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NYK reports significantly improved results for the year ended March 31, 2022

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Shri Vaibhavi Logistics

TOKYO : 1.Review of Operating Results and Financial Position
(1)Review of Operating Results
1) Operating Results for the Fiscal Year 2021
Financial results for the consolidated fiscal accounting year are as follows:

Overview
During the current consolidated fiscal year, the COVID-19 pandemic continued to have an impact on the global economy. The supply-and-demand for shipping space continued to be tight mainly in Liner & Logistics, leading to higher freight rates. As a result, from the first quarter, the financial results in every quarter were strong and exceeded the same period last year.

In the container shipping division, while the robust shipping demand remained ongoing, there was little improvement in the overall supply chain disruptions caused by COVID-19, resulting in strong markets throughout the year. Consequently, the financial results of OCEAN NETWORK EXPRESS PTE. LTD. (ONE) were firm. In the Air Cargo Transportation and Logistics segments, although international passenger flights continued to be suspended and cancelled due to the impact of COVID-19, cargo volumes were firm. Also, some ocean cargo continued to be shifted to air freight due to the maritime shipping disruptions. In the Bulk Shipping segment, vessel utilization increased in the car transportation division as a result of innovative vessel deployment and other actions. In the auto logistics segment, while withdrawing from unprofitable businesses, investments were made in businesses expected to grow in the future, and progress was made in revising the business portfolio. In the dry bulk division, the strong volumes of iron ore and coal combined with vessel congestion worldwide due to typhoons, heavy rain and COVID-19 border controls caused tight supply-and-demand conditions, leading to greatly higher market levels for all vessel segments compared to last year. In the energy division, although the unbalanced supply and demand for shipping capacity caused the tanker market to decrease significantly compared to last year,

the energy division was steady on support from the long-term contracts that generate stable earnings mainly for LNG carriers. Bunker prices were higher compared to last year.

As a result of the above, for the current consolidated fiscal year, revenues amounted to ¥2,280.7 billion, operating profit amounted to ¥268.9 billion, recurring profit amounted to ¥1,003.1 billion and profit attributable to owners of parent amounted to ¥1,009.1 billion, and profit significantly increased compared to last year. Due to the strong financial results at our equity method affiliate ONE, equity in earnings of unconsolidated subsidiaries and affiliates of ¥742.6 billion was recorded as non-operating income. Within this amount, the amount of equity in earnings of affiliates from ONE was ¥713.7 billion for the current fiscal year and ¥222.4 billion for the fourth quarter.

(Overview by Business Segment)

Liner Trade
In the container shipping division, the continued port congestion and inland congestion due to a shortage of drivers caused by COVID-19 led to little improvement in the overall supply chain disruptions, resulting in tight supply-and-demand for shipping space. In the fourth quarter, although the business was impacted by the situation in Russia and Ukraine, continued tight supply-and-demand conditions caused freight rates to rise, and the financial results of ONE were strong. In the major trades, sailings were voided in the North America trade as turnaround times grew longer due to port congestion, resulting in lower liftings and higher utilization year on year. In the Europe trade, liftings were higher compared to last year, but due to softer supply-and-demand conditions in the second half, utilization fell compared to last year. Freight rates were higher than last year on both trades, greatly contributing to profits. Within this situation, ONE worked to relieve the supply chain disruptions by procuring containers and adding extra sailings.
As a result of the above, profit increased on higher revenue in the overall Liner Trade compared to last year.

Air Cargo Transportation
In the Air Cargo Transportation segment, while international passenger flights continued to be suspended and cancelled due to the impact of COVID-19, cargo volumes of mainly automotive components and semiconductors were strong. In addition, some ocean cargo continued to be shifted to air freight due to a shortage of space aboard containerships and port congestion. This caused both cargo volumes and freight rates to trend at high levels. Also, some of the European flights were suspended in the fourth quarter due to the situation in Russia and Ukraine, but the impact on the overall results was minor.
As a result of the above, profit greatly increased on higher revenue in the overall Air Cargo Transportation segment compared to last year.
Also, in the third quarter, Nippon Cargo Airlines (NCA) cancelled the lease agreements and took ownership of 7 Boeing 747-8F aircraft operated by the company. This will enable the aircraft to be used flexibly in response to the future changes in the business environment. As a result of this acquisition, an extraordinary loss of about ¥8.0 billion was recorded in the third quarter for the penalty incurred when cancelling the lease agreements.

Logistics
In the air freight forwarding business, the supply-and-demand balance tightened following the robust demand and decreased supply of space caused by the ongoing COVID-19 related suspension and cancellation of international passenger flights. Within this situation, the efforts to secure space through agile procurement activities and to arrange charter flights led to higher handling volumes compared to last year and were the drivers of overall business performance.
In the ocean freight forwarding business, handling volumes declined slightly compared to last year as it was difficult to secure space due to tight supply-and-demand conditions caused by port and inland congestion, but sales prices caught up with the soaring procurement prices, leading to improved profit levels, and the overall business performance was strong.
In the logistics business, demand for mainly consumer goods was firm, and handling volumes increased compared to last year.
In the coastal transportation business, demand recovered from the impact of COVID-19 last year, and handling volumes increased.
As a result of the above, profit increased on higher revenue in the overall Logistics segment compared to last year.

Bulk Shipping
In the car transportation division, the shortage of automobile components caused by COVID-19 and the global semiconductor shortage had an impact on finished-car handling volumes, but along with improving vessel utilization by optimizing vessel deployment plans and sailing schedules, alternative cargo was acquired through cooperation with affiliate companies and by maintaining close communication with

customers, resulting in higher handling volumes compared to last year. In addition, the procurement of eco-friendly vessels is being actively promoted, and the second LNG-fueled pure car and truck carrier entered service in March. In the auto logistics segment, although the business environment differed in each country and region, efforts were made to reduce costs and rationalize the businesses, including withdrawing from unprofitable businesses. At the same time, investments were made in business expected to grow in the future, and progress was made in revising the business portfolio, including building and opening a new finished-car terminal in Turkey and an initiative aimed at shipping finished cars from China to Central Asia by rail.
In the dry bulk division, during the peak season from July through September, shipments of iron ore from Brazil picked up after the wet season ended, while in China, multiple typhoons, heavy rain and the enactment of stricter border measures against COVID-19 led to increased vessel waiting times. Consequently, the Capesize market rose to the highest level in 11 years. After peaking in early October, the market started to decline as vessel waiting times in China dropped, but it still trended at greatly higher levels year on year. From January, the market underwent a seasonal correction and returned to levels on par with last year. In the Panamax segment, coal procurement increased when the price of natural gas exceeded that of coal in June and July. Imports of coal into China increased ahead of the peak electricity demand season, and the market peaked in October. Thereafter, the global congestion eased, and the market corrected. From January, soy bean shipments from Brazil began earlier than usual, and the market trended at levels exceeding the same period last year. As a result, overall market levels trended at levels much higher year on year. Within this environment, along with fixing revenue through the use of futures contracts to minimize the impact of market fluctuations, efforts were made to stabilize revenue by securing long-term contracts and reduce costs through efficient operations.

In the energy division, although OPEC Plus gradually ended the coordinated production cuts from May, the shipping capacity supply-and-demand balance did not improve, and the VLCC (Very Large Crude Carrier) and petrochemical tanker markets remained at historic lows. Although the petrochemical tanker market soared from the late February due to the situation in Russia and Ukraine, the impact on the VLCC market was transitory and the market returned to the previous low levels. In the VLGC (Very Large LPG Carrier) market, from June, along with entering the weak demand season, the LPG export price from the United States rose, causing the price difference for LPG from the United States and Middle East to contract. As a result, shipments from the United States with relatively higher transportation costs due to the longer distance slackened, and the decline in overall ton-miles caused market levels to remain low. Although the market soared from September as shipments increased ahead of the peak winter demand and congestion occurred at the Panama Canal, it did not reach the strong levels seen in the previous year. In terms of tankers, although the ratio of contracts affected by market volatility is limited, the market was extremely weak compared to the same period last year and had a negative impact on earnings. In LNG carriers, the results were steady based on support from the long-term contracts that generate stable earnings. Also, in the offshore business, FPSO (Floating Production, Storage and Offloading) and drill ships were steady.
As a result of the above, the overall Bulk Shipping segment recorded increased profit on higher revenue compared to the last year.

Real Estate and Other Businesses
In the real estate segment, profit decreased on lower revenue compared to last year following the partial transfer of shares of a subsidiary. Also, extraordinary income of about ¥23.0 billion was recorded in the second quarter as a result of this share transfer.
In the Other Business Services segment, bunker fuel sales were strong and a recovery was apparent in the technical service business and sales of marine equipment supplies business, resulting in improved results compared to last year. In the cruise business, some of the cruises were operated while strengthening measures against COVID-19, such as PCR inspections on the day of boarding. In the fourth quarter, cruises were scheduled to recommence following the regular vessel dry docking from January, but operations were suspended due to a problem with electrical equipment aboard the vessel that occurred in late March. As a result of the above, although revenue increased in the Other Business Services segment compared to last year, a loss was recorded.

(2)Review of Change in Financial Position
Total assets as of the end of the current consolidated fiscal year were ¥3,080.0 billion, an increase of ¥954.5 billion compared to the end of the previous consolidated fiscal year due to an increase in notes and operating accounts receivable-trade, contract assets and investment securities after recording the profit from equity method affiliates including ONE. Interest bearing debt decreased by ¥142.8 billion compared to the end of the previous consolidated fiscal year to ¥808.2 billion due to a decrease in bonds payable and loans payable, and total liabilities amounted to ¥1,320.9 billion, a decrease of ¥137.1 billion compared to the end of the previous consolidated fiscal year. Under consolidated equity, retained earnings increased by ¥951.4 billion and shareholders’ equity, which is the aggregate of shareholders’ capital and accumulated other comprehensive income, amounted to ¥1,713.7 billion. This amount combined with the non-controlling interests of ¥45.3 billion brought total equity to ¥1,759.0 billion. Based on this result, the debt-to-equity ratio (D/E ratio) came to 0.47, and the equity ratio was 55.6%.

(3)Cash Flows
The balance of cash and cash equivalents as of the end of the current consolidated fiscal year was ¥226.6 billion, an increase of ¥123.1 billion compared to the end of the previous consolidated fiscal year.
Cash flow from operating activities was ¥507.7 billion (compared to ¥159.3 billion at the end of the previous fiscal year) as a result of the profit before income taxes of ¥1,037.3 billion, non-cash depreciation and amortization of ¥101.5 billion, equity in earnings of unconsolidated subsidiaries and affiliates outflow of
¥742.6 billion and interest and dividend income of ¥288.0 billion. Cash flow from investing activities was an outflow of ¥148.5 billion (compared to an outflow of ¥16.8 billion at the end of the previous fiscal year) as a result of the acquisition and sale of non-current assets, mainly vessels. Cash flow from financing activities was an outflow of ¥237.5 billion (compared to an outflow of ¥125.4 billion at the end of the previous fiscal year) due to decreases in loans payable, payment of the dividend, redemption of bonds payable and repayment of leases liabilities.

(4)Consolidated Earnings Outlook
In the container shipping division, although the next fiscal year remains difficult to foresee due to the impact of the COVID-19 lockdowns in China and the situation in Russia and Ukraine, the forecast is based on the assumption that the robust demand mainly in North America ongoing from the current fiscal year will settle down and the situation will gradually normalize from the second half. At the terminals in Japan, handling volumes are forecast to remain unchanged from the current fiscal year, and concerning the overseas terminals, efforts will be made with the aim of transferring the terminals on the west coast of North America to ONE early in the next fiscal year.
In the Air Cargo Transportation business, supply-and-demand is expected to slacken to a certain extent due to the return of international passenger flights and lower demand, but the overall results are forecast to remain strong.
In the Logistics business, handling volumes are expected to remain unchanged from the current fiscal year in the air freight forwarding business, and although profit levels will decrease due to lower transportation demand and the return of international passenger flights, they are forecast to remain elevated compared to normal years. In the ocean freight forwarding business, handling volumes are expected to increase, but profit levels are forecast to decline due to slackening transportation demand. In the contract logistics business, earnings are expected to stabilize as a result of the initiatives carried out to date to reduce costs and revise the contracts, including price adjustments.
In the automotive transportation division, improvement is anticipated in the semiconductor shortage, and shipping volumes are forecast to increase primarily in North America.
In the dry bulk business division, although the markets for all vessel segments are expected to settle down compared to the current fiscal year, the results are forecast to remain firm.
In the energy business division, the VLCC (Very Large Crude Carrier) and VLGC (Very Large LPG Carrier) markets continue to be weak, but the results are expected to remain steady based on support from the stable medium to long-term contracts in the LNG carrier and offshore businesses.
Based on the above forecast, profit is expected to be lower on increased revenue in the next consolidated fiscal year, but the business results are expected to remain at a favorable level.

(Notes) From fiscal year ending March 2023, “Air Cargo Transportation” and “Logistics” are treated as business instead of segment. In addition, “logistic business” is renamed as “contract logistics business”. As for Bulk Shipping business, “car transportation division” is changed to “automotive transportation division”, “dry bulk division” to “dry bulk business division”, and “energy division” to “energy business division”.

(5)Basic Policy Concerning Dividends and Planned Dividend Payments
We have designated the stable return of profits to shareholders as one of the most important management priorities, and the distribution of profits is decided after comprehensively taking into account the business forecast and other factors and generally targeting a consolidated payout ratio of 25%. At the same time, based on an ongoing minimum dividend that is not affected by the business results, an annual dividend of JPY20 per share has been set as the minimum dividend for the time being.
In addition to this basic policy, we considered a share buyback, but for the current fiscal year (year ending March 2022), we will only issue a dividend. The year-end dividend has been increased from the previous forecast by JPY250 to JPY1,250, and including the interim dividend, we plan to issue a full-year dividend of JPY1,450 per share.
Concerning the upcoming fiscal year (year ending March 2023), based on the same policy, we currently plan to issue an interim dividend of JPY650 and year-end dividend of JPY400 for a full-year dividend of JPY1,050.

2.Basic Approach to Selection of Accounting Standards
We currently apply Japanese generally accepted accounting principles to the consolidated financial statements of the NYK Group. We constantly examine application of the optimal accounting standards with a view toward the future while paying due attention to trends surrounding the various accounting standards available to us for selection.

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