Construction losses due to low-priced vessels and a challenging order environment

「Company-wide cost-reduction efforts, including a review of the supply chain, produced results that exceeded the impact of soaring materials prices and labor costs.」

「Despite the significant impact of higher material, equipment and labor costs, revenue and profit increased year on year as the company continued to make handy-size bulk carriers, which had contributed significantly to earnings in the previous period, its main product, while smoothly transitioning to a product-mix construction structure that includes larger vessels such as large bulk carriers, for which substantial replacement demand is expected, together with the effects of group-wide cost reduction efforts in design, manufacturing and procurement and the continued weaker-yen trend.」

「Despite the significant impact of higher material, equipment and labor costs, revenue and profit increased year on year as the company continued to make handy-size bulk carriers, which had contributed significantly to earnings in the previous period, its main product, while smoothly transitioning to a product-mix construction structure that includes larger vessels such as large bulk carriers, for which substantial replacement demand is expected, together with the effects of group-wide cost reduction efforts in design, manufacturing and procurement and the continued weaker-yen trend.」

「Despite the significant impact of soaring material and equipment prices and higher labor costs, revenue and profit increased substantially year on year due to the dollar-yen exchange rate remaining at a weak-yen level, construction volume exceeding the initial plan as a result of the consecutive, high-volume construction of handy-size bulk carriers positioned as the group's core product for the period, and greater-than-expected cost reductions from supply chain restructuring, including overseas operations, and group-wide cost reduction efforts in design, manufacturing and procurement.」

「The company absorbed the substantial increases in prices for materials and equipment, including steel, and labor costs through the consecutive construction of handy-size bulk carriers, which have a low steel-cost ratio in manufacturing costs, higher operating volumes, stronger negotiating power from bulk purchases through its international procurement network, and group-wide cost reduction efforts involving design, manufacturing, procurement and other functions, achieving substantial increases in both revenue and profit.」

「During the consolidated fiscal year, despite the impact of soaring material costs, including steel, revenue and profit increased substantially year on year due to the weaker yen, a recovery in operating volume, improved vessel prices and the effects of cost reduction efforts covering labor hours, material costs and other expenses in cooperation with Hakodate Dock Co., Ltd.」

「During the consolidated period, the newbuilding business operated by the company and 函館どつく株式会社 generated revenue of ¥74,176 million, up 3.7% year on year, and operating income of ¥12,077 million, up 20.2%, due to improved vessel prices, lower costs, and the weaker yen.」

「Although material costs, including steel, rose substantially due to soaring prices, the profitability of low-price vessels ordered during the recession is expected to improve significantly as a result of group-wide cost reduction efforts and the weaker yen. Together with the construction loss provision declining by ¥9,588 million from the end of the previous consolidated fiscal year, this resulted in operating income of ¥9,922 million, an increase of ¥18,171 million from the same period of the previous year.」

「Although soaring prices for materials and equipment, including steel, forced a substantial increase in manufacturing costs, the results of Group-wide cost reduction activities and the weaker yen substantially improved the profitability of uncompleted low-price vessels ordered during the recession. The resulting ¥9,430 million decrease in the construction loss provision from the end of the previous consolidated fiscal year also contributed to operating profit of ¥10,049 million, up ¥14,228 million year on year.」

「As the profitability of not only vessels included in revenue but also vessels in the order backlog was expected to improve substantially due to cost-reduction activities and the weaker yen, provisions for contract losses decreased by ¥9,460 million from the end of the previous consolidated fiscal year,」

「Although all vessels contributing to revenue had been ordered when vessel prices were low and there were concerns that soaring steel prices would further worsen profitability, the construction loss provision at the end of the period declined by ¥8,156 million from the end of the previous period due to cost reductions from consecutive construction of vessels of the same type and the weaker yen,」

「Operating loss was ¥4,179 million, compared with an operating loss of ¥7,136 million in the same period of the previous year. Although the company had expected substantial improvement from Group-wide cost reductions and the weaker yen, the improvement was limited by higher steel prices and the fact that the gain on the sale of vessels upon completion last November will be recognized in the fourth quarter.」

「Although the company hoped that the unexpected, abnormal surge in steel prices would be resolved quickly, a cautious estimate of the impact on future earnings resulted in the construction loss provision increasing by ¥2,480 million from the end of the previous consolidated fiscal year. The company posted an operating loss of ¥6,419 million, compared with an operating loss of ¥3,852 million in the same period of the previous year, and an ordinary loss of ¥5,951 million, compared with an ordinary loss of ¥4,337 million.」

「After reviewing the costs of all vessels already ordered in response to unexpected demands for substantial steel price increases, the estimated impact exceeded ¥7.5 billion. As a result of substantially increasing the construction loss provision, the company posted an operating loss of ¥5,870 million, compared with an operating loss of ¥2,223 million in the same period of the previous year, and an ordinary loss of ¥5,519 million, compared with an ordinary loss of ¥2,294 million.」

「The cost ratio improved significantly due to group-wide cost reduction efforts. However, lower revenue caused by the stronger yen and new orders needed to maintain minimum operating levels, together with construction of low-price vessels, resulted in an operating loss of ¥10,471 million, compared with an operating loss of ¥16,022 million in the same period of the previous year.」

「The cost ratio improved substantially due to group-wide cost reduction efforts. However, as construction and delivery of low-price vessels continued, the operating loss was ¥7,945 million, compared with an operating loss of ¥13,140 million in the same period of the previous year.」

「In terms of earnings, the cost ratio improved substantially due to the stabilization of the newbuilding process at Sasebo Heavy Industries Co., Ltd. and group-wide cost reduction efforts. However, as construction and delivery of low-price vessels continued, the operating loss was ¥3,852 million, compared with an operating loss of ¥9,775 million in the same period of the previous year.」

「In terms of earnings, manufacturing costs improved substantially due to the stabilization of the newbuilding process at Sasebo Heavy Industries Co., Ltd. However, as construction and delivery of low-price vessels continued and material prices remained high, the company posted an operating loss of ¥2,223 million, compared with an operating loss of ¥5,663 million in the same period of the previous year, and an ordinary loss of ¥2,294 million, compared with an ordinary loss of ¥5,671 million.」

「In terms of earnings, the operating loss was ¥13,140 million, compared with an operating loss of ¥3,489 million in the same period of the previous year, due to factors including delays in the group-wide cost rationalization plan in the core newbuilding business, higher costs caused by excess personnel from cooperating companies deployed by Sasebo Heavy Industries Co., Ltd., a major subsidiary, to prioritize adherence to delivery schedules, and an increase in the effective amount charged to the construction loss provision as the US dollar exchange rate at the end of the third quarter was stronger against the yen than at the end of the same period of the previous year.」

「In terms of earnings, the amount recognized as the construction loss provision increased substantially in real terms due to the failure to meet construction progress targets in the core newbuilding business, the number of newly ordered vessels, including provisionally awarded vessels, doubling from the same period of the previous year, the US dollar exchange rate applied in calculating the provision at the end of the second quarter being more than ¥4 stronger against the yen than at the end of the same period of the previous year, and delays in the group-wide cost rationalization initiatives.」

「In terms of earnings, the construction loss provision increased substantially because estimated costs for all vessels in the order backlog rose significantly, based on soaring steel prices and higher subcontracting costs to maintain high operating levels, and because the US dollar exchange rate at the end of the first quarter was just under ¥3 stronger against the yen than at the end of the previous consolidated fiscal year. The company posted an operating loss of ¥5,663 million, compared with operating income of ¥957 million in the same period of the previous year.」

「The construction loss provision declined by ¥9,974 million from the end of the previous consolidated fiscal year, reflecting the decision to reduce the planned operating volume of the newbuilding business and restrain new orders to address the sharp increase in costs caused by soaring steel prices, as well as the effect of the US dollar exchange rate at the end of the period being just under ¥5 weaker against the yen than at the end of the previous consolidated fiscal year.」

「In terms of earnings, the construction loss provision in the newbuilding business declined by ¥7,730 million from the end of the previous consolidated fiscal year as the yen weakened by just under ¥5 and new orders were also restrained following a review of the operating plan. However, partly due to higher steel prices, the company posted an operating loss of ¥3,489 million, compared with an operating loss of ¥3,319 million in the same period of the previous year.」

「In terms of earnings, the construction loss provision in the newbuilding business declined by ¥6,608 million year on year as the yen weakened by more than ¥5 against the end of the previous consolidated fiscal year and new orders were restrained due to adjustments to the operating plan. However, the company was unable to absorb the increase in manufacturing costs caused by higher steel prices and other factors, resulting in an operating loss of ¥786 million, compared with an operating loss of ¥2,201 million in the same period of the previous year.」

「In terms of earnings, the newbuilding business was significantly affected by the construction loss provision declining by ¥4,655 million year on year, due to the yen weakening by just under ¥3 against the end of the previous consolidated fiscal year and the group restraining new orders as it adjusted newbuilding operations. Operating income was ¥957 million, compared with an operating loss of ¥1,619 million in the same period of the previous year.」

「In addition to low order prices, a substantial increase in steel prices finalized in the fourth quarter and the stronger yen, with the exchange rate moving from ¥112.19 per US dollar at the previous consolidated fiscal year-end to ¥106.24 at the current consolidated fiscal year-end, led the company to revise its expected costs for all vessels ordered by the group, including provisionally awarded vessels. As a result, provisions for construction losses increased by ¥13,315 million from the previous consolidated fiscal year-end, or ¥11,896 million from the end of the third quarter of the current consolidated fiscal year.」

「In terms of earnings, the standalone company, which is the reporting company for the consolidated financial statements, secured operating profit in the core newbuild business. However, at consolidated subsidiary Sasebo Heavy Industries Co., Ltd., manufacturing costs for medium-sized oil tankers, which it had resumed building after a long interval because demand for its specialty medium-sized bulk carriers was weak, increased more than expected due to process disruptions and higher construction costs. The company also increased provisions for construction losses by ¥3,938 million year on year and recorded substantial losses. As a result, operating loss was ¥3,319 million, compared with ¥2,489 million in the year-earlier period, and ordinary loss was ¥3,933 million, compared with ¥2,401 million.」

「In the core newbuild business, the standalone company, which is the reporting company for the consolidated financial statements, secured operating profit. However, at consolidated subsidiary Sasebo Heavy Industries Co., Ltd., construction of the new vessel type, medium-sized Aframax tankers, was strategically undertaken to diversify its product lineup during a downturn in demand for its main product, medium-sized bulk carriers. Because several years had passed since its previous construction experience, man-hours increased and schedules were delayed, causing manufacturing costs to rise more than expected. Together with increased provisions for construction losses, this resulted in an operating loss of ¥2,201 million, compared with an operating loss of ¥7,854 million in the year-earlier period.」

「Provisions for construction losses, which had a significant impact on earnings, increased by ¥3,233 million from the previous consolidated fiscal year as 5 vessels provisionally awarded in a difficult order environment were added to the covered vessels.」

「Provisions for construction losses increased substantially by ¥7,118 million from the previous consolidated fiscal year-end, including an increase of ¥5,104 million from the end of the third quarter of the current consolidated fiscal year. Operating loss was ¥9,320 million, compared with operating profit of ¥6,639 million in the year-earlier period, and ordinary loss was ¥9,806 million, compared with ordinary profit of ¥5,574 million.」

「In terms of earnings, the core newbuild business was affected by sales being concentrated in low-priced vessels and lower sales due to delivery-date adjustments. In addition, provisions for construction losses on newly developed vessels actively ordered as part of a medium- to long-term strategy in a difficult order environment were increased by a further ¥2,014 million from the end of the previous consolidated fiscal year. As a result, operating loss was ¥2,489 million, compared with operating profit of ¥6,502 million in the year-earlier period, and ordinary loss was ¥2,401 million, compared with ordinary profit of ¥6,918 million.」

「In terms of earnings, the core newbuild business was affected by sales being concentrated in low-priced vessels, the stronger yen, and lower sales due to delivery-date adjustments. The exchange rate used to calculate provisions for construction losses was also changed from ¥112.68 per US dollar at the end of the previous consolidated fiscal year to ¥101.12, and provisions were increased by ¥6,911 million in connection with new orders. As a result, operating loss was ¥7,854 million, compared with operating profit of ¥3,691 million in the year-earlier period, and ordinary loss was ¥9,120 million, compared with ordinary profit of ¥3,658 million.」

「In the core newbuild business, sales consisted mainly of low-margin vessels ordered after the Lehman shock. In addition to lower sales due to the stronger yen, the exchange rate used to calculate provisions for construction losses was changed from ¥112.68 per US dollar at the end of the previous consolidated fiscal year to ¥102.91, and provisions for construction losses were increased by ¥6,234 million in connection with new orders. As a result, operating loss was ¥6,849 million.」

「In the core newbuild business, sales consisted mainly of low-priced vessels ordered after the Lehman shock, while the order environment was difficult and ship prices were generally low. In addition, provisions for construction losses were recorded for newly developed vessel types, including medium-sized refrigerated LPG carriers, and certain vessels already ordered as part of a medium- to long-term strategy. The company also increased these provisions toward the end of the period because of the sharp appreciation of the yen and other factors, resulting in a substantial decline in profit compared with the year-earlier period.」