In the first half of the fiscal year ending March 31, 2021 (April 1, 2020, to September 30, 2020), consolidated revenues amounted to ¥722.0 billion (decreased ¥102.7 billion in the first half of the previous fiscal year), operating profit amounted to ¥16.6 billion (increased ¥0.8 billion in the first half of the previous fiscal year), recurring profit amounted to ¥47.4 billion (increased ¥31.4 billion in the first half of the previous fiscal year), profit attributable to owners of parent amounted to ¥22.1 billion (increased ¥11.0 billion in the first half of the previous fiscal year), and the result improved significantly.
Overview by Business Segment
Business segment information for the six months ended September 30, 2020 (April 1, 2020–September 30, 2020) is as follows.
Liner Trade
In the container shipping division, OCEAN NETWORK EXPRESS PTE. LTD. (ONE) was affected by the drop in cargo volumes worldwide caused by the impact of the COVID-19 pandemic, and liftings decreased compared to the same period last year. However, on the main North America trade, both freight rates and utilization were higher year on year, resulting in a major contribution to the bottom line. In the Europe trade, although liftings were lower compared to the same period last year, high utilization was maintained.
In terms of expenses, in addition to the lower bunker fuel expenses, the return of chartered vessels and other efforts to reduce variable expenses made a positive contribution to the bottom line. Handling volumes declined at the company’s terminals in Japan and overseas, resulting in lower profit compared to the same period last year.
As a result, although revenue declined year on year in the overall Liner Trade segment, the business performance greatly improved, and profit increased.
Air Cargo Transportation
In the Air Cargo Transportation segment, the overall market was affected by the COVID-19 pandemic, resulting in weak air cargo demand and lower shipping volumes. However, due to the ongoing suspension and cancellation of international passenger flights, the reduction in available space continued to exceed the lower demand. In addition, demand started to increase mainly in the North America and Europe routes in the latter half of the second quarter heading into the autumn peak season.
As a result of the above, capacity utilization and unit freight rates greatly exceeded the same period last year, and significantly higher profit on increased revenue was recorded.
Logistics
In the air freight forwarding business, handling volumes remained weak due to the impact of the COVID-19 pandemic. However, the bottom line remained firm as a result of higher freight rate levels caused by a major reduction in cargo space following the cancellation of international passenger flights. In the ocean freight forwarding business, although the active North America routes led to a recovery in handling volumes, the bottom line remained weak due to soaring purchasing costs. In the logistics business, as a result of stay at home related demand caused by the impact of COVID-19 pandemic, cargo volumes greatly increased mainly in this e-commerce related business. In the coastal transportation business, both handling volumes and revenue declined. Cargo volumes on the new services particularly declined, which pressured the bottom line. As a result of the above, although revenue declined slightly year on year in the overall Logistics segment, the business performance greatly improved, and profit increased.
Bulk Shipping
In the car transportation division, cargo volumes continue to be low due to the impact of the COVID-19 pandemic, and efforts were made to downsize the scale of operations through the scrapping of old vessels, rationalize the trades and reduce operational expenses. In the auto logistics segment, as well, handling volumes continued to be lower. Also, while efforts were made to cut costs and rationalize the business in countries including China, Russia and India, progress was made in the activities directed at revising the business portfolio, such as establishing new finished-car terminals in Turkey and Egypt and opening a finished-car terminal in Yokohama (Daikoku Pier).
In the dry bulk division, cargo volumes of iron ore and soybeans were strong to China, one of the first countries to restart economic activities. Despite this, the market remained at low levels due to the prolonged impact of the wet season on iron ore shipments from Brazil, which has a major influence on the market. Finally, Capesize rates rapidly recovered in June, and there was also a positive impact on the Panamax segment. However, rates peaked in July, and the market remained below the levels seen in the same period last year. Under this environment, efforts were made to stabilize the bottom line by continuing to work to secure long-term contracts and reducing costs through efficient operation. Also, an extraordinary loss was recorded for structural reforms and other expenses.
In the energy division, following the lower energy demand caused by the COVID-19 pandemic, the major oil producing countries agreed to reduce production at the beginning of April, and this resulted in extreme market volatility. In April, vessel demand for floating storage increased, leading to greatly higher market levels for VLCC (Very Large Crude Carriers) and petrochemical tankers. However, following the production cuts and weaker demand, the market rates that had soared through June settled down gradually, and from July, slackening in the vessel supply and demand balance resulted in weakness within the market. In LPG carriers, although the market was weak through June due to lower vessel demand, rates recovered from July following a decline in capacity supply due to an increase in dry docking period and longer waiting days at discharging ports. In LNG carriers, the results were steady based on support from the long-term contracts that generate stable earnings. Also, in the offshore business, FPSO (Floating Production, Storage, and Offloading) and drill ships were steady.
As a result of the above, the overall Bulk Shipping segment recorded lower profit on decreased revenue year on year.
Real Estate and Other Businesses
The Real Estate segment was steady with both revenue and recurring profit generally unchanged year on year.
In the Other Business Services segment, lower customer demand caused by the COVID-19 pandemic affected the technical service business and marine equipment sales. Also, bunker fuel sales and chemical product manufacturing and sales were weak compared to last year, and overall, profit and revenue were lower year on year.
The cruise business recorded a loss on lower revenue year on year due to the cancellation of all cruises in the first half as a measure to prevent the spread of COVID-19 infections.
(2) Explanation of the Financial Position
① Status of Assets, Liabilities and Equity
As of the end of the second quarter of the current consolidated accounting period, assets amounted to
¥1,901.7 billion, a decrease of ¥31.5 billion compared with the end of the previous consolidated fiscal year due to a decline in notes and operating accounts receivable-trade.
Consolidated liabilities amounted to ¥1,391.0 billion, down ¥43.3 billion compared with the end of the previous fiscal year due to a decline in notes and operating accounts payable-trade.
Interest-bearing debt amounted to ¥1,010.8 billion, down ¥39.0 billion from last year.
Under consolidated equity, retained earnings increased by ¥18.8 billion and shareholders’ equity, which is the aggregate of shareholders’ capital and accumulated other comprehensive income, amounted to ¥472.1 billion. This amount combined with the non-controlling interests of ¥38.4 billion brought total equity to ¥510.6 billion.
Based on this result, the debt-to-equity ratio (D/E ratio) came to 2.14, and the equity ratio was 24.8%.
② Cash flow
As of the end of the second quarter of the current consolidated accounting period, cash and cash equivalents amounted to ¥80.7 billion, an increase of ¥3.6 billion from the beginning of the fiscal year.
Cash flow from operating activities through the second quarter of the current accounting period was ¥67.4 billion (compared to ¥47.5 billion recorded during the same period last year) as a result of the profit before income taxes of ¥29.9 billion, non-cash depreciation and amortization of ¥49.3 billion and an outflow of interest expenses paid of ¥9.7 billion.
Cash flow from investing activities was an outflow of ¥22.6 billion (outflow of ¥47.6 billion during the same period last year) due to the acquisition and sale of non-current assets, mainly vessels.
Cash flow from financing activities was an outflow of ¥40.8 billion (outflow of ¥1.3 billion during the same period last year) due to increased repayment of long-term and short-term loans, including loans from multiple commitment lines (total remaining unused balance as of the end of the second quarter was about ¥310.0 billion) for the purpose of securing liquidity.
(3) Explanation of the Consolidated Earnings Forecast and Future Outlook
① Forecast of the Consolidated Financial Results
NYK Line’s forecast of the full-year consolidated financial results is as follows: revenues of ¥1,460.0 billion, operating profit of ¥30.0 billion, recurring profit of ¥70.0 billion and profit attributable to owners of parent of
¥35.0 billion. It is still unclear when the COVID-19 pandemic will come to an end, but based on the performance of each business segment through the second quarter and under the assumption of co- existence with the virus, the following forecast was formulated.
In the Liner Trade, although demand has remained firm recently, future demand and spot freight rates on the major trades are expected to remain uncertain. At the terminals in Japan and overseas, handling volumes will depend on container demand going forward, and the outlook is unclear. In the Air Cargo Transportation segment, international passenger flights are expected to remain suspended and reduced for the time being, and given this, the supply and demand balance is forecast to remain tight. In the Logistics segment, although handling volumes are expected to remain weak in both the air freight forwarding and ocean freight forwarding businesses, purchasing costs in the ocean freight forwarding business continue to be elevated. On the other hand, the market in the air freight forwarding business is expected to remain firm for a while. Also, in the logistics business, handling volumes are forecast to remain strong mainly in Europe and North America. In the car transportation division, handling volumes are expected to fall below the initial forecast. In the dry bulk division, the market is expected to trend in line with the initial forecast, and continued consideration will be given to further structural reforms. In the energy division, although the market situation differs according to each vessel type, the VLCC market is expected to recover to some extent from the recent weak levels. The LPG market should continue to be strong, and LNG carriers are forecast to remain firm based on support from the long-term, stable contracts. In the real estate business, the COVID-19 pandemic will have a limited impact. In the other businesses, the cruise business started operating cruises again from early November.
Based on the above, the forecast of the full-year consolidated financial results has been revised as follows.
② Dividends for the Fiscal Year ending March 31, 2021
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, the planned interim dividend for the current fiscal year of ¥20 per share will be issued. In addition, it is forecasted at this time to issue a year-end dividend of ¥30 per share and an annual dividend of ¥50 per share.
Source: Nippon Yusen Kabushiki Kaisha
