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Mitsui OSK Lines: Financial Highlights: The Second Quarter Ended September 30, 2022

1. Consolidated Financial Highlights ( from April 1, 2022 to September 30, 2022 )

(2) Financial Position 2. Dividends

3. Forecast for the Fiscal Year Ending March 31, 2023

4. Business Performance

(1) Analysis of Operating Results

We recorded revenue of ¥ 821.3 billion, an operating profit of ¥56.0 billion, an ordinary profit of ¥599.7 billion and profit attributable to owners of parent of ¥601.5 billion. We recorded ¥519.1 billion of equity in net earnings of affiliated companies in non-operating income, mainly due to a significant increase in 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 ¥494.6 billion.

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

(A) Dry Bulk Business

The weakened sentiment due to the global economic slowdown and improved vessel capacity utilization as a result of the relaxation or removal of COVID-19 quarantine restrictions worldwide have caused the vessel supply-demand balance to become less tight, negatively impacting the dry bulk market. After peaking in midMay, Capesize bulker rates dropped sharply until the end of August, and although the market tightened temporarily in September due to typhoons and associated bad weather, the recovery remained limited. For Panamax bulkers, from April onwards, the continued steady flow of coal and grain shipments sustained the market despite the impact of the Shanghai lockdown on cargo movements; however, from July, with the world economy slowing and vessel supply and demand becoming less tight as mentioned earlier, the market generally remained somewhat weak.

Despite these market conditions, the dry bulk business posted year-on-year improvement in profit, thanks to efforts to reduce market exposure and steady shipments of cargos transported by wood chip carriers, openhatch bulkers and twin-decker multipurpose vessels.

(B) Energy Business

In the very large crude oil carrier (VLCC) market, conditions remained challenging due to the oversupply of vessels; however, in the last three months of the first half, charter rates improved with a recovery in the volume of cargo shipped from the Middle East and an increase in transport cargos due to the release from the U.S. strategic petroleum reserve. In the first three months of the first half, the product tanker market maintained historically high levels as a result of import restrictions imposed on Russian petroleum products due to Russia’s invasion of Ukraine, triggering a shortage of petroleum products in Europe, mainly diesel, and causing a significant increase in tonnage miles owing to increased cargo exports from the United States, the Middle East and Asia. In principle, the product tanker market maintained a firm tone, although there were times when charter rates declined in certain regions due to a slowdown in shipments caused by rising oil prices and maintenance at refineries in Europe. In this market environment, by stably performing existing long-term contracts and endeavoring to reduce costs, the tanker business as a whole posted a year-on-year increase in

The FPSO business secured stable profit through existing long-term charter contracts and reported a year-onyear increase in profit partly thanks to the newly commenced project.

Whilst continuing to generate stable profit through existing long-term charter contracts, the LNG carrier business posted a year-on-year decline in profit partially due to the effect of the expiration of some longterm contracts. The FSRU business posted a year-on-year increase in profit, reflecting the additional operation brought by the conclusion of a new short-term contract for an existing vessel.

(C) Product Transport Business

ONE, the Company’s equity-method affiliate, saw a sharp fall in spot freight rates from mid-August; nonetheless, the average rate during the period was still considerably higher than the year-ago level. Also benefiting from long-term contract freight rates that were higher than those a year earlier, the Containerships business posted substantial year-on-year profit growth.

Transportation volume of completed cars fell due to the global semiconductor shortage, automotive component shortages attributable to the COVID-19 pandemic and other factors; however, as a result of the optimization of vessel allocation plans and flexible and agile cargo collection activities, operating efficiency improved and we secured transportation volume mostly unchanged year on year, leading to higher profit than a year earlier.

Container volumes in the terminal business and air and marine cargo movements in the logistics business remained at high levels from the start of the fiscal year, resulting in an increase in profit year on year.

The number of passengers increased year on year, reflecting the capturing of demand during long holidays. The cargo transportation business also remained on the recovery path, and although some services had to be cancelled due to COVID-19 infections among the crew, the ferries and coastal RoRo ships business overall achieved improvement in profit year on year.

(D) Real Property Business

The real property business secured stable profit, despite a year-on-year drop in profits associated with the reconstruction of some buildings held by DAIBIRU CORPORATION, the core company in the Group’s real property business.

(E) Associated Businesses

The cruise ship business achieved improved profitability year on year due to an increase in operations. The tugboat business posted a year-on-year increase in profit due to a rise in the number of vessels requiring tugboat services entering/leaving port, though the situation varies depending on each company and port under this business segment.

(F) Others

Other businesses, which are mainly cost centers, include ship operations, ship management, ship chartering and financing. Ordinary profit in this segment decreased year on year.

(2) Outlook for FY2022

(For consolidated full fiscal year 2022)

(A) Dry Bulk Business

The Capesize bulker market is expected to remain firm due to solid shipments of iron ore from Australia and Brazil. However, with supply becoming less tight as COVID-19 quarantine restrictions around the world are relaxed or removed and vessel capacity utilization improves, the kind of high charter rates seen last fiscal year are unlikely. On the Panamax bulker market, some degree of growth in coal and grain shipments towards the end of the year is expected to bolster charter rates; however, the impact of the emerging global slowdown on shipments, especially decreased demand for shipments bound for China, still gives cause for concern and rates are likely to be weaker. On the other hand, it is also conceivable that, depending on the content of the Chinese Government’s stimulus package, charters rates for both Capesize and Panamax bulkers could be better than anticipated. Under such conditions, it is difficult to forecast market trend but since we have been working to reduce our market exposure for some time, we anticipate improvement in profit year on year.

(B) Energy Business

On the very large crude oil carrier (VLCC), although there are negative factors such as the OPEC+ oil output cuts for October and the slump in oil demand caused by fears of a global recession, we expect the market to remain strong due to the arrival of the winter demand season, the release of more oil from the U.S. reserve, and more oil product exports from China. Similarly, on the product tanker market, the global slowdown could potentially lead to a decrease in shipments; however, with the increase in tonnage miles due to alternative procurement of oil products from Russia, the Chinese government increasing oil product export quotas for state-owned oil companies, and demand for diesel also expected to grow due to rising gas prices in Europe and the U.S., charter rates are expected to remain firm. The offshore business is expected to continue generating stable profit, with the delivery of another newly
built FPSO vessel expected during FY2022.

In the liquefied gas business, the LNG carrier business will continue to maintain stable profit even though profitability is expected to decrease year on year as a result of the expiry of an existing long-term contract. We expect the FSRU business to report a higher profit as a result of the acquisition of a short-term additional contract for an existing vessel and its entry into operation.

(C) Product Transport Business

In the containerships business, shipments are expected to remain in a downward trend in the second half, under the impact of the economic instability caused by rising inflation. Whilst freight rates are also likely to continue falling as supply becomes less tight with the easing of port congestion, on a full-year basis we expect profit to be mostly unchanged year on year. In the car carrier business, as economic activity returns to normal, the transportation volume of completed cars is also expected to remain firm. We will continue flexible initiatives in line with cargo movements while monitoring the impact of global inflation and other factors on sales of completed cars. In the terminal and logistics business, from mid-August, supply has not been as tight as during the supply chain disruptions and profit is expected to fall mainly due to decreased container volumes.

In the business of ferries and coastal RoRo ships, Japan’s first LNG-fueled ferry Sunflower Kurenai will enter service on the Osaka-Beppu route in next January, capturing travel demand, and we plan to increase revenue in the logistic business by improving truck loading capacity. Overall, passenger and freight transportation demand are expected to remain on a recovery path and the ferries and coastal RoRo ships business is expected to return to profitability.

(D) Real Property Business

The real property business is expected to report a decline in rental income as a result of the reconstruction of a building owned but will continue to post solid profits due mainly to the rising occupancy rates of overseas properties.

(E) Associated Businesses

The cruise ship business anticipates a recovery in demand as the restrictions on activity to prevent the spread of COVID-19 are lifted, and profit and loss is expected to improve.

5. Financial Position

Total assets as of September 30, 2022 increased by ¥ 901.7 billion compared to the balance as of the end of the previous fiscal year, to ¥ 3,588.4 billion. This was primarily due to the increase in investment securities. Total liabilities as of September 30, 2022 increased by ¥ 357.0 billion compared to the balance as of the end of the previous fiscal year, to ¥ 1,708.8 billion. This was primarily due to the increase in short-term bank loans. Total net assets as of September 30, 2022 increased by ¥ 544.6 billion compared to the balance as of the end of the previous fiscal year, to ¥ 1,879.5 billion. This was primarily due to the increase in retained earnings. As a result, shareholders’ equity ratio increased by 4.4% compared to the ratio as of the end of the previous fiscal year, to 51.8%.

Full Report

Source: Mitsui O.S.K. Lines

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