Ladies and Gentlemen,
Thank you very much for joining us on such a muggy summer day for this analyst meeting regarding our 1st Quarter Fiscal Year 2014 (April 2014–June 2014) consolidated financial status, about which I will now give you a quick explanation. These results are basically as per our estimation as of this April, with no surprising factors, so I will not talk too long and instead, I would like to invite many questions from you.
Taking main points, with regard to Containership Business, results turned to the black for this 1st Quarter. Even for the 1st Half, there is almost no doubt right now about having black figures. For the 2nd Half, circumstances for us are such that we hope we can manage to keep black figures.
Then, we issued a press release today that “K” Line and Ports America Group, Inc. (PA), the largest independent marine terminal operator and stevedore company in the United States, have agreed to form a strategic partnership. How this partnership with PA will further enhance “K” Line’s containership business and container terminal operations in the future will be explained later.
Although the market level of dry bulk has declined beyond our scope of assumptions, for the 1st Quarter, our earnings were actually better than original expectations as of April as a result of a higher portion of our fleet being under mid/long-term contracts. However, the situation will probably be much severer for the 2nd Quarter, about which we would like to comment later.
Taking the Energy Transportation segment, your major interest might be how “K”Line has been engaged in new LNG projects.
As to Offshore Energy E&P Support segment, in which there are various business areas, you might also be interested in hearing what our perspectives are, so an explanation will be made later about such points.
But now I will briefly explain our 1st Quarter Fiscal Year 2014 (April 2014 – June 2014) consolidated financial status along with slides and documents that you have in your hands.
A-1. Financial Results for 1st Quarter Fiscal Year 2014
Let me refer to financial data in this Slide A-1:
Both Operating Revenues and Operating Income were beyond the figures for same term last year. But regrettably, Ordinary Income was roughly minus 40% for year-on-year basis, which was fully described in an article in Nikkei yesterday, while 6.5 billion yen of the result was not much changed from our original estimations. As to Operating Income, we had plus 33% compared to the same period last year, which I would like to somewhat emphasize. Net Income was also almost in line with our plan as of April.
Commenting about exchange rate, in comparison with previous financial term, at the end of this 1st Quarter, we had 2.6 billion yen of valuation loss from exchange rate. This was because the exchange rate as of the end of June 2014 was 101.36 yen per U.S. dollar versus 102.92 at the end of March 2014. By contrast, one year ago, exchange rate at the end of March 2013 was 94.05 and that for the end of June 2013 was depreciated to 98.59; thus for the same term last year, 3.8 billion yen of valuation gain was posted. So, please note due to this variation, at the stage of Ordinary Income, considerable difference occurred.
Let me move to major financial indices indicated in the small box at the lower right of this slide. While Shareholders’ Equity slightly shrank because of change of exchange rate, etc., Interest-bearing Debt was, as promised, or mentioned already, decreased smoothly by 49.1 billion yen from the end of Fiscal 2013. Thus, DER also declined by 11%, and Equity Ratio improved by 1.2% since the amount of Shareholders’ Equity itself declined slightly. Therefore, we can say that overall improvement of our financial position has continued to proceed steadily.
A-2. Estimate for 1st Half Fiscal Year 2014
Next, our 1st Half estimates are as quoted in this Slide that you have in your hands. The total goes below by the same amount that Ordinary Income decreased in the 1st Quarter, 2.0 billion yen, from our projections set in April, which would be within the extent we can recover in the 2nd Half, which we will also explain later.
Having a look at the table showing segment-wise earnings, for Containership Business, Ordinary Income for 1st Quarter was plus 2.2 billion yen, and 2nd Quarter updated estimation is plus 3.8 billion yen; so in total our present estimation for 1st Half is 6.0 billion yen. These figures include profit from logistics business, but even if logistics business were excluded, our containership segment only has turned to the black.
Talking about Bulk Shipping Business, there is not the same momentum as prevailed last year, and Ordinary Income is expected to decline to 12.0 billion yen for this 1st Half, mainly because of the market downturn in dry bulk segment, as I touched on before, which should be reflected especially for the 2nd Quarter. As other factors have not changed significantly, as I mentioned before, Ordinary Income only is estimated to decline compared to our original forecasts.
A-3. Estimate for Yearly Fiscal Year 2014
Full-year expectation of total income for Fiscal Year 2014 remains unchanged from our original guidance released in April, i.e., Operating Income of 36.0 billion yen, Ordinary Income 34.0 billion yen and Net Income 18.0 billion yen, which are all kept as they were.
A-4. Key Points
These ‘Key Points’ are always something that I feel are extremely difficult to explain. As shown in the item of Market Volatility, compared to the same period last year, dry bulk freight market is in a downturn, therefore I see the impact cannot help but be inevitable to some extent. Further, including the exchange rate valuation loss that I explained before, which is indicated in the item of ‘Others’ in this slide, in comparison with last year, we have to count on negative factors.
A-5. Progress of Cost Saving Plan
As I mentioned in the previous analyst meeting, we have already previoiusly achieved many possible cost saving measures. As to our yearly cost saving targets set as of April totaling 13.1 billion yen, please understand that we have steadily proceeded in line with these targets.
I will next talk about division-wise trends.
B. Division-wise Trends
Now I would like to briefly explain trend in each business division.
B-1. Division-wise Trends - Containership Business -
With regard to Containership business, income increased and profit improved as we explained previously. As shown in the column of freight index, our freight index in this 1st quarter was 97 in eastbound TPS (Asia-North America) and 78 in westbound of AE (Asia-Europe), both of which are improvements compared with last year. Cargo movement is generally good. Our loading factors were 98% in TPS and 95% in AE, both being better than our estimate. From the above reasons, income increased and profit improved in 1st quarter.
B-2. Division-wise Trends - Dry Bulk Business -
Regarding Dry Bulk Business, current Capesize market is about $12,000/day which is much lower than our estimated rate. However as we explained last time, our current status is that we have more cargo contracts than our fleet capacity. It means that it is possible for us to make small profit by using chartered low-cost fleet for our contract cargo. Of course this does not mean current market is healthy and what I want to say is that the present market decline is not a problem for our capesize business at all. Situation is same in Capesize for 2nd Half but we are afraid that there will be some negative impact in Panamax market during 2nd half, as Panamax market is very much in a downward trend now.
B-3. Division-wise Trends - Car Carrier Business -
Car Carrier Business is so far almost as we expected. Although transport demand of completed cars worldwide is still steady, export volume from Japan has decreased compared with last year, just as we estimated and to our regret. It is not possible to have much hope that exports from Japan will increase and we have already counted this factor in our business plan. One concern is cargo for Russia where there are factors such as ruble depreciation and effect of economic sanctions. We would like to add that we are afraid there will be a little negative impact to our Intra-Europe car transport business by these Russia factors.
B-4. Division-wise Trends - LNG Carriers and Oil Tankers -
About LNG carriers, stable work and stable profit are expected, which we have mentioned many times. Regarding Oil Tankers, although the market was very low at times before, and we have been down-sizing our fleet for some years so that our present fleet is minimum size for continuing to participate in this business, deficit amount in 1st quarter is not big. Market is gradually improving recently and I think it will be strong for some time. Perhaps it will reach break-even point in 2nd quarter and may be possible to make a profit in the 3rd quarter.
B-5. Division-wise Trends - Offshore Energy E&P Support & Heavy Lifter Segment -
Finally, let’s look at Offshore Energy E&P Support & Heavy Lifter segment. With regard to Offshore support vessels, operating income is in the black but ordinary income is in the red, the reason for accounting deficit is that there was negative effect of revaluation loss of exchange rate. Norwegian Krone was very weak and that resulted in revaluation loss. As exchange rate varies quarterly, we do not react nervously. We would like to emphasize that operating income itself is in the black.
As for Heavy Lifter segment, and as we have reported again and again, market is very tough. That situation remains the same in 1st quarter. As we explained last time that there will be some profitable cargo contracts after 2nd half of this year, it is clearer now and we hope it will reach near break-even point in 2nd half.
Thank you very much for your kind attention.
