【Car Carrier】
Q1. Regarding the profitability improvement measures in Car Carrier Business, have you reached a certain level of agreement with customers as to raising freight
rates? What is the probability of success in achieving this goal?
A1. With regard to raising freight rates, we have had a variety of discussions with customers in Europe and the US since this summer. In those discussions, we have been explaining to customers that without raising freight rates in addition to route rationalization, we cannot turn around the business, and we have negotiated energetically on that basis. We are confident that we will be able to achieve about 80% of our targets. Also, we are still negotiating to raise this further, and we would like to reach agreement by the end of this fiscal year.
【Others】
Q1. You are expecting profit attributable to owners of the parent in the second half to turn positive. I suppose the expectation takes into account a considerable amount of gains from asset sales, as well as extraordinary gains. Please give us some more detail on how confident you are on this, and on any details that have been finalized.
A1. We will provide an explanation when we get to the stage where disclosure is appropriate, but we are not in a position to comment at this time.
Q2. As part of your initiatives going forward, you mention “selection and concentration” in relation to selecting businesses and replacing assets. Could that mean, for example, selling ships? Any additional implication would be appreciated.
A2. We will also discuss this at the time when we arrive at the stage where we can make such disclosures. Of course, we would like to move forward with this in the most efficient way possible.
Q3. The effect of allowance for loss related to business restructuring has continued up to this fiscal year, but that effect should start to wane from the next fiscal year onward. Do your new initiatives assume that the business will turn profitable next fiscal year? Or, if additional measures will be required, please give us a more detail on the outlook for those.
A3. Our plan is to use the restoration of profitability in Car Carrier Business, and the replacement of assets, to move “K” LINE as a whole into profitability.
【Containership】
Q1. The initiatives planned to improve ONE in the second half include strengthened governance. Looking back, the three Japanese shipping companies have been, in the end, too respectful of ONE’s independence, which resulted in the loss in the first half of this fiscal year. Does strengthened corporate governance reflect the intent of the three companies to enhance their initiatives? Also, could we understand that specific measures are already prepared and will have immediate results?
A1. It is a clear declaration of the three companies’ intent to strengthen governance. But there was also a little confusion caused by the launch of operations, and uncertainty as to how to get a good understanding of the numbers, so going forward we are considering using the holding company to take a more direct approach to getting a grip on the situation at the operating company in Singapore, and implementing checks on that. Currently we are moving ahead in stages; for example, we have already started periodically sending people from the holding company to the operating company to check the figures.
Q2. Do you see the factors in the shortfall in ONE liftings as temporary? It seems quite difficult to find grounds that you will regain the share of customers that you lost, and as a shareholder, I would like to hear your views on the current situation.
A2. With regard to the recovery in cargo lifting , I think it is a question of the balance between the cargoes that we carry ourselves, and the fleet. First, for the three Japanese shipping companies, they started with all of their fleets committed, so we plan to improve this through measures that will include better matching to demand. Furthermore, the confused situation in operations, exemplified by the delays in issuing BLs due to problems with the IT system, and mistakes made in specifying the destinations for the return of empty containers, have gradually improved. As a company, we are already in the process of recovering from this disorganization, but we will be persistent in explaining this to customers, in a sort of logical 1+1+1=3 progression, and I think we need to continue our marketing efforts so that we can boost this further.
Q3. With reference to ONE, as a result of revising downward the forecast for this fiscal year, how much did expenses related to the integration eventually come to? Also, I would like to know the forecast for factors affecting profits next fiscal year. Also, if the recovery in homebound cargo lifting does not emerge by the second half, would this make the hurdle higher for returning to profitability next fiscal year?
A3. The integration expenses are presented on page 14 of the materials. At the operational profit/loss level, temporary expenses came to 11.9 billion yen. In addition, the costs of liquidating part of our network have already been incorporated into forecasts. With regard to recovery in liftings on homebound, we are working hard with ONE to achieve this. Recently the utilization rates have been improving in comparison to those of the first half, so we will first work to recover the trust that we lost due to the disruption that occurred at the start of the service. We plan to do everything we can to first raise the level of service and then to win back customers.
Q4. Does ONE have any problems with its financial position? Because the three Japanese shipping companies committed 300 billion yen of capital, and the company posted a loss of 0.6 billion dollars this fiscal year, I think it is fair to say there has been a certain deterioration in shareholders' equity. I would like to know your view on whether this means that the three companies will need to make any further injection of capital.
A4. Currently, we are not at a stage of thinking anything in particular along those lines.
Q5. ONE’s loss after tax in the second half is forecast to be smaller than that of the first half. However, with the industry entering the season of slack demand, if losses do not diminish in the second half, how are you monitoring risks? For example, whether or not there has been improvement in the imbalances on the outbound and homebound cargoes? I think the imbalances were essentially structural in nature to begin with, so I would like to know what areas you are focusing on to gauge improvement.
A5. With regard to the second half, we are first making every effort to improve the imbalances by restoring the liftings on homebound. Up to the second quarter, demand was seasonally weak during the summer. Going forward, demand should recover as a matter of seasonality, so our first priority is achieving the targets set in our budget. Also, while watching closely to ascertain the trend of demand in the second half, at ONE we have developed such measures as to swiftly reduce the number of services, depending on the trend in demand.
Q6. In relation to the IMO regulations, I believe that each of the containership companies have changed their BAF (Bunker Adjustment Factor) tariffs, and they need to move quickly to turn profitable next year, and if they fall behind, the situation could become extraordinarily difficult. In relation to this, please let me know how you, as a shareholder, will be monitoring the state of discussions at ONE. I think things could get very difficult if rates are not raised or rate hikes are not passed on to offset the impact of SOx regulations.
A6. Regardless of SOx regulations, oil prices have already soared this fiscal year, and bunker prices have also risen significantly. Renewals for new contracts for next fiscal year will soon start, and, one of the absolute highest priorities for ONE is to include provisions in contracts that allow the company to recover sharp increases in bunker prices in the form of hedging, separately from floating BAF and freight rates. Extending this line of thought, I think we will also have to respond to IMO and SOx regulations.
Q7. Looking at the struggling homebound, there is not much cargo movement itself. Do you perceive this to be mainly a problem specific to ONE, rather than a problem of the market as a whole? Also, if you have heard anything from ONE about the outlook for the freight rate index in the second half, could we please have a comment?
A7. With regard to the difficulties on the homebound, we believe that in the first half it was a problem specific to ONE, rather than a problem of the market as a whole. That problem, including the disruption of service levels, has already been resolved. We do not disclose figures yet for the second half, so I cannot comment.
Q8. Please share your views on the outlook for container freight rates in the second half.
A8. This is just my personal opinion but, looking at the results for the first half from January to June, responding to soaring bunker prices, and collecting or recovering costs, has been a major problem for all foreign containership companies. I think that rather than freight rates, each company will first focus on collecting or recovering BAFs.
