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Major Q & A

 【Containership Business】
Q.1  What is your thinking about freight rates for Asia-North America trade
     and for Asia-Europe trade in 2nd half ?

A.1 For Asia-Europe trade results, our freight index in 1st half was 92
    and it was 88 in 2nd quarter,but current freight market is slightly lower
    compared with the 2nd quarter,which we call‘launch pad’.
    All carriers announced freight restoration in this trade from November,
    so we think market will go up as a result of freight restoration in November,
    but then it will drop slightly in slack season as usual.
    This is our view of freight market for Europe in 2nd half.
    For North America, we are of the opinion that freight index in 2nd half will be same
    as index 103 in 1st half.

Q2. With regard to freight restoration of containership cargo, please let us know
    back ground of freight increase considering current supply and demand situation.

A2. As you may already have seen, SCFI (Shanghai Containerized Freight Index)
    from Shanghai to Europe increased sharply by 23% yesterday.
    First step in freight restoration is that rate increase is announced by each carrier.
    Considering these facts, we think rate restoration for Europe,
    especially for North Europe,is highly possible.
    For North America, we think it is much more likely to increase in December
    because of steady cargo demand.
    Background of above idea is that we realized that annual contracts were,
    especially for Asia-Europe trades, at too low level for every shipping company,
    from the effect of spot market which was very low at the time of negotiation period
    of annual contracts last year.
Q.3 What are your thoughts about supply and demand situation next year ?

A.3 As you may know supply pressure will be strong again, so our view is that
    it will be severe next year if cargo volume for Europe decreases.
    However looking at this year, we do not think it will totally collapse again like 2011.
    Supply and demand situation will not change so much from this year in respect of
    fundamentals because slow steaming will be increased further, which substantially
    has the same effect as space-cutting, and each carrier will implement
    winter (slack season) reduction and other rationalizations, etc.
    So I think it will continue with up and down like this year without total collapse.

Q.4  How about your supply plan in 2nd half compared with last year ?
    How much room do you have for scaling down your supply by laying up and scrapping?
    We understand you might not cancel vessel building contracts once they are firmly ordered.
    How far can you down-size your fleet as far as being able to do so realistically? 

A.4 About supply plan in 2nd half, we announced that we will decrease 10% in Asia-Europe.
    Compared with 2nd half of last year, our space supply will not change so much,
    which means we will again repeat very severe reduction same as last year.

Q.5 Cargo volume increase is pointed out in variation factor as 5.3 billion yen
    plus factor of key point in financial report A-4.
    Please explain what happened.
    My impression is that your company is trying to secure high freight cargo
    by cutting non-profitable cargo, however cargo volume increased.

A.5 The lifting volume increased in total.
    This is mainly because we increased capacity in only North America trade
    out of all of our services, and consequently it contributed to profit.
    In addition, our freight level may a bit higher than other carriers because
    we cut substantial non-profitable cargo during annual contract negotiation period
    at the end of last year. 
    From the above factors, and additionally that we did not increase space
    in Asia-Europe trade,I think we can maintain high cargo volume and
    keep higher freight level. 

Q.6  Please let us know concrete example of Cost saving plan in Containership Business.
    Although the material shows to some extent as Business Restructuring and
    Operational Cost Saving/Earning Profit, please explain in particular
    such as restructuring of alliance, etc., in decreasing order.

A.6 For Cost Saving Plan, half of it is Business Restructuring and
    another half is Operational Cost Saving/Earning Profit, on an annual basis.
    In results for 1st half, biggest factor was operational cost savings,
    and the next is bunker cost savings by slow steaming
    in addition to rationalization of services in a part of our North-South trade
    and non-profitable feeder services, etc.
    Furthermore, profit on sale of container boxes is included. 
    Additionally, it includes increased income of overseas agents due to
    increased commissions from freight hike, which is associated with
    Containership business sector. All those factors were included here.
Q.7  Please explain breakdown of logistics business profit for 2nd quarter.

A.7  Total Containership Business for 1st Half shows profit of about 4.0 billion yen,
     so please understand that a little less than half of it is due to logistics business.

  【Dry Bulk Business】
Q1. Regarding your view for 2nd Half dry bulk market, from 3rd Quarter to 4th Quarter
    you set Panamax market upward and Cape-size market downward.
    Please explain about background.
A1. For Cape-size market, although there may be no need to say anything more,
    the market freight rate level is depressed, or will stay at the bottom,
    as over-supply situation will not change soon since
    about 230 additional Cape-size vessels will after all be delivered this year. 
    On the other hand, I have some expectations for Panamax as grain will start to move. 
    Though drought is seen in the U.S, it is said there will be alternative exports from
    South America, and furthermore we can count on coal demand from China.

Q2. I understand for this 1st Half, you were able to get through market downturn
    because you had fixed contracts to some extent.
    Coming into 2nd Half, how many vessels per each vessel type  are ‘free’
    without contracts?

A2. As to the ratio of free vessels in our dry bulk fleet for this 2nd Half,
    it is about 30% for our entire fleet of dry bulkers.
    As per vessel type, around 20% for Cape-size, 30% for Panamax and 55% for Handy-max.
    For free portion of Cape-size fleet,  we have taken counter-measures to decrease
    the portion by having pursuedf FFA (Forward Freight Agreement),
    or secured 1-year time-charter contracts. 
    However, market is in extremely low tone, we cannot improve our profit
    but rather just avoid profit level going down and try to maintain it.

Q3. We understand your dry bulk segment has maintained profitability for a long time.
    In terms of revised plan for this fiscal year, are you expecting that you can
    achieve some profit for full year?
A3. The year in which we recorded a loss for this segment was 1978.
    Since then, we have made a profit for these 33 consecutive years,
    and we would also like to continue that record this year.
    Although we achieved black ink for this 1st Half,
    present forecast for this 2nd Half is in red ink.
    The balance of 1st Half and 2nd Half is slightly plus
    and that is our full-year estimate.

Q4. Although it might be too early to talk about next year,
    please give us your view about supply and demand balance for dry bulk business next year.

A4. To be frank, we cannot give you very bright prospects for this business for next year.
    In our order book, the accumulated number of vessels to be completed by 2015 is
    18% for existing fleet of Cape-size, around 30% for Panamax,
    and 16% for Handy-max or smaller types. 
    The point is how rapidly vessel demolition proceeds.
    At any rate, until next year supply and demand balance is expected to be slightly harsh
    for us. Hope is that though crude steel production in China has not grown notably,
    depending on price of iron ore and coal, such supply-demand balance might show
    some improvement through China’s import ratio increase due to price being down. 
    At least, I have such a hopeful view.

Q5. In the presentation, President Mr. Asakura commented that you have already considered
    counter-measures against present business situation.
    Since the number of newbuildings of dry bulkers has been increasing, 
    one measure would be slow steaming, I understand.
    Would you please tell us the other measures, if any?

A5. In general, counter-measures against present miserable market are
     just the decrease of the number of vessels,  decrease in service routes
     and decreasing speed, which we will exercise most thoroughly.
     Vessel types that we can decrease more easily among our fleet are Cape-size and Panamax.
     for which the ratio we own is higher than other types.
     So we will sell out more of these type vessels than our original plan.
     As we have worked for vessel disposal from some time ago, including measures
     to constrict our investment cash flow as is indicated in the part of 【Others】
     in this Q&A session, now because dry bulk market downturn could possibly be prolonged,
     we will increase disposal of dry bulk carriers.
     For this 2nd Half, 6 vessels of our entire fleet including all type of vessels
     had been originally scheduled to be sold.
     Now in reviewed plan we will dispose of 15 vessels including
     even vessels for domestic coastal services.
     You can regard the balance of 9 vessels as mainly dry bulk carriers.


 【Car Carrier Business 】

Q1. Talking about Car Carrier Business, regarding the suspicion indicated by your President
    at the beginning of this meeting,
    please let us know whether any effects are caused in your business operation.

A1. We have continued our daily business operation just as it was.

Q2. Regarding the number of cars to carry, which you said you are not specifically worried about,
    in case of separating 3rd Quarter and 4th Quarter, could you please give us some hints
    as to how you are expecting your loading volume for year-on-year basis?

 A2. For year-on-year comparison, the number of cars we are carrying for this 2nd Half
    is almost the same as in previous 2nd Half, and also same as this 1st Half.
    In comparison between 3rd Quarter and 4th Quarter, volume for each  is also almost the same.


 【Heavy Lifters】

Q1. Though you indicated market for Heavy Lifter Business was slow for 2nd Quarter,
    you estimated your loss shrunk for 2nd Half.
    Please give us an explanation about the background for this.
A1. As ‘Offshoe Energy E&P Support & Heavy Lifter’ sector loss is expected to decrease
    for this 2nd Half, only Heavy Lifter profit level for both 1st Half and 2nd Half
    is almost same.
    For Heavy Lifter Business, amortization of  goodwill is still a considerable amount,
    and as a result, loss made in 1st Half is rather significant.
    In terms of quarterly results, loss figure is decreasing quarter-by-quarter
    as a business trend toward 2nd Half. However, for this fiscal year,
    in order to adjust financial term of subsidiaries so as to be same as the Corporate,
    their 4th Quarter includes 6 months. So, loss per quarter is doubled for this 4th Quarter,
    and eventually, loss for 1st Half and 2nd Half is estimated almost same.


【Other Topics in Bulk Shipping Business】

 Q1.In case present dry bulk and tanker market is maintained in the next fiscal year,
    please advise what your profit and loss situation will become.
    Do you see any effect from cost-up due to your receipt of newbuildings?

A1. Talking about our own financial performance in case present market level continues
    in the next fiscal year, considering this 2nd Half,
    we are incurring loss based on these market assumptions.
    Therefore, if it remains unchanged, the entire next year will turn into the red.
    Regarding newbuilings we will receive, costs for them are rather high,
    but we have secured profitable contracts for some of them, which adds extra profit for us.
    In this regard, negative and positive impacts from delivery of newbuildings are
    almost balanced out. Nonetheless, if our dry bulk business results go into the red
    next year, our 33 consecutive profitable year record will be broken,
    which of course we are taking various measure to avoid: reduction of market exposure
    by way of reducing  the number of vessels and taking available FFA, etc.

    In terms of tankers, we have decreased our fleet size.
    All of our VLCCs are under long-term contracts,
    and as our AFRAMAX fleet consists of only 4 vessels,
    the loss from this section is expected to be limited.

Q2  Based on the assumption that present dry bulk market is maintained in the next fiscal year,
    what could happen in the market?
    For example, in the shipping industry is it expected more defaults could be triggered?
    If yes, please give us your comment about how you are managing
    so-called ‘charter-chain risk’*? 
    I would greatly appreciate if you can share words such as there are no problems
    because we have provided sufficient risk management.
      *chain of time charter contracts through series of sub-leasing

A2. Present markets for oil tankers and dry bulkers are completely under breakeven point.
    If these levels of markets are maintained , I am very sure the number of bankrupt companies
    will increase further. 
    If you ask whether we are managing such risks, we have managed since about two years ago.
    When we charter out or charter in  vessels to or from the market,
    we are carefully screening our counterparts.
    So, there are few chances that we are badly affected by broken charter chain
    related to bankrupt owners. 
    However, there remain slight concerns that some of our friendly owners in Japan
    might be involved in such kind of risks.



Q1. As to dividends, you have not fixed your full-year dividend plan fixed.
    We would very much appreciate if you can share your way of thinking about this point.
A1. As a dividend policy, in case consolidated Net Income results in profit,
    at least in a certain amount of profit,
    we will pay dividends in line with our policy of dividend payout ratio.

Q2. As you made downward change to your profit forecasts this time,
    in terms of capital expenditure based on present new estimations,
    please tell us about your revised investment cash flow.
A2. To our shareholders and bankers, we will maintain our own line
    that we ourselves manage to make our investment cash flow within our depreciation amount,
    i.e., 50.0 billion yen, which we continue to watch very carefully.
    So, our investment cash flow for this year will never exceed 50.0 billion yen. 
    In reality, we are now coming around to make it in the range of nearly 40.0 billion yen.

Q3. About the Cost Saving Plan indicated for the Slide A-5,
    you have increased this year’s target by 4.0 billion yen.
    Please advise your comments regarding this addition,
    whether progress of your cost saving schedule in your mid-term management plan
    will change, or it is just acceralated ,or purely extra amount.
A3. Regarding cost saving plan, we now expect we can achieve an addition
    between 28.0 to 32.0 billion yen including Containership Business and others
    for this fiscal year.
    I understand your question is whether we can make more and more cost savings
    after the next fiscal year, but I suppose it might be too early to now say
    whether we can make additional cost savings in the future.
    Of course, cost saving itself is endless and even if we can achieve remarkable reductions
    now, we can never say they are sufficient.
    So including corresponding to change in business circumstances every year,
    we must always keep reviewing our cost structure, which we fully understand.

Q4. You have explained investment cash flow should be within target range
    and you will sell more vessels than previously estimated.
    However, looking at present situation, we can never say it is good for ship owners,
    as Sanko Steamship Co., Ltd. increased portion of reduction in charter hire again,
    or overseas OSG  has filed Chapter 11.
    Do you see any possibilities that such circumstances will negatively affect
    your own businesses? Even if there are no possibilities at this moment,
    please advise your view about whether it might become severer toward next year
    when this lower shipping markets are expected to continue.

A4. I understand that the question is if “K”Line’s operations would be affected
    by those incidents, going straight to the point, there would be no impact.
    However, it has come to a matter of public fact that banking facilities’
    view to shipping companies is turning severer,
    and so we feel we may have to be more careful about  this point in the future.

    Taking OSG, who are concentrating on tanker business with VLCC or AFRAmax,
    as I told you beforehand, in a sense, we have already kept ourselves away from
    this market, so Chapter 11 relating to tanker operators has no concern with
    our businesses.

Q5. As you commented you are planning to sell some more vessels,
    considering present second-hand vessel market, how much do you count on profit
    from further sell-off of your fleet?

A5.Talking about how much profit we could additionally earn from sale of our vessels,
   please refer to the column at the right bottom on page 5 in our ‘Financial Report’.
   Though it heavily depends on present second-hand markets, when we dispose of 13 vessels,
   including smaller type vessels for domestic use, during this 1st Half,
   the profit we posted was about 6.0 billion yen. 
   As for the 2nd Half, as mentioned  here we expect about 4.0 billion yen profit
   from planned disposal of 15 vessels. 
   Sales of over half of the 15 vessels have already been fixed,
   and we are now starting negotiations for the other 5 or so vessels,
   but we are confident we can earn this level of profit.


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