(Containership Business)
Q.1 Please let me know assumption of freight index in 4th quarter.
A.1 As described in B-1, freight index in 3rd quarter is Asia-North America 101 and Asia-Europe 73.
We think freight index in 4th quarter will be 2-4 points higher than 3rd quarter on average.
The background is that rate restoration on 10th/Jan and 15th/Jan were successful to some extent
and so far most effect from the restoration has continued. The rest depends on cargo volume trend
after Chinese New Year.
Q.2 What do you think about freight market next year?
A.2 Spot freight market rose by 15-20 points in our index year-on-year, and on basis of this market
level, next negotiation of long-term contracts such as service contracts and annual contracts,
etc, will start from now.
Depending on cargo volume recovery situation after Chinese New Year, freight starting line of the
negotiations improved greatly, so we think total freight level of long-term contracts will be
higher than last year.
The other factor is how spot market will be depending on cargo volume trend, but we do not worry
about this very much.
In 2012 freight market repeated ups and downs continuously. I think it will fluctuate this year same
as 2012, although supply and demand circumstances do not change so much.
Q.3 How about supply situation around Chinese New Year?
A.3 On the basis of 100% of supply peak during last summer season, about 10% of total space has decreased
from end of November due to winter program. Around Chinese New Year each carrier decreased space a
further 25-30%.
We think that supply situation is total of 75% in Asia-North America and 60% in Asia-Europe, also, our
loading factor stays at about 90% so far.
Q.4 Target of Cost Saving Plan increased 4 billion yen this time which mainly arose
from operational cost saving in containership business. Please let me know details.
A.4 With regard to target of Cost Saving Plan which increased from original 28 billion
to latest 32 billion yen, 3.5 billion yen out of 4.0 billion yen is from operational
cost saving in Containership business.
That comes from continuous challenges of negotiation for terminal fees, feeder costs,
inland haulage, etc. for K-Line Group’s global companies.
(Bulk Shipping Business)
Q.1 What is reason for profit increase in Bulk Shipping Business
from 1.4 billion yen in 3rd quarter to 6.6 billion yen in 4th quarter?
A.1 The biggest factor is exchange gain which increased so much in 4th quarter compared with 3rd quarter.
On the other hand in Dry Bulk business, negative impact of market came up mainly in 3rd quarter
because most voyages under previous worst market were completed and posted in 3rd quarter.
We also saw slight improvement in some of the other sectors.
In addition one of the factors that accounts for profit of 4th quarter being better is that we count
6-month figures for our group companies in 4th quarter, not the usual 3 months, because we will have
made amendment of the fiscal terms for all of our consolidated subsidiaries to the period covering April
to March from this 4th quarter.
Q.2 Please explain about exchange gain in 4th quarter.
A.2 In our overseas consolidated subsidiaries that close their accounting in foreign currency, those group
companies have some debt in other currency which is mainly Japanese yen. Exchange gain arose from the
revaluation of such debt at the end of the period.
On basis of exchange rate at the end of March being JPY 85/US$, 6 billion yen exchange gain will be counted
in 4th quarter by simple calculation.
Q.3 How about image of free portion in Dry Bulk fleet at beginning of next fiscal year, as you commented you
have fixed almost all contracts for your Dry Bulk vessels within this 4th Quarter?
A.3 I think proportion of free vessels in Dry Bulk fleet is basically no different from the past.
One of the reasons is that we scaled down our fleet drastically with total of 18 vessels to be disposed
of in this fiscal year.
In addition, we have fixed FFA (Forward Freight Agreements) to some extent.
Proportion of free vessels will be about 10% in Capesize, little bit more than 30% in Panamax and 60-70%
in small-type vessels like Handy as of the beginning of next fiscal year.
(Offshore Energy E&P Support & Heavy Lifter)
Q.1 In Offshore Energy E&P Support & Heavy Lifter, is it difficult to turn Heavy Lifter into the black next year?
I understand you have mentioned in your presentation that there is tough competition in Heavy Lifter business.
A.1 It seems that market for Heavy Lifters will not improve drastically, and to our regret we expect it will incur
a loss next year.
But amortization of goodwill will greatly decrease which will provide some improvement.
We are trying to take counter-measures such as scrapping old vessels and laying up other vessels, etc.
(General)
Q.1 Regarding your forecasts for this financial term which ends March 2013, you have revised Ordinary Income upward
but Operating Income downward. Would you advise which business segments show downward factors?
A.1 Talking about which segment had Operating Income decrease, as yearly estimations for Operating Income were down
by 5.0 billion yen compared from our last forecasts released at the end of October, over half of the amount was
from worsening Containership division, and the other part was from several other divisions.
Q.2 As to dividends, you have not fixed your full-year dividend plan yet despite expecting you would make certain
profit for yearly basis.
We would very much appreciate your advising whether you have changed your way of thinking on this point.
A.2 Our dividend policy has not changed.
In case consolidated Net Income results in a certain amount of profit, we will pay dividends in line with our
policy of dividend payout ratio.
As to this fiscal year ending at the end of March 2013, if the profit expected today is finally made firm, we
will positively pay a dividend in the usual way.
However, our Net Profit is recently varying so much depending on the exchange rate and prices of investment
securities at the end of the financial term. In that sense, I very much regret to say we cannot make any
will positively pay a dividend in the usual way.
determination at this moment, so our year-end dividend plan remains unfixed.
Q.3 Please let us once again ask about risks for reversal of deferred tax assets or impairment loss.
A.3 About reversal of deferred tax assets, we had discussions with our accountants at the end of December and
clearly reached the conclusion that there is no need to make a reversal.
In the future, however, we will be aware of considering balance with the amount of taxable profit, and we
Might possibly have to make a slight return in some cases.
Q.4 Referring to your mid-term management plan announced last April, Ordinary Income for Fiscal 2013, which ends
at the end of March 2014, was estimated as 39.0 billion yen.
Please advise your present thought about this target level overall, and how much you imagine Ordinary Income
can improve for next year comparing with this Fiscal 2012, considering present favorable trends such as yen
depreciation and declining fuel oil price, etc.
A.4 We cannot make clear comments for our Fiscal 2013 plan, as we are now carefully working on it.
In any event, if exchange rate continues to remain unchanged from 90 yen per U.S. dollar throughout Fiscal
2013, assuming yearly average for Fiscal 2012 is 80 yen, the difference is 10 yen.
Sensitivity of exchange rate has been about 1.2 to 1.3 billion yen annually per one yen variation against one
U.S. dollar, based on the Company’s present business size and profit-loss situation. When we calculate just in
line with this sensitivity, improving factor is about 12.0 billion yen for the next fiscal year.
Talking about market circumstances, for Containership we see similar situation continuing as in this fiscal year.
However, for Dry Bulk Carrier as I commented previously in the presentation, we are expecting economic downturn
will be prolonged, and so we can imagine that the market level might be around break-even level.
I think the amount of Dry Bulk sector loss will likely be recovered by Car Carrier sector.
Q.5 For the next fiscal term let us confirm special factors:
As you advised a certain amount of valuation profit concerning exchange rate was posted for this fiscal term,
let us know how much improvement we can expect for the next fiscal year in case it is kept at the level of 85
yen per U.S. dollar.
And, for this fiscal 2012, since some of your consolidated subsidiaries covers 15-month period as their financial
term, please tell us how much profit will be reduced because of this factor for the next fiscal year.
Just to be certain, please also advise how much improvement you can expect due to decrease of amortization in
goodwill, and any other special factors to be realized during next year.
A.5 Talking about sensitivity of exchange rate, as I mentioned before,one yen per one U.S. dollar results in 1.2 to
1.3 billion yen profit variation, which is one aspect.
Effect of 15-month financial term for our consolidated subsidiaries is not such a major factor.
For next year, as their financial terms return to 12-month period from 15 months, if you ask whether there will
be much negative impact, there will not be any at all. In fact, there are both favorable companies and unfavorable
ones to cover in 15 months.
Our overseas subsidiaries operating Dry Bulk Business or Tanker Business are contrarily making more loss because o
15-month financial term.
Although last April, when we publicized our mid-term management plan, I suppose we advised the effect might be around
4.0 billion yen, but now it comes to about 1.0 billion yen partly due to dry bulk market downturn, which you can see
is not substantial.
Taking goodwill, which I understand resulted from our acquiring SAL, a former German heavy lifter operator, it
decreased by about 2.0 billion yen of amortization cost for year-on-year basis.
Q.6 As impact of weaker yen, please let us know if you can expect any benefits other than those in Car Carrier Business:
For example in Dry Bulk Business, offers of COA may increase, or as indirect effect, shipowners are affirmatively
affected, and in turn you are favored from owners' regaining, etc.
A.6 We can obviously enjoy favorable impact from adjustment in U.S. dollar appreciation in Car Carrier Business when
export of completed cars out of Japan increases, which we think will not increase drastically, but could do so modestly,
because some auto manufacturers hold extra production capacity.
Also we can expect growth of auto part exports. In case sales of Japanese cars are strong around the world, for all
that people say about local production must be for local consumption, export of auto parts from Japan will certainly
grow, which must also be favorable for Containership Business.
For Dry Bulk Business, I believe export of steel products will rise without a doubt, which will be positive for
Handy-size, or Handy-max type vessels.
And in case steel mills' production is extended as a result, of course import of raw materials will increase, which is
also another favorable factor for us.
At any rate, as yen depreciation is definitely desirable for shipping business and manufacturers, I hope yen-U.S.
dollar exchange rate will be adjusted to around 100 yen per U.S. dollar.
Q.7 Please explain what is stable profit base of your business and why your current profit is much lower than that.
Kindly explain difference between stable profit and current profit.
A.7 Consistently we say that amount of our stable profit base is about 30 billion yen.
Stable profit base is a stack of contracts which constantly makes stable profit.
Most familiar example is in our Dry Bulk fleet where stable profit comes from dedicated ship contracts
Of iron ore, coal or grains. But a problem is that we have some high-cost charter vessels compared to present
spot market which are loss-making and offset such stable profit.
Therefore, I think our management problem is how we can gradually decrease such loss in the future.
There is also same case in our Tanker business.
Q.8 Although it may overlap with discussion of Medium-term management plan as mentioned previously, what do
you think regarding Investment Cash flow in next year compared with this year, although you may still be
working on next year's budget?
A.8 In our Medium-term management plan, our policy is to limit Investment Cash flow to total 50 billion yen,
which is lower than total amount of depreciation. It will be within 40 billion yen in 2012.
In 2013 our basic policy is to have lower limit than 50 billion yen, same as this year.
Next year's accumulated Investment amount as already fixed as of today is under 50 billion yen.
Whether if we decide new investment or not depends on our business situation, but we have not changed
our policy at all to keep limit within 50 billion yen.
Q.9 Please let me know guideline for financial index like how much you want for Equity ratio, as president daringly
mentioned previously about liquidity and Equity ratio?
A.9 About liquidity to debt, we thought it is was enough to have 30 billion yen in cash at one time,
Considering that bunker price is very high recently and we have some vessels with high charter rates,
I personally think that we should have a bit more cash.
But I feel our current cash amount may be too much, although we need somewhere about 50 billion.
We are not sure what will happen in the shipping business, so we have slightly more than adequate cash.
About Equity ratio, we are not changing our target to reach 40% by any means.
