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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 first quarter of the fiscal year ending March 31, 2018.

In the three-month period of the fiscal year underway, the performance of the NYK Line Group improved overall compared with the same period of the previous fiscal year. Consolidated revenues grew ¥50.9 billion to ¥521.7 billion, while operating income increased ¥14.5 billion to ¥3.5 billion, recurring profit rose ¥20.2 billion to ¥10.2 billion, and profit attributable to owners of parent jumped ¥18.1 billion to ¥5.3 billion year on year.

Looking back on the operating environment during the first quarter, the maritime shipping market began recovering gradually from an unprecedented slump in the previous year. In the container shipping market, while shipping alliances were reorganized and total shipping capacity increased, spot freight rates were mostly favorable, buttressed by brisk shipping traffic. Shipping traffic was also brisk in the dry bulk shipping market, however, since the scrapping of old ships was slow and new vessels were constructed, excess tonnage was not eliminated and the market recovered only moderately. Among the Group's non-shipping businesses, the Logistics business faced a sluggish market due to persistently high cost prices; however, the Air Cargo Transportation segment benefited from busy shipping traffic overall.

As we recently announced, NYK Line, Kawasaki Kisen Kaisha, Ltd., and Mitsui O.S.K. Lines, Ltd. have jointly established new companies to integrate their respective container shipping businesses (including terminals operated outside Japan), and set up a related management organization. Preparations for integrating the businesses are underway, and the new operating company, OCEAN NETWORK EXPRESS PTE. LTD., is scheduled to begin offering services in April 2018. This new company will aim to provide high-quality, competitive services by generating synergies derived from the best practices of each of the three parent companies, combining the shipping fleets of their integrated operations to expand the total shipping capacity to about 1.4 million TEUs, and implementing advanced yield management.

In the Group's other businesses, we intend to make all-out efforts to raise corporate value and differentiate services so that we can stay ahead of our rivals, while adhering to the basic strategies of our management plan, More than Shipping 2018—Stage 2: Leveraged by Creative Solutions.

We expect the maritime shipping market to continue gradually recovering in the fiscal year underway. Taking that outlook into account, management revised its forecast of consolidated financial results for the full fiscal year, initially published in April 2017. At present, our forecast is for ¥2,112.0 billion in revenues, ¥21.5 billion in operating income, ¥23.0 billion in recurring profit, and ¥5.0 billion in profit attributable to owners of parent. Regrettably, our outlook regarding dividends has not changed, so there is no plan for the payment of an interim dividend this fiscal year. At the present time, we have not made a decision regarding the payment of a year-end dividend. We will make a final decision after giving full consideration to the need to maintain a sufficient amount of internal reserves for dealing with market changes.

In the recent past, the activities of NYK Line's automobile maritime shipping operations were found to be in violation of Japan's Antimonopoly Act. On behalf of the Company's management, I would like to take this opportunity to sincerely apologize once again to shareholders and investors for raising concerns and unease regarding this issue. In response to the violations, we have been making all-out efforts to prevent a recurrence and ensure full legal compliance so that the Group's businesses operate according to fair market principles. Accordingly, we have been stepping up and enhancing various measures, such as holding executive meetings for confirming that business activities are fully compliant with antitrust and other relevant laws, setting up and maintaining a regulatory network made up of various divisions of the Company along with group companies in Japan and around the world, and carrying out risk assessments on a regular basis.

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 1Q
FY 2017 1Q
Change
Revenues
470.7
521.7
50.9
Operating Income
-10.9
3.5
14.5
Recurring Profit
-9.9
10.2
20.2
Net Income
-12.7
5.3
18.1
Average Exchange Rate
¥111.12/US$
¥111.48/US$
¥0.36/Yen Down
Average Bunker Oil Price
US$192.62/MT
US$326.72/MT
US$134.10 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

In the fiscal year ending March 31, 2018, the management of NYK Line expects freight rates to remain stable in the container shipping market, supported by ongoing brisk shipping traffic. It also expects favorable freight rates in the air cargo transportation market to continue owing to strong demand for freight shipments. The dry bulk shipping market is currently undergoing a period of adjustment, but market conditions are projected to pick up steadily from the summer. Meanwhile, the liquid transport market is forecasted to recover from the third quarter of the fiscal year under review 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, although shipping traffic to emerging and resource-rich countries has been slow to recover, automobile shipments for trilateral transport business is brisk and NYK Line will work to boost profitability and optimize shipping efficiency.

(Billion yen)
 
FY2016(Result)
FY2017(Forecast)
Change
2Q
Revenues
1000.0
1053.0
53.0
Operating Income
11.5
8.5
-3.0
Recurring Profit
14.0
14.5
0.5
Net Income attributable
to owners
of the parent company
4.0
1.0
-3.0
Fiscal Year
ending
March 31,
2017
Revenues
2008.0
2112.0
104.0
Operating Income
24.5
21.5
-3.0
Recurring Profit
23.0
23.0
0.0
Net Income attributable
to owners
of the parent company
5.0
5.0
0.0
Average Exchange Rate
¥108/US$
¥110.37/US$
¥2.37/US$
Average Bunker Oil Price
US$340.00/MT
US$336.68/MT
US$-3.32/MT

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

Dividends for the Fiscal Year ending March 31, 2018

The management of NYK Line regards the stable return of profits to shareholders as one of the most important priorities of management. At the present time, however, having given full consideration to its forecast of financial results, the level of internal reserves needed for dealing with market changes, and other factors, management plans not to pay an interim dividend and has yet to decide on the payment of a fiscal year-end dividend for the fiscal year ending March 31, 2018.

July 31, 2017
Tadaaki Naito
President
Tadaaki Naito President