Ladies and Gentlemen,
Thank you very much for sharing your time to join us today. I will explain "K" LINE's Fiscal 2008 3rd Quarter financial results, and our prospects for full-year financial position for Fiscal 2008 according to the Power Point slides in front of you, and the documents in your hands, which indicate the same contents.
Please allow me to shift from page to page, as I try to make an explanation as best I can that will enable you to grasp the entire picture.
A-1-1. Financial Results for 3rd Quarter Fiscal 2008
I will start off by talking about accumulated consolidated results during the 9-month period from April 1 to December 31, 2008 mentioned in this A-1-1 slide, showing Operating Revenues were 1 trillion 53.6 billion yen, an increase of 69.0 billion yen, up 7% for year-on-year basis.
Looking at profit, however, even though we were able to narrowly post a profit for this individual 3rd Quarter, compared to accumulated year-to-date period for the same term in the previous year, our Operating Income was down 11% to 89.7 billion yen, and Ordinary Income dropped 19% to 81.8 billion yen.
Our Net Income for the period worsened as a result of Extra Ordinary Loss including 15.6 billion yen from decline in appraisal of securities for our affiliated company, FLEX LNG, whose major business is development of a floating LNG Producer, or FPSO, and whose share price fell sharply from the time when we invested last year.
Due to this, final figures for this 3rd Quarter only resulted in Net Loss of 10.5 billion yen. Accumulation for year-to-date was Net Income of 40.7 billion yen, a 40% fall from last year.
With regard to Yen-U.S. Dollar exchange rate, Yen has been rising, with average rate for this 3rd Quarter being 99.17 yen per one U.S. dollar, whereas it was 103.50 yen for the nine months through the 3rd Quarter, which is about 14 yen appreciation for year-on-year basis.
As to bunker oil price, which has been in downturn trend, during the 3rd Quarter, together with much higher-priced oil still in our inventory, average consumed price was 483 U.S. dollars per Metric Ton, and that for the nine-month-term was 562 dollars, nearly 50% higher than the price last year.
With strength of Yen rising about 14 yen in year-on-year comparison, results were negatively affected by 13.2 billion yen; and increased fuel price caused additional 31.2 billion minus factor.
We will see the segment-wise effect in next A-1-2 Slide.
A-1-2. Business-wise Operating Revenues/Ordinary Income
As you may well know, our containership sector accounts for a relatively high proportion of our overall business portfolio, and so the profit and loss earned in this segment significantly affects our entire company results.
I regret to say that in this 3rd Quarter, we also faced continuous cargo volume decrease in the Asia-Europe route in line with lower freight rate levels, which resulted in 14.4 billion yen loss in Ordinary Income for this segment. On nine-month accumulation basis, the loss was over 20.0 billion yen, and almost 30.0 billion yen decrease for year-on-year basis.
As to Other Marine Business sector, overall business is in positive trend.
As I will mention later, even in Dry Bulk Business we managed to post a profit, and in 'Other Marine Business' in total, we had 97.6 billion yen for nine-month accumulation basis, 12% increase compared to last year.
Including earnings from 'Others', our entire group company profit was 81.8 billion yen as I said before.
Would you now please turn to Slide B-1?
B-1. Prospects for Full Fiscal Year 2008
Up to now I have commented about actual results through 3rd Quarter Fiscal 2008.
Now, I will talk about the present situation and how we see it throughout the full fiscal year period.
The world economy is drastically slowing down, and with this negative trend, demand in almost all industries is falling, which is hitting our 4th Quarter performance severely, and so our profit for the 4th Quarter, even at the stage of Operating Income, is regrettably forecasted to turn to a loss.
Operating Revenues during 4th Quarter are expected to be 226.4 billion yen, and accumulation for full year to amount to 1 trillion 280.0 billion yen, which is 100.0 billion yen under previous prospects of 1 trillion 380.0 billion yen that was announced in October 2008, along with results for this 1st Half.
Both Operating Income and Ordinary Income are expected to mark losses in this 4th Quarter, which I very much regret to say is bringing down our profit accumulated up to the 3rd Quarter. Revised Ordinary Income estimation for full year is 67.0 billion yen, down 36% from the 105.0 billion yen announced in previous forecasts last October along with interim financial results.
Compared to the previous yearly results, which were record high, a roughly 50% drop in profit is expected. Net Income for full-year basis is prospected at 30.0 billion yen, also offsetting profit earned in the past.
Based on these prospects, with respect to year-end dividend for this Fiscal 2008, although we had planned as of October 2008 to pay 11.5 yen per share as year-end-dividend after having paid 13.5 yen interim dividend, I regret to say that we will have to forego the year-end dividend payment to maintain soundness of our corporate structure as we will be posting a loss in the 2nd Half. This might be the same as in almost all other industries, but it is especially difficult at the present time to predict the future demand situation.
As a result, annual dividend amount for this year will be 13.5 yen per share in total, which has already been paid as interim dividend, with payout ratio calculated to be about 29%, based on revised prospects for consolidated Net Income of 30.0 billion yen.
For your information, 4th Quarter premises have been set for exchange rate at 90 yen per U.S. dollar, and fuel oil price 275 dollars per kilo ton as average.
Shall we now go to B-2 Slide?
B-2. Business-wise Operating Revenues/Ordinary Profit Loss
On segment-wise basis, Ordinary Income earned by Containership division for the 4th Quarter is estimated at 13.5 billion yen loss, and for full year 33.8 billion yen, a drop of over 30.0 billion yen, which means a downward adjustment of nearly 15.0 billion yen from the previous prospects of 18.9 billion yen loss revised in October 2008.
Other Marine Business segments for 4th Quarter, because of shrinking especially in Dry Bulk business and also rapid decrease in car exports affecting Car Carrier demand, are predicted to fall into negative figures, and even on yearly basis, only 97.3 billion yen, down over 20.0 billion yen from previous forecasts.
These are overall images throughout the full year.
Now, I will touch on business-wise trends so please go back to Slide A-3.
A-3-1. Outline of Division-wise Results for 3rd Quarter Fiscal 2008 for Containership Business
In concerned containership sector, Ordinary Income decreased although loading volume increased slightly compared with last year because of Japanese yen appreciation and rise of bunker price, etc.
Regarding freight rates, as you can see in written materials that you have, actual rates have fallen sharply, especially in 3rd Quarter which we will explain later. Overall level of Asia-EU rates also dropped widely.
As a brief comment, over-capacity situation continues as demand of tonnage decreases in these circumstances when cargo demand generally decreases and it is difficult to find signs for recovery.
What we can do under such large demand and supply gap is to cut down tonnage supply which is the same as when manufacturing industry decreases their supply quantity to avoid such gap. We have been making an effort to minimize demand and supply GAP by restructuring services, idling vessels and suspension of services in each trade lane. This is difficult to do independently, so we are jointly reducing tonnage supply with our Alliance members but it takes a bit of time to cut overall supply. As we mentioned, the only thing we can do is adjust tonnage supply, so we are trying to do that by all means.
A-3-2. Outline of Division-wise Results in 3rd Quarter Fiscal 2008 for Dry Bulk Business
Regarding Dry Bulk, revenues increased but profit decreased in 3rd quarter. All in all, however, it was tough from the market preconditions for 3rd Quarter; for example, actual results for hire of Cape-size vessels was $8000 per day although we had predicted $10,000 per day. In addition, impact of downward trend in market of middle-small vessels was large, and regrettably to say our profit decreased although our operating tonnage increased.
Steel demand in China is still increasing, but its pace is currently slowing down. Price rise of iron ore has decreased total import volume of iron ore from Brazil. In addition, there is effect from reduction of production growth of Chinese steel affected. Near the port area, stock of iron ore increased to a level of more than quantity needed for 2 months. In order to utilize these excessive iron ore stocks, demand for cargo transportation greatly decreased, and partly because of this effect, a drop in the market for larger-size ships. This is the present situation.
However, it seems that the Chinese government has now started taking various measures for domestic demand expansion, and after New Year there's been a little uptrend in the market, so we expect there will be some further improvement after Chinese New Year.
A-3-3. Outline of Division-wise Results in 3rd Quarter Fiscal 2008 for Car Carrier Business
As to Car Carrier Business, cargo handling volume had been increasing until 3rd Quarter compared with previous year. Especially in what we call "North-South" trade lanes, cargo volume remained comparatively stable and profit almost flat. But from middle of 3rd Quarter, volume of cars exported from Japan has been decreasing drastically. To adjust shipments to reflect car inventories which have been accumulating in each country, 4th Quarter cargo volume will decrease substantially.
A-3-4. Outline of Division-wise Results in 3rd Quarter Fiscal 2008 for Energy Transportation
Regarding Energy Transportation, our fleet scale that includes LNG Carriers and Tankers expanded with both revenues and profits increasing in 3rd Quarter. However Tanker market has been down slightly although quite moderate compared with Dry Bulk and will lower profit a little bit on a full-year basis.
A-3-5. Outline of Division-wise Results in 3rd Quarter Fiscal 2008 for Other Businesses
With regard to Heavy Lift service that we re-entered from 2007, this market remains comparatively stable without any major drop off in the near future since large plant and heavy-type cargo are moving actively even in the current global slowdown due to contracts having been made in the past.
Domestic ferry services in Japan, operated by our consolidated subsidiary, Kawasaki Kinkai Kisen Kaisha, Ltd., are going very well.
In Logistics sector, both revenue and profit decreased because handling volume of air and ocean shipments as well as port services decreased along with downward trend in cargo movement.
Now let's go to Slide B-5
B-5. Financial Indices
Looking at early Fiscal 2008, Financial Indices, including prospects for 4th Quarter, as described in the written material, prospect an operating cash flow of 62 billion yen.
Interest-bearing Liabilities pile up in various ways because investments proceed according to original schedule, also we have moved up financing since last autumn due to the severe financial situation. These total about 430 billion yen as of the end of this financial year, which is 100 billion yen more than 2007. We are planning to continue moving up financing for sometime to come.
To our regret, Shareholders' Equity in our updated forecasts is prospected to grow somewhat over 320 billion yen by the end of this fiscal year, which is much less than our original plan or that of last year. As a result, Equity Ratio will decrease to 32% although we set 40% as our internal target.
At the same time, ROA is prospected to be 7%.
With regard to DER which we show as NET DER in the table, our forecast is 117%. This is partly because of our intention to move up financing in order to increase cash position as we explained earlier.
The ratio of Interest-bearing Liabilities to Operating Cash Flow is 7 times which is much more than our target of 4.5 times partly because of Interest-bearing Liabilities piling up recently. We think we have no choice at the moment to manage our business in view of the decreasing demand situation.
In the present situation, we are currently studying how to get over this predicament in concrete terms with an Emergency Task Force having been set up on December 18 last year. Although our first aim was about 20 billion yen of profit improvement or cost reduction, the figure that now comes out in the current stage exceeds 30 billion yen, which we want to achieve in the next fiscal year by all means.
As I explained before, while entire demand is shrinking globally, for us in the marine transportation industry, sorry to say, it is truly difficult to create new demand by ourselves. So, we have no choice but to wait awhile for an economic rebound. I suppose we have to be ready for the current severe situation to prevail for a few years, although I certainly don't want it to continue so long. Nevertheless, I have to wonder just how we can respond to and overcome, based on present aspects of the current presumption.
In view of this, what we can do now is, as I previously mentioned, trying our best to adjust the over- capacity condition in order to improve supply and demand balance.
One thing is that by taking investment for newbuildings already ordered and contracted, for example, we will endeavor to delay their completion, if shipyard can accept to do so. And we will hold back on additional investment for awhile, then for vessels to be delivered in already fixed schedule. In order to further reinforce our company's cash position, say, free cash flow, as much as we can, we will request shipowners to buy and charter them back to us, or employ lease scheme for off-balancing the vessels, which we are now tackling very hard.
As for already existing excess capacity, when we see that demand recovery may still take a few years and there might be no chance to be well utilized again, we will have to scrap them. Especially for car carriers though, our fleet is relatively young, still there are several vessels aged around 20-25 years that we will scrap. We have already decided to demolish 5 of them. We have an additional 5 or more potential candidates that might be demolished as well after we keep watching the trend of demand for some time.
Then, of course, in case of containerships and dry bulk carriers, we will return chartered vessels at time of contract closing period. And in the case of any vessels for which buyers still exist in the market, we will consider to sell such old but still marketable ships. Among our fleet, there are also some vessels we secured with higher charterage, so we would like to return those vessels before contract term if we can successfully negotiate in order to reduce our burden for next term and later.
Taking everything together, we can count on about 30.0 billion yen in our cost reduction plan as per our expectation right now, which we will execute step-by-step.
Talking about our view for the next Fiscal Year 2009, as I touched on before, under such conditions whereby entire demand decreases, we feel it is very difficult to suggest prospects, but which we will prepare by the end of March.
This completes my explanation today. We will answer your questions, now.