NYK Group announces higher fiscal revenue for the first quarter of 2015 fiscal year

Nippon Yusen Kabushiki Kaisha (NYK Line) announces the following statement of accounts
for the period from April 1 to June 30, 2014.

1. Review of Operating Results and Financial Position
(1) Review of Operating Results
In the first three months of the fiscal year ending March 31, 2015 (April 1, 2014- June 30, 2014), consolidated revenues totaled ¥582.3 billion (compared with ¥ 528.4 billion in the same period of the previous year), operating income totaled ¥11.5 billion (compared with ¥ 6.7 billion), recurring profit totaled ¥12.0 billion (compared with ¥11.4 billion), and net income totaled ¥10.2 billion (compared with ¥8.5 billion).

Overview
In the first three months of the fiscal year, the U.S. continued to demonstrate
steady economic recovery amid high stock prices. Although Europe began to recover from its economic slowdown with the bottoming-out of internal demand, the region failed to demonstrate a full-fledged recovery. In Japan, despite a temporary economic contraction after the consumption tax increase, exports rose in tandem with the robust U.S. economic growth and other factors helped to underpin economic sentiment. While other Asian economies were generally robust, concern over economic slowdown in China remained. The yen gradually appreciated during the period due to the military takeover in Thailand in May and political instability in Iraq in June. Bunker fuel oil prices, meanwhile, temporarily rose due to supply concerns before stabilizing later in the period.

The environment surrounding the shipping industry remained severe due to the continued slump in freight rates caused by an excess supply of vessels. In response, the NYK Group strove to further reduce fleet and operational expenses by rationalizing the fleet assignments and reducing fuel costs. In the non-shipping businesses, signs of arebound in Japan- originated airfreight volume emerged in the air cargo transportation and logistics businesses. The cruises business was robust during the period.

As a result of the above, consolidated revenues for the period increased by ¥53.9 billion (an increase of 10.2%) compared with the same period of the previous fiscal year. Operating income increased by ¥4.8 billion year on year (an increase of 71.4%) while recurring profit increased ¥0.5 billion year on year (an increase of 4.7%). Net income improved by ¥1.6 billion year on year (an increase of 19.3%).

Liner Trade
In the container shipping division, although cargo volumes rose overall, freight rates declined due to the delivery and deployment of ultra large container ships, mainly on European routes, which caused older large vessels to be shifted to other routes and worsen the supply-demand balance. In regard to services, the G6 Alliance achieved further consolidation and enhancement of the services network by expanding the alliance to North America West Coast routes and Transatlantic routes. In regard to costs, NYK Line strove to maintain a low-cost fleet in terms of ship deployment and operational costs by returning unprofitable vessels, utilizing short-term charters, and deploying highly fuel-efficient vessels.

Thorough measures were also taken to efficiently assign vessels and prevent unnecessary costs.
These included assigning vessels to match the attributes of each type of service and effectively utilizing surplus vessels and charters to reduce schedule delays. Additionally, efforts were made to further reduce costs and raise gross profit by expanding EAGLE (yield management program to reduce costs and maximize profit through efficient container operations) from North America to European and Latin American routes. In the terminal business, total handling volumes in and outside Japan increased year on year.

As a result of the above, the liner trade segment increased revenues year on year and reduced its recurring loss.

Logistics
In the airfreight forwarding business, after bottoming out in the third quarter of the previous year, cargo handling volumes increased year on year, mainly due to a rebound in Japan-originated shipments. In the ocean freight forwarding business were firm overall. The logistics business slumped in Europe and North America but remained robust in South Asia. The Japan-South Korea cargo business, domestic coastal transport business, and domestic
warehousing business were all robust.

As a result of the above, the logistics segment posted increases in revenues and pr
ofit compared with the same period of the previous fiscal year.

Bulk Shipping
Car Transport
Division *
Finished automobiles shipments increased year on year as a result of continued high demand for Japan-originated shipments to growing car markets in North America, Asia, and other regions, as well as robust trilateral trade. NYK Line bolstered its car carrier fleet and enhanced environmental consciousness by taking delivery of one new carrier featuring cutting-edge energy-efficiency technologies. In the auto logistics business, NYK Line actively expanded operations to meet rising demand, including making an investment in an automobile logistics company in Mexico, where both the export market and internal demand are increasing.

Dry Bulk
Division *
Although iron ore cargo volumes to China increased year on year, Chinese imports of coal remained flat, while Indonesian coal exports plunged due to restrictions on exports of unprocessed ore. Transatlantic coals shipments also declined. Although deliveries of new carriers declined during the period, little progress was made in scrapping older carriers and the supply- demand imbalance failed to improve. Capesize market improved compared to the previous year, but overall the rates for medium-and small- sized bulk carriers declined, particularly Panamax market for Transatlantic routes. In response to these conditions, the NYK Group strove to increase long-term contracts unaffected by short-term market fluctuations. The Group also took measures to reduce costs, including the implementation of slow-steaming throughout the fleet. Other profit-improvement measures included the reduction of ballast voyages by combining cargoes and efficiently assigning carriers.

Liquid Division
*Seaborne cargo volumes were flat overall compared with the previous year. While oil demand in China and emerging countries increased, demand weakened in developed countries and high crude oil prices also under cut demand.
Although deliveries of new VLCC declined during the period, little progress was made in scrapping older vessels and the supply-demand imbalance failed to improve, VLCC rates remained flat.

In the petroleum products market, naphtha demand in Asia slumped, while gas oil shipments to Europe increased slightly on rebounding demand. In the LPG market, demand continued to surge due to the high crude oil prices, and LPG tanker rates in April reached a record high. The LNG business continued to perform well, underpinned by stable long-term contracts. In the offshore business, the shuttle tanker and floating production, storage and offloading (FPSO) businesses continued to perform well.

As a result of the above, the bulk shipping segment posted lower profit on higher revenues compared with the same period of the previous fiscal year.

(2) Review of Change in Financial Position Assets, Liabilities, and Equity Consolidated assets totaled ¥2,494.6 billion at the end of the first quarter (June 30, 2014), a decline of ¥56.6 billion compared with the end of the previous fiscal year (March 31, 2014) due mainly to declines in cash and deposits and investment securities. Consolidated liabilities totaled ¥1,718.1billion, a decline of ¥59.2 billion from the end of the previous fiscal year. In consolidated equity , retained earnings increased ¥4.9 billion from the end of the previous fiscal year. Shareholders’ equity—the aggregate of shareholders’ capital of ¥730.9 billion and accumulated other comprehensive income—amounted to ¥723.4 billion, and adding minority interests of ¥53.0 billion, the consolidated equity amounted to ¥776.4 billion. As a result, the debt-equity ratio was 1.68.

Regarding the forecast of this fiscal year , although the business environment surrounding the container shipping business is expected to remain severe, we will strive to increase the freight rate by catching the seasonal increase in cargo volume which is expected over the summer. In the dry bulk business, although shipping market is expected to improve from summer , we see continued downturn by oversupply for some types of bulkers ,and we revised the assumption of shipping markets accordingly.

On the other hand, Car transportation division, LNG and offshore businesses are expected to remain robust.
In the air cargo transportation business, profitability is expected to remain pressured. The logistics and cruises businesses are expected to remain stable.

The forecast for the first six months and full year of this fiscal year are as follows.

Dividends for the Fiscal Year ending March 31, 2015
NYK Line regards returning profits to shareholders to be one of its top management priorities. The Company determines the amounts of its dividend distributions in light of its earnings forecasts and various other considerations, with a consolidated payout ratio target of 25%.
For the fiscal year ending March 31, 2015, NYK Line plans to pay a ¥2 per share interim payment and a ¥ 3 per share year-end payment, totaling ¥5 per share for the full year.
Source: NYK Line