A-1-(1). Financial Results for 3rd Quarter Fiscal Year 2015 (All Segments)
The financial results for 3rd quarter of fiscal 2015 show operating revenues of 309.4 billion yen, operating income -3.6 billion yen, ordinary income -4.2 billion yen, and quarterly net income -2.4 billion yen. The 9-month cumulative ordinary income remained at 11.7 billion yen, which was 34.5 billion yen less than the surplus of 46.2 billion yen made in last fiscal year. 10.0 billion yen attributable to the exchange rate revaluation loss and the remaining 25.0 billion yen to market deterioration mainly for the Containership and Dry Bulk business. While the 9-month cumulative operating income was 25.1 billion yen, ordinary income was 34.5 billion yen lower than previous year, indicating that ordinary income was worse by about 10.0 billion yen, which is attributable to the exchange rate revaluation loss. Yen became weaker by 18 yen per US dollar during the last fiscal year, resulting in exchange rate revaluation gain of 7.0 billion yen being recorded. During this term there has been no major change in the Japanese Yen-US Dollar exchange rate, yet an exchange rate revaluation loss of 3.0 billion yen was accounted for by K LINE OFFSHORE AS in Norway due to the weak Norwegian krone that resulted in 10.0 billion yen lower than previous year. Regarding the quarterly net income, the 9-month cumulative value was 9.3 billion yen, which was 23.7 billion yen worse than the previous fiscal year.
The average exchange rate in the 3rd quarter was 121.23 yen per US dollar, and the bunker price was $271 per metric ton.
A-1-(2). Financial Results for 3rd Quarter Fiscal Year 2015 (Each Segment)
For Containership Business, although not as great in Asia-Europe and North-South trades, the fall in freight started to influence the Transpacific trades after the alleviation of congestion at the harbor facilities on the west coast of North America. Amid the situation where market of short-term freight in Europe-Asia trades was below break-even point for keeping vessels in service in the 3rd quarter, the 9-month cumulative ordinary income was negative 4.2 billion yen, which was 22.4 billion yen lower than previous year. Meanwhile, the Bulk Shipping Business was in the black with 26.3 billion yen, 6.4 billion yen lower than previous year with about 7.5 billion yen attributable to flaking by exchange rate revaluation. Although the deterioration in the Dry Bulk Business was offset by market recovery of the Oil Tanker Business prior to the exchange rate revaluation, a poorer performance resulted compared with the previous fiscal year as ordinary income. For the Offshore Energy E&P Support & Heavy Lifter Business, the market stagnated due to the fall in the price of resources, including crude oil. One vessel was disposed, and efforts were made on reducing the burden of interest by loan refunding and other measures, yet the result was a deficit of 6.5 billion yen, which was 2.4 billion yen lower than previous year.
A-2. Key Points of Financial Results for 1st-3rd Quarter Fiscal Year 2015
The depreciation of the yen by about 16 yen and the bunker price of $263 per metric ton serve as positive factors totaling 44.0 billion yen. Meanwhile, market deterioration centering on both Containership Business and Dry Bulk Business is a negative factor of 67.0 billion yen, where the Containership Business accounts for about 80%, and the Dry Bulk Business about 15%. Summing up these values provides a negative result of 23.0 billion yen. Other negative factors caused a loss of 17.0 billion yen in total in which main factors include exchange rate revaluation loss of about 10.0 billion yen and bunker swap settlement loss of about 5.0 billion yen. Although cutting of cost by about 7.0 billion yen was made, there was a deficit of 34.5 billion yen at the end.
A-3-(1). Estimates for Fiscal Year 2015 (All Segments)
For the 4th quarter, although a slight market recovery associated with a temporary increase in demand towards the Chinese New Year is included for Containership Business, a market situation below the initial estimate is expected to continue for Dry Bulk Business. Therefore, a deficit of 4.8 billion yen is expected for ordinary income in the 4th quarter, similar to the deficit of 4.2 billion yen made in the 3rd quarter, resulting in a profit of 7.0 billion yen and 5.0 billion yen being forecast for ordinary income and net income, respectively, for fiscal 2015. Ordinary income will be 42.0 billion yen, and net profit will be 21.8 billion yen lower than previous year. The exchange rate assumed for 4th quarter is 117 yen per US dollar, and average consumption unit bunker price of $240 per metric ton. The bunkering price from February onward is expected to be around $150 per metric ton. There is no major change in the profit/loss balance associated with the fall of crude oil price. Regarding the dividend, it is planned to declare a year-end dividend of 2.5 yen per share and an annual dividend of 5.0 yen per share, consistent with the plan announced at the beginning of the term
A-3-(2). Estimates for Full Fiscal Year 2015 (Each Segment)
For Containership Business, declining freight is causing a major impact centering on the Europe-Asia trades and North-South trades, and a deficit of 10.0 billion yen is expected, which is 30.6 billion yen lower than previous year. For Bulk Shipping Business, although the record-breaking stagnancy in Dry Bulk market is covered by a recovering Oil Tanker market, the effect of flaking by exchange rate revaluation is large, and a profit of 29.0 billion yen is expected, which is 7.5 billion yen lower than previous year. For the Offshore Energy E&P Support & Heavy Lifter Business, the effects associated with the falling resource prices are large, and a deficit of 7.5 billion yen is expected, which is 1.8 billion yen lower than previous year, including the exchange rate revaluation loss of about 3.0 billion yen due to the weak Norwegian krone.
A-4. Key Points of Estimate for Full Fiscal Year 2015
Regarding ordinary income for fiscal 2015, comparison with the previous fiscal year for each factor is as follows. While the effect of weak yen by slightly less than 11 yen per US dollar and the effect of falling bunker oil price at $237/metric ton sum up to a positive factor of about 50.0 billion yen, the major impact of the deterioration in the freight market centering on both Containership Business and Dry Bulk Business serves as a negative factor of 91.0 billion yen, with Containership Business accounting for about 80% and Dry Bulk Business about 15%. Totaling these figures results in about 40.0 billion yen lower than previous year. Other negative factors would sum up to a loss of a little less than 11.0 billion yen, with the main factors being exchange rate revaluation loss of about 7.0 billion yen and bunker swap settlement loss. Although there is a profit improving factor of about 10.0 billion yen by cost savings, it is expected to become 42.0 billion yen lower than previous year at the end. In terms of a comparison with the previous estimate, a decrease of 13.0 billion yen is expected mainly due to falling freight rates centering on Containership Business.
A-5. Progress of Cost Saving Plan
Against the initial goal of 13.7 billion yen, total is expected to be 9.9 billion yen, an achievement rate of 72%, for fiscal 2015. Although an increased volume of reefer cargos is anticipated to be a revenue improving measure for Containership Business, the fall in freight rates is expected to lead to failure to reach the target.
B-1. Containership Business
For Containership Business, the supply-demand gap expanded due to a slow demand increase of 1% compared to a supply increase of about 8% from about 62 newly-constructed vessels having capacity of 10,000TEU or greater and other factors. Meanwhile, especially for Europe-Asia trades, cargo movements declined by 4% year on year regardless of the positive growth in GDP, and freight rate competition intensified centering on Asian shipping companies who received new larger vessels. Cargo volume in the transpacific trades increased by 4% on a year on year basis. The points in coming quarters may be to wait for the market recovery by flexibly adjusting the surplus space in accordance with demand, considering the recovery in demand, especially for Asia-Europe trades that suffered from a negative year-on-year growth of 4% this year, and the demand during the off-season period in this term.
For “K” Line, the 5th 14,000TEU vessel entered service in October. It is expected that we can fully receive the benefit of this 5-vessel fleet in the next term. Additionally, we are planning to improve profitability by rationalizing services to maximize the effect of the CKYHE Alliance, utilizing our upgraded yield management system, and reduction of cost for returning empty containers.
B-2. Bulk Shipping Business – Dry Bulk
Strongly affected by the declining demand for resources originating from China making excessive investment and adjustment of surplus facilities, prices remain low for resources including iron ore and coal. Dry Bulk Business is affected by this the most, and the market is stagnating at a record-breaking level that is even below the level after the bankruptcy of Lehman Brothers. Scrapping may be continued associated with the environmental response, yet the supply pressure is still high and it is expected to take a while for the market to fully recover. Also regarding the market in the 4th quarter, a daily amount of around $5,000 is expected regardless of the vessel type. The situation is that medium and small vessels with relatively large exposure are facing hard fights although a certain level of profit is secured for large vessels such as Capesize and thermal coal carriers.
B-3. Bulk Shipping Business – Car Carrier
Although cargo movements are dwindling for trades from Europe to China due to the slowdown of Chinese economy and for trades from Asia to Russia, etc. due to the recession associated with cheap crude oil and resources prices, sales of automobiles went well in 2015 with 17.5 million vehicles sold in the U.S. and 13.2 million vehicles in Europe. Backed by that, trans-Atlantic trades, Japan-North America/Middle East trades, etc. transitioned in a bullish tone. As a result, transportation was made for 2.42 million vehicles in total for the 9 months, which was slightly less than the volume in fiscal 2014. In the future, we are planning to raise the profitability by taking initiatives on High & Heavy cargo and rail cars through full utilization of state-of-the-art 7,500-vehicle energy-saving vessels.
B-4. Bulk Shipping Business – LNG Carrier and Oil Tanker
As LNG Carrier Business centers on medium- to long-term contracts, stable profit is secured without being affected by market fluctuations. For new contracts, although delays in progress are observed for some projects due to cheap resources prices, we are planning to continuously take active initiatives. Regarding Oil Tanker Business, similar to LNG carriers, stable profit is secured for VLCC tankers and LPG tankers under medium- to long-term contracts. Medium-sized crude oil carriers (Aframax) and some VLCC tankers are operated under market-linked contracts, where the profitability was improved reflecting a recovered market.
B-5. Offshore Energy E&P Support & Heavy Lifter
Although Drillship is operating stably, other Offshore Support Vessels and Heavy Lifters are suffering from the severe market and facing hard fights due to stagnancy in the development of new marine resources associated with the dwindling crude oil price.