Ladies and Gentlemen,
Thank you very much for joining us today.
I will explain "K" LINE's 1st Half (April-September) Fiscal Year 2010 financial status and our revised estimate for full-year (April 2010-March 2011) financial position for Fiscal 2010.
A-1-1. Financial Results
As indicated in this slide in the central column, our Operating Revenues are 520.4 billion yen. Operating Income amounted to 50.0 billion yen, Ordinary Income 42.8 billion yen, and Net Income 26.3 billion yen. Net Income increased by 1.3 billion yen from the last forecast announced with 1st Quarter results in this July, and Operating Revenues were up by 15.4 billion yen as well.
If this trend continues, it would be greatly appreciated. However, our estimates for this 2nd Half are, as you might imagine, negatively impacted by rapidly strengthening yen, which I will explain in detail later, and Operating Revenues are not growing as much as expected. Fortunately, in terms of this1st Half results, we were able to post Net Income that is 1.3 billion yen better than our expectation.
For guidance, with regard to Yen-U.S. Dollar exchange rate, quoted at the bottom of the same column, average through 1st Half was 89.70 yen per one U.S. dollar which resulted in much lower rate compared to present market level between 80 and 81 yen.
As to bunker oil price, average rate during this term was 468 U.S. dollars per kilo ton.
With regard to 2nd Half estimation, we have assumed exchange rate throughout this period of 80.0 yen per U.S. dollar and bunker oil price $470 per metric ton.
A-1-2. Financial Results
(Business-wise Operating Revenues/Ordinary Income)
Moving on to the next slide and talking about more detail for each business segment, our Containership Business in which you have always been most interested earned Ordinary Income of 25.6 billion yen, achieving increase of 5.6 billion yen from the previous estimate when 1st Quarter financial results were announced.
We think reason for this 5.6 billion yen increase is only due to upward achievement of rate restoration by Peak Season Surcharge (PSS) which I myself slightly touched on previously in our forecast when we assumed achievement ratio for PSS as rather conservative. As we predicted, however, we could successfully accomplish rate restoration to the level which we had hoped.
As to Bulk Shipping Business, as if it had already been pre-determined, total Ordinary Income was 17.0 billion yen just as we had forecasted previously, but included some ups and downs.
We will respond about this later if you have questions. At any rate, our business operation did not turn seriously worse but only because impact of strong yen ate away at the fruits of our business expansion that we attempted, Ordinary Income resulted in plus-minus zero. And also in Energy Transportation Business, debt in yen for advance investment, etc. also slightly decreased the income. As a result we earned just about the same profit as our previous figures.
Therefore, 1st Half results grew just as much as Containership Business profit increase.
A-2. Key Points of 1st Half Results
Subsequently, as to Key Points of 1st Half Results, which I will now address, Containership freight rate restoration is indicated as one of the Market Volatility factors in the 3rd line of this upper table most affected. In terms of Bunker Oil Price, it was regrettably higher than we planned.
B-1. Estimate for Yearly Fiscal 2010
Next, talking about Estimate for Yearly Fiscal 2010, as quoted in the 3rd column from the left in this table, Operating Revenues for the 2nd Half are estimated at 464.4 billion yen, down from 520.4 billion yen for the 1st Half, especially due to Containership Business, but also Dry Bulk trades where we have to expect there might be a slight downturn.
Total yearly revenues are 985.0 billion yen, a little short of reaching 1 trillion yen but which I believe we can surely achieve. Furthermore, as I mentioned earlier, our assumption for yen/U.S. dollar exchange rate is 80 yen per one U.S. dollar for 2nd Half, and sensitivity to Operating Revenues is calculated at 4.0 billion yen per 1 yen up or down. So if yen weakens to 85 yen per U.S. dollar, then our Operating Revenue will increase by more than 20.0 billion yen and we could achieve 1 trillion yen Operating Revenues.
This is just for guidance, and does not relate to our business effort in any way. Furthermore, I myself primarily intend to just continue this profit for which we have so vigorously struggled in order to make a return from last yearfs tremendous loss, but this is just for your information.
Operating Income, next line in the same column, is 69.0 billion yen, Ordinary Income 55.0 billion yen, and then Net Income 32.0 billion yen, which are our estimates. Under Ordinary Income, as quoted in the next table, Containership Business 1st Half results were 25.6 billion yen and 2nd Half estimate is 6.4 billion yen, which I expect we can manage to earn, or rather I should say might be forced to come to that level.
As for these figures, which we consider as firm or prudent to some extent, they will be explained later in Q&A.
In other bulk shipping segment, results of 1st half were 17.0 billion yen, and estimate of 2nd half is 5.5 billion yen, which we think is a firm figure.
As a total, 12.2 billion yen in 2nd half and 55.0 billion yen for fiscal year shown on right edge of the chart are our estimates of Ordinary Income for this year, and for which we are dedicated to manage the company to earn these figures.
B-2. Key Points for FY2010 Estimate
On the next page showing key points of estimate and as mentioned 3rd from above in the chart, freight restoration of Containership Business has impact of 15.6 billion yen compared with previous estimate. Compared with last year, freight restoration of Containership business also has the most impact which can explain everything about this year's improvement.
B-3-1. Division-wise Trends
- Containership Business -
More about Containership Business: As you can see cargo volume of 1st half is 345,000 units from Asia to North America compared with 339,000 for same period of last year, and 257,000 from Asia to Europe compared with 231,000 for same period last year. So the volume for this year does not improve drastically compared with the profit which improves so much.
In other words, what I want to explain is that rate restoration has the most impact for profit improvement. Although last yearfs decline was so huge and attributed in various ways to the general economic status of North America and Europe, with regard to Containership business, cargo volume recovered gradually resulting in healthy shipping industry this year.
In accordance with the industry situation, our loading results also improved a bit. Regarding load factors, as you can see on the right edge of the Chart in B-3-1, they were 99% for North America and 97% for Europe during 1st half as a result of down-sized fleet as part of structural reform which cost more than 40.0 billion yen. And as of today, after China National Day, loading factors still remain almost the same and our ships are almost fully loaded.
From November to December, although Maersk, Grand Alliance, etc. already announced some decrease of their services, we now have know-how of launching immediate lay-up if needed, something we learned from last year's experience that if the cargo volume decreases drastically, we can respond without delay. We will always study how to quickly stop at least one of our services or how to decrease a service or services for some weeks, even though we cannot investigate cold lay-up in just a moment's time.
B-3-2. Division-wise Trends
- Dry Bulk Business -
In Dry Bulk Business, we think it is helpful to see right edge of market chart in B-3-2 for explaining overall situation. Actual market for Capesize was $33,150 during 1st half, but on the contrary, our estimate for 2nd half is $30,000 which may be a little more prudent.
As we explained in previous times, market exposure of our Capesize vessels is usually about 10% and for this year total days of market exposure portion is about 360 days; and even though the market rises to $40,000, our fleet is not sufficiently exposed to the market for us to expect to have any large impact on the profit for Dry Bulk in the 2nd half.
With regard to Panamax and Handy which are more exposed to the market, up to 30% or 50%, as mentioned in the Chart, 1st half market was $25,450 for Panamax which is very high level, and market for Handy was almost the same. Our estimate for 2nd half is $22,000 for Panamax and $20,000 for Handy because demand in China will be a bit weaker, so our estimate is that we can expect to secure minimum required profit.
B-3-3. Division-wise Trends
- Car Carrier Business -
As for Car Carrier Business, cargo volume recovered in 1st half to almost 90% of 2008 level because 1st half 2010 loading results were 1,468,000 units in 6 months, as you can see on right edge of the chart in B-3-3, which is about half against 3,069,000 which was annual loading results for fiscal 2008 shown on left edge of the chart. In a sense, we could achieve cargo volume recovery gradually; however, looking at the inside, exports from Japan to North America are not recovering as we had expected.
So the factors accounting for this increase are, for example, cargos from North America to China and export cars from Europe to various destinations. In those trades
our fleets are busy. For next year and 2012, we hope export volumes from Japan to Europe and North America will recover to at least the 2008 level. We intend to carry out trade management without incurring a loss and keeping new deliveries busy. So we can report that Car Carrier Business is on a gradual recovery trend in terms of cargo volume.
B-3-4. Division-wise Trends
- Energy Transportation and Heavy Lifters -
With regard to Energy Transportation and as we announced, World Scale of VLCC was 69 and we think it will be a little bit better in 2nd half. Because in winter season there are demands for kerosene or heating oil, etc., it is usually expected that market will rise compared with summer season, so our estimate for 2nd half of VLCC market is World Scale 78. As our estimate is World Scale103 for 100,000-ton class Aframax and World Scale 141 for Clean tankers, we are mentally prepared to continue seeing low market trend which that cannot be expected to be profitable.
With regard to dividend, under above estimate with target of 55.0 billion for Operating Income and 32.0 billion yen Net Profit, we would like to fulfill payout ratio of 24% which was carried over in April from Mr. Maekawa, former President of the company. Although we originally announced 2.5 yen interim dividend, some newspaper said 4.0 yen three weeks before we had reported to Tokyo Stock Exchange that it will be revised to 4.0 yen. Regardless of such a newspaper report, an interim dividend of 4 yen and 6 yen for year-end will make total of 10.0 yen for fiscal year.