CSR & Corporate Communications Division Shiodome City Center, 1-5-2, Higashi-Shimbashi, Minato-ku, Tokyo 105-7117, Japan Telephone: +81-3-6253-2100 Facsimile: +81-3-6253-4245 URL: http://www.mitsuichem.com e-mail: [email protected] Mitsui Chemicals,Inc. The Challenge to Create Innovative Values AnnualReport2008 Annual Report 2008 Year Ended March 31, 2008 Responsible Care Printed in Japan Contents 1 Consolidated Financial Highlights 2 To Our Shareholders, Customers and Partners 4 An Interview with the President 10 Corporate Social Responsibility (CSR) Initiatives 16 At a Glance 18 Major Products and Applications 20 Performance Materials Business Sector 24 Advanced Chemicals Business Sector 27 Basic Chemicals Business Sector 31 Research and Development 34 Group Intellectual Property Strategy 36 Board of Directors 37 Financial Section 73 Mitsui Chemicals Group Risks 74 Subsidiaries and Major Affiliates 76 Corporate Data Forward-Looking Statements This annual report contains forward-looking statements about the future plans, strategies, beliefs and performance of the Mitsui Chemicals Group as a whole and its individual consolidated companies. These forward-looking statements are not historical facts. They are expectations, estimates, forecasts and projections based on information currently available to the Mitsui Chemicals Group and are subject to a number of risks, uncertainties and assumptions, which, without limitation, include economic trends, fluctuations in foreign currency exchange rates, fluctuations in the price of raw materials, competition in markets where the Com- pany is active, personal consumption, market demand, the tax system and other legislation. As such, actual results may differ materially from those projected and the Mitsui Chemicals Group cannot guarantee that these forward-looking statements are accu- rate or will be achieved. Consolidated Financial Highlights For the years ended March 31 Thousands of Millions of yen % Change U.S. dollars FY2008 FY2007 FY2006 FY2008/FY2007 FY2008 For the year: Net sales ¥1,786,680 ¥1,688,062 ¥1,472,435 5.8 $17,832,917 Operating income 77,176 91,678 58,705 (15.8) 770,296 Net income 24,831 52,297 44,125 (52.5) 247,840 Capital expenditures 84,667 72,671 81,400 16.5 845,064 R&D expenses 42,130 36,943 37,146 14.0 420,501 At year-end: Total assets ¥1,469,248 ¥1,498,183 ¥1,328,890 (1.9) $14,664,616 Total shareholders’ equity 500,044 504,509 464,021 (0.9) 4,990,956 Yen % Change U.S. dollars Per share of common stock: Net income ¥ 32.22 ¥ 66.68 ¥ 56.20 (51.7) $0.32 Shareholders’ equity 649.63 653.84 592.42 (0.6) 6.48 Cash dividends 12.00 10.00 8.00 20.0 0.12 Performance indicators: Return on equity 4.94% 10.80% 10.15% Return (operating income) on assets 5.20% 6.49% 4.63% Notes: 1) U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥100.19=U.S.$1, the approximate Tokyo foreign exchange market rate as of March 31, 2008. 2) Changes are between the years ended March 31, 2008 and 2007. 3) Total shareholders’ equity = Total net assets – Minority interests (as recorded on the balance sheet) Net Sales Operating Income Total Assets (Billions of Yen) (Billions of Yen) (Billions of Yen) 2,000 100 1,500 1,498 1,469 91.7 1,787 1,329 1,688 80.5 1,205 77.2 1,188 1,500 1,472 75 1,228 1,000 58.7 1,090 53.9 1,000 50 500 500 25 0 0 0 04 05 06 07 08 04 05 06 07 08 04 05 06 07 08 (FY) (FY) (FY) Remarks In this report, FY (XX) indicates the fiscal year starting from April 1 of (XX–1) and ending at March 31 of (XX). For example, FY08 indicates the fiscal year from April 1, 2007 to March 31, 2008. Annual Report 2008 1 To Our Shareholders, Customers and Partners The Challenge to Create Innovative Values Fiscal 2008 (Year Ended March 31, 2008) Business Environment and Results Despite healthy growth in personal consumption and exports, the Japanese economy lost momentum during fiscal 2008, the year ended March 31, 2008, due to lack- luster capital investment, a sharp drop-off in housing investment, and a slowdown in global economic growth from the second half of the fiscal year. Similarly, Japan’s chemical industry continued to face a severe business environment, with weak produc- tion and shipments as well as soaring feedstock prices, which reached an even higher level during the year. In this climate, the entire Mitsui Chemicals Group mobilized in a group-wide effort to improve profitability, a push that entailed a concerted focus on sales activities and thorough cost reductions, among other initiatives. As a result, the Group reported net sales of ¥1,786.7 billion, up ¥98.6 billion year on year, and Kenji Fujiyoshi President and CEO 2 Mitsui Chemicals, Inc. operating income of ¥77.2 billion, a decrease of ¥14.5 and to generate new value through innovative technology. billion. Net income, meanwhile, was ¥24.8 billion, ¥27.5 I will personally spearhead efforts by the Group to meet billion lower than the previous year. We paid a dividend of the challenges that these goals present with greater ¥12 per share for fiscal year 2008, up ¥2 from last year. speed than ever before. Fiscal 2009, the first year of this new medium-term Business Environment in Fiscal 2009 plan, will see us address the following priority issues. (Year Ending March 31, 2009) Japan’s economic outlook is marred by uncertainty, (Economy) including concerns over a global economic slowdown • Grow and expand to achieve long-term targets triggered by fallout from the U.S. subprime mortgage through selective and concentrated investment of problem, pressure on corporate earnings due to rising management resources and realize quick returns on prices for crude oil, iron ore and other raw materials, and these investments weak personal consumption. These conditions will likely • Secure favorable terms of trade amid record-high undermine economic growth rates, causing overall feedstock prices growth to level off particularly in the first half of the year. • Enact extensive cost reduction and asset reduction Similarly, the Mitsui Chemicals Group’s business measures throughout the Group environment is expected to remain challenging, due to large-scale ethylene production facilities that are sched- (Environment) uled to come on stream throughout the Middle East and • Achieve GHG (greenhouse gas) reduction targets and Asia, and lingering concerns over the impact of high formulate other specific reduction targets feedstock prices. • Implement reduction plans at all production sites and Accordingly, the Group is ensuring that all employ- affiliates ahead of steps to achieve “minimization” of ees are fully aware of the severity of the business environ- industrial waste sent to landfill ment, and that all employees make concerted efforts to accelerate measures designed to improve business (Society) performance. • Promote activities as a Group to eradicate occupa- tional accidents and injuries Priority Issues for Fiscal 2009 • Eradicate violations of laws and rules by entrenching In light of these conditions, the Group formulated the a compliance mindset Group-wide 2008 Medium-term Business Plan, a new four-year plan launched in April 2008, in the drive to achieve long-term In closing, I would like to take this opportunity to ask our business objectives. Underlying this latest medium-term many stakeholders, including our shareholders, custom- plan is the “Grand Design”—the basic framework for ers, and partners, for their continued cooperation with Mitsui Chemicals Group management. Guided by the and support of the Mitsui Chemicals Group. new plan, the Group will promote management driven by a three-dimensional strategy based on the concepts of “Economy,” “Environment” and “Society.” Put differently, the goals of the plan are to promote greater economic Kenji Fujiyoshi growth, environmental harmony and social coexistence, President and CEO Annual Report 2008 3 An Interview with the President Mitsui Chemicals has formulated the 2008 Medium-term 1. Operating Income for 2004 Medium-term Business Plan Business Plan, a new four-year medium-term business plan launched in April 2008. In an interview with Presi- (Cumulative four-year operating income) Cumulative four-year dent and CEO Kenji Fujiyoshi, we discuss details of the 2004 Plan (Target) ¥320.0 billion operating income Result ¥308.1 billion almost achieved plan and the background behind its formulation. (Billions of yen) (%) How successful was the company 125 100 Q in achieving the targets of the 100 80 previous medium-term plan? 91.7 80.5 77.2 The year under review was the final year of our 75 60 earlier four-year plan (the 2004 Medium-term 58.7 58% 39% A 36% Business Plan), which originally got under way 50 40 22% in fiscal 2005. One of the key phrases of this plan was, 25 20 “Shift from Commodities to Specialties.” With this in mind, we pursued greater selection and focus in our operations, 0 0 FY05 FY06 FY07 FY08 which entailed a push to expand and grow in the former ■ Consolidated operating income ● Ratio of consolidated operating income derived from Performance Materials performance materials sector, and to strengthen profitabil- ity in the former petrochemicals & basic chemicals sector. The outcome of these actions was that the former In the former, we sought to grow and strengthen functional performance materials sector now accounts for over half polymers and related products, while in the latter, we of our operating income, surpassing our targeted share focused on strengthening propylene chain and aroma of 50%. In fact, cumulative operating income over the chain profitability.