Poor earnings forecasts of Japan's Big Three show need for merger

Poor earnings forecasts of Japan's Big Three show need for merger

"K" Line doubled its forecast for losses in fiscal 2016.

Japan’s Big Three container lines downgraded their full-year earnings forecasts and said they expected record losses as their fiscal first-half results illustrated the financial difficulties that motivated their Monday announcement they would merge.

NYK Line, “K” Line, and MOL recorded a collective half-year operating loss of $484 million for the fiscal year beginning in April and do not see any relief in sight. In an oversupplied market where increasing scale is needed to remain competitive, the only viable option was merging, the three said.

NYK Line now expects to post a net loss of 245 billion yen ($2.33 billion) for the current fiscal year compared with its previous forecast of a 15-billion-yen loss. It will be NYK Line’s first full-year net loss in five years.

"K" Line, which is particularly dependent on the container shipping business relative to MOL and NYK, expects a net loss of 94 billion yen for the current fiscal year compared with its previous estimate of a 45.5-billion-yen net loss.

MOL still expects to swing back into the black in fiscal 2016 after suffering a net loss of 170 billion yen in fiscal 2015. Although it more than halved its net profit forecast from 15 billion yen to 7 billion yen.

Freight rates and cargo volumes are slumping amid oversupply and weak demand. Meanwhile, the value of the yen, which is widely seen as a safe-haven currency, has risen recently amid global economic uncertainty.

The three Japanese shipping firms also reported revenue declines of more than 20 percent for the first half of fiscal 2016 on a year-over-year basis.

NYK’s revenue totaled 928 billion yen in the half, down 22.5 percent from the same six-month period of 2015. The company incurred a fiscal first-half net loss of 231 billion yen, compared with a net profit of 54 billion yen last year. The company also booked extraordinary losses totaling 205 billion yen for the April-to-September period, including a massive asset impairment charge of 163 billion yen.

MOL’s revenue amounted to 713 billion yen in the half, down 21.1 percent from a year earlier, while its net profit came to 16 billion yen, compared with a net loss of 241 million yen in the same period of 2015.

“K” Line’s first-half revenue was 491 billion yen in the half, down 26.5 percent on a year-on-year basis. The company logged a fiscal first-half net loss of 50 billion yen compared with a net profit of 11 billion yen a year earlier.

Contact Hisane Masaki at yiu45535@nifty.com.

Comments

The Chinese went to one; the Koreans are now one; why would the Japanese need three, all losing money? Another shoe to fall in Taiwan??