In the third quarter of the fiscal year ending March 31, 2021 (April 1, 2020 to December 31, 2020), consolidated revenues amounted to ¥1,145.9 billion (decreased ¥107.3 billion in the third quarter of the previous fiscal year), operating profit amounted to ¥47.9 billion (increased ¥15.4 billion in the third quarter of the previous fiscal year), recurring profit amounted to ¥122.0 billion (increased ¥83.6 billion in the third quarter of the previous fiscal year), and profit attributable to owners of parent amounted to ¥52.3 billion (increased ¥33.6 billion in the third quarter of the previous fiscal year).
Changes in the average exchange rate between the U.S. dollar and yen as well as the average bunker oil price during the third quarter of the current and previous fiscal years are shown in the following tables.
Overview by Business
Segment Business segment information for the nine months ended December 31, 2020 (April 1, 2020 to December 31, 2020) is as follows.
Liner Trade
In the container shipping division, OCEAN NETWORK EXPRESS PTE. LTD. (ONE) continued the performance from the first half and strong freight rates and utilization were maintained in the third quarter. During the quarter, cargo volumes rapidly increased due to even higher demand for consumer products from stay at home demand and medical supplies. The resulting congestion in the harbors and on land led to a shortage of vessel capacity and empty containers. Following the rapid increase in cargo volumes, both liftings and utilization were higher on the main North America trade year on year. In the Europe trade, although liftings were lower compared to the same period last year, utilization was high. In regard to freight rates, the soaring spot market led to greatly higher freight rates on both trades compared to the same period last year, resulting in a large increase in profit. At the terminals in Japan and overseas, although handling volumes tended to recover in the third quarter, they were lower at the company’s terminals in North America and Asia compared to last year, resulting in lower profit year on year. As a result of the above, 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 continued impact of the COVID-19 pandemic resulted in a limited return of international passenger flights. On the other hand, from the middle of the third quarter through the peak season, cargo volumes of mainly automotive components, semiconductors and electronic devices recovered, and in addition, some ocean cargo was shifted to air cargo due to the containership congestion. This tightened the supply and demand balance for air freight space, and freight rates remained high. As a result of the above, revenue significantly increased compared to the same period last year and profit was recorded.
Logistics
In the air freight forwarding business, due to the demand for chartered flights caused by the lack of available space and the cargo shifted from ocean freight, handling volumes recovered to the same level as last year. Also, freight rate levels remained firm as a result of promotion of agile marketing. In the ocean freight forwarding business, despite soaring procurement costs, robust cargo volumes led to a recovery in handling volumes on both the North America and Asia routes. In the logistics business, as a result of higher stay at home demand caused by the COVID-19 pandemic, cargo volumes increased mainly in e-commerce related business, and marked solid performance. In the coastal transportation business, the cancellation of sailings due to bad weather pressured the bottom line, and both the handling volumes and revenue declined. As a result of the above, profit increased on higher revenue in the overall Logistics segment compared the same period last year.
Bulk Shipping
In the car transportation division, cargo volumes declined through the second quarter due to the impact of the COVID-19 pandemic. However, marine transportation demand rapidly recovered in the third quarter, and there were even localized shortages of vessel capacity. In the auto logistics segment, as well, although there were regional variations in the supply and demand balance, efforts were made to cut costs and rationalize the business in countries including China, Russia and India, and at the same time, 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, although cargo volumes of iron ore and soybeans were strong to China, one of the first countries to restart economic activities, 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. In June, the Capesize market eventually recovered rapidly and temporarily declined afterwards. Although it rose again in October, the high market level did not last and went weak towards the end of the year. In regard to the Panamax, cargo volumes of soybeans to China from the United States were strong from early autumn last year, but the market remained below the levels seen in the same period of the previous year. Under this environment, efforts were made to stabilize the bottom line by continuing to work to secure long-term contracts and reduce costs through efficient operations. Also, similar to the second quarter, an extraordinary loss (provision for losses related to contracts) was recorded in the third quarter for expenses forecasted to arise onwards by conducting structural reforms. 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, it was strong from July following a decline in capacity supply due to an increase in dry docking period and waiting days at discharging ports, as well as increased ton-miles and congestion at the Panama Canal following more active shipments from North America. 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 and project schedule delays 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 also weak compared to last year. In the cruise business, although cruises commenced again from last November, the occupancy rate was lower in the third quarter year on year.
As a result of the above, profit declined on lower revenue in the Other Business Services segment compared to the same period last year.
(2) Explanation of the Financial Position Status of Assets, Liabilities and Equity As of the end of the third quarter of the current consolidated accounting period, assets amounted to ¥1,960.5 billion, an increase of ¥27.2 billion compared with the end of the previous consolidated fiscal year. Interest-bearing debt amounted to ¥986.0 billion, down ¥63.8 billion from last year, as a result of decline in bonds payable and long-term loans payable. Due to this decrease in interest-bearing debt, although provision for losses related to contracts increased, consolidated liabilities amounted to ¥1,420.0 billion, down ¥14.3 billion compared with the end of the previous fiscal year. Under consolidated equity, retained earnings increased by ¥46.0 billion and shareholders’ equity, which is the aggregate of shareholders’ capital and accumulated other comprehensive income, amounted to ¥500.5 billion. This amount combined with the non-controlling interests of ¥40.0 billion brought total equity to ¥540.5 billion. Based on this result, the debt-to-equity ratio (D/E ratio) came to 1.97, and the equity ratio was 25.5%.
(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 ¥1,540.0 billion, operating profit of ¥57.0 billion, recurring profit of ¥160.0 billion and profit attributable to owners of parent of ¥90.0 billion. It is still unclear when the COVID-19 pandemic will come to an end, but based on the performance through the third quarter and after taking into account the measures to prevent infections and economic policy trends in each country, as well as the other current characteristics of each business segment, the following forecast was formulated.
In the Liner Trade, although there is the potential for weaker cargo volumes at ONE due to the increased COVID-19 infections and seasonal factors such as Chinese New Year, cargo volumes are expected to remain firm. At the terminals in Japan and overseas, handling volumes are expected to recover mainly in North America. In the Air Cargo Transportation segment, international passenger flights are expected to remain suspended and reduced for the time being, and after a period of weakness caused by Chinese New Year, cargo volumes are forecast to recover again in March. In the Logistics segment, although handling volumes will remain below the levels last year in both the ocean and air freight forwarding businesses, procurement costs are expected to remain high in the ocean freight forwarding business and the market is forecast to remain strong for a while in the air freight forwarding business. In the logistics business, handling volumes are expected to be strong mainly in Europe and North America. In the car transportation division, handling volumes to North America are expected to recover, and by closely watching the impact of the third wave of COVID-19 infections, efforts will be made to implement agile and rational vessel deployment. In the dry bulk division, although the Capesize market started the year off strong, each segment is expected to enter the seasonally slow period. In the energy division, although the market situation differs according to each vessel type, the VLCC (Very Large Crude Carrier) market is expected to remain at the current weak levels, LPG carrier market should continue to be strong, and LNG carriers are forecast to remain firm based on support from the long-term stable contracts. Similarly, the offshore segment, which is primarily operated based on long-term stable contracts, is also forecast to be firm. However, the bottom line is expected to deteriorate following the renewal of the drill ship contracts. In the real estate business, the COVID-19 pandemic will have a limited impact. In the cruise business, in addition to the Asuka II dry docking in January, all cruises were cancelled until February 20 following the declaration of a state of emergency. Moreover, in relation to the transfer of trust beneficial right of fixed assets (real estate) of the subsidiary company, record of an extraordinary income is expected. Based on the above, the forecast of the full-year consolidated financial results has been revised as follows.
Source: Nippon Yusen Kabushiki Kaisha (NYK Line)
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