In the nine-month period of the fiscal year ending March 31, 2019 (April 1, 2018, to December 31, 2018), consolidated revenues amounted to ¥1,384.6 billion, down from ¥1,630.6 billion in the same period of the previous fiscal year. Operating profit decreased to ¥4.5 billion from ¥24.8 billion. NYK Line posted a recurring loss of ¥3.3 billion compared with recurring profit of ¥35.6 billion. Profit attributable to owners of parent amounting ¥16.8 billion in the same period of the previous fiscal year turned into a loss of ¥8.7 billion.

Overview

In the container shipping market, the high level of new supply has remained ongoing from last year, but due in part to the last-minute demand from concerns over higher tariffs in the US on exports from China, spot rates were favorable on the back of strong shipping volumes. In the dry bulk shipping market, the pace of new capacity completion is steadily slowing down, and although shipment volumes to China were sluggish, the gradual market recovery continued. In the logistics business, shipment volumes were vigorous, and the business remained strong. On the other hand, although crude oil prices fell at the end of last year, they were still much higher compared to the same period the previous year, and bunker prices also increased.

Within this shipping industry environment, the new shipping line OCEAN NETWORK EXPRESS PTE. LTD. (“ONE”), which was established with the aim of integrating the container shipping business with those of Kawasaki Kisen Kaisha, Ltd. and Mitsui O.S.K.

Lines, Ltd., started offering service from April 1, 2018. However, immediately after the start of the business, a service disruption occurred, causing a drop in liftings and slot utilization. Although the situation improved through the third quarter, a loss was recorded.

In addition, NYK Line incurred significant one-time costs following the termination of the container shipping business mainly in the first quarter. In the Air Cargo Transportation segment, the company’s consolidated subsidiary Nippon Cargo Airlines Co., Ltd. grounded all 11 of its aircraft from the middle of June in order to confirm the soundness of the aircraft. As of the end of December, six aircraft have been returned to service. Also, in accordance with the policy of reducing strategic shareholdings, some of the securities held by the company were sold, and the gain on the sales of the investment securities was recorded as extraordinary income.

Through the third quarter of the current fiscal year, consolidated revenues decreased by ¥245.9 billion, or 15.1% year on year. Operating profit declined by ¥20.2 billion, or 81.6% year on year, recurring profit fell by ¥38.9 billion year on year, and profit attributable to owners of parent decreased by ¥25.5 billion year on year.

In addition, the average exchange rate and average bunker oil prices changed in the third quarter of the current fiscal year, as follows.

Overview by Business Segment

Business segment information for the nine months ended December 31, 2018 (April 1, 2018 – December

31, 2018) is as follows

Liner Trade

In the container shipping division, the newly established shipping line ONE started offering service from April 1, 2018. However, teething problems occurred immediately after the commencement of services in April, resulting in a drop in liftings and slot utilization. The service disruption was resolved in the first quarter, and liftings and slot utilization greatly improved from July through December.Although liftings on the return voyage (North America to Asia and Europe to Asia) are still recovering, liftings on the outbound voyage to North America were strong due in part to last-minute demand from concerns over higher tariffs in the US on exports from China. Freight rate levels were favorable, particularly in the North America trade, but higher bunker prices squeezed the bottom line. Synergistic effects of the business integration have emerged steadily, and the company is continuing to work towards achieving a rapid improvement.

At NYK Line, higher than expected one-time costs required to terminate the container shipping business occurred mainly in the first quarter, but these costs largely declined from July. The total handling volume at terminals in Japan and overseas increased year on year.

As a result of the above, the Liner Trade segment as a whole recorded a loss. Also, revenues greatly declined year on year due to the fact that the revenues of ONE, which is accounted for by the equity method, are no longer included.

Air Cargo Transportation

In the Air Cargo Transportation segment, as a result of the improper handling of maintenance work conducted in the past by the consolidated subsidiary Nippon Cargo Airlines Co., Ltd., a “Business improvement order regarding the securing of air transportation safety” was received on July 20, 2018 from the Minister of Land, Infrastructure, Transport and Tourism. In response to this order, the company submitted improvement measures on August 17. All 11 of the aircraft operated by the company were grounded from the middle of June in order to confirm the soundness of the aircraft, and the aircraft are successively being returned to service once the soundness has been confirmed. At the end of December, the sixth aircraft was returned to service as planned. A rise in freight rates was observed during the third quarter, which is the peak season, and the cargo loading ratio was favorable. However, revenues were lower year on year, and a loss was recorded.

Logistics

In the air freight forwarding business, the bottom line significantly improved due in part to the urgent transportation demand for stranded cargo resulting from typhoons in Japan and other factors. In the ocean freight forwarding business, the handling volume increased as a result of last-minute demand against the backdrop of trade friction between the US and China and other factors. However, the improvement in the bottom line was weak due to the impact of higher costs. In the logistics business, the results were firm due to strong shipping volumes resulting from robust demand in the US and increased profits resulting from the corporate takeover in Europe. In the coastal transportation business, the bottom line remained strong on the back of the firm shipping traffic.

As a result of the above, the overall Logistics segment achieved higher profit on higher revenue year on year

Bulk Shipping

In the automobile transport market, shipping traffic was strong to North America and Europe. However, the recovery in shipping volumes to resource rich countries was delayed, and total finished car shipping volumes declined year on year. In the auto logistics segment, the number of vehicles handled declined due to the impact of slow vehicle sales in several regions, but moves were made to strengthen the business foundation and consideration is being given to expanding the business in markets that will continue to grow in the future.

In the dry bulk shipping market, although capacity increased as more new ships were commissioned than the number of ships scrapped, cargo volumes of iron ore, coal and grain were firm, and the market improved. Under these circumstances, the NYK Group worked to secure long-term contracts, as well as to improve the bottom line by reducing costs, such as thoroughly conducting efficient operations, and reducing ballast voyages by finding innovative cargo combinations and ship deployments. In addition, the group moved forward with returning the high cost chartered ships early.

In the liquid transport market, as the supply and demand balance improved for VLCC (very large crude carriers) due to progress in scrapping old ships, the winter shipping volumes were vigorous and the market improved. In petrochemical tankers, shipping volumes became more active in the second half of the year, and in LPG carriers, the ton-miles increased due to increased shipments from the US to Asia. As a result, both markets have started to recover. LNG carriers were supported by long-term contracts that generate stable earnings, and the bottom line was firm. In the offshore business, FPSO (floating production, storage and offloading) vessels, drill ships and shuttle tankers were steady.

As a result of the above, the overall Bulk Shipping segment achieved higher profit on higher revenue year on year.

Real Estate and Other Businesses Services

The Real Estate segment was steady, and both revenue and recurring profit were generally unchanged year on year.

In the Other Business Services segment, a world cruise was conducted in the cruise business, and the passenger occupancy rate increased. In the bunkering business, although bunker prices increased, gross profit declined. These factors resulted in lower profit on increased revenue year on year.

(2) Explanation about Financial Position

Assets, Liabilities, and Equity

As of December 31, 2018, the end of the third quarter of the fiscal year under review, consolidated assets amounted to ¥2,029.6 billion, a decrease of ¥42.0 billion compared with the end of the previous fiscal year on March 31, 2018. Consolidated liabilities totaled ¥1,464.7 billion, down ¥18.6 billion compared with the end of the previous fiscal year. Under consolidated equity, retained earnings decreased ¥15.9 billion compared with the end of the previous fiscal year, while shareholders’ equity—the aggregate of shareholders’ capital and total accumulated other comprehensive income—amounted to ¥526.2 billion.

This amount combined with non-controlling interests of ¥38.5 billion brought total equity to ¥564.8 billion. Based on this result, the debt-to-equity ratio came to 2.03.

With the change in accounting policy from this fiscal year, the consolidated financial statements for the fiscal year ended March 31, 2018 shown herein reflect the retroactive application of the indicated change.

(3) Explanation of Consolidated Earnings Forecast and Future Outlook

① Forecast of Consolidated Financial Results

NYK Line’s forecast of full-year consolidated financial results is as follows: revenues of ¥1,830.0 billion, an operating profit of ¥8.0 billion, a recurring loss of ¥5.0 billion, and a loss attributable to owners of parent of ¥1.0 billion.

In the container shipping division, there are a large number of uncertainties, including the trade friction between the US and China and the economy in Europe following the United Kingdom’s withdrawal from the EU, and the external factors have conservatively been incorporated into the forecasts for both freight rates and liftings. In the Air Cargo Transportation segment, all eight of the Boeing 747-8F aircraft will reenter service during January 2019, and efforts will be made to normalize the utilization rate. In the Logistics segment, there is expected to be a limited rebound from the last-minute demand that occurred in the third quarter. In the dry bulk shipping division, in addition to the seasonal factors, due to poorer market sentiment resulting from concerns over the Chinese economy and other factors, the assumed market conditions in the fourth quarter have been revised down from the previous outlook. In the liquidtransport division, the tanker market will generally remain firm, and both LNG carriers and the offshore business are expected to maintain high utilization and make stable contributions to earnings. In the automobile transport segment, shipping volumes in the fourth quarter are expected to remain on par with the previous forecast, and efforts will be made to further optimize operational efficiency and increase profitability.

Also, a certain level of extraordinary income is expected following various measures such as the liquidation of assets and the conversion of the cruise business into a joint venture.

In addition to the above, following the results in the third quarter, the forecast of the full-year consolidated financial results was revised upward.

② Dividends for the Fiscal Year ending March 31, 2019

NYK Line has designated the stable return of profits to shareholders as one of the most important management priorities, and the distribution of profits is decided after taking into consideration a wide range of factors, including the outlook. The company will issue a year-end dividend of ¥10 per share, and combined with the interim dividend of ¥10 per share, there is no change to the expected full-year dividend of ¥20 per share