Japananese shipping group reports year-on-year increases
In the nine-month period of the fiscal year ending March 31, 2020 (April 1, 2019, to December 31, 2019), consolidated revenues amounted to ¥1,253.2 billion (decreased ¥131.3 billion in the same period of the previous fiscal year), operating profit amounted to ¥32.4 billion (increased ¥27.9 billion in the same period of the previous fiscal year), recurring profit amounted to ¥38.4 billion (increased ¥41.8 billion in the same period of the previous fiscal year), profit attributable to owners of parent amounted to ¥18.7 billion (increased ¥27.4 billion in the same period of the previous fiscal year).
Freight rates declined in Q3
In the container shipping division, Ocean Network Express Pte. Ltd. (ONE), which is an equity method affiliate, maintained steady overall liftings and utilization, and the liftings particularly increased on the major North America and Europe trades, as well as the Intra-Asia trade. However, in the third quarter, liftings stagnated as a result of seasonally slower demand and the impact of the trade problem between the US and China.
Although freight rates were higher in the first and second quarters compared to the same period of the previous fiscal year in the North America trade, in the Europe trade, due to deterioration in the supply and demand balance, freight rates did not rise during the summer peak season and were sluggish. In the third quarter, freight rates deteriorated in both the North America and Europe trades compared to the same period of the previous fiscal year.
On the other hand, with the aim of improving profitability, synergistic effects of the business integration were further accumulated and improvement measures such as optimizing the cargo portfolio continued to be executed. Also, in the previous fiscal year, large one-time costs were incurred following the teething problems that occurred immediately after the start of service and the termination of the container shipping business at NYK Line.
However, these costs have not occurred in the year to date through the third quarter of the consolidated fiscal year, and as a result, the bottom line greatly improved. Although the total handling volume at terminals in Japan increased, the total handling volume at overseas terminals declined due to the impact of the sale of the equity share in the stevedoring subsidiary located in North America in the previous fiscal year. As a result of the above, although revenue declined year on year in the Liner Trade as a whole, the business performance greatly improved, and a profit was recorded.
Winter peak causes rate rises
In the car transportation division, vessel deployment was rationalized mainly in trilateral transport and initiatives aimed at selective cargo acquisition were advanced, resulting in increased transportation efficiency. In the auto logistics segment, along with rationalizing some of the existing businesses and starting to reorganize the business portfolio, new businesses were launched in Turkey and Egypt.
Also, activities were conducted with the aim of both strengthening the business base and expanding the business in growing fields, including new logistics proposals utilizing the group network such as railroad transportation between China and Central Asia. In the dry bulk division, although more new ships were commissioned than the number of ships scrapped, the increased dry dockings primarily of Capesize bulk carriers in preparation for the environmental regulations which have been in effect from January 2020 resulted in a tighter supply. Cargo volumes of iron ore started to recover from the supply disruptions that occurred in Brazil and Western Australia at the end of the previous fiscal year.
Although cargo volumes of coal and grain were firm through the end of the second quarter, cargo volumes of the major cargo slackened, including slower shipments of iron ore from Brazil caused by the early arrival of the wet season in Brazil, and market levels fell. Under this environment, along with continuing to work to secure long-term contracts, cost reduction initiatives such as thoroughly conducting efficient navigation were implemented, and efforts were made to improve the bottom line, including the reduction of ballast voyages through innovations to the cargo combinations and ship deployments.
In addition, progress was made in returning the high cost chartered ships early. In the energy division, the risk of deploying vessels to the Middle East increased for VLCC (very large crude carriers), including the attacks on tankers near the Strait of Hormuz in May and June and the drone attack on Saudi Arabian oil facilities in September. From the end of September to the middle of October, World Scale rates briefly soared over 200 following the US sanctions on several Chinese tanker companies before settling down.
However, rates rose again in late November as the market entered the winter peak demand season. In petrochemical tankers, shipping traffic became more active. In LPG carriers, in addition to more active shipping volumes from the US to Asia, the ton-miles increased due to changes in the trade patterns resulting from the trade problem between the US and China, and market levels were pushed much higher. In LNG carriers, the bottom line was firm based on support from the long-term contracts that generate stable earnings. In the offshore business, FPSO (floating production, storage and offloading) vessels and drill ships were steady.
Retained earnings increase ¥5.9 billion
As of the end of the third quarter of the current consolidated accounting period, assets amounted to ¥2,047.9 billion, an increase of ¥46.2 billion compared with the end of the previous consolidated fiscal year. Consolidated liabilities amounted to ¥1,532.6 billion, up ¥52.6 billion compared with the end of the previous consolidated fiscal year as the result of a ¥12.8 billion decrease in loans payable and an ¥87.3 billion increase in leases liabilities at the start of the year from the application of IFRS 16 at consolidated subsidiaries that have adopted the International Financial Reporting Standards (IFRS).
Under consolidated equity, retained earnings increased by ¥5.9 billion, and shareholders’ equity, which is the aggregate of shareholders’ capital and accumulated other comprehensive income, amounted to ¥478.2 billion. This amount combined with the non-controlling interests of ¥36.9 billion brought total equity to ¥515.2 billion. Based on this result, the debtto-equity ratio (D/E ratio) came to 2.36.
NYK Line’s forecast of the full-year consolidated financial results is as follows: revenues of ¥1,660.0 billion, operating profit of ¥37.0 billion, recurring profit of ¥40.0 billion and profit attributable to owners of parent of ¥29.0 billion.
Concerning the future outlook, in the Liner Trade segment, although ONE expects the cargo volumes are expected to be soft mainly in the North America trade due to the impact of the trade problem between the US and China and the Chinese New Year, ONE plans to respond to the lower demand by intermittently void sailings, and efforts will be made to reduce operating costs.
Cargo handling volumes at the terminals in Japan are expected to remain strong. In the Air Cargo Transportation segment, the transportation demand continues to be weak against the backdrop of the trade problem between the US and China, and the situation is expected to remain challenging.
Similarly, in the Logistics segment, the cargo handling volumes in both the air freight forwarding business and ocean freight forwarding business are expected to decline. In the car transportation division, continued efforts will be made to increase vessel deployment efficiency mainly in trilateral transport.
In the energy division, although the seasonal increase in demand for VLCC during the winter months will start to slow heading into the end of the fiscal year, due to the ongoing US government sanctions on Chinese tanker companies and geopolitical risk, the market will likely be firm.
Also, in LPG carriers, cargo volumes from the US are expected to remain strong. In the dry bulk division, shipments of iron ore from Brazil and Australia have fallen, and combined with the impact of Chinese New Year, it will take some time for the market to recover. Given this, the market forecast has been revised lower.
Stable return of profits to shareholders
NYK Line has designated the stable return of profits to shareholders as one of the most important management priorities, and generally targeting a consolidated dividend payout ratio of 25%, the distribution of profits is decided after comprehensively taking into account the business forecast and other factors.
At the same time, based on an ongoing minimum dividend that is not affected by the business results, an annual dividend of ¥20 per share has been set as the minimum dividend. In accordance with this policy, it is planned to issue a year-end dividend of ¥20 per share, and including the interim dividend of ¥20 per share, there is no change in the plan to issue a full-year dividend of ¥40 per share.