execution sections. Dedicated staff are assigned to perience. Within this structure, under Japan’s Companies Act, this offi ce to assist the auditors in the conduct of their duties. which has strengthened and expanded the authority of the cor- porate auditors and the Board of Corporate Auditors, the Com- Name Attendance at meetings of the Board of Corporate Auditors Hidehiko Haru 15 out of 15 times (Retired June 26, 2013) pany secures the eff ectiveness of their audits. The attendance of Hiroyasu Watanabe 15 out of 15 times outside corporate auditors at meetings of the Board of Corpo- Mitsudo Urano 13 out of 15 times rate Auditors and meetings of the Board of Directors in fiscal Hideki Nakagome 11 out of 11 times (Appointed June 27, 2012) 2012 is shown in the following tables. At the meetings, the out- Name Attendance at meetings of the Board of Directors side corporate auditors asked questions and expressed their Hidehiko Haru 13 out of 13 times (Retired June 26, 2013) opinions regarding such matters as the status of the operations Hiroyasu Watanabe 13 out of 13 times and management of the Company and Group companies. All Mitsudo Urano 11 out of 13 times of the four outside corporate auditors meet the criteria for Hideki Nakagome 10 out of 10 times (Appointed June 27, 2012)
Information regarding Outside Corporate Auditors Name Position and important concurrent office Reasons for election as outside corporate auditors and reasons for designating as independent auditors Independent Corporate Auditor Mr. Hiroyasu Watanabe served for many years in key positions in the Ministry of Finance, including Direc- Professor, Graduate School of Finance, tor-General of the National Tax Agency, and subsequently became a professor in the graduate schools of Hiroyasu Watanabe Accounting and Law, Waseda University Waseda University and the University of Tokyo. Therefore, he has extensive specialized knowledge and deep insight into corporate management. He was elected as an outside corporate auditor because, from his objective, outside, and fair perspective, he is able to audit the directors in the conduct of their duties. Independent Corporate Auditor Mr. Mitsudo Urano has long been engaged in the management of Nichirei Corporation. He has strong in- Advisor, Nichirei Corporation sight into corporate management, extensive experience, and a solid record of accomplishments. He was Mitsudo Urano elected as an outside corporate auditor because, from his objective, outside, and fair perspective, he is able to audit the directors in the conduct of their duties. Independent Corporate Auditor Mr. Hideki Nakagome worked as a judge, serving as President of the Mito District Court and President of the Attorney-at-Law, Nagoya High Court, and later served as a committee member of an independent panel of a company in the Hideki Nakagome Partner, Fuji Partnership Law Offi ce (Fuji Godo capacity of an attorney. Therefore, he has extensive specialized knowledge and experience regarding legal Houritsujimusho) and corporate governance. He was elected as an outside corporate auditor because, from his objective, outside, and fair perspective, he is able to audit the directors in the conduct of their duties. Independent Corporate Auditor Mr. Toshinori Kanemoto worked for the National Police Agency for many years, serving in such important Attorney-at-Law, positions as President of International Criminal Police Organization (ICPO) and Director of Cabinet Intelli- Of-Counsel, City-Yuwa Partners gence of Cabinet Secretariat, and later served as the compliance committee chair of a major company in the Toshinori Kanemoto capacity of an attorney. Therefore, he has abundant expertise and experience regarding corporate legal af- fairs and compliance. He was elected as an outside corporate auditor because, from his objective, outside, and fair perspective, he is able to audit the directors in the conduct of their duties.
Executive Offi cers members of the Company and the core operating subsidiaries, ap- Executive officers are appointed and are responsible for opera- propriate and effi cient decisions by the president are secured. tional execution, based on the authority of the Board of Directors. Internal Control Council Executive Council Our internal control system works to ensure appropriate opera- Matters to be decided by the Board of Directors must, in principle, tional execution. In regard to the operation of this system, the be approved by the president in advance. The Executive Council Internal Control Council has been established to provide advice has been formed to discuss matters related to operational execu- to the president to implement the system on a Groupwide ba- tion that require the approval of the president. This council is com- sis. This council, which is composed of the same members as posed of full-time directors, the presidents of core operating the Executive Council, confirms and reviews the results of the subsidiaries, and other executive offi cers, and it is convened peri- annual monitoring of the operation of the system and proposes odically and at other times when deemed necessary. Thus, at the an enhanced plan for the next year’s operation of the autono- Executive Council, through careful deliberation by executive mous self-control systems.
48 JX Holdings, Inc. Annual Report 2013 Compensation Advisory Committee equal to or less than ¥200 million) in one fi scal year. If directors To ensure the transparency and objectivity of the process of de- also hold positions as employees, the salary and bonuses to be termining the compensation and other benefits for directors paid in compensation for these services are not included. and executive offi cers, the Compensation Advisory Committee (2) The amount of compensation for all corporate auditors: has been formed to provide advice to the Board of Directors. Equal to or less than ¥200 million in one fi scal year. The Compensation Advisory Committee comprises two outside Compensation paid to directors is divided into two compo- directors and two representative directors, and one of the out- nents. The fi rst component is fi xed compensation, which is de- side directors on the committee acts as chairman. The Compen- termined in consideration of the roles undertaken by individual sation Advisory Committee is responsible for deliberating the directors and paid in fixed amounts each month. The second policies for deciding the compensation and other benefi ts of di- component is in the form of a bonus, which varies according to rectors and executive offi cers as well as other related matters. the level of consolidated ordinary income, and, therefore, re- The results of the committee’s deliberations are reported to the fl ects performance during the relevant fi scal year. The policy for Board of Directors. the determination of this compensation is for the decision to be made by resolution of the Board of Directors after deliberations Executive Compensation and reporting by the Compensation Advisory Committee. Com- The limit of compensation to be paid to directors and corporate pensation paid to corporate auditors is fi xed in consideration of auditors was decided at the 1st Ordinary General Meeting of the independence of their duties. Based on the deliberations of Shareholders held on June 27, 2011. the corporate auditors, this compensation is paid within the (1) The amount of compensation for all directors: Equal to or less limits stated above. than ¥1,100 million (inclusive of compensation to outside directors
Amount of Compensation Paid to Directors and Auditors (Fiscal 2012)
Total amount of compensation by type Total amount of (Millions of yen) Number of compensation grantees Fixed Grantee (Millions of yen) Bonus (persons) compensation Directors (excluding outside directors) 350 239 111 17 Corporate auditors (excluding outside corporate auditors) 72 72 — 2 Outside directors and corporate auditors 103 93 9 10 STRATEGYGROWTH DRIVERS
Internal Audits standard audits under the internal audit program and audits on For the conduct of internal audits, the Company has formed its a special mission from the president. The results of the internal Internal Audit Department, which is in overall charge of internal audits are reported periodically at the meetings of the Executive auditing and the internal control system that is necessary for Council and the Board of Directors. ensuring the accuracy of financial reporting. Internal audits are for the entire JX Group, and the Internal Audit Department, by Accounting Audits collaborating and sharing tasks with the core operating The Company has selected Ernst & Young ShinNihon LLC as its subsidiaries and the listed subsidiaries of the JX Group, conducts independent auditor, and this firm conducts the accounting audits.
Amount of Remunerations (Fiscal 2012) Amount of remunerations as an accounting auditor of the Company ¥106 million Total amount of monies and other property benefits to be paid by the Company and its subsidiaries ¥749 million
Note: In the contract between the Company and the independent auditor, the amount of compensation for audits is not broken down into the amount for audits based on the Companies Act and the amount for audits based on Japan’s Financial Instruments and Exchange Act; in reality, these amounts cannot be separated. For this reason, the amount of compensation stated above includes the auditor’s compensation for audits under the Financial Instruments and Exchange Act. The Company does not call on Ernst & Young ShinNihon for any services other than auditing.
JX Holdings, Inc. Annual Report 2013 49 Corporate Governance
INTERNAL CONTROL SYSTEM
The Mission Statement of the JX Group is “The JX Group will an effective manner. This council, which is composed of the contribute to the development of a sustainable economy and same members of the Executive Council, confi rms and reviews society through innovation in the areas of energy, resources the results of the annual monitoring of the operation of the sys- and materials.” The JX Group Values are “Our actions will re- tem and proposes the enhanced plan for the next year’s opera- spect the EARTH: Ethics, Advanced ideas, Relationship with so- tion of the autonomous self-control systems. ciety, Trustworthy products/services, and Harmony with the Furthermore, as a sub-body of the Group Internal Control environment.” To provide a policy framework for management Council, the JX Group Internal Control Committee has been es- to supervise the conduct of business, the Company has pre- tablished to provide advice and practical assistance to the pared its Basic Policy for the Establishment and Operation of Group Internal Control Council. This committee is overseen by Internal Control System, which covers such matters as corpo- the director responsible for the Legal Aff airs Department and is rate governance, risk management, compliance, information composed of general managers in the areas related to internal disclosure, and internal audits. Under this policy framework, control activities. In regard to internal control activities related the JX Group has established and continued to operate its in- to each organizational area, the committee deliberates on such ternal control system for assuring the proper conduct of its matters as the status of the accomplishment of basic policy, in- business activities. structions or advice in the event that there is a defi ciency dis- In the operation of our internal control system, the JX Group covered in monitoring results, and the reevaluation of basic Internal Control Council has been established to provide advice policy. The results of those deliberations are reported to the to the president to implement the system in a Groupwide and Group Internal Control Council.
RISK MANAGEMENT
In the JX Group, each company has prepared risk manage- Also, depending on the magnitude of the crisis, at its discre- ment systems appropriate for its respective lines of business tion, the Company may form a crisis response headquarters or a and implements measures in consideration of such individual joint crisis response headquarters with JX Group companies to risk related to compliance and occupational safety, environ- respond quickly and appropriately to the crisis and, thereby, ful- ment, and other. fi ll the social mission of the JX Group.
Crisis Management Information Security Management When crises or emergency situations arise that may signifi cantly Based on its Basic Rules for Information Security, the JX Group aff ect the management of the JX Group, the Company exercises works to prevent the improper usage or disclosure, including overall control and has prepared its Rules for Responding to Cri- leakage, of company information, which is a corporate asset. ses and Emergency Situations, which specifi es measures to be The JX Group also strives to maintain the accuracy and reliability taken to minimize the damage that may occur. of its corporate information as well as prevent falsifi cation or er- The General Administration Department of the Company roneous handling while making it possible for authorized users functions as the standing organizational unit in charge of crisis of information to have constant access to information when response and management. The general manager of this de- they need it. partment acts as head of this crisis response unit, and, when such situations arise, operating procedures require that the situ- ation and measures to be taken be reported immediately to the head of the crisis response unit.
50 JX Holdings, Inc. Annual Report 2013 COMPLIANCE
The JX Group has adopted “Ethics” in its JX Group Values, and responsibilities are to adopt policies for action related to com- thorough measures are taken to ensure directors and employ- pliance matters that must be addressed by the JX Group as a ees remain in compliance with laws and regulations. To conduct whole and make reports on the results of these activities. fair corporate activities and increase social trust in the JX Group, Also, to discover a violation of laws at an early stage and the JX Group has a policy of abiding by all relevant laws, the Ar- take prompt corrective action as well as give protection to ticles of Incorporation, and other rules and regulations in all its persons who provide information on legal violations, principal work activities and has prepared rules to maintain high stan- JX Group companies have a whistle-blowing system (compli- dards of compliance at each company of the JX Group. ance hotline), and, in addition to each company’s section in To set directions for compliance activities of the JX Group charge of the system, attorneys-at-law accept information and consider matters the JX Group as a whole must address, the from whistle-blowers. JX Group Compliance Committee has been formed. Its
INFORMATION DISCLOSURE
Disclosure Policy Systems have been prepared to obtain, manage, and dis- The Company is fully aware that the timely and proper disclo- close information on the Company as well as information on JX sure of corporate information is a core issue of healthy capital Group companies quickly and accurately. Information that is markets and, to promote transparency in management, works subject to Timely Disclosure Rules is made public through the to provide prompt, appropriate, and fair disclosure of informa- timely disclosure system (TDnet) provided by the Tokyo Stock tion to shareholders and other investors. Exchange and others, and the same information is made avail- able on the Company’s website. Information that is not subject Overview of Timely Disclosure System to Timely Disclosure Rules is disclosed proactively based on ba- sic policies and disclosure standards. The Company has pre- Information on Decisions Events Financial Results pared its Regulations for Prevention of Insider Trading, and systems that have been created abide by regulations regarding Individual units of the Company / Group companies insider trading throughout the JX Group. STRATEGYGROWTH DRIVERS Report
Director Responsible Investor Relations (IR) Activities
Discussion / Report*2 To improve understanding of the business activities of the JX Group, the Company proactively disseminates information on Board of Directors*1 management policies, performance, and other matters. Representative Director For analysts and institutional investors in Japan, the Compa- Disclosure directive ny holds presentation meetings on fi nancial results that are at-
Information Disclosure Offi cer tended by management on a quarterly basis. The presentation (General manager of Finance & Investor Relations Department) materials, videos, and other information presented at the meet- Disclosure execution ings can be accessed on the Company’s website. Also, through Securities Exchanges visits to investors, participation in investment conferences, and (Followed promptly by disclosure on the Company’s website) other IR activities, the chairman, president, director responsible *1. Disclosure of information regarding events that require urgent disclosure may be for IR, and others hold one-on-one meetings on a regular basis, made on the authority of a representative director without being reported to the Board of Directors. and visits to the JX Group’s refi neries, smelters, and other facili- *2. Whether timely disclosure is required is determined through consultation among the director responsible, the general managers of the General Administration, Legal ties are arranged about twice each year. For overseas investors, Aff airs, and Controller departments, the information disclosure offi cer (general manager of the Finance & Investor Relations Department), and the general managers the chairman, president, director responsible for IR, and others of any other concerned departments or offi ces. have one-on-one meetings by making periodic visits to inves- tors and participating in investment conferences. For individual
JX Holdings, Inc. Annual Report 2013 51 Corporate Governance
investors, the Company holds periodic presentations in major In fi scal 2012, the JX Group received a number of awards for cities in Japan, and the president, director responsible for IR, and its IR activities: others provide explanations on the overview of the Group’s • Nikko Investor Relations: Best Company Surveyed Award (in business situation. In fi scal 2012, these presentations were held Nikko Investor Relations’ ranking of the websites of listed com- 17 times in a total of 13 cities and were attended by approxi- panies in fi scal 2012) mately 1,700 individual investors. • Daiwa Investor Relations Co., Ltd.: 2012 Internet IR Commen- The “Investor Relations” section of the Company’s website dation Award contains useful materials for investors, such as annual reports, fi - • Morningstar: Gomez Investor Relations Site Ranking 2013, nancial results, and presentation materials used at the meetings Silver Prize as described above.
Message from Outside Director
The JX Group’s four outside directors have strong insight, extensive experience, and specialized knowledge. They supervise management from an independent perspective. This year, we present a message from Mr. Hiroshi Komiyama.
Perhaps it is because I spent so many years at it is probably because the pace of change in universities, but I have developed a habit of the world is so fast. It is now, when the thinking about things over a long time frame. Company is recording stable earnings, that we In terms of time perception, I think this is why should appeal to the hearts of companies and Hiroshi Komiyama there appears to be a gap between my people about sustainability. The letter “X” in JX Outside Director (Independent Director) approach and that of management. However, I symbolizes “for the future.” should point out that I do not think about As an outside director, I am working in the things in units of hundreds of millions of years, gap between the meaning of “outside director” like an astronomer, nor even a thousand years, in the U.S. sense and its meaning in the sense as is the case with the oceanic general of “a member of the Group.” In regard to the circulation. For a long time, I have insisted that former, there are companies around the world 2050 would be a turning point for the human that cause problems with their business race, in consideration of the use of the limited development initiatives in emerging countries, reserves of energy and materials in the earth. and there is concern about such issues as Today, 2050 is only 37 years away, and that consideration for the environment and local span of time—in which employees who are communities. In these areas, I think that JX now young will rise to lead the Company—is Holdings is doing a good job. However, in what I think of as long term. Even in corporate regard to the latter, there is also an element of management, it is probably necessary to think working together as teammates, and I have about the current situation with consideration sensed the development of a strong feeling of for the situation around 2050. If a lot of people Group membership at JX. start to think about how things will be in 2050,
52 JX Holdings, Inc. Annual Report 2013 JX Group CSR
BASIC APPROACH PRIORITY FIELDS AND PROMOTION STRUCTURE The Board of Directors formulated the JX Group Mission Statement We established the JX Group CSR Council, which is chaired by when JX Holdings was established in April 2010. The Executive the president of JX Holdings, to formulate and promote the JX Council convened on the same day and determined the JX Group’s Group’s basic policy for CSR and to manage and coordinate CSR basic policy for CSR, priority fi elds, and the structure for promoting activities across the JX Group. We have specifi ed three priority CSR across the JX Group. The Executive Council is a body that as- areas for CSR: (1) compliance (including information security sists decision making by the president. and human rights), (2) social contribution, and (3) the environ- As a company involved in the energy, resources, and materi- ment and safety. JX Group CSR committees have been estab- als fi elds, which are vital for people’s lives and economic activity, lished for each field, and these committees act as advisory we believe that the embodiment of CSR is to ensure a stable bodies to the chairman of the JX Group CSR Council. Each com- and effi cient supply of energy, resources, and materials and the mittee deliberates and reports on actual business operations implementation of the Mission Statement by every employee in and shares information. This promotional structure leverages the course of executing business operations. This is the the diff erent business characteristics of each company in the JX JX Group’s social responsibility. Based on this belief, we aim Group while ensuring the CSR activity PDCA cycle functions in to establish a corporate group worthy of the trust of stakehold- the whole Group. ers, including shareholders and other investors, customers, The offi ce responsible for the council and these committees and employees. in JX Holdings serves as the Administration Offi ce.
JX Group’s Basic Approach to CSR GROUP CSR PROMOTION MANAGERS We will steadily fulfi ll our responsibility to society through faithful implementation of the JX Group Mission Statement by every offi cer Each workplace leads the way in putting the JX Group Mission and employee in order to establish a corporate group worthy of the Statement into practice. Given that the main players are the in- trust of our stakeholders. dividuals who work there, Group CSR promotion managers have been assigned to each workplace in the JX Group. JX Group Mission Statement and CSR The Group CSR promotion managers cooperate with the de-
JX Group Mission Statement partment responsible for CSR in each company, working at the JX Group Slogan (essence of JX Group mission) frontline of CSR promotion to manage CSR in the workplace.
JX Group Mission Statement (JX Group’s raison d’être) STRATEGYGROWTH DRIVERS JX Group Values (values for corporate offi cers and employees) Group CSR promotion managers gather once a year for a con- ference at which they learn about the direction and vision of JX Group Long-Term Vision and Medium-Term Management Plan the Group’s CSR activities and share opinions.
Putting the Mission Statement into practice in business operations = CSR
JX Group CSR Promotion Structure
JX Holdings JX Group CSR Council General Administration Department CSR promotion managers in each department Chaired by President of JX Holdings CSR promotion managers in each affi liated company
Administration Offi ce JX Nippon Oil & Energy JX Holdings General Administration Corporate Social Responsibility CSR promotion managers in each department Department Department CSR promotion managers in each affi liated company
JX Nippon Oil & Gas Exploration JX Four-Company Corporate Social JX Group’s Three CSR Committees Corporate Social Responsibility CSR promotion managers in each department Responsibility Contact Meeting Department JX Group Compliance Committee CSR promotion managers in each affi liated company JX Group Corporate Citizenship Committee JX Nippon Mining & Metals JX Group Environment & Safety Committee CSR promotion managers in each department Public Relations & CSR Department CSR promotion managers in each affi liated company
JX Holdings, Inc. Annual Report 2013 53 JX Group CSR
SPECIFIC INITIATIVES
Energy Business Rigorous approach to safe, stable operations at refi neries and other facilities Development of service stations that can supply fuel in times of disaster Development and sales of eco-friendly products and services, such as high-octane gasoline “ENEOS Vigo,” residential-use fuel cells, and solar power generation systems
Disaster-resistant service stations Approach to Human Resource Development
JX Nippon Oil & Energy implements a human resource development cycle based on a framework of career design training, transfer, OJT, and personnel assessment. Employees are grouped into one of four phases depending on their career stage. Four Career Phases
20s: Training phase 30s: Enhancement phase 40s: Execution phase 50s: Mature period Obtain a broad perspec- Obtain knowledge and Enhance specialized Take stock of knowledge tive and knowledge; build other expertise in fi elds knowledge and skills; and skills; support the personal networks; where the individual shows demonstrate knowledge development of the next identify aptitude and aptitude and ambition; and skills that have been generation of employees ambitions refi ne and demonstrate developed skills and other capabilities that have been developed
Oil and Natural Gas Exploration and Production (E&P) Business Safe operations, centered on projects for which we act as operator Stable production of oil and natural gas Activities to reduce emissions of greenhouse gases, such as a clean development mecha- nism (CDM) at the Rang Dong oil fi eld
Rang Dong oil field (Vietnam) Approach to Human Resource Development
JX Nippon Oil & Gas Exploration holds HR meetings chaired by the president to discuss all aspects of personnel systems and makes reforms and improvements to develop human resources from a comprehensive perspective. In particular for technical employees, JX Nippon Oil & Gas Exploration dispatches young employees early in their careers to overseas offi ces that do business as project operators to quickly master basic technologies on site and acquire specialized expertise.
Metals Business Safety and disaster prevention at smelters and refi neries and other facilities Effi cient mining, smelting and refi ning, processing, and recycling of non-ferrous metal resources Commercialization of the business to recover rare metals from used lithium-ion batteries
Approach to Human Resource Development HMC (Hitachi Metal Recycling Complex) Department of the Hitachi Works JX Nippon Mining & Metals carries out planning and management of companywide personnel training based on the themes of improving on-site capabilities and strengthening strategic skills. For example, the company fosters a shared awareness of the values it has cultivated since its establishment—the need for coexistence with society and harmony with the environment—by having all employees go through training at the Toyoha Mine in their second year at the company. In addition, we are working to improve communication capabilities through manda- tory overseas language training.
Other Operations Support for nurturing the next generation through sports and the advancement of culture JX-ENEOS Children’s Story Award activities, which include the issuance of books of original children’s stories, the donation of copies of these books, and the provision of scholarships Bouquet of Children’s Stories Environmental conservation and volunteer activities closely linked to local communities
54 JX Holdings, Inc. Annual Report 2013 R&D Activities
SPECIFIC INITIATIVES
In accordance with its mission statement, the JX Group is conducting R&D activities in the pursuit of “innovation in the areas of energy, resources, and materials.”
Energy Business 4 Hydrogen / Fuel Cells
1 Fuel Oils In the hydrogen fi eld, we are conducting comprehensive techni- In fuel oils, we are taking steps to respond to ongoing trends, such as cal development related to the production, storage, transporta- changes in the structure of supply and demand for petrochemical tion, and supply of hydrogen, which will be indispensable in the products, a focus on reducing costs, and increased awareness of en- expected hydrogen energy society. In addition, through the hy- ergy conservation measures. On that basis, we are moving forward drogen stations that we operate, we are moving ahead with verifi - with development initiatives in the areas of refi ning process rational- cation tests for a hydrogen supply infrastructure network. ization and effi ciency, facility maintenance and monitoring tech- In regard to fuel cells, we are targeting the full-scale adoption nologies, and production processes for petrochemical base materials of home-use fuel cells, which are expected to play a key role in and lubricants. We are also moving forward with the development private-sector global warming countermeasures. To that end, we of biofuels that contribute to energy diversifi cation, such as cellu- are moving ahead with the development of new models so that losic bioethanol. In June 2012, we established the Japan Association customers can obtain better products that off er improved capa- for Microalgae Fuels, which will conduct technical development re- bilities and durability. lated to the production of fuel made from microalgae and will pro- In June 2012, when a renovation was performed on an existing vide advice on measures needed for technical development. multi-unit dwelling, we commenced verifi cation testing of ENEOS SOENE Renovation, including the installation of independent, dis- tributed energy systems with three components—ENE-FARM resi- 2 Chemicals dential solid oxide fuel cell (SOFC) systems, solar power generation In specialty and performance chemical products, we are developing systems, and storage batteries. new products through the use of original technologies, such as opti- cal fi lm for LCDs (liquid crystal displays); Panaferd astaxanthin feed additives produced through microbial fermentation; ECOJOULE paraffi n-based latent heat storage materials; and ENEOS Uni-Powder GROWTH STRATEGYGROWTH DRIVERS polymer micro-particles that can be used in such applications as light diff using agents for LCDs. Hydrogen station ENE-FARM
3 Lubricants 5 Industry-Academia Alliances In lubricants, we are advancing the development of lubricants for In cooperation with universities, we are advancing a variety of eco-friendly vehicles, refrigerator oil for use in CFC-substitute cool- industry-academia alliances in the fi elds of the environment, en- ant applications, global products, and additives that contribute to ergy, and chemical products. These alliances are targeted at the higher added value for products. In April 2012, we opened R&D cen- creation of innovative technologies and the implementation of ters at our lubricant manufacturing bases in the United States and those technologies in society. China, and we are developing products with quality and pricing that meet local needs.
JX Holdings, Inc. Annual Report 2013 55 R&D Activities
Metals Business structure control technologies. We are working in the develop-
1 Resources Development / Smelting and Refi ning ment of various electronic materials, such as next-generation In resources development and smelting and refi ning, we are en- sputtering targets for semiconductors, as well as in the develop- gaged in an alliance in the fi eld of bio-mining with BioSigma S.A., ment of related process technologies. In addition, in cathode a Chilean corporation that was established as a joint venture with materials for lithium-ion batteries for automobiles, which have CODELCO, the Chilean state-owned copper company. Through already reached the commercialization stage, we continue work- this alliance, we are moving ahead with work targeting funda- ing to improve processes and conduct development initiatives mental development and commercialization of the bio-leaching targeting further improvements in product characteristics. technology for low-grade primary sulfi de copper ores. In copper smelting and refi ning, we are advancing development activities based on the Nikko Chloride (N-Chlo) process, an original hydro- metallurgical refi ning process. At our pilot plant in Perth, Austra- lia, we are conducting testing on a variety of ores to which this process could be applied. Based on the results of these initiatives, Sputtering target for semiconductors we are moving forward with work targeting commercialization.
4 Functional Materials Functional materials are used in such applications as connec- tors. In this fi eld, we are using microstructure control technol- ogy, original rolling process technology, and evaluation technologies tailored to the needs of each customer to devel- Testing in Chile op highly functional copper alloys with high mechanical strength, conductivity, formability, and durability. We are also 2 Recycling and Environmental Services working to achieve further progress in the creation of function- In recycling and environmental services, we are advancing devel- al products as next-generation materials, including the devel- opment targeting the expansion of the range of metals that are opment of new Corson alloys and titanium copper alloys. In recovered, including technologies for the recovery of precious addition, in shield material and printed circuit board material metals and rare metals from recycled materials, such as used of- applications, we are moving ahead with the development of fi ce equipment, and technologies for the recovery of value-bear- copper foil with advanced functionality, such as bendability, ing metals from the copper smelting and refi ning process. In etching characteristics, and adhesiveness. We are also making addition, for the recycling of used lithium-ion batteries, we have steady progress with the commercialization of ultra-thin cop- a pilot plant in ongoing operation and we are making further per foil for high-precision substrates. improvements to the recycling process.
5 Fundamental Technology Development 3 Thin-Film Materials We are developing original, advanced analysis technologies, and we In thin-fi lm materials, we are moving ahead with the develop- are also working to increase effi ciency in technology development ment of various products for applications in semiconductors and by utilizing leading-edge computer simulation technologies. electronic components. These initiatives are based on high-level purifi cation technologies and material structure and crystal
56 JX Holdings, Inc. Annual Report 2013 FINANCIAL INFORMATION
58 Five-Year Financial Summary
60 Market Data
62 Operating Data
64 Review and Analysis of Fiscal 2012 Results
69 Business and Other Risks
74 Consolidated Balance Sheet
76 Consolidated Statement of Income
77 Consolidated Statement of Comprehensive Income FINANCIAL INFORMATION 78 Consolidated Statement of Changes in Net Assets
79 Consolidated Statement of Cash Flows
80 Notes to Consolidated Financial Statements
107 Independent Auditor’s Report
JX Holdings, Inc. Annual Report 2013 57 Five-Year Financial Summary JX Holdings, Inc. and Consolidated Subsidiaries (Nippon Oil Corporation and Consolidated Subsidiaries) (Nippon Mining Holdings, Inc. and Consolidated Subsidiaries) Thousands of U.S. dollars Millions of yen Years ended March 31 2013 2013 2012 2011 2010* 2009
Operating Results (For the Year)
Net sales JX Holdings $119,292,653 ¥11,219,474 ¥10,723,889 ¥9,634,396 ¥9,008,017 ¥ — Nippon Oil ——— — 5,774,279 7,389,234 Nippon Mining Holdings ——— — 3,233,738 4,065,059 Operating income (loss) JX Holdings 2,673,759 251,467 327,844 334,402 130,473 — Nippon Oil ——— — 86,735 (312,506) Nippon Mining Holdings ——— — 43,738 (101,667) Ordinary income (loss) JX Holdings 3,490,696 328,300 407,765 413,667 187,269 — Nippon Oil ——— — 113,302 (275,448) Nippon Mining Holdings ——— — 73,967 (67,433) Net income (loss) JX Holdings 1,695,662 159,477 170,595 311,736 73,106 — Nippon Oil ——— — 43,295 (251,613) Nippon Mining Holdings ——— — 29,811 (40,794)
Financial Position (At Year-End)
Total assets JX Holdings $ 77,351,313 ¥ 7,274,891 ¥ 6,690,419 ¥6,259,958 ¥6,196,739 ¥ — Nippon Oil ——— — 4,129,232 3,969,730 Nippon Mining Holdings ——— — 2,067,507 1,886,083 Net assets JX Holdings 24,746,752 2,327,432 2,044,752 1,886,241 1,765,652 — Nippon Oil ——— — 1,059,089 1,016,306 Nippon Mining Holdings ——— — 706,563 659,938
Cash Flows (For the Year)
C ash fl ows from operating activities JX Holdings $ 2,823,721 ¥ 265,571 ¥ 246,642 ¥ 211,408 ¥ 40,674 ¥ — Nippon Oil ——— — 30,982 441,202 Nippon Mining Holdings ——— — 9,692 275,068 C ash fl ows from investing activities JX Holdings (4,530,675) (426,110) (198,595) (170,908) (241,339) — Nippon Oil ——— — (145,531) (324,641) Nippon Mining Holdings ——— — (95,808) (93,775) C ash fl ows from fi nancing activities JX Holdings 1,638,533 154,104 (37,318) (71,228) 113,610 — Nippon Oil ——— — 62,499 (86,836) Nippon Mining Holdings ——— — 51,111 (124,280)
Note: U.S. dollar amounts have been converted at the rate prevailing on March 31, 2013. * Figures for JX Holdings for the fi scal year ended March 31, 2010, are on a pro-forma basis for Nippon Oil and consolidated subsidiaries and Nippon Mining Holdings and consolidated subsidiaries.
58 JX Holdings, Inc. Annual Report 2013 U.S. dollars Yen Years ended March 31 2013 2013 2012 2011 2010 2009
Per Share
Net income (loss) JX Holdings $0.68 ¥ 64.13 ¥ 68.60 ¥125.35 ¥ — ¥ — Nippon Oil ——— — 29.70 (172.42) Nippon Mining Holdings ——— — 32.17 (44.02) Net assets JX Holdings 8.31 781.30 701.31 654.77 — — Nippon Oil ——— — 658.54 627.90 Nippon Mining Holdings ——— — 646.04 612.44 Cash dividends JX Holdings 0.17 16.00 16.00 15.50 — — Nippon Oil ——— — 18.00 20.00 Nippon Mining Holdings ——— — 15.00 14.00
%
Years ended March 31 2013 2012 2011 2010 2009
Ratios
ROE JX Holdings 8.7% 10.1% 19.1% —% —% Nippon Oil — — — 4.6 (22.6) Nippon Mining Holdings — — — 5.1 (6.5) Shareholders’ equity ratio JX Holdings 26.7 26.1 26.0 — — Nippon Oil — — — 23.2 23.1 Nippon Mining Holdings — — — 29.0 30.1
Market Data
Exchange rate (¥/$) ¥83 ¥79 ¥86 ¥93 ¥101 Crude oil price (Dubai spot price) ($/bbl) $107 $110 $84 $70 $82 Copper price (LME) (¢/lb) 356¢ 385¢ 369¢ 277¢ 266¢ FINANCIAL INFORMATION
JX Holdings, Inc. Annual Report 2013 59 Market Data
ENERGY BUSINESS, OIL AND NATURAL GAS E&P BUSINESS
1. Structures of Primary Energy Consumption in Major Industrialized Countries Crude Oil Conversion Basis % (Millions of tons) (Calendar 2012) Oil Coal Natural Gas Nuclear Hydroelectric Total Total Japan 46.4 26.5 22.4 0.9 3.9 100 470 United States 38.0 20.3 30.3 8.5 2.9 100 2,158 United Kingdom 35.1 20.0 36.1 8.1 0.6 100 195 Germany 39.0 27.7 23.7 7.9 1.7 100 286 France 33.7 4.8 15.9 40.1 5.5 100 240 China* 17.9 69.3 4.8 0.8 7.2 100 2,703 Russia 21.3 13.5 54.0 5.8 5.4 100 694 World 34.0 30.7 23.9 4.6 6.8 100 12,158 * China does not include Hong Kong. Source: BP
2. Global Oil Consumption Trends and Growth Rate Global Oil Consumption Volume Thousands of barrels per day (BD) (Calendar Years) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 North America 24,170 25,023 25,119 25,002 25,109 23,860 22,959 23,464 23,397 23,040 Europe 19,842 19,998 20,142 20,311 20,062 20,017 19,149 19,057 18,974 18,543 Asia/Pacifi c 22,880 24,124 24,535 25,124 25,980 25,881 26,205 27,766 28,754 29,781 Middle East 5,686 6,026 6,335 6,449 6,696 7,185 7,526 7,861 7,992 8,354 Africa 2,646 2,767 2,911 2,920 3,068 3,218 3,302 3,463 3,359 3,523 Latin America 4,860 5,059 5,185 5,332 5,651 5,892 5,921 6,222 6,405 6,533 Total 80,085 82,996 84,228 85,138 86,575 86,052 85,064 87,833 88,879 89,774 Growth in Global Oil Consumption Volume % (Calendar Years) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Europe/North America 100.0 102.3 102.8 103.0 102.6 99.7 95.7 96.6 96.3 94.5 Asia/Pacifi c 100.0 105.4 107.2 109.8 113.5 113.1 114.5 121.4 125.7 130.2 World 100.0 103.6 105.2 106.3 108.1 107.5 106.2 109.7 111.0 112.1 Note: Growth in global oil consumption fi gures are percentages of 2003 levels. Source: BP
3. Japanese Consumption by Type of Petroleum Products Japan Tens of thousands of BD % (Calendar Years) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2011 Gasoline 103 105 105 103 102 98 99 100 98 22 Kerosene & jet fuel 73 70 74 69 63 59 55 55 53 12 Diesel fuel 119 117 115 108 100 92 84 84 82 18 Heavy fuel oil 66 59 58 55 52 54 42 39 44 10 Others 182 181 181 185 187 176 161 166 170 38 Total 543 532 533 520 504 480 441 444 446 100
(Reference) Tens of Tens of Tens of United States thousands of BD % Western Europe thousands of BD % Asia thousands of BD % Gasoline 874 46 Gasoline 211 15 Gasoline 490 18 Kerosene & jet fuel 144 8 Kerosene & jet fuel 124 9 Kerosene & jet fuel 222 8 Diesel fuel 385 20 Diesel fuel 614 43 Diesel fuel 792 28 Heavy fuel oil 48 3 Heavy fuel oil 126 9 Heavy fuel oil 312 11 Others 437 23 Others 362 25 Others 974 35 Total 1,890 100 Total 1,437 100 Total 2,793 100
Note: Data for the United States and Western Europe is for calendar 2011, while data for Asia is for calendar 2010. Source: International Energy Agency (IEA)
4. Supply and Demand for Petrochemical Products in Asia* Thousands of tons (Calendar Years) 2006 2007 2008 2009 2010 2011 Ethylene Demand 34,799 37,538 37,936 40,076 44,137 46,129 Production 34,358 36,972 36,776 39,184 43,077 45,140 Propylene Demand 27,091 30,509 30,023 32,387 34,730 36,503 Production 27,112 30,499 29,807 31,906 34,141 36,107 Benzene Demand 15,806 17,877 17,077 18,696 19,218 19,669 Production 16,485 18,626 18,032 19,171 20,648 21,500 Paraxylene Demand 16,252 18,666 17,880 19,960 20,947 21,576 Production 16,324 18,063 17,606 19,860 20,252 22,210 * The Middle East is not included in Asia. Source: Ministry of Economy, Trade and Industry (METI)
60 JX Holdings, Inc. Annual Report 2013 METALS BUSINESS
5. Metals Prices 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 LME copper price (Calendar years) (¢/lb) 81 130 167 305 323 316 234 342 400 361 LME copper price (Fiscal years) (¢/lb) 93 136 186 316 344 266 277 369 385 356 Gold price (Fiscal years) ($/troy oz) 378 414 477 654 766 867 1,023 1,294 1,646 1,654
6. Copper Mine Production of Principal Countries Thousands of tons (Calendar Years) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 China 604 742 762 873 928 1,076 1,045 1,156 1,272 1,602 Indonesia 1,003 842 1,064 817 789 651 997 871 543 400 Chile 4,904 5,413 5,321 5,361 5,557 5,328 5,394 5,419 5,263 5,434 Peru 843 1,036 1,010 1,049 1,190 1,268 1,275 1,247 1,235 1,299 Australia 830 854 930 875 871 886 854 870 960 914 United States 1,116 1,160 1,140 1,197 1,168 1,310 1,181 1,110 1,110 1,195 World 13,654 14,682 15,127 15,186 15,549 15,701 15,888 16,148 16,295 17,085 Source: WBMS
7. Refi ned Copper Production of Principal Countries Thousands of tons (Calendar Years) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Japan 1,430 1,380 1,395 1,532 1,577 1,540 1,440 1,549 1,328 1,516 China 1,836 2,199 2,600 3,003 3,499 3,795 4,051 4,540 5,163 5,824 India 391 419 518 627 719 669 721 648 662 689 United States 1,310 1,310 1,260 1,250 1,326 1,280 1,157 1,098 1,032 1,001 Chile 2,902 2,837 2,824 2,811 2,937 3,058 3,277 3,244 3,092 2,902 Germany 598 653 638 662 666 690 669 704 709 682 Russia 855 909 968 959 923 913 874 910 910 911 World 15,221 15,834 16,670 17,362 18,015 18,438 18,578 19,253 19,807 20,453 Source: WBMS
8. Refi ned Copper Consumption of Principal Countries Thousands of tons (Calendar Years) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Japan 1,202 1,279 1,229 1,282 1,252 1,184 875 1,060 1,003 985 China 3,084 3,364 3,656 3,614 4,863 5,149 7,086 7,385 7,881 8,840 India 308 335 397 407 516 515 552 514 402 456 Other Asia 2,720 3,058 2,967 3,036 3,124 3,063 3,121 3,173 3,018 3,011 United States 2,290 2,410 2,257 2,096 2,123 2,007 1,637 1,754 1,745 1,757 Chile 96 100 103 111 105 103 91 100 96 96 Europe total 4,284 4,664 4,580 4,995 4,793 4,625 3,568 3,980 4,067 3,803 World 15,315 16,671 16,680 16,998 18,107 18,123 18,150 19,337 19,565 20,419 Source: WBMS
9. Global Copper Demand by Product
Thousands of tons FINANCIAL INFORMATION (Calendar Years) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Electric wire 11,902 12,998 13,340 13,927 14,463 14,559 13,726 15,240 15,695 15,907 Copper and copper alloy fabricated products 8,331 9,013 9,184 9,611 9,706 9,326 8,058 9,188 9,497 9,312 Other 505 545 565 607 650 647 607 693 705 703 Total 20,737 22,555 23,090 24,144 24,819 24,532 22,391 25,121 25,897 25,922 Note: Figures include direct use of scrap, direct copper scrap consumption Source: Metals Market Service–Long Term Outlook, 2nd Q 2013 (Wood Mackenzie Ltd.)
JX Holdings, Inc. Annual Report 2013 61 Operating Data
ENERGY BUSINESS, OIL AND NATURAL GAS E&P BUSINESS
1. Crude Oil Prices
(Fiscal Years) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Crude oil (CIF*) price ($/bbl) 29.43 38.77 55.81 63.50 78.72 90.52 69.40 84.16 114.18 113.88 (¥/KL) 20,955 26,158 39,736 46,659 56,335 58,541 40,373 45,373 56,680 59,356 * CIF = Cost, Insurance and Freight Source: Customs Clearance Statistics, Ministry of Finance (MOF)
2. Comparison with Other Major Oil Companies in Japan Refining Capacity Paraxylene Production Capacity Tens of Tens of thousands of BD thousands of tons JX Group 139 JX Group 262 ExxonMobil Group 84 ExxonMobil Group 49 Idemitsu Kosan 64 Idemitsu Kosan 48 Cosmo Oil 64 Other 31 Showa Shell Sekiyu Group 40 Total 390 Other 36 Note: Figures represent capacities as of December 31, 2011. Total 426 Note: Figures represent capacities as of March 31, 2013.
3. Sales Volumes of Principal Products and Number of Stationary Service Stations Sales Volumes of Principal Products Number of Stationary Service Stations Japan Millions of KL JX Group Millions of KL Service stations (Fiscal Year) 2012(Fiscal Year) 2012 (Fiscal Years) 2008 2009 2010 2011 2012 Gasoline/naphtha 99.9 Gasoline/naphtha 33.9 Industry total in Japan* 41,000 39,500 37,900 36,900 35,200 Middle distillates*1 67.6 Middle distillates*1 26.7 JX Group 13,318 12,687 12,149 11,730 11,283 Heavy fuel oil*2 28.3 Heavy fuel oil*2 10.7 Company-owned 3,140 2,893 2,701 2,573 2,487 Total 195.9 Total 71.3 Company-owned proportion (%) 23.6 22.8 22.2 21.9 22.0 Note: Figures represent domestic sales volumes of petroleum products. * JX Holdings estimations *1. Total of kerosene, jet fuel, diesel fuel, and fuel oil A *2. Total of heavy fuel oils B and C
4. JX Group’s Oil and Natural Gas Sales Volume in Principal Locations
Sales Volume on Project Companies’ Entitlement Basis Total Reserves BOED*1 Millions of BOE*2 (Calendar Years) 2009 2010 2011 2012 Reserves as of December 31, 2012 United States 10,900 10,000 4,400 3,700 23 Canada*3 14,000 14,700 14,400 14,300 253 United Kingdom (North Sea) 12,600 11,300 9,300 6,000 126 Southeast Asia 82,900 82,900 80,800 73,600 233 Oceania 10,000 8,000 7,200 6,600 99 Middle East, etc. 13,000 13,300 12,100 12,900 66 Total 143,400 140,200 128,200 117,100 800 *1. BOED = Barrels of oil equivalent per day *2. BOE = Barrels of oil equivalent *3. Synthetic crude oil
62 JX Holdings, Inc. Annual Report 2013 METALS BUSINESS
5. Resources Development Business Copper Concentrate Sales Volume* % Thousands of tons (Calendar Years) Investment ratio 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Escondida Mine 3.0 852 1,018 1,104 1,158 1,230 991 792 757 515 733 Los Pelambres Mine 15.0 343 364 330 336 300 353 324 379 416 397 Collahuasi Mine 3.6 326 424 364 381 396 412 488 444 413 236 * Volume of content in copper
(Reference) Global Ranking of Copper Mines Thousands of tons (Calendar Year) Production volume Rank Country 2012 1. Escondida Chile 1,077 2. Chuqicamata Chile 518 3. Antamina Peru 447 4. Los Pelambres Chile 418 5. El Teniente Chile 415 6. Los Bronces Chile 363 7. Norilsk Russia 348 8. PT Freeport Indonesia Indonesia 327 9. Radomiro Tomic Chile 302 10. Morenci United States 289 Note: Including refined copper production by SX-EW process Source: Wood Mackenzie Ltd.
6. Copper Smelting and Refi ning Business Thousands of tons (Fiscal Years) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Refined copper sales volume* 622 607 588 645 660 619 605 588 566 551 * Figures for Pan Pacifi c Copper (PPC)
(Reference) Global Ranking of Refined Copper Producers Thousands of tons (Calendar Year) Production volume Rank Country 2012 1. CODELCO Chile 1,569 2. Aurubis Germany 1,148 3. PPC+LS-Nikko Copper* Japan 1,094 4. Freeport McMoran Copper & Gold United States 1,062 5. Jiangxi Copper Company China 1,027 6. Xstrata AG Switzerland 666 7. Tongling China 653 8. Jinchuan China 637 9. KGHM Polska Miedz Poland 596 10. BHP Billiton Australia/United Kingdom 591 * This fi gure was compiled by JX Holdings. Source: Wood Mackenzie Ltd. FINANCIAL INFORMATION
7. Recycling and Environmental Services Business Tons (Fiscal Years) 2007 2008 2009 2010 2011 2012 Volume of gold recovered 7.2 7.0 6.3 6.5 7.0 5.8
8. Electronic Materials Business
(Fiscal Years) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Treated rolled copper foil sales volume (km / month) 3,097 3,393 3,794 3,588 3,509 2,554 2,724 3,255 2,598 2,684 Precision rolled products sales volume (tons / month) 3,954 3,798 3,407 3,600 3,721 2,714 3,507 3,847 3,492 3,283
JX Holdings, Inc. Annual Report 2013 63 Review and Analysis of Fiscal 2012 Results
By establishing a stronger financial position, the JX Group will be able to achieve growth in the future as it absorbs the effects of changes in the business environment.
Ichiro Uchijima Director, Senior Vice President Responsible for Finance & Investor Relations Department
SUMMARY OF CONSOLIDATED OPERATING RESULTS
On a consolidated basis, net sales of the JX Holdings Group (“JX in impairment loss on goodwill due to declines in the share Group”) in the fi scal year ended March 31, 2013, were ¥11,219.5 prices of listed subsidiaries and others; ¥11.0 billion in restructur- billion, an increase of 4.6% year on year. Ordinary income was ing cost relating to overseas oil development subsidiaries; and down 19.5%, to ¥328.3 billion. Ordinary income after excluding ¥12.0 billion in loss on disposal of non-current assets. inventory valuation factors (the impact of inventory valuation on Consequently, income before income taxes and minority the cost of sales under the periodic average method) was ¥271.0 interests was ¥272.0 billion. After the subtraction of ¥81.0 billion billion, a 7.0% decrease year on year. Special gains totaled ¥15.4 in income taxes and ¥31.6 billion in minority interests, net income billion, including ¥9.8 billion in gain on sales of non-current amounted to ¥159.5 billion, a year-on-year decrease of 6.5%. assets. Special losses totaled ¥71.7 billion, including ¥25.8 billion
Consolidated Financial Results Summary
Billions of yen FY2012 FY2011 Change Net sales 11,219.5 10,723.9 +495.6 Ordinary income 328.3 407.8 –79.5 Ordinary income (excluding inventory valuation factors) 271.0 291.3 –20.3 Energy 102.8 112.8 –10.0 Oil and Natural Gas E&P 93.6 97.5 –3.9 Metals 46.5 63.2 –16.7 Listed subsidiaries and others 28.1 17.8 +10.3 Special losses (56.3) (53.3) –3.0 Net income 159.5 170.6 –11.1
64 JX Holdings, Inc. Annual Report 2013 BUSINESS ENVIRONMENT SURROUNDING THE JX GROUP
Looking at the global economy in the fi scal year under review, is a crude oil index price commonly used in Asia, temporarily the strength of the recovery in the United States increased due dropped from more than $120 per barrel at the beginning of the to growth in consumer spending, but Europe was unable to dis- fi scal year to less than$ 90 against a background of concern over pel concerns regarding the recurrence of debt problems, and the future of the global economic environment. Subsequently, economic conditions remained diffi cult. In emerging nations, however, the price increased due to an infl ux of speculative funds such as China and India, growth was sluggish. In Japan, exports caused by additional easing of monetary policy in the United decreased due to the continued strength of the yen. Nonetheless, States and to the growing tension in the Middle East. As a result, business conditions were supported by brisk consumer spend- from August 2012, the price was high, at around $110. ing as well as demand from reconstruction projects after the On the other hand, global copper demand continued to Great East Japan Earthquake. In addition, the export environment increase. This was primarily attributable to solid domestic demand took a favorable turn due to the depreciation of the yen after a in China—where 40% of all copper ingot is consumed—due in new government administration took offi ce. As a result, the large part to China’s shift to an easy monetary policy and the pro- Japanese economy showed signs of recovery. motion of infrastructure development. The LME (London Metal Although oil demand remained at a low level in developed Exchange) price for copper, which is the international index price nations, emerging nations continued to record economic growth, for non-ferrous metals, generally remained below the previous albeit at a decelerating pace, and oil demand in emerging nations, fi scal year’s level in circumstances marked by continued uncer- centered on Asian countries, was strong. Consequently, global oil tainty in the global economy. Consequently, the average price for demand continued to increase. The price of Dubai crude oil, which copper for the fi scal year was approximately 356¢ per pound.
Market Data
FY2012 FY2011 Change Crude oil price (Dubai)*1 ($/bbl) 109 109 –0 Copper price (LME) (¢/lb) 361*2 356 400*2 385 –39*2 –29 Exchange rate (¥/$) 80*2 83 80*2 79 ±0*2 +4
*1. The fi gure for fi scal 2011 is the average from March 2011 to February 2012, and the fi gure for fi scal 2012 is the averagerom f March 2012 to February 2013 (nearly equal to arrived crude cost). *2. Figures are averages for the calendar years.
INITIATIVES OF THE JX GROUP
In this business environment, the JX Group steadily implemented a variety of measures in each of its business fi elds in accordance with the First Medium-Term Management Plan (FY2010–2012). In this way, the JX Group worked to establish a foundation for a major leap forward to become a world-leading integrated energy, resources, and materials business group.
Energy Business FINANCIAL INFORMATION In the Energy business, net sales were up 6.0% year on year, to ¥9,699.6 billion, while ordinary income declined 30.5%, to ¥161.6 billion. Ordinary income excluding inventory valuation factors was down 8.9%, to ¥102.8 billion.
Changes in Ordinary Income Sales of petroleum products were aff ected by medium-to-long- higher sales were also recorded by heavy fuel oil C and crude oil term trends toward energy conservation and a shift to alternative for use in power generation. Consequently, overall petroleum fuels. In addition, the temperature rose in March, which is a key sales in Japan increased slightly year on year. Margins on petro- demand period for kerosene. As a result, sales of gasoline, kero- leum products declined slightly year on year, due primarily to a sene, and heavy fuel oil A declined. However, due to demand time lag factor accompanying the sharp decline in the price of from post-earthquake reconstruction projects, the reorganiza- crude oil at the beginning of the fi scal year and at the end. Also, tion of sales subsidiaries, and the lengthening suspension of the suspension of operations due to defects under the High operations at nuclear power plants, sales of gas oil rose, and Pressure Gas Safety Act that were found at the Mizushima B
JX Holdings, Inc. Annual Report 2013 65 Review and Analysis of Fiscal 2012 Results
Refi nery in July and to equipment problems at some refi neries Management Plan. had an adverse eff ect on ordinary income. On the other hand, In petrochemical products, fi rm conditions in the paraxylene the eff ects of integration synergies and enhanced refi nery effi - and benzene markets, which occurred against a background of ciency totaled ¥25.0 billion for the fi scal year, including those for reduced supply in the United States due to the infl uence of the petrochemical products, and over the three years from fi scal shale gas revolution and of higher demand in China, had a posi- 2010 their cumulative eff ect has reached ¥115.9 billion, exceed- tive eff ect on ordinary income. ing the target of ¥109.0 billion set out in the First Medium-Term
Changes in Ordinary Income (excluding inventory valuation factors)
Energy Business –¥10.0 billion <112.8 102.8>
Petroleum products Petrochemical products –¥18.5 billion <74.6 56.1> +¥8.5 billion <38.2 46.7> (Billions of yen) Sales volume Integration synergies 120 Integration synergies Enhanced efficiency FY2011 +1.6 Enhanced efficiency Margin and others of refineries of refineries +5.7 +3.4 FY2012 +21.6 90 Sales volume –0.6
60 Margin and others 112.8 –41.7 102.8
30
0
Oil and Natural Gas Exploration and Production (E&P) Business In the Oil and Natural Gas E&P business, net sales were down 7.8%, to ¥173.1 billion, and ordinary income declined 4.0%, to ¥93.6 billion.
Changes in Ordinary Income The sales volume of oil and natural gas declined to 117 thousand higher LNG sales prices in Asia and by unrealized foreign exchange barrels of oil equivalent per day, mainly due to the spontaneous gain due to the rapid depreciation of the yen near the end of the reduction of production volume at existing oil and gas fi elds and year. Ordinary income was down slightly, from ¥97.5 billion in the to the sale of assets. These adverse factors were partially off set by previous fi scal year to ¥93.6 billion in the fi scal year under review.
Changes in Ordinary Income
Oil and Natural Gas E&P Business –¥3.9 billion <97.5 93.6>
(Billions of yen) 2011 2012 120 Sales volume Jan.–Dec. Jan.–Dec. (Thousands Foreign exchange 128 117 FY2011 of BD) rate and others Sales price +5.0 FY2012 90 +1.5
Sales volume –10.4 2011 2012 60 ($/bbl) Jan.–Dec. Jan.–Dec. 97.5 Brent 111 112 93.6 Dubai 106 109 30
0
66 JX Holdings, Inc. Annual Report 2013 Metals Business Net sales in the Metals business declined 7.0%, to ¥927.5 billion, and ordinary income was down 25.0%, to ¥45.0 billion. Ordinary income excluding inventory valuation factors decreased 26.4%, to ¥46.5 billion.
Changes in Ordinary Income In the resources development business, the volume of sales from copper mines in which the JX Group owns interests declined while operating expenses increased, and as a result ordinary income decreased. In the copper smelting and refi ning business, ordinary income declined year on year due to the worsening of copper concentrate purchasing conditions. In the electronic materials business, sales volume was about the same as in the business, there were declines in the volume of scrap and indus- previous year, but ordinary income increased due to the depre- trial waste collected and in the amount of metals contained in ciation of the yen. In the recycling and environmental services those materials, leading to a decrease in ordinary income.
Changes in Ordinary Income (excluding inventory valuation factors)
Metals Business –¥16.7 billion <63.2 46.5>
Electronic materials, Resources development Smelting and refining recycling and environmental services –¥10.0 billion <36.6 26.6> –¥4.4 billion <15.5 11.1> –¥2.3 billion <11.1 8.8> (Billions of yen) 80
FY2011 60 Copper Electronic materials price +0.9 FY2012 –0.2 Lower copper sales Copper 40 volume, etc. price Smelting and Recycling and –9.8 –1.1 refining margins, etc. environmental services 63.2 –3.3 2012 –3.2 (¢/lb) 2011 20 Jan.–Dec. Jan.–Dec. 46.5 Average copper price 400 361 for the period +16 (343 359) Price range (Jan.–Dec.) –99 (442 343) 0
Other Business NIPPO CORPORATION (Construction Business) Toho Titanium Co., Ltd. (Titanium Business) In pavement construction and other civil engineering work, Titanium metals off er light weight, high strength, and excellent FINANCIAL INFORMATION there has been a recovery in public works, and there have been corrosion resistance. There was a decline in demand for titanium signs of recovery in private-sector capital investment. However, metals for the general industrial sector, where they are used for NIPPO faced continued diffi culties in obtaining orders during the pipes at power plants and for heat exchangers on ships. However, fi scal year. In this environment, NIPPO worked aggressively to demand for titanium metals for aircraft, where their applications obtain orders based on its technological superiority and to include jet engine parts, was steady. Consequently, the sales strengthen sales of asphalt mixture and other products as well as volume of titanium metals increased in the fi scal year under to improve profi tability by reducing costs and increasing opera- review. Due to forecasts for adjustments in aircraft part invento- tional effi ciency. ries and for reduced demand in the general industrial sector, in the second half of the fi scal year under review we reduced pro- duction at the Chigasaki Works by approximately 10%, compared with capacity.
JX Holdings, Inc. Annual Report 2013 67 Review and Analysis of Fiscal 2012 Results
FINANCIAL POSITION
Total assets at the end of the fi scal year were ¥7,274.9 billion, an of ¥8.1 billion from the beginning of the fi scal year. Cash fl ows increase of ¥584.5 billion from the end of the previous fi scal year. and factors aff ecting cash fl ows are discussed below. This increase was attributable to such factors as an increase in Net cash provided by operating activities was ¥265.6 billion. fi xed assets resulting from the development of the Caserones Factors contributing to cash from operating activities, such as Copper and Molybdenum Deposit. Total liabilities at the end of income before income taxes and minority interests of ¥272.0 bil- the fi scal year were ¥4,947.5 billion, an increase of ¥301.8 billion lion and depreciation and amortization of ¥180.4 billion, were from the end of the previous fi scal year. Total net assets were greater than factors contributing to a decline in cash from operat- ¥2,327.4 billion, an increase of ¥282.7 billion from the end of the ing activities, such as an increase in inventories of ¥118.8 billion. previous fi scal year. Shareholders’ equity was ¥1,942.7 billion, and Net cash used in investing activities was ¥426.1 billion. This the shareholders’ equity ratio was 26.7%. Net assets per share cash outfl ow was principally attributable to investments in the were ¥781.30. Interest-bearing debt as of the end of the fi scal Caserones Copper Deposit development and the oil and natural year amounted to ¥2,549.3 billion, the total of cash and cash gas development business. equivalents as well as time deposits was ¥250.1 billion, and the Net cash provided by fi nancing activities amounted to ¥154.1 net D/E (debt-to-equity) ratio was 1.18 times. billion. This cash infl ow was attributable to such factors as an At the end of the fi scal year under review, cash and cash increase in loans payable in response to demands for facility funds, equivalents (hereinafter “cash”) totaled ¥249.1 billion, an increase such as for the development of the Caserones Copper Deposit.
Consolidated Balance Sheet
(Billions of yen) As of March 31, 2012(Billions of yen) As of March 31, 2013 Total assets Total assets Cash and cash 6,690.4 Cash and cash 7,274.9 equivalents equivalents 242.0 Interest-bearing 250.1 Interest-bearing debt debt 2,282.6 2,549.3
Other assets Other debt Other assets Other debt 6,448.4 2,363.1 7,024.8 2,398.2 Minority interests Minority interests in consolidated in consolidated subsidiaries subsidiaries Shareholders’ 300.5 Shareholders’ 384.7 equity equity 1,744.2 1,942.7
Shareholders’ equity ratio 26.1% Shareholders’ equity ratio 26.7% Net D/E ratio 1.17 times Net D/E ratio 1.18 times ROE 10.1% ROE 8.7%
Consolidated Cash Flows (Billions of yen) FY2012 In come before income taxes and minority interests 272.0 Depreciation and amortization 180.4 Increase in inventories –118.8 Other –68.0 Cash fl ows from operating activities 265.6 Cash flows from investing activities –426.1 Cash flows from financing activities 154.1 Free cash fl ow –160.5
68 JX Holdings, Inc. Annual Report 2013 Business and Other Risks
The JX Holdings Group (hereinafter, the JX Group) faces a variety of risks that may have an important impact on its business performance. The principal risks are those outlined below. Please note that forward-looking statements made in this section are, unless otherwise stated, judgments made by JX Holdings, Inc., as of the date of the presentation of this report.
RISKS AFFECTING THE ENTIRE JX GROUP
1 Country risks relating to sources of raw material supplies investments, this may have an impact on the JX Group’s fi nancial The JX Group procures large quantities of raw materials outside position and business performance. Japan. In particular, it is almost entirely dependent on limited crude oil reserves in the Middle East as well as on limited copper 5 Risks relating to business restructuring concentrate sources in South America, Southeast Asia, and The JX Group is taking steps to reduce costs, concentrate its busi- Australia. Country risks in those countries or regions—for exam- ness activities, and enhance effi ciency. However, it is possible that ple, involving political instability, social unrest, deterioration in substantial special losses related to such restructuring may occur. economic conditions, or changes in laws or policies—may have In the event that the JX Group is unable to execute business an impact on the JX Group’s performance. restructuring appropriately, or that the restructuring does not achieve the envisaged improvements in the JX Group’s business 2 Risks relating to business operations in China operations, this may have an impact on the JX Group’s fi nancial and other East Asian countries position and business performance. Sales of such products as refi ned copper, chemicals, and electronic materials made by the JX Group depend heavily on demand in 6 Risks relating to capital expenditures, investments, Asian countries, notably China, and the JX Group is expected to and loans undertake further business expansion in those countries. Continuing capital expenditures, including investments and In the event that for whatever reason, there is a decline or loans, are necessary for the ongoing maintenance and growth of other changes in demand for the JX Group’s products in these the JX Group’s businesses and for the acquisition of new business areas, it may have an impact on the JX Group’s fi nancial position opportunities. However, it is possible that for such reasons as and business performance. inadequacy of cash fl ows, it may become diffi cult to implement these plans. In addition, due to changes in the external environ- 3 Risks relating to foreign exchange rate fl uctuations ment or other factors, it is possible that actual investment Portions of the JX Group’s receipts and payments arise from busi- amounts will greatly exceed projections, or that projected earn- ness transactions denominated in foreign currencies, and the JX ings will not materialize. Group also has substantial assets and liabilities denominated in foreign currencies. Consequently, fl uctuations in foreign 7 Risks relating to resource development exchange rates may aff ect the value of assets, liabilities, receipts, The JX Group conducts exploration and development activities and payments when converted into yen. related to oil and natural gas fi elds as well as coal and copper In addition, fl uctuations in foreign exchange rates may have deposits. At present, these activities are in various stages on the an impact when the fi nancial statements of overseas consoli- way toward full commercial operation. The success of exploration dated subsidiaries or affi liates accounted for by the equity and development is infl uenced by a wide range of factors, includ- FINANCIAL INFORMATION method are converted into yen. ing the choice of areas for exploration and development, the construction cost of equipment, permits that must be received 4 Risks relating to collaboration with third parties from governments, and fund-raising. In the event that individual and business investments projects do not reach the commercial viability stage and funds In a variety of business fi elds, the JX Group collaborates with invested cannot be recovered, this may have an impact on the JX third parties through joint ventures and other arrangements and Group’s fi nancial position and business performance. In addition, also makes strategic investments in other companies. These recruiting personnel with high-level specialized expertise and partnerships and investments play an important role in the JX broad experience is vital to the exploration and development Group’s businesses, and, in the event that key joint ventures business; however, the competition in obtaining top-quality per- experience fi nancial diffi culties for any reason, or it is not possible sonnel is becoming extremely intense in this industry. Therefore, to achieve the desired results from collaborative relationships or in the event that the JX Group is unable to recruit enough
JX Holdings, Inc. Annual Report 2013 69 Business and Other Risks
top-quality personnel, this may result in the loss of profi t-making 11 Risks relating to interest-bearing debt opportunities and a decline in competitiveness. The large size of its interest-bearing debt may restrict the busi- ness activities of the JX Group. In addition, to make repayments 8 Risks relating to environmental regulations of principal and interest relating to this debt, it may be necessary The JX Group’s businesses are subject to a wide range of environ- for the JX Group to raise funds through additional borrowings or mental regulations. These regulations impose expenses for envi- the sale of assets. However, the JX Group’s ability to conduct such ronmental cleanups, and, if environmental pollution were to occur, fund-raising may depend upon a variety of factors, such as the the payment of fi nes and compensation would be required, mak- state of fi nancial markets, the JX Group’s share price, and whether ing it diffi cult for the JX Group to continue its operations. or not there are buyers for the assets. Additionally, if interest rates The JX Group’s operations give rise to considerable quanti- rise—either within Japan or overseas—the resultant increase in ties of wastewater, gas emissions, and waste materials, and interest burden may have an impact on the JX Group’s fi nancial unforeseen circumstances may cause the volumes of these dis- position and business performance. charges to rise above their permitted levels. It is also possible that in the future environmental regulations may be tightened. 12 Risks relating to write-down of inventories owing to The obligations and burdens imposed on the JX Group by these decreased profi tability environmental regulations and standards may have an impact The JX Group has large amounts of inventories. In the event that on the JX Group’s fi nancial position and business performance. the net market value of inventories at the end of the fi scal period is lower than the corresponding book value owing mainly to declines 9 Risks relating to operations in market prices of crude oil, petroleum products, and rare metals, Businesses of the JX Group are exposed to a variety of risks relating the book value must be reduced in line with net market value. The to its operations, such as risks of fi re, explosions, accidents, import diff erence between book values and net market value must be or export restrictions, natural disasters, mine collapses, climatic or charged to cost of sales and will result in a decline in profi tability. other natural phenomena, labor disputes, and restrictions on the Such write-down of inventories may have an impact on the JX transportation of raw materials or products. If such accidents or Group’s fi nancial position and business performance. disasters were to occur, considerable losses may ensue. The JX Group obtains insurance coverage for accidents, 13 Risks relating to the impairment of fi xed assets disasters, and other contingencies to the possible and appropri- The JX Group has substantial fi xed assets. In the future, if such fac- ate extent, but it is possible that compensation may not cover tors as changes in the business environment cause the profi tability the full cost of any damages that occur. of fi xed assets to decline and make it unlikely that funds invested can be recovered, their book value will be reduced to refl ect the 10 Risks relating to intellectual property rights likelihood of recovery, and it will be necessary to post the amount In the execution of its businesses, the JX Group owns patents of the reduction as an impairment loss. This may aff ect the JX and other intellectual property rights of various kinds, but, in Group’s fi nancial position and business performance. certain circumstances, it is possible that intellectual property rights may be diffi cult to obtain or their validity may be con- 14 Risks relating to information systems tested. It is also possible that the JX Group’s corporate secrets Information systems may become inoperative as a result of an may be disclosed or misused by a third party, or that owing to earthquake or other natural disaster or an accident, and business the speed of technical progress, the protection aff orded by intel- operations may have to be suspended. In such an event, this may lectual property rights becomes inadequate with respect to disrupt the production and marketing activities of the JX Group technologies vital to the JX Group’s businesses. and have a serious impact on the operations of business partners. In addition, a claim from a third party of infringement of intellectual property rights in regard to the JX Group’s technolo- 15 Risks relating to the establishment of internal control gies may lead to the payment of substantial royalties or to the system prohibition of the use of the relevant technologies. The JX Group is making every eff ort to enhance compliance, risk In such cases as those referred to above, in which the JX management, and other functions as well as strengthen its Group is unable to obtain or make adequate use of intellectual internal control system, including the internal fi nancial reporting property rights for the conduct of its businesses, the JX Group’s system. In the event that the JX Group’s internal control system business performance may be aff ected.
70 JX Holdings, Inc. Annual Report 2013 does not function eff ectively and such situations occur as breach 16 Risks relating to the management of personal of compliance, the manifestation of risk of loss in a signifi cant information amount, or damage to disclosure credibility, there is a risk that The JX Group manages personal information in relation to such confi dence among its stakeholders may be signifi cantly impaired, services as petroleum product sales and periodic precious metal which may aff ect the fi nancial position and business perfor- investment plans. The implementation of measures necessary to mance of the JX Group. protect that information may require considerable expenses going forward. Furthermore, the leakage or misuse of customers’ personal information may have an impact on the aforemen- tioned business activities.
RISKS BY SEGMENT
Energy Business 2 Risks relating to demand fl uctuations and competition 1 Risks relating to fl uctuations in margins in the in the domestic petroleum business Petroleum Refi ning and Marketing business Mainly in the industrialized countries, initiatives related to the The margins for petroleum products are determined by factors Earth’s environment have been stepped up, with the aim of beyond the control of the JX Group, largely due to the diff erence accelerating the development of a “low carbon society.” These between crude oil prices and the prices of petroleum products. initiatives include making reductions in greenhouse gas emis- Factors infl uencing crude oil prices include the Japanese yen to sions and promoting the saving of energy and natural resources. U.S. dollar exchange rate, the political situation in oil-producing Amid these developments, the demand for petroleum products regions, production adjustments by the Organization of the in Japan is expected to continue to decline along with the trends Petroleum Exporting Countries (OPEC), and global demand for toward the wider use of fuel-effi cient automobiles and the tran- crude oil. Factors that infl uence the prices of petroleum products sition toward other energy sources, such as gas and electricity. In include demand for petroleum products, overseas petroleum the event that this decline in domestic demand continues or product market conditions, domestic petroleum-refi ning capac- accelerates, this may have an impact on the JX Group’s fi nancial ity and capacity utilization ratios, and the total number of service position and business performance. Moreover, in the domestic stations in Japan. The JX Group determines petroleum product Petroleum Refi ning and Marketing business, competition among prices by appropriately refl ecting the supply and demand condi- industry participants at present is intense, and there is a possibil- tions or market trends of petroleum products; however, margins ity that the trend toward lower demand in the domestic market may worsen considerably depending on crude oil prices or the may accelerate such competition. More-intense competition market trend of petroleum products, and this may have an impact may have an impact on the JX Group’s fi nancial position and on the JX Group’s fi nancial position and business performance. business performance. Furthermore, margins for chemicals are aff ected by the dif- ference between prices for crude oil and major raw materials, 3 Risks relating to sources of procurement of crude oil such as naphtha, and prices for chemicals. These margins are and petroleum products FINANCIAL INFORMATION determined by factors beyond the control of the JX Group. The JX Group procures all its crude oil from overseas, primarily Chemical prices are aff ected by such factors as increases in sup- from the Middle East, and some petroleum products are pro- ply capacity through the construction of new production facili- cured abroad and in Japan. Such factors as changes in the politi- ties or the expansion of existing facilities and demand trends for cal situation in oil-producing countries, and changes in the sup- apparel, automobiles, home electronics, and other goods. Owing ply and demand balance for petroleum products in Japan and to weak market conditions, it may be diffi cult to pass on cost abroad, may hamper the procurement of crude oil and petroleum increases stemming from higher crude oil and other raw materi- products. Inability to secure an appropriate alternative supply als to product prices. This may have an impact on the JX Group’s source may have an impact on the JX Group’s fi nancial position fi nancial position and business performance. and business performance.
JX Holdings, Inc. Annual Report 2013 71 Business and Other Risks
4 Risks relating to inventory valuation Metals Business The JX Group values inventories, including crude oil and petro- 1 Risks relating to fl uctuations in market conditions in the leum products, by the average cost method. During a phase of copper business rising crude oil prices, inventories initially valued at a compara- The JX Group’s copper business mainly derives profi t from its tively low level will act to increase profi ts by pushing down the copper smelting and refi ning business and investments in over- cost of sales. However, in a phase of falling crude oil prices, seas copper mines. Any changes in related market prices, as inventories initially valued at a comparatively high level will act listed below, could have an impact on the fi nancial position and to decrease profi ts by pushing up the cost of sales. This may have business performance of the JX Group. an impact on the JX Group’s fi nancial position and business The JX Group’s copper smelting and refi ning business oper- performance. ates as a custom smelter that purchases copper concentrate from overseas copper mines and produces and sells refi ned Oil and Natural Gas E&P Business copper. The gross margin mainly comprises smelting and refi n- 1 Risks relating to crude oil and gas prices and currency ing margins and sales premiums. exchange rate fl uctuations in the Oil and Natural Gas Smelting and refi ning margins are determined by negotia- E&P business tions with copper mines, but in recent years the supply of copper Sales in the Oil and Natural Gas E&P business fl uctuate along concentrate to the market has tended to be inadequate owing to with changes in crude oil and gas prices and movements in for- such factors as a lower concentrate grade and the emergence of eign currency exchange rates. When crude oil and gas prices are an oligopoly of mining majors. Another factor has been increased rising and the value of the yen is declining, sales in yen terms demand in China, India, and other countries. As a result, the increase. When the crude oil and gas prices are falling and the demand for and supply of copper concentrate has become tight, yen is appreciating, sales in yen terms decrease. Therefore, during creating pressure leading to lower smelting and refi ning margins. times when crude oil and gas prices move downward and the In addition, the smelting and refi ning margins have been con- yen is appreciating, the performance of the JX Group is adversely cluded in U.S. dollars. As a result, in the event that the yen appre- aff ected because of the decline in sales in yen terms. ciates, the smelting and refi ning margins will decline. Sales premiums, which are added to the international refi ned 2 Risks relating to securing reserves copper price, are determined through negotiations with cus- As a result of international competition for resources, competi- tomers in consideration of a variety of factors, such as importa- tive conditions for the JX Group to secure reserves have become tion costs and product quality. Depending on the outcome of substantially more challenging. The future oil and gas output of such talks, sales premiums could be adversely aff ected. the JX Group will depend on the extent to which it can secure The JX Group is also exposed to the risk of decrease in invest- reserves through exploration, development, and the acquisition ment return should there be any fall in international prices of of resource rights that make possible production on a commer- refi ned copper, since prices of copper concentrate sold by the cial basis. In the event that the JX Group cannot supplement its mines in which the JX Group has invested are based on interna- reserves of oil and gas, its production volume may decline in the tional prices of refi ned copper. future, and this may have an impact on the JX Group’s fi nancial position and business performance. 2 Risks relating to the stable procurement of copper concentrate 3 Risks relating to equipment for oil and natural gas E&P In view of the tight supply and demand conditions for copper To conduct exploration and the production of oil and natural concentrate, the JX Group has been investing in and fi nancing gas, the JX Group must obtain drilling and other equipment and overseas copper mines with the objective of securing stable related services from third parties. When the price of crude oil is supplies of copper concentrate. However, if the JX Group is rising and in similar circumstances, such equipment and services unable to procure the copper concentrate its smelting and refi n- are in short supply. In the event that the JX Group cannot obtain ing business needs at the appropriate time, owing to any disrup- such equipment and services with the proper timing and on tion of operations of the overseas copper mines, which are the JX economical conditions, this may have an impact on the JX Group’s procurement sources, including those in which the JX Group’s fi nancial position and business performance. Group has invested, the fi nancial position and business perfor- mance of the JX Group could be aff ected.
72 JX Holdings, Inc. Annual Report 2013 3 Risks relating to such factors as demand fl uctuations and 7 Risks relating to environmental issues surrounding technical innovation in the electronic materials business Gould Electronics, Inc. (a U.S. subsidiary) Many customers of the electronic materials business are in the In relation to environmental problems that arose in the past in its IT-related products, consumer electronics, and automotive business activities, Gould Electronics, Inc., a U.S.-based subsidiary, industries. Consequently, such factors as supply and demand is a potential responsible party with regard to specifi c designated situations and price movements in those industries may have an areas within the United States under U.S. environmental laws, such impact on the JX Group’s business performance. Additionally, the as the Superfund Act. The ultimate fi nancial burden the subsidiary electronic materials business is in the midst of intense competi- will bear may depend on numerous factors, including the quantity tion. Therefore, if the JX Group is unable to respond appropriately of the substance and its toxicity for which the areas were desig- to rapid technical innovation or changes in customer needs, this nated, the total number of other potential responsible parties and may have an impact on the JX Group’s fi nancial position and their fi nancial position, and remedial methods and technologies. business performance. In relation to this matter, Gould Electronics, Inc., is providing reserves that it considers appropriate, but owing to the factors 4 Risks relating to fl uctuations in procurement prices of referred to above the actual amount of the burden may exceed raw materials in the electronic materials business these reserves, in which case the JX Group’s business perfor- The prices of the raw materials used in electronic materials fl uctu- mance may be aff ected. ate in accordance with the market prices of metals and other materials. If increases in the costs of these raw materials cannot be Other Businesses passed on in the product prices, or if there is some extent of 1 Risks relating to fl uctuating demand in the construction decline in the market value of inventories compared with the business corresponding book value at the beginning of the fi scal period, The JX Group’s construction business relies heavily on demand there may be an impact on the JX Group’s business performance. for contracted paving, civil engineering, and construction proj- ects. Therefore, declines in public investment and private-sector 5 Risks relating to fl uctuations in market conditions in the capital investment, including residential investment, may have recycling and environmental services business an impact on the JX Group’s construction business. Margins for the recycling and environmental services business are aff ected by fl uctuations in such factors as metal prices and 2 Risks relating to fl uctuating demand in the titanium foreign exchange rates. Therefore, in the event that metal prices business decline or the yen appreciates, this may have an impact on the The demand for titanium metals (titanium sponge and titanium JX Group’s business performance. ingots) is linked primarily to demand for specifi c purposes, such as for aircraft, electric power plants, chemical plants, and seawa- 6 Risks relating to the procurement of raw materials for ter desalination plants. Moreover, their use in catalysts is almost the recycling and environmental services business entirely confi ned to propylene polymerization. In the collection of raw materials for recycling in the recycling If demand for titanium metals in these specifi c applications and environmental services business, competition is becoming fl uctuates substantially, due to changes in domestic or overseas intense because primary suppliers, including electronic device political and economic conditions, or due to major changes in FINANCIAL INFORMATION parts manufacturers, are shifting from Japan to overseas and related consuming industries, it may have an impact on the JX entering the recycling business. The JX Group is taking steps in Group’s business performance, since such fl uctuations in response to this situation, such as expanding overseas procure- demand tend to have a substantial impact on the sales volume ment. However, in the event that the JX Group is unable to pro- and prices of titanium products. cure the raw materials for recycling that are necessary for its recycling and environmental services business, this may have an impact on the JX Group’s business performance.
JX Holdings, Inc. Annual Report 2013 73 Consolidated Balance Sheet JX Holdings, Inc. and Consolidated Subsidiaries As of March 31, 2013 and 2012
Thousands of U.S. Millions of yen dollars (Note 2) Assets 2013 2012 2013 Current assets: Cash and cash equivalents ¥ 249,131 ¥ 241,035 $ 2,648,921 Time deposits 967 943 10,282 Notes and accounts receivable (Note 10): Trade 1,339,210 1,308,111 14,239,341 Other 109,933 107,756 1,168,878 Less: Allowance for doubtful accounts (1,299) (2,290) (13,812) Inventories (Note 4) 1,819,312 1,694,395 19,344,094 Deferred tax assets (Note 19) 74,865 79,184 796,013 Other current assets 145,674 125,487 1,548,900 Total current assets 3,737,793 3,554,621 39,742,616
Investments and long-term receivables: Investments in unconsolidated subsidiaries and affi liates 399,519 325,470 4,247,943 Investments in securities (Notes 5, 9 and 10) 263,598 243,531 2,802,743 Long-term receivables 21,103 25,187 224,381 Total investments and long-term receivables 684,220 594,188 7,275,066
Property, plant and equipment (Notes 6, 7, 9 and 13): Land 965,353 946,285 10,264,253 Buildings, structures and oil tanks 1,551,354 1,525,342 16,494,992 Machinery, equipment, vehicles and other 2,928,366 2,808,235 31,136,268 Construction in progress 320,727 119,370 3,410,175 5,765,800 5,399,232 61,305,688 Less: Accumulated depreciation (3,575,117) (3,458,856) (38,012,940) Property, plant and equipment, net 2,190,683 1,940,376 23,292,749
Goodwill and other intangible assets: Goodwill 19,446 28,103 206,762 Other 115,399 109,110 1,226,996 Total intangible assets 134,845 137,213 1,433,759
Deferred tax assets (Note 19) 50,241 50,246 534,195 Exploration and development investments 403,564 335,402 4,290,952 Other assets 73,545 78,373 781,978
Total assets (Note 22) ¥ 7,274,891 ¥ 6,690,419 $ 77,351,313
The accompanying notes are an integral part of these consolidated fi nancial statements.
74 JX Holdings, Inc. Annual Report 2013 Thousands of U.S. Millions of yen dollars (Note 2) Liabilities and Net Assets 2013 2012 2013 Current liabilities: Notes and accounts payable (Note 10): Trade ¥ 892,965 ¥ 917,955 $ 9,494,577 Other 408,740 369,049 4,345,986 Short-term borrowings (Notes 8, 9 and 10) 701,046 546,219 7,453,971 Current portion of bonds 45,615 45,452 485,008 Current portion of long-term loans (Notes 8, 9 and 10) 140,817 168,811 1,497,257 Commercial papers (Note 10) 449,000 404,000 4,774,056 Excise taxes payable (Notes 9 and 10) 354,992 338,547 3,774,503 Income taxes payable 27,566 28,005 293,099 Provision for loss on disaster (Note 17) 6,060 17,651 64,434 Other provision 41,518 76,627 441,446 Accrued expenses 46,224 46,458 491,483 Asset retirement obligations (Note 13) 1,655 4,578 17,597 Deferred tax liabilities (Note 19) 1,045 1,251 11,111 Other current liabilities 200,242 188,994 2,129,102 Total current liabilities 3,317,485 3,153,597 35,273,631 Long-term liabilities: Bonds payable 192,960 206,187 2,051,675 Long-term loans, less current portion (Notes 8, 9 and 10) 1,019,817 911,930 10,843,349 Provision for retirement benefi ts (Note 12) 93,860 91,004 997,980 Provision for repairs 58,277 50,474 619,638 Deferred tax liabilities (Note 19) 134,005 122,038 1,424,827 Other provision 6,198 6,974 65,901 Asset retirement obligations (Note 13) 61,578 49,047 654,737 Other long-term liabilities (Note 9) 63,279 54,416 672,823 Total long-term liabilities 1,629,974 1,492,070 17,330,930 Commitments and contingencies (Note 14) Net assets: Shareholders’ equity: Common stock: Authorized – 8,000,000,000 shares in 2013 and 2012 Issued – 2,495,485,929 shares in 2013 and 2012 100,000 100,000 1,063,264 Capital surplus 746,711 746,711 7,939,511
Retained earnings 1,053,576 933,573 11,202,297 FINANCIAL INFORMATION Less: Treasury stock, at cost – 8,906,760 shares in 2013 and 8,408,232 shares in 2012 (3,854) (3,722) (40,978) Total shareholders’ equity 1,896,433 1,776,562 20,164,094 Accumulated other comprehensive income (loss): Unrealized gain on securities 35,260 24,802 374,907 Unrealized gain on hedging derivatives 7,768 5,928 82,594 Foreign currency translation adjustments 3,293 (63,089) 35,013 Total accumulated other comprehensive income (loss) 46,321 (32,359) 492,515 Minority interests (Note 20) 384,678 300,549 4,090,144 Total net assets (Note 20) 2,327,432 2,044,752 24,746,752 Total liabilities and net assets ¥7,274,891 ¥6,690,419 $77,351,313
JX Holdings, Inc. Annual Report 2013 75 Consolidated Statement of Income JX Holdings, Inc. and Consolidated Subsidiaries Fiscal years ended March 31, 2013 and 2012
Thousands of U.S. Millions of yen dollars (Note 2) 2013 2012 2013 Net sales (Note 22) ¥11,219,474 ¥10,723,889 $119,292,653 Cost of sales (Note 15) 10,431,380 9,879,587 110,913,131 Gross profi t 788,094 844,302 8,379,522
Selling, general and administrative expenses (Notes 15 and 16) 536,627 516,458 5,705,763 Operating income 251,467 327,844 2,673,759
Non-operating income (expenses): Interest and dividend income 34,610 29,932 367,996 Interest expense (25,244) (26,925) (268,410) Foreign currency exchange loss, net (7,772) (2,136) (82,637) Equity in earnings of affi liates 59,698 62,069 634,747 Other, net 15,541 16,981 165,242 76,833 79,921 816,938 Ordinary income (Note 22) 328,300 407,765 3,490,696
Special gains (losses): Gain (loss) on sales and disposal of property, plant and equipment, net (4,939) 3,588 (52,515) Gain on sales of investments in securities 287 4,074 3,052 Impairment loss (Notes 6 and 22) (25,810) (27,608) (274,428) Loss on valuation of investments in securities (Note 5) (2,204) (783) (23,434) Loss on step acquisitions (1,939) (6,431) (20,617) Restructuring cost (Note 18) (10,998) (36,514) (116,938) Gain on reversal of loss on disaster (Note 17) — 7,220 — Other, net (10,657) 3,196 (113,312) (56,260) (53,258) (598,192) Income before income taxes and minority interests 272,040 354,507 2,892,504
Income taxes (Note 19): Current 72,493 63,652 770,792 Deferred 8,487 84,420 90,239 Income before minority interests 191,060 206,435 2,031,473 Minority interests in income (31,583) (35,840) (335,811) Net income ¥ 159,477 ¥ 170,595 $ 1,695,662
Yen U.S. dollars (Note 2) Net income per share – basic (Note 20) ¥64.13 ¥68.60 $0.68 Cash dividends per share attributable to the year (Note 20) 16.00 16.00 0.17
The accompanying notes are an integral part of these consolidated fi nancial statements.
76 JX Holdings, Inc. Annual Report 2013 Consolidated Statement of Comprehensive Income JX Holdings, Inc. and Consolidated Subsidiaries Fiscal years ended March 31, 2013 and 2012
Thousands of U.S. Millions of yen dollars (Note 2) 2013 2012 2013 Income before minority interests ¥191,060 ¥206,435 $2,031,473
Other comprehensive income (loss): Unrealized gain (loss) on securities 12,143 (10,323) 129,112 Unrealized gain (loss) on hedging derivatives 1,903 (2,240) 20,234 Foreign currency translation adjustments 58,181 (2,423) 618,618 S hare of other comprehensive income (loss) of affi liates accounted for by the equity method 20,058 (3,471) 213,270 Total other comprehensive income (loss) 92,285 (18,457) 981,233 Comprehensive income ¥283,345 ¥187,978 $3,012,706 Comprehensive income attributable to: Shareholders of JX Holdings, Inc. ¥238,166 ¥153,021 $2,532,334 Minority interests 45,179 34,957 480,372
The accompanying notes are an integral part of these consolidated fi nancial statements. FINANCIAL INFORMATION
JX Holdings, Inc. Annual Report 2013 77 Consolidated Statement of Changes in Net Assets JX Holdings, Inc. and Consolidated Subsidiaries Fiscal years ended March 31, 2013 and 2012
Millions of yen Shareholders’ equity Accumulated other comprehensive income Total accumu- Unrealized Foreign lated other Unrealized gain on currency comprehen- Common Capital Retained Treasury gain on hedging translation sive income Minority stock surplus earnings stock Total securities derivatives adjustments (loss) interests Total net assets Year ended March 31, 2013 Beginning of year ¥100,000 ¥746,711 ¥ 933,573 ¥(3,722) ¥1,776,562 ¥24,802 ¥5,928 ¥(63,089) ¥(32,359) ¥300,549 ¥2,044,752 Dividends from surplus — — (39,838) — (39,838) — — — — — (39,838) Net income — — 159,477 — 159,477 — — — — — 159,477 C hange in the scope of consolidation — — (132) — (132) — — — — — (132) C hange in the scope of equity method 496 496 496 Purchase of treasury stock — — — (26) (26) — — — — — (26) Disposal of treasury stock — — —1 1 ————— 1 C hange in equity in affi liates accounted for by the equity method–treasury stock — — — (107) (107) — — — — — (107) N et changes in items other than those in shareholders’ equity — — — — — 10,458 1,840 66,382 78,680 84,129 162,809 End of year ¥100,000 ¥746,711 ¥1,053,576 ¥(3,854) ¥1,896,433 ¥35,260 ¥7,768 ¥ 3,293 ¥ 46,321 ¥384,678 ¥2,327,432
Millions of yen Shareholders’ equity Accumulated other comprehensive income Total accumu- Unrealized Foreign lated other Unrealized gain on currency comprehen- Common Capital Retained Treasury gain on hedging translation sive income Minority stock surplus earnings stock Total securities derivatives adjustments (loss) interests Total net assets Year ended March 31, 2012 Beginning of year ¥100,000 ¥746,693 ¥801,567 ¥(3,802) ¥1,644,458 ¥ 35,524 ¥6,666 ¥(58,327) ¥(16,137) ¥257,920 ¥1,886,241 Dividends from surplus — — (39,838) — (39,838) — — — — — (39,838) Net income — — 170,595 — 170,595 — — — — — 170,595 C hange in the scope of consolidation — — 1,348 — 1,348 — — — — — 1,348 Increase by merger — — (99) — (99) — — — — — (99) Purchase of treasury stock — — — (23) (23) — — — — — (23) Disposal of treasury stock — 18 — 103 121 — — — — — 121 N et changes in items other than those in shareholders’ equity — — — — — (10,722) (738) (4,762) (16,222) 42,629 26,407 End of year ¥100,000 ¥746,711 ¥933,573 ¥(3,722) ¥1,776,562 ¥ 24,802 ¥5,928 ¥(63,089) ¥(32,359) ¥300,549 ¥2,044,752
Thousands of U.S. dollars (Note 2) Shareholders’ equity Accumulated other comprehensive income Total accumu- Unrealized Foreign lated other Unrealized gain on currency comprehen- Common Capital Retained Treasury gain on hedging translation sive income Minority stock surplus earnings stock Total securities derivatives adjustments (loss) interests Total net assets Year ended March 31, 2013 Beginning of year $1,063,264 $7,939,511 $ 9,926,348 $(39,575) $18,889,548 $263,711 $63,030 $(670,803) $(344,062) $3,195,630 $21,741,116 Dividends from surplus — — (423,583) — (423,583) — — — — — (423,583) Net income — — 1,695,662 — 1,695,662 — — — — — 1,695,662 C hange in the scope of consolidation — — (1,404) — (1,404) — — — — — (1,404) C hange in the scope of equity method 5,274 5,274 5,274 Purchase of treasury stock — — — (276) (276) — — — — — (276) Disposal of treasury stock — — — 11 11 — — — — 11 C hange in equity in affi liates accounted for by the equity method–treasury stock — — — (1,138) (1,138) — — — — — (1,138) N et changes in items other than those in shareholders’ equity — — — — — 111,196 19,564 705,816 836,576 894,514 1,731,090 End of year $1,063,264 $7,939,511 $11,202,297 $(40,978) $20,164,094 $374,907 $82,594 $ 35,013 $ 492,515 $4,090,144 $24,746,752
The accompanying notes are an integral part of these consolidated fi nancial statements.
78 JX Holdings, Inc. Annual Report 2013 Consolidated Statement of Cash Flows JX Holdings, Inc. and Consolidated Subsidiaries Fiscal years ended March 31, 2013 and 2012
Thousands of U.S. Millions of yen dollars (Note 2) 2013 2012 2013 Cash fl ows from operating activities: Income before income taxes and minority interests ¥ 272,040 ¥ 354,507 $ 2,892,504 Depreciation and amortization 180,363 198,073 1,917,735 Amortization of goodwill 2,876 3,468 30,579 Increase (decrease) in provision for repairs 7,803 (2,683) 82,967 Increase (decrease) in provision for loss on disaster (2,086) (21,723) (22,180) Interest and dividend income (34,610) (29,932) (367,996) Interest expenses 25,244 26,925 268,410 Equity in (earnings) losses of affi liates (59,698) (62,069) (634,747) Loss (gain) on sales and disposal of property, plant and equipment, net 4,939 (3,588) 52,515 Impairment loss 25,810 27,608 274,428 Loss on valuation of investments in securities 2,204 783 23,434 Restructuring cost 10,998 36,514 116,938 Decrease (increase) in notes and accounts receivable – trade (3,126) (237,824) (33,238) Decrease (increase) in inventories (118,836) (203,158) (1,263,541) Increase (decrease) in notes and accounts payable – trade and excise taxes payable (42,561) 248,819 (452,536) Other, net 47,433 30,084 504,338 Subtotal 318,793 365,804 3,389,612 Interest and dividend income received 69,326 74,078 737,119 Interest expenses paid (26,498) (26,700) (281,744) Payments for loss on disaster (19,716) (65,569) (209,633) Payments for special extra retirement payments (7,863) (22,208) (83,604) Income taxes paid (68,471) (78,763) (728,028) Net cash provided by operating activities 265,571 246,642 2,823,721 Cash fl ows from investing activities: Purchase of investments in securities (30,735) (45,783) (326,794) Proceeds from sales of investments in securities 2,064 22,342 21,946 Purchase of property, plant and equipment (312,029) (157,125) (3,317,693) Proceeds from sales of property, plant and equipment 23,090 26,922 245,508 Purchase of intangible assets (16,008) (12,837) (170,207) Decrease (increase) in short-term receivables, net 2,097 (9,802) 22,297 Payments of long-term receivables (16,199) (6,712) (172,238) Collection of long-term receivables 13,567 4,806 144,253 Increase in cost of exploration and production of oil and related assets (79,287) (44,367) (843,030) Other, net (12,670) 23,961 (134,716) Net cash used in investing activities (426,110) (198,595) (4,530,675) Cash fl ows from fi nancing activities: Increase (decrease) in short-term borrowings, net 139,880 (33,481) 1,487,294 Increase (decrease) in commercial papers, net 45,000 16,000 478,469 Proceeds from long-term loans 184,133 177,161 1,957,820 Repayment of long-term loans (180,504) (140,617) (1,919,234) Proceeds from issuance of bonds 30,000 — 318,979
Redemption of bonds (46,492) (242) (494,333) FINANCIAL INFORMATION Proceeds from stock issuance to minority shareholders 50,446 6,158 536,374 Cash dividends paid (39,838) (39,838) (423,583) Cash dividends paid to minority shareholders (21,392) (16,241) (227,453) Other, net (7,129) (6,218) (75,800) Net cash provided by (used in) fi nancing activities 154,104 (37,318) 1,638,533 Eff ect of exchange rate changes on cash and cash equivalents 14,068 (4,858) 149,580 Net increase (decrease) in cash and cash equivalents 7,633 5,871 81,159 Cash and cash equivalents at beginning of year 241,035 232,438 2,562,839 Increase in cash and cash equivalents resulting from newly consolidated subsidiaries 92 2,252 978 D ecrease in cash and cash equivalents resulting from exclusion of subsidiaries from consolidation (43) — (457) Decrease in cash and cash equivalents resulting from corporate division — (20) — Increase in cash and cash equivalents resulting from merger 414 494 4,402 Cash and cash equivalents at end of year ¥ 249,131 ¥ 241,035 $ 2,648,921 The accompanying notes are an integral part of these consolidated fi nancial statements.
JX Holdings, Inc. Annual Report 2013 79 Notes to Consolidated Financial Statements JX Holdings, Inc. and Consolidated Subsidiaries
Note 1 SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Preparation—Consolidated Financial Statements consolidated income includes equity in net income of those The accompanying consolidated fi nancial statements of JX Holdings, unconsolidated subsidiaries and affi liates, after elimination of Inc. (the “Company”) and its consolidated subsidiaries are prepared in unrealized intercompany profi ts. As of March 31, 2013, the accordance with accounting principles generally accepted in Japan, Company has 2 unconsolidated subsidiaries and 30 affi liates that which are diff erent in certain respects as to the application and are accounted for under the equity method. disclosure requirements of International Financial Reporting Standards. Showa Nittan Corp. (formerly Showa Yusosen Co., Ltd.) In presenting the accompanying consolidated fi nancial state- became the Company’s affi liate accounted for by the equity ments, certain accounts and items reported in the consolidated method due to an increase of ownership ratio as a result of the fi nancial statements that have been fi led with the Financial merger with Nippon Tanker Co., Ltd. Yuyo Steamship Co., Ltd. was Services Agency in Japan have been reclassifi ed for the conve- excluded from the scope of the affi liates accounted for by the nience of readers outside Japan. equity method because of the merger with JX SHIPPING CO., LTD. (formerly Nissho Shipping Co., Ltd.). (b) Principles of Consolidation and Accounting for The Company does not apply the equity method to its invest- Investments in Unconsolidated Subsidiaries and Affi liates ments in certain unconsolidated subsidiaries and certain affi liates, The accompanying consolidated fi nancial statements include including SAIBUNISSOU CO., LTD., as they are considered immaterial in the accounts of the Company and its signifi cant subsidiaries that terms of the JX Group’s net income and retained earnings. The invest- are controlled by the Company (hereinafter collectively referred ments in these unconsolidated subsidiaries and affi liates are carried at to as the “JX Group”). As of March 31, 2013, the Company had 149 cost, less any write-down due to impairment deemed necessary. consolidated subsidiaries. The balance sheet date of one of the consolidated subsidiaries, For the year ended March 31, 2013, the Company added MFN SUZUYO ENERGY CO., LTD., is August 31. Accordingly, we have used Investment LLC and three other companies to the scope of consoli- its fi nancial statements prepared based on its provisional settle- dation due to their new establishment. The Company also added ment of accounts as of February 28. Japan Vietnam Petroleum Co., Sunny Durban Maritime S.A. to the scope of consolidation due to Ltd., JX Nippon Exploration and Production (U.K.) Limited, and 44 increase in its materiality, and Ikko Co., Ltd., SUZUYO ENERGY CO., other subsidiaries are consolidated by using their fi nancial state- LTD. and two other companies were newly consolidated due to ments as of their respective fi scal year end, which is December 31, acquisition of stocks. In response to the merger that Yuyo Steamship and necessary adjustments are made to their fi nancial statements Co., Ltd. was taken over by JX SHIPPING CO., LTD. (formerly Nissho to refl ect any signifi cant transactions from January 1 to March 31. Shipping Co., Ltd.), its 13 subsidiaries were newly consolidated. Goodwill at the dates of acquisition of the major consolidated Nippon Tanker Co., Ltd. was merged with Showa Nittan Corp. subsidiaries is amortized by the straight-line method over the (formerly Showa Yusosen Co., Ltd.), JX Nippon Oil & Energy period during which the infl uence of the goodwill shall apply. Lubricants America LLC was merged with JX Nippon Oil & Energy USA Inc. and JX Metals Precision Technology Co., Ltd. was merged (c) Foreign Currency Translation with SANYU ELECTRONIC INDUSTRY CO., LTD. As a result of group The monetary accounts receivable and accounts payable in for- reorganization, these subsidiaries were excluded from the scope eign currencies are translated into yen using the spot exchange of consolidation. The Company also excluded Dongguan Nikko rate at the balance sheet date, and the diff erences arising from the Fuji Electronics Corporation and three other companies from the translation are included in the consolidated statement of income. scope of consolidation due to liquidation. In addition, the assets and liabilities of foreign consolidated subsid- In addition, SANYU ELECTRONIC INDUSTRY CO., LTD. changed iaries, etc. are translated into yen using the spot exchange rate at its trade name to JX Metals Precision Technology Co., Ltd. after the balance sheet date. Revenues and expenses of foreign consoli- the merger. dated subsidiaries are translated into yen using the average rate dur- The consolidated fi nancial statements for the year ended ing the fi scal year, and the diff erences arising from the translation are March 31, 2013 do not include the accounts of SHIBUSHI OIL recorded in “foreign currency translation adjustments” and “minority STORAGE COMPANY, LTD. and certain other subsidiaries, as they interests” under “net assets” in the consolidated balance sheet. are considered immaterial in terms of the JX Group’s total assets, net sales, net income and retained earnings. (d) Cash and Cash Equivalents Investments in certain unconsolidated subsidiaries and affi li- Cash and cash equivalents comprised cash on hand, demand ates are accounted for under the equity method. The JX Group’s deposits in banks and highly liquid investments with original
80 JX Holdings, Inc. Annual Report 2013 maturities of three months or less for which risks of fl uctuations (j) Exploration and Development Investment in value are not signifi cant. Regarding the oil and natural gas exploration and development business, acquisition costs of concessions, exploration and devel- (e) Investments in Securities opment costs, and interest paid until commencement of produc- Investments in securities are required to be classifi ed into three tion are capitalized. After production commences, the accounts categories: trading, held-to-maturity or other. Held-to-maturity are primarily amortized by the units-of-production method. investment securities are stated at their amortized cost. The JX Group does not classify any of its investment securities as trading (k) Allowance for Doubtful Accounts securities. Marketable securities classifi ed as other securities have To prepare for bad debt losses of accounts receivable and loans been stated at fair value with any changes in unrealized gain or receivable, the estimated uncollectable amounts on general loss, net of the applicable income taxes, included directly in accounts receivable are recorded using the historical experience shareholders’ equity. Non-marketable securities classifi ed as of the bad debt ratio, and the estimated uncollectable amounts other securities have been stated at cost. Cost of securities sold on specifi c accounts, such as doubtful accounts receivable, are has been determined by the moving-average method. Signifi cant recorded by separately assessing their collectability. declines in the value of other securities that are deemed unre- coverable are charged to income. (l) Provision for Loss on Disaster To prepare for payments of rehabilitation costs, due to the Great East (f) Inventories Japan Earthquake, the estimates of these payments are recorded. Inventories are valued primarily at cost based on the average method (the amounts in the balance sheet are calculated by writ- (m) Provision for Retirement Benefi ts ing down the book value due to any decrease in profi tability). Provision for retirement benefi ts, which are provided for future pension and severance to be paid at retirement, are recorded at (g) Property, Plant and Equipment the amount actuarially computed based on the projected ben- Property, plant and equipment are stated at cost. efi t obligation and the estimated fair value of plan assets at the Signifi cant renewals and improvements are capitalized at end of the fi scal year. Prior service cost is amortized as incurred cost. Maintenance and repairs are charged to income as incurred. using the straight-line method, principally over 5 years. Actuarial Depreciation of property, plant and equipment is primarily gain or loss is amortized commencing in the subsequent period calculated based on the straight-line method, over the estimated by the straight-line method, principally over 5 years. useful lives as summarized below: (n) Provision for Repairs • Buildings, structures and oil tanks 2 – 50 years To prepare for payment on future repairs, inspection and repair • Machinery and equipment 2 – 20 years costs are calculated related to oil tanks, machinery and equip- ment at refi neries, and vessels, and the amounts as of the end of (h) Intangible Assets the fi scal year are recorded. Amortization of intangible assets, including software for internal use, is primarily computed using the straight-line method over (o) Income Taxes FINANCIAL INFORMATION the estimated useful lives. Mineral rights are primarily amortized Provision for income taxes is computed based on income before using the units-of-production method. income taxes and minority interests. The asset and liability approach is used to recognize deferred tax assets and liabilities (i) Leases for the expected future tax consequences of temporary diff er- Depreciation of leased assets under fi nance lease transactions ences between the carrying value amounts and the tax bases of that do not transfer ownership and whose contract date falls on assets and liabilities. or after April 1, 2008, is calculated based on the straight-line A valuation allowance is established against deferred tax method over the lease term assuming no residual value. assets to the extent that it is more likely than not that the deferred Finance lease transactions that do not transfer ownership and tax assets may not be realized within the foreseeable future. whose contract date falls prior to April 1, 2008, continue to be The Company and certain domestic wholly-owned subsidiar- accounted for as operating leases. ies adopted the consolidated tax return system in Japan starting the year ended March 31, 2011.
JX Holdings, Inc. Annual Report 2013 81 Notes to Consolidated Financial Statements
(p) Research and Development Costs foreign currency exchange rates, interest rates and commodity Research and development costs are expensed as incurred. prices corresponding to the underlying assets and liabilities. With respect to foreign exchange forward contracts, (q) Derivative Instruments commodity forwards, commodity swaps and loans in foreign The JX Group utilizes derivative instruments to manage its exposure currencies as hedging instruments, the JX Group performs an to fl uctuations in commodity prices, foreign currency exchange rates eff ectiveness assessment to confi rm if the critical terms of the and interest rates. The JX Group does not utilize derivative instruments hedging instruments and those of the underlying hedged items for speculation, in accordance with the Company’s internal policy. are continuously the same during the hedging period and, as Hedge accounting is primarily applied to derivative instru- such, the hedge is expected to be highly eff ective. ments and loans in foreign currencies used as hedging instru- In addition, with respect to interest rate swap contracts, the ments. With respect to qualifying foreign exchange forward con- JX Group performs an eff ectiveness assessment comparing the tracts and currency swap contracts, the designation “Furiate-shori” accumulated cash fl ow fl uctuation of hedged items with those is applied. The exception method is applied to interest rate swap of the hedging instruments. The testing of hedge eff ectiveness contracts that meet the requirements for exceptional treatments. of interest rate swap contracts that meet the criteria for the Hedging instruments are foreign exchange forward contracts, exception method is omitted. interest rate swap contracts, commodity forwards, commodity Derivative instruments that are not designated as hedges are swaps and loans in foreign currencies. Hedged items that have a carried at market value, with changes in market value charged or risk of losses due to fl uctuations in market prices, and of which credited to income for the period in which they arise. fl uctuations in market prices are not refl ected in the valuations or of which fl uctuations are avoided by fi xing cash fl ow. (r) Net Income per Share The JX Group utilizes hedging instruments within the amount Net income per share is determined based on the weighted- of assets and liabilities exposed to market risks. The objective of average number of shares of common stock outstanding during the hedging policy is to manage exposures to fl uctuations in the relevant fi scal year.
Note 2 U.S. DOLLAR AMOUNTS
The translation of yen amounts into U.S. dollar amounts is included solely for convenience and has been made, as a matter of arithmetic computation only, at ¥94.05 = U.S.$1.00, the approximate rate of exchange in eff ect on March 31, 2013. The translation should not be con- strued as a representation that yen have been, could have been, or could in the future be, converted into U.S. dollars at that or any other rate.
Note 3 ACCOUNTING STANDARDS THAT HAVE NOT BEEN APPLIED
“Accounting Standard for Retirement Benefi ts” (The Accounting (b) Date of application Standards Board of Japan (ASBJ) Statement No. 26, May 17, 2012), The above accounting standards will be applied, eff ective from and the “Guidance on Accounting Standard for Retirement the consolidated fi nancial statements at the end of the fi scal year Benefi ts” (ASBJ Guidance No. 25, May 17, 2012). ending March 2014. The amendment to the method of attributing expected (a) Outline retirement benefi t to periods will be applied, eff ective from the Actuarial gains and losses and prior service cost that have yet to beginning of the fi scal year ending March 2015. As there are be recognized in profi t or loss shall be recognized within net transitional measures for the above accounting standards, the assets (accumulated other comprehensive income), after adjust- amendment will not be applied retroactively to the fi nancial ing for tax eff ects, and the defi cit or surplus shall be recognized statements for the previous terms. as a liability (liability for retirement benefi ts) or asset (asset for retirement benefi ts). As regards the method of attributing (c) Impact of the application of these accounting standards expected retirement benefi t to periods, the benefi t formula basis We are currently evaluating the impact on fi nancial statements may now be applied in addition to the straight-line basis, and the that may occur in preparing consolidated fi nancial statements. discount rate calculation method has also been amended.
82 JX Holdings, Inc. Annual Report 2013 Note 4 INVENTORIES
Inventories as of March 31, 2013 and 2012 consisted of the following: Thousands of Millions of yen U.S. dollars 2013 2012 2013 Merchandise and fi nished goods ¥ 739,354 ¥ 617,315 $ 7,861,287 Work in process 131,236 113,156 1,395,385 Raw materials and supplies 948,722 963,924 10,087,422 Total ¥1,819,312 ¥1,694,395 $19,344,094
Note 5 INVESTMENTS IN SECURITIES
(a) Held-to-maturity securities as of March 31, 2013 and 2012 are as follows: Millions of yen As of March 31, 2013 Carrying value Market value Net unrealized gain Securities with market value exceeding their carrying value: Government and municipal bonds ¥— ¥— ¥— Total ¥— ¥— ¥—
Millions of yen As of March 31, 2012 Carrying value Market value Net unrealized gain Securities with market value exceeding their carrying value: Government and municipal bonds ¥64 ¥65 ¥1 Total ¥64 ¥65 ¥1
Thousands of U.S. dollars As of March 31, 2013 Carrying value Market value Net unrealized gain Securities with market value exceeding their carrying value: Government and municipal bonds $— $— $— Total $— $— $—
(b) Other securities as of March 31, 2013 and 2012 are as follows: Millions of yen Net unrealized gain As of March 31, 2013 Carrying value Acquisition cost (loss) Securities with carrying value exceeding their acquisition cost: Stock ¥143,434 ¥ 73,503 ¥69,931 Bonds: Government and municipal bonds 30 30 0 FINANCIAL INFORMATION Others 34 19 15 Subtotal 143,498 73,552 69,946 Securities with carrying value not exceeding their acquisition cost: Stock 76,439 84,493 (8,054) Bonds: Government and municipal bonds 30 30 0 Corporate bonds 5,768 5,768 0 Others ——— Subtotal 82,236 90,291 (8,054) Total ¥225,735 ¥163,843 ¥61,892
JX Holdings, Inc. Annual Report 2013 83 Notes to Consolidated Financial Statements
Millions of yen Net unrealized gain As of March 31, 2012 Carrying value Acquisition cost (loss) Securities with carrying value exceeding their acquisition cost: Stock ¥166,724 ¥114,838 ¥51,887 Bonds: Government and municipal bonds 61 60 1 Subtotal 166,785 114,898 51,887 Securities with carrying value not exceeding their acquisition cost: Stock 35,505 43,725 (8,220) Bonds: Corporate bonds 5,684 5,684 0 Others 501 519 (18) Subtotal 41,690 49,928 (8,238) Total ¥208,475 ¥164,825 ¥43,649
Thousands of U.S. dollars Net unrealized gain As of March 31, 2013 Carrying value Acquisition cost (loss) Securities with carrying value exceeding their acquisition cost: Stock $1,525,083 $ 781,531 $743,551 Bonds: Government and municipal bonds 323 319 0 Others 361 202 159 Subtotal 1,525,768 782,052 743,711 Securities with carrying value not exceeding their acquisition cost: Stock 812,744 898,384 (85,635) Bonds: Government and municipal bonds 319 319 0 Corporate bonds 61,326 61,329 0 Others ——— Subtotal 874,390 960,032 (85,635) Total $2,400,157 $1,742,084 $658,075
Note: Unlisted equity securities of ¥37,807 million ($401,988 thousand) and ¥35,056 million as of March 31, 2013 and 2012, respectively, are excluded from the above table.
(c) Sales of securities classifi ed as other securities for the years ended March 31, 2013 and 2012 are as follows:
Millions of yen Year ended March 31, 2013 Proceeds from sales Gain on sales Loss on sales Type of securities: Stock ¥1,747 ¥272 ¥141 Total ¥1,747 ¥272 ¥141
Millions of yen Year ended March 31, 2012 Proceeds from sales Gain on sales Loss on sales Type of securities: Stock ¥20,902 ¥3,371 ¥258 Total ¥20,902 ¥3,371 ¥258
84 JX Holdings, Inc. Annual Report 2013 Thousands of U.S. dollars Year ended March 31, 2013 Proceeds from sales Gain on sales Loss on sales Type of securities: Stock $18,575 $2,892 $1,499 Total $18,575 $2,892 $1,499
(d) Loss on valuation of investments in securities Loss on valuation of investments in securities amounted to ¥2,204 million ($23,434 thousand) and ¥783 million for the years ended March 31, 2013 and 2012, respectively.
Note 6 IMPAIRMENT LOSS
Recognition of impairment losses on fi xed assets for the years ended March 31, 2013 and 2012 resulted primarily from the deterioration of the business environment. The impairment losses for the years ended March 31, 2013 and 2012 are as follows: Thousands of Millions of yen U.S. dollars 2013 2012 2013 Service stations Land ¥ 339 ¥ 549 $ 3,604 Buildings 6 39 64 Machinery and equipment 1 — 11 Others 7 21 74 353 609 3,753
Plants Land 517 722 5,497 Buildings 885 2,015 9,410 Machinery and equipment 2,997 1,766 31,866 Others 478 1,915 5,082 4,877 6,418 51,855
Other business Land — 1,815 — Buildings — 591 — — 2,406 —
Idle properties and others Land 2,433 3,182 25,869 Buildings 737 447 7,836 Machinery and equipment 80 81 851 Others 10 28 106 3,260 3,738 34,662 FINANCIAL INFORMATION
Other Goodwill 17,320 19,446 184,157 Total ¥25,810 ¥32,617 $274,428
For the year ended March 31, 2013: The recoverable amounts of service stations and plants are estimated by discounting future cash fl ows at a rate of 4.5%. The recoverable amounts of idle properties and others approximate their estimated fair value. The estimated fair value of land is determined through the use of real estate appraisal standards.
For the year ended March 31, 2012: The recoverable amounts of service stations and other businesses are estimated by discounting future cash fl ows at a rate of 4.5%. The recoverable amounts of plants, idle properties and others approximate their estimated fair value. The estimated fair value of land is determined through the use of real estate appraisal standards.
JX Holdings, Inc. Annual Report 2013 85 Notes to Consolidated Financial Statements
Note 7 LEASES Lessee (a) Finance leases (Accounted for as operating leases) Finance leases that were entered into prior to April 1, 2008 and do not transfer ownership:
(1) Estimated acquisition cost (inclusive of related interest expenses), estimated accumulated depreciation and estimated book value of leased assets as of March 31, 2013 and 2012 are as follows: Millions of yen Accumulated As of March 31, 2013 Acquisition cost depreciation Net book value Buildings, structures and oil tanks ¥14,106 ¥11,484 ¥2,622 Machinery and vehicles 5,176 2,816 2,360 Other 134 122 12 Total ¥19,416 ¥14,422 ¥4,994
Millions of yen Accumulated As of March 31, 2012 Acquisition cost depreciation Net book value Buildings, structures and oil tanks ¥16,438 ¥13,054 ¥3,384 Machinery and vehicles 6,007 3,313 2,694 Other 1,240 1,084 156 Total ¥23,685 ¥17,451 ¥6,234
Thousands of U.S. dollars Accumulated As of March 31, 2013 Acquisition cost depreciation Net book value Buildings, structures and oil tanks $149,984 $122,105 $27,879 Machinery and vehicles 55,035 29,942 25,093 Other 1,425 1,297 128 Total $206,443 $153,344 $53,099
(2) Future minimum lease payments (inclusive of related interest expenses) as of March 31, 2013 are as follows:
Thousands of Years ending March 31, Millions of yen U.S. dollars 2014 ¥1,150 $12,228 2015 and thereafter 4,247 45,157 Total ¥5,397 $57,384
(3) Lease payments, estimated depreciation and estimated interest expense for the years ended March 31, 2013 and 2012 are as follows: Thousands of Millions of yen U.S. dollars 2013 2012 2013 Lease payments ¥1,542 ¥2,196 $16,396 Estimated depreciation 1,431 2,030 15,215 Estimated interest expense 109 133 1,159
(4) Method of calculating estimated depreciation Depreciation is calculated using the straight-line method over the lease term of the leased assets assuming no residual value.
86 JX Holdings, Inc. Annual Report 2013 (5) Method of calculating estimated interest expense Interest expense is computed and allocated to each period using the interest method assuming interest expense to be the excess of total lease payments over the acquisition cost.
(b) Operating leases Future minimum lease payments for non-cancelable operating leases as of March 31, 2013 are as follows: Thousands of Years ending March 31, Millions of yen U.S. dollars 2014 ¥ 6,754 $ 71,813 2015 and thereafter 35,991 382,679 Total ¥42,745 $454,492
Lessor (a) Finance leases (Accounted for as operating leases) Finance leases that were entered into prior to April 1, 2008 and do not transfer ownership:
(1) Acquisition cost, accumulated depreciation, and net book value of the leased assets as of March 31, 2013 and 2012 are as follows:
Millions of yen Accumulated As of March 31, 2013 Acquisition cost depreciation Net book value Buildings, structures and oil tanks ¥1,242 ¥830 ¥412 Total ¥1,242 ¥830 ¥412
Millions of yen Accumulated As of March 31, 2012 Acquisition cost depreciation Net book value Buildings, structures and oil tanks ¥1,242 ¥770 ¥472 Total ¥1,242 ¥770 ¥472
Thousands of U.S. dollars Accumulated As of March 31, 2013 Acquisition cost depreciation Net book value Buildings, structures and oil tanks $13,206 $8,825 $4,381 Total $13,206 $8,825 $4,381
(2) Future minimum lease revenues (inclusive of related interest income) as of March 31, 2013 are as follows: Thousands of Years ending March 31, Millions of yen U.S. dollars 2014 ¥120 $1,276 FINANCIAL INFORMATION 2015 and thereafter 365 3,881 Total ¥485 $5,157
The above table includes future minimum lease revenues under non-cancelable sub-leases as of March 31, 2013 as follows:
Thousands of Years ending March 31, Millions of yen U.S. dollars 2014 ¥60 $638 2015 and thereafter 20 213 Total ¥80 $851
Leased assets are sub-leased under the same terms. Therefore, approximately the same amount of the future minimum lease revenues under the sub-lease transactions is included in the lessee’s future lease payments.
JX Holdings, Inc. Annual Report 2013 87 Notes to Consolidated Financial Statements
(3) Lease income, depreciation and interest income for the years ended March 31, 2013 and 2012 are as follows: Thousands of Millions of yen U.S. dollars 2013 2012 2013 Lease income ¥141 ¥276 $1,499 Depreciation 136 266 1,446 Interest income 5 10 53
(b) Operating leases Future minimum lease revenues for non-cancelable operating leases as of March 31, 2013 are as follows: Thousands of Years ending March 31, Millions of yen U.S. dollars 2014 ¥ 477 $ 5,072 2015 and thereafter 6,113 64,997 Total ¥6,590 $70,069
Note 8 SHORT-TERM BORROWINGS AND LONG-TERM DEBT
(a) Short-term borrowings as of March 31, 2013 and 2012 are as follows: Thousands of Millions of yen U.S. dollars 2013 2012 2013 Loans principally from banks ¥ 701,046 ¥546,219 $ 7,453,971 Commercial papers maturing within one year 449,000 404,000 4,774,056 Total ¥1,150,046 ¥950,219 $12,228,028
The annual weighted-average interest rates applicable to short-term borrowings as of March 31, 2013 and 2012 are 0.43% and 0.52%, respectively.
(b) Long-term debt as of March 31, 2013 and 2012 are as follows: Thousands of Millions of yen U.S. dollars 2013 2012 2013 U nsecured bonds in yen, due through 2022, at interest rates ranging from 0.71% to 2.38% ¥ 233,548 ¥ 246,620 $ 2,483,232 U nsecured Eurobonds in yen, due through 2013, at interest rates ranging from 1.16% to 1.62% 5,027 5,019 53,450 L oans from banks, life insurance companies and government agencies, due through 2027, at the weighted-average interest rates of 1.41%: Secured 120,872 54,132 1,285,189 Unsecured 1,039,762 1,026,609 11,055,417 Lease obligations 30,687 18,398 326,284 Subtotal 1,429,896 1,350,778 15,203,573 Less current portion (191,849) (218,898) (2,039,862) Total ¥1,238,047 ¥1,131,880 $13,163,711
88 JX Holdings, Inc. Annual Report 2013 Annual maturities of long-term debt as of March 31, 2013 are as follows: Thousands of Years ending March 31, Millions of yen U.S. dollars 2014 ¥ 191,849 $ 2,039,862 2015 206,962 2,200,553 2016 189,943 2,019,596 2017 138,277 1,470,250 2018 148,774 1,581,861 2019 and thereafter 554,091 5,891,451 Total ¥1,429,896 $15,203,573
Note 9 ASSETS PLEDGED AS COLLATERAL AND SECURED LIABILITIES
Assets pledged as of March 31, 2013 and 2012 as collateral for long-term loans or other debts are as follows:
Thousands of Millions of yen U.S. dollars 2013 2012 2013 Land ¥332,307 ¥334,558 $3,533,301 Other property, plant and equipment (at net book value) 554,859 374,831 5,899,617 Investments in securities 1,339 4,450 14,237 Other 45,046 36,147 478,958 Total ¥933,551 ¥749,986 $9,926,114
In addition, stock of consolidated subsidiaries used as collateral amounted to ¥91,919 million ($977,342 thousand) and ¥66,357 million as of March 31, 2013 and 2012, respectively, which have been eliminated in the consolidated fi nancial statements.
Secured liabilities as of March 31, 2013 and 2012 are as follows: Thousands of Millions of yen U.S. dollars 2013 2012 2013 Short-term borrowings ¥ 696 ¥ 927 $ 7,400 Excise taxes payable 150,161 147,460 1,596,608 Long-term loans (inclusive of current portion) 120,872 54,132 1,285,189 Other 1,800 2,100 19,139 Total ¥273,529 ¥204,619 $2,908,336
In addition, there are secured liabilities corresponding to assets pledged as collateral, such as performance guarantees and loans of JX Group companies as of March 31, 2013 and 2012 as follows: Thousands of Millions of yen U.S. dollars 2013 2012 2013 FINANCIAL INFORMATION Performance guarantees ¥ 893 ¥ 822 $ 9,495 Loans of JX Group companies 18,048 19,747 191,898
JX Holdings, Inc. Annual Report 2013 89 Notes to Consolidated Financial Statements
Note 10 FINANCIAL INSTRUMENTS
(a) Status of fi nancial instruments Short-term borrowings and commercial papers are raised (1) Management policy for fi nancial instruments mainly for operating transactions, and long-term loans are raised The Company raises funds that are required in light of invest- mainly for expenditure in property, plant and equipment, invest- ment plans mainly through bank loans and issuing bonds. ment and long-term receivables. Loans with variable interest rates Temporary surplus funds are managed by only highly safe fi nan- are exposed to interest rate fl uctuation risk, and interest rate swaps cial instruments. Short-term operating funds are raised through are used for certain long-term loans in order to hedge this risk. bank loans or issuing commercial papers. Derivative transactions Regarding derivative transactions, in addition to foreign are used to hedge risks as described below, and speculative exchange forward contracts and interest rate swaps noted transactions are not undertaken. above, commodity forwards and commodity swaps are used in order to hedge market price fl uctuation risk of crude oil and the (2) Types of fi nancial instruments and related risks mines that produce copper concentrate as main raw materials. Trade receivables such as notes and accounts receivable – trade The Company complies with the management policy which are exposed to credit risk of customers. In order to minimize such clarifi es the authorization to execute derivative transactions. risk, the Company properly analyzes major customers’ credit sta- Further, the Company only makes transactions with counterpar- tus and manages customers’ accounts for early detection and ties with high credit ratings to minimize credit risks for using reduction of default risks. derivatives. Trade receivables denominated in foreign currencies and derived Please see Note 1 (q) for information on derivative instru- from export sales of products, etc., are exposed to exchange rate ments, hedged items, hedging policy and the method for the fl uctuation risk, however the balance is constantly within the out- assessment of the eff ectiveness of hedging. standing balance of notes and accounts payable – trade denomi- The Company manages liquidity risk through controlling cash nated in the same foreign currencies. management based on a monthly fi nancing plan prepared by Investment securities are exposed to market price fl uctuation each JX Group company. risk. The Company mainly holds the shares of business partners, regularly analyzes market prices of those shares and the fi nancial (3) Supplementary explanation of items related to fair value position of business partners, and ownership status is reviewed of fi nancial instruments continuously, considering relationships with business partners. Fair value of fi nancial instruments is measured based on the Trade payables such as notes and accounts payable – trade quoted market prices, if available, or reasonably estimated value if are due mostly within one year. Some of those payables denomi- quoted market prices are not available. Since various assumptions nated in foreign currencies and derived from import purchases and factors are used in estimating fair value, diff erent assumptions of raw materials are exposed to exchange rate fl uctuation risk, and factors could result in diff erent fair values. In addition, the however the net position after netting trade receivables denomi- notional amount of the derivative transactions in Note 11 does not nated in foreign currencies is generally hedged by foreign represent the market risk of such derivative transactions. exchange forward contracts.
90 JX Holdings, Inc. Annual Report 2013 (b) Fair value of fi nancial instruments The following tables represent the carrying value, fair value and unrealized gain (loss) as of March 31, 2013 and 2012. Financial instru- ments for which it is extremely diffi cult to determine the fair value have been excluded from the tables below (please see (Note)-2).
Millions of yen As of March 31, 2013 Carrying value Fair value Unrealized gain (loss) Assets: (1) Notes and accounts receivable – trade ¥1,339,210 ¥1,339,210 ¥ — (2) Investments in securities 225,704 225,704 — Total assets ¥1,564,914 ¥1,564,914 ¥ — Liabilities: (1) Notes and accounts payable – trade ¥ 892,965 ¥ 892,965 ¥ — (2) Short-term borrowings*1 701,046 701,046 — (3) Commercial papers 449,000 449,000 — (4) Notes and accounts payable – other 408,740 408,740 — (5) Excise taxes payable 354,992 354,992 — (6) Long-term loans*1 1,160,634 1,178,318 17,684 Total liabilities ¥3,967,377 ¥3,985,061 ¥ 17,684 Derivatives*2 ¥ 8,124 ¥ (10,204) ¥(18,328)
Millions of yen As of March 31, 2012 Carrying value Fair value Unrealized gain (loss) Assets: (1) Notes and accounts receivable – trade ¥1,308,111 ¥1,308,111 ¥ — (2) Investments in securities 208,475 208,475 — Total assets ¥1,516,586 ¥1,516,586 ¥ — Liabilities: (1) Notes and accounts payable – trade ¥ 917,955 ¥ 917,955 ¥ — (2) Short-term borrowings*1 546,219 546,219 — (3) Commercial papers 404,000 404,000 — (4) Notes and accounts payable – other 369,049 369,049 — (5) Excise taxes payable 338,547 338,547 — (6) Long-term loans*1 1,080,741 1,096,197 15,456 Total liabilities ¥3,656,511 ¥3,671,967 ¥ 15,456 Derivatives*2 ¥ 7,065 ¥ (8,690) ¥(15,755)
Thousands of U.S. dollars As of March 31, 2013 Carrying value Fair value Unrealized gain (loss) Assets: (1) Notes and accounts receivable – trade $14,239,341 $14,239,341 $ — (2) Investments in securities 2,399,830 2,399,830 — FINANCIAL INFORMATION Total assets $16,639,171 $16,639,171 $ — Liabilities: (1) Notes and accounts payable – trade $ 9,494,577 $ 9,494,577 $ — (2) Short-term borrowings*1 7,453,971 7,453,971 — (3) Commercial papers 4,774,056 4,774,056 — (4) Notes and accounts payable – other 4,345,986 4,345,986 — (5) Excise taxes payable 3,774,503 3,774,503 — (6) Long-term loans*1 12,340,606 12,528,634 188,028 Total liabilities $42,183,700 $42,371,728 $ 188,028 Derivatives*2 $ 86,380 $ (108,495) $ (194,875)
*1 The current portion of long-term loans is included in (6) Long-term loans. *2 The value of assets and liabilities from derivative instruments is shown at a net amount, with the amount in parentheses representing a net liability position.
JX Holdings, Inc. Annual Report 2013 91 Notes to Consolidated Financial Statements
(Notes) 1. Method to determine the fair value of fi nancial instruments and matters related to securities and derivative transactions Assets (1) Notes and accounts receivable – trade The carrying value approximates fair value because of their short-term nature. (2) Investments in securities The fair value of equity securities is based on their quoted market price. The fair value of bonds is based on their quoted market price, or the price provided by fi nancial institutions. Please see Note 5 for information on securities classifi ed by holding purpose. Liabilities (1) Notes and accounts payable – trade, (2) Short-term borrowings, (3) Commercial papers, (4) Notes and accounts payable – other, and (5) Excise taxes payable The carrying value approximates fair value because of their short-term nature. (6) Long-term loans The fair value of long-term loans is based on the present value of the principal amount and interest discounted using the interest rates for instruments with similar terms and maturities. Derivatives Please see Note 11.
2. Unlisted equity securities and bonds, including investments in unlisted unconsolidated subsidiaries and affi liates, in the amount of ¥414,464 million ($4,406,847 thousand) and ¥338,699 million as of March 31, 2013 and 2012, respectively, are not included in investments in securities in the above tables because it is not practicable to estimate their fair value due to the lack of public market price and diffi culty in estimating future cash fl ow.
3. The redemption schedule as of March 31, 2013 and 2012 for monetary receivables and investments in securities with maturities
Millions of yen Due in one year Due after one year Due after fi ve years As of March 31, 2013 or less through fi ve years through ten years Due after ten years Notes and accounts receivable – trade ¥1,336,611 ¥2,599 ¥— ¥— Investments in securities: Held-to-maturity debt securities: (1) Government and municipal bonds ———— Other securities with maturities: (1) Government and municipal bonds 60——— (2) Other bonds 6,000 39 — — Total ¥1,342,671 ¥2,638 ¥— ¥—
Millions of yen Due in one year Due after one year Due after fi ve years As of March 31, 2012 or less through fi ve years through ten years Due after ten years Notes and accounts receivable – trade ¥1,305,627 ¥2,484 ¥— ¥— Investments in securities: Held-to-maturity debt securities: (1) Government and municipal bonds 65 — — — Other securities with maturities: (1) Government and municipal bonds — 60 — — (2) Other bonds — 6,023 — — Total ¥1,305,692 ¥8,567 ¥— ¥—
Thousands of U.S. dollars Due in one year Due after one year Due after fi ve years As of March 31, 2013 or less through fi ve years through ten years Due after ten years Notes and accounts receivable – trade $14,211,707 $27,634 $— $— Investments in securities: Held-to-maturity debt securities: (1) Government and municipal bonds ———— Other securities with maturities: (1) Government and municipal bonds 638——— (2) Other bonds 63,796 415 — — Total $14,276,140 $28,049 $— $—
4. Refer to Note 8 for the redemption schedule as of March 31, 2013 for long-term loans.
92 JX Holdings, Inc. Annual Report 2013 Note 11 DERIVATIVE INSTRUMENTS
The JX Group primarily utilizes various derivative instruments in order to hedge the exposure of assets and liabilities due to risks of fl uc- tuations in commodity prices, foreign currency exchange rates and interest rates. Hedge accounting is applied to qualifying derivative instruments. The JX Group does not utilize derivative instruments for speculative purposes.
Principal derivative instruments and hedged items are as follows:
Derivative instruments Hedged items • Foreign exchange forward contracts • Imports of raw materials and exports of products • Interest rate swap contracts • Long-term loans • Commodity forwards and commodity swaps • Purchases of raw materials and sales of products
(a) Hedge accounting not applied The notional amount, fair value and unrealized gain (loss) on derivatives to which hedge accounting is not applied as of March 31, 2013 and 2012 are as follows: Millions of yen Notional amount due As of March 31, 2013 Notional amount after one year Fair value Unrealized gain (loss) Foreign exchange forward contracts: To sell (U.S. dollars) ¥ 23,471 ¥— ¥ (881) ¥ (881) To sell (Korean won) 3,941 — (998) (998) To buy (U.S. dollars) 126,820 3 (336) (336) To buy (Australian dollars) 111—2828 To buy (Japanese yen) 9—00 Currency swap: Receipt by U.S. dollars, payment by yen 740 — (246) (246) Total ¥155,092 ¥ 3 ¥(2,433) ¥(2,433)
Commodity-related transactions (forward transactions): To sell 1,032 — 8 8 To buy 1,527 — 12 12 Total ¥ 2,559 ¥— ¥ 20 ¥ 20 FINANCIAL INFORMATION
JX Holdings, Inc. Annual Report 2013 93 Notes to Consolidated Financial Statements
Millions of yen Notional amount due As of March 31, 2012 Notional amount after one year Fair value Unrealized gain (loss) Foreign exchange forward contracts: To sell (U.S. dollars) ¥ 54,724 ¥ — ¥ (533) ¥ (533) To buy (U.S. dollars) 170,675 18 (924) (924) To buy (Euro) 1,116 — (1) (1) Currency swap: Receipt by U.S. dollars, payment by yen 665 665 (330) (330) Total ¥227,180 ¥683 ¥(1,788) ¥(1,788)
Commodity-related transactions (forward transactions): To sell 1,286 — 2 2 To buy 1,046 — 20 20 Total ¥ 2,332 ¥ — ¥ 22 ¥ 22
Thousands of U.S. dollars Notional amount due As of March 31, 2013 Notional amount after one year Fair value Unrealized gain (loss) Foreign exchange forward contracts: To sell (U.S. dollars) $ 249,559 $— $ (9,367) $ (9,367) To sell (Korean won) 41,903 — (10,611) (10,611) To buy (U.S. dollars) 1,348,432 32 (3,573) (3,573) To buy (Australian dollars) 1,180 — 298 298 To buy (Japanese yen) 96—00 Currency swap: Receipt by U.S. dollars, payment by yen 7,868 — (2,616) (2,616) Total $1,649,038 $32 $(25,869) $(25,869)
Commodity-related transactions (forward transactions): To sell 10,973 — 85 85 To buy 16,236 — 128 128 Total $ 27,209 $— $ 213 $ 213
94 JX Holdings, Inc. Annual Report 2013 (b) Hedge accounting The notional amounts and fair values of derivative instruments to which hedge accounting is applied as of March 31, 2013 and 2012 are as follows: Millions of yen Notional Notional amount due after As of March 31, 2013 Main hedged items amount one year Fair value Foreign exchange forward contracts: To sell (U.S. dollars) (deferral hedge accounting) Accounts receivable ¥ 99,621 ¥ — ¥ (2,482) To buy (U.S. dollars) (deferral hedge accounting) Accounts payable 33,176 8,417 2,275 To buy (Euro) (deferral hedge accounting) Accounts payable 676 — 77 To buy (Chilean peso) (deferral hedge accounting) Accounts payable 26,537 — 1,049 To sell (U.S. dollars) (designation method) Accounts receivable 81,171 — (2,542) To sell (Euro) (designation method) Accounts receivable 519 — 2 To buy (U.S. dollars) (designation method) Accounts payable 362,452 — (969) Total ¥604,152 ¥ 8,417 ¥ (2,590)
Interest swaps: R eceiving fl oating rate (d eferral hedge accounting) Long-term loans and paying fi xed rate ¥ 4,000 ¥ — ¥ (128) R eceiving fi xed rate (d eferral hedge accounting) Long-term loans and paying fl oating rate 375 62 5 R eceiving fl oating rate (exception method) Long-term loans and paying fi xed rate 453,797 382,202 (14,893) R eceiving fi xed rate (exception method) Long-term loans and paying fl oating rate 2,892 2,146 74 Total ¥461,064 ¥384,410 ¥(14,942)
Commodity-related transactions (swaps): R eceiving fl oating rate (deferral hedge accounting) R aw materials, and paying fi xed rate merchandise and fi nished goods ¥ 19,509 ¥ 4,845 ¥ 8,841 R eceiving fi xed rate (deferral hedge accounting) R aw materials, and paying fl oating rate merchandise and fi nished goods 12,294 — 44 Commodity-related transactions (forward transactions): To sell (deferral hedge accounting) R aw materials and fi nished goods 99,327 — (490) To buy (deferral hedge accounting) R aw materials and
fi nished goods 30,941 — 1,346 FINANCIAL INFORMATION Total ¥162,071 ¥ 4,845 ¥ 9,741
JX Holdings, Inc. Annual Report 2013 95 Notes to Consolidated Financial Statements
Millions of yen Notional Notional amount due after As of March 31, 2012 Main hedged items amount one year Fair value Foreign exchange forward contracts: To sell (U.S. dollars) (deferral hedge accounting) Accounts receivable ¥ 60,411 ¥ — ¥ (1,924) To sell (Euro) (deferral hedge accounting) Accounts receivable 3 — 0 To buy (U.S. dollars) (deferral hedge accounting) Accounts payable 23,695 16,045 (237) To sell (U.S. dollars) (designation method) Accounts receivable 99,033 — (2,430) To sell (Euro) (designation method) Accounts receivable 522 — (5) To buy (U.S. dollars) (designation method) Accounts payable 393,470 — 146 Total ¥577,134 ¥ 16,045 ¥ (4,450)
Interest swaps: R eceiving fl oating rate (d eferral hedge accounting) Long-term loans and paying fi xed rate ¥ 4,000 ¥ 4,000 ¥ (245) R eceiving fi xed rate (d eferral hedge accounting) Long-term loans and paying fl oating rate 687 375 14 R eceiving fl oating rate (exception method) Long-term loans and paying fi xed rate 425,454 377,554 (13,565) R eceiving fi xed rate (exception method) Long-term loans and paying fl oating rate 3,640 2,892 99 Total ¥433,781 ¥384,821 ¥(13,697)
Commodity-related transactions (swaps): R eceiving fl oating rate (deferral hedge accounting) R aw materials, and paying fi xed rate merchandise and fi nished goods ¥ 18,983 ¥ 7,048 ¥ 11,683 R eceiving fi xed rate (deferral hedge accounting) R aw materials, and paying fl oating rate merchandise and fi nished goods 4,469 — 113 Commodity-related transactions (forward transactions): To sell (deferral hedge accounting) R aw materials and fi nished goods 129,532 — (2,653) To buy (deferral hedge accounting) R aw materials and fi nished goods 32,629 — 2,080 Total ¥185,613 ¥ 7,048 ¥ 11,223
96 JX Holdings, Inc. Annual Report 2013 Thousands of U.S. dollars Notional Notional amount due after As of March 31, 2013 Main hedged items amount one year Fair value Foreign exchange forward contracts: To sell (U.S. dollars) (deferral hedge accounting) Accounts receivable $1,059,234 $ — $ (26,390) To buy (U.S. dollars) (deferral hedge accounting) Accounts payable 352,749 89,495 24,189 To buy (Euro) (deferral hedge accounting) Accounts payable 7,188 — 819 To buy (Chilean peso) (deferral hedge accounting) Accounts payable 282,158 — 11,154 To sell (U.S. dollars) (designation method) Accounts receivable 863,062 — (27,028) To sell (Euro) (designation method) Accounts receivable 5,518 — 21 To buy (U.S. dollars) (designation method) Accounts payable 3,853,822 — (10,303) Total $6,423,732 $ 89,495 $ (27,539)
Interest swaps: R eceiving fl oating rate (d eferral hedge accounting) Long-term loans and paying fi xed rate $ 42,531 $ — $ (1,361) R eceiving fi xed rate (d eferral hedge accounting) Long-term loans and paying fl oating rate 3,987 659 53 R eceiving fl oating rate (exception method) Long-term loans and paying fi xed rate 4,825,061 4,063,817 (158,352) R eceiving fi xed rate (exception method) Long-term loans and paying fl oating rate 30,750 22,818 787 Total $4,902,329 $4,087,294 $(158,873)
Commodity-related transactions (swaps): R eceiving fl oating rate (deferral hedge accounting) R aw materials, and paying fi xed rate merchandise and fi nished goods $ 207,432 $ 51,515 $ 94,003 R eceiving fi xed rate (deferral hedge accounting) R aw materials, and paying fl oating rate merchandise and fi nished goods 130,718 — 468 Commodity-related transactions (forward transactions): To sell (deferral hedge accounting) R aw materials and fi nished goods 1,056,108 — (5,210) To buy (deferral hedge accounting) R aw materials and fi nished goods 328,985 — 14,312 Total $1,723,243 $ 51,515 $ 103,573 FINANCIAL INFORMATION
JX Holdings, Inc. Annual Report 2013 97 Notes to Consolidated Financial Statements
Note 12 RETIREMENT BENEFITS
The Company’s domestic consolidated subsidiaries have defi ned benefi t plans and severance indemnity plans. Certain domestic con- solidated subsidiaries also have defi ned contribution pension plans. A premium on employees’ retirement benefi ts may be additionally provided upon retirement of an employee. Certain of the Company’s foreign consolidated subsidiaries have defi ned benefi t plansand defi ned contribution pension plans. Retirement benefi ts obligations as of March 31, 2013 and 2012 are as follows: Thousands of Millions of yen U.S. dollars 2013 2012 2013 Projected benefi t obligation ¥(304,164) ¥(312,799) $(3,234,067) Plan assets at fair value 205,075 200,573 2,180,489 Unfunded retirement benefi t obligation (99,089) (112,226) (1,053,578) Unrecognized actuarial gain 6,568 23,467 69,835 Unrecognized prior service cost (1,339) (1,958) (14,237) Prepaid pension cost — (287) — Provision for retirement benefi ts ¥ (93,860) ¥ (91,004) $ (997,980)
The components of net retirement benefi t expenses for the years ended March 31, 2013 and 2012 are as follows: Thousands of Millions of yen U.S. dollars 2013 2012 2013 Service cost ¥ 9,033 ¥ 9,666 $ 96,045 Interest cost 5,829 6,167 61,978 Expected return on plan assets (3,820) (4,064) (40,617) Amortization of unrecognized net transition liabilities — 3 — Amortization of unrecognized actuarial gain 9,306 6,924 98,947 Amortization of unrecognized prior service cost (583) (508) (6,199) Payment of contributions to defi ned contribution pension plan 2,138 1,775 22,733 Net retirement benefi t expenses* ¥21,903 ¥19,963 $232,887
* In addition to the above “net retirement benefi t expenses,” extra retirement payments of ¥428 million ($4,551 thousand) and ¥702 million are charged to income for the years ended March 31, 2013 and 2012, respectively.
The assumptions used in the calculation of the above information are as follows:
2013 2012 Discount rate Mainly 2.0% Mainly 2.0% Expected rate of return on plan assets Mainly 2.0% Mainly 2.0% Amortization period of net actuarial gain: Mainly 5 years (from next fi scal year) Amortization period of prior service cost: Mainly 5 years
98 JX Holdings, Inc. Annual Report 2013 Note 13 ASSET RETIREMENT OBLIGATIONS
Asset retirement obligations recognized on the balance sheet
(a) Overview of asset retirement obligations Asset retirement obligations include the Company’s obligation to restore real estate under lease agreements entered into in connection with land used for service stations. Such obligations also include decommissioning obligations upon the termination of production at development facilities of Oil and Natural Gas E&P business and Metals business.
(b) Method of calculating asset retirement obligations Estimated period up to payment assumed as 15 years for the land for service stations and years available to mine or produce oil for development facilities. Discount rates in calculating asset retirement obligations are from 0.5% to 6.5%.
(c) The changes in the balance of asset retirement obligations for the years ended March 31, 2013 and 2012 are as follows: Thousands of Millions of yen U.S. dollars 2013 2012 2013 Balance at beginning of year ¥53,625 ¥54,558 $570,175 Increase due to inclusion of new consolidated subsidiaries 911 1,559 9,686 Increase due to purchase of property, plant and equipment 8,115 3,022 86,284 Accretion adjustment 1,610 1,788 17,119 Decrease due to settlement (6,576) (7,867) (69,920) Other changes 5,548 565 58,990 Balance at end of year ¥63,233 ¥53,625 $672,334
Note 14 CONTINGENT LIABILITIES
The Company and its consolidated subsidiaries have the following contingent liabilities as of March 31, 2013 and 2012: Thousands of Millions of yen U.S. dollars 2013 2012 2013 Debt guarantees: Unconsolidated subsidiaries and affi liates ¥61,013 ¥54,874 $648,729 Other companies and employees 26,257 26,188 279,181 ¥87,270 ¥81,062 $927,911
Note 15 RESEARCH AND DEVELOPMENT EXPENSES FINANCIAL INFORMATION Research and development expenses included in manufacturing cost and selling, general and administrative expenses for the years ended March 31, 2013 and 2012 are ¥23,155 million ($246,199 thousand) and ¥26,108 million, respectively.
JX Holdings, Inc. Annual Report 2013 99 Notes to Consolidated Financial Statements
Note 16 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The components of selling, general and administrative expenses for the years ended March 31, 2013 and 2012 are as follows:
Thousands of Millions of yen U.S. dollars 2013 2012 2013 Freight ¥157,545 ¥153,980 $1,675,120 Personnel expenses 111,036 114,029 1,180,606 Retirement benefi ts expenses 11,103 9,539 118,054 Rental expenses 38,717 39,138 411,664 Depreciation and amortization 29,598 31,311 314,705 Other 188,628 168,461 2,005,614 Total ¥536,627 ¥516,458 $5,705,763
Note 17 LOSS ON DISASTER (GAIN ON REVERSAL OF LOSS ON DISASTER)
Loss on disaster (Gain on Reversal of Loss on Disaster) for the years ended March 31, 2013 and 2012 attributable to the Great East Japan Earthquake consists of the following: Thousands of Millions of yen U.S. dollars 2013 2012 2013 Provision for loss on disaster (Restoration costs and others) ¥— ¥ — $— Reversal of provision for loss on disaster — (21,723) — Loss on damages to inventories and fi xed assets — — — Fixed costs incurred during the suspension of operations — 14,503 — Total ¥— ¥ (7,220) $—
Note 18 RESTRUCTURING COST
For the year ended March 31, 2013: Restructuring cost amounted to ¥10,998 million ($116,938 thousand) as a loss to overseas oil development subsidiary.
For the year ended March 31, 2012: Restructuring cost includes ¥31,505 million as a provision for losses and ¥5,009 million in impairment losses on fi xed assets nda leased assets as accrued expenses in relation to the manufacturing and marketing business for silicon wafers for photovoltaic cells.
100 JX Holdings, Inc. Annual Report 2013 Note 19 INCOME TAXES
The Company and its domestic consolidated subsidiaries in Japan are subject to corporation, enterprise and inhabitants’ taxes which, in the aggregate, resulted in a statutory tax rate of 38.0% and 40.7%, for the years ended March 31, 2013 and 2012, respectively.
(a) The components of deferred tax assets and liabilities as of March 31, 2013 and 2012 are as follows: Thousands of Millions of yen U.S. dollars 2013 2012 2013 Deferred tax assets: Impairment loss ¥ 56,587 ¥ 64,576 $ 601,669 Loss on valuation of investments in securities 51,713 47,174 549,846 Provision for retirement benefi ts 34,771 34,054 369,708 Asset retirement obligations 20,004 20,710 212,695 Depreciation and amortization 16,019 13,116 170,324 Provision for bonuses to employees 11,356 12,133 120,744 Provision for repairs 15,438 8,848 164,147 Loss on disaster 2,303 6,709 24,487 Operating loss carryforwards 200,593 223,543 2,132,834 Other 131,647 129,631 1,399,755 Subtotal 540,431 560,494 5,746,209 Valuation allowance (245,004) (268,789) (2,605,040) Total deferred tax assets 295,427 291,705 3,141,170
Deferred tax liabilities: Unrealized gain on land (105,457) (103,807) (1,121,287) Tax reserves taken against diff erences in basis for depreciation (29,885) (29,949) (317,757) Undistributed earnings of foreign subsidiaries and others (22,658) (18,529) (240,914) Unrealized gain on securities (20,403) (13,669) (216,938) Fair value of subsidiaries on consolidation (19,021) (20,463) (202,243) Other (107,947) (99,147) (1,147,762) Total deferred tax liabilities (305,371) (285,564) (3,246,901) Net deferred tax assets ¥ (9,944) ¥ 6,141 $ 105,731
(b) A reconciliation of the diff erence between the statutory tax rate and the eff ective income tax rate for the year ended March 31, 2013 is as follows: A corresponding analysis for the year ended March 31, 2012 is omitted as the diff erence was immaterial.
Statutory tax rate 38.0% FINANCIAL INFORMATION Increase (decrease) in taxes resulting from: Entertainment and other permanently non-deductible expenses 1.2 Dividend and other permanently non-taxable income (3.2) Equity in income of non-consolidated subsidiaries and affi liates (8.3) Increase of valuation allowance (6.8) Amortization of goodwill 2.6 Tax rate diff erence of subsidiaries 2.0 Other 4.3 Eff ective income tax rate 29.8%
JX Holdings, Inc. Annual Report 2013 101 Notes to Consolidated Financial Statements
Note 20 PER SHARE DATA
Net income per share and net assets per share as of and for the years ended March 31, 2013 and 2012 are as follows:
(a) Net income per share Thousands of Millions of yen U.S. dollars 2013 2012 2013 Net income ¥ 159,477 ¥ 170,595 $1,695,662 Weighted-average number of shares issued during the year (Thousands of shares) 2,486,627 2,486,912
Yen U.S. dollars Net income per share ¥64.13 ¥68.60 $0.68
Diluted net income per share is not stated herein since the Company did not have any potential shares that could have had a dilutive eff ect by issuing the conversion of convertible bonds outstanding for the years ended March 31, 2013 and 2012.
(b) Net assets per share Thousands of Millions of yen U.S. dollars 2013 2012 2013 Total net assets ¥2,327,432 ¥2,044,752 $24,746,752 Minority interests deducted from total net assets 384,678 300,549 4,090,144 Net assets attributable to shares of common stock 1,942,754 1,744,203 20,656,608 N umber of shares of common stock used for the calculation of net assets per share (Thousands of shares) 2,486,579 2,487,078
Yen U.S. dollars Net assets per share ¥781.30 ¥701.31 $8.31
Note 21 RELATED PARTY TRANSACTIONS
There are no material related party transactions or applicable notes on the parent company or its affi liated companies for the years ended March 31, 2013 and 2012.
Note 22 SEGMENT INFORMATION
(a) Outline of the reporting segments Since this consolidated fi scal year, the JX Group has renamed The JX Group’s reporting segments consist of those constituent two reporting segments to better refl ect actual business condi- units of the JX Group for which separate fi nancial information is tions. Accordingly, “Petroleum Refi ning and Marketing” was available that are subject to periodic review for the board of renamed “Energy,” while “Oil and Natural Gas Exploration and directors to determine distribution of management resources Production” remained the same in English (i.e., only the Japanese and to evaluate business performance. name was changed). These were changes only to the names The JX Group, which includes JX Holdings, Inc., as its holding thereof; therefore, the segment information was not aff ected by company, is composed of segments corresponding to each these changes. product and service based on three core operating companies. The businesses not included in the reporting segments are The JX Group treats “Energy,” “Oil and Natural Gas Exploration and collectively contained in the “Other” category. Production (“E&P”),” and “Metals” as the reporting segments.
102 JX Holdings, Inc. Annual Report 2013 The details of the main products and services or business activities of each reporting segment and the “Other” category are as follows:
Energy Petroleum refi ning and marketing, basic chemical products, lubricants, specialty & perfor- mance chemical products, coal, electricity, gas, and new energy. Oil and Natural Gas E&P Oil and natural gas exploration, development and production. Metals Non-ferrous metal resources development and mining, copper, gold, silver, sulfuric acid, cop- per foils, materials for rolling and processing, thin fi lm materials, non-ferrous metal recycling and industrial waste treatment, and transportation by ships of products including metal busi- ness products. Other Asphalt paving, civil engineering work, construction work, titanium, electric wires, land trans- portation, real estate leasing business, and aff airs common to JX Group companies including fund procurement.
(b) Calculation method for net sales, income and loss, assets, liabilities, and other items of the reporting segments The accounting treatment for the business segments reported herein is generally identical to that stated in Note 1 “Signifi cant Accounting Policies.” In-house intersegment sales and transfers are based on prevailing market prices.
(c) Information on net sales, income and loss, assets, liabilities, and other items from each reporting segment for the years ended March 31, 2013 and 2012 are as follows: Millions of yen Recorded Amount on Consolidated Oil and Natural Financial Year ended March 31, 2013 Energy Gas E&P Metals Other Total Adjustments*1 Statements Net sales: S ales to outside customers ¥9,691,373 ¥173,132 ¥ 925,504 ¥ 429,465 ¥11,219,474 ¥ — ¥11,219,474 In -house intersegment sales and transfers 8,276 — 1,946 60,256 70,478 (70,478) — Total 9,699,649 173,132 927,450 489,721 11,289,952 (70,478) 11,219,474 Segment income 161,602 93,608 45,020 26,039 326,269 2,031 328,300 Segment assets 4,744,683 751,546 1,160,205 2,408,656 9,065,090 (1,790,199) 7,274,891 Segment liabilities 3,554,681 418,644 670,444 2,110,152 6,753,921 (1,806,462) 4,947,459 Other items: D epreciation and amortization*2 ¥ 107,943 ¥ 31,937 ¥ 24,859 ¥ 13,585 ¥ 178,324 ¥ 2,039 ¥ 180,363 A mortization of goodwill 404 1,108 — 1,364 2,876 — 2,876 Interest income 1,382 625 570 15,316 17,893 (15,282) 2,611
Interest expenses 15,923 3,376 3,093 14,823 37,215 (11,971) 25,244 FINANCIAL INFORMATION E quity in earnings of affi liates 5,863 9,371 43,455 1,009 59,698 — 59,698 In crease in fi xed assets*3 106,006 84,920 207,926 16,825 415,677 9,575 425,252
JX Holdings, Inc. Annual Report 2013 103 Notes to Consolidated Financial Statements
Thousands of U.S. dollars Recorded Amount on Consolidated Oil and Natural Financial Year ended March 31, 2013 Energy Gas E&P Metals Other Total Adjustments*1 Statements Net sales: S ales to outside customers $103,044,902 $1,840,851 $ 9,840,553 $ 4,566,348 $119,292,653 $ — $119,292,653 In -house intersegment sales and transfers 87,996 — 20,691 640,680 749,367 (749,367) — Total 103,132,897 1,840,851 9,861,244 5,207,028 120,042,020 (749,367) 119,292,653 Segment income 1,718,256 995,300 478,682 276,863 3,469,102 21,595 3,490,696 Segment assets 50,448,517 7,990,920 12,336,045 25,610,377 96,385,859 (19,034,545) 77,351,313 Segment liabilities 37,795,651 4,451,292 7,128,591 22,436,491 71,812,026 (19,207,464) 52,604,561 Other items: D epreciation and amortization*2 $ 1,147,719 $ 339,575 $ 264,317 $ 144,444 $ 1,896,055 $ 21,680 $ 1,917,735 A mortization of goodwill 4,296 11,781 — 14,503 30,579 — 30,579 Interest income 14,694 6,645 6,061 162,850 190,250 (162,488) 27,762 Interest expenses 169,304 35,896 32,887 157,608 395,694 (127,283) 268,410 E quity in earnings of affi liates 62,339 99,638 462,041 10,728 634,747 — 634,747 In crease in fi xed assets*3 1,127,124 902,924 2,210,803 178,894 4,419,745 101,808 4,521,552
(Notes) 1. The adjustments include the following: (1) The segment income adjustment of ¥2,031 million ($21,595 thousand) includes the net amount of ¥1,936 million ($20,585 thousand), which is the income and expenses of the entire Company not allocated to the reporting segments or the “Other” category. (2) The loss of ¥1,790,199 million ($19,034,545 thousand) in the segment assets adjustment is due primarily to eliminating intersegment receivables by off setting. (3) The loss of ¥1,806,462 million ($19,207,464 thousand) in the segment liabilities adjustment is due primarily to eliminating intersegment liabilities by off setting. (4) The depreciation and amortization adjustment of ¥2,039 million ($21,680 thousand) includes ¥1,611 million ($17,129 thousand) in asset retirement obligations adjusted due to passage of time (interest costs). (5) The increase in fi xed assets adjustment of ¥9,575 million ($101,808 thousand) includes ¥9,404 million ($99,989 thousand) in assets that correspond to asset retirement obligations. 2. Depreciation and amortization includes ¥28,688 million ($305,029 thousand) in amortization costs for exploration and development investments (¥27,536 million ($292,780 thousand) for “Oil and Natural Gas E&P”; ¥1,152 million ($12,249 thousand) for “Adjustments”). 3. The increase in fi xed assets includes the ¥72,544 million ($771,334 thousand) increase in exploration and development investments. 4. Segment income is adjusted to ordinary income stated in the consolidated statement of income.
104 JX Holdings, Inc. Annual Report 2013 Millions of yen Recorded Amount on Consolidated Oil and Natural Financial Year ended March 31, 2012 Energy Gas E&P Metals Other Total Adjustments*1 Statements Net sales: S ales to outside customers ¥9,138,266 ¥187,809 ¥996,515 ¥ 401,299 ¥10,723,889 ¥ — ¥10,723,889 In -house intersegment sales and transfers 9,205 — 643 63,156 73,004 (73,004) — Total 9,147,471 187,809 997,158 464,455 10,796,893 (73,004) 10,723,889 Segment income 232,450 97,514 60,041 15,952 405,957 1,808 407,765 Segment assets 4,526,682 634,679 913,328 2,317,953 8,392,642 (1,702,223) 6,690,419 Segment liabilities 3,456,505 354,910 525,237 2,034,589 6,371,241 (1,725,574) 4,645,667 Other items: D epreciation and amortization*2 ¥ 121,776 ¥ 34,416 ¥ 25,532 ¥ 14,117 ¥ 195,841 ¥ 2,232 ¥ 198,073 A mortization of goodwill 72 1,118 — 2,278 3,468 — 3,468 Interest income 1,169 465 312 15,399 17,345 (15,226) 2,119 Interest expenses 16,555 3,316 3,900 15,165 38,936 (12,011) 26,925 E quity in earnings of affi liates 3,596 6,402 51,010 1,061 62,069 — 62,069 In crease in fi xed assets*3 86,851 52,414 90,478 12,728 242,471 10,720 253,191
(Notes) 1. The adjustments include the following: (1) The segment income adjustment of ¥1,808 million includes the net amount of ¥2,096 million, which is the income and expenses of the entire Company not allocated to the reporting segments or the “Other” category. (2) The loss of ¥1,702,223 million in the segment assets adjustment is due primarily to eliminating intersegment receivables by off setting. (3) The loss of ¥1,725,574 million in the segment liabilities adjustment is due primarily to eliminating intersegment liabilities by off setting. (4) The depreciation and amortization adjustment of ¥2,232 million includes ¥1,788 million in asset retirement obligations adjusted due to passage of time (interest costs). (5) The increase in fi xed assets adjustment of ¥10,720 million includes ¥5,939 million in assets that correspond to asset retirement obligations. 2. Depreciation and amortization includes ¥31,696 million in amortization costs for exploration and development investments (¥30,381 million for “Oil and Natural Gas E&P”; ¥1,315 million for “Adjustments”). 3. The increase in fi xed assets includes the ¥44,373 million increase in exploration and development investments. 4. Segment income is adjusted to ordinary income stated in the consolidated statement of income.
[Related information] (a) Information by product and service This information is omitted as it corresponds to the reporting segments disclosed above.
(b) Information by region (1) Net sales Thousands of Millions of yen U.S. dollars FINANCIAL INFORMATION Years ended March 31 2013 2012 2013 Japan ¥ 9,616,729 ¥ 9,277,317 $102,251,239 China 586,061 579,788 6,231,377 Other 1,016,684 866,784 10,810,037 Total ¥11,219,474 ¥10,723,889 $119,292,653
Note: The net sales are calculated based on the customers’ locations, and are categorized into countries or regions.
JX Holdings, Inc. Annual Report 2013 105 Notes to Consolidated Financial Statements
(2) Property, plant and equipment Thousands of Millions of yen U.S. dollars
Years ended March 31 2013 2012 2013 Japan ¥1,784,543 ¥1,766,421 $18,974,407 Chile 257,560 71,418 2,738,543 Other 148,580 102,537 1,579,798 Total ¥2,190,683 ¥1,940,376 $23,292,749
[Information on impairment loss] Millions of yen Oil and Natural Gas Corporate Total or Year ended March 31, 2013 Energy E&P Metals Other Eliminations Total Impairment loss ¥5,647 ¥— ¥2,843 ¥17,320 ¥— ¥25,810
Millions of yen Oil and Natural Gas Corporate Total or Year ended March 31, 2012 Energy E&P Metals Other Eliminations Total Impairment loss ¥9,877 ¥— ¥888 ¥21,852 ¥— ¥32,617
Note: In the “Energy” segment ¥5,009 million is included in “Restructuring Cost” on the consolidated statement of income.
Thousands of U.S. dollars Oil and Natural Gas Corporate Total or Year ended March 31, 2013 Energy E&P Metals Other Eliminations Total Impairment loss $60,043 $— $30,229 $184,157 $— $274,428
[Information on the amortized amounts and unamortized balances of goodwill]
Millions of yen Oil and Natural Gas Corporate Total or Year ended March 31, 2013 Energy E&P Metals Other Eliminations Total Amortized amount ¥ 404 ¥1,108 ¥— ¥1,364 ¥— ¥ 2,876 Unamortized balance 7,744 7,824 — 3,878 — 19,446
Millions of yen Oil and Natural Gas Corporate Total or Year ended March 31, 2012 Energy E&P Metals Other Eliminations Total Amortized amount ¥ 72 ¥1,118 ¥— ¥ 2,278 ¥— ¥ 3,468 Unamortized balance 1,169 8,036 — 18,898 — 28,103
Thousands of U.S. dollars Oil and Natural Gas Corporate Total or Year ended March 31, 2013 Energy E&P Metals Other Eliminations Total Amortized amount $ 4,296 $11,781 $— $14,503 $— $ 30,579 Unamortized balance 82,339 83,190 — 41,233 — 206,762
Note 23 SUBSEQUENT EVENTS
There are no significant subsequent events for the years ended March 31, 2013 and 2012.
106 JX Holdings, Inc. Annual Report 2013 Independent Auditor’s Report FINANCIAL INFORMATION
JX Holdings, Inc. Annual Report 2013 107 Corporate Profiles / Organization Charts (As of July 1, 2013)
JX HOLDINGS
Corporate Name JX Holdings, Inc. Representative Directors Yasushi Kimura, Chairman of the Board Isao Matsushita, President
Head Offi ce 6-3, Otemachi 2-chome, Chiyoda-ku, Tokyo 100-8161, Japan Date of Establishment April 1, 2010 Capital ¥100.0 billion Number of Employees 25,569 (consolidated) (As of March 31, 2013) Securities Code 5020 Website www.hd.jx-group.co.jp/english
Organization Chart Secretariat
(Director Responsible) Internal Audit Dept.
(Director Responsible) Corporate Planning Dept. I Board of Directors General Meeting President of Shareholders Chairman of the Board Senior Vice President (Director Responsible) Corporate Planning Dept. II
Executive Offi cer (Director Responsible) General Administration Dept. Board of Auditors
Auditors Aff airs Offi ce (Director Responsible) Legal Aff airs Dept.
(Director Responsible) Controller Dept.
Finance & Investor (Director Responsible) Relations Dept.
108 JX Holdings, Inc. Annual Report 2013 JX NIPPON OIL & ENERGY
Corporate Name JX Nippon Oil & Energy Corporation Representative Directors Yasushi Kimura, Chairman of the Board Seiichi Isshiki, President
Head Offi ce 6-3, Otemachi 2-chome, Chiyoda-ku, Tokyo 100-8162, Japan Capital ¥139.4 billion (100% investment of JX Holdings, Inc.) Principal Business Refi ning and marketing of petroleum products (gasoline, kerosene, lubricants, etc.), manufacturing and marketing of petrochemical products, import and marketing of gas (LPG and LNG), import and marketing of coal, supplying electric power, and developing, manufacturing, and marketing residential-use fuel cells, photovoltaic cells, power storage batteries, and other products Website www.noe.jx-group.co.jp/english
Organization Chart Basic Chemicals Planning Secretariat Basic Chemicals Division & Coordination Dept. [Head Offi ce] Corporate Social Director Responsible Aromatics Dept. Responsibility Dept.
Board of Directors Director Responsible Mizushima Audit Offi ce Ulsan PX Project Offi ce
Corporate Planning & Specialty Chemicals & Specialty Chemicals Planning Chairman of the Board Director Responsible Management Dept. Materials Division & Coordination Dept.
Director Responsible Controller Dept. Specialty Chemicals Dept.
President Director Responsible Human Resources Dept. Advanced Materials Dept.
Composite Materials Executive Vice President Director Responsible Public Relations Dept. Dept. Information Systems Director Responsible Life Science Dept. Dept. Corporate Auditors’ General Administration Energy System Business System Integration Corporate Auditor Director Responsible Office Dept. Division Business Dept. Environment, Safety & Quality Environment & Safety Energy System Management Division Dept. Development Dept. Research & Development Research & Development Quality Assurance Dept. Division Planning Dept. Refining Technology & Central Technical Refi ning Dept. Engineering Division Research Laboratory Technical & Engineering Service Dept. Overseas Business Petroleum Trading & [Refi neries / Plants] [Branch Offi ces] [Offi ces] Division Shipping Dept. Muroran Refinery Hokkaido Branch Office Funakawa Terminal Global Business Dept. Sendai Refinery Tohoku Branch Office Niigata Terminal Supply Planning & Supply Division Optimization Dept. Negishi Refinery Kanto I Branch Office Toda Terminal Distribution Dept. Mizushima Refinery Kanto II Branch Office Sodegaura Terminal Fuel Retail Sales Division Marketing Planning Dept. Marifu Refinery Tokyo Branch Office Kawasaki Terminal
Retail Marketing Dept. Oita Refinery Chubu Branch Office Osaka Terminal
Home Energy Dept. Kawasaki Plant Kansai Branch Office Kudamatsu Terminal
Lubricants & Specialties Lubricants & Specialties Yokohama Plant Chugoku Branch Office Abu Dhabi Office Business Division Business Coordination Dept. Lubricants & Specialties Chita Plant Kyushu Branch Office Beijing Office Supply Dept. Kashima Refinery*1 Okinawa Branch Office New Delhi Office Lubricants & Specialties Sales Dept. Osaka Refinery*2 Ho Chi Minh City Office Energy Solution Planning
Energy Solution Division BASIC INFORMATION & Marketing Dept. New York Office Fuel Marketing Dept. Taipei Office Coal Business Dept. *1. Operates Kashima Oil Co., Ltd., which is 70.7% owned by JX Nippon Oil Gas Business Dept. & Energy Corporation *2. Operates Osaka International Refi ning Company, Limited, which is 51.0% owned by JX Nippon Oil & Energy Corporation
JX Holdings, Inc. Annual Report 2013 109 Corporate Profiles / Organization Charts
JX NIPPON OIL & GAS EXPLORATION
Corporate Name JX Nippon Oil & Gas Exploration Corporation Representative Director Shigeo Hirai, President Head Offi ce 6-3, Otemachi 2-chome, Chiyoda-ku, Tokyo 100-8163, Japan Capital ¥9.8 billion (100% investment of JX Holdings, Inc.) Principal Business Exploration for and development of oil, natural gas, and other mineral resources; extraction, processing, storage, sale, and shipment of petroleum, natural gas, and other mineral resources and their secondary products Website www.nex.jx-group.co.jp/english
Organization Chart
[Head Offi ce] [Offi ce / Oil & Gas Field]
London Offi ce Board of Directors JX Nippon Exploration and Production (U.K.) Limited
Chairman of the Board Houston Office JX Nippon Oil Exploration U.S.A. Limited President Corporate Social Responsibility Dept. Doha Offi ce JX Nippon Oil & Gas Exploration (Qatar) Limited Executive Vice President HSE Dept. Tripoli Office Senior Vice President
Corporate Planning Dept. Executive Offi cer Vietnam Offi ce (Vung Tau) Japan Vietnam Petroleum Co., Ltd. Exploration & Production Corporate Auditor Corporate Auditors’ Offi ce Technology Dept. Ho Chi Minh City Representative Offi ce
Administration Dept. Kuala Lumpur Offi ce JX Nippon Oil & Gas Exploration (Deepwater Sabah) Limited
Human Resources Dept. Miri Offi ce JX Nippon Oil & Gas Exploration Corporation JX Nippon Oil & Gas Exploration (Malaysia), Ltd. Finance & Accounting Dept. JX Nippon Oil & Gas Exploration (Sarawak), Ltd. JX Nippon Oil & Gas Exploration (Peninsula Malaysia) Ltd. JX Nippon Oil & Gas Exploration (Onshore Sarawak) Limited
Business Coordination Dept. Jakarta Offi ce
Project Coordination and Business Development Dept. I Perth Office Japan Energy E&P Australia Pty. Ltd. Project Coordination and Business Development Dept. II Brisbane Offi ce
Project Coordination and Business Development Dept. III Nakajo Field Offi ce
New Venture Dept. Kashiwazaki Offi ce
110 JX Holdings, Inc. Annual Report 2013 JX NIPPON MINING & METALS
Corporate Name JX Nippon Mining & Metals Corporation Representative Director Yoshimasa Adachi, President Head Offi ce 6-3, Otemachi 2-chome, Chiyoda-ku, Tokyo 100-8164, Japan Capital ¥40.0 billion (100% investment of JX Holdings, Inc.) Principal Business Development and mining of non-ferrous metal resources, smelting and refi ning, and marketing of non-ferrous metals (copper, gold, silver, etc.), manufacturing and marketing of electronic materials, recycling of non-ferrous metal materials, and treatment of industrial waste for reuse Website www.nmm.jx-group.co.jp/english
Organization Chart
Planning & Coordination Dept. Accounting & Finance Dept. IT Dept. Administration Dept. Secretariat Human Resources Dept. Internal Control Offi ce Board of Directors Public Relations & CSR Dept. Chairman of the Board Environment & Safety Dept. Logistics Dept. President Facilities Engineering Dept. Internal Auditing Offi ce Deputy Chief Executive Offi cer Technology Development Group Planning & Coordination Dept. Senior Executive Offi cer Intellectual Property Dept.
Technology Development Center Corporate Auditor Secretariat to Auditors Kurami Branch Isohara Branch Metals Group Coordination Dept. Planning Dept. Resources Development Dept. Chile Offi ce Australia Offi ce Saganoseki Smelter & Refi nery Recycling & Environmental Coordination Dept. Services Group Planning Dept. Marketing Dept. Technology Dept. Hitachi Works Tsuruga Plant Electronic Materials Group Coordination Dept. Planning Dept. Technology Dept. Functional Materials Division Copper Foil Dept. Rolled & Fabricated Products Dept. Market Development Dept. Hitachi Works Kurami Works Isohara Fabricating Works BASIC INFORMATION
Thin Film Materials Division Sputtering Target Dept. Compound Semiconductor Dept. Surface Treatment Dept. Isohara Works
JX Holdings, Inc. Annual Report 2013 111 Principal Group Companies (As of March 31, 2013)
ENERGY BUSINESS
Percentage of Voting Rights Company Name Principal Business Activities (%) JX Nippon Oil & Energy Corporation Manufacturing and marketing of petroleum and petrochemical products 100.0 Kashima Oil Co., Ltd. Manufacturing of petroleum and petrochemical products 70.7 Osaka International Refi ning Company, Limitedanufacturing M and marketing of petroleum and petrochemical products 51.0 Wakayama Petroleum Refi ning Co., Ltd. Manufacturing and sales of petroleum products 99.8 Kashima Aromatics Co., Ltd. Manufacturing of petroleum and petrochemical products 80.0 JX Nippon ANCI Corporation Manufacturing of synthetic resin processed products 100.0 JX Nippon Oil & Energy Staging Terminal Corporation Storage, receiving, and shipment of petroleum products 100.0 JX Tanker Company Limited Sea transport of crude oil and petroleum products 100.0 Nippon Global Tanker Co., Ltd. Sea transport of crude oil 65.0 JX SHIPPING CO., LTD. Sea transport of crude oil and petroleum products 66.8 JX Nippon Oil & Energy USA Inc. Sales of petroleum products 100.0 JX Nippon Oil & Energy Asia Pte. Ltd. Sales of petroleum products 100.0 JX Nippon Oil & Energy (Australia) Pty Limited Making investments in companies extracting coal and sales 100.0 ENEOS Frontier Company, Limited Sales of petroleum products 100.0 JOMO-Net Co., Ltd.* Sales of petroleum products 100.0 JX Nippon Oil & Energy Retail Service Corporation Sales of petroleum products 100.0 IKKO Co., Ltd. Sales of petroleum products 100.0 SUZUYO ENERGY CO., LTD. Sales of petroleum products 100.0 JX Nippon Sun Energy Co., Ltd. Sales of petroleum products 100.0 J-Quest Co., Ltd. Sales of petroleum products 100.0 ENEOS GLOBE CO., Ltd. Sales of LP gas 50.0 Japan Gas Energy Corporation Sales of LP gas 51.0 Kawasaki Natural Gas Power Generation Co., Ltd. Generation and supply of electric power 51.0 Making investments in LNG developments and providing fi nance to subsidiaries Nippon Oil Finance (Netherlands) B.V. 100.0 and affi liates JX Nippon Oil & Energy Trading Corporation Sales and lease of automobile-related parts 100.0 Showa Nittan Corp. Sea transport of petroleum products 24.9 Japan Oil Transportation Co., Ltd. Overland transportation of petroleum products 29.1
* In July 2013, the name of JOMO-NET Co., Ltd., was changed to ENEOS-NET Co., Ltd.
OIL AND NATURAL GAS E&P BUSINESS
Percentage of Voting Rights Company Name Principal Business Activities (%) JX Nippon Oil & Gas Exploration Corporation Overall management of the oil and natural gas development business 100.0 Japan Vietnam Petroleum Co., Ltd. Exploration, development, production, and marketing of oil and natural gas 97.1 JX Nippon Oil & Gas Exploration (Malaysia), Ltd. Exploration, development, production, and marketing of oil and natural gas 78.7 JX Nippon Oil & Gas Exploration (Sarawak), Ltd. Exploration, development, production, and marketing of oil and natural gas 76.5 Nippon Oil Exploration (Berau), Limited Exploration, development, production, and marketing of oil and natural gas 51.0 Nippon Oil Exploration (Myanmar), Ltd. Exploration, development, production, and marketing of oil and natural gas 50.0 JX Nippon Exploration and Production (U.K.) Limited Exploration, development, production, and marketing of oil and natural gas 100.0 Mocal Energy Limited Exploration, development, production, and marketing of oil 100.0 Merlin Petroleum Company Exploration, development, production, and marketing of oil and natural gas 79.6 Abu Dhabi Oil Co., Ltd. Exploration, development, production, and marketing of oil 31.5 United Petroleum Development Co., Ltd. Exploration, development, production, and marketing of oil 45.0
112 JX Holdings, Inc. Annual Report 2013 METALS BUSINESS
Percentage of Voting Rights Company Name Principal Business Activities (%) Resources development, manufacturing, and marketing of non-ferrous metals and JX Nippon Mining & Metals Corporation 100.0 electronic materials as well as recycling of non-ferrous metal materials JX Metals Trading Co., Ltd. Marketing of non-ferrous metal products, etc. 100.0 Pan Pacifi c Copper Co., Ltd. Manufacturing and marketing of non-ferrous metals 66.0 Hibi Kyodo Smelting Co., Ltd. Smelting and refi ning of copper 63.5 Changzhou Jinyuan Copper Co., Ltd. Manufacturing and marketing of copper wire rods 61.4 SCM Minera Lumina Copper Chile Development of Caserones Copper and Molybdenum Deposit 75.0 JX Nippon Mining & Metals Philippines, Inc. Manufacturing and marketing of copper foil 100.0 Gould Electronics GmbH Manufacturing and marketing of copper foil 100.0 Nippon Mining & Metals (Suzhou) Co., Ltd. Manufacturing and marketing of precision rolled and pressing products 100.0 JX Metals Precision Technology Co., Ltd. Manufacturing and marketing of electronic materials, etc. 100.0 JX Nippon Mining & Metals USA, Inc. Manufacturing and marketing of thin-fi lm materials 100.0 Manufacturing and marketing of electronic materials, etc., and collection of Nikko Metals Taiwan Co., Ltd. 100.0 materials for non-ferrous metal recycling JX Nippon Environmental Services Co., Ltd. Recycling and environmental services 100.0 Nippon Marine Co., Ltd. Sea transport for non-ferrous metal products, etc. 100.0 LS-Nikko Copper Inc. Smelting and refi ning of copper 49.9 Minera Los Pelambres Copper ore mining 25.0 Japan Collahuasi Resources B.V. Making investments in Collahuasi Copper Mine 30.0 JECO Corp. Making investments in Escondida Copper Mine 20.0 JECO 2 Ltd. Making investments in Escondida Copper Mine 40.0
OTHERS
Percentage of Voting Rights Company Name Principal Business Activities (%) Planning, design, and construction of roads, pavement, civil engineering works, NIPPO CORPORATION 57.1 and petroleum-related facilities Dai Nippon Construction Co., Ltd. Subcontracting for building and civil engineering construction 79.5 Design, construction, and supervision of construction for machinery, electricity, JX Engineering Corporation 100.0 civil engineering, and building construction as well as maintenance Toho Titanium Co., Ltd.* Manufacturing and marketing of titanium 50.4 JX Nippon Real Estate Corporation Sales, rental, and management of real estate 100.0 JX Nippon Procurement Corporation Performance of procurement work on a subcontracting basis 100.0 JX Nippon Finance Corporation Performance of fi nance-related work on a subcontracting basis 100.0 Performance of accounting, payroll, and welfare-related work JX Nippon Business Services Corporation 100.0 on a subcontracting basis JX Nippon Research Institute, Ltd. Surveys, research, and consulting services, etc. 100.0 JX Nippon Information Technology Co., Ltd. Surveys, research, consulting, etc. 100.0 Tatsuta Electric Wire and Cable Co., Ltd. Manufacturing and marketing of wire and cable 35.8 Maruwn Corp. Overland transportation 38.2
* From the fi scal year ending March 31, 2014, Toho Titanium Co., Ltd., has been changed to the Metals business segment. BASIC INFORMATION
JX Holdings, Inc. Annual Report 2013 113 Investor Information (As of March 31, 2013)
Share Information Distribution of Shareholders
Securities Companies in Individuals 13.77% Securities Code 5020 Japan 1.71% Number of Shares Issued 2,495,485,929 Others 1.42% Treasury Shares 0.22% Number of Shareholders 174,278 Overseas Investors Stock Exchange Listings Tokyo, Osaka*, Nagoya 31.15% Financial Institutions in * The Osaka Securities Exchange’s cash equity market was integrated into the Tokyo Stock Companies in Japan Japan 41.86% Exchange’s cash equity market on July 16, 2013. 9.87%
Major Shareholders Percentage of Name of shareholders Number of shares held total issued shares (%) The Master Trust Bank of Japan, Ltd. (held in trust account) 160,568,100 6.43 Japan Trustee Services Bank, Ltd. (held in trust account) 154,092,600 6.17 Japan Trustee Services Bank, Ltd. (held in trust account 9) 69,354,800 2.78 Mizuho Corporate Bank, Ltd. 65,451,258 2.62 Sumitomo Mitsui Banking Corporation 65,398,360 2.62 SSBT OD05 OMNIBUS ACCOUNT-TREATY CLIENTS 51,213,170 2.05 Mitsubishi Corporation 48,615,792 1.95 The Bank of Tokyo-Mitsubishi UFJ, Ltd. 38,920,444 1.56 INPEX Corporation 33,264,732 1.33 JP MORGAN CHASE BANK 380055 27,738,916 1.11
Share Price Range and Trading Volume
Share Price (Yen) 700
600
500
400
300
Trading Volume (Millions of shares) 500
400
300
200
100
0 Oct. Nov. Dec. Jan.Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar. Year ended March 31, 2011 Year ended March 31, 2012 Year ended March 31, 2013
114 JX Holdings, Inc. Annual Report 2013 IR Website Guide
Please use the IR website together with the annual report.
WEB http://www.hd.jx-group.co.jp/english/ir/
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For further information about the content of this annual report, please contact: BASIC INFORMATION JX Holdings, Inc. Investor Relations Group, Finance & Investor Relations Department 6-3, Otemachi 2-chome, Chiyoda-ku, Tokyo 100-8161, Japan Telephone: 81-(0) 3-6275-5009 Facsimile: 81-(0) 3-3276-1245 E-mail: [email protected] Website: http://www.hd.jx-group.co.jp/english/ Smartphone: http://www.hd.jx-group.co.jp/sp/english/
JX Holdings, Inc. Annual Report 2013 115 Annual Report 2013 Printed in Japan