Ladies and Gentlemen,
Thank you very much for joining us today for this analyst meeting
regarding our 3rd Quarter Fiscal Year 2014 (Oct 2014 - Dec 2014) financial status.
A-1. Financial Results for 3rd Quarter Fiscal Year 2014
For the accumulated 9 months covering 1st Half and 3rd Quarter,
we booked operating revenue of 1015.1 billion yen, operating income 40.3 billion yen,
ordinary income 46.2 billion yen, and net income of 33.0 billion yen.
For the period, average yen-dollar exchange rate stood at 105.80 yen,
and bunker oil price $588 per ton which is $38 lower than previous year.
Although bunker oil prices have recently fallen below $300 per ton
due to the steep drop in crude oil prices, our actual bunker oil price in 3rd quarter was still $544.
This is because we use moving-averages method to calculate income and expenditures.
$544 is average of high prices of previously-acquired bunker oil stores
and the low prices of recent bunker oil purchases.
For the 3rd Quarter we made a considerable profit, especially because of exchange effect.
For the accumulated 9 months, revenue and profit increased compared with previous year;
operating revenue increasing by 97.1 billion yen, operating income increasing by 16.2 billion yen,
ordinary income increasing by 17.0 billion yen, and net income increasing by 17.3 billion yen.
Now let us look at our Major Financial Indices.
At the end of Dec 2014, our Shareholder's Equity stood at 446.5 billion yen,
an increase of 57.5 billion yen from the end of March 2014.
We made efforts for decreasing Interest-bearing Debts and successfully brought them
down to 560.5 billion at the end of December, a reduction of 83.3 billion in 9 months.
The reduction substantially helped our DER to drop by 40% and net DER decreased to 80%
which is lower than 100%. Our Equity ratio improved by 4% to 35.4%.
Segment-wise results are as mentioned in the lower table.
One point is the deficit in the Offshore Resource Development and Heavy Lifter Business.
This is primarily due to foreign exchange revaluation losses on debts
denominated in Japanese yen at our foreign subsidiary, “K” Line Offshore,
whose accounting currency is Norwegian krone.
A-2. Key Points of 3rd Quarter Accumulated Results
Next shows Key Points of our accumulated results for year-on-year.
Main reasons for increased profit of 17.0 billion yen are Exchange rate and Bunker oil price.
The yen rate against the dollar devalued 7.26 yen from the year-ago period
which improved our ordinary income by 5.1 billion yen.
Lower bunker oil price contributed another 3.7 billion yen.
Talking about freight market, small and middle Dry Bulk vessel markets were weak
but Container freight, especially for U.S. East Coast was very strong,
consequently 1.7 billion yen improvement due to Market Volatility.
Others include loss from bunker oil swap settlements.
Including all above factors, results eventually improved by 17.0 billion yen year-on-year.
A-3. Estimate for Full Fiscal Year 2014
Talking about full-year estimations for Fiscal Year 2014,
all items improved compared with last year and previous estimate.
Our full year estimates compared with previous estimates are:
Operating Revenue 1,350 billion yen with improvement of 100 billion yen;
Ordinary Income 48 billion yen with improvement of 14 billion yen;
Net Income 25 billion yen with improvement of 3.5 billion yen.
The assumptions for those estimates are exchange rate 116.85 yen
and bunker oil price $478/ton for 4th quarter.
Approximately 3.0 billion yen in foreign exchange losses are included
in the 4th Quarter ordinary income of 1.8 billion yen.
The premise of exchange rate for the end of the fiscal year ending March 2015 is 118 yen.
This assumes a stronger yen than the exchange rate of 120.55 yen at the end of December 2014,
and hence it includes foreign exchange revaluation losses.
Estimate for the 4th Quarter is net loss of 8.0 billion yen.
This is primarily attributable to extraordinary losses including the reversal of deferred tax assets
due to tax reform, as well as restructuring costs necessary to prepare for reductions
in charter hire rate burden beginning from next period.
We plan to adjust dividends as we assess conditions and timing going forward.
A-4. Key Points of Fiscal Year 2014
The yen rate against the dollar will drop 8.81 yen from the year-ago period,
improving our ordinary income by 7.9 billion yen. Bunker oil price per ton will cost 66 dollars less,
contributing another 8.6 billion yen, while freight rates will fall due principally to small Dry Bulk Ships,
reducing our ordinary income by 4.0 billion yen year-on-year.
Other losses of 13.9 billion yen include loss from bunker oil swap settlements.
A-5. Progress of Cost Saving Plan
In Containership business, original target of cost saving was 7.7 billion yen;
however, updated estimate of cost saving for this year is 12.5 billion yen.
Additional factors are effective tonnage utilization, sales of chassis in U.S.
and review of terminal handling charges, etc.
In Bulk shipping Business and Others, 4.3 billion yen in cost-reduction is expected
for the full fiscal year due to reduction of ship operation costs, saving dry-dock costs
as well as refinancing in the heavy lifter business.
B. Division-wise Trends
Next I will briefly explain division-wise trends.
B-1.Division-wise Trends - Containership Business -
Freight rates are mostly in line with forecasts, although rates for Transpacific are even higher
and Asia-Europe are slightly lower than expected. Key points moving forward include the Chinese New Year rush,
timing with which volumes will recover after the Chinese New Year,
and the prolonged labor negotiations taking place at ports on the US West Coast.
In the next fiscal year, it is expected that profitability will improve due to deliveries of 14,000-TEU vessels.
B-2. Division-wise Trends - Dry Bulk Business -
Regarding Dry Bulk Business for the 9-month accumulated period,
both Revenue and Profit increased considerably year-on-year.
Although the market temporarily showed signs of recovery around October 2014,
it has remained in a slump since then. It is expected that recovery will take more time.
However, the impact on our profit will be minimal because the majority of our capesize are
under medium or long-term contracts. Panamax or smaller size vessels are being affected by sluggish market.
The key point moving forward is to reduce market exposure; in other words,
how effectively we can dispose of high-cost small and middle-size vessels.
B-3. Division-wise Trends - Car Carrier Business -
Next is Car Carrier sector where Revenue increased but Profit decreased year-on-year.
Cargo volumes have decreased slightly for car carrier vessels,
but volume trends to the Middle East, Africa and the Atlantic are bullish.
Although profit decreased, it is almost unchanged or only slightly lower year-on-year,
and there has been no tremendous decline in income of car carrier business.
The key point moving forward is how efficiently we can utilize vessels
to handle diversified cargo movements of completed cars and “high and heavy “cargo
on which we have been focusing in recent years such as construction machinery.
We also expect good effect from new 7,500-unit large vessels to be delivered next year.
B-4. Division-wise Trends - LNG Carriers and Oil Tankers -
LNG carriers are stable as usual and continue to perform favorably.
For oil tankers and LPGs, some medium and long-term contracted freight are market-linked
and the profitability of such contracts has been improved by market recovery.
B-5. Division-wise Trends - Offshore Energy E&P Support & Heavy Lifter Segment -
Drillship is stable as always and continues to perform favorably.
For offshore vessels, the aforementioned exchange revaluation losses of Norwegian krone
have held back the entire segment overall.
In heavy lifter business, deficits have been reduced due to market recovery
and incoming project cargo orders, etc.
The key point moving forward is negative impact of sharp drop in crude oil prices
as well as what's likely to happen such as project development delays.
Thank you very much for your kind attention.
