Thank you very much for joining us today.
A-1. Results for 3rd Quarter 2016
A-1. I would like to inform you of our business performance in the 3rd quarter. The financial results in the 3rd quarter show operating revenues of 269.8 billion yen, operating loss of 8.3 billion yen, ordinary loss of 0.8 billion yen, and net quarterly loss of 4.1 billion yen. The average exchange rate for the quarter was 106.13 yen per US dollar, and the bunker price was 279 US dollars per metric ton. The cumulative operating revenues for the first nine months were 760.9 billion yen, operating loss 34.7 billion yen, ordinary loss 36.9 billion yen, and net loss 54.6 billion yen, significantly less than the same period last year, affected by the record low shipping markets for Containership Business and Dry Bulk Business.
Since the Japanese yen-US dollar exchange rate shifted towards weaker yen, to a level of 116 yen per US dollar, a foreign exchange revaluation gain of 7.5 billion yen was accounted for in the 3rd quarter.
The ordinary income by business segment was –2.9 billion yen for Containership Business, +4.2 billion yen for Bulk Shipping Business, and –1.5 billion yen for Offshore Energy E&P Support & Heavy Lifter. As for the main financial indicators, equity capital was 310.1 billion yen, interest bearing liabilities 525.6 billion yen, DER 170%, NET DER 107%, and equity ratio 29%.
I will explain this in detail later, but looking back on the 3rd quarter, this is attributable to the benefit of the weak yen. The ordinary loss reduced close to zero
and the Bulk Shipping Business segment returned to the black after a long while. This indicates a bright future, which could mean the shipping market is digging itself out of the bottom and onto a recovery track, considering the unprecedentedly catastrophic market that was observed at the beginning of last year.
As a side note, in SCFI, the freight index that represents short-term freight market of containerships, a record low in trades for the Asia -US West Coast of 725 US dollars per 40- foot was seen in April last year, and it has since recovered to about 2,000 US dollars at the moment. In trades for Asia - Europe that were much worse than those for North America, the record low of 205 US dollars per 20-foot that was marked in March and June last year has since recovered and currently exceeds 1,000 US dollars. We believe that circumstances have become better than the unbelievably miserable situation that we saw last year, at least.
Additionally, for Dry Bulk Business, while BDI (Baltic Dry Index) fell to a record low level of 200 at the beginning of last year, it is currently over 1,000. This figure does not make it profitable yet, but we believe the market is steadily recovering.
A-2. Results for 3rd Quarter – 1st-3rd Quarter Fiscal Year 2016 vs 1st-3rd Quarter Fiscal Year 2015
Next, A-2. On this slide, a waterfall chart shows key factors that increased or decreased ordinary income leading up to the 3rd quarter. While the cumulative ordinary income leading up to the 3rd quarter in the last year was in the black with 11.7 billion yen, for this year, it was an ordinary loss of 36.9 billion yen, falling 48.6 billion yen. The main factors of this decrease were deterioration in the containership freight market by 32.6 billion yen and deterioration in the bulk shipping market by 36.5 billion yen, a total of approximately 70.0 billion yen. On the contrary, the main earnings improvement factors were cost savings of +15.2 billion yen, effect of business structural reform of +6.6 billion yen, a total of around +22.0 billion yen. Adding them up, it was a decrease of a little less than 50.0 billion yen.
Briefly explaining factors for the market deterioration, as to market volatility for containerships, the 9-month freight index of Asia – North America trades was 73 this year compared to 92 last year, a reduction of 19 points. The index of Asia – Europe trades also slightly declined by 3 points. These translated into a drop of 32.6 billion yen for the entire Containership Business due to the market sliding, especially in North America. Looking at the factors for Bulk Shipping Business by segment, for the Dry Bulk segment, contracts renewed at the record low BDI of 200 at the beginning of last year in particular produced delayed effects. For the Car Carrier segment, there was a reduction in cargo movement mainly for the Middle East and for resource-rich countries in some regions like Africa and South America, as well as associated poor service efficiency. For the Oil Tanker segment, a supply of newly-built ships was the cause of deterioration. As a result, for the entire Bulk Shipping business, there was a decline of 36.5 billion yen.
A-3. Estimates for Fiscal Year 2016
A-3. Next are estimates for the full year. Our estimates for Fiscal Year 2016 are operating revenues of 1,010.0 billion yen, operating loss of 43.0 billion yen, ordinary loss of 47.0 billion yen and net annual loss of 94.0 billion yen. Compared to the figures announced in 2nd quarter, operating revenues are increased by 40.0 billion yen, operating income by 1.0 billion yen, and ordinary income by 7.0 billion yen. The net annual income is set to show a loss of 94.0 billion yen, which is the same as in the previous announcement, taking into account matters that are under negotiation or are being discussed with our accountants, such as expenses for business structural reform that have been planned but have not yet been conducted as of the 3rd quarter.
Fiscal Year 2016 estimates by segment are –32.0 billion yen for Containership Business, –6.0 billion yen for Bulk Shipping Business and –4.0 billion yen for Offshore Energy E&P Support & Heavy Lifter. Compared to the previous announcement, this is an improvement of 4.0 billion yen for Containership Business and 3.0 billion yen for Bulk Shipping Business.
Additionally, while it is not shown on the slide, the exchange rate and bunker price assumed for the 4th quarter are 112 yen per US dollar and 308 US dollars per metric ton, respectively. The sensitivity is 0.02 billion yen for each yen in the exchange rate, and 0.08 billion yen for each 10 US dollars per metric ton.
As for the year-end dividend, most regrettably, there will be no dividend as announced last time, since we expect a loss in net income and would like to focus on financial structure improvement as our most urgent task.
Regarding market conditions assumed for the 4th quarter, I would like to briefly talk about those for the Containership Business and Dry Bulk Segment only. For Containership Business, as shown in B-1, the freight index of Asia – North America trades is expected to be 79, improving by 3 points from 76 in the 3rd quarter, and that of Asia – Europe trades is expected to be 49, improving by 2 points from 47 in the 3rd quarter. However, liftings in Asia – North America trades are expected to decrease to 231,000 TEU, compared to 264,000 TEU in the 3rd quarter. Although the utilization transitioned at extremely high rates up until the Chinese New Year, it is expected to decline to 88% in the 4th quarter.
For the Dry Bulk Segment, our estimate for 4th quarter is 12,000 US dollars for Cape, 8,000 US dollars for Panamax, 6,000 US dollars for Handymax and 5,500 US dollars for Small Handy.
A-4. Estimates for Fiscal Year 2016 – Latest vs. as of October 2016
This slide shows the difference in the estimates for Fiscal Year 2016 from the previous announcement. Overall, we expect an improvement of 7.0 billion yen, as an ordinary loss of 47.0 billion yen is estimated this time compared to the previously estimated loss of 54.0 billion yen. As to the factors for this improvement, the major ones are 3.3 billion yen in the Containership Business market and 7.0 billion yen in foreign exchange revaluation. Other than that, there is a decrease of 4.1 billion yen expected after taking into account temporary factors such as various expenses involved with Hanjin Shipping that went bankrupt at the end of August and additional expenses associated with changes in vessel allocation on transitioning into a new alliance in April.
A-5. Estimates for Fiscal Year 2016 – 1st Half vs. 2nd Half Fiscal Year 2016
This slide shows the key factors increasing or decreasing ordinary income with regard to the difference between actual results of 1st half Fiscal Year 2016 and latest estimate for 2nd half Fiscal Year 2016 announced this time. There was a loss of 36.1 billion yen in the 1st half, and there is expected to be a loss of 10.9 billion yen in the 2nd half, improving by 25.2 billion yen. The main improvement factors are improvement in the freight market for Containership Business which dug itself out of the bottom and improvement in the market for Bulk Shipping Business centering on Dry Bulk Segment, totaling 12.9 billion yen. An improvement totaling +4.3 billion yen comes from the accumulated effect of cost savings and implementation of structural reform. On top of that, +10.3 billion yen is expected from some temporary factors, such as foreign exchange revaluation loss accounted for in the 1st half turning into a gain in the 2nd half. Combining the main improving factors amounts to a total of 27.5 billion yen. Subtracting a decrease of 2.5 billion yen due to an increase in bunker price, the 2nd half is expected to see an improvement of 25.2 billion yen compared to the 1st half.
A-6. Business Structural Reform and Cost Reduction
As for progress in business structural reform and cost reduction, there is no major change from what was reported previously. As initially planned, a structural reform cost of 34.0 billion is accounted for in the last fiscal year, and total of 35.0 billion yen for this fiscal year. An earnings improvement of 10.0 billion yen is expected for fiscal 2016, and total of 13.5 billion yen for fiscal 2017. Slightly more than 90% of the plan for fiscal 2016 has been completed. We plan to complete the remaining tasks in the 4th quarter and to assuredly improve the earnings in the next fiscal year to 13.5 billion yen as initially planned.
There is no significant change to the plan for the dry bulk core fleet either. The only change is to further downsize the fleet to 72 vessels for medium-and small-size ship, 1 vessel less than the 73 vessels in the plan that was previously announced.
Next is the progress of cost reduction. While the cost reduction estimated at the beginning of fiscal 2016 was 18.8 billion yen, it already totals 20.3 billion yen as of now, thanks to additional cost-saving measures and other initiatives we implemented, mainly in Dry Bulk Business. Please take this to mean that it is progressing almost according to the initial plan, or slightly ahead of it.
That concludes my explanation using slides.
Now, I would like to talk about future key points. As you may already have imagined, we are now focusing on how the containership freight market and the cargo movement will recover after the Chinese New Year that starts this week, what the freight trend will be like, and accordingly what will happen with the renewal of one-year contracts in April and May. It is not easy to judge, yet we hear that the start-up after Chinese New Year this year may be earlier than usual, and we hope that this will be the case. Regarding the market for Dry Bulk Business, it is getting much better in the 4th quarter compared to previous terms, and we anticipate that it will keep improving. We have been steadily conducting business structural reform, and the effect of that may be reflected in improved earnings in the form of additional cost reductions, and we will continue to make every effort to realize further success.
I believe, in the previous meeting, President Murakami said that we would start reviewing the Medium-Term Management Plan, and would announce it by the end of this fiscal year, if possible. Review is being diligently conducted within the company as we speak. Serious discussions are being held on how our company will grow and where our strength lies, especially after integrating our company’s mainstay business, Containership Business, which is planned to take place in 2018. Please kindly give us some additional time to announce the revised Medium-Term Management Plan.
Lastly, integration of Containership Business. Unfortunately it is not at a stage to give any detailed explanation, but 8 dedicated personnel have been assigned to the Project Office for Containership and Terminal Business and are earnestly working on integrating operations. Some other personnel are also engaged in the integrating operations by concurrently holding two posts. Please consider this to mean that the operations are smoothly progressing as planned, with veterans and young elites gathered from each company. All of them, especially the young ones, are doing their best to form a good company, under the concept of equality to all three companies. For this matter, we may be able to report on the situation in a bit more detail in the near future so please look forward to further reports later.
That completes today’s presentation. Thank you very much.