Ladies and Gentlemen, thank you very much for joining us today when you are very busy.
Shipping business worldwide has been continuously facing a severe situation, and even though it is recognized that we cannot say fundamentals have improved, due to effects of ‘Abenomics,' yen-U.S. dollar exchange rate is being drastically adjusted with shift from yen appreciation to depreciation, and stock market has been considerably booming, factors that are shoring up our profit to some extent.
I will explain outlook for our 3rd Quarter (October - December) Fiscal Year 2012 consolidated financial status and our revised estimate for full-year financial position for Fiscal 2012 (April 2012-March 2013), sequentially based on these slides.
A-1 Financial Results for 3rd Quarter Fiscal 2012
First, I will talk about the outline of 3rd Quarter financial results:
Operating Revenues were 256.2 billion yen, though Operating income regrettably was deficit of 1.5 billion yen; Ordinary Income was plus 1.5 billion yen; and we were able to post plus figure of 10.5 billion yen for Net Income.
Accumulated results for 9 months (Apr-Dec) were: Operating Revenues 802.4 billion yen; Operating income 10.6 billion yen; Ordinary Income also 10.6 billion yen; and Net Income 9.4 billion yen.
Average exchange rate between U.S. dollar and yen during the 3rd Quarter was, as mentioned in this table, 79.79 yen per U.S. dollar. Although by the end of 2012 yen had dramatically depreciated, it still has hardly been reflected into the 3rd Quarter results. However, this resulted in a certain amount of valuation profit based on the rate for the end of the financial term. Among major items of non-operating profit, exchange gain was approximately 4.0 billion yen. So the balance between minus 1.5 billion yen of Operating Income and plus 1.5 billion yen of Ordinary Income, 4.0 billion yen of exchange gain remains, about which I will report to you.
Talking about the other major non-operating, or extra-ordinary items, reversal of the loss from revaluation of investment securities was 14.3 billion yen, which has been disclosed previously. In addition, we can also count gain from sellout of vessels, which was just 0.7 billion yen for this 3rd Quarter alone, etc.
Segment-wise results for 3rd Quarter and accumulated 9 months are indicated in the table below. For Containership Business in 3rd Quarter, Operating Revenues were 122.8 billion yenand Ordinary Income was deficit of 0.9 billion yen, which now is composed of both Containership Division and Logistics Division, including port business, from this fiscal year.
For Bulk Shipping Business, Operating Revenues were 117.1 billion yen, and Ordinary Income was 1.4 billion yen; and for other businesses are as indicated hereafter in the same table. As I touched on at the beginning, economic fundamentals for shipping business, and shipping markets, are still facing a rather severe situation. Even if I dare to say we made rather good performance for this 3rd Quarter considering such a situation, it might sound peculiar but I believe the reason we made a modest profit is only because we have continuously pushed forward both rationalization and structural reform in our business.
A-2. Key Points of 3rd Quarter Accumulated Results
As to key points for our 3rd Quarter accumulated results, they are quoted in year-on-year comparison in this slide. Inasmuch as previous year was one of the worst ones, I feel any comparison would be almost meaningless, but in commenting about year-on-year basis, Operating Revenues increased by 69.6 billion yen and Ordinary Income by 51.2 billion yen. As Exchange Rate and Bunker Oil Price remained almost unchanged, the three factors of Market Volatility, Business Expansion and Decreased Costs altogether impacted final results. Summed up in the factor of Market Volatility, compared with the same term last year, profit increased by 14.3 billion yen. What most contributed to this factor was primarily freight rate restoration in Containership Business.
On the other hand Dry Bulk segment has worsened for year-on-year basis, so effect of the rate restoration in Containership Business is much greater than the figure indicated in this table.
As to Business Expansion in Fiscal 2012 for Car Carrier segment, we were able to enjoy much more solid cargo volume, as last year total shipmentswere temporarily down due to flooding in Thailand, etc. Cargo volume for Containership Business also increased to some extent. In total, 10.6 billion yen of positive impact was made by cargo volume growth.
As to Decreased Costs, we took measures for service rationalization in Containership Business, etc., including withdrawal from non-profitable service routes. The biggest factor was decrease of bunker oil cost by way of slow steaming, plus more effective fleet deployment and so on.
The total of all these measures improved our profit by 19.0 billion yen from previous year.
Let us next move to full year forecasts in which you might be most interested.
A-3. Estimate for Full Fiscal Year 2012
For our Fiscal 2012 4th Quarter, because we will have completed amendments of the fiscal terms for our consolidated subsidiaries so that all end in March from this term (whose fiscal terms ended mainly in December until last year) figures for Fiscal 2012 will then cover 15 months in this transitional period as we have to count 6 month figures of our group companies so that our 4th Quarter estimates are somewhat inflated.
Including such factors that increase our profit base, 4th Quarter estimates are: Operating Revenues 327.6 billion yen; Operating Income plus 0.4 billion yen;
Ordinary Income plus 5.4 billion yen; and Net Income plus 0.6 billion yen. Regarding assumptions for these estimations in 4th Quarter, exchange rate is 85.53 yen per U.S. dollar and fuel oil price 640 dollars per metric ton. Whether this exchange precondition of 85.53 yen is appropriate or not has been discussed in the company.For this 4th Quarter, we have decided to make forecasts based on these rather conservative assumptions.
Segment-wise figures are indicated in the table below in this slide. During this 4th Quarter, Containership Business is expected to almost break-even with plus 0.1 billion yen, including various accompanying business sectors. Bulk Shipping Business plus 6.6 billion yen, and Offshore Energy E&P Support & Heavy Lifter Segment minus 0.4 billion yen. Summing up all business segments, including Others and Adjustments, Company Ordinary Income is estimated plus 5.4 billion yen for the 4th Quarter.
For this 4th Quarter, on the premise of the exchange rate which I mentioned earlier, we see certain amount of exchange gain will be generated and 6.0 billion yen of positive effect is counted in the present estimations. However, I personally rather suppose the exchange rate might swing toward further yen depreciation of more than 85 yen per U.S. dollar considering present trends. In that sense, total Ordinary Income overall could increase even slightly more.
Let's briefly talk about outline of each main business sector for overall 2nd Half. For Containership Business in East-West trades, including both Asia-U.S. and Asia-Europe routes, freight rate level is in a slightly declining trend. Cargo volume for Asia-Europe routes also is not completely as expected, which we have already included in calculation of our full-year forecasts.
As to Dry Bulk Business, as I will explain in more detail later, we have made our plan assuming that downturn market will likely continue in the long run, but we have proceeded with decrease in the number of our fleet beforehand, so negative impact from weaker market is almost needless to think about for this 4th Quarter.
Then, in Car Carrier Business, we have assumed cargo volume as also being slightly lower than our original estimations.
Considering yen-U.S. dollar exchange rate has been depreciating, we hoped car exports from Japan could increase more in nature, but each auto manufacture has already made plans until the end of March and it does not seem likely for them to drive exports much beyond their existing plans. As the total loading volume is lower than original estimates, profit for this 2nd Half from overall Car Carrier Business is almost within our estimations.
A-4. Key Points for Full Fiscal Year 2012
Regarding these Key Points for full year, as I suppose I have already made sufficient explanation to you, but please understand they are worked into as figures in this way.
A-5. Progress of Cost Savings Plan
Our yearly cost-saving targets set as of April totaling all company segments was 28.0 billion yen, and until now, by the end of 3rd Quarter, we have achieved 85% progress. For our latest updated target, an extra 4.0 billion yen is being added onto the 28.0 billion yen set as of April, so a total cost savings of 32.0 billion yen is to be achieved by the end of March.
B. Division-wise Trends
Now I would like to briefly explain each business division trend.
B-1. Division-wise Trends - Containership Business
Freight rates have obviously been restored to some extent compared with last year, mainly in Asia-Europe trade. But freight fluctuates quickly as it can fall shortly after once restored under the circumstance of lower cargo volume year-on-year. At any rate, I assume it will not happen again whereby freight drops continuously without any rise like in year 2011. Trend of 2012 is that freight fluctuates up and down repeatedly.
And I would like to report that our profitability has improved due to effect of Business Restructuring by deliveries of large-size containerships as well as slow steaming. Here our large-size containership means 8,600 TEU type vessel which is allocated into Asia-Europe trade, but it is not the 14,000 TEU type. By using 8,600 TEU type vessels we could save considerable operation costs as expected. That is one area in which we felt good response this time.
In addition we conducted in-depth study of further slow-steaming. Our stance is to decrease speed and bunker consumption to the maximum if it is possible, as there has been considerable effect by doing so. Talking about only Containerships, we could save 200 thousand tons of bunker annually year-on-year for transport of same volume of cargo. This means a savings of 130 million dollars calculated on basis of “200 thousands X $660/ton" It is the same as 10 billion yen, so the effect of bunker saving is very important.
Our freight index in 2012 is as follows: Asia-North America 1Q 100/2Q 105/ 3Q 101 and Asia-Europe 1Q 97/2Q 88/3Q 73, as you can see in B-1. Those are our actual results. Although freight level declined so much to this level, as I said previously, result of our containership business figures was not as bad as we had expected.
B-2. Division-wise Trends - Dry Bulk Business
About Dry Bulk Business in Bulk shipping, as you may know, so many new buildings were delivered in 2012 for all dry bulkers, not only Capesize and Panamax. In one sentence, market dropped due supply pressure being too strong. 2012 Market is as described in B-2. Capesize market was $12,600 in 3rd quarter although we thought it would rise. Panamax was $6,600, Handy was $7,600 and Small was $6,500, all of which are absolutely loss-making levels in spot market.
We estimate market of 4th quarter as $10,000, $8,000, $6,500 and $7,000 in each vessel type. However, as I mentioned previously, we fixed almost all business in 4th quarter with just February and March left as January has almost ended. For this reason we do not have many vessels which operate in spot market in 4th quarter so there fortunately is not so much overall impact to our profit even though this market will rise or fall.
We said that results of our Dry Bulk in 1st half was in the black at time of last announcement of financial results, but it will turn into the red in 2nd half and it might be in the red for the fiscal year after off-set of black in 1st half with red in 2nd half as the case may be.
However, we are hopeful we may be able to avoid being in the red for the fiscal year. It could be black in 2nd half which means that it would be black for full fiscal year. So in this year Dry Bulk will continue in the black consecutively since year 1979.
B-3. Division-wise Trends - Car Carrier Business
Talking about Car Carrier Business, total units carried during 1Q-3Q were 2,586,000 units, a 6% increase year-on-year. Last year many things happened such as flooding in Thailand, etc. but in this year cargo volume is normalizing. Looking at volume of each trade, cargo from Asia to Europe is tough as expected, and to Middle-east is relatively better. In 4th quarter, as I mentioned previously, we expected that exports from Japan wouldincrease due to effect of weakening yen. However it appears increase will not be so much in 4th quarter. At any rate, I think effect of weakening yen will certainly come up in and after next fiscal year.
B-4. Division-wise Trends - LNG Carriers and Oil Tankers
Next material in B-4 is about LNG Carriers and Oil Tankers. Regarding LNG there is wording “Secured stable profit by long- and middle-term contracts" which means that our LNG Carrier business finally turned into the black and reached stable stage. In the future we will focus on joining in new business projects and obtain new business contracts.
About VLCC, AFRA-max and chemical tankers, our understanding is that it will still be a long way before market circumstances will improve, as we already indicated previously at the last analyst meeting in July 2012. In 2011 we down-sized scale of our fleet for this business, and from the effect of this action,results of first half show very small deficit. This third quarter was almost break-even, so total impact to our overall business is almost nothing. In 4th quarter our estimate of market is WS50 in VLCC and WS90 in AFRA-max, and to our regret current market is lower than our estimate but we think what we have done was right.
B-5. Division-wise Trends - Offshore Energy E&P Support & Heavy Lifter Segment
And now, our last department is “Offshore E&P Support and Heavy Lifter Business." Offshore E&P Support is Offshore support vessels and Drillship, and although there's fluctuation, this segment is going relatively well. On the other hand, regarding Heavy Lifters, to our regret we cannot stop incurring loss because of tough competition also being experienced in this sector too. With trend showing deficit is increasing, this is one of our management problems as to what we will do about Heavy Lifter business in the future.
And finally we will explain about cash flow.
As reported in our financial highlights on page 14, Cash flow from operating activities is plus 34.0 billion yen as accumulated from April to December. Cash flow from investing activities is minus 42.3 billion yen. However, this 42.3 billion yen includes purchase of marketable securities, which we can rather regard as ‘cash and cash equivalent,' and I would like to say that actual investment amount for vessels, etc. is much smaller than this figure. Therefore free cash flow by the end of 3rd quarter is a plus figure.
As reported in our financial highlights on page 14, amount of cash and cash equivalent at end of 3rd quarter is 118.9 billion yen. But we bought marketable securities, which we can actually regard as‘cash and cash equivalent,' as I mentioned, and the amount of such cash equivalent is 22.5 billion yen. So we can regard total balance of cash and cash equivalent including securities is 141.4 billion yen at end of the period.
Therefore there is no problem in liquidity. I think that's almost more than enough.
In addition I would like to explain about financial index, although there's no figure in today's material. On basis of estimate for 4th quarter as we mentioned previously, which means on premise that 4th quarter will be going as we estimated, shareholder's equity will increase from 262.1 billion yen at end of September 2012 to 292.5 billion yen at end of March 2013. Interest-bearing Debt will decrease from 604.8 billion yen at end of September 2012 to 572.5 billion yen at end of March 2013. Equity Ratio will improve from 23.7% at end of September 2012 to 27% at end of March 2013.
As our first year targets in the medium term management plan known as “Bridge to the Future" are shareholder's equity of 260.0 billion yen, Interest-bearing Debt of 580.0 billion yen and Equity Ratio 23%, we are confident we can reach our targets without fail.
Thank you .