Creating Sustainable Corporate Value Value Sustainable Corporate Creating Annual ReportAnnual 2010 31, 2010 ended March for the year
Annual Report 2010 Contents
001 Corporate Profile c a Organizational Structure/Global Network b a b c Past Medium-Term Management Plans
003 To Our Stakeholders 004 Financial Highlights 006 Interview with the President Midterm Corporate Strategy 2012 On June 24, 2010, Ken Kobayashi was appointed the new President and CEO of MC. He unveiled MC’s new three- Creating Sustainable year Midterm Corporate Strategy 2012 to the end of March 2013 on July 16. Corporate Value In this interview, President Kobayashi discusses what underpins the philosophy and actions of this midterm strategic plan.
018 Feature Mitsubishi Corporation’s inherent nature is to constantly take up the challenge of creating new businesses, Opportunities inChange seizing the opportunities that arise in changing times. In this feature section, we look at specifi c examples of how we are capitalizing on changing business conditions to expand business in emerging markets, developed markets and the global environmental fi eld.
032 Two Groups Directly Under the President 034 Review of Operations 034 Fiscal 2010 Results of Business Groups 050 Machinery Group 036 Profiles of Business Groups 054 Chemicals Group 038 Industrial Finance, Logistics & Development Group 058 Living Essentials Group 042 Energy Business Group 062 Metals and Energy Resource Data 046 Metals Group 064 Global Strategy 066 Corporate Governance and Internal Control 067 Discussion 071 Corporate Auditors Looking at MC’s Corporate Governance 072 Corporate Governance Framework 075 Internal Control System From the Outside 078 International Advisory Committee 080 CSR (Corporate Social Responsibility) & Environmental Affairs 082 Members of the Board 084 Executive Officers 085 Corporate Section 094 Financial Section 185 Corporate Data
Forward-Looking Statements This annual report contains forward-looking statements about Mitsubishi Corporation’s future plans, strategies, beliefs and performance that are not historical facts. They are based on current expectations, estimates, forecasts and projections about the industries in which Mitsubishi Corporation operates and beliefs and assumptions made by management. As the expectations, estimates, forecasts and projections are subject to a number of risks, uncertainties and assumptions, they may cause actual results to differ materially from those projected. Mitsubishi Corporation, therefore, wishes to caution readers not to place undue reliance on forward-looking statements. Furthermore, the company undertakes no obligation to update any forward-looking statements as a result of new information, future events or other developments. Risks, uncertainties and assumptions mentioned above include, but are not limited to, commodity prices; exchange rates and economic conditions; the outcome of pending and future litigation; and the continued availability of financing, financial instruments and financial resources. Corporate Profile
Mitsubishi Corporation (MC) is Japan’s largest general trading company (sogo shosha) with over 200 bases of operations in approximately 80 countries around the world, including Japan. In addition to its six Business Groups (Industrial Finance, Logistics & Development; Energy; Metals; Machinery; Chemicals; and Living Essentials), MC has added two new Groups, the Business Service Group and the Global Environment Business Development Group. Through these organizations and more than 500 subsidiaries and affiliates, MC serves customers around the world in virtually every industry. Moving forward, MC remains determined to grow even stronger while contributing to the enrichment of society through business activities firmly rooted in the principles of fairness and integrity.
Corporate Philosophy—Three Corporate Principles The Three Corporate Principles were formulated in 1934, as the action guidelines of Mitsubishi Trading Company (Mitsubishi Shoji Kaisha), based on the teachings of Koyata Iwasaki, the fourth president of Mitsubishi. Although Mitsubishi Trading Company ceased to exist as of 1947, the principles were adopted as MC’s corporate philosophy, and this spirit lives on in the actions of today’s management and employees. The Three Corporate Prin- ciples also serve as the cornerstone of the management ethos of the so-called Mitsubishi group of companies. Active in many business fields and united by a common history and philosophy,
Corporate Responsibility Integrity and Fairness International Under- the Mitsubishi group companies continue to grow through a to Society “Shoki Hoko” “Shoji Komei” standing through Trade strong spirit of friendly competition with one another. Strive to enrich society, Maintain principles of “Ritsugyo Boeki” both materially and spiritu- transparency and open- Expand business, based ally, while contributing ness, conducting business on an all-encompassing towards the preservation with integrity and fairness. global perspective. of the global environment.
(The modern day interpretation of the Three Corporate Principles, as agreed on at the Mitsubishi Kinyokai meeting of the companies that constitute the so-called Mitsubishi group in January 2001.)
Corporate History
● Foundation to 1970s were made to globalize the company’s operations and its people. Amid In 1954 the new Mitsubishi Shoji was founded, and that same year was uncertainty about Japan’s financial system, MC established “MC2000” in listed on both the Tokyo and Osaka stock exchanges. In 1967, the com- 1998. The aim of this new management plan was “Self-reform for the 21st pany announced its first management plan, and in 1968, in response to Century.” MC2000 introduced a “Select & Focus” approach to business, its expanding organizations and businesses, introduced its Business strengthened strategic fields, and emphasized customer-oriented policies. Division System. Also that year, the company committed to a large proj- The new plan was instrumental in shoring up the company’s foundations ect in Brunei to develop LNG (liquefied natural gas). This was its first and paving the way to a prosperous future. large-scale investment, and was undertaken to help secure a stable supply of energy to Japan. Not content with mere trade-based activities, ● Into the New Millennium the company began expanding its development and investment-based In 2001, MC updated its management plan in response to an increasingly businesses on a global scale, as evidenced by iron-ore and metallurgical global economy. “MC2003” came with a new theme: “Driven to Create coal projects in Australia and Canada, and salt field business in Mexico. Value.” The new plan introduced an aggressive new blueprint for growth, In 1971, the company made “Mitsubishi Corporation” its official English involving an expansion of the company’s value chains, a strengthening of name. Two years later, in 1973, MC established what was ultimately to its profitability, and focused strategies to create new businesses. The become its CSR & Environmental Affairs Office, clarifying a firm commit- same year, the Business Unit (BU) System was introduced to the Busi- ment to CSR (Corporate Social Responsibility). ness Groups, which clarified the strategic mission of each of their BUs, the smallest units for organizational control and earnings management. ● The 1980s Meanwhile, a new standard, MCVA (Mitsubishi Corporation Value Added), The Japanese economy entered a recession due to the recent oil shock, was adopted to make performance evaluation more relevant, and the meaning MC needed to construct new systems to generate profits. The company’s business portfolio was reshaped to allocate management company began streamlining its established businesses and developing resources more appropriately. In 2004, “INNOVATION 2007” was more efficient operations. In 1986 the company firmly entrenched a new unveiled. This new management plan sought to establish MC as a “New policy, shifting its focus from operating transactions to profits. That same Industry Innovator,” with an aim to open up a new era and grow hand in year a new management plan was drawn up. The “K-PLAN” placed hand with society. In 2007, MC newly established the Business Innovation emphasis on rebuilding commercial rights, selecting key business Group and Industrial Finance, Logistics & Development Group. Then, in domains, and developing high “value-added” functions. In 1989, MC was 2008, MC announced its management plan, “INNOVATION 2009.” In listed on the London Stock Exchange. 2009, MC systematically reorganized the Business Innovation Group and established its Corporate Development Section. In April, 2010, MC reor- ● The 1990s ganized and enhanced this section through the establishment of two new With the 1990s came accelerated globalization, and in 1992 MC Groups, the Global Environment Business Development Group and Busi- announced a new management policy: namely to reinvent the company as ness Service Group. In July 2010, MC announced a new management a “Sound, Global Enterprise.” MC began placing greater focus on its con- plan, “Midterm Corporate Strategy 2012.” solidated operations and increasing the value of its assets. More efforts Mitsubishi Corporation Annual Report 2010 001 Organizational Structure (As of August 1, 2010)
Industrial Finance, Logistics & Development Group CEO General Meeting of Office Shareholders Industrial Finance, Logistics & Industrial Development Group Finance, Administration Dept. Logistics & Development Asset Finance & Business Group Development Div. Corporate Auditors Corporate Auditors’ Office Development & Construction Project Div. Logistics Div. Board of Corporate Auditors
Governance & Energy Business Group CEO Compensation Office Committee Energy Business Group Board of Directors Administration Dept. International Advisory Exploration & Production Unit Committee Energy Business Group Energy Business Development Unit Natural Gas Business Div. A Internal Audit Dept. Natural Gas Business Div. B Corporate Planning Dept. Petroleum Business Div. President Carbon & LPG Business Div.
Executive Committee Corporate Staff Section Metals Group CEO Office Metals Group Administration Administration Dept. of Dept. Corporate Section Metals Group Steel Business Div. sChief Compliance Corporate Communications Ferrous Raw Materials Div. Officer Dept. Non-Ferrous Metals Div. sSEVP, CSR & Environmental Corporate Administration Affairs Dept. Legal Dept. sSEVP, MC Group Machinery Group CEO Office Management Compliance Dept. Foundations Machinery Group Development Human Resources Administration Dept. Management Dept. Power & Electrical Systems Center for Human Machinery Div. Resources Development Group Infrastructure Project Div. sBusiness Development Committee Corporate Strategy & Ship & Aerospace Div. sPortfolio Management Research Dept. Motor Vehicle Business Div. Committee Innovation Center Isuzu Business Div. sDisclosure Committee Global Strategy & sCompliance Coordination Dept. Committee Corporate Accounting Dept. Chemicals Group CEO Office sCSR & Environmental Affairs Committee Risk Management Dept. Chemicals Group Administration Dept. sHuman Resources Secretariat to the Portfolio Development Management Committee Phoenix Unit Committee Chemicals Treasurer Office Group Saudi Petrochemical Project Unit sIT Management Investor Relations Dept. Committee Commodity Chemicals Div. A Commodity Chemicals Div. B Business Service Group Functional Chemicals Div.
IT Service Div. Logistics Management Living Essentials Group CEO Dept. Office Living Essentials Group Administration Dept. Living Essentials Group Global Environment Information System Office Business Development Group Living Essentials Next Generation Business Group Development Unit Global Environment Healthcare & Marketing Business Development Service Div. Group CEO Office Foods (Commodity) Div. New Energy & Power Generation Div. Foods (Products) Div. Environmental & Water Textiles Div. Business Div. General Merchandise Div. Global Network (As of August 1, 2010)
Including its offices in Japan, MC has more than 200 bases of operations in approximately 80 countries around the world.
Mitsubishi Corporation (Head Office)
● Overseas Offices ● Subsidiaries
Head Office Domestic Network (33) Overseas Network (197 bases of operations, including 118 offices, 40 subsidiary headquarters, and 39 branches) TokyoSapporo Takamatsu
– * 1998 2004 Net Income (¥ billion)
6-Year Average ¥ 65.2 billion
* HIGHER NET INCOME During the course of MC2000 and MC2003, we instilled a mindset of creating value across the company and as a Result result net income* increased 65.2 by 3.8 times.
99.3 01.3 04.3
MC2000 MC2003 Return on Equity (ROE) (%)
The aim of the MC2000 6-Year % medium-term management Average 6.5 plan that ran from 1998 to EXPANDED INVESTMENT 2001 was self-reform for the RETURNS 21st Century. The subsequent Return on equity (ROE) rose 7.7 points over 6 years on plan, MC2003, which covered steady net income* growth. the period from 2001 to 2004, Result 6.5 was based on the theme of “Driven to Create Value.”
99.3 01.3 04.3
Net Debt-to-equity Ratio (times)
6-Year Average 3.73 times IMPROVED BALANCE SHEET We actively reshaped our asset Result portfolio, reducing total assets, 3.73 using a management approach based on MCVA (Mitsubishi Corporation Value Added). Concurrently, we worked to reduce interest-bearing liabilities to further improve our balance sheet. The outcome was a 1.1 point improvement in the net debt-to-equity ratio over 6 years.
99.3 01.3 04.3
* Net income as used on this page and subsequent pages denotes net income attributable to Mitsubishi Corporation. – * 2004 2010 Net Income (¥ billion) 6-Year Average ¥ 346.1 billionb Result 346.1 IMPROVED EARNINGS GROWTH A main goal of INNOVATION 2007 and INNOVATION 2009 was to Plan grow into a company that could 200.0 generate net income* of at least ¥200 billion. We eclipsed this goal by delivering average net income* over the 6 years of ¥346.1 billion.
05.3 06.3 07.3 08.3 09.3 10.3
* Net Income denotes net income attributable to Mitsubishi Corporation.
INNOVATION 20077 INNOVATION 20099 Return on Equity (ROE) (%)
Under INNOVATION 2007 (2004 to 2008) and INNOVATION 2009 6-Year Average % (2008 to 2010) we set forth the vision of becoming “A New Indus- 14.8 try Innovator” with the aim to open up a new era. These plans had Plan three basic concepts: Grasp Change and Open Up A New Era, 15.0 Develop Human Assets, and Solidify Our Ground. We pushed Result through management initiatives based on these concepts. 14.8 IMPROVED CAPITAL EFFICIENCY We also set the goal under INNOVATION 2007 and INNOVATION 2009 of achieving ROE of at least 15% over the medium and long terms. And we almost did that, registering an average of 14.8% over 6 years.
05.3 06.3 07.3 08.3 09.3 10.3
Net Debt-to-equity Ratio (times)
6-Year Average 1.38timesti
Plan 2.0 Result IMPROVED FINANCIAL 1.38 SOUNDNESS Our goal here under the two plans was to maintain a net debt-to- equity ratio of under 2.0. We succeeded in keeping within this limit, with a 6-year average of 1.38.
05.3 06.3 07.3 08.3 09.3 10.3 – Investment Assets to Consolidated Shareholders’ Equity Ratio (times) 2011
6-Year Average 1.45 times
Plan IMPROVED FINANCIAL 1.5 SOUNDNESS Another financial soundness goal Result was to maintain an investment 1.45 assets to consolidated sharehold- ers’ equity ratio of under 1.5. Our 6-year average was 1.45.
05.3 06.3 07.3 08.3 09.3 10.3
MIDTERM CORPORATE Actual Investments (¥ billion) STRATEGY 2012
July 2010 saw us launch our latest INCREASED INVESTMENTS Between the years ended March plan called Midterm Corporate 2005 and 2010, we made gross Strategy 2012. Covering the period investments of approximately ¥2.9 from 2010 to 2013, this plan has trillion. We invested approximately ¥1 trillion, or around one-third, in three themes: respond to fast- energy and metal resources fields. growing emerging economies and The remaining approximate ¥1.9 trillion, or two-thirds, was invested new growth markets; leverage in other fields. On a net basis, MC’s diversified business portfo- taking into account portfolio adjust- lio; and solidify MC’s diversified Investment assets ment, we invested ¥1.1 trillion. Gross investments (Resources) These investments over the past business portfolio. Implementation Gross investments (Non-resources) six years have laid the foundations of these three themes will Asset realignments, etc. for growth over the medium and long terms. strengthen and expand our earn- ings drivers and develop new 04.3 05.3 06.3 07.3 08.3 09.3 10.3 businesses for future growth.
See page 6
Investment Amounts and Main Investment Projects (¥ billion) 330 370 450 750 700 270 Amper Central Solar Aircraft for leasing Overseas real estate Marunouchi Capital Sakhalin II LNG Project Oil and gas E&P West Australia LNG Project Oil and gas E&P PT. Medco Energi North Sea (Dunlin/Osprey) Internasional BMA/Metal One Corporation POSCO CAP (Chile mine, steelmaking) Clermont thermal coal Nikken Corporation Isuzu Motors Isuzu Motors Domestic power generation Chiyoda Corporation Russian automotive distribution company Overseas power generation (One Energy, etc.) Ship charter business SPDC Kohjin SPDC Restructuring of domestic Life Corporation Hokuetsu Paper Mills* Consolidation of three listed AEON snack business food-related companies Meidi-ya Corporation YONEKYU CORPORATION Itoham Foods
05.3 06.3 07.3 08.3 09.3 10.3
Corporate Development Section Industrial Finance, Logistics & Development Group Energy Business Group Metals Group Machinery Group Chemicals Group Living Essentials Group * Hokuetsu Paper Mills made Kishu Paper Co., Ltd. a wholly owned subsidiary and renamed itself Hokuetsu Kishu Paper Co., Ltd. on October 1, 2009. To Our Stakeholders
In June 2010, I was appointed chairman of the Board after serving for six years as president and CEO of MC. Under our INNOVATION 2007 and INNOVATION 2009 plans, I focused all my energies on creating future growth drivers and new paradigms, guided by a vision of becoming “A New Industry Innovator.” Quantitatively, we sought to achieve sustained growth, while balancing earnings growth, capital efficiency and financial soundness. Even though we faced unprecedented change in our business environment, such as the Lehman Shock and European credit crisis, I think we succeeded in laying the foundations for sustained growth in the future. In terms of earnings growth, while benefitting from expansion in the energy and metals resource fields, we achieved average net income of ¥346.1 billion over 6 years. In terms of capital efficiency, we averaged ROE of 14.8% over the same period. And in terms of financial soundness, the net debt-to-equity ratio averaged 1.38 times. These were our major achievements of the past six years under my stewardship. But I am confident that MC can go on from here to continuously raise corporate value by enhancing its earnings base and creating new earnings drivers. As chairman of the Board, I will oversee the execution of operations that I formerly headed. I will support the new top management team led by president Ken Kobayashi from a different vantage point than before, and believe we can make sustained growth possible. I hope you will lend your support, too.
September 2010
Yorihiko Kojima Chairman of the Board
Mitsubishi Corporation Annual Report 2010 003 Financial Highlights Mitsubishi Corporation and Subsidiaries Years ended March 31 (U.S. GAAP) (The figures have been reclassified, in accordance with provisions of U.S. GAAP.)
Millions of Yen 2005.3 2006.3 2007.3 2008.3 2009.3 2010.3 Performance Measure: Operating transactions*1 ...... ¥17,122,034 ¥19,069,181 ¥20,526,570 ¥23,103,043 ¥22,389,104 ¥17,098,705
Results of Operations: Gross profit ...... 878,707 1,052,990 1,145,532 1,172,222 1,463,152 1,016,683 Operating income ...... 185,192 352,215 410,304 355,105 588,896 181,447 Income from continuing operations before income taxes and equity in earnings of Affiliated companies ...... 213,944 487,180 601,562 552,549 388,228 294,268 Equity in earnings of Affiliated companies . . . 99,624 124,797 152,208 155,008 156,763 113,373 Net income attributable to Mitsubishi Corporation ...... 186,641 356,734 419,273 470,859 369,936 273,147 Core earnings*2 ...... 336,905 549,314 686,398 628,535 855,785 378,439
Financial Position at Year-End: Total assets ...... 9,048,561 10,299,588 11,423,924 11,750,441 10,918,003 10,891,275 Gross interest-bearing liabilities*3 ...... 4,040,199 3,763,741 3,827,760 4,183,592 4,879,335 4,154,692 Net interest-bearing liabilities*3 ...... 3,423,498 3,107,336 3,060,934 3,421,924 3,551,207 2,955,193 Total Mitsubishi Corporation shareholders’ equity ...... 1,493,175 2,348,000 2,918,386 2,873,510 2,383,387 2,961,376
Cash Flows: Cash flows from operating activities ...... 145,700 384,278 440,434 319,068 550,441 760,568 Cash flows from investing activities ...... 6,597 (91,851) (294,617) (356,659) (691,216) (141,157) Cash flows from financing activities ...... (60,414) (239,415) (109,791) 69,472 650,546 (755,117)
Amounts per Share (yen and dollars): Net income attributable to Mitsubishi Corporation per share: Basic ...... ¥ 119.21 ¥ 219.50 ¥ 248.52 ¥ 283.82 ¥ 225.24 ¥ 166.24 Diluted ...... 110.11 209.56 247.17 282.55 224.75 165.86 Mitsubishi Corporation shareholders’ equity per share ...... 953.65 1,392.84 1,728.59 1,750.86 1,450.72 1,801.84 Cash dividends ...... 18.00 35.00 46.00 56.00 52.00 38.00 Payout ratio (%)*4 ...... 15.5 16.3 18.7 20.1 23.1 22.9
Common Stock (thousands of shares): Number of shares outstanding at year-end*5 . . . . 1,565,749 1,685,767 1,688,303 1,641,203 1,642,904 1,643,532
Financial Measures: Return on average shareholders’ equity (%) . . . . . 13.7 18.6 15.9 16.3 14.1 10.2 Return on average total assets (ROA) (%)*6 . . . . . 2.5 5.0 5.5 4.8 3.4 2.7 Net debt-to-equity-ratio (times) ...... 2.3 1.3 1.0 1.2 1.5 1.0 ROIC (core earnings) (%) ...... 6.9 10.1 11.5 10.0 14.4 6.4 Dividend on equity ratio (%) ...... 2.1 3.0 2.9 3.2 3.2 2.3
Stock Price Information: Stock price (annual average) ...... ¥ 1,202 ¥ 2,042 ¥ 2,371 ¥ 3,110 ¥ 2,299 ¥ 1,969 Price Earnings Ratio (PER) (times)*7 ...... 10.09 9.66 9.56 11.19 10.54 12.23 Price Book-value Ratio (PBR) (times)*7 ...... 1.3 1.5 1.4 1.8 1.6 1.1 Notes: The U.S. dollar amounts represent translations, for convenience, of yen amounts at the rate of ¥93=$1. *1 Operating transactions is a voluntary disclosure commonly made by Japanese trading companies, and is not meant to represent sales or revenues in accor- dance with U.S. GAAP. See Note 1 to consolidated financial statements, financial section. *2 Core earnings = Operating income (before the deduction of provision for doubtful receivables) + Interest expense (net of interest income) + Dividend income + Equity in earnings of affiliated companies *3 Gross interest-bearing liabilities is defined as short-term debt and long-term debt, including current maturities, less the effect of markdowns on liabilities. Net interest-bearing liabilities is defined as gross interest-bearing liabilities minus cash and cash equivalents and time deposits. *4 Payout ratio was calculated based on net income attributable to Mitsubishi Corporation for the fiscal year before reclassification. *5 Excluding treasury stock held by the Company. *6 ROA is calculated by dividing income from continuing operations before income taxes and equity in earnings of Affiliated companies by the average of total assets at the beginning and end of the fiscal year. *7 PER is calculated by dividing market capitalization, as determined by multiplying the average share price during the fiscal year by the number of shares issued at the fiscal year-end, by net income attributable to Mitsubishi Corporation. PBR is calculated by dividing market capitalization, as determined by multiplying the average share price during the fiscal year by the number of shares issued at the fiscal year-end, by total Mitsubishi Corporation shareholders’ equity. 004 Mitsubishi Corporation Annual Report 2010 Millions of overview Change U.S. Dollars 2010.3/2009.3 2010.3 Net income attributable to Mitsubishi Corporation fell 26%, but all non-resource operating segments recorded higher earnings ¥ –5,290,399 $183,857 Net income attributable to Mitsubishi Corporation dropped 26% year on year to 273.1 billion yen. The Energy Business and Metals segments saw consolidated net income fall due to a pull-back from soaring crude oil, coking coal and other resource prices. But all non-resource segments recorded –446,469 10,932 higher earnings. –407,449 1,951 Shareholders’ equity soared to a record 2,961.4 billion yen Shareholders’ equity rose 578.0 billion yen from March 31, 2009 to a record 2,961.4 billion yen. In –93,960 3,164 addition to an increase in retained earnings because of the consolidated net income attributable to –43,390 1,219 Mitsubishi Corporation, comprehensive income improved due to rising share prices and the yen’s depreciation versus the Australian dollar. –96,789 2,937 The net debt-to-equity ratio, an indicator of financial soundness, improved 0.5 of a point to 1.0 times. –477,346 4,069 Annual dividend per common share raised 4 yen to 38 yen Mitsubishi Corporation plans to raise the annual dividend per common share applicable to the fiscal year ended March 31, 2010 by 4 yen from the forecast of 34 yen to 38 yen given that it achieved its –26,728 117,110 projected consolidated net income attributable to Mitsubishi Corporation of 240.0 billion yen. This –724,643 44,674 equates to a consolidated dividend payout ratio of 23%. Earnings are improving and were higher than –596,014 31,776 the full-year forecast.
577,989 31,842 Net Income Attributable Major Changes to Mitsubishi Corporation 210,127 8,178 Industrial Finance, Logistics & Development: by Segment 550,059 (1,518) 33.6 billion yen improvement (¥ billion) Share write-downs on Japan Airlines Corporation (JAL) –1,405,663 (8,119) and certain other shares were outweighed by improved fund-related investment earnings and the absence of 369.9 273.1 share write-downs in the previous fiscal year.
Energy Business: 13% decrease 400 Despite the absence of impairment losses on property ¥ –59.00 $ 1.79 and equipment at overseas resource-related subsidiaries in the previous fiscal year, the lower net income reflected –58.89 1.78 82.8 decreased earnings on transactions at overseas resource-related subsidiaries and lower equity-method 351.12 19.37 earnings from overseas resource-related business invest- –14.00 0.41 ees, both due to lower crude oil prices and the stronger 300 yen, as well as losses related to fuel derivative transac- tions for a JAL subsidiary. 71.9 Energy Business Metals: 36% decrease Despite the absence of share write-downs recorded in the previous fiscal year, this result was mainly due to 216.7 decreased earnings at an Australian resource-related 200 subsidiary (coking coal) because of lower sales prices, and losses related to fuel derivative transactions for a JAL subsidiary. 137.9 Metals Machinery: 33% increase Despite the write-down on Mitsubishi Motors Corporation preferred shares, a pull-back from high ship charter rates 100 17.8 in the previous fiscal year and lower transactions of 23.6 Machinery machinery and equipment sold in large volumes, the 26.8 result reflected higher earnings at overseas IPP busi- ¥ –330 $ 21.17 32.4 Chemicals nesses and the absence of share write-downs and 34.0 impairment losses on property and equipment recorded in the previous fiscal year. Living Essentials 33.0 45.1 0 Chemicals: 21% increase Adjustments and Despite a pull-back from strong commodity chemical –41.2 –30.2 Eliminations transactions in the previous fiscal year when prices – Industrial Finance, soared, the result reflected higher equity-method earnings –50 Logistics & Development –7.6 due to the reversal of deferred tax liabilities of a petro- chemical business-related company and the absence of share write-downs recorded in the previous fiscal year. Living Essentials: 33% increase Despite lower earnings on transactions at food-related businesses and general merchandise-related subsidiaries, and losses at a LAWSON INC. subsidiary, the segment result was chiefly due to the absence of share write- downs recorded in the previous fiscal year.
Mitsubishi Corporation Annual Report 2010 005 Interview with the President
Midterm Corporate Strategy 2012 Creating Sustainable Corporate Value
On June 24, 2010, Ken Kobayashi was appointed the new president and CEO of MC. On July 16, he unveiled MC’s new midterm corporate strategy, which will cover three fiscal years through the year ending March 2013. In this interview, President Kobayashi discusses what underpins the philosophy and actions planned under this midterm corporate strategy.
006 Mitsubishi Corporation Annual Report 2010 Mitsubishi Corporation Annual Report 2010 007 Question 01
What are your ambitions as the new leader of MC?
Answer During former President Yorihiko Kojima’s tenure, time, I believe that my mission is to cultivate several MC achieved record net income of ¥470.9 billion for next-generation earnings drivers. the year ended March 2008. After that, we con- On the other hand, I am concerned that some fronted the challenge posed by the global financial employees may have lost that sense of enterprise crisis, but we managed to earn ¥273.1 billion for the and initiative that is so vital to a successful trading year ended March 2010. Moreover, MC’s financial company. This may be because we have experi- soundness has been strengthened with the net enced strong earnings for quite some time. debt-to-equity ratio falling to 1.0 at the end of I believe each of us needs to have a sense of March 2010. ownership and be more conscious of our own As MC’s new president and CEO, one of my responsibilities. I intend to cultivate a corporate most important responsibilities is to reinforce the culture where challenging goals are set. If these robust earnings base and sound balance sheet that I goals are achieved and our employees are satisfied, have inherited from my predecessor. At the same MC will see further success.
Question 02
“The Midterm Corporate Strategy 2012” runs for three years until the end of March 2013. How does this plan differ from previous plans adopted by MC?
Answer MC’s earlier medium-term management plans, Thanks to these past medium-term management “MC2000” and “MC2003,” aimed to reshuffle our plans, MC has been significantly reshaped. Continu- business portfolio. “INNOVATION 2007” and “INNO- ing this reshaping process, Midterm Corporate VATION 2009” aimed to achieve sustainable growth Strategy 2012 aims to enhance our organizational by encouraging reforms of each business model. strengths and capabilities by re-engineering man- agement systems and platforms.
008 Mitsubishi Corporation Annual Report 2010 Question 03
How do you view MC’s external and internal operating environment, which forms the backdrop for formulating Midterm Corporate Strategy 2012?
Answer Three major themes stand out when we survey MC’s and other environmental issues, our stakeholder external operating environment. First, the economies base is expanding to include consumers and non- of Japan and other OECD countries have stagnated profit organizations. It is essential that companies and fast-growing emerging economies have come to act as responsible corporate citizens and do their the fore as a major economic force. Second, we are part to benefit societies and conserve the natural seeing the emergence of new growth markets linked environment. Not doing so could jeopardize their to infrastructure, the environment and smart com- very survival. munities. Third, there is the increasing prominence As for our internal environment, we are confront- of society and our planet itself as stakeholders. ing the following three issues. Firstly, in the past While the world economy is gradually recovering couple of years, a major part of our earnings has from the global financial crisis, I believe the days of been generated by certain businesses within the “boom-and-bust” economic cycles are behind us. natural resources field. While I believe these busi- As Japan and other developed nations experience nesses will continue to generate earnings, I wonder economic stagnation, China and other emerging if the favorable conditions for these businesses are economies continue to lead the global economy. sustainable. That’s why I’m doing my best to culti- Over the medium to long term, our prospects vate several next-generation earnings drivers. depend on how to capture the growth of emerging Secondly, our business models have been economies. If we are unable to participate in this changed or diversified. Over the past few decades, growth against strong competition from private and we have managed to shore up our profit base by state-backed enterprises we will not be able to grow flexibly reshuffling our portfolio in accordance with in the medium to long term. the changing business environment. As a result, our Coinciding with these fast-growing economies operations have expanded considerably. Today we and deeper awareness of global environmental prob- are no longer the traditional sogo shosha. In addition lems, we are also seeing the emergence of new to our traditional trading and sales activities, we growth markets linked to infrastructure, environmen- have made investments in natural resources, project tal business and smart communities. While we will operators and manufacturers. also face fierce competition in these areas, I believe Thirdly, business model reform has advanced that MC has many roles to play as a sogo shosha consolidated management and our consolidated (general trading company). subsidiaries and affiliates are now at the frontline of On the final theme, with greater awareness our businesses. worldwide of climate change, threats to biodiversity
Business Environment
External Fast-growing emerging economies and stagnating OECD countries Birth of new growth markets triggered by changing values, technological innovation and rise of emerging economies Expanding stakeholder base
Internal Changes in business portfolio Diversification of business models Shift of businesses to subsidiaries and affiliates
Mitsubishi Corporation Annual Report 2010 009 Question 04
The Midterm Corporate Strategy 2012 establishes a new business goal for MC of “Creating Sustainable Corporate Value.” What exactly are you targeting here?
Answer This new concept of ‘Sustainable Corporate Value’ As a for-profit enterprise, it is only natural that we comprises three elements: “Economic,” “Societal,” seek to grow MC’s earnings. But nowadays unless a and “Environmental.” company creates societal and environmental value “Sustainable Economic Value” refers to our aim as well, its market presence can be seriously com- for sound earnings growth and increased corporate promised. I recognize that we are required to create value through the proactive reshaping of our busi- these three values at the same time. There are many ness model and business portfolio. ways a sogo shosha can help solve problems on a “Sustainable Societal Value” refers to our contri- global scale, and accordingly expectations are high bution to economic development as a responsible about MC’s role. corporate citizen. Devising unique solutions to social and environ- “Sustainable Environmental Value” refers to our mental problems will enhance our sustainability and aim to conserve and contribute to the global environ- competitiveness. MC has made a social and envi- ment, recognizing that our planet is our greatest ronmental contribution to date in various ways stakeholder. through a range of businesses and social contribu- Our mission is to help solve global problems tion activities. I am proud of these activities. through our business activities and create “Sustain- Going forward, our aim is to take up the chal- able Corporate Value” in light of the needs and lenge of creating sustainable corporate value so that expectations of all stakeholders, including our cus- we earn recognition from all stakeholders as a valu- tomers, employees, shareholders, creditors, society able and irreplaceable member of society. and our planet.
Create Sustainable Corporate Value by helping to solve global problems through business activities in light of the needs and expectations of all stakeholders
Sustainable Economic Value Create Sustainable Aim for sound earnings growth and Corporate Value increased corporate value through the proactive reshaping of our business models and portfolio
Sustainable Societal Value Contribute to economic development as a responsible corporate citizen
Sustainable Environmental Value Aim to conserve and contribute to the global environment, recognizing that our planet is our greatest stakeholder
010 Mitsubishi Corporation Annual Report 2010 Question 05
Midterm Corporate Strategy 2012 has a target of ¥500 billion for net income in the third year ending March 2013. What assumptions underpin this figure?
Answer Under the new strategy, we will reinforce our earn- Our assumptions are not uniformly optimistic. As ings base by maintaining capital efficiency and a I mentioned earlier, we expect growth in developed sound balance sheet. Over the course of the strat- countries to remain sluggish, although growth in egy, we are targeting net income of ¥500 billion by emerging countries should continue to be strong. the year ending March 2013. This target would sur- We also remain cautious about the downside risks pass MC’s highest net income of ¥470.9 billion, to the global economy. Even so, we expect invest- which was recorded in the year ended March 2008. ments we made during previous medium-term man- We set the numerical targets after intensive dia- agement plans to produce returns, helping us to logue with each of our business groups. The figure achieve ¥500 billion in net income by the year takes account of this dialogue, the sensitivity of our ending March 2013. earnings to commodity prices and other variables, Also, MC will maintain return on equity, or ROE, the growth potential of global peers that we bench- throughout the three-year period at 12–15% as mark, and our projections for the world economy, well as a sound balance sheet by targeting a net among other factors. One of our primary assump- debt-to-equity ratio, or net DER, of 1.0 to 1.5 times. tions in Midterm Corporate Strategy 2012 is that Finally, we plan to continue to pay dividends to our underlying commodity prices will remain stable. shareholders throughout the three-year period of the midterm corporate strategy in the range of 20 to 25%.
Financial Targets Basic Policy