Thank you very much for joining us today.


A-1. New Plan: Business Environment: Changes and Key Themes

We revised the Medium-term Management Plan ‘"K" Value for our Next Century’, and added ‘Action for Future’ to its name. After releasing the Medium-term Management Plan in spring last year, we experienced some major turning points in the business environment and the global economy in the latter half of last year. Specifically, in China, the influence of adjustment on excessive investment has become clear: the imports of iron ore scored 2-digit growth in the 2000’s after joining WTO, yet drastically decelerated and levelled off in 2015. China is in transition to a “new normal” led by the central government, and it is unlikely that binge shopping of Chinese people occurs again in the future. In emerging markets, affected by the fall in both commodity and crude oil prices, economies remain stagnant without any sign of recovery. The same applies to developed countries. EU is suffering from political and economic disarray, where discord arising from the unified financial policy has become apparent. Triggered by the refugee problem, the foundation of EU started to vacillate as represented by the British Exit issue. The terrorism and ISIS issues have widely influenced not only the Middle East but also developed countries’ economies, and the geopolitical risk keeps rising. On top of that, in our eyes, the American economy that used to be going strong started to be affected by the deceleration in the global market, and the sense of uncertainty has become very strong. Such structural changes in the operating environment have become rapidly more apparent since the latter half of last year, and there is a concern over the possibility that the low growth in the demand for logistics associated with the slower growth in economic development will last for some time. Meanwhile, pressure from over-supply of tonnage will persist for a while longer, inducing volatile markets, especially for Dry Bulk and Containership Businesses.


Considering it as a transition period with changes in the business environment beyond the empirical rules of conventional cyclical market circulation, we decided to ensure cost competitiveness by implementing structural reform, in addition to ensuring stability by improving our financial strength which has already been previously conducted. We are dedicated to overcome the raging waves we are facing and ascertain future structural changes in the business environment. As counter-measures for Dry Bulk and Containership Businesses facing volatile markets, we will shrink the relatively large exposure of middle and small-size vessels in Dry Bulk Business by reducing the fleet size through structural reform. For Cape-size fleet where about 90% of its cargos is secured by medium- to long-term contracts, we may have to freeze our fleet expansion plan for the time being, while securing greater competitiveness by disposing of high cost vessels. Regarding Containership Business, we are attempting to ensure competitiveness by replacing middle and small size vessels with ten state-of-the-art, energy-saving 14,000-TEU vessels, which will all become available by 2018, placing focus on the east-west routes. For stably-earning Car Carrier Business, energy resource transport such as LNG Carrier and Oil Tanker Businesses, Dry Bulk Business based on medium- and long-term contracts for instance, for steel-making materials, thermal coal, chips and Logistics Business, we are planning to continue implementing existing measures to expand business scale as much as possible. For the Heavy Lifter Segment that is facing deterioration in present operating environment, we are currently considering implementing fundamental reforms. For the Offshore Energy E&P Support Segment, we are taking initiatives to stabilize that business including a measure against loss from revaluation of exchange rate by borrowing in Norwegian krone.


A-2. New Plan: Business Structural Reform, Business Scale, Investment Plan

In response to changes in the business environment that have been rapidly advancing since last year, we have been giving considerations to effective structural reform. We plan to implement business structural reform totaling about 69.0 billion yen, with about 34.0 billion yen in fiscal 2015 and about 35.0 billion yen in fiscal 2016. The specific measures for 2015 include fleet reform for middle and small-size vessels for Dry Bulk Business and Cape-size vessels, and that for 2016 include structural reform associated with business reform for overseas affiliates in addition to restructuring of Dry Bulk Business. The expected earnings improvement from structural reform is 10.0 billion yen in fiscal 2016 and 13.5 billion yen in fiscal 2017.


Along with the structural reform, the plan for fleet rationalization will be changed drastically.  While the original plan was to increase total fleet vessels from 526 in fiscal 2014 to 564 by the end of fiscal 2019, total will be reduced by 10% to 514, 50 vessels fewer than the initial plan. Of the reduction by 50 vessels, a large majority, namely 43, involve Dry Bulk Business. For the entire Dry Bulk Business, while the original plan was to increase the number of vessels from 218 in fiscal 2014 to 239, total will be reduced by 20% to 196, 43 vessels fewer than the initial plan. Of the total for Panamax and smaller vessels, while the original plan was to increase the number of vessels from 96 in fiscal 2014 to 99, total will be reduced by 30% to 70 which is 29 vessels fewer than the initial plan, reducing the fleet by one-third. We are planning to reduce it by half in the medium term in order to reduce exposure and strengthen the tolerance against market volatility. Regarding Capesize vessels, amid having medium- and long-term contracts, we will attempt to improve the cost competitiveness by disposing of high cost vessels and freeze our fleet expansion plans for the time being. Regarding Containership Business, while we are planning to dispose of 2 additional middle and smallsized vessels associated with completion of ten 14,000-TEU vessels, there is no change to the basic fleet plan. For LNG Carrier Business, because progress of projects is delayed due to the sharp fall and stagnation in crude oil price, the target for fiscal 2019 will be changed from 61 vessels to 57 vessels. This is an increase by 14 vessels from the 43 vessels in fiscal 2014, and 8 vessels have already been secured. However, a large majority of them are ships which will be completed in fiscal 2020 or later, and financial impact of this measure will remain limited until fiscal 2019. Regarding Car Carrier Business, we will undertake fleet rationalization by receiving fifteen 7,500-unit car carriers as planned, and assuredly take initiatives for non-self-propelled cargos including railway cars and construction machinery.


Along with these changes in the plan for fleet rationalization, our investment plan will also be changed. The total amount of investment cash flow over 5 years from fiscal 2015 to 2019 will be reduced from 330.0 billion yen in the original Medium-term Management Plan to 230.0 billion yen, a reduction by 100.0 billion yen, corresponding to one-third of the original amount. The investment into expanding our stable earnings system is reduced from 170.0 billion yen to 105.0 billion yen, and the strategic investment into growth from 120.0 billion yen to 95.0 billion yen. According to the original Medium-term Management Plan, we expected to step on the accelerator to increase investment cash flow in stages from 50.0 billion yen to 80.0 billion yen in fiscal 2017 and onward, but amid the changes in the business environment and structure, we decided to limit cash flow to 50.0-billion-yen level for the time being to better prepare ourselves  for the next step.


A-3. New Plan: Projection for Fiscal Year 2019, Measure for improving ROE

Associated with the changes in business environment, we reviewed the assumed market conditions, conducted structural reform and revised distribution of management resources by reforming the business of Dry Bulk Business and affiliates. Targeted ROE for fiscal 2019, the 100th anniversary of the company, is to be 8%, and we are moving back our target of 10% ROE attainment to Post Fiscal 2020  The targets for fiscal 2019 are: operating revenue of 1.2 trillion yen, ordinary income 45.0 billion yen, net income 33.0 billion yen, ROE 8%, equity capital 400.0 billion yen, equity ratio 36% which is just short of 40%, interest-bearing liabilities 480.0 billion yen, and D/E ratio a little less than 120%.


As initiatives to achieve ROE of 10%, holding up the concept of achieving ROA of over 6% based on ordinary income and a little over 4% on the net income basis, we will work on renewing the business portfolio through, for instance, reduction of Dry Bulk fleet consisting of middle and small-size vessels and reforming the business of affiliates. We will endeavor to achieve the targets by accumulating earnings boosts through structural reform and cost reduction and by improving the efficiency through, for instance, paring unnecessary assets across the Group. The equity ratio target of 40% serving as a condition of financial leverage of 2.5 will remain. Markets in the shipping industry are highly volatile, and amid the situation of having exchange rate risks including US dollars which account for a large majority of the income, we have to have a relatively higher equity ratio. As a medium- to long-term target, we are thinking to maintain an equity ratio of 40%, aiming at 500.0 billion yen as an absolute amount. Because of structural reform, the equity ratio will temporarily decrease to around 30%, but we will not change the target.


Regarding dividends, the stable dividend policy will remain the same. However, dividends for fiscal 2016 are not yet decided as of now. The reason is because we would like to place highest priorities on ensuring the competitiveness of business and bolstering our finances, once the restructuring costs slated for fiscal 2015 and fiscal 2016 are recorded. We are thinking to come back to the stable dividend policy in fiscal 2017 at the earliest, after ascertaining future trends in the operating environment.


B-1. Financial Results

The results of fiscal 2015 were operating revenues of 1 trillion 243.9 billion yen and operating income 9.4 billion yen. Ordinary income was positive 3.3 billion yen, slightly over 1.0 billion yen which was released as an amended value in April. The net loss attributable to owners of parent totaled 51.5 billion yen compared to the amended amount of 50.0 billion yen. For the entire fiscal 2015 term, average exchange rate was 120.78 yen per US dollar and bunker oil price was 295 US dollars per metric ton. Compared to previous fiscal year, operating revenues dropped by 108.5 billion yen, and ordinary loss deteriorated by 45.6 billion yen.


As for ordinary income by segment, Containership Business had a deficit of 10.0 billion yen. Bulk Shipping Business scored a profit of 24.7 billion yen. The Offshore Energy E&P Support and Heavy Lifter Segment had a deficit of 6.6 billion yen including the loss of 2.0 billion yen from revaluation of exchange rate.


Due to factors including changes in the comprehensive income associated with business restructuring, sales of assets and fluctuation in the exchange rate, equity capital was reduced from 441.5 billion yen in the previous term by 86.1 billion yen to 355.4 billion yen, and the equity ratio was 32%. When it comes to the cash flow, while those from operating activities were positive 39.6 billion yen, cash flow from investing activities remained negative 29.6 billion yen, resulting in free cash flow of positive 10.0 billion yen. The extraordinary gains and losses include business structural reform costs of 33.9 billion yen, valuation loss of investment securities of 8.4 billion yen, profit from sales of investment securities, fixed assets, and so on of 16.5 billion yen, and the reversal of deferred tax asset of 9.4 billion yen. Regarding dividends, we are planning year-end dividend of 2.5 yen per share, in addition to the interim dividend of 2.5 yen per share.


B-2. Fiscal Year 2015 Results – Ordinary Income vs. Fiscal Year 2014 Results

This chart shows analysis of the key factors affecting changes in the ordinary income from fiscal 2014. Ordinary income improved by 50.7 billion yen due to weakening of yen against US dollar by 11.59 yen and a reduction in the bunker price of 246 US dollars per metric ton, and another 10.4 billion yen due to cost savings. Meanwhile, market volatility caused deterioration by 89.2 billion yen centering on Containership and Dry Bulk Businesses, where almost 80% is attributable to Containership Business, the rest mainly due to Dry Bulk Business. There was deterioration of 17.5 billion yen due to loss from revaluation of exchange rate and temporary factors including bunker swap. Overall, market volatility in both Containership Business and Dry Bulk Business caused major damage, and ordinary income deteriorated by 45.6 billion yen, from the result of 49.0 billion yen in fiscal 2014 to 3.3 billion yen in fiscal 2015.


In terms of comparison of market freight rates with those in fiscal 2014, for Containership Business, the North American outbound freight index fell from 102 by 11 points to 91 and Europe outbound freight index fell from 73 by 26 points to 47, exhibiting a sharp fall below the lay-up point. For Dry Bulk Business, the market deteriorated with a fall of 4,450 US dollars to 6,450 US dollars per day for Cape and by 1,225 US dollars to 5,100 US dollars per day for Panamax. The market has dwindled down to historic lows in the first half of this year. However, market for Cape-size is currently increasing to about 8,000 US dollars per day.


B-3. Fiscal Year 2015 Results vs. Fiscal Year 2015 Estimates in Original Management Plan

Looking at the key factors affecting changes in ordinary income compared to the estimates released in April 2015, while there were improving effects totaling 10.3 billion yen including 1.7 billion yen due to weaker yen against US dollar by 2.78 yen and 8.6 billion yen due to the reduction in bunker oil price by 55 US dollars per metric ton, these were mostly cancelled out by a deterioration by 4.2 billion yen due to temporary factors including loss from revaluation of exchange rate caused by a shift to stronger yen towards the end of the term and a deterioration by 3.3 billion yen due to the actual cost cuts from not achieving the original plan. As a result, the market deteriorating factor of 39.5 billion yen for Containership and Dry Bulk Businesses that fell largely towards the second half term directly translated into the drop in ordinary income. Of the 39.5 billion yen, 90% is attributed to Containership Business and the rest to Dry Bulk Business. At the end, there has been a deterioration from 40.0 billion yen announced in April 2015 by 36.7 billion yen to the fiscal 2015 result of 3.3 billion yen.


As in the comparison with the original estimates, the slump in the market and freight rates was devastating for both Containership Business and Dry Bulk Business, and in view of low-rate growth continuing for the global economy, we decided to conduct structural reform. According to the values released at the end of the term, for Containership Business, the North American outbound freight index was lower than the original estimate by 7 points and the Europe outbound freight index by 17; and for Dry Bulk Business, freight rates were lower by 5,050 US dollars per day for Cape and 2,900 US dollars for Panamax.


C-1. Estimate for Fiscal Year 2016

In the consolidated estimate for fiscal 2016, the assumed exchange rate is 110 yen per US dollar, and bunker oil price of 275 US dollars per metric ton, which is equivalent to the Brent crude price of about 50 US dollars. Estimated operating revenues are 1.1 trillion yen, with operating income of 17.0 and ordinary income of 15.0 billion yen. Regarding net income attributable to owners of parent, a deficit of 35.0 billion yen is assumed as a result of accounting 35.0 billion yen as cost for business reform of Dry Bulk Business and overseas affiliates plus business structural reform in fiscal 2016, in succession to those in fiscal 2015.


By segment, Containership Business is expected to make a profit of 11.0 billion yen, Bulk Shipping Business a profit of 9.0 billion yen, and Offshore Energy E&P Support and Heavy Lifter Segment a deficit of 2.0. The ordinary income estimates sensitivity is 0.5 billion yen for a change in the exchange rate by 1 yen per US dollar and 0.6 billion yen for a change in the bunker oil price by 10 US dollars per metric ton. Regarding dividends, as mentioned above, we have not yet decided for fiscal 2016. The reason is because we would like to place highest priorities on ensuring the competitiveness of business and bolstering our finances, once the restructuring costs during the 2 years from fiscal 2015 to fiscal 2016 are recorded. We are thinking to come back to the stable dividend policy in fiscal 2017 at the earliest, after ascertaining future trends in the operating environment.


C-2. Our Fiscal Year 2016 Estimates vs. Fiscal Year 2015 Results

Next, I would like to talk about the business structural reform costs in fiscal 2015 and 2016. In response to sharp changes in the operating environment and a long-term slump in the dry bulk business market, we commenced consideration of structural reforms in the latter half of fiscal 2015, and decided to undertake structural reform from fiscal 2015 through fiscal 2016, especially for our Dry Bulk Business and affiliates. The total cost over 2 years is 69.0 billion yen. The business structural reform cost for fiscal 2015 is 34.0 billion yen, where the vessel impairment losses account for 8.2 billion yen for 18 vessels. Vessel sales account for 5.3 billion yen for 7 vessels. Early cancelations of long-term charters account for 20.4 billion yen for 16 vessels. A total of 41 vessels were subject to structural reform.  Total business structural reform costs for fiscal 2016 is 35.0 billion yen, covering sales and disposal of dry bulk vessels, early cancellation of long-term charters, and business reform of affiliates. The expected earnings improvement from structural reform over 2 years is 10.0 billion yen in fiscal 2016 and 13.5 billion yen in fiscal 2017. On top of that, in fiscal 2016, we will work on cost savings of 18.8 billion yen. The improvement target for Containership Business is 16.5 billion yen in total, of which about half comes from initiatives including rearrangement of ports of call on an alliance basis, optimal allocation of upsizing, withdrawal from the east coast of Latin America and further rationalization of North-South services. The rest comes from a reduction in the inland expenditures in North America and accumulation of other cost saving activities including a reduction of operating costs through efficient allocation of vessels in Bulk Shipping Business.


As for the comparison of fiscal 2016 budget and fiscal 2015 results by the key factors affecting changes in the ordinary income, there is a deterioration of 8.3 billion yen due to exchange rate and other factors and an improvement of about 29.0 billion yen in total including an improvement of 1.2 billion yen due to a change in bunker oil price, 10.0 billion yen from structural reform and 18.8 billion yen from cost savings.


Regarding the influence of market volatility, for Dry Bulk Business there are some effects of concluding 1-year contracts for spot cargos serving as exposure brought forward from the previous term to this term. The contracts disclosed at the bottom market values in the previous fiscal year come out in this term. Additionally, a weakening tendency is expected in the oil tanker market, and deterioration of about 15.0 billion yen in total is assumed. In the case of Dry Bulk Business, it is due to the influence of deterioration carried forward to the next term in a situation where the market is plummeting. For Containership Business, with a fall in the freight index by 2 points for the Asia-North America services and an increase of 11 points for the Asia-Europe services, a net improvement of about 5.0 billion yen is expected. Summarizing all the above, an improvement of 11.7 billion yen is expected compared to fiscal 2015.


C-3-1. Containership Business

Looking back at the situation in 2015, while in the first half term a profit was made because the freight remained high due to prolonged harbor strike in North America, in the second half term the short-term market plunged for almost all services. Unfortunately, ordinary income fell into the red for both the third and fourth quarters, resulting in a deficit of 10.0 billion yen for the year. The forecast for fiscal 2016 is ordinary income of 11.0 billion yen, which is an improvement by 21.0 billion yen compared to the previous year, largely thanks to cost savings of 16.5 billion yen,of  which about half arises from the effects of large 14,000-TEU ships that entered services from the previous year starting to operate in full scale and the rationalized ship allocation including withdrawal and shrinking of unprofitable services. The remaining half comes from a reduction in various variable costs including inland costs in North America, which is considered to have extremely high reliability and we believe there still remains enough room for adding up more cost savings.


The market pre-suppositions include a freight rate index of 89 for Asia-North America services in fiscal 2016, 2 points lower than the index of 91 in fiscal 2015; and 58 for Asia-Europe services against the historically low 47 points averaged for fiscal 2015. As to space, an increase of about 10% is estimated for Asia-North America services and a reduction of 10% for Asia-Europe services, and we are planning to inject more tonnage to Asia-North America services where the economy is still doing relatively well. Regarding the forecast of utilization, i.e. the occupancy of capacity by cargos, it was an annual average of 89% for Asia-North America services and 82% for Asia-Europe services. These values can be recognized as a major slump rarely seen in normal years, but they occurred because we judged that a fall in the utilization was unavoidable since the spot market collapsed in the second half term. For this fiscal year, we estimate that freight rates will be adjusted to a certain degree and an average of about 92% as per normal years will be secured as utilization.


C-3-2. Bulk Shipping Business: Car Carrier Business

For Car Carrier Business, the total number of units carried in fiscal 2015 was 3.15 million units, ensuring a relatively stable number of units carried albeit reduced by 20,000 units compared to fiscal 2014. However, shipping of finished vehicles to Middle East in the latter half of last fiscal year and for resource-rich countries in South America and Africa appears to be faltering. For this, we assume a recovery of commodity prices toward the latter half of this year. In the last fiscal year, seven newly-built 7,500-unit car carriers entered service. They are energy-saving vessels and achieving economic effects as anticipated. Replacement of middle-size vessels with use of large- size vessels is progressing as planned. In addition, these newly-built vessels are high-spec vessels featuring a vessel structure which enables carrying non-self-propelled cargoes, construction machines and heavy articles, and collection of cargos other than finished vehicles is steadily growing.


C-3-3. Bulk Shipping Business: Dry Bulk Business

Regarding Dry Bulk Business, stable earnings have been made by Cape-size and medium- to long-term contracts for thermal coal and chips. We maintained a business model to accumulate profit in the tail wind and not to eat up stable earnings even when the market is unfavorable for the last 36 years. However, slump in the current market is significant, and regrettably this business fell into the red in fiscal 2015, the first time in 37 years. In the lower section of this page, market results in both fiscal 2014 and 2015 and market estimates for fiscal 2016 are shown for each vessel type. On a quarterly basis, we are expecting the market to bottom out in the fourth quarter of fiscal 2015 and to gradually recover in fiscal 2016. However, our prospect tells us this is still far away from the break-even point.


Looking at the current demand, due to the supply/demand adjustment in China, reduced production continued for steel materials in particular since last year, and stock is reduced. Accordingly, the supply/demand balance gap became narrower, and the steel material price increased by about 80% in February 2016 after bottoming out in November 2015. This prompted production of steel materials and crude steel, and a record high monthly crude steel production of 71 million tons was achieved in the single month of March 2016. In addition, imports of iron ore are increasing. However, for the medium- to long-term viewpoint, there is no guarantee on the sustainability of crude steel production at such a high level. On the supply side, we are told that scrapping is keeping a high level in succession to the last year, and the volume of scrap sold increased by 30% for Cape-size and Handymax and by about 100% for Panamax compared to last year on the basis of the period from January to April. Additionally, regarding newly-built vessels, there is a strong trend of delaying and postponing their handovers, and they say a situation where only 60-70% of remaining orders are delivered will linger in this year as well.


With such a supply/demand environment in the background, BDI scored a record low of 290 on February 20 before turning to rise again. The current BDI is around 700, and the index based on Capesize recovered from below 3,000 US dollars to an 8,000 US dollar level. This is greatly indebted to mental adjustment of the market that went too far plus temporary factors, and we expect that the supply/demand gap will not be fully resolved and a sluggish market will continue in fiscal 2016. If a market level exceeding the lay-up level continues, the number of stopped or moored ships will fall, which will serve as a supply pressure.


Under such an environment, regarding Cape-size vessels, amid having medium- and long-term contracts, we will attempt to improve cost competitiveness by disposing of high cost vessels and freeze fleet expansion plans for the time being. For middle and small vessel fleets, we are planning to reduce the number by half in the medium term in order to reduce exposure and strengthen the tolerance against market volatility, starting with disposing of 29 vessels this time, about one-third of the fleet.


Regarding the exposure of each vessel type as of the beginning of fiscal 2016, we assume it to be 15% for Cape, 22% for Panamax, 50% for Handy and 45% for Small. For Cape-size, the exposure is relatively higher than the values of 7-10% in ordinary years, because short-term contracts were used to avoid fixing of the medium- to long-term loss under the stagnant market in the last fiscal year, which we are planning to reduce gradually in the future as the market recovers.


C-3-4. Bulk Shipping Business: LNG Carrier & Oil Tanker Business

The current spot market of LNG carriers has fallen to a record low level, but our company’s energy resource shipping business endeavors to secure stable profits from medium- and long-term contracts and there is no influence from the spot market. Regarding LPG carriers, while the market is weakening, our business is fortified by medium- and long-term contracts. When it comes to new building of LNG carriers, while orders are received and concluded steadily, launch of projects is delayed due to the fallen and stagnant crude oil price, so the target in the new Medium-term Management Plan for fiscal 2019 was reduced slightly with the hope of achieving the original target in later years.


For oil tankers, the number of completed newly-built vessels will start to increase from the second half of this fiscal year, and we expect the market will transition in a bearish manner. Accordingly, the budget is formed at a level not achieving the target profit in fiscal 2015. Meanwhile, measures to secure medium- to long-term contracts in response to the market being expected to remain soft have been taken, and the number of vessels exposed to the market was reduced from 3.5 to 1.5, down to about 20%. Provided medium- to long-term contracts are secured, we are considering expansion of our fleet for VLCC.


C-3-5. Offshore Energy E&P Support & Heavy Lifter Segment

First, about Offshore Energy E&P Support Business, drillship business is enjoying stable earnings from long-term contracts. Regarding the business of offshore support vessels, the demand has shrunk affected by the stagnating crude oil price, and in the North Sea about 30% of PSVs and about 40% of anchor handlers of all fleet have been cut centering on small-size vessels. However, thanks to our high quality fleet, our company has been successfully acquiring medium- to long-term contracts. Meanwhile, we are considering initiatives to reduce the evaluation loss of liabilities denominated in foreign currencies.


For Heavy Lifter Business, the business has been dull due to reduction of plant logistics, etc. and is subject to consideration for structural reform.


D. Dialogues and collaboration with stakeholders (in order to achieve sustainable growth and enhance corporate value)

In this revision, some numeric targets were reviewed, but there is no change to other basic parts including strengthening of corporate governance. Represented by the introduction of a business unit system in this month, we progressed strengthening of the system for executing operations, and we also established a nominating advisory committee and a compensation advisory committee. Additionally, we will change the number of outside directors from 2 to 3. Since the total number of directors remains the same, we will have a 9-director system consisting of 6 inside directors and 3 outside directors, the outside being one-third of the total.


That completes today’s presentation.  Thank you very much.