Thank you very much for joining us this afternoon.
I would like to begin the briefing on our consolidated financial results for the first nine months of the fiscal year ending March 31, 2018.
A.Financial Highlights for 3rd Quarter Fiscal Year 2017
A-1: Financial Results for 3rd Quarter Fiscal Year 2017
For the first nine months of fiscal year 2017, our operating revenues totaled 884.1 billion yen, operating income totaled 7.1 billion yen, ordinary income totaled 9.4 billion yen, and net income attributable to owners of the parent totaled 9.3 billion yen. The average yen-dollar exchange rate during the period was 111.68 yen to the dollar, and the average bunker fuel price was 336 dollars per ton. Compared with the same period of the previous year, operating revenues increased 123.1 billion yen, operating income increased 41.8 billion yen, ordinary income increased 46.3 billion yen, and net income attributable to owners of the parent increased 63.9 billion yen. For the October-December third quarter of fiscal year 2017, our operating revenues totaled 305.1 billion yen, operating income totaled 0.9 billion yen, ordinary loss totaled 1.8 billion yen, and net loss attributable to owners of the parent totaled 3.9 billion yen.
Next, I would like to explain the segment results for the nine-month period. First, Containership Business posted operating revenues of 458.1 billion yen and ordinary income of 7.0 billion yen. Operating revenues increased 76.7 billion yen year-on-year and ordinary income increased 31.0 billion yen year-on-year. For third quarter alone, however, Containership Business posted an ordinary loss of 2.0 billion yen. Although cargo movement was robust, freight rate market conditions were weighed down by the continued supply-demand gap and competition for market share during the transition period involving several integrations among shipping companies. Market conditions were in line with forecasts through the early part of November. Thereafter, the growth of demand slowed somewhat while the supply of capacity continued to rise. The result was sluggish freight rates. An increase in bunker fuel prices at the same time made the operating environment even more severe.
Bulk Shipping Business posted operating revenues of 392.2 billion yen and ordinary income of 5.4 billion yen for the nine-month period. Ordinary income for the third quarter alone was 2.7 billion yen, generally consistent with the forecast.
Offshore Energy E&P Support Business posted operating revenues of 7.0 billion yen and an ordinary loss of 0.6 billion yen for the nine-month period. For the third quarter alone, the business posted operating revenues of 0.7 billion yen and an ordinary loss of 1.4 billion yen. The main reasons for the loss were the continued sluggish market conditions in the offshore support business and a foreign exchange valuation loss of approximately 1.0 billion yen.
Taking into account Other Business and Adjustments, consolidated ordinary income for the nine-month period totaled 9.4 billion yen. In terms of financial stability indices, our DER and Net DER changed due to a decline in a portion of the interest-bearing debt. Other indices did not change significantly from the previously-disclosed levels. This concludes our explanation of the nine-month financial results.
A-2：Estimate for Fiscal Year 2017
Turning to estimate for the full-year, we forecast operating revenues of 1,160.0 billion yen, operating income of 11.0 billion yen, ordinary income of 3.0 billion yen, and net income attributable to owners of the parent of 8.5 billion yen. Our assumptions for exchange rates and bunker fuel prices are shown in the briefing materials. Compared with the previous full-year forecast, we have increased the forecast for operating revenues by 20.0 billion yen, while lowering the forecasts for operating income by 2.0 billion yen and for ordinary income by 10.0 billion yen. The reason for the difference in the levels of reduction in operating income and ordinary income relates to the expenses for Containership Business integration. Specifically, among the expenses, the proceeds from secondment fee of “K” LINE employees seconded to ONE were booked as a reversal of operating expenses. Furthermore, despite the downward revision to ordinary income, we have maintained the forecast for net income attributable to owners of the parent because of expected recognition of extraordinary income and losses related to review of the business portfolio and assets, etc. Regarding the impact of exchange rate and bunker fuel price volatility in the fourth quarter alone, a change of 1 yen in exchange rates will impact results by plus or minus 0.1 billion yen, and a change of 10 dollars in bunker fuel prices will impact results by plus or minus 0.1 billion yen.
A-3：Estimate for Fiscal Year 2017 by Segment
Regarding the estimate for fiscal year 2017 for Containership Business, we forecast operating revenues of 599.0 billion yen and ordinary income of 0.5 billion yen, which represents a downward revision of 8.5 billion yen compared with the forecast made in the second quarter. The reasons why we changed our assumptions are freight rate market conditions and higher bunker fuel prices. With regard to ONE integration, we forecast fiscal year 2017 expenses of 3.38 million dollars. Proceeds from secondment fee of our employees seconded to ONE will offset a portion of the expenses, and as a result, we forecast the integration to have a net impact of approximately 5.0 billion yen in expenses.
Regarding Bulk Shipping Business, there is no change to the ordinary income forecast made in the second quarter.
Regarding Offshore Energy E&P Support Business, we have revised downward the ordinary income forecast made in the second quarter by 1.5 billion yen, mainly because of foreign exchange valuation losses.
A-4：Latest Forecast for Fiscal Year 2017 - vs. Financial Results for Fiscal Year 2016
Overall, we forecast ordinary income improving by 55.4 billion yen compared with the previous year, comprised of 44.7 billion yen improvement from company achievements and 10.7 billion yen from external factors. The external factors include changes in the containership market conditions. While the freight rate index for Asia-North America is forecast to be steady with the previous year at 75, the Asia-Europe index is expected to improve from 47 last year to 53 this year, for a six-point rise.
A-5：Latest Forecast for Fiscal Year 2017 - vs. Assumption as of Oct 2017
Our current ordinary income forecast is 10.0 billion yen lower than the forecast made in the second quarter. The main reason is external factors, which represent approximately 9.3 billion yen of the 10.0 billion yen decline. This is primarily due to changes in the containership market conditions, which accounted for a decline of 5.4 billion yen. The second half forecast index for Asia-North America is now 73 compared to the second-quarter forecast of 77, while Asia-Europe has been lowered from 55 to 51.
A-6：Financial Impact in Fiscal Year 2017 from Structural Reforms and Provision of Allowance in Fiscal Year 2015 & Fiscal Year 2016・Progress of Cost Savings
There is no major change to the forecast for provision of allowance and cost savings. We forecast approximately 20.0 billion yen in full-year financial impact from the provision of allowance for loss related to business restructuring, and as you can see from the consolidated statements of cash flow, there is still about 6.0 billion remaining that we expect to recognize in the fourth quarter.
A-7: Progress of Management Plan (3rd Quarter Fiscal Year 2017)
Regarding the progress of our medium-term management plan, in terms of “rebuilding business portfolio strategies,” we have started total auto-logistics services for finished vehicles in Chile and the Philippines. This is in line with our medium-term management plan effort to bolster the logistics services related to Car Carrier Business.
In terms of “Advanced Business Management and Function-Specific strategies,” we have begun implementing business risk and return management as part of the advanced business management initiatives we explained before the second quarter briefing. We will continue to enhance this program through trial and error.
In terms of “Technological and Business model innovation,” we have begun joint discussions on LNG bunkering business in Japan, as announced in a news release.
C. Operating Company for New Integrated Container Shipping Business
-Progress status report for business launch-
Regarding the time schedule for operations at ONE integrated container shipping business shown on page 17, we completed preparations on schedule by the end of October 2017. From February 2018, we will launch system operations and begin taking service bookings. From April 1st, we will start services under the new operating company.
Pages 18 and 19 show the status of our progress towards integration. The Japan local office of “ONE JAPAN” has moved from a temporary facility to its new office and made preparations to start sales operations from February 1st. The Singapore global headquarters has moved from its temporary location to Marina ONE, a newly-completed building. Furthermore, in regard to antitrust license approval, we have received approval from South Africa, where the delay had caused some concern, and now we have completed approvals in all countries required for the integrated business. ONE has announced its service schedule and has completed preparations of its IT infrastructure to start operations from February 1st.
ONE will begin shipping services from April 2018. “K” LINE and its two partner companies are making every effort to finalize the preparations for the start of business. For “K” LINE, the success of ONE is vital for our business plans and earnings from the next fiscal year, and we will continue to provide all the support we can to ensure its success.
Thank you very much for your kind attention.
