In the first nine months of the fiscal year ending March 31, 2023 (April 1, 2022 to December 31, 2022), consolidated revenues amounted to ¥2,050.1 billion (increased by ¥374.2 billion compared to the first nine months of the previous fiscal year), operating profit amounted to ¥249.4 billion (increased by ¥51.4 billion), recurring profit amounted to ¥1,005.9 billion (increased by ¥307.6 billion), profit attributable to owners of parent amounted to ¥920.3 billion (increased by ¥228.1 billion).
Due to the strong performance of OCEAN NETWORK EXPRESS PTE. LTD. (ONE), our equity-method affiliate, equity in earnings of unconsolidated subsidiaries and affiliates of ¥745.1 billion in non-operating income was recorded. Within this amount, equity in earnings of affiliates from ONE was ¥711.3 billion.
Changes in the average exchange rate between the U.S. dollar and yen as well as the average bunker oil price during the first nine months 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, 2022 (April 1, 2022 to December 31, 2022) is as follows.
Liner Trade
In the container shipping division, while transportation demand continued to noticeably slow due to multiple factors including inflation and high consumer goods inventories in consumer markets mainly in Europe and the United States, the supply of space increased following the alleviation of port congestion at most ports around the world, and as a result, spot freight rates fell. ONE was affected by lower freight rates and cargo volumes during the most recent quarter, but the strong performance during the first half enabled the financial results to exceed the same period last year. In the major North America and Europe trades, although liftings and utilization have fallen year over year, the average freight rates including the first half exceeded the same period last year on both trades. In response to the weaker cargo volumes, ONE is deploying its ships based on the demand situation, including blank sailings, and working to cut costs.
At the terminals in Japan, handling volumes declined slightly compared to the same period last year due in part to continued delays in the containership voyage schedules. At the overseas terminals, handling volumes declined compared to the same period last year due to the sale of several terminals in North America. However, ancillary income from container demurrage increased at several terminals and contributed to the bottom line.
As a result of the above, profit increased on higher revenue in the overall Liner Trade Business compared to the same period last year.
Air Cargo Transportation
In the Air Cargo Transportation Business, due to the continued global economic slowdown and weaker demand for shifting some of the maritime cargo to air freight, the peak demand that usually occurs during the fall period did not materialize, and handling volumes declined compared to the same period last year. Although freight rates continued to trend at levels exceeding the same period last year, costs including fuel expenses increased.
As a result of the above, revenue increased in the overall Air Cargo Transportation Business compared to the same period last year, and a profit on par with the last year was recorded.
Logistics
In the air freight forwarding business, due to weaker cargo volumes, the busy season that usually occurs in the third quarter did not materialize, and both handling volumes and profit levels fell compared to the same period last year.
In the ocean freight forwarding business, although handling volumes fell compared to the same period last year, it was possible to secure a certain level of profit through efforts to conduct agile marketing and increase sales of ancillary services such as custom clearance despite the slackening in the supply-and- demand balance.
In the contract logistics business, efforts were made to revise the service prices in line with the soaring labor and energy costs in Europe and the United States, and the continued firm demand for general consumer goods drove the overall performance and made it possible to achieve strong financial results. In the coastal transportation business, it was possible to secure a certain level of profit due in part to increased handling volumes.
As a result of the above, profit increased on higher revenue in the overall Logistics Business compared to the same period last year.
Bulk Shipping
In the automotive transportation division, the impact of the global semiconductor shortage and COVID-19 on automobile production volumes is gradually receding, and transportation volumes increased compared to the same period last year. Although schedule disruptions occurred on some voyages due to port congestion and rough weather at sea, vessel utilization increased as a result of optimized vessel deployment plans and vessel operations, and the business flexibly responded to customer requests. In the auto logistics business, following the partial recovery in finished car volumes, handling volumes increased compared to the same period last year particularly in Europe and Southeast Asia. The business companies in each country further invested in acquiring new business and worked to increase profitability.
In the dry bulk business division, although the Capesize market rose to unseasonably high levels from the end of April, it subsequently fell to weak levels for the remainder of the first half. The market rebound in October lacked strength, and although it rebounded again following last-minute demand for the transportation of iron ore heading into the end of the year, the market trended at levels greatly below the same period last year. In the Panamax segment, markets remained at levels exceeding the previous year until May, but they declined thereafter in line with the deterioration in the Capesize market. Although the markets started to recover from September as shipments of harvested grain commenced from the United States, weakness in the Capesize market continued to weigh on the markets, and they trended at levels below the same period last year. The Handymax and Handy segments mirrored the Panamax segment and also trended at levels below the same period last year. Although markets were lower than the same period last year for all vessel segments, transportation contracts made from opportunistic efforts under the favorable market helped to achieve the results. Also, within this business environment, continued efforts were made to stabilize revenue by securing long-term contracts and reduce costs through efficient operations.
In the energy business division, VLCC (Very Large Crude Carrier) strongly rebounded off the low first quarter market levels in July, and from mid-August, shipments of oil became more active particularly from the United States and Middle East to Europe and Asia. As a result, the market quickly recovered and then rose sharply in late November. Thereafter, concerns about a global economic recession and continued cuts to oil production caused shipment volumes to slacken. Although the market fell as a result, it trended at levels greatly exceeding the same period last year. In the petrochemical tanker market, due to the situation in Russia and Ukraine, the origin of shipments bound for Europe shifted from Russia to the United States, Middle East and India, resulting in longer sailing distances. This caused supply-and-demand conditions to tighten, and markets trended at levels greatly exceeding the same period last year. In the VLGC (Very Large LPG Carrier) segment, markets trended at levels exceeding the previous year on support from increased long-distance shipments from the United States to China, India and Asia, as well as firm shipments from the Middle East and congestion at the destination and Panama Canal heading into the end of the year. In the LNG carrier segment, 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), drill ships and shuttle tankers performed generally as expected.
As a result of the above, profit increased on higher revenue in the overall Bulk Shipping Business compared to the same period last year.
Also, in the energy business division, an extraordinary loss was recorded in relation to LNG transportation involving projects such as the Sakhalin 2 project in response to the situation in Russia and Ukraine.
Real Estate and Other Businesses
In the Real Estate Business, profit decreased on lower revenue compared to the same period last year following the partial transfer of shares of a subsidiary in the last fiscal year.
In Other Business Services, the bunker fuel sales business was strong, and the marine equipment supplies sales business was firm. In the cruise business, cruises resumed in mid-June, and although they were suspended following the occurrence of a COVID-19 infection involving a crew member, operations resumed from mid-September. During the third quarter, the cruise ship entered the dock for about two weeks to repair the ship’s electrical equipment.
As a result of the above, revenue increased in Other Business Services compared to the same period last year, and a profit was recorded.
(2) Explanation of the Financial Position Status of Assets, Liabilities and Equity
As of the end of the third quarter of the current consolidated fiscal year, assets amounted to ¥3,754.6 billion, an increase of ¥674.6 billion compared to the end of the previous consolidated fiscal year due to factors including an increase in tangible non-current assets, mainly vessels, and an increase in investment securities after recording the profit from ONE and other equity method affiliates. Interest bearing debt decreased by ¥79.5 billion to ¥728.7 billion due to factors including a decrease in short-term loans payable, and total liabilities amounted to ¥1,312.8 billion, a decrease of ¥8.0 billion compared to the end of the previous consolidated fiscal year. Under consolidated equity, retained earnings increased by ¥530.8 billion and shareholders’ equity, which is the aggregate of shareholders’ capital and accumulated other comprehensive income, amounted to ¥2,396.9 billion. This amount combined with the non-controlling interests of ¥44.8 billion brought total equity to ¥2,441.7 billion. Based on this result, the debt-to-equity ratio (D/E ratio) came to 0.30, and the equity ratio was 63.8%.
(3)Explanation of the Consolidated Earnings Forecast and Future Outlook
① Forecast of the Consolidated Financial Results
In the Liner Trade Business, although it will take some time for demand to recover and spot freight rates to improve in the container shipping division and profit levels are forecast to decline in the fourth quarter, full-year profits are expected to remain at high levels.
At the terminals in Japan, handling volumes are expected to remain firm. At the overseas terminals, with priority to transferring the terminals on the west coast of North America to ONE, it is planned to then successively transfer the terminals in the other regions.
In the Air Cargo Transportation Business, although the forecast has been revised down due to weaker demand and falling freight rates, full-year profits are expected to remain at high levels.
In the Logistics Business, although demand has weakened in both the air freight forwarding business and ocean freight forwarding business, full-year profits are expected to remain at high levels. Also, in the contract logistics business, although soaring personnel expenses and other costs will have an impact, continued efforts will be made to stabilize earnings through cost cutting measures and revisions to the service contracts, including price adjustments.
In the Bulk Shipping Business, the impact in the automotive transportation division of the semiconductor and automotive component shortages on production volumes is gradually receding. Recently, transportation demand has been strong, and full-year transportation volumes are forecast to grow year on year.
In the dry bulk business division, although the market levels for all vessel segments are expected to trend below last year, efforts will be made to minimize the impact of market volatility through the use of futures contracts and securing transportation contracts when the markets are high.
In the energy business division, the VLCC market is expected to recover from the low levels in the first quarter, and the VLGC market is forecast to remain firm. Also, profits in LNG carriers and the offshore business are expected to remain firm on support from the stable medium to long-term contracts.
Based on the above, the forecast of the full-year consolidated financial results has been revised as follows.
Assumptions for the forecast of consolidated financial results:
Foreign Exchange Rate (for the fourth quarter) ¥130.00/US$ (for the full year) ¥134.28/US$ Bunker Oil Price* (for the fourth quarter) US$660.00/MT (for the full year) US$767.24/MT
*Bunker oil price is on average basis for all the major fuel grades including VLSFO.
Source: Hellenic Shipping News
