A-1-(1). Financial Results for 2nd Quarter Fiscal Year 2015 (All Segments)
The financial results for second quarter of fiscal 2015 show operating revenues of 332.9 billion yen, operating income 7.5 billion yen, ordinary income 1.4 billion yen and quarterly net income of 1.5 billion yen. The result of operating income for the first half fiscal 2015 was positive at 18.8 billion yen, which was 1.8 billion yen greater than previously estimated. However, 5.3 billion yen was generated from a revaluation loss of exchange rate centering on overseas subsidiaries related to offshore operations in the second quarter, resulting in ordinary income of 16.0 billion yen, which was 4.0 billion yen less than the previous estimate. Amid the revaluation loss of investments in securities in addition to the reduction in ordinary income, we promoted sales of assets including other securities. As a result, net income totaled 11.7 billion yen, which was 2.8 billion yen less than previously estimated.
As a side note, in the second quarter, the average exchange rate was 122.56 yen per US dollar and bunker price was 338 US dollars per metric ton. As the main financial indicator, while the value of shareholders’ equity is reduced slightly, there is essentially no major change.
A-1-(2). Financial Results for 2nd Quarter Fiscal Year 2015 (Each Segment)
The reduction in ordinary income by 4.0 billion yen for the first half fiscal 2015 compared to previous estimate is mainly attributed to the downturn in both Containership Business and Offshore Energy E&P Support & Heavy Lifter Business. For Containership Business, freight rate levels dropped centering on Asia-Europe trades and North-South routes to which many new large ships were introduced, resulting in ordinary income being 3.1 billion yen, which is 1.4 billion yen less than previously estimated. For Offshore Energy E&P Support & Heavy Lifter Business, revaluation loss of exchange rate had a major impact on earnings, resulting in ordinary income being negative 3.6 billion yen, 4.1 billion less than previously estimated. As to Bulk Shipping Business, the figures were slightly better than estimated, especially for Dry Bulk and LNG Carriers. Among the revaluation loss of exchange rate of 5.3 billion yen, a loss of about 3.5 billion yen is attributable to the Offshore Energy E&P Support & Heavy Lifter Business.
A-2. Key Points of Financial Results for 1st Half Fiscal Year 2015
In first half fiscal 2015, while there were some performance-improving effects totaling 31.5 billion yen due to weak yen and fall in bunker price, there were also factors that deteriorated the market, especially in Containership Business and Dry Bulk Business. The loss arising from these negative factors was 33.0 billion yen, which exceeded the positive effects. Additionally, bunker swap settlements and revaluation of exchange rate amounted to a loss of about 6.0 billion yen and 4.5 billion yen, respectively. As a result, first half fiscal 2015 performance recorded a loss of 9.9 billion yen compared to same period last year. The revaluation loss from exchange rate of 5.3 billion yen is the main cause of the 4.0 billion yen reduction in ordinary profit compared to the previous estimate.
A-3-(1). Estimates for Full Fiscal Year 2015 (All Segments)
The consolidated ordinary income is estimated to total 20.0 billion yen, which is 20.0 billion yen lower than our previous estimate. In addition to the reduction in ordinary income of 4.0 billion yen for first half fiscal 2015, we expect further reduction of 16.0 billion yen in the second half. The average bunker price expected for the second half fiscal 2015 is 275 US dollars per metric ton. The breakdown of consolidated ordinary income indicates income improving factors such as favorable exchange rate and falling bunker price are expected to increase ordinary income by 9.0 billion yen compared to the previous estimate. We expect that the market of Containership Business will remain stagnant in the third quarter, then recover slightly towards Chinese New Year, and the amount of financial impact due to this market deterioration to be slightly less than 20.0 billion yen. We also forecast the market will remain sluggish for Dry Bulk. On top of that, stagnancy in the market is expected for Offshore Energy E&P Support & Heavy Lifter Business that will be affected by reduced demand due to low crude oil price. As a result, the overall fluctuation amount from the market situation is negative 25.0 billion yen. By adding the remaining factors, we expect consolidated ordinary income to be 20.0 billion yen less than the previous estimate. Meanwhile, consolidated net income is expected to be 12.0 billion yen, mostly due to structural reform planned for some business in the second half of fiscal 2015.
Regarding dividends, based on the stable dividend policy adopted from this term, we plan both interim dividend and yearend dividend to be 2.5 yen per share. Assuming payment of those amounts, dividend payout ratio will be 39%.
A-3-(2). Estimates for Full Fiscal Year 2015 (Each Segment)
Containership Business is expected to be strongly affected by the stagnant market, and ordinary income will be negative 3.0 billion yen, which is 11.5 billion yen less than our previous estimate. For Bulk Shipping Business, with present downturn in Dry Bulk market being the main cause, ordinary income is estimated to be 33.5 billion yen, about 2.0 billion yen lower than previously estimated. For Offshore Energy E&P Support & Heavy Lifter Business, we estimate ordinary income will be negative 5.5 billion yen, which is 6.0 billion yen less than our previous estimate. This reduction is attributed to the revaluation loss from exchange rate of 3.5 billion yen that occurred in the first half fiscal 2015 and ongoing impact of deteriorating market associated with decreasing demand due to low crude oil price.
A-4. Key Points of Performance Fluctuation for Full Fiscal Year 2015
When compared with fiscal 2014, while there was an improvement in income by about 48.0 billion yen due to weak yen and falling bunker price, it was overpowered by a large margin due to reduced income of 76.0 billion yen associated with current market downturn, especially for Containership Business. Although costs were reduced by slightly more than 10 billion yen amid a situation of market deterioration that is advancing at a much greater pace than the reduction in bunker price, unfortunately, overall income decreased by 29.0 billion yen when adding other factors, including exchange loss of 6.0 billion yen and increasing costs in North America.
A-5. Progress of Cost Saving Plan
Cost savings in Containership Business and other segments are generally progressing as planned. For the new cost saving estimate of 10.6 billion yen, business restructuring accounts for about 60%. The rest comes from accumulated cost savings in each area, improved profit by increased volume of reefer cargo, etc. As to the project to increase total volume of reefer cargo, our expectation is for an increase of 10% compared to the previous year, yet the fall in freight rates pushes down the yield amount and thus the profit-improving effect, failing to achieve the initial goal as a result. However, all in all the profit improving activities centering on cost savings are progressing as planned.
Our focus for the future in each segment is described below.
B-1. Containership Business
The focus for the future is on level of demand and market situation of East-West trades, the Asia-Europe trades in particular. Through our alliance, we will promote effective capacity adjustment in accordance with the supply-demand situation, pursuit of thorough rationalization, enhancement of revenue management by utilizing IT and further cost reductions.
B-2. Bulk Shipping Business – Dry Bulk
The weak dry bulk market is expected to continue for the time being considering the depressed Chinese market. Especially the sense of oversupply is strong for tonnage of medium- and small-sized ships, and the market may remain dull. We will continuously endeavor to improve our earning structure by securing long- and mid-term contracts, efficient vessel deployment and further cost savings.
B-3. Bulk Shipping Business – Car Carriers
Amid the situation of decreasing volume in trades from Europe and North America to the Far East due to the economic slowdown in China as well as the decreasing volume in Intra-Europe trades due to Russia’s recession, we will continuously focus on cargoes from South East Asia and Trans-Atlantic trades to offset profit deterioration, and try to build stronger and more stable business structure by delivering next-generation car carriers with higher fuel efficiency and more suitable technical flexibility for the transport of High & Heavy cargo and railway vehicles.
B-4. Bulk Shipping Business – LNG Carriers and Oil Tankers
For LNG, the current stable situation is expected to continue with long- and mid-term contracts. Also for tankers, present steady market is expected to continue.
B-5. Offshore Energy E&P Support & Heavy Lifter Business
For Offshore Support Vessels, some marine development projects are sluggish due to the fall in oil prices. As a result, the market is not doing well and is therefore expected to remain stagnant. For Drillship, business fortunately is operating steadily.For Heavy Lifters, we expect that present downward trend will continue in the market, so we will focus on receiving orders for high-earning projects where they can fully exert their cargo handling capabilities.