Top Message

I would like to sincerely thank all our shareholders and investors for your warm and enduring support. We have announced our consolidated results for the first three quarters ended December 31, 2011, and I would like to take this opportunity to explain them.

General Outline of the Results

The chart and graph below show the overall results for the nine-month period ended December 31, 2011.

Revenue

Recurring Profit

This period was characterized by continued uncertainty over the course of the global economy. Economic stagnation in the U.S., fiscal and financial problems in Europe, and signs of slowing growth in China were the major factors. The business environment surrounding the shipping industry grew increasingly severe due to the dollar/yen exchange rate moving into the 75-80 range since last summer, and continued soaring bunker oil prices. Car carrier and general cargo shipping volumes, which had recovered from the impact of the Great East Japan Earthquake, slumped again from the impact of the Thai floods. Additionally, although containerized freight volumes were firm overall, rates softened as a result of the delivery of large-size container vessels which deteriorated supply-demand balance. The bulk shipping and tanker businesses also continued to slump under the weight of a supply-demand imbalance caused by the delivery of new vessels. As a result of the above, consolidated revenues in the nine-month period declined by ¥130.7 billion from the same period of the previous year. Meanwhile, our efforts to cope with soaring bunker oil prices by operating vessels at reduced speed as well as other rigorous cost-saving measures were insufficient to offset the severe operating environment. Consequently, operating income declined by ¥134.1 billion, recurring profit declined by ¥135.0 billion, and net income declined by ¥88.5 billion compared with the same period of the previous year, which all are significant drop in income and posted a loss.

Gist of Business Environment by Business Category

1. Global Logistics Services (Liner Trade Segment, Terminal and Harbor Transport Segment, Air Cargo Transportation Segment (NCA), and Logistics Segment)
   

   Cargo volumes in the liner trade rose firmly overall compared with the same period of the previous year, despite declines in some areas of the business due to the Great East Japan Earthquake and the Thai floods. Supply-side pressure heightened, however, due to numbers of delivery of large-sized container vessels, and the deteriorating supply-demand balance caused freight rates to soften, particularly on European routes. Consequently, liner trade segment revenues declined significantly, and the business posted a loss. In the terminal and harbor transport segment, containerized cargo handling volumes were on a par with the same period of the previous year, and the segment posted a profit. In the air cargo transportation segment (Nippon Cargo Airlines Co., Ltd.), despite the fact that demand in Japan and other Asian countries slumped from the summer and business results deteriorated compared with the same period of the previous year, the business remained profitable during the period. In the logistics segment, handling volumes declined due to the Great East Japan Earthquake and Thai floods. Despite the lower revenues, recurring profit grew as a result of an improved procurement environment.

2. Bulk Shipping Segment
   

   After summer, the car carrier division saw a recovery in car shipments from the steep decline that followed the Great East Japan Earthquake, when automakers slashed production. However, the Thai floods halted car shipments from Thailand and also affected some car shipments from Japan. In the dry bulk carrier division, the overall market slump continued as a result of the delivery of a large number of tonnage and the adverse effects of higher international commodities prices which led to decline of iron ore and coal shipments to China. The Capesize bulker market regained its footing, however, after September when iron ore prices started to drop. However, the market rates for Panamax and smaller size bulker softened towards the end of 2011 due to lower shipments of coal and steel materials. In the tanker division, the market weakened due to continued delivery of new tonnage and slow progress in scrapping older ones. As a result of the above factors, the bulk shipping segment suffered a significant decline in revenue compared with the same period of the previous year and posted a loss.

3. Other Segments (Cruises, Real Estate, Other Business Services)
   

   In cruises segment, results declined from the same period a year ago. Passenger demand in the Japanese market stalled due mainly to the impact of the Great East Japan Earthquake, while in the U.S. market, the load factor failed to improve due to delayed economic recovery. In the real estate segment, revenues and profit declined due to lower rents and occupancy rates. In other business services, sales volumes increased in both the trading and manufacturing and processing businesses, while profit remained on par with the previous year.

Prospects for Fiscal Year 2011

The earnings forecast for the year ending March 31, 2012 is shown in the chart below.

The severe business environment is expected to continue amid protracted European financial and fiscal issues, the delay in the U.S. economic recovery, continued yen appreciation, and concerns that western-led economic sanctions on Iran will lead to higher bunker oil prices. In the liner trade segment, in response to the deteriorated supply-demand balance caused by the delivery of numbers of large-sized container vessels, we are rationalizing the volume of the fleet through vessel withdrawals and striving to recover freight rates. The impact of this on the current term's results will be limited, however. In the bulk shipping segment, the dry bulk carrier division has experienced a softer market since the start of 2012. Overall, we are working to improve profitability in these seaborne shipping businesses by continuing to operate vessels at reduced speed and rigorously pursuing other cost-cutting measures. The air cargo transportation segment is facing stronger headwinds due to lower demand in Japan and other Asian countries. However, other businesses, including terminal and harbor transport, logistics, cruises, real estate, are largely on track to meet previous forecasts. As a result of the above factors, we have revised down our consolidated earnings forecast for the year ending March 31, 2012.

Dividend Forecast

We plan to pay a year-end dividend of ¥2 per share, consistent with the previous forecast and in accordance with our policy of making continuous dividend payments. The planned annual dividend payment is therefore ¥4 per share, unchanged from the previous forecast.

Once again, I would like to express my sincere appreciation for the continued support of all the shareholders of NYK.