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Management Message

I would like to take this opportunity to thank all NYK Line shareholders and investors for their enduring support. Yasumi Kudo, President

On behalf of the NYK Group, I would like to express my sincerest gratitude to all of the Company's shareholders and investors for their understanding and support. I am pleased to have this opportunity to report on NYK Line's consolidated financial results for the second quarter of the fiscal year ending March 31, 2018.

During the first half of the fiscal year, consolidated financial results improved compared with the same period of the previous fiscal year, with both revenues and profits increasing. Specifically, NYK Line posted ¥1,064.2 billion in revenues, ¥12.7 billion in operating income, ¥22.0 billion in recurring profit, and ¥6.2 billion in profit attributable to owners of parent. Since it recorded a substantial decrease in shareholders' capital in the previous fiscal year, NYK Line will not pay an interim dividend, for which we sincerely apologize to the Company's shareholders and investors. Our forecast of financial results for the full fiscal year includes recurring profit of ¥35.0 billion and profit attributable to owners of parent amounting to ¥11.0 billion. The payment of a fiscal year-end dividend has yet to be decided, but management will make a decision after carefully examining market conditions and financial results in the second half of the fiscal year, and determining whether internal reserves have reached a sufficient level for responding to market changes.

The maritime shipping market has been gradually recovering since undergoing an unprecedented slump and then bottoming out. In the container shipping market, shipping traffic was brisk along transpacific routes, but not enough to compensate for an increase in total shipping capacity for trades overall following the reorganization of alliances and commissioning of extra vessels by some shipping companies. Consequently, the upswing in spot freight rates largely came to a standstill. Meanwhile, robust demand for freight shipments along European shipping routes supported favorable conditions in the market. In the dry bulk shipping market, although excess tonnage has yet to be fully cancelled out, market conditions improved owing to steady shipping traffic and the impact of increased imports of iron ore to China.

On July 7, 2017, Ocean Network Express Holdings, Ltd., and Ocean Network Express Pte. Ltd., were jointly established as a holding company and operating company by NYK Line, Kawasaki Kisen Kaisha, Ltd., and Mitsui OSK Lines Ltd., in connection with the integration of their respective container shipping businesses (including terminals operated outside Japan), which was announced in October 2016. The business integration has been proceeding smoothly, and the three parent companies are now working together to prepare for the commencement of services in April 2018.

Due to rapid shifts in our operating environment, we have decided to terminate the profit and financial targets we set in October 2016 for the final year of our five-year medium-term management plan, More than Shipping 2018—Stage 2: Leveraged by Creative Solutions, which commenced in fiscal 2014. We are now in the process of formulating a new medium-term management plan to commence in April of next year. Our goals are to develop sustainably and increase corporate value over the medium and long terms by implementing priority measures for strengthening the Company's financial footing while putting conditions in place for securing stable earnings so it can get back on the growth track. To build a solid foundation for making the next leap forward, we are carrying out group-wide operational reforms that place importance on capital efficiency, with a desire to launch the new medium-term management plan with a clear vision of future prospects.

In addition, we have been working in earnest to enhance the Company's corporate governance. In the previous fiscal year, we introduced a performance-based stock remuneration plan for directors and corporate officers, and established the Nomination Advisory Committee and Compensation Advisory Committee. We have also been making efforts to improve the efficacy of the Board of Directors. For instance, directors have completed self-assessment questionnaires concerning the board's efficacy, and relevant issues for discussion have been identified based on the results.

Looking ahead, the NYK Group intends to work in unison to revive financial results so that it can continue being a corporate group that all stakeholders can depend on in the future.

As we undertake these endeavors, we sincerely hope for the ongoing support and understanding of the Company's shareholders and investors going forward.

Financial Results Overview

Please see the below chart and graph for our year to date first quarter results ending July 31, 2017.

(Billion yen)
 
FY 2016 2Q
FY 2017 2Q
Change
Revenues
928.5
1,064.2
135.6
Operating Income
-22.4
12.7
35.2
Recurring Profit
-23.6
22.0
45.6
Net Income
-231.8
6.2
238.1
Average Exchange Rate
¥107.31/US$
¥111.20/US$
¥3.89/Yen Down
Average Bunker Oil Price
US$215.67/MT
US$321.52/MT
US$105.85 Up

(Note)Figures are rounded down to the nearest 100 million yen.

Revenue

Revenue

Recurring Profit

Recurring Profit

Earnings Forecast for the Fiscal Year 2017

Although demand in the container shipping market is projected to decline in the second half, which is the slack season, shipping traffic is expected to remain stable for both transpacific and European shipping routes. The dry bulk shipping market is forecast to continue recovering moderately, supported by brisk shipping traffic. The liquid transport market is forecast to recover from the third quarter of the fiscal year when it enters a period of demand for shipments by tankers, and the Company expects to continue securing stable profits from its LNG tanker and offshore businesses. In the automobile transport market, NYK Line will take advantage of strong demand for shipments originating from Japan and mainly bound for Europe and North America, while working to boost profitability and optimize shipping efficiency. Among the Group's non-shipping businesses, in the Logistics segment, gross profit has been sluggish but is forecast to gradually improve.

(Billion yen)
 
FY2016(Result)
FY2017(Forecast)
Change
Fiscal Year
ending
March 31,
2018
Revenues
2,112.0
2,153.0
41.0
Operating Income
21.5
33.0
11.5
Recurring Profit
23.0
35.0
12.0
Net Income attributable
to owners
of the parent company
5.0
11.0
6.0
Average Exchange Rate
¥110.37/US$
¥110.60/US$
¥0.23/US$
Average Bunker Oil Price
US$336.68/MT
US$335.76/MT
US$-0.92/MT

(Note)Figures are rounded down to the nearest 100 million yen.

Dividends for the Fiscal Year ending March 31, 2018

While the management of NYK Line regards the stable return of profits to shareholders as one of its most important priorities, it has decided not to pay an interim dividend since the Company recorded a substantial decrease in shareholders' capital in the previous fiscal year. The payment of a fiscal year-end dividend has yet to be decided, but management will make a decision after carefully examining market conditions and financial results in the second half of the fiscal year, and determining whether internal reserves have reached a sufficient level for responding to market changes.

October 31, 2017
Tadaaki Naito
President
Tadaaki Naito President