A-1-1. Financial Results
The outline of closing accounts for fiscal year 2009, as per A-1-1 in the table, shows deficit of 68.7 billion yen for Net Income which is slight improvement compared with deficit of 70.0 billion announced at time of 3rd quarter results, and is due to last minute increase in revenue at the end of March. This is the result of 2 factors: finally attaining increased Containership revenue and reflection of Dry Bulk Market, there being no other main factors.
A-1-2. Financial Results
(Business-wise Operating Revenues/Ordinary Income)
Next, with regard to A-1-2, quarter main points in 4th quarter are expansion of Containership profit improvement and turning Other Marine Business into the black. About Containership sector, which is the focus of everyone's attention, to our regret we had no other choice but to post deficit of 67.0 billion yen for fiscal year 2009 as indicated in 2nd line on the chart because we also posted also Structural Reform Cost in this year. For Other Marine Business, including all shipping business other than Containership business, the deficit was 2.9 billion yen, resulting in total company deficit of 66.3 billion yen.
In 2nd quarter, as already announced, we posted 5.2 billion yen as part of Containership Structural Reform cost, and we would like to further explain this in the part on Structural Reform Cost later.
A-2. Key Points
As to Key Points of Fiscal 2009 results compared with previous estimate as of Jan. 2010, Revenue increased 8.0 billion yen and Income increased 4.7 billion yen. Almost of all of this is due to Market Volatility quoted as 3rd in the chart which is Rate Restoration of Containership Business in Asia-North America, Asia-Europe and North-South trades, contributing at the end to our earnings in the 4th quarter.
B-1. Estimate for Fiscal Year 2010
With regard to Estimate for fiscal 2010, it is our regret that we cannot be so bullish as to forecast Operating Revenue of one trillion yen. Our forecast is Operating Revenue of 950.0 billion yen and operating income 32.0 billion yen. For Ordinary Income we explained that we would try to reach 2-digit profit in very abstract way during previous financial explanation here at the time of introducing myself as new president. By further improvement in Dry Bulk and freight restoration, especially together with effect of rationalization and Business Structural Reform carried out in previous period in Containership sector, we can announce today that our aim is a target of considerably improved Ordinary Income of 26.0 billion yen.
Therefore, on the basis of a Net Profit this year of 18.0 billion yen, we would like to go to the final page 18 for explanation of dividend.
C-2. Dividend Policy
With regard to dividends, we would like to commit resumption of dividend on basis of 24% payout ratio for this Fiscal 2010 which we have promised to our shareholders as before.
About interim dividends, on assumption of payout ratio being 24% this time, we would like to announce figure of 2.5 yen. Although we are announcing it today, there was an option to announce dividends figure later after studying interim results further without announcing any figure today. On reflection that it was troublesome to shareholders in the long-term and considering I would like to make sure the amount is realistic in accordance with my strong decision, we concluded to announce the figure today per agreement of myself as well as board members.
B-2. Key Points
With regard to Key Points of Estimate for Fiscal 2010, as mentioned in Slide B-2, and as we have explained many times about Exchange Rate and Bunker Oil Price, I would like to touch on Market Volatility. We expect 70.0 billion yen improvement through Containership freight restoration and upturn trend of Tanker market. Considering that this 70.0 billion yen will be discussed in Q&A later, I would like to go ahead and just announce the figure as outlined; also the 22.0 billion yen of Cost Increase/Decrease, then I would like to explain details later.
B-3-1(1). Division-wise Trends of Operating Revenue/Ordinary Income
At this point, I want to explain the figures on the right edge of Tables 89 and 97, though the table contents are written quite minutely. Our intention is to explain the transition of freight and our estimate of this period on basis of index freight level of 1Q 2008 = 100. Please understand that my explanation is part of taking your questions in advance as to whether Profit of 26.0 billion is based on pushing the bottom up very bullishly and how we see the market although it might drop from now.
As I mentioned, on assumption the index 1Q 2008 = 100, we expect freight for Asia-North America as shown in Table 89 this fiscal year. However, our perspective is that it does not improve enough by freight level in fiscal 2008, and we expect freight level will shift on assumption that it still falls short by about 10%.
Needless to say this is just freight level itself and does not include cost.
In that way in Asia-North America trade, we are carefully viewing that it is likely to shift with decrease in the freight level by 10% or a bit more. On the other hand, in Asia-Europe trade freight has, as of today, almost kept an average freight level of 1Q 2008 but there may be ups and/or downs in some part.
The reason is that roughly 10% out of 5,000 Containerships in the world is still laid up as we explained last time and, to our regret, we cannot deny the fact that new vessels having over 8,000 TEU capacity will also be delivered later this year.
In this regard, in Asia-Europe trades, large ships will be delivered, and in addition a comparably large number of freight negotiations is still on quarterly basis, which are good and bad compared with North America trade where contracts are generally negotiated on yearly basis. In that sense, it is a fact there are both busy and slack seasons. Against this background we must decide how we can maintain freight level in Europe. For example, we try to cover increased bunker oil cost by additional charges, and then in busy season we will assess peak season surcharge, also trying to keep it in slack season. Therefore, there will continue to be ups and downs in freight levels.
Our forecast is based on assumption that if freight level will continue to shift as at current holding level, we can expect Containership business to move into the black. It may help your further understanding if you look at the chart from that standpoint.
B-3-1(2). Division-wise Trends of Operating Revenue/Ordinary Income
As shown in B-3-1(2) note, which is updated chart for Containership business improvement originally quoted last time, final sum will be 44.3 billion yen as Containership Business Structural Reform Cost in Fiscal 2009 although we had expected 50.0 billion yen at first.
Compared with previous estimate as of 3Q Fiscal 2009, the cost increased around 1.4-1.5 billion yen, which was due to our fortunately posting increased cancellation fee for time charter ahead of schedule. So the negotiations which might drop back in this fiscal period finished within previous fiscal period, and this Structural Reform cost increased by chance, the virtual content of the Structural Reform remaining totally unchanged.
With regard to new deliveries, we have not changed our stance to freeze new investment in Containerships. We would like to announce that we have already posted Structural Reform Costs of 44.3 billion by Alteration of ship types, Cancellation of charter contracts, Liquidation of overseas related companies and Impairment loss on fixed assets like terminals. We expect turnaround of 5.0 billion yen in Containership business in the budget for this fiscal year on the basis of this assumption.
B-3-2. Division-wise Trends of Operating Revenue/Ordinary Income
-Dry Bulk Business-
With regard to Dry Bulk Business, our assumption of forecast is Cape $35,000 per day; Panamax $20,000 per day; and Handy $18,000 per day as mentioned on the extreme right of the table in B-3-2. We think our assumption is on a prudent basis.
Taking your questions in advance, in our Cape-size fleet that totals 74 ships, less than 10% of the total is operated in the market which means being exposed to the market. Based on lessons from the past and realizing we became slightly overly cautious, we fixed contracts of almost all ships in advance this year so, to tell the truth, market exposure ratio is relatively small in both Cape and Panamax, and so the impact to profitability by market volatility is not so great.
Conversely, on the part being Handy-size, a bit more than 50% is exposed to the market at present, so we expect that if the market for Handy is upward, results of Dry Bulk Business will show upturn, at least this is what we think.
Personally, though I dare to use expression "to my regret," I worry about employee who are sensitive to the market not growing up in the sense of the development of younger members of our shipping company, if mid/long-term contracts are fixed to too much of a degree, although it is favorable to explain for investors and stockholders in the sense that it is possible to secure steadier profit to some extent.
Therefore, we changed a part of our organization on 1st April that makes it possible for people taking care of Panamax to watch other markets such as Cape-size or Handy, and not just Panamax only, in order to grow our people to be more sensitive to the market.
In the long run, even though it may be criticized, I would like to increase the portion of market exposure a little more. I think a shipping company is essentially a venture company to some extent, so I would like to seek fleet composition and contracts without losing such a venture mind in mid-term in Dry Bulk sector. I would like to additionally mention that I want to increase portion of market exposure in the mid/long-term.
B-3-3. Division-wise Trends of Operating Revenue /Ordinary Income
-Car Carrier Business-
Next is Car Carrier Business B-3.
For Car Carriers we have to say the situation is considerably unclear. While we expect in a very prudent way from the viewpoint of profitability, the conclusion honestly depends on how we review business trends for this 2nd half after studying sales and export plans of each Automobile company as of around June.
What we can say about loading units is that there were 3.1 million units in 2008 with peak being in 2007, and in 2010 we are sure that loading units will be 2.6 million units.
However, as to content of the units for example, Automobile companies will increase transplant production in overseas due to various reasons, and also increase very complicated cargo movements like exports from China and India. While it might take a little more time for massive exports from China to start, I suppose, or exports from North America to China, or from Africa, or from Thailand to Australia, on the basis of flexible response to requests, we are sure that we can secure the cargo volume stated above and no doubt maintain our fleet scale to cover the request.
B-3-4. Division-wise Trends of Operating Revenue /Ordinary Income
With regard to Energy Transportation, market of VLCC is steady and expected to hover at current firm level. As you may know, we operate 9 VLCC's, though it may indicate only 9 ships. From the end of March we are exposing a ship to the market in order to do a trial check as to how we can endure competition.
Fortunately, current market level is over our cost, so we hope this market will continue. Figure of WS (world scale) as profitability itself indicates long lasting stability so we think market will shift around WS 80.
On the other hand, about AFRAMAX, a type of ship that our affiliated company KLPL in Singapore concentrates on operating, we worry that market is in a considerable slump. We have to say honestly that forecast of the market is uncertain and our stance is that we are very doubtful the AFRAMAX tanker market for Crude Oil will recover within this year.
Additionally about Clean tankers and others, we expect the market will not be good, around WS 150 as indicated in this Slide. However, we would like to explain that impact of this division on our profitability is not very much, due to small fleet from the point of operating scale.
B-3-5. Division-wise Trends of Operating Revenue /Ordinary Income
Though I explained in a brief way with regard to Division-wise Trends of Others, for Heavy Lifters, after starting the joint venture with SAL, it has done comparatively well and Fiscal 2009 results were almost break-even due to project cargo from Japan being almost the last major cargo from Japan for the time being, and which we managed to secure because we started working actively from the previous year. To our regret, we are afraid we will have to post a deficit of a few hundred million this fiscal year because impact of time difference of Lehman shock affected us most during in this year, which reflects the freeze imposed on such projects since 2 years ago that have hit us as a ship operator.
However, business negotiations for early next period have already started and we expect this division to basically enjoy profitable business which backs up our company's reversal next year with return to a basically profitable tone. In other words, we would like to say that there's no need to worry.
With regard to Harbor Transportation and Coastal Shipping we do not have anything special to say as of today.
C-1. Financial Indices
In financial indices, as I mentioned earlier, we are afraid that Revenue of Fiscal 2010 will not reach to one trillion yen, although we expected it to reach that level in our Previous Estimate as of KV2010 which is listed in the table of C-1.
However, on the other hand Ordinary Profit was expected at 11.0 billion yen at that time, although that may have been felt somewhat contradictive.
This is because of rapid profitability improvement, especially in Containership division which was still expected to post deficit of 20.0 billion yen for the division at that point, but this time real Ordinary Profit is improving so we are establishing 26.0 billion as target despite no expansion of sales.
As a result of Net Profit on the basis of 18.0 billion yen for Fiscal 2010, Equity Capital Ratio will be 29% as shown at the bottom in the table and we can commit to a Dividend Ratio of 24% for our shareholders. This is our estimate of Fiscal 2010 as of today.
Thank you for allowing me to finish my presentation in this quick way.