In the global economy during the fiscal year under review, overall, there has been increased vibrancy over the second half of 2016, notably in the U.S. and China. The U.S. economy maintained a trend of expansion, driven by strong personal consumption, which continues to trend on the side of improvement amid firm conditions in employment and income environments. The European economy, underpinned by steadily firm personal consumption continued to show moderate but stable growth. In the Chinese economy, it had been appearing that the trend of slowdown was on pause amid steadily firm personal consumption, but entering 2017, investments in fixed assets began to accelerate, and this and other factors have provided support for it to turn toward recovery since the latter half of the fiscal year. In Japan, economic recovery continued to be stalled but signs have appeared of an upswing in the personal consumption, which has recently been staying at weak levels.
Looking at the maritime shipping market conditions, the dry bulker experienced intensive chartering activities by major shippers in Western Australia and an increase in the volume of coal imports in China, allowing to avoid a record low hit in the fourth quarter of the previous fiscal year. Afterward, although the dry bulker market continued to experience suppression of market rises, from the beginning of autumn, firm iron ore shipments from major ports in Brazil and increased North American grain shipments pushed the market to once again rise and exhibit an overall trend of recovery. With respect to the very large crude oil carrier (VLCC) market, against the background of an excess supply of vessels, the market fluctuated significantly during the fiscal year due to the factors such as fluctuations in seasonal demand and the political situation in oil producing countries in West Africa, and it was firm throughout the fiscal year on average despite being lower than the strong levels of the previous fiscal year. In the containership freight market, although some improvements in the supply and demand environment on Asia-North America, Asia-Europe and Asia-South America routes facilitated a recovery in the spot freight rates, the business environment continued to be difficult overall due mainly to significant falls in the one-year contract freight rates at the beginning of the fiscal year, notably on the Asia-North America routes due to the impact of weak market conditions in the previous fiscal year.
The average exchange rate of Japanese yen against the U.S. dollar during the fiscal year appreciated by ¥ 12.05 year on year to ¥ 108.57. The average bunker price during the fiscal year rose by US$19/MT year on year to US$284/MT.
As a result of the above, we recorded revenue of ¥1,504.3 billion, operating profit of ¥2.5 billion, ordinary profit of ¥25.4 billion and profit attributable to owners of parent of ¥5.2 billion.
(A) Bulkships
In the Capesize bulker market at the beginning of the fiscal year, thanks to intensive vessel chartering by fourth quarter of the previous fiscal year. Despite a subsequent scenario of suppression of market price rises, the market resumed its rise, supported by a shift to favorable market sentiment associated with firm iron ore shipments from major ports in Brazil and rising resource prices from the beginning of autumn onward. After passing through a temporary lull during the New Year holidays, another increase in iron ore shipments and an improvement in FFAs (forward freight agreements) caused the market to rise steeply at the end of February, and near the end of the fiscal year, it rose temporarily above US$20,000 per day for the first time in about 20 months. Consequently, on average for the fiscal year, the market was at the level of US$9,000 per day, which is higher compared with the previous fiscal year. In the markets for Panamax on down, mid- and small-sized vessels at the beginning of the fiscal year, an increase in coal imports in China and other such factors enabled the market to escape a market lull, and from the beginning of Autumn onward, the market rose, driven by an increase of grain shipments from North America. After falling temporarily during the New Year holidays, grain shipments from South America drove the market upward.
Although operating amid conditions of market recovery, the dry bulker division focused on Business Structural Reforms that essentially aim to reduce the fleet of Capesize bulkers under spot operation and fundamentally redesign our business model for the mid- and small-sized vessels. As a result, the division made a significant year-on-year improvement to its ordinary profit/loss, returning back in the black for the fiscal year.
< Tankers/LNG Carriers/Offshore business>
In the very large crude oil carrier (VLCC) market, the supply of new vessels was larger than the previous fiscal year. The market was impacted by a decline in shipments over the summer and a suspension of crude oil shipments from Nigeria due to domestic conflict, causing it to follow a downward trend until about the end of September. From the beginning of autumn, the market rose supported by the resumption of crude oil shipments from Nigeria and increased demand in winter. However, at the beginning of spring, the market has been softening. The average market for the fiscal year was firm, despite being lower than the strong levels of the previous fiscal year. The product tanker market on average throughout the period was weaker than the previous fiscal year in part due to sluggish arbitrage-trading between East and West amid a scenario of weakening trade volumes for vegetable oils, etc., and ongoing deliveries of new vessels, as well as burdensome developments that included diminishing refinery margins brought about by a surplus of petroleum product inventories worldwide. The LPG carrier market also was at a lower level compared with the previous fiscal year on account of factors such as pressures of extra supply arising from new vessel deliveries, and also due to limited arbitrage-trading between East and West brought about by diminishing LPG price variations between regions, as well as a decrease in long-distance trade due to the opening of the new Panama Canal.
Under this business environment, the tanker division concentrated on efforts that were continued from the previous fiscal year to reduce the market exposure and ensure the stable fulfillment of long-term contracts while at the same time working to acquire new contracts such as oil tankers for overseas customers. In addition, although experiencing a significant profit decrease in the previous fiscal year, the tanker division posted a profit for the fiscal year as a result of ceaseless efforts to improve operating efficiency through pool operations and reduce costs.
The LNG carrier division achieved an increase in ordinary profit year on year while continuing to secure stable profits from long-term contracts, in addition to launching newly built vessels, including the world’s first very large ethane carriers. The offshore business also achieved an increase in ordinary profit year on year owing to the smooth operation of FPSO, including the launch of one new unit.
< Car Carriers>
Although the transportation of completed cars to the U.S. and Europe was firm, transportation to resource-producing countries and emerging countries weakened owing to those countries continuing to experience economic slowdown amid low resource prices, etc. Amid this environment, the car carrier division experienced a significant ordinary profit decrease year on year despite taking steps to improve operating efficiency in response to changes in the trade pattern.
(B) Containerships
The spot freight market on Asia-North America routes fell to record low price levels in the first quarter, but from the second quarter onward largely maintained an upward trend amid a scenario where cargo volumes from Asia were at a record-high pace. The spot freight market on Asia-Europe routes followed an upward trend throughout the year, underpinned by firm cargo volumes from Asia, reflective of how it rose again upon entering the winter months due to the strong demand after passing through a brief adjustment phase after climbing until summer. On Asia-South America routes, the spot freight rates have risen remarkably since the first quarter, staying at a high level overall throughout the fiscal year.
On Intra-Asia routes, the spot freight market slumped amid weak cargo volumes. Meanwhile, the considerable decline in one-year contract freight rates at the beginning of the fiscal year, notably on the Asia-North America routes, due to the impact of stagnation in the spot freight rate in the previous fiscal year weighed on the Containership segment throughout the period. Under this business environment, we made efforts to reduce vessel costs through Business Structural Reforms and improve capacity utilization rates through stronger sales capabilities as well as to cut operation costs by continuously reducing the expenses of positioning empty containers through improved yield management. As a result, from the third quarter onward the division’s ordinary loss improved year on year, but ordinary loss for the full year slightly increased year on year.
(C) Ferries and Coastal RoRo Ships
In the ferries and coastal RoRo ships segment, the cargo volume was firm as a result of further accelerated modal shift in long-distance truck transport switching to ferry transportation, which further reflects changes in the trucking labor situation such as shortage and aging of the workforce, and stronger labor controls. Although the Kumamoto Earthquake impacted negatively on some passenger routes, a fall in the bunker price and other factors made it possible for the segment to secure ordinary profit at almost the same level year on year.
(D) Associated Businesses
The cruise ship business achieved a year-on-year increase in ordinary profit as a result of the Nippon Maru enjoying strong passenger numbers. In the real estate business, ordinary profit increased year on year owing mainly to Daibiru Corporation, the core company in the MOL Group’s real estate business, increasing its sales on the back of the firm office leasing market, centered on the Tokyo metropolitan area. Other associated businesses, such as the tugboat and trading businesses, also showed firm performances overall.
Consequently, ordinary profit of the associated businesses segment increased on a year-on-year basis.
(E) Others
Other businesses, which are mainly cost centers, include ship operations, ship management, ship chartering, financing, and shipbuilding. Ordinary profit in this segment decreased year on year.
We anticipate that the world economy will firmly recover in the next fiscal year while its momentum has continued since the second half of the last year. However, we also recognize the need to closely observe risks such as the U.S. and other countries’ moves to accelerate monetary policy faster than anticipated, rise in geopolitical tensions and global risk aversion, and protectionism in developed countries. In the developed countries, vibrancy has been continuing since the latter half of 2016, and the U.S., which is expected to expand fiscal measures, is driving a strong economic recovery that we assume will continue. In the economies of emerging countries, we are currently seeing firm growth continuing in some countries and territories, most notably in India. Amid this environment, we are seeing support for recovery among China, which has been following a moderate pace of economic slowdown and also among the resource exporting countries, most notably Russia, leading us to assume that this trend of economic expansion will be maintained.
The level of the dry bulker market is expected to remain higher than the current fiscal year due to a certain level of the fleet demand on the back of an increase in cargo volumes of iron ore due to firm demand from China, a major Brazilian resource company’s plan to increase production, and an increase in grain shipments from South America, and other factors, while showing a damping effect on growth in fleet supply.
With respect to the very large crude oil carrier (VLCC) market, despite expectations of an increase in long-distance trade from West Africa bound for Asia to supplement slowing crude oil cargo volumes from the Middle East stemming from OPEC production reductions, because the high level of vessel supply seen in 2016 will continue, we are assuming the market will follow a weakening trend. In the product tanker market, because we anticipate the ongoing weakening of the balance between vessel supply and demand due to deliveries of new vessels, we are assuming that the present lack of optimism will continue, although we do expect an increase of demand for petroleum products accompanying economic growth in emerging countries such as India and China, etc., which will make a positive contribution to cargo volumes.
With respect to containerships, we expect the Asia-North America cargo volumes to continue to be firm on the back of the strong U.S. economy. On Asia-Europe routes, we also expect cargo volumes from Asia to be firm as well based on current demand levels. On Asia-South America routes, we are expecting solid trade volumes as a continuation from FY2016 in which the supply and demand environment was significantly improved through various rationalization measures. Under such a business environment, we will work on improving our ordinary profit/loss through such efforts as further streamlining our transportation routes under the new alliance system that launched in April, and cutting operation costs through rigorous yield management practices.
As for bunker prices, we are expecting the price to remain above FY2016 due to the crude oil price remaining at the higher end due to OPEC production reductions.
In consideration of these prospects, for the full year, we project revenue of ¥1,610.0 billion, operating profit of ¥9.0 billion, ordinary profit of ¥22.0 billion and profit attributable to owners of parent of ¥10.0 billion.
Financial Position
Total assets as of March 31, 2017 decreased by 2.0 billion yen compared to the balance as of the end of the previous fiscal year, to 2,217.5 billion yen. This was primarily due to the decrease in Vessels.
Total liabilities as of March 31, 2017 decreased by 38.7 billion yen compared to the balance as of the end of the previous fiscal year, to 1,533.9 billion yen. This was primarily due to the decrease in Short-term bonds.
Total net assets as of March 31, 2017 increased by 36.6 billion yen compared to the balance as of the end of the previous fiscal year, to 683.6 billion yen. This was primarily due to the increase in Deferred gains or losses on hedges.
As a result, shareholders’ equity ratio increased by 1.4% compared to the ratio as of the end of the previous fiscal year, to 25.8%.
Cash Flow
Cash and cash equivalents (hereinafter called “cash”) as of the end of FY2016 was 186.8 billion yen, an increase of 27.3 billion yen compared to the balance as of the end of the previous fiscal year. Cash flows on each activity are as follows.
(1) Cash flows from operating activities
Net cash provided by operating activities during FY2016 was 17.6 billion yen, a decrease of 191.5 billion yen compared to the previous fiscal year.
This was mainly due to Depreciation and amortization (87.1 billion yen). This was partially offset by decrease in Various provisions (20.0 billion yen), Gain on sales of shares of subsidiaries and associates (19.9 billion yen), and Payment for income taxes (8.5 billion yen).
(2) Cash flows from investing activities
Net cash used in investing activities during FY2016 was 73.9 billion yen, an increase of 47.2 billion yen compared to the previous fiscal year.
This was mainly due to Proceeds from sale of vessels and other tangible and intangible fixed assets (71.3 billion yen), and Proceed from sale and redemption of investment securities (27.7 billion yen). This was partially offset by Purchases of vessels and other tangible and intangible fixed assets (143.1 billion yen), and Disbursements for long-term loans receivables (21.3 billion yen).
(3) Cash flows from financing activities
Net cash provided by financing activities during FY2016 was 87.1 billion yen, while net cash used in FY2015 was 148.7 billion yen.
This was mainly due to Proceeds from long-term bank loans (239.0 billion yen) and Proceeds from issuance of bonds (10.0 billion yen). This was partially offset by Repayments of long-term bank loans (119.2 billion yen), and Redemption of bonds (45.0 billion yen).
Basic policy on profit sharing and dividends
Our key management policies are to enhance corporate value with proactive capital investment and to directly return profits to shareholders through dividend. Utilizing our internal capital reserves, we work to reinforce corporate strength and strive to further raise our per-share corporate value. In the coming terms, with a 20% dividend payout ratio as a guideline, we will pay dividends linked with business performance, and we will address the need to increase the ratio as a medium- and long-term management issue.
As for FY2016, while we’ve already paid the interim dividend of ¥2.0 per share, we regrettably intend to suspend year-end dividend, reflecting our operating results and financial position. Accordingly our annual dividends are to be decreased by ¥3.0 per share to ¥2.0 per share for FY2016.
Looking ahead to the dividend for FY2017, we are planning to pay a dividend of ¥2 per share (including an interim dividend of ¥1 per share) on the assumption that we secure the income described in our outlook for FY2017.
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Source: MOL
