【Containership Business】
Q1. Please inform us of route-wise profit-loss breakdown for 1st Quarter results.
A1. Our trunk lines from Asian region to both North America and Europe have turned into the black.
Freight rate recovery in North-south routes seems to be rather delayed for the entire industry,
maybe somewhat due to effect of cascading vessels from trunk lines.
Q2. In your new ‘Containership Business’ segment, please advise how much logistics business contributes.
A2. Profit from logistics is around 4 billion yen for full year. So, approximately 1.0 billion yen on quarterly basis.
Q3. How have trends for cargo volume and load factor changed from the beginning of April?
Have you been aware of any signs of slowing down in European routes?
A3. In terms of cargo volume, for Asia-North America routes, it is increasing by plus 2-3% for year-on-year basis.
For Asia-Europe trades, declining tendency has become more observable month-by-month, and for single month of May, trade growth was significantly low, minus 5.9%.
During this 1st Half for the routes to Europe, average growth rate will be minus 2-3% compared to previous year.
So, for North America routes we can say cargo trend might be slightly stronger.
Talking about load factor, in our own case, percentage for Asia-North America trade is around mid-90's and for Asia-Europe around 90%.
Considering various statistics, load factors for companies that received newly-built large-type vessels recently seem to be lower than ours.
Q4. Is there any difference in achievement ratio of rate restoration plans scheduled in April and July?
Please tell us the situation separately for Asia-North America routes and for Asia-Europe routes.
Please also advise about the condition for 2nd Quarter.
A4. Rate restoration plans scheduled until May smoothly achieved almost full restoration for both North America and Europe routes.
At that time we had had an image that freight rates would rise rapidly in a burst for Asia-Europe trades,
but after it was over the break-even point, some pressure arose against any further increase.
Once it jumped up and soon fell, then again jumped up and then down again.
It is now still keeping the same level just after May restoration. PSS for Asia-Europe trades planned in June did not succeed,
but on the other hand that for North America was somewhat achieved.
After the 2nd Quarter and onward, I cannot make any firm comment at this time.
We made our updated financial estimate excluding any further success in rate restorations planned in August for both Asia-Europe and Asia-North America routes,
though in our original plan we had counted on there being an increase to at least some extent considering pressure against further rate restorations I have touched on before.
Our own freight rate indices for 1st Quarter are, as quoted in B-1 slide, for Asia-North America 100, and Asia-Europe 97.
As assumptions for our 2nd Quarter forecasts, in North America the tone is favorable, but we set lower freight rate than what we originally estimated as of April for both Asia-Europe and intra-Asia trades.
Q5. Now while visibility for European economy has come to be more opaque and cargo volume for Asia-Europe routes has started to decrease, how do you see risks for freight rate declining hereafter?
A5. For this year the trend probably has changed. Last year shipping companies were burdened with tremendous losses; in this year, separately from the fundamental supply-demand balance, freight rates since January have increased amazingly.
Now after the freight level jumped up, it has been repeated that further raises were withheld and then adjusted downturn.
So, we think there is little chance this year for a rate war where no one can win like that which broke out last year.
Rate restoration after April has been somewhat successful, and thereafter freight rate levels overall have endured one way or another.
So, instead, I believe momentum toward further restoration will be developing again.
Q6. As cargo volume from Asia to Europe has been decreasing recently, are there any further supply adjustment plans, including your company?
A6. It is not supply adjustment but just demand that has been weakening, especially in Europe.
Every shipping company, including ourselves, had expected around 3% cargo growth for Asia-Europe route at the beginning of this year, but now it is about minus 2-3%, and in May even nearly minus 6%.
Against such conditions, we have to try to save costs through adjusting our ship capacity supply to demand.
This year we cannot expect cargo growth.
We have started talks about possibility of rationalization in service routes within our alliance, but we are never in a position to know about other carriers' attitudes.
【Bulk Shipping Business】
Q1. As for Ordinary Income of Bulk Shipping Business, although 1st Quarter results were in the black, 2nd Quarter estimate has turned into the red. For which business do you see downturn trend?
A1. First, profit from our car carrier business is higher for 1st Quarter because more vessel voyage completions were concentrated at the end of June,
and in this regard profit from them was also posted for 1st Quarter.
Considering substantive status of this business, profit level between 1st and 2nd Quarter is almost the same.
Then, dry bulk business, much to our regret, for this 2nd Quarter became deficit after a long interval.
Major factor is, until 1st Quarter, coverage ratio by mid- and long-term contracts had been very high,
but from 2nd Quarter vessels for spot exposure will have increased.
The reason for the increase from 2nd Quarter is that we have to receive newly-built vessels, completion of which we have tried to delay, etc.,
but finally we are compelled to accept delivery.
So, new vessels are coming into our fleet and from now on we will make earlier disposal of some rather older ones among our surplus vessels.
In terms of oil tankers and LNG carriers, profit level is almost flat between 1st Quarter and 2nd Quarter.
Q2. Ordinary Income of Bulk Shipping Business improved from last 4th Quarter to 1st Quarter by 4.5 billion yen. Which business is improving drastically?
A2. This 1st Quarter's results include various factors.
For example, vessel voyage completion positions that were originally scheduled in 2nd Quarter were advanced into 1st Quarter,
and on the other hand 2nd Quarter was in disadvantage.
So, I suppose it is better for you to view the total 1st Half.
Comparing this 1st Half to last 2nd Half, based on same segmentation, there is no indication that one particular sector is showing drastic improvement.
However, compared to last year, Car Carrier Business has been drastically improving as it was severely impacted by the Great East Japan Earthquake in March last year.
Then Dry Bulk Business did well for 1st Quarter, I suppose, and for 2nd Quarter and afterwards,
number of vessels exposed to market is increasing and facing a severe situation, against which we are now trying very hard to take countermeasures.
【Dry Bulk Carriers】
Q1. Please advise market exposure ratio after 2nd Quarter.
A1. For Cape-size fleet it is around 20%, Panamax nearly 30%, and Handy-max or smaller type almost two thirds.
【General】
Q1. Due to change in vessel service life, you have advised Ordinary Income improved by 3.0 billion yen for 1st Half, and 4.0 billion yen for 2nd Half.
Would you please tell us segment-wise breakdown of those amounts?
A1. The portion for Containership Business out of the total 7.0 billion yen is rather small.
Bigger amount is for Dry Bulk, Car Carrier, and Oil Tankers, so we can say major part of it is for ‘Bulk Shipping Business.’
Q2. According to your presentation, progress ratio for cost reduction plan was 21% for 1st Quarter.
Is this going along with your original schedule?
A2. Achieving 21% during 1st Quarter is almost as originally scheduled as of April.
Q3. What are your thoughts about equity finance this time ?
And please explain financial risk in the future ?
A.3 As we described in our medium-term management plan, our weakest point is financial strength.
One of our missions in the plan is to reinforce financial standing without fail.
I think equity finance and subordinated loans this time will accelerate and consolidate the strengthening of our financial standing, as self-evaluation.
About risk in the future, although there is no end when mentioning risk, in terms of financial aspect we do not worry,
because we secured sufficient cash by equity finance and subordinated loans this time.
Since financing for newbuildings in 2012 is almost secured already, we also do not worry about this.
As there is refund of convertible bonds in April 2013, which we can adequately cover, we think risk factors about cash are cleared out by this at the moment.
Q4. Is there any trouble at shipowner side or shortage of cash?
A4. There may be shipowners whose cash is becoming tighter due to other companies under rehabilitation procedures.
In addition, this is in general because a strong yen in the 70's has been continuing for almost a year, which has a very big impact on Japanese shipowners.
Considering that, cooperation of banks to those shipowners is needed anyway.
Q5. With regard to dividends, although it’s not decided at this time, when will you make a decision as management of the company ?
A5. Firstly, my most important mission is to turn into the black during this year; at the same time there is the issue of resumption of dividends.
It is a difficult question as to when I can make that decision.
There are plus factors of amended segmentations, effect from the review of vessel service life
and positive impact from amendments of fiscal term for our group companies.
And additionally, current bunker price is a bit higher than $600 although our original premise was $720,
so there is another plus factor of around 7.0 billion yen for this 2nd half.
We would like to offset current market slump with those plus factors.
If that scenario comes true, we think we can make a profit unless some extreme economic or social disorder arises
Another factor is Nikkei Index which I hope will stop at least at 9,000 yen.
Q6. As valuation profit from exchange rate for 1st quarter is 3.3 billion yen “exchange gain” in P/L, in which business segment is it mainly ?
Is profit or loss due to exchange rate already included in estimate of 2nd quarter ?
Q6. 3.3 billion yen of valuation profit from exchange rate in 1st quarter includes all business segments, including Dry Bulk carriers,
and amount of exchange profit may be biggest in our Offshore Energy E&P Support & Heavy Lifter business segment.
In our estimate for 2nd quarter, we actually take into account valuation loss from exchange rate at almost same amount as 1st quarter's 3.3 billion yen.
This valuation profit/loss due to overseas subsidiaries’ debt in yen were as of the end of June and posted to consolidated accounting 3 months behind,
so it will be posted in 2nd quarter.
