We would like to start the briefing on the consolidated financial results for the fiscal year ended March 31, 2020.


A-1.  Financial Results for FY2019

  For the full fiscal year, consolidated operating revenues were 735.3 billion yen, a year-on-year decline of 101.4 billion yen. Operating income was 6.8 billion yen, a year-on-year improvement of 31.6 billion yen. Ordinary income was 7.4 billion yen, a year-on-year improvement of 56.3 billion yen. Net income attributable to owners of parent was 5.3 billion yen, a year-on-year improvement of 116.5 billion yen. Although net income was lower than the previous forecast due to extraordinary losses including previously disclosed loss from revaluation of investment securities and impairment loss, we achieved a profit of 5.3 billion yen. The average exchange rate for the fiscal year was 109.13 yen per US dollar, and the average bunker price was 467 US dollars per metric ton.

  Regarding the main improvement factors for fiscal year 2019, we succeeded in addressing our three key issues. First, we achieved profitability in Car Carrier Business through measures aimed at sophisticated route rationalization and freight rate restoration. Second, we strengthened the cost competitiveness of the fleet operations through structural reform measures. Third, ONE made steady progress in raising profitability. Additionally, we made progress building up mid-long contracts, mainly in the Energy Resource Transport segment.

  In terms of financial indicators, as of March 31, 2020, our shareholders’ equity was 101.1 billion yen, interest-bearing liability was 543.5 billion yen, debt-equity ratio (DER) was 538%, and Net DER was 423%. Our equity ratio improved 0.4 points over the end of the previous fiscal year to 11.3%, and it is 15.5% when including the 50% equity credit assigned by a rating agency to the subordinated loans that we procured in April 2019. Regrettably, there will be no year-end dividend. While we believe returns to shareholders are our important management task, our decision is based on a comprehensive analysis of the current business environment, including the future impact of COVID-19, the continuing need to improve our financial strength, and the need for investments to ensure future growth.


A-2.  Financial Results for FY2019 by Segment

  In the Dry Bulk segment, market conditions in the first half began to recover before softening in the second half. For Cape-size vessels, iron ore shipment volume from Brazil declined, while for Panamax and smaller size vessels, cargo movements turned sluggish for transport of grain from South America and coal to China. Overall, therefore, transport demand for all types of vessels declined. Under these conditions, while we reduced operating costs and strove to improve vessel allocation efficiency, there was an off-hire period regarding some vessels to install SOx scrubber equipment. Overall, the Dry Bulk segment posted a 0.4 billion yen year-on-year decline in operating income.

  In the Energy Resource Transport segment, LNG Carrier and Thermal Coal Carrier Businesses performed well and made a steady contribution to profit owing to new contracts, mainly the development of mid-long term chartering contracts. Oil Tanker Business implemented improvement measures aimed at expansion of stable earnings by revamping its portfolio, including the completion of its withdrawal from the clean product tanker market, rationalization of VLCC cost structures, and reduction of market-exposure. Offshore Energy E&P Support Business posted improved profitability as market conditions bottomed out and exchange rate hedging was implemented. Overall, the segment posted a 7.4 billion yen year-on-year improvement in operating income despite a decline in revenues.

  In the Product Logistics segment, Car Carrier Business achieved profitability by successfully addressing the key issues for fiscal year 2019, namely route rationalization, improvement in vessel operation , freight rate restoration, and fleet size rationalization.

  In Logistics Business, international air cargo transport volume declined due to U.S.-China trade friction. Cargo volume declined due to the impact of COVID-19 through the end of the fiscal year. Overall, Logistics Business posted year-on-year declines in both operating revenues and income.

  In its second year following integration, ONE as equity method affiliate, posted increases in liftings and utilization in the first half as well as improvement in its cargo portfolio owing to meticulous marketing programs and successful sales activities. The company also improved profitability in the first half by reducing operation costs and variable costs through route rationalization and consolidation. In the second half, although cargo movement slumped due to the spread of COVID-19, the company flexibly executed void sailings to match decelerating cargo demand.

  As a result, revenues declined year-on-year, but profit rose. Overall, Product Logistics segment posted a 46.3 billion yen year-on-year increase in operating income despite a decline in operating revenues.

  Other Businesses and Adjustment posted a combined improvement of 3.0 billion yen year on year, due mainly to Group-wide efforts to reduce sales, general and administrative costs.


A-3.  Financial Results for FY2019 – vs. FY2018

  Page 5 shows a waterfall-chart explaining the factors behind the change in ordinary income from the previous fiscal year. Containership Business delivered an improvement of 38.4 billion yen. ONE as equity method affiliate, accounted for 24.1 billion yen of that increase. Another 4.9 billion yen was from “K” Line’s own Containership Business, mainly the elimination of a temporary empty container repositioning cost incurred in the previous fiscal year. Additionally, the effect of structural reforms in Containership Business taken in FY2018 generated an improvement of 9.4 billion yen. Besides Containership Business, “K” Line Own businesses generated a combined improvement of 17.9 billion yen. More specifically, structural reforms in Dry Bulk Business accounted for 1.6 billion yen, measures to improve profitability generated 2.7 billion yen improvement, and previously explained improvements in Car Carrier Business generated 5.0 billion yen as planned. In the Dry Bulk and Energy Resource Transport segments, there was a 6.6 billion yen improvement mainly from the expansion of mid-long term contracts and restructuring the portfolio.


A-4. Progress of Main Initiatives for FY2019

  We would like to explain the fourth-quarter progress in addressing priorities in the Medium-Term Management Plan as well as the switchover to regulation-compliant fuel. Regarding the rebuilding business portfolio, as previously explained, we are expanding the number of vessels that generate stable profits, mainly the LNG Carriers and Thermal Coal Carriers in the Energy Resource Transport segment. As an example of this effort to build stable profits, in February we signed a long-term chartering contract regarding two LNG carriers for Malaysian state-owned oil and gas company Petronas Group. Additionally, we completed the withdrawal from the clean product tanker market. In Containership Business, as previously explained, ONE achieved profitability for the full year in fiscal 2019.

  Regarding ESG initiatives, we worked to comply with SOx regulations under the policy of complying with regulations while maintaining smooth vessel operations, and successfully proceed with the shift according to original plans, without experiencing any major issues. We have nearly completed the switchover to regulation-compliant fuel, and for the current fiscal year, we have already procured most of the required fuel at major bunkering ports. In terms of SOx scrubber installation, we plan to install equipment on approximately 10% of the vessels we operate, mainly for large vessels to meet customer demands, and we are proceeding on schedule. Regarding regulation-compliant fuel, as you know, the new fuel is more expensive. We have carefully explained to our customers the need for the higher cost as a social obligation to conserve the environment and have gained our customers’ understandings.


B-1. Forecasts for FY2020

  Regarding the global spread of the novel coronavirus disease (COVID-19), we currently cannot forecast the impact it will have on the global economy or seaborne cargo movements. As a result, we cannot make reasonable forecasts on the Group’s financial results. At the current time, forecasts for FY2020 and dividend payments are undecided. We are taking a cautious approach to estimating the impact of COVID-19. We will promptly make an announcement when it becomes possible to make reasonable forecasts.


B-2.  Outlook for external circumstances

  Due to downturn in global economic activity, recession, the IMF forecasts that global GDP will decline 3% year on year in calendar year 2020. Meanwhile, the WTO forecasts that global trade will decline between 13% and 32% year on year. The independent third-party organization, Clarksons as shipping broking house, forecasts that seaborne cargo movements and shipping demand will decline 4.7%, mainly for raw materials and finished products. The organization also forecasts an approximate 11% decline in container shipping.


B-3. Impact of COVID-19

  Regarding the overall impact of COVID-19, we estimate the main areas of decline will be Dry Bulk and Car Carrier Businesses. With manufacturers unable to set their production and shipping schedules, it is difficult for us, as a company transporting raw materials and finished products, to make an accurate estimate of transport volume at this time.

  In the Dry Bulk segment, short-term demand for steel products is declining as automakers suspend production and construction sites temporarily close. Although we do not expect a severe impact on the dedicated vessels, the suspension of blast furnace operation at major steel mills is expected to lower output by 20% to 30%. This short-term decline in demand will postpone the execution of COA contracts and soften market conditions. We estimate the impact will be heaviest in the first half of the fiscal year, with a particularly severe impact in the first quarter.

  In Car Carrier Business, we have heard from automakers that there is a strong possibility their shipments in the first quarter will decline by more than 50% compared with last year. Many automobile production lines were suspended in Europe during March and April, and in Japan in April and May. The lockdowns implemented primarily across Europe and North America will weaken demand, mostly in the first half of the fiscal year. A certain amount of weakness will carry into the second half.

  For the Energy Resource Transport segment, basically, there will be no impact on the mid-long term contracts. However, the decline in oil prices may impact Offshore Energy E&P Support Business with KOAS.

  In Containership Business, this business environment will test the true value of ONE. As planned, the integration of container shipping companies has led to higher cost competitiveness. As the number of major shipping companies on East-West routes has been halved, the remaining shipping companies can execute void sailings on a timely basis and provide supply that matches current demand. As a result, unlike in the past, in these business conditions there has been no major decline in market conditions. We will carefully monitor the trends and ONE’s progress as one of its shareholders.


B-4.  Measures in safe operation and service provision (Correspondence to COVID-19)

  We consider the safety of our crew and all other Group employees to be our highest priority. We are taking various measures to maintain our commitment to safe vessel operation and continue to provide stable logistics services as part of the social infrastructure.

  Regarding our crew, we have a safety manual in place by which we are thoroughly preventing infections on board and supplying necessary goods such as prevention gear to crew on all vessels. The main issue now is crew changeover. The lockdowns in countries around the world have restricted the movement of our crew and prevented crew changes. We are working with the related governments and organizations to improve the situation. By taking meticulous care of both onboard crew and standby crew, we are able to ensure safety and raise motivation.

  As for our land-based employees, in each country we have secured a telecommuting environment. With these systems in place, we have maintained smooth communications with customers and prevented any serious disruption to business.


B-5.  Countermeasures for the financial results in FY2020 (Correspondence to COVID-19)

  To overcome the current challenges, we have identified three priorities: damage control to the temporary decline in demand, securing sufficient liquidity on hand through funds procurement, and measures to equity.

  To cope with the temporary decline in demand, the only realistic measures are reducing the fleet and minimizing operational costs. We can reduce operation costs through temporary suspension and laying up of vessels. Additionally, we can accelerate plans to disposal of as many as 15 to 20 aged vessels. While we implement all possible measures such as slow steaming and service frequency, we will also continue last year’s efforts to cut sales, general, and administrative expenses.

  Regarding fund procurement, we have currently secured cash on hand equivalent to approximately three months of revenues, which is more than double the amount we had on hand after the global financial crisis. Additionally, we are in the process of obtaining even more liquidity to guard against uncertainties.

  Regarding measures to equity, as previously explained, we will pursue sales of vessels and real estate while taking other measures to bolster it.

  We completed our previous Medium-Term Management Plan in March and were expecting to announce the next plan at the end of May. We have postponed the announcement due to the need to better understand the impact of COVID-19 on short-term profitability in the current fiscal year, as well as better forecast the medium- and long-term business environment post-COVID-19. As we have postponed the new plan’s announcement, under the current conditions, we also plan to fully review the investment plan amid the expected decline in operating cash flow. After the impact of COVID-19 eases, we still expect there to be an impact on demand trends for the goods our Group transports, namely raw materials, energy resources and finished products. As customers become increasingly cautious, we aim to be their logistics company of choice by refocusing our business and fleet on areas where we can offer competitive services. Further concentrating our investments can be part of reviewing our medium-term plans. We will refocus our investments with the aim of maintaining and expanding profits rather than simply maintaining fleet size. For fiscal year 2019, we generated approximately 18.0 billion yen in profit, and we plan to expand profits from “K” Line business to 20.0 billion yen to 25.0 billion yen annually.

  Although we have postponed the announcement of a new Medium-Term Management Plan to prepare for a post-COVID-19 business environment, many of our priorities have not changed from the previous plan. We will review the issues as necessary and further strengthen measures where needed. Regarding safety, the environment, and service quality, we have launched new cross-functional organizations joining together staff from sales and technical departments. To advance business management, we have developed business risk and return management systems and are now at the stage of putting the systems into practice. We will manage total risk for each department and control the amount of risk and invested capital. We continue to analyze the new business environment considering the impact of COVID-19 and will announce the new Medium-Term Management Plan as soon as possible.


C. Ocean Network Express - Financial Results for FY2019 Full Year

  Completing its second year after integration, ONE continues to generate the intended synergies following the initial start-up period. The company has implemented timely adjustments to services along with void sailings to meet actual demand. As it introduces thorough container-by-container profit management systems, we can expect profitability to improve even further. Although ONE will be impacted by COVID-19, in its third year of business we can expect the company to realize its full potential.

  For the fourth quarter of fiscal year 2019, ONE reported a loss of 27 million US dollars, a year-on-year improvement of 69 million US dollars. For the full year, the company posted a profit of 105 million US dollars, a year-on-year improvement of 691 million US dollars. “K” Line’s equity in earnings amounted to a full-year profit of 40 million US dollars. At the start of the fiscal year, ONE aimed to generate a profitability improvement of 500 million US dollars from its three core strategies of cargo portfolio optimization, service route rationalization, and organization optimization, which was successfully achieved. Due to the impact of COVID-19, liftings after the lunar new year declined more than expected. The company responded flexibly by reducing services further to reduce fixed costs. BAF compliance in conjunction with the switchover to compliant fuel proceeded according to plan, and the results exceeded the previous forecast. As mentioned previously, due to the halving of the number of major shipping companies on East-West routes in recent years, the remaining companies are able to adjust the supply of space in a timely, flexible manner. This has prevented market conditions from collapsing as they did in the past. We will continue to monitor the trends carefully.

  The COVID-19 had a relatively minor impact on our fiscal year 2019 financial results. The impact on fiscal year 2020 could be much larger. If the economic slump and sluggish demand in the major consumer regions of Europe and North America become more severe and prolonged, we plan to take structural route rationalization further. For April and May, we have already implemented a more than 25% reduction in services mainly on East-West routes. Moving forward, we will take thorough measures to reduce costs further through such measures as the redelivery of chartered vessels and reviewing the containership fleet in some areas.