During the first three months of the fiscal year ending March 31, 2018 (from April 1, 2017 to June 30, 2017; hereinafter “the three-month period”), the global economy gradually recovered, despite unstable situations with geopolitical risks. The U.S. economy made solid movement, with strong private consumption, increased capital investment and real estate investment. In Europe, anxiety over political risks was temporarily wiped out as political events including the French presidential election ended without any major confusion, and while there was some variance by country, the overall European economy maintained its course of recovery centered on capital investment. While government policy temporally supported the Chinese economy, overall trend was weak partly due to concern about the government again making structural corrections out of fear over overheating in the financial and real estate markets. Overall, the economies of developing nations struggled to improve, as the economies of resource-rich countries weighed heavily due to low levels of resource prices, which had been on a course of recovery, despite current pickup in consumption in the Indian economy, whose growth rate had temporarily faltered partly responding to the ban of their large currency bills.
The Japanese economy continued its gradual recovery due to increased exports following the recovery in the global economy. Domestic demand including private consumption and capital investment showed recovery backed by improvement in employment and income.
In the business environment for the shipping industry, freight rate market experienced a recovery as cargo movements in the East-West services and Intra-Asia services were strong in the containership business. On the other hand, in the dry bulk business, while recovery was seen in parts of the market in the medium and small vessel sector, the Group expects it will still take some time for improvement in the vessel supply-demand gap. The Group, during the previous two fiscal years, carried out business structural reform as an initiative to increase competitiveness in the dry bulk business, containership business, and offshore energy E&P support and heavy lifter business. The Group worked on measures to improve profitability such as implementing ongoing cost cuts and more efficient vessel allocation, in addition to the effect of the business structural reform.
As a result, operating revenues for the fiscal year were ¥287.375 billion (up ¥42.782 billion year on year), operating income was ¥3.878 billion (compared to operating loss of ¥14.836 billion for the previous fiscal year), ordinary income was ¥5.970 billion (compared to ordinary loss of ¥22.515 billion for the previous fiscal year). Profit attributable to owners of the parent was ¥8.523 billion (compared to loss attributable to owners of the parent of ¥26.793 billion for the previous fiscal year).
(i) Containership Business Segment
In the containership business, solid cargo movements were seen in the East-West services and Intra-Asia services. The Group achieved the handling volume increase of approximately 6% in the Asia-North America services, approximately 9% in the Asia-Europe services, and approximately 17% in the Intra-Asia services year on year while there were decreases by 5% year on year in the North-South services, which is mainly due to termination of the South America-East Coast services. As a result, the Group’s cargo handling volume increased approximately by 7% year on year. The freight rate market recovered, reflecting steady cargo movements, and profit rose year on year, with the containership business regaining positive earnings.
In the logistics business, which includes inland transportation and warehousing, handling volume for domestic logistics services maintained the same level year on year. International logistics, on the other hand, handling volume for air cargoes increased, and owing to the Group’s efforts to expand localized services in the Asian region, and new customer acquisition through buyers consolidation, logistics business overall recorded year-on-year increase in both revenues and profit.
As a result of the above, the Containership Business Segment overall recorded year-on-year increases in revenues and regained positive earnings.
(ii) Bulk Shipping Business Segment
Dry Bulk Business
In the Cape-size market, despite steady cargo movements of iron ore which is to continue from the previous fiscal year, market itself gradually slowed down with concerns over the risks where Chinese financial and real estate markets may be tightened, as well as uncertainty in the outlook for demand for steel raw materials. Market conditions in the medium and small vessel sector continued to decline from the start of spring, with cargo supply unable to cover tonnage volume, but the market has shifted to an upward trend due to active cargo movements of grains from South America and coal from Australia. Fundamentally, the vessel supply-demand gap is yet to be resolved with on-scheduled delivery of new buildings as well as slowdown of scrapping old vessels in reaction to somewhat recovered secondhand ship market and spot freight market. However, as a result of operation cost savings and vessels allocations in more efficient manner, the Group narrowed its loss with higher revenues year on year.
Car Carrier Business
During the three-month period, cargo movements for finished vehicles continued to be sluggish in the trades from Asia to resource-rich countries in the Middle East, Central/South America, and Africa due to falls in resource prices. On the other hand, Far East to Europe, Trans-Atlantic, and
Intra-Europe performed steadily. As a result, the overall volume of finished vehicles shipped by the Group during the three-month period increased by roughly 15% year on year. The Group recorded year-on-year increases in both revenues and profit through continuous efforts to improve efficiency of vessel allocation and operation.
LNG Carrier Business and Tanker Business
Despite softening market trend in LNG carriers, large crude tankers (VLCCs), and LPG carriers, the LNG carrier business and Tanker business overall were able to record year-on-year increase in both revenues and profit supported by steady performance of medium- and long-term charter contracts.
Short Sea and Coastal Business
While the slumping market was to continue in the short sea business, and expenses such as fuel oil prices increased in the coastal business, the short sea and coastal business overall achieved year-on-year increase in revenues by securing stable transport volumes and regained positive earnings.
As a result of the above, the Bulk Shipping Business Segment overall recorded year-on-year increases in revenues and regained positive earnings.
Baltic Dry Index
(iii) Offshore Energy E&P Support and Heavy Lifter Business
Offshore Energy E&P Support Business
The drillship vessel continued to perform steadily, and contributed to secure stable long-term earnings. On the other hand, in the offshore support business, market remained stagnant due to stalled marine resource development. Overall, the offshore energy E&P support business narrowed its loss despite a year-on-year decline in revenue, partly due to the impact of foreign exchange rates.
Heavy Lifter business
As announced on July 26, the Company determined to transfer all shares of SAL Heavy Lift GmbH, which is in charge of this business, to SALTO Holding GmbH & Co. KG.
As a result of the above, the Offshore Energy E&P Support and Heavy Lifter Business Segment overall narrowed its loss with higher revenues year on year.
(iv) Other Business
Other business includes the Group’s ship management service, travel agency service, and real estate rental and administration service. The segment achieved a year-on-year increase in both revenues and profit.
(2) Qualitative Information on the Consolidated Financial Situation
Consolidated assets at the end of the consolidated 1st Quarter were ¥1,055.642 billion, an increase of ¥10.432 billion from the end of the previous fiscal year as a result of an increase in cash and deposits, vessels and other factors.
Consolidated liabilities increased by ¥2.738 billion to ¥802.466 billion as a result of an increase in accounts and notes payable-trade and other factors compared to the end of the previous fiscal year.
Consolidated net assets were ¥253.176 billion, an increase of ¥7.694 billion compared to the end of the previous fiscal year as a result of increase in retained earnings and other factors.
(3) Qualitative Information on the Consolidated Prospects for FY2017
Looking at the global economy from the second quarter onward, while an overall gradual expansion is maintained, the pace of recovery is expected to remain sluggish for the foreseeable future with resource and oil prices have trouble rising. Political risks such as the delay in the realization of the U.S. administration’s policies, as well as geopolitical risks such as increased tension in the Middle East and North Korea mean an unstable situation will likely to continue for some time.
Under this business environment in the containership business, the freight rate market turned to an upward trend after reaching historically low levels last year, and there has been improvement in both long-term and short-term contracts. On the other hand, there are still unresolved issues that require observation such as changes to the business environment following events such as accelerating mergers and integrations of other shipping companies and the impact of geopolitical risks in major countries on consumer trends and cargo movements. Based on “THE Alliance” service launched by the Company in Fiscal 2017, in addition to responding to diversifying customer needs, through further cost cutting, while working to strengthen our income structure, the Group will make solid progress in our preparations for the integration of our containership business with the two other domestic shipping companies.
In the dry bulk business, while the gradual course of recovery is maintained, the market will continue to have difficulty rising since some time is required for adjusting tonnage surplus. While continuing to work to improve the efficiency of vessel operation and cost cutting, the Group will aim to utilize strengths to increase medium- and long-term contracts and work to stabilize revenue.
In the car carrier business, while sense of uncertainty remains over the economies of resource-rich countries starting with the countries of the Middle East and emerging countries such as Russia, the Group forecasts continued strong global demand for marine transport of finished vehicles. The production bases of each automaker are in the midst of a shift to “mass production in the right place” and “appropriate production in the right place.” To respond flexibly in the future to changes in the increasingly complicated trade structure, while appropriately upgrading our fleet and continuing to reinforce its business platform, the Group will strive to enhance its revenue base by making maximum use of its fleet of large-sized and new generation vessels, featuring larger loading capacity for heavy construction machinery and rail cars as well as improved fuel efficiency. In addition, the Group will continuously work to cut operation costs.
In the LNG carrier business and Tanker business, the Group will continuously work to secure stable revenues for LNG carriers, VLCCs and LPG carriers supported by medium- and long-term charter contracts.
In the offshore energy E&P support business, although it is expected to take some time for the market to recover, the Group will continue to work to improve its profitability through cost cutting and other means.
In the logistics business, demand for domestic logistics services, including inland transportation services and warehousing, is projected to trend stably in line with the previous year. Transport demand for air cargoes continues to be strong in the international logistics services, and expanded localized services in Thailand and Vietnam are starting to produce results. The Group will strive to accumulate profits through further enhancement of its global network and its business expansion strategies of forwarding and buyers consolidation.
In the short sea and coastal business, the Group will continue to aggressively expand its business operations.
As noted above, while the marine transportation market for containerships and dry bulk has begun to show signs of escaping rock bottom and recovering, it should still take some time before the balance between vessel supply and demand improves fundamentally, and the Group will strive to improve profitability through further cost cutting and rationalization. The Group expects full-year results for operating income to be amounts that are slightly lower than the previous announcement, but has not changed the amounts of the previous announcement for ordinary income and profit attributable to owners of the parent.
Our important task is to maximize returns to our shareholders while maintaining necessary internal reserves to fund our capital investment and strengthen our financial position for the sake of sustainable growth, which is a priority of our management plan. However, as outlined in the medium-term management plan announced in April 2017, improving financial structure and stabilizing the business foundation are our current highest priorities. As such, though forecasting to regain net ordinary income for this fiscal year, it is with sincere regret that the Company announces it has decided not to pay an interim dividend nor an annual dividend for the current fiscal year.