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Explanation by article

Ladies and Gentlemen,

Thank you very much for sharing your time to join us today. I will explain "K" LINE' s Fiscal 2007 3rd Quarter financial results, and our prospects for full-year financial position for Fiscal 2007 according to the Power Point slides in front of you, and the documents in your hands, which indicate the same contents.

A-1. Financial Results for 3rd Quarter Fiscal 2007

I will start off by talking about accumulated consolidated results during the 9-month period from April 1 to December 31, 2007 mentioned in this A-1 slide.

For year-on-year basis, Operating Revenues were 984.6 billion yen, an increase of 23%. Ordinary Income was 101 billion yen, up 142%, i.e., nearly 2.5 times, and Net Income was 68 billion yen, plus 91%.

On 9-month accumulation basis, Operating Revenues and Income at every level achieved new historically high records.

Average exchange rate during the 9-month-period was 117.57 yen per one U.S. dollar, and bunker oil price was 381 U.S. dollars per kilo ton.

But taking this 3rd Quarter only, the average exchange rate was 113.45 yen, showing appreciating trend, and bunker oil price reached 438 U.S. dollars per kilo ton, soaring significantly.

Yen depreciation of 1.61 yen in year-on-year comparison positively affected results by 1.6 billion yen, and fuel price increase of 56 U.S. dollars per ton caused minus 11.0 billion yen effect.

A-2. Key Points for 3rd Quarter Fiscal 2007

Both Operating Revenues and Ordinary Income increased compared to previous year results. As a factor for the results, we can count 'Business Expansion' in every business division.

A total of 18 new ships previously ordered were delivered year-to-date, consisting of 2 containerships, 9 dry bulk carriers, 2 PCCs, 1 LNG, 3 oil tankers, and 1 for coastal shipping.

Another factor was that we succeeded to restore freight rates in our containership sector, especially for Asia-Europe routes, and, as you know very well, dry bulk market has climbed and maintained its improved level, which also greatly contributed to our profits by nearly 70 billion yen, mentioned as 'Market Volatility' in this table.

Profit from our 'Business Expansion' improved by almost 20 billion yen.

These factors covered negative effects from bunker oil price hike, or other cost rising.

Furthermore, as I have previously explained, we changed our accounting standard from 'full-loading and sailing method' to 'percentage of complex transportation method' , as of September 30. Although we reported the effect was 14 billion yen with our 1st Half results and revised full-year prospects in this October, it has now been calculated at 13.2 billion yen due to freight rate change, etc.

A-3. Outline of Division-wise Results in 3rd Quarter Fiscal 2007 for Containership Business

Our containership sector, the major part of our core business, consists of nearly 50 % of our entire Operating Revenues, and so, when you see our company' s gain/loss trends totally, you must check what is going on in containership business, concerning which you will ask various questions about this area later.

Regarding results from this 1st Quarter to 3rd Quarter, Operating Revenues increased by over 80 billion yen in comparison with previous year results, and Ordinary Income grew by 15.0 billion yen.

A factor that added revenues and profits for Containership sector was extension of our business scale, such as delivery of 8,000TEU-type new ships. Especially we were able to enhance 'East-West' trades and then 'North-South' trades, which was one of our targets in our present mid-term management plan. As we intend to raise the ratio of 'North-South' trades in our overall containership business, we have continuously reinforced these trades. We have started two new services from Europe to East Coast of South America and from Asia to East Coast of South America, which is another step into the future.

Loading volume for Asia-Europe and 'North-South' trades, except trades for the U.S., enlarged on stable basis. Total volume in our container services was about 10.5 % growth from last year. Cargo movements into the U.S. also fared decently, but not necessarily favorable.

As indicated in this table, the concerned freight rates for Asia-Europe trade were restored by 31% for year-on-year comparison, which was one of the important factors contributing to our drastic improvement.

One of the most severe cost-up factors was bunker oil price hike. Our parent-basis fuel consumption per annum is estimated approximately 4.7 million tons, which is slightly more quantity as consolidated group total. Around 50% of that is consumed for containership services, which are generally operated at quite high speed of nearly 25 knots and so fuel use is very large.

Therefore, bunker oil price change affects profitability in this segment quite substantially.

As I touched on this a moment ago, the effect from the accounting standard change to "Percentage of complex transportation method" was also counted, which had been included before.

We have achieved 15.0 billion yen profit jump from last year altogether.

A-4. Outline of Division-wise Results in 3rd Quarter Fiscal 2007 for Dry Bulk Business

In Dry Bulk Division, we also achieved both revenue and profit increase, which, in some senses, contributed to improve company' s overall results the most.

Rising revenue factor was business expansion with 9 newbuildings received by this 3rd Quarter in this fiscal year, as I mentioned previously.

The factor pushing our profit up was especially the market for large-size bulkers continuing its inflation, and also mid- and small-size bulkers hovering at a high level.

As mentioned in the table in this slide, average market rate during the 3rd Quarter solely for Cape-size bulker was 179,000 U.S. dollars daily, and Panamax 82,000 dollars, which applied to a part of our free vessels.

A-5. Outline of Division-wise Results in 3rd Quarter Fiscal 2007 for Car Carrier Business

In our Car Carrier business, we were fortunately able to again achieve a rise in both revenues and profits.

Car exports mainly from Japan to various countries were remarkably positive.

Our fleet was relatively small versus the huge demand and so we had a very tough time to arrange suitable vessels, as described by one media as "rush without profit." However, we tried to manage by providing effective operations and successfully achieved rise in both revenues and profits.

Two 6,000-unit large ships were delivered by the 3rd Quarter of this fiscal year, and all of the eight ships we had received within last fiscal year were now in full operation.

Intra-Europe transportation was also expanded, which was operated by our German subsidiary, '"K" Line European Sea Highway Services' , for a nearly 15% growth year-on-year basis.

Total number of cars transported moved upward to 2.51 million, over 8% growth from last year.

Driving factors for gaining profit were loading volume increase and trying for a most effective fleet operation.

A-6. Outline of Division-wise Results in 3rd Quarter Fiscal 2007 for Energy Transportation

As for Energy Transportation business, total revenue resulted in an increase, however, to my regret, profits were slightly down for year-on-year comparison.

Revenue rise was caused by one short-time charter LNG carrier, and together with our existing fleet of 32 vessels, our present LNG fleet of total 33 was in steady operation.

In our tanker business, one new VLCC and two refrigerated Ammonia/LPG Carriers that started operation in 1st Half were operated smoothly, which resulted in revenue improvement.

The biggest factor causing downward profit was sluggish market for AFRAMAX operated by our subsidiary in Singapore, which declined below previous year level.

However, at present the market has recovered and we hope it will stay at reasonable level in the future.

A-7. Outline of Division-wise Results in 3rd Quarter Fiscal 2007 for Other Businesses

For the Short Sea/Coastal Shipping sector, especially domestic ferry services in Japan mainly operated by our consolidated subsidiary Kawasaki Kinkai Kisen Kaisha, Ltd., revenues and profits reportedly rose.

In Logistics sector, we achieved both revenue and profit growth due to handling volume being up through synergy effect among our domestic and overseas group companies.

B-1. Prospects for Yearly Fiscal 2007

February has started today, so only two months are left for this fiscal year, and at the present time I do not believe our yearly prospects are likely to make any further tremendous change. I suppose we can achieve our forecasts published at the same time as our financial results for the 1st Half of Fiscal 2007, i.e., full-year Operating Revenues of 1,300 billion yen, Ordinary Income 128 billion yen and Net Income 84 billion yen.

For the 4th Quarter, we set the assumption for exchange rate at 105 yen per U.S. dollar, and fuel oil price 487 dollars per kilo ton as average. Premise for the 487 dollars was that crude oil price at Dubai market was 85 dollars. We see no further drastic change happening there.

If we can successfully achieve present forecasts, we are ready to pay 13 yen per share as dividend for the end of Fiscal 2007, making total dividend of 25 yen for the full-term Fiscal 2007.

B-2. Business-wise Operating Revenues/Ordinary Profit Loss

On segment-wise basis, annual Ordinary Income earned by Containership Business is calculated as 5.8 billion yen.

Although for the 4th Quarter, what we call 'slack season' , when cargo movements become the most slack every year even with Chinese New Year, we see some loss due to such seasonality, but we will still be able to manage 5.8 billion yen profit for this full-year period.

For Other Marine Business segments, total of Dry Bulk, Car Carrier and Energy Transportation is prospected to achieve 115.6 billion yen, and together with the Other Businesses, overall company profit will amount to 128 billion yen.

B-3. Key Points for Yearly Fiscal 2007

On a full-year basis, in year-on-year comparison, revenues and profit are expected to jump. Operating Revenues are estimated to reach 200 billion yen growth and profit level almost double.

Based on presumptions for 4th Quarter that I mentioned before, annual average fuel oil price is 408 U.S. dollars per kilo ton, and exchange rate is 114.43 yen per U.S. dollar.

Compared to last year' s results, although both conditions are cost increase factors, with bunker oil price rising from 319 dollars to 408 dollars per ton and yen appreciating from 117 yen to 114 yen per U.S. dollar, we will be able to achieve revenue and profit increase.

From the prediction as of October 2007 when our 1st Half results were announced, exchange rate and bunker oil price are again negative factors, which will be balanced with dry bulk market remaining at a continuously high level, becoming somewhat volatile recently.

B-4. Outline of Division-wise Fiscal 2007 Prospects for Containership Business

As to our prospects for Containership Business, compared to previous year, revenue and profit are rising, but compared to the last estimation as of October, revenue will decline because loading volume will be somewhat short of our target, and profit will also be down, partly because of bunker oil price hike. In fact, our cargo volume projection is not much less than our previous estimation.

Except for Asia-North America trades where cargo movements are considerably slowing down, we still see strong cargo trends in other trades overall. So, I believe in mid-term view, we do not have to be too worried about worldwide cargo demand.

B-5. Outline of Division-wise Fiscal 2007 Prospects for Other Marine Businesses

Regarding business conditions for other than Containership, in the Dry Bulk Business sector, as I touched on before, quite favorable freight market is still being maintained, and compared to last year, we received total 10 newbuildings within this fiscal year, which have contributed to further improvement.

For Car Carrier sector, 4 new ships have been delivered within this year, with both revenue and profit growth having been achieved.

Though Energy Transportation sector was, as explained previously, in a slight slump in the early part of this year, the market picked up and we will be able to count on recovery for 4th Quarter or later.

This completes my explanation. Thank you very much for joining us today.

 

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