Thank you very much for joining us today.
A-1. Results for 1st Half Fiscal Year 2016
The results for the first half Fiscal Year 2016 show a loss of 36.1 billion yen in ordinary income, deteriorating by 9.1 billion yen compared to that of July 2016, and a loss of 50.5 billion yen in net income attributable to owners of parent, deteriorating by 10.5 billion yen compared to that of July 2016. The ordinary income for each business segment is shown in the table in the middle.
The deterioration in ordinary income by 9.1 billion yen is largely attributable to the greater-than-expected deterioration in the market of the Containership Business. Additionally, the cargo movement of Car Carriers went below our expectation centering on those for resource rich countries, which also served as one of the deterioration factors. For the Containership Business, vessel supply has increased since the latter half of last year centering on newly-built large-scale ships. As a result, the market has fallen to an unprecedentedly low level and has since remained severe. The market is so severe that the major Korean containership company ranked 7th in the world went bankrupt in August as you know, and a reduction in movement was observed for cargos for Europe last year. Such decline in the demand was another background factor. Although cargo volumes showed a trend of gradual recovery this year, the market hasn’t quite reached a state of being bullish. An upward trend was observed in the market after the business failure of the Korean shipping company, yet it was temporary and didn’t last long. As a result, the freight indices in the second quarter went below the expected levels. In November, the freight rates finally started to show some signs of recovery, but the market still remains stagnant.
As for the main financial indicators, equity capital deteriorated by 72.3 billion yen compared to the end of March 2016. The main factors include deterioration by about 50.0 billion yen which is equivalent to net income attributable to owners of parent, and deterioration by about 16.0 billion yen due to foreign currency translation adjustment. Meanwhile, the interest bearing liability increased by about 22.0 billion yen. This was caused by our decision to utilize loans as needed, in order to ensure financial fluidity in our hands in view of the uncertainty-engulfed market environment.
A-2. Results for 1st Half Fiscal Year 2016 – 1st Half Fiscal Year 2016 vs. 1st Half Fiscal Year 2015
Ordinary income in the first half fiscal year 2016 showed a loss of 36.1 billion yen, which was a deterioration by 52.1 billion yen compared to the profit of 16.0 billion yen made in the first half fiscal year 2015. The biggest cause was the market deterioration. Deterioration in the containership business market centering on the east-west routes was 28.8 billion yen. The Bulk Shipping segment had a deterioration of 26.7 billion yen. Some contracts were renewed in the latter half of the 1st half fiscal year 2016 where the market was at the lowest, and market declining factors, including such contracts in Dry Bulk Business and Tanker Business, accounted for about two-thirds of the 26.7 billion yen. The remaining one-third comes from a decline in cargo movement in the Car Carrier Business centering on those for resource rich countries. Summing these up, the total financial impact of market deterioration was 55.5 billion yen. Taking into account the exchange rate revaluation loss of 10.0 billion yen compared to the previous year, the financial impact of deteriorating factors exceeds 65.0 billion yen in total. Meanwhile, improving factors realized financial improvement by about 13.0 billion yen, including 9.1 billion yen by cost savings and 3.5 billion yen by business structural reform. However, the overall financial performance turned out to be deterioration by 52.1 billion yen.
A-3. Estimates for Fiscal Year 2016
Estimates were reviewed including those for the second half of the year, especially for the Containership Business and Car Carrier Business, taking into account the latest situations such as the assumption of the severe Containership market persisting for some time and movement recovery in cargos for resource rich countries such as Middle East, Latin America and Africa in the Car Carrier Business being delayed until next year. Also regarding Dry Bulk Business, while the cargo movement for coal and iron ore is going strong centering on China and is exhibiting slow recovery from an historic low, the current situation is that the supply-demand imbalance requires some time to see some improvement and the market is not rising yet.
The reviewed ordinary income shows a loss of 54.0 billion yen, deterioration by 32.5 billion yen compared to the loss of 21.5 billion yen as of July 2016. The reviewed net income attributable to owners of parent shows a loss of 94.0 billion yen, deterioration by 48.5 billion yen compared to the loss of 45.5 billion yen as of July 2016. The reason why the deterioration amount in the net income attributable to owners of parent is greater than that in the ordinary income is because sale of assets and other items initially planned for this year were postponed to next year onward. As a side note, the exchange rate assumption for the second half of the year is 100 yen per US dollar, and the bunker price assumption is 310 US dollars per metric ton.
Details of ordinary income by segment are shown in the table in the middle. Although the Bulk Shipping Business is expected to become profitable in the second half of the year, we expect red figures for the full year due to a loss in Dry Bulk Business which, in particular, middle- and small-sized vessels are highly susceptible to market deterioration.
Regarding a dividend, it is our utmost regret to say that we decided to pay no dividend in Fiscal Year 2016, as we believe improving the financial structure takes the highest priority amid an expectation of net loss for the year, and to prepare for the integration of the containership business by the three companies that will take place in the future.
A-4. Estimates for Fiscal Year 2016 – Latest vs. as of July 2016
This is a comparison of the estimates for fiscal year 2016 against the values as of July 2016. Compared to the yearly estimated loss of 21.5 billion yen as of July 2016, the latest estimate shows a loss of 54.0 billion yen, deterioration by 32.5 billion yen. The main factors include a deterioration by 20.7 billion yen in the Containership Business due to the sluggish market persisting longer than expected, a deterioration by 6.0 billion yen in the Bulk Shipping segment, mainly due to delayed recovery in the cargo movement of finished vehicles for resource rich countries and market decline in the Tanker Business, and a deterioration by 5.7 billion yen arising from temporary factors such as increasing exchange rate revaluation loss due to further appreciation of yen and costs involved with rescue operations for cargos that are loaded on the bankrupted Hanjin Shipping vessels.
A-5. Estimates for Fiscal Year 2016 – Latest vs. Fiscal Year 2015 Results/1st Half vs. 2nd Half Fiscal Year 2016
For the comparison with fiscal year 2015 results, the financial impact of market deterioration is 67.2 billion yen. Market deterioration in the Containership Business, including east-west routes, accounts for 39.7 billion yen, and the entire Bulk Segment accounts for a deterioration by 27.5 billion yen. The main factor of deterioration is the decline in the movement of cargos for resource rich countries in the Car Carrier Business, in addition to the impact of market deterioration in Dry Bulk Business and Oil Tanker Business. Additionally, while the average exchange rate in the previous year was 121 yen per US dollar, the rate for this year is 104 yen per US dollar. The financial impact of the appreciation of yen will be net deterioration by 7.2 billion yen. The total deterioration amount exceeds 85.0 billion yen which includes other minor factors such as increasing exchange rate revaluation loss and costs involved with addressing the issue of the bankrupted Korean shipping company..
Although we implemented some profit-improving measures that achieved cost savings by 19.9 billion yen centering on the Containership Business and 10.0 billion yen from business structural reform of the Dry Bulk Business, a deterioration by 57.3 billion yen resulted as compared to the previous year.
For the comparison between the first half and the second half of this year, an improvement by 18.2 billion yen is expected for ordinary income, as a loss of 17.9 billion yen is expected for the second half of the year while the loss in the first half year was 36.1 billion yen. The breakdown is 5.6 billion yen in Containership Business and 2.7 billion yen in Bulk Segment, due to a certain degree of market repair, totaling an improvement by 8.3 billion yen. Additionally, 4.1 billion yen comes from self-supporting efforts, including cost savings and business structural reform, and 8.5 billion yen from assumed recovery from the exchange rate revaluation loss that occurred in the first half of the year. As such, the total financial impact of main improving factors is about 21.0 billion yen. Meanwhile, oil bunker price assumed for the second half of the year is 310 US dollars per metric ton compared to 226 US dollars per metric ton in the first half of the year, which will serve as a deterioration factor of 4.3 billion yen. Summing up the improvement effects above, an improvement by 18.2 billion yen is expected.
A-6. Business Structural Reform and Cost Reduction
Structural reform valued at about 34.0 billion yen for fiscal year 2015 was carried out mostly as planned. Also for fiscal year 2016, structural reform has been mostly completed for the Dry Bulk Business, and we are diligently working on the remaining structural reform pertaining to affiliated companies. Details will be announced as they become available.
The earnings improvement of structural reform is 10.0 billion yen for this fiscal year, as expected. For the next fiscal year, it is expected to accumulate up to 13.5 billion yen.
Along with the down-sizing of fleet as part of our business structural reform, we plan to reduce 34 vessels from the fleet by the end of this fiscal year compared to the end of fiscal year 2014 for the entire Dry Bulk Business, of which 23 vessels are medium- and small-size ships.
The revised target of cost reduction for this fiscal year is 19.9 billion yen, 1.1 billion yen increase from the target of 18.8 billion yen as of April 2016. Of the 19.9 billion yen, the Containership Business accounts for 17.7 billion yen. The breakdown of Containership Business is rationalizing east-west routes by injecting large vessels, withdrawal of Asia-East coast South America route this year, and other factors.
The division trends are shown in pages 11 to 15.
Lastly, I would like to talk about the review of the Medium-term Management Plan. Due to the containership business integration by the three Japanese shipping companies that will take place in April 2018, we are planning to review our present Medium-term Management Plan and make an announcement within this financial year. Additionally, we are considering additional measures for the adverse market condition, and we will announce those details as they become available.
That completes today’s presentation. Thank you very much.