Ladies and Gentlemen,
Thank you very much for joining us today in spite of such hot summer weather. I will explain "K" LINE's 1st Quarter Fiscal 2008 financial results, and our prospects for half-year and full-year financial position for Fiscal 2008 according to the Power Point slides in front of you.
Before discussing 1st Quarter results, I would like to first touch on how our newly-established management plan "K" Line Vision 100 publicized in April 2008 is going.
Originally in the plan, compared to Fiscal 2007, we set Fiscal 2008 forecasts as once declining slightly, and then constantly increasing from Fiscal 2008 through Fiscal 2011.
As I will report our yearly prospects later, at present we see our overall company profit proceeding almost as planned.
Our operating revenues are growing over our original prospects in the plan after review of current freight market. I suppose in that way the new management plan is going as scheduled.
However, bunker oil price has been rising far beyond our projection, which is one of the reasons making Containership Business results contrast somewhat with those of Dry Bulk Business, but the entire profit of "K" Line group still remains almost the same as what we planned.
A. Financial Highlights for 1st Quarter Fiscal 2008
A-1. Financial Results
Based on such a full-year projection, I will start off talking about 1st Quarter Fiscal 2008 financial results.
I always feel it is rather difficult to grasp the whole image through just one quarterly analysis that only reflects results of a 3-month period; nevertheless, Operating Revenues for this 1st Quarter were 349.5 billion yen, an increase of 13% compared to the same term last year, which, as I mentioned a few minutes before, even slightly exceeded our original forecasts as of this April, released together with our Fiscal 2007 yearly results.
Ordinary Income amounted to 33.3 billion yen, down almost 8% for year-on-year basis, which improved from the previous projection as of April, but 2.7 billion yen minus from 1st Quarter Fiscal 2007 results.
Though average exchange rate between Yen and U.S. dollar during the period was 103.36 yen per one U.S. dollar, slightly lower than our preconditions of 100 yen, but 16.5 yen up from the 119.85 yen rate for last year's 1st Quarter results.
Bunker oil price was 542 U.S. dollars per kilo ton, 210 dollar increase from last year.
In comparison with 1st Quarter last year, effect from exchange rate fluctuation was just minus 5.8 billion yen, but fuel oil price rise by 210 U.S. dollars pulled profit down by 13.7 billion yen.
As I suppose you might ask about Containership Business, etc. later, Ordinary Income for the division was one billion yen loss, which was 9 billion yen decrease from last year.
The profit for Other Marine Business, mainly Dry Bulk division, improved around 7.0 billion yen in year-on-year comparison, which means the dry bulk market level was higher than our pre-conditions for this 1st Quarter, and the last 1st Quarter average.
A-2 Key Points
In total, Operating Revenues rose by approximately 40.3 billion yen and Ordinary Income decreased by about 2.7 billion yen from the previous year.
First, taking the factors for revenue increase, dry bulk market climbed tremendously for year-on-year basis; business scale expanded with delivery of 12 newly-built ships, and positive container cargo volume, especially in Asia-Europe trades where 8,000 TEU type larger ships have shifted into full swing.
Soaring bunker oil price, yen appreciation and rising ship cost were negative factors. I feel the impact of oil price hike was particularly severe.
A-3-1 Outline of Division-wise Results for 1st Quarter Fiscal 2008 - Containership Business -
When I read newspapers or industry journals just after our announcement of financial results, I felt like they regarded "K" LINE as a company whose main activity was basically container operations, and they indicated trend of Containership Business decided the outcome of corporate performance among major shipping companies.
Though the earnings by that division were surely down by 9 billion from last year, we have managed that business itself quite firmly. I suppose you will ask many questions regarding this area later, so I will explain at the time.
Operating Revenues of containership division were 148.8 billion yen, an increase of 1.3 billion yen, and as I mentioned before, Ordinary Income was a loss of one billion yen.
The business scale was expanded steadily. Total of 8 newly-built 8,000TEU-type ships, the largest ones in our containership fleet, were delivered and now in full operation in Asia-Europe services. We also reinforced 'North-South' trades. Total loading volume grew by 6.3% compared to last year.
Then, freight rates were improved from previous year, which were of most concern for us, and in line with our original projections as of this April.
Among profit decrease factors, what we should list first was fuel oil price hike, and another was decline in our loading volume toward North America due to weaker cargo trends, which made us somewhat anxious.
A-3-2 Outline of Division-wise Results for 1st Quarter Fiscal 2008 - Dry Bulk Business -
In Dry Bulk Division, we were able to secure a rise in both revenues and profits.
As indicated in the table in this slide, taking Cape-size bulkers, the average market rate for this 1st Quarter was 165,000 U.S. dollars a day, and the rate for Panamax was 67,000 dollars, which was roughly 50% up, or almost double from 1st Quarter Fiscal 2007.
Together with business expansion from 4 newbuildings received in this Quarter, our profit notably improved. For guidance, as the 4 new ships were delivered within this 1st Quarter, a total of 14 are scheduled to be completed throughout this Fiscal 2008.
A-3-3 Outline of Division-wise Results for 1st Quarter Fiscal 2008 - Car Carrier Business -
As to trends for Car Carrier business, we were able to achieve revenue increase, but profit resulted almost flat in comparison with last year.
Two newbuildings were delivered during this 1st Quarter, and five newly-built ships received within Fiscal 2007 have started full operation.
Total number of units carried was over 900,000 units, a 7% rise from the same period last year.
Although cargo flow towards North America has been in downward trend recently because of the considerable slowdown in U. S. automobile sales, other routes to Latin America and Caribbean areas, Middle East and Africa from Japan or Far East have been very positive, whereas we see general cargo movements as being flat or slightly increasing.
The primary reason why our results were almost flat was the cost increase due to bunker oil price hike, which offset revenue rise associated with loaded volume up.
A-3-4 Outline of Division-wise Results for 1st Quarter Fiscal 2008 - Energy Transportation -
As to our Energy Transportation business, 5 new LNG carriers deployed in long-term contracts were received in this 1st Quarter. In the oil tanker section, both total revenues and profit resulted in an increase because freight rate market, especially for AFRAMAX and CLEAN tankers, stayed in higher level than 1st Quarter previous year, and business scale enhanced with 1 VLCC and 2 LPG tankers delivered within Fiscal 2007 came into full operation, which made operating tonnage grow by 25.6% for year-on-year comparison.
A-3-5 Outline of Division-wise Results for 1st Quarter Fiscal 2008 - Other Business -
Among Other Business segments, Heavy Lift business has been in steady tone, due to one newbuilding completed in the 1st Quarter, and strong heavy cargo movements, such as carriage of plants for Middle East, or other oil or gas producing countries.
For the Short Sea/Coastal Shipping sector, domestic ferry services in Japan expanded business and revenues and profits rose for year-on-year basis.
In Logistics business, both revenue and profit were down from last year because demand growth in air cargoes towards the U.S.A was slacking off.
B. Prospects for Fiscal 2008
B-1. Prospects for 1st Half and Full Year Fiscal 2008
Now, I will move to 1st Half and yearly predictions for Fiscal 2008, although 1st Quarter has just ended.
As of this April , we publicly announced prospects for Operating Revenues and Ordinary Income in the 1st Half were 670 billion and 64 billion but because of good results of 1st Quarter with freight hike for dry bulk carriers, prospects for Operating Revenues and Ordinary Income in the 1st Half are currently 700 billion and 70 billion.
Yen-U.S. Dollar exchange rate is set at 100 yen per U.S. dollar, and bunker oil price of 700 dollars per metric ton for 2nd Quarter; as a result 1st Half average will be 102 yen per U.S. dollar and bunker oil price 621 dollars per metric ton. Especially, bunker oil price is 100 dollars higher compared with the forecast of 520 dollars as of this April.
Regarding full-year, although it was not examined closely, after review of dry bulk carrier freight and bunker oil price, revision of containership cargo volume and freight prospects as far as we can predict, Operating Revenues in the full-year will be 1,400 billion compared to 1,340 billion in our original prospects as of this April. Ordinary Income and Net Income are expected to be 121 billion and 78 billion, both of which remain unchanged from original prospects as of this April.
With regard to dividend payout, 27 yen on full-year basis remains unchanged as already announced on assumption that it is possible to achieve as planned. Dividend payout ratio remains unchanged at 22% as we announced.
About changing factors, such as Yen-U.S. Dollar exchange rate and bunker oil price:
With regards to effect of the Yen-U.S. dollar exchange rate, fluctuation on Yearly basis of 1 yen fall increases Ordinary Income by approximately 1.4 billion yen. Earnings change from bunker oil price in the latter six months of the term is estimated to be 800 million yen for every ten dollars though the change in the first six months of the term was 1.3 billion for each ten dollars because bunker surcharge cover ratios increasing.
B-2 Business-wise Operating Revenues/Ordinary Income
For guidance, we would like to explain Yearly Ordinary Income of each segment although it is not mentioned in the B-2 sheet. In the containership sector, Ordinary Income for full-year is estimated to be minus 20 billion yen although the Ordinary Income in the first six months of the term was minus 4.8 billion yen.
With regards to Other Marine Business, Ordinary Income in the first six months of the term is 72.5 billion yen and yearly Ordinary Income is estimated to be 135.5 billion yen. Ordinary Income of Others in the first six months of the term is 2.3 billion yen and yearly Ordinary Income is estimated to be 5.5 billion yen.
Consolidated Ordinary Income for "K" Line Group during latter 6 months is estimated to be 51 billion yen.
Yearly Ordinary Income is estimated to be 121 billion which remains unchanged as per our plan. Profit will decrease in the latter 6 months because bunker oil price is set as $750 per metric ton.
We estimate Dry bulk carrier market during latter 6 months of 2008 as almost the same as first 6 months which is very high level, so it offsets profit decrease of container section.
B-3 Key Points for 1st Half Full Year 2008
Consolidated Ordinary Income of first 6 months of 2008 increased 6.3 billion compared with last year and increased 6 billion compared with original prospects.
B-4-1 Division-wise Trends for 1st Half Full Year 2008 Prospects - Containership Business -
Regarding Containership division, cargo loading volume is continuously growing except for USA. Loading results of first 6 months was 1.78 million TEU which is 9% increase compared with last year. This result is almost the same as our original prospect.
Freight rate restoration is as we show in the B-4-1 sheet.
B-4-2 Division-wise Trends for 1st Half Full Year 2008 Prospects - Dry Bulk & Car Carrier Business -
In the Dry Bulk sector, we made upward revision in the market trend. With regard to 2nd Quarter we revised our prospects up at $160,000 dollars for Cape size and $65,000 for Panamax size, revised upwards compared with original prospects and almost the same as 1st Quarter.
About Car Carrier Service, cargo volume is expected to maintain steady volume. Although volume of car transportation from Japan and Korea to USA will decrease due to degeneration of car sales in USA, transportation for other areas will increase and this covers decrease for USA. Total cargo loading volume will remain unchanged or rather on the increase.
Cargo volume itself will increase 4-5% in other areas, so sales are expanding and will offset bunker hike; as a result, it is expected that Ordinary Income of Car Carriers will remain stable.
B-4-3 Division-wise Trends for 1st Half Fiscal 2008 Prospects - Energy Transportation & Heavy Lifters -
As for our Energy Transportation and Heavy Lift business, 4 new LNG carriers are going to be added during the 2nd Quarter to expand our LNG fleet with which we are associated, making a total of 42 ships.
Then for oil tankers, we expect the market for AFRA-MAX and CLEAN will stay at the same high level as in the 1st Quarter.
Heavy Lift business will be positive with another heavy lifter scheduled to be completed in 2nd Quarter, which means we will have two newbuildings in total during this 1st Half.
B-5. Key Points for Fiscal 2008
Our Operating Revenues are expected to grow beyond our original forecasts to 1,400 billion yen, as I mentioned in the beginning of this presentation.
Ordinary Income is projected to decline for year-on-year basis, just as originally expected. Though fuel oil price is prospected to climb and exceed our assumptions, the negative effects from the oil hike, together with Containership Business, will be covered by dry bulk business supported by a continuously buoyant market, and our group company will be able to earn 121 billion yen of Ordinary Income in total, in accordance with what we planned as of this April.
This completes my explanation.
Thank you very much for joining us today.