Ladies and Gentlemen,
Thank you for joining us today in spite of such hot summer weather.
It is a pleasure to share this report with you on "K" LINE's Fiscal 2005 1st Quarter consolidated and non-consolidated financial results, and our prospects for half-year as well as full-year financial position for Fiscal 2005, which were disclosed on 4th of August.
I will explain according to the Power Point slides.
1. Financial Highlights for 1st Quarter Fiscal 2005
As you can see in this table, Operating Revenues were 221.1 billion yen, Ordinary Income 24.1 billion yen and Net Income 15.5 billion yen.
Compared to our original projection, which was announced in May 2005 at the time of our 2004 yearly financial close, Operating Revenues increased by almost 3%, and Ordinary Income rose nearly 15%, as per the rate of change indicated in the third column from the right. We made much improvement both in sales and profits. However, for the year-on-year basis, while Operating Revenues grew 11%, Operating Income, Ordinary Income, and Net Income fell over 10%.
As to the cause for this, we can count total of 4.5 billion yen loss from approximately 1 yen rise in value of Japanese yen against U.S. dollar, and the jump of about 67 U.S. dollars per metric ton in fuel oil price, resulting in 0.3 billion and 4.2 billion yen loss, respectively.
In comparison with the initial forecast for 1st Quarter Fiscal 2005, exchange rate depreciated around 2 yen from original prediction of 105 yen per U.S. Dollar, resulting in almost 0.6 billion yen profit; and bunker oil price dropped roughly 2 U.S. dollars from 250 dollars per ton, which also resulted in about 0.1 billion yen of improvement.
Besides these two items, there were market factors. I will explain each under division-wise aspects later, but will give this brief summary:
In containership business, cargo volume was not remarkably changed from our estimation, but freight rates were somewhat up. In bulker sector, although market has recently seen a downturn, we had secured cargo before the market level dropped. In car carrier sector, the number of cars transported by PCTCs was rather positive, and we succeeded in achieving more efficient operations than were expected.
During this 1st Quarter, even though its only a 3-month period, the ratio of Consolidated to Non-Consolidated shows a tendency of expanding. For Operating Revenues, ratio increased to 1.25 from 1.24 last year, and for Ordinary Income it leaped to 1.37 from 1.24. We can see that business by our subsidiaries has improved.
Next, I will talk about Division-wise results.
2. Trend of Division-wise Results in 1st Quarter Fiscal 2005 for Container Business
In containership business, we have achieved better results in this 1st Quarter in comparison with our original prospects as of May, and also with the results in the previous year. Ordinary Income amounted to 9.3 billion yen on Consolidated basis, which was disclosed for the first time in our official 'Financial Highlights' as a reference note that was mentioned on Page 11 of the 'Financial Highlights for 1st Quarter of Fiscal 2005'.
As mentioned before, loaded cargo volume was at almost the same level as we had originally predicted, a 7.4% increase from the results of the same period in the previous year. We have also achieved various costs savings but the most important factor was freight restoration realized, especially in intra-Asia and trans-Atlantic services.
Talking about trade-wise situation, in Asia-Europe loop the freight rate was restored by 3.5%, and in Asia-North America by 2.5% compared with 1st Quarter last year. Gross average improved approximately 9% for year-on-year comparison.
Just as guidance, in Consolidated container business segment, Operating Revenues were 106.5 billion yen and Ordinary Income 9.3 billion yen, which accounted for 48% of entire group Operating Revenues, and 39% of Ordinary Income, although on Non-Consolidated basis, Operating Revenues was 54%, and Ordinary Income was 41%.
So, even though we sometimes evaluate that we owe so much to containership business, over 50% at least, on Consolidated basis, the ratio has, however, gone below 50%.
3. Trend of Division-wise Results in 1st Quarter Fiscal 2005 for Bulker & Car Carrier Services
In the Bulker sector, as also mentioned before, although market freight level started going downward in April, just before Japan's long consecutive so-called 'Golden Week' holiday, we had already ensured cargo contracts. Operating tonnage in this sector, which reflected our business scale, increased by 5.5% from previous year. Profits earned in this 1st Quarter were down from last year, but well over what was initially prospected.
As for the Car Carrier sector, the number of cars we carried increased by nearly 8% for the year-on-year basis.
We could enjoy stronger cargo volume especially in the services for Central and South America, Caribbean Sea, Australia, or Middle and Near East from Far East Asia where we gained rather high profitability. In off-shore trades, loading volume showed a significant rise of more than 30%. Our gain eventually considerably exceeded our original plan.
4. Trend of Division-wise Results in 1st Quarter Fiscal 2005 for Energy Transportation
In Energy Transportation, as you already know, our business scale here is relatively small, but we have earned solid profits in general.
As indicated here, each LNG project has progressed satisfactorily and maintained stable profitability.
We added one newbuilding for Ras Gas II Project into our LNG fleet in May this year.
However, operating tonnage decreased slightly, because one vessel in our fleet named 'Dewa-Maru' had to be dry-docked for periodic inspection. Incidentally, with the new ship for Ras Gas II our LNG fleet, including those in which we are even partially concerned, now consists of 27 in total.
As to the Thermal Coal Carrier sector, profit level was just in line with our original projection. Compared with results for the same period last year, it was almost flat. Our core fleet of 15 Corona-type vessels has been in full operation, and heavy congestion in loading ports, especially in Australia, has been eliminated and now allows us to enjoy rather smooth operations. In June, a new Panamax-type ship was delivered and joined our fleet, and will start to contribute to our profits from 2nd Quarter.
For the Tanker sector, compared to last year's 1st Quarter, there is a negative factor since the only VLCC in our fleet that had enjoyed the buoyant spot market at that time entered into a long-term stable contract. However, results for this 1st Quarter were almost as expected at the beginning of this fiscal year. Although the market freight level fell temporally to around World Scale 50, it has been in a recovery trend and is now comparatively stable.
5. Prospects for Fiscal 2005
In this table, the projections for 1st Half and full-year Fiscal 2005 are indicated.
As an assumption for those figures, exchange rate has been changed to 110 yen per U.S. dollar from original 105 from 2nd Quarter, taking present yen depreciation into account.
Bunker oil price condition had been set at 250 dollars per metric ton for the 1st Quarter, 230 for the 2nd Quarter, and 220 for 2nd Half. However, as fuel price has continued at higher level, we reset the conditions as 260 dollars per metric ton after 2nd Quarter.
After our review of these premises, 2nd Quarter forecast has slightly declined below our previous projection, which will be almost offset by the improvement in 1st Quarter results. So, we estimate this 1st Half in total will remain unchanged from our May 12, 2005 announcement forecasting Operating Revenues of 450 billion yen, Ordinary Income of 50 billion yen and Net Income of 34 billion yen.
As for the 2nd Half, in addition to the revision of exchange rate and bunker price mentioned before, we are counting on a plus effect of 2.9 billion yen as the fruit of our cost curtailing campaign.
In this regard, as improvement factors, the effect of a weakened yen against U.S. Dollar, from 105 yen to 110 yen per dollar, is calculated at 3.2 billion yen, and 2.9 billion yen from our earlier-mentioned cost reduction. As negative factor, we see almost 5 billion yen due to bunker price going from 220 up to 260 dollars per metric ton. As to the effect from any fluctuating market level, my staff has been working on revising firm prospects for 2nd Half, but without jumping to any conclusion, market condition has not yet changed for our 2nd Half prospects..
Thus, projections for the 2nd Half and full-year Fiscal 2005 are the same as before with Operating Revenues of 900 billion yen, Ordinary Income of 105 billion yen, and Net profit of 69 billion yen.
With these prospects, we will keep our dividend payment of 18 yen per share annually, including 9 yen as interim dividend.
Regarding 2nd Half and yearly prospects, the ratio of Consolidated to Non-Consolidated shows same increase tendency as in 1st Quarter. We tend to see this increase in the ratio as a positive sign reflecting fruits of our management policy in recent years to grow our group companies.
6. Key Points for Fiscal 2006 prospects
I have already commented on contents in this slide, so let's now move to the next slide.
7. Fleet Order List and Major Financial Indices
Regarding our fleet expansion listed in the table on the left, 18 vessels were delivered in Fiscal 2004 with a total of 33 scheduled in Fiscal 2005 that includes ships under charter contracts.
Upon announcement of Fiscal 2004 results and Fiscal 2005 prospects in May, I explained that the number of ships to be completed in Fiscal 2005 was 20. However, that 20 figure refers only to the number of ships that directly affect cash flows quoted in the right hand table.
For accomplishment of our mid-term management plan "K" Line Vision 2008, which was set at the beginning of Fiscal 2004, total investment amount of 730 billion yen for a gross total of 181 vessels was scheduled. All these 33 vessels, including chartered ones, are the subject of the 181 vessels. I hope the number should be more convenient for your reference.
So, now our investment plan has been pursued together with the management plan.
For your information, we now have a plan to build over 181 ships, including those that are still informally decided. Some are to be slightly delayed for delivery in Fiscal 2009, but in general our investing is going quite smoothly.
Furthermore, as you know well, shipbuilding costs have escalated sharply nowadays with prices beyond our expectations in some cases. We prospect that the planned investment amount of 730 billion yen should be slightly increased.
Regarding these amendments in our investment plan, we have scheduled a review of our entire "K" Line Vision 2008 for Fiscal 2006, 2007 and 2008 within this fiscal year, and simultaneously, we would like to show even rough ideas for 2009 and 2010 with the revised plan.
Major financial indices are mentioned in the table on the right. As we have not amended our yearly projection, we do not see any significant change for these indices.
8. Cost Curtailing Campaign
Finally I will touch on our Cost Curtailing Campaign. For the current year, we targeted 5 billion yen and only around 1 billion yen was accounted for in the entire company projection publicized at the beginning of this year. Now, as we have become confident of accomplishing the total 5 billion yen, we have fully counted 5 billion yen in our present projection.
When it comes to our cost curtailing campaign, we have continued tackling cost reduction for a long time, and even in the terms of our 'K" Line Re-engineering Program' that started in the mid-1990s, we have made in-depth reviews of our cost structure.
Maybe you know that it is called "leaf picking" in our office, which I heard means the same as the Japanese expression "gathering grain left behind by reapers,"whereby we try to collect and pile up even very small pieces of cost saving items, even those under 1 million yen, not only in Japan, but in all our operations throughout the world.
As a result, these already total some several billion yen. However, no such 'big tasks' now remain so we have been struggling to find new targets.
But still, as described in our "K" Line Vision 2008, I would like to retain our corporate culture which is severely cost-conscious as an inherent gene of our company, and so our cost curtailing campaign will continue, no matter if the amount is somewhat reduced.
In items chargeable to cargo, such as terminal operation charges, feeder costs in intra-Asia service, etc., we are saving about 1.8 billion yen, and in container equipment-related costs around 1 billion yen, as an example.
That concludes my explanation today about the settlement of accounts for the 1st Quarter and the revised prospects for the 1st half and full Fiscal year.
Thank you very much for joining us today.
