Mitsui O.S.K. Lines Ltd

This is Mitsui OSK Line's fiscal year 2023, third quarter, business performance briefing. Let me start with a general overview. Our third quarter results were business profit, which is operating profit, plus equity and earnings of affiliated companies, of 144.6 billion yen, ordinary profit of 197.2 billion yen, and net income of 203.6 billion yen. On an ordinary profit basis, overall results exceeded expectations, with greater than anticipated deterioration, in the container ships business, offset by steady performances in other businesses. Compared with the same period a year earlier, equity and earnings of affiliated companies, attributable to Ocean Network Express, or one, in the container ships business, fell by as much as around 540.0 billion yen, causing the container ships business to post, a commensurately large decline in profit. However, excluding the container ships business, our ordinary profit result was only slightly down, year on year, mainly thanks to a strong performance, in the energy business. And our profit was higher than the level, a year earlier, if we take extraordinary profit into consideration. I will explain our full year forecast later. But our previous forecast, for ordinary profit of 220.0 billion yen, has been raised by 5.0 billion yen, to 225.0 billion yen. With our exchange rate assumption, which was left unchanged from the level announced in October 31st last year, and set at 140.0 yen, to the US dollar, from February. Additionally, our previous forecast for net income of 220.0 billion yen has been raised by 15.0 billion yen to 235.0 billion yen. Accordingly, we have raised our previous year-end dividend forecast, announced on October 31, by ¥10 to ¥90 per share, which will make the annual total dividend ¥200 per share, including the interim dividend of ¥110. As a result, we will maintain a full-year dividend payout ratio of 30% or above on an annual basis. I will now provide further details based on the financial results briefing materials. Revenue decreased by 39.3 billion yen, year on year, to 1,218.6 billion yen. Higher revenue in some segments, such as the energy business, was more than offset by revenue decline, in the dry bulk business. Our business profit, ordinary profit, and net income were, as explained earlier. I will now explain the financial results, by segment. Dry Bulk Business The dry bulk business posted, ordinary profit of 37.1 billion yen, a decrease of 15.1 billion yen, from the same period of the previous year. The Cape size bulk or market rates, trended upward, reflecting improved vessel supply and demand, especially in the Atlantic. Due to recovery of bauxite shipments from West Africa, with the end of the rainy season, amid steady growth in iron or shipments from Brazil. However, profit for the first nine months was down, from the same period a year earlier, due to the performance in the first half. Small and medium-sized bulkers, like Panamax, Handimax, and smaller vessels, operated by MOL Drybulk, were less profitable, than in the same period a year earlier. Reflecting losses incurred in some short-term chartering, in addition to delays caused by the Panama Canal drought, and increased costs due to diversions. Woodchip carriers also saw decline in profit from the level a year earlier due to lackluster consumption in China, despite some signs of improvement. Meanwhile, open-hatch bulkers achieved a year-on-year increase in profit due to the effect of reversal of an allowance for doubtful accounts recorded in the past in relation to GearBulk, an equity method affiliate. Despite the absence of the ripple effect of strong conditions in the container ships market, As a result, the dry bulk business overall posted a year-on-year profit decline but generated profit in line with the forecast. Energy Business The energy business posted ordinary profit of 58.8 billion yen, rising by 24.0 billion yen year-on-year. Results in almost all sub-segments exceeded expectations, pushing up our overall profit. Tankers and Offshore Business DLCC market rates remained at a certain level, reflecting stable demand for US exports, due to the relatively low crude oil price, which offset OPEC plus oil output cuts. market rates for product tankers and chemical tankers also remained at a high level. As a result, the tanker business posted an increase in profit year on year. In the offshore business, the FPSO business generated stable profit due to the effective deployment of FPSOs in projects off the coast of Brazil this fiscal year. and a full-year profit contribution of other offshore projects in Brazil following deployment last fiscal year, in addition to existing long-term charter contracts. Liquefied gas business The LNG carrier business also generated profit, on a par with the previous year, through deployment under new charters. The LPG and ammonia transport business also performed strongly, bolstering profit. The FSRU business was more profitable than expected, due to the start of a long-term project in Hong Kong. Product Transport Business The product transport business, which includes the container ships business, posted ordinary profit of 85.2 billion yen, down by 551.7 billion yen, from the same period a year earlier. In the container ships business, equity and earnings of affiliated companies, attributable to one, was less than anticipated and, as a result, profit in the product transport business was also less than forecast. Starting from this fiscal year, the ferries and coastal Roro ships business, which was previously included in the product transport business, is transferred to the newly established, well-being and lifestyle business. And year-on-year comparisons are based on results for the previous fiscal year that have been restated to reflect this change.

I will now explain the performance of each sub-segment.

Container Ships Business The outline of financial results for the third quarter, from October to December, is as described in the summary. Spa freight rates remained low, reflecting continued softening of the supply-demand balance, due to an increase of newly built vessels at a time when, cargo movements decreased, owing to the start of the slack season. In addition to slow consumption growth, in face of persistent inflation, One posted a loss of US$83 million for the third quarter, representing a sharp drop in profit from the same period last year. While spot freight rates started to rise at the beginning of December, in response to geopolitical risk in the Middle East, it will take some time for the higher rates to be reflected in profit and loss, and the upturn had virtually no effect on third-quarter results. as shown in the middle of the chart, in the center of the page, once after tax profit for the nine months, from April to December, amounted to 616 million US dollars. MOL converted its 31% share of these earnings into yen, based on the exchange rate at the end of December, and integrated this amount into segment profit, as equity in earnings of affiliated companies. Please look at page 4 of Once Magenta Colored Materials for details of changes in liftings, capacity utilization rates, and freight index. Due to these earnings at one, our container ships business reported ordinary profit of 30.0 billion yen for the first nine months. Car Carrier Business Shipping demand for completed cars generally held firm in response to recovery in the automotive supply chain. And EV exports from China also remained brisk, leading to continued tightening in the vessel supply-demand balance and causing market rates to remain at a high level. Under such conditions, continued congestion at some ports in Australia and the Panama Canal's drought caused deterioration in the vessel operation efficiency. However, as forecast, profit in the car carrier business was mostly unchanged, year on year, due to the flexible revision of vessel allocation plans. Terminal and Logistics Business Container handling volumes in the terminal business decreased, due to a slowdown in cargo movements at overseas terminals, while there were firm cargo movements at domestic terminals. The logistics business was less profitable, due to weak air and sea freight rates, and, as a result, the terminal and logistics business posted lower profit, year on year, but generated profit in line with the forecast. Wellbeing and Lifestyle Business The well-being and lifestyle business is made up of the real property business, the ferries and coastal rural ships business, and the cruise business. Comparisons are based on results for the previous fiscal year, which have been restated to reflect the new segmentation. The well-being and lifestyle business posted ordinary profit of 8.2 billion yen, which was up 1.4 billion yen year-on-year and in line with the forecast. Real Property Business Accounting for the majority of this segment's profit, the real property business turned in a stable performance, reporting ordinary profit of 7.1 billion yen, which was mostly unchanged year-on-year. The real property business generated profit, on a par with the previous year, thanks to higher occupancy at existing properties, despite higher costs associated with new property acquisitions by Diberu, the core company in the real property business. Ferries and Coastal Roro Ships Business The ferries and coastal Roro ships business achieved higher profit than in the same period a year earlier, reflecting a sharp increase in passenger transportation, largely attributable to the entry into service of new LNG-fueled ferries. Cruise Business The cruise business achieved improved profitability year-on-year, due to a recovery in traveling demand, following the easing of COVID-19 restrictions. Associated Businesses Overall, associated businesses generated ordinary profit of 2.1 billion yen, which was mostly unchanged year-on-year, with growth in the tugboat business, driven by the revision of service fees, offset by profit decline in the trading business, due to deterioration in the business environment. This concludes the summary of the financial results for the third quarter. Next, I would like to explain our fiscal year 2023 full-year forecast. We have upwardly revised our full-year forecast announced on October 31, raising our business profit forecast by 2.0 billion yen to 172.0 billion yen, our ordinary profit forecast by 5.0 billion yen to 225.0 billion yen, and our net income forecast by 15.0 billion yen to 235.0 billion yen. We expect profit to be bolstered by extraordinary income and a review of corporate tax expense, in addition to recovery of the containerships business and a strong performance in the energy business. We have left our exchange rate assumption unchanged at 140 yen to the US dollar for the remaining two months of the current fiscal year. As stated for reference on page 7 of the materials, sensitivity against the full-year forecast on an ordinary income basis is estimated at 0.5 billion yen to the US dollar.