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Mitsui O.S.K. Lines: Financial Highlights: The Second Quarter Ended September 30, 2021

Business Performance
(1) Analysis of Operating Results

We recorded revenue of ¥597.0 billion, operating profit of ¥20.3 billion, ordinary profit of ¥271.8 billion and profit attributable to owners of parent of ¥274.8 billion. We recorded ¥243.6 billion of equity in net earnings of affiliated companies in non-operating income, mainly due to improved earnings at OCEAN NETWORK EXPRESS PTE. LTD (ONE), an equity method affiliate. The amount of equity in net earnings of affiliated companies we recorded which was attributable to ONE was ¥234.5 billion.

The following is a summary of business conditions including revenue and ordinary profit/loss per business segment.

(A) Dry Bulk Business
In the Capesize bulker market, while there was a firm flow of iron ore shipments from Australia and Brazil with minimal weather disruptions, vessel supply was tight amid border control measures in response to COVID-19 and increased congestion caused by typhoons in China, resulting in an upward trend in charter rates. In the Panamax bulker market, the charter rate remained at a high level, with supply becoming tight as was the case with Capesize bulkers due to stricter regulations to control COVID-19 in China and other countries, and strong shipments of grain and coal. Under these market conditions, along with the measures we took such as launching MOL Drybulk Ltd., which was established in April 2021 in order to improve the efficiency of vessel allocation and profitability, the dry bulk business as a whole posted significant year-on-year improvement in profit in the first six months of the fiscal year.

(B) Energy and Offshore Business

In the very large crude oil carrier (VLCC) market, the charter rate continued to fall short of pre-pandemic levels due to the continuation of coordinated output cuts by the OPEC Plus and the prolonged sluggish oil demand. The product tanker market showed some signs of improvement such as the resumption of economic activity in Europe and the U.S. thanks to the spread of vaccinations, but was adversely affected by decreased export shipments due to multiple major hurricane landfalls along the U.S. Gulf Coast and the start of the maintenance season at refineries in Japan and South Korea, and thus faced challenging market conditions from the middle of August. In the case of thechemical tanker market, while Atlantic routes remained in the slump triggered by the cold wave in the Gulf region of North America in February, rates on South American and Pacific routes improved. Under these market conditions, the tanker division as a whole suffered a decline in profit compared to the same period a year earlier, when charter rates were strong, despite the stable fulfillment of long-term contracts and cost reduction efforts.

The LNG carrier division continued to generate stable profit mainly through existing long-term charter contracts.

In addition, one new LNG carrier started operation at an equity-method affiliate.

In the offshore business, one FPSO and one FSRU were delivered to put into a long-term contract for therespective new projects. Meanwhile, operations in existing projects such as subsea support vessels were generally steady. However, the charter contract for an existing FSRU was renewed, and this resulted in a deterioration of profitability year on year.

(C) Product Transport Business

ONE, the Company’s equity-method affiliate, saw cargo volume increase from the same period a year earlier on all routes except Asia-North America routes, where port congestion made schedule delays and service cancellations inevitable. In addition, since disruptions to operations in ports, inland transport and vessel schedules significantly impacted the supply-demand balance, spot freight rates remained considerably higher than the year-ago level. As a result, the Containerships business posted substantial year-on-year profit growth.

Transportation volume of completed cars increased sharply from the same period of the previous year, when it had been affected by the global decrease in automobile production, although COVID-19-driven semiconductor supply shortages and component shortages due to lockdowns in Southeast Asia also had an impact. Profitability improved significantly year on year due to the recovery of cargo movements combined with the effect of the rationalization of vessel allocation, etc.

The number of passengers recovered from the same period a year earlier but remained low compared with prepandemic levels, severelyimpacted due to the declaration of a state of emergency by the Japanese government which caused people to refrain from going out and traveling. The above factors combined with an increase in ship operation costs caused by rising bunker prices outweighed efforts to reduce costs and profit deteriorated year on year.

(D) Associated Businesses

The real estate business consistently secured profit on par with the year-ago level, despite a fall in sales associated with the reconstruction of some buildings held by Daibiru Corporation, the core company in the Group’s real estate business. The cruise ship business, despite some cancellations, restarted cruise services during the period. However, profit deteriorated year on year mainly due to an increase in crew expenses associated with either preparations or (Unaudited translation of ‘Kessan Tanshin’, provided for reference only) October 29, 2021actual operations. The tugboat business posted a year-on-year increase in profit, reflecting the recovery in the number of vessels requiring tugboat services entering/leaving port.

(E) Others
Other businesses, which are mainly cost centers, such as ship operations, ship management, ship chartering and financing posted a year-on-year increase in profit.

(2) Outlook for FY2021

(A) Dry Bulk Business
In the Capesize bulker market, the charter rate is expected to remain strong for the rest of the year, reflecting strong shipments of iron ore from Australia and Brazil and port congestion in China caused by border control measures in response to COVID-19. From the beginning of the new year, the rate may weaken as a result of decline in iron ore shipments associated with cyclones in Australia and the rainy season in Brazil, but it will still be underpinned by the effects of COVID-19 border control measures. In the Panamax bulker market, demand for thermal coal shipments bound for China and India is expected to expand due to power shortages, and the charter rate is assumed to remain high for the rest of the year with COVID-19 regulations around the world creating a sense of tightness in vessel supply. From the beginning of the new year, the rate may enter a correction phase mainly due to curbs on coal use in China ahead of the nation hosting the Winter Olympics and a weak grain harvest in South America, but it will nonetheless remain firm, underpinned by tight vessel demand. Under these market conditions, the dry bulk business as a whole is expected to show year-on-year improvement in profit.

(B) Energy and Offshore Business

The very large crude oil carrier (VLCC) market is likely to stage a modest recovery on expectations for the resumption of economic activity and the easing of output cuts. The product tanker market is also expected to pick up as shipments of jet fuel and diesel fuel recover and as the northern hemisphere heads into heating demand peakseason. While we anticipate a recovery in market conditions and cargo movements compared with recent levels, profit is expected to decrease year on year in the tanker division as a whole.

In the LNG carrier division, one LNG carrier is scheduled to be completed, and the division expects to continue to generate stable revenues mainly from existing long-term contracts.

In the offshore business, profitability is expected to deteriorate year on year chiefly due to the renewal of a charter contract for an FSRU, although one FPSO is scheduled to be completed.

(C) Product Transport Business

In the containerships business, we anticipate that the current robust shipments and space shortages will persist until the end of the year. However, from the beginning of the new year, sailing schedules are expected to normalize as the cargo movement decreases due to Chinese New Year holiday and the shortage of port workers and truck drivers eases in North America. Accordingly, we have factored into our forecast that freight rates will enter a correction phase.

Regarding the car carrier business, while the effects of COVID-19 and the shortage of semiconductors will be causes for concern in the short term, the tendency towards recovery in cargo volumes is expected to continue. We will continue to focus on rationalizing vessel allocation and operating more efficiently whilst maintaining an appropriate level of fleet size.

In the business of ferries and coastal RoRo ships, the impact of a resurgence of COVID-19 infections on business performance is a concern, but we expect that the number of passengers will recover to some extent, depending on changes in sentiment with the lifting of the state of emergency and government support measures for the travel industry.(Unaudited translation of ‘Kessan Tanshin’, provided for reference only) October 29, 2021

(D) Associated Businesses
The impact of the COVID-19 pandemic on the real estate business is likely to be limited. For the cruise ship business and the travel business, business conditions are expected to recover to some extent. Fluctuations in business performance are possible depending on the COVID-19 situation, although the scale of these businesses is not large.

5. Financial Position
Total assets as of September 30, 2021 increased by ¥ 320.2 billion compared to the balance as of the end of the previous fiscal year, to ¥ 2,415.8 billion. This was primarily due to the increase in Investment securities.
Total liabilities as of September 30, 2021 increased by ¥ 22.0 billion compared to the balance as of the end of the previous fiscal year, to ¥ 1,418.4 billion. This was primarily due to the increase in Short-term bank loans.

Total net assets as of September 30, 2021 increased by ¥ 298.2 billion compared to the balance as of the end of the previous fiscal year, to ¥ 997.3 billion. This was primarily due to the increase in Retained earnings.
As a result, shareholders’ equity ratio increased by 8.5% compared to the ratio as of the end of the previous Fiscal year, to 36.1%.

Full Report

Source: Mitsui OSK Lines,Ltd

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