(Containership)
Q.1 Please let us know present cargo volume situation for Asia-Europe routes.
A.1 Regarding cargo movement data for January and February, it is almost flat, or flat plus alpha
as image for year-on-year basis. Negative conditions since last year are still continuing until now.
Q.2 Referring to Slide C-1, space for Asia-Europe route is planned to be squeezed, but that for Asia-North America is to increase.
As I understand that the number of containerships and also their total spaces were scheduled to decrease
as a whole in your Medium-term management plan announced in April 2012, please advise us of direction in the future, including other routes.
Furthermore, as I suppose CKYH Green Alliance in wgich you are a member would also have its own policy about the spaces,
within the alliance, which carrier would like to increase their spaces, and how have you made discussions?
A.2 We will increase our containership space for Asia-North America routes, decreasing for Asia-Europe routes, and drastically decreasing for intra-Asia services. Spaces for North-South routes are also planned to decrease. We will continue policy of 'selection and concentration' further, which we have followed since last year.
In our alliance, we discuss and adjust our fleet structure corresponding to our business in order to reduce costs further. Alliance is an agreement for fleet operations, and so it is where we can talk about more efficient fleet deployment and how we can make cost reductions as a result. It is of no concern to us as to which carrier will aggressively increase spaces or not.
Q.3 Please tell us situation about freight rate negotiations for this year.
A.3 Progress in negotiations for Service Contracts in Asia-North America routes are in rather slow pace for this year, and still around halfway, but I think rates will go up. The nearly one-half portion that has already been fixed is actually up from those contracts last year. Whether spot contracts will go up drastically during peak season same as last year, our view has been rather conservative, and we set the freight level for peak season at almost same as last year.
As for Asia-Europe routes, present freight rate level is very close to the bottom in 3rd Quarter fiscal 2012. The market freight rate level has moved repeatedly up and down, and I think right now would be the toughest situation. Around mid-May, every carrier is planning rate restoration actions, and based on such movements for Asia-Europe routes, we see economic trends in Europe closely related to cargo demand and spot freight rate situation during summer peak season as the most important key points for this year.
We will have felt a sense of danger that unless freight rate level does not start picking up during 2nd Quarter, it would be the time when we should consider laying up vessels.
Regarding our freight indices for this fiscal year, we set almost flat for Asia-North America routes, and slightly lower for year-on-year comparison for Asia-Europe.
Q.4 How do you feel about the risk that rate competition may again become heated up as in the past and freight market may collapse like two years ago?
A.4 For Asia-Europe trades, shares handled by 3 major European shipping companies are the biggest. Observing their publicly available financial conditions, it does not look like it is a time for them to pursue rate competition, except for Maersk. In that sense, I do not think spot freight rates will keep slithering down like this, but will swing back by necessity.
Q.5 Please show us breakdown of 7.5 billion yen of cost reduction target in Containership Business for this year and, please also advise the reason about difference between actual achievement in fiscal 2012 (structural reform 10.0 billion yen ) and target in your Medium Term Management Plan (12.0 billion yen)
A.5 As to breakdown of total cost reduction of 7.5 billion yen; first off, about 3.0 billion yen from operational cost savings, including further promotion of slow steaming. Second, what we call 'paradigm shift' of chassis; In North America, when we deliver container boxes to our customers, though we, shipping companies have arranged chassis for the boxes together at our own expense in the past, but that is now being changed so that our customers arrange chassis at their expense. Then, there are various small daily small cost savings, which we have called "leaf picking," with accumulation of all such factors being total figure.
Among factors for cost savings, slow steaming has contributed to huge savings at its first stage, but we have now come to third year since we started slow steaming. So, although we have promoted it step-by-step, the degree of contribution has been decreasing gradually in terms of financial effect. From now on, factors like promotion of 'paradigm shift' of containers in North America might become key points, I suppose.
(Bulk Shipping Business)
Dry Bulk Business
Q.1 As you have estimated in Dry Bulk Business for this fiscal term both Operating Revenues and Operating Income decrease, we would like to know whether this estimation is rather conservative or not?
Premises for the freight rate market in Slide C-2 (page 13) are set at certainly weak tone, but still slightly better than last year, and also considering more favorable exchange rate and/ or fuel oil price, I will never be blamed if I personally believe profit could reasonably increase for year-on-year basis. So, let us know the reason for profit reduction, whether it is because your view is just conservative, or because there may be particular conditions such as some of your contracts with better profitability possibly expiring, or so on.
A.1 Our assumptions for the market is as indicated in this slide. In my view, it is not specifically conservative, but we just set them straightforwardly and neutrally.
On the other hand, no foreign-exchange valuation gain of foreign currency-denominated assets of our overseas subsidiaries, which was touched on before, is expected for this forecast. For year-on-year comparison, it has negative impact at that rate.
Car Carrier Business
Q.1 Referring to your expectations about Car Carrier Business in Slide C-3 (Page 14), you assumed cargo volume for 'Outbound' will be slightly down. As it seems to be rather too conservative, let us know the background about this.
A.1 'Outbound' cargoes shows mainly the number of export cars from Japan. Japanese auto makers have further accelerated their overseas production expansion during yen appreciation, in line with what I understand is their so-called 'local production for local consumption' policies, or that cars which can be consumed in an area should be produced and sold in that area.
So, I expect transport of auto-parts by Containerships would increase, but I question whether export of completed cars from Japan would immediately rise after yen appreciation. Each auto maker has suggested it would not increase soon, and rather, according to their long-term plans, their policy to develop factories overseas remains unchanged.
However, considering present level of yen appreciation, I hope they will positively export completed cars from Japan to some extent. Though I personally believe so, it is basically not reflected in our assumptions.
Q.2 About Car Carrier Business this year, what is the main reason for profit improvement?
I understand one of the factors is improvement in contracts for Trans-Atlantic area.
Comparing this factor and other factors, which one mainly contributes to the improvement?
A.2 Main factors for Car Carrier Business improvement in this year compared with fiscal year 2012 are, to tell you very honestly, changing premises for exchange rate as well as bunker price and slow steaming. Especially bunker consumption decrease due to slow steaming is very large portion of improvement this year. In addition freight restoration of contracts in Trans-Atlantic area is next portion. So major factors are slow steaming, premise of exchange rate and bunker price plus freight restoration in Trans-Atlantic. Freight level in other revision of contracts is almost unchanged from last year.
(General)
Q.1 My understanding is amount of cash and cash equivalent as of end of April, after redeeming Convertible bonds in April, is around 130.0 billion yen.
How much do you think it will be as of end of March 2014 (end of fiscal year 2013)? I'd like to know because there is around 45.0 billion yen of bond redemption in next year, so how do you think about cash considering such factors?
As financial indices improved to some extent, what is your thinking as to when you can be aggressive, in other words when can you increase investment?
I would like to know for both medium and long-term.
A.1 Our policy to have more cash on hand than usual has not yet changed so far. Although there may be sufficient chance for financing in financial markets, our policy is that we should have enough cash on hand considering unstable factors in the shipping industry.
Unstable factors are, for example, emergency cash payment instead of owners when arrested or urgent cash need for purchase of chartered ship when something happen to owners, although I do not worry about management of K-Line at all.
There is 45.0 billion yen of bonds to be redeemed in first half 2014, last year of our Medium-Term Management Plan, and after that redemption, then we think we should keep cash on hand at a normal level.
About decrease of Interest-bearing debt which is most important point in our Medium-Term Management Plan, I would like to say that we will try anything to decrease to 490.0 billion yen as our target in the plan.
We think growth strategy with new investment will then be after that term.
Q.2 Please let me know how much you think taxes will be in fiscal year 2013?
A.2 Our estimate is on basis of effective tax ratio of about 35%, which means our estimated Ordinary Income 25.0 billion yen and Net Income of 13.0 billion yen includes about 3.0 billion yen of other factors such as Extraordinary Income/Loss.
