NYK projects $1.9b in FY2016 extraordinary losses

The Japanese ocean carrier estimates it will report extraordinary losses totaling 195 billion Japanese yen (U.S. $1.89 billion) in fiscal 2016 due to continued weakness in container and dry bulk freight rates, according to a statement from the company.    Nippon Yusen Kaisha (NYK Line) is projecting extraordinary losses totaling 195 billion Japanese yen (U.S. $1.89 billion) for the interim period of its fiscal year ending March 31, 2017, according to a statement from the company.
   The Japanese ocean carrier attributed the losses primarily to weakness in container and dry bulk freight rates.
   “In view of a prolonged slump in the shipping market, NYK Line impaired the operational assets it owns and reduced the acquisition value of assets it plans to own to their recoverable amounts,” the company said.
   The extraordinary losses consist of an impairment loss of 160 billion yen and a provision for contract related losses of 35 billion yen. By asset type, NYK will incur an impairment of 100 billion yen for containership operations, 85 billion yen for bulk carrier, and 10 billion yen for cargo aircraft.
   The losses were not included in previous company forecasts for half- and full-year financial results.
   “The liner trade market has been under growing pressure due to the oversupply of large new containerships, while freight rates have reached an all-time low,” NYK said. “In that context, NYK Line has been working to curtail losses through various measures, including streamlining its shipping services, reducing ships and cutting costs.
   “Although the market is projected to recover in the first half of the fiscal year ending March 31, 2017, market indicators have not reached anticipated levels. In that light, NYK Line has reassessed its outlook for the market from a conservative perspective, and, as a result, deemed it necessary to record an impairment loss as well as a provision for losses related to contracts in connection with its containerships.”
   The carrier painted a similarly gloomy picture of the dry bulk shipping market, which it said also “remains in a slump” resulting from excess capacity and “sluggish” demand.
   “Against that backdrop, NYK Line has been working to cut costs by selling off or returning (in the case of chartered ships) surplus vessels, and implementing exhaustive measures for improving the operational efficiency of its fleet,” the company said.
   “Despite these efforts, the bulk shipping market has been on an unprecedented decline since the autumn of 2015. Under such circumstances, efforts have been made to scrap aging vessels, especially capesize bulk carriers, and there have been control over the supply of new vessels in the market,” it added.
   “These actions have led to a gradual improvement in the balance of shipping supply and demand, but the market is picking up at a slower pace than originally expected, reducing the likelihood of a recovery in the first half of the fiscal year ending March 31, 2017. Therefore, NYK Line reassessed its market outlook, and, accordingly, deemed it necessary to record an impairment loss and a provision for losses related to contracts in connection with its dry bulk carriers, particularly capesize vessels.”
   NYK’s air cargo subsidiary will sell three owned aircraft as part of a larger structural reform program, the company said.
   “After estimating the resulting loss on sale, it reduced the book value of the aircraft to the sale price, and recorded it as an impairment loss,” said NYK. “Meanwhile, it expects that certain aircraft under operating lease contracts, will not be profitable during the remaining period of the contracts. Accordingly, it plans to record the losses under provision for losses related to contracts.”
   The company said it is also mulling a downward revision to its interim and year-end dividend, which it will announce before Oct. 31.
   NYK in July reported a recurring loss of 9.9 billion yen in its first fiscal quarter, compared with recurring profits of 21.5 billion yen the previous year. Revenues for the quarter fell 20 percent year-over-year to 471 billion yen.
   At the time, the company said it expected to pay an interim and year-end dividend of 2 yen per share, respectively, for an annual dividend of 4 yen per share.