Q.1 In the waterfall chart on page 23 of the presentation materials, in the ONE annual P/L analysis for fiscal year 2019, you forecast 270 million dollars in improvement linked to freight rate increases. Please comment on the accuracy of this figure in consideration of the extent to which you have achieved freight rate increases in recent service contract renewals, along with your ability to gain customers’ agreement to ONE bunker surcharge (OBS).


A.1 As of the end of April, spot freight rates on Asia-Europe routes are quite low, and according to the Shanghai Shipping Exchange index, the level is on par with the lowest rates seen in 2018. However, rates have bottomed out and we expect an upturn. Freight rates on other routes are stable and at relatively high levels. These conditions are offsetting each other, and we believe the 270 million dollar improvement is achievable if our freight rate measures go according to our plan.

The bunker surcharge is factored into this 270 million dollar forecast. We are gaining customer agreement when making long-term contract renewals, and the surcharge has already been included in some long-term contracts. I would like to note, however, that we do not always apply OBS, which is based upon ONE’s own bunker adjustment factor (BAF). There are cases where we accept the customer’s own surcharge formula, as long as the formula has the same level of sensitivity as OBS . In either case, the surcharge has already been added to nearly all long-term contracts. By the end of this year, we will be negotiating some contracts with customers regarding application of floating BAF from January 2020. Overall, OBS is being accepted by the market, and this is factored into our forecasts.



Q.2 You plan to recognize provisions for losses related to containership charter contracts in fiscal year 2019 as well as in the second half of fiscal year 2020. Does this mean that you expect to continue to generate losses from charter contracts in 2021 and beyond?


A.2 Regarding charter rates to ONE, if the current charter rate market conditions continue, we expect to continue to generate some levels of loss on chartering in the future. In general, the number of vessels will be reduced as the charter contracts expire, so we expect the amount of loss to decline gradually in coming years.



Q.3. Regarding the provision for loss related to containership charter contracts in fiscal year 2020, which you plan to recognize in the second half of fiscal year 2019, please explain whether you plan to recognize the entire loss as an extraordinary loss and what the actual figure will be. Additionally, on page 7 of the presentation materials, you forecast the profitability improvement from structural reforms in fiscal year 2020 to be 9.5 billion yen. Is there a possibility this figure will change?


A.4 The provision will be recognized under operating profit and loss. We forecast an ordinary loss for the second half of fiscal year 2019, and this is the main factor. In terms of amount of loss, we do not expect the amount to be significantly different from the amount recognized in fiscal year 2018.



Q.4 In the waterfall chart on page 10 of the presentation materials, which shows the key factors affecting profitability, please explain the 5.4 billion yen improvement from “K” Line’s own containership business.


A.4. There are many individual factors generating a composite effect. Regarding the main factors, we do not recognize the same level of temporary expenses as we did in fiscal year 2018, and the level of provision for loss related to containership charter contracts is expected to change somewhat. Additionally, the charter rates for business between ONE and “K” Line change slightly year to year, even for the same vessels. These changes are expected to generate a net improvement of 5.4 billion yen.



[IMO SOx regulation]

Q.1 What do you expect to be the impact of application of SOx regulations  on ordinary income? Are your estimates based on passing 100% of the cost increase to customers? Please also comment on whether costs associated with the transition period will be incurred around the third quarter.

Finally, please comment on whether or not you are currently having more difficult negotiations with customers in certain business areas or for certain types of vessels.


A.1 Part of the costs will be recognized as temporary expenses during the transition period you mentioned. We plan to recover all of the cost increases for this measure from customers once compliance with the new SOx regulations begin. All in all, this is a very big issue. SOx is a factor in producing acid rain, and under the new rules, shipping companies will use a new type of bunker fuel oil which lowers sulfur content from 3.5% to 0.5%. As the maritime shipping industry consumes a tremendous amount of bunker fuel, it is obvious that the estimated impact of the consumption would be astronomical. We have been very persistent in our dialogue with customers in explaining that this is a necessary burden to protect society and the environment. We have had considerable success in gaining the understanding and support of our customers.



Q.2 On page 9 of the presentation material, you state that in Dry Bulk Business, there will an off-hire period requiring installation of SOx scrubbers. Do your current estimates cover only those vessels for which you have installation plans, or include all the vessels that will need to be made SOx-compliant in the future?


A.2 The estimates stated here include only those vessels for which we currently have plans in fiscal year 2019. We are creating a new plan for vessels that will require installation in fiscal year 2020. Therefore, the current estimates do not represent the entire costs.



Q.3. Please comment on what the cost increases related to the IMO’s SOx regulations are for both ONE and “K” Line.

Additionally, ONE’s assumption for bunker fuel price for the second half of the fiscal year is 533 dollars per metric ton, while “K” Line’s assumption is more than 600 dollars. Assuming that “K” Line’s estimates for the second half take into consideration business risk for SOx regulation , was there any need for “K” Line, as the parent company, to discuss bunker fuel forecasts with ONE when you were reviewing the assumption for forecasts?


A.3. Regarding the treatment of SOx regulation compliance expenses for installing SOx scrubbers, ONE relies on vessels chartered from its three parent companies and is still reviewing and discussing the sharing of the expenses with the three parent companies. In regard to the difference in bunker fuel forecasts, ONE has its own forecast, and ONE does not compare and adjust its forecast in accordance with “K” Line’s. Further, regarding the impact of changes in bunker fuel prices on profitability, our principle is to have customers bear the cost. ONE takes into account the levy of its own bunker fuel surcharge, OBS, and if bunker fuel prices change, then the difference will be collected through the surcharge.




Q.1 You stated that extraordinary income has been forecast for the second half of fiscal year 2019. What level of confidence do you have in recognizing this income? I assume that you originally expected to recognize this income in fiscal year 2018, but postponed it. What are the reasons for recognizing it in the second half of fiscal year 2019?


A.1 We forecast income from the transfer of the overseas terminals business to ONE, as well as asset sales from the restructuring of our business portfolio. The three parent companies are now discussing the overseas terminals business with a view to completing the transfer as early as possible, and at this time, we plan for that to be in the second half of the fiscal year.



Q.2 On page 7 of the presentation materials, you estimate an improvement in profitability of 20.0 billion yen related to review of your business portfolio. Please confirm that most of this will be recognized in the second half of fiscal year 2019.


A.2 We already completed the sale of a portion of our shares in three domestic harbor transportation subsidiaries, and this figure includes implementation items. Such items were planned  in the fiscal year 2018 plan, and we will continue to complete the remainder in fiscal year 2019.



Q.3 You introduced a new management in April this year. Please comment on what changes have been made if any. Additionally, I assume you are about to begin internal discussions on the new medium-term management plan to start in April 2020. Please comment on some of the key issues you are taking into consideration at present.


A.3 The new management has just begun. As president, responsible for corporate planning, I myself created the current medium-term management plan. We have completed the second year of the plan and are now in its third year. There are no major changes at present. In regard to the next medium-term management plan, we are considering various issues and preparing little by little, in anticipation of announcing it during the current fiscal year.



Q.4 You have nominated an executive from Effissimo Capital Management Pte Ltd (hereinafter “ECM”) to be an outside director. Please explain the background of this move and what benefits you expect.


A.4 We have maintained a steady dialogue with ECM in complying with the corporate governance code. This has been a very constructive dialogue generating exchanges of views on many issues. ECM invests in many Japanese companies, and by having one of their executives join us as an outside director, we can gain insights on the advancement of business management and other measures to raise corporate value in the current medium-term management plan from a shareholder’s viewpoint. We see this as an effective way to raise our corporate value further.