【Forecasts for FY2021】
Q-1：Regarding your forecasts for the full year, I believe you made substantial progress last year in your Dry Bulk and Car Carrier businesses disposing of unprofitable vessels. Could you tell us how much progress you expect to make this year improving profitability in these businesses? For Dry Bulk specifically, you expect to show an improvement of 18.6 billion yen in ordinary income this year. Could you give us more detail on that, such as how much will be the effect of market recovery?
A-1：Regarding the breakdown of the expected 18.6 billion yen improvement compared with last year, if we isolate the effects of recovery in market situations for Dry Bulk, and recovery in cargo volume, we estimate that portion at about 13.0 billion yen. The remainder of approximately 5.0 billion yen represents improvement from the low levels of vessel allocation efficiency last year stemming from low market situations, as well as the temporary impact of bunker price.
Improved profitability by the disposal of unprofitable vessels is not something that should be viewed for a single fiscal year. Rather, it is a matter of what effects we can generate over the longer term. This year, the improvement in market situations went well beyond such effects, which are now deeply embedded in that. In a long-term view, we think this will make a positive contribution to improvement in profitability.
Regarding disposals of unprofitable Car Carriers, our current aim is to improve competitiveness, by strengthening our power to generate profitability. We are reducing the number of small and medium-size vessels with deck structures that are unsuited for High & Heavy cargo, as well as other kinds of less-efficient vessels. We are not just reducing the number of such vessels, we are also switching to more short-term chartered large size vessels. As a result, our fleet as a whole now includes more large size vessels, which helps improve efficiency. With regard to our profitability, we are confident we now have greater profit-generating power than we had in fiscal year 2019.
【Shareholder return】
Q-1：Your financial situation remains difficult, and you have omitted paying dividends for five consecutive years. I believe the main reason is that your parent company has lacked the divisible surplus to pay dividends. If you succeed in achieving the aims of your current management plan, and if you receive year-end dividend from ONE, might you secure the divisible surplus to pay a dividend at the end of this fiscal year?
A-1：Regarding the outlook for dividends this fiscal year, we have to say we cannot be certain at this time. However, the keys will be the sale of CENTURY DISTRIBUTION SYSTEMS, INC.(CDS), and as you point, any dividends we might receive from ONE. ONE’s profitability has greatly improved, and they are making the investments they have to order new vessels, including those to replace older vessels. We plan to engage in discussions going forward with ONE and with the two other major shareholders regarding the payment of dividends to the parent company. Once we have a better grasp of that situation, we will be able to think about how to reflect it to our own dividend policies. One more point, as we have already explained, is that we are considering structural reforms for unprofitable businesses and vessels. Including progress in that area, we will make our decision regarding dividends based on developments of these three areas.
【Business Segment】
Q-1：Looking at Page 11 of the presentation material, where it says you assume Dry Bulk market assumption for Capesize vessels will be 24,000 dollars in 1Q this year. Based on recent market conditions, that seems rather low. Could you give us your thoughts regarding your assumptions concerning market rates?
A-1：As you say, our assumptions regarding Dry Bulk market situations are low, compared with actual situations today. But market situations have been very volatile, and the adjustments may not have been fully made. Market situations for Capesize vessels, in particular, have risen to nearly 40,000 dollars, and we think they seem to be overheating. At the same time, while we still have May and June left in 1Q, our company has lowered its exposure to market situations. Unfortunately, we therefore may not be in a position to benefit much from the rise in market situations.
We think market situations will fall somewhat in the second half of the fiscal year, but market situations appear to be overheated, and there are still worrisome possibilities, such as a possible correction in crude steel production in China, or economic slowdown stemming from a resurgence of the COVID-19 pandemic.
Q-2：In the presentation material, there is discussion of concerns such as shortage of semiconductor production equipment this year. In your forecasts for this year, have you factored in such risks? Do your estimates for your Car Carrier Business this year reflect these factors? Could you tell us whether your forecasts are conservative?
A-2：There was a fire at a semiconductor plant in Japan, and that may have some impact on automobile car production beginning around June. Our forecasts for the first half of the year reflect expectations of some degree of decline in cargo volume. As for the second half of the fiscal year, all auto makers expect production volume to recover. Looking at the year as a whole, we expect our forecasts to be in line with our estimates.
Q-3：Regarding the forecasts for your Containerships Business, what are your assumptions regarding long-term contracts and spot freight rates?
A-3：We formulate separate assumptions for freight rates in long-term contracts and spot freight rate. For freight rates in long-term contracts, we verify figures with ONE, and we are currently preparing the final results of long-term contracts. We believe the rates in fiscal year 2021 will be roughly over 30% higher than the year before. The percentage of long-term contracts differs from route to route, but on Asia - North America route, we recognize that percentage is at least half. For Asia - Europe route, on the other hand, that percentage is less than half. The rest is the percentage of short-term and medium-term contracts, so-called spot contracts. In the spot market currently, spot freight rates are very high, due to strong cargo demand, and disruption in supply chains, which is causing shortages in space supply. At some point, however, we assume these factors will ease, and short-term freight rates may gradually decline.
Q-4：You mentioned a rise of over 30% from last year in freight rates used in long-term contracts for Containerships, but that seems low, in light of the 50–60% increases we are hearing about from another shipping companies in other countries. How should we view this? If your forecasts are based on actual data and future estimates you receive from ONE, do you see any discrepancies with other data you are aware of, based on differences in routes, or customers portfolios?
A-4：Regarding freight rates in long-term contracts, first of all final summaries are currently being prepared at ONE. we base our forecasts on their report in that process that they have secured more than 30% of rate increase. Going forward, we will be examining the details closely, but we have no way of knowing the specific situations of other shipping companies such as overseas shipping companies, so there is nothing we can tell you about that. As for these differences in the rise in freight rates, they could arise from differences in route portfolios or customer portfolios. Rate increases on Asia - North America route may be different from Asia - Europe route.
Q-5：You published your forecasts for the Containerships Business in the first half and the second half of fiscal year 2021. Looking at quarterly trends, what are your assumptions regarding comparisons with the fourth quarter (January–March) of fiscal 2020?
A-5：Regarding our assumptions on freight rates, as we have already explained, freight rates in long-term contracts will increase to some degree. For short-term freight rates, on the other hand, we think the first quarter will be the peak, and that a gradual decline will then set in, towards the fourth quarter. We will be closely examining first-quarter results, to get some idea of how fast, and how deep, this decline might be. Regarding lifting volume, there will not be any big increase in space. We think supply chain disruption may cause a certain level of void sailings. On the cost side, we assume that supply chain turmoil can lead to some degree of increase in costs.
