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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 fiscal year ended March 31, 2017.

In the fiscal year under review, NYK Line posted consolidated revenues of ¥1,923.8 billion, an operating loss of ¥18.0 billion, and recurring profit of ¥1.0 billion. It also recorded a loss attributable to owners of the parent of ¥265.7 billion. Due to these results, I regret to say that management has decided not to pay a year-end dividend, for which I offer my sincere apologies to the Company's shareholders.

Looking back on our operating environment during the fiscal year under review, the maritime shipping market slumped at historically low levels, which greatly affected the NYK Group's performance. In the container shipping market, excess capacity kept freight rates at low levels. In the dry bulk shipping market, although the gap between supply and demand narrowed due to progress in scrapping vessels, the market did not substantially improve. Amid such market conditions, NYK Line recorded an extraordinary loss (comprised of an impairment loss and other items) totaling ¥205.4 billion midway through the fiscal year as part of its restructuring initiatives. The loss was mainly associated with the container shipping and dry bulk transport businesses. Although the restructuring has resulted in a substantial decrease of shareholders' capital, a heavy blow that we take very seriously, we believe it was necessary to raise corporate value and make the Company more competitive from the next fiscal year. We ask for the understanding of the Company's shareholders regarding this matter.

Although there are still challenging conditions in the operating environment, we expect freight volume to gradually pick up from the second half of the fiscal year, spot freight rates in the container shipping market to rise moderately, and the dry bulk shipping market to bottom out and then start improving.

In October last year, NYK Line decided to integrate its container shipping business (including the international terminal business) with those of Kawasaki Kisen Kaisha, Ltd., and Mitsui OSK Lines Ltd., into a new joint-venture company, which is scheduled to begin offering services from April 2018. NYK Line, Kawasaki Kisen, and Mitsui OSK Lines intend to generate synergies to increase the competitiveness of the joint venture, and will combine the shipping fleets of their integrated operations to expand its total shipping capacity to about 1.4 million 20-foot equivalent units, thereby equipping the new company with the necessary resources for going head to head against the world's leading shipping firms. Having integrated NYK Line's container shipping business—historically a core business—into this joint venture, we regard getting the new company on track as one of our top priorities, and will make all-out efforts to maximize its competitiveness.

Due to major shifts in our operating environment, we have also decided to terminate the profit and financial targets we had set 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. Management will decide on a new medium-term management plan by the middle of the current fiscal year. While each of the Company's business segments will face challenging market conditions this fiscal year, we will maintain the basic approach of the More than Shipping plan. At the same time, we intend to go beyond the conventional ideas of the shipping industry, differentiate services ahead of our competitors to whatever extent possible, and position the NYK Group for its next stage of growth.

At the present time, our forecast of consolidated financial results for the full fiscal year ending March 31, 2018, is as follows: revenues of ¥2,008.0 billion, operating income of ¥24.5 billion, recurring profit of ¥23.0 billion, and profit attributable to owners of the parent of ¥5.0 billion. As we recorded a huge loss in the fiscal year ending March 31, 2017, in order to maintain a sufficient amount of internal reserves in dealing with market fluctuation, we have decided not to pay interim dividends, and undecided on the year-end dividends payment.

In the recent past, the activities of NYK Line's automobile maritime shipping operations were found to be in violation of antitrust laws. On behalf of the Company's management, I would like to take this opportunity to sincerely apologize once again to shareholders 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 results ended Match 31, 2016.

(Billion yen)
 
FY 2015
FY 2016
Change
Revenues
2,272.3
1,923.8
-348.4
Operating Income
48.9
-18.0
-67.0
Recurring Profit
60.0
1.0
-59.0
Net Income
18.2
-265.7
-283.9
Average Exchange Rate
¥120.78/US$
¥108.76/US$
¥12.02/Yen Up
Average Bunker Oil Price
US$298.66/MT
US$253.75/MT
US$44.91 Down

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

Revenue

Revenue

Recurring Profit

Recurring Profit

Earnings Forecast for the Fiscal Year 2016

In the fiscal year ending March 31, 2018, the management of NYK Line expects market conditions to continue recovering moderately. Although the persistent gap between supply and demand in the container shipping market is not projected to improve due to the production of new ultra-large vessels, the Company expects to improve its bottom line owing to higher freight rates in annual contracts and greater cargo volume under a new alliance. The dry bulk shipping market is also projected to pick up gradually, however, the tanker shipping market is expected to remain sluggish overall, and the number of vehicles shipped in the automobile transport market is forecast to remain on par with that of the fiscal year under review. Meanwhile, NYK Line expects comparatively brisk business in its Logistics segment and Air Cargo Transportation segment. In view of the above, management forecasts an improvement in NYK Line's financial performance, as shown in the table below.

(Billion yen)
 
FY2016(Result)
FY2017(Forecast)
Change
Revenues
1,923.8
2,008.0
84.2
Operating Income
-18.0
24.5
42.5
Recurring Profit
1.0
23.0
22.0
Net Income attributable
to owners
of the parent company
-265.7
5.0
270.7
Average Exchange Rate
¥108.76/US$
¥108.00/US$
¥-0.76/US$
Average Bunker Oil Price
US$253.75/MT
US$340.00/MT
US$86.25/MT

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

Dividends for the Fiscal Year ending March 31, 2017

NYK Line regards the stable return of profits to shareholders as one of the most important priorities of management. In the fiscal year under review, however, due to worsening conditions in the maritime shipping market, the Company posted a substantial loss in connection with an impairment loss and other items. Having taken this into account, management regrets to inform shareholders that a fiscal year-end dividend will not be paid. In consideration of its current earnings forecast, the level of internal reserves needed for dealing with market changes, and other factors, management has no plan to pay an interim dividend for the current fiscal year, ending March 31, 2018, and has yet to decide on the payment of a fiscal year-end dividend.

April 28, 2017
Tadaaki Naito
President
Tadaaki Naito President