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Explanation by article

Ladies and Gentlemen,

Thank you for joining us today.

I will explain "K" LINE's Fiscal 2006 financial results, and our prospects for full-year Fiscal 2007according to the Power Point slides in front of you, and the documents in your hands, which indicate the same contents.

A. Financial Highlights for Fiscal 2006

A-1. Financial Results for Fiscal 2006

To sum up the yearly results for Fiscal 2006 in one sentence, Revenues increased but Profits decreased for year-on-year comparison.

Consolidated Operating Revenues are 1 trillion 85.5 billion yen, which has surpassed 1 trillion yen for the first time in our history, and a rise of approximately 15% in comparison with the previous year.

By contrast, Ordinary Income was 63.9 billion yen, almost 28% drop from last year, which I see was not really so bad comparing with our past results.

Our historically high record was 107.2 billion yen achieved in Fiscal 2004, and then second best was 88.6 billion yen for Fiscal 2005, and thereafter this 63.9 billion yen, which was, we could say, third best ever.

Net Income was 51.5 billion yen, somewhat decreased from last year, which I felt was rather moderate.

What is characteristic for Fiscal 2006 results was sharp increase in bunker oil price, and drastic drop in containership freight rates, especially in Asia-Europe trades starting from summer 2005.

Affected by these, the Company's profits significantly dropped, while our group companies' earnings faired quite well, and now ratio of Consolidated to Non-Consolidated has exceeded 2 at income levels.

It is also notable that thanks to positive gains for these few years, and also effect of low interest rate, balance of financial account turned plus for the first time in our records, which we think suggests our financial strength is gradually being improved.

Regarding dividend, we are ready to offer 18 yen per share annually as proposed previously, which is same as the previous year.

This figure is calculated based on 20% consolidated payout ratio, the target set in our interim management plan "K" LINE Vision 2008+.

Average exchange rate resulted in 117 yen per one U.S. dollar, weakened by 4 yen in year-on-year comparison.
Fuel oil price was 319 U.S. dollars per kilo ton, 33 dollar rise from previous year.

A-2. Key Points for Fiscal 2006

As touched in the previous slide, in year-on-year basis, Operating Revenues grew by approximately 145 billion yen, and Ordinary Income reduced by nearly 25 billion yen.
Analysis of this factor for Ordinary Income shows slight yen depreciation against the U.S. dollar made small profit gain, Bunker Oil Price hike resulted in about 10 billion yen minus, and Market Volatility caused nearly 20 billion yen loss.

However, Business Expansion resulted in about 40 billion yen plus, which is mainly from Containership and Dry Bulk Business

Furthermore, there were factors of 'Cost Increase or Decrease', which included inland cost up, and cost increase through business expansion mainly in Containership Business.

Effect of total from all these factors resulted in profit being down about 25 billion yen.

A-3. Outline of Division-wise Results for Fiscal 2006 (for Containership Business)

For Containership Division, loaded cargo volume rose nearly 11% from last year to almost 3 million TEU's partly because of our capacity expansion.

Three of four 8,000TEU-type ships, the largest ones in our containership fleet, were delivered within Fiscal 2006. The remaining one has just been received in April this year. Then, start-up of new services such as so-called ' SINA' from Asia to North America via Suez Canal, etc., also contributed to our business scale expansion.

However, as I mentioned before, mainly because of freight rate reduction in Asia-Europe trades in comparison with the same term last year, Containership Division loss was 7.8 billion yen as a whole.

This Division earned 30 billion yen in the previous year, and 40 billion before that. In comparison with the results two years ago, profits fell by almost 50 billion yen for Fiscal 2006.

Although we of course continued our efforts to save various costs, the drop in freight rates in Asia-Europe trade caused serious damage.

When we had to make revised forecast for yearly Fiscal 2006 about one year ago, we were prepared to have a very hard year ahead due to lower freight rates. We strongly determined as a primary target in any event that the rate level must hit bottom within the fiscal year, and that the trend would be to bring it upward in the next year, that is Fiscal 2007. At that time we gave instructions to all our agents worldwide to no longer lower rates anymore and furthermore to continue making additional cost reduction efforts.

As a result, as I have explained in our quarterly report, we recognized that the rate for Asia-Europe trade bottomed out from February to April 2006, and thereafter through a few chances in rate negotiation, we have now succeeded with restoration to the level of at least half of the amount to which rates had dropped, though we cannot say 100% yet.

As I will touch on this again when explaining Prospects for Fiscal 2007, freight restoration has been effective in reality step-by-step even after this April. I believe there is little doubt that our last year decision, allowing the rate to bottom out within Fiscal 2006 and recover in Fiscal 2007 and afterwards, will be realized.

A-3. Outline of Division-wise Results for Fiscal 2006 (for Dry Bulk Carriers)

Though Containership Business resulted in profit decrease, Dry Bulk Division limited the effect thanks to the freight market level staying at a significantly high level.

In this division, both revenues and profits rose in comparison with last year.

Although we had felt somewhat anxious about the market level in the future when it tentatively went into a slump during the1st Quarter 2006, it picked up after 2nd Quarter, and now is at a historically high level.

Business scale was enhanced with 22 newbuildings delivered within Fiscal 2006, which resulted in 11% rise in operating tonnage.

We can see that what mostly affected the markets was crude steel production growth in China together with their imports of related raw materials, and so the market was fairly strong.

A-3. Outline of Division-wise Results for Fiscal 2006 (for Car Carriers)

For these two years or so, our tasks were to fulfill such a tremendous export demand by our customers. Though basic business mood reflected a good trend and the number of cars carried were increased, our profitability became rather lower due to inflated spot charter rates. As for Fiscal 2006, the situation was much improved with new ships delivered one after another, which also seemed to make our profitability somewhat better.

Total number of cars transported moved upward to over 3 million, and such strong demand is expected to continue for a while.

A-3. Outline of Division-wise Results for Fiscal 2006 (for Energy Transportation)

In our Energy Transportation business, total revenues increased due to business scale expansion but profits were flat, for year-on-year comparison.

One new VLCC was delivered at the end of last year, and has been long-term chartered by Idemitsu Kosan Co., Ltd.

AFRA-Max tankers managed by our subsidiary "K" Line (Singapore) Pte Ltd are operated smoothly, and earned rather stable profits.

Profits being flat for year-on-year basis means market softened slightly. However, as global energy demands are prospected to be notably strong in the future, market trends for this area should be positive in the long run.

During Fiscal 2006, our fleet of LNG carriers rose to a total of 31 vessels, including 2 new ships added, one of which was for the Snohvit project.

A-3. Outline of Division-wise Results for Fiscal 2006 (for Other Businesses)

For the Short Sea/Coastal Shipping sector, domestic ferry services in Japan mainly operated by Kawasaki Kinkai Kisen Kaisha, Ltd., our consolidated subsidiary, revenue increase was achieved, however continuing high level of bunker oil price diminished their profits.

In Logistics business, we could enjoy some rise in both revenue and profit due to comparable solid cargo movements and continued efforts to improve share in Japanese air cargo market becoming effective little-by-little through synergy effects from setup last July of a total logistics business company, "K" Line Logistics, Ltd., by the merger of our two subsidiaries, "K" Line Air Service, Ltd. and "K" Logistics Corp., a marine forwarding company.

B-. Prospects for Fiscal 2007

B-1. Prospects for Fiscal 2007

Now, I will move to yearly prospects for Fiscal 2007.

As I touched on previously, in international marine transportation business we expect the stable market situation will continue for a certain time.

Although some concern about that might be, as you know well, a slowdown in economic performance by the U.S.A., which is of interest to not only the containership business industry, but many other various fields throughout the world, when I have met and talked with various customers, they have generally been rather optimistic.

In view of this, although we cannot say there should be totally no concern as was the case sometime ago, fears that cargo demand would drop due to weak housing demand, as is often commented about in newspapers nowadays, might not affect real cargo flow so much, but there is at least a little reason for concern.

As it happens, I talked this morning with one of our customers, a retailer that newly signed a Service Contract for Asia-U.S. trade with us, and they commented that there should not be so much reason for serious concern. Quoting their comments, even with price of gasoline per one gallon recently exceeding 3 dollars in the U.S.A., we do not need to worry about the economic situation unless the price is over, say, 5 or 6 dollars, and present retail demand is still very strong. Therefore, I feel like we do not need to be overly anxious right now.

Considering such circumstances, our target for Operating Revenues for Fiscal 2007 is 1.2 trillion yen, 10% up from previous year. Prospected Ordinary Income is 95 billion yen, approximately 49% growth, and Net Income is 63 billion yen.

Premises for those figures are Yen-U.S. Dollar exchange rate set at 115 yen per U.S. dollar, and bunker oil price at 350 dollars per metric ton during Fiscal 2007.

Of course 1.2 trillion yen Operating Revenues will break our historical record just as 63 billion yen Net Income will also do if achieved.

As we have proposed 20% dividend ratio, based on this consolidated Net Profit, the Company will be ready to pay 20 yen per share as full-year dividend for Fiscal 2007, marking a 2-yen rise from the previous year.

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

When we announced our 3rd Quarter Fiscal 2006 results, our image of earnings for the next year, Fiscal 2007, was roughly 30 billion yen improvement in total, with 20 billion from Containership Business and 10 billion from the other business sectors in comparison with Fiscal 2006.

Accumulating these various factors, present prospected profits to be earned in Containership division is slightly less than the expected 20 billion yen, mainly due to buoyant bunker oil price compared to 3 months ago, but figure is still similar to that.

Present actual dry bulk market level is much more positive than our pre-conditions for these forecasts. So, now I feel there are very few risks to achieve these figures.

B-3. Key Points for Fiscal 2007 Prospects

As profit up/down factors are indicated in this table, the biggest factor leading to jump in our profits is Market Volatility, and then Business Expansion.

Our Fiscal 2007 Prospects included approximately 1.7 billion yen of additional depreciation due to tax system change in Japan being effective this year, and about 0.6 billion yen rise in Panama Canal fees, which is charged as a part of costs for adding an extra lane to the Panama Canal to be operative from 2015, though the start of charge has been prolonged for a few months.

B-4. Division-wise Trends for Fiscal 2007 Prospects <Containership>

Regarding Containership Business, as touched previously, loading volume is prospected at 10 % increase and freight rates are in recovery trend.

B-4. Division-wise Trends for Fiscal 2007 Prospects <Other Businesses>

For Businesses Other than Containership, I am afraid I must repeat almost the same explanation as before that Car Carrier Business has been in a favorable trend. We will receive 4 new ships during this year, after adding 8 last year and 8 the year before, which will accelerate the trend in recovery of profits.

We see the market for Dry Bulk Business as continuing to stay at the very high level as at present.
Here we show pre-conditions for our Fiscal 2007 prospects:
Taking Cape-size, although charter market levels are set at 60,000 U.S. dollars per day for both 1st and 2nd Half, present actual market level is over 100,000 dollars.
For Panamax and Handy-size, the trend in each market is similar to Cape-size.
We expect the basic trend of the dry bulk market will generally be maintained in a strong mood for the time being, of course going up and down occasionally.

By chance, I met a customer today from China, and, how I can say.. as this is probably the same in any market, a person working nearer to the actual market seems to feel the market trend more sensitively, and now they seem to have the feeling that the market is really strong. So, for awhile, I cannot answer as to exact timing even if I were to be asked, however I suppose this situation will last at least for another few years.

Regarding Energy Transportation, adding three new LNG carriers within this fiscal year in our fleet, LNG Division is expanding business scale step-by-step.

In Oil tanker Division, which will be touched on again later in slide D-3 "Fleet Upgrading", one new VLCC for time-charter contract with ExxonMobil will be delivered within this year. Furthermore, two new Ammonia carriers are to be completed in a Korean shipyard.

Our business scale for this division will grow steadily, and profit level is expected to be rather stable.

C. Progress of "K"LINE Vision2008+

C-1. Progress of "K" LINE Vision 2008+ Tasks and Efforts

The primary assignments for our management plan are as indicated here: "Sustainable growth and establishment of a stable profitability structure"

Several sub-themes are mentioned here: first, the most important for us is the second line in the upper group, 'Establishment of ship operation administration structure supporting safety in navigation'. We have a deep understanding that without safety navigation, we cannot carry out our marine transportation business in any way, so we will make every effort to establish necessaary systems for safety in navigation.

For that purpose, securing sufficient number of qualified seafarers is essential.
As indicated in this slide mentioning 'Setting up of "K" Line Maritime Academy', a large training center in Manila will be founded in this December.

Using this as a core, we also have a plan to establish another similar Maritime Academy in India, "K" Line Maritime Academy India, to further strengthen our systems for safety in navigation.

Then, as was publicized the other day, we have again made entry into heavy-lift shipping business from which we withdrew in early 1990's, through a new joint venture with the German-based SAL Group (SAL), one of the world's leading heavy lift shipping companies.

C-2. Progress of "K" LINE Vision 2008+ Cost Reduction

Regarding cost-curtailing progress, as I have previously said each time, if you ask me if we can continue to reduce costs forever, I must say 'yes'. We will keep trying our best as potential cost saving items are still continuously being born in many fields along with our expansion of various service networks.

We achieved around 10 billion yen for last year in total, including merit from fleet expansion, and we will try to achieve almost the same amount for this year.

C-3. Progress of "K" LINE Vision 2008+ Fleet Upgrading Plan

Regarding vessel investment, for Fiscal 2006 a total of 47 ships were delivered, and for Fiscal 2008, over 40 are planned.

For this Fiscal 2007, only 25 are scheduled, and so we can say this year will be in somewhat of a trough, mainly because we could not fix contracts for sometime now after shipbuilding costs started to increase at the end of 2003, as we had prospected the tentatively hiked price might be down soon.

Our fleet upgrading plan has proceeded smoothly in general. This time we have publicized our 3-year detailed plan until 2009.

As we are now negotiating about ships to be delivered around 2012, with costs being much more expensive than ever, we hesitate to fix an order every
time when we must make such decisions. However, our intention is to maintain present operating scale and even enhance it along with market growth.
So, as far as the markets are expanded, we will order ships by design and will have serious talks with our customers viewing such conditions of shipbuilding price hike to fix contracts in balancing among long, middle, and short-term, and we will further keep upgrading our fleet.

C-4. Progress of "K" LINE Vision 2008+ Major Financial Indices

When our forecasts for Fiscal 2007 are achieved, major financial indices are partially over the targets set for Fiscal 2007 in the management plan, although especially in terms of profits some room still remains to be fulfilled. So, we are not changing targets at present for Fiscal 2008, the final year of present management plan, and we will try our best to achieve them earlier. We will probably set targets for Fiscal 2009 and afterwards within this year. .

Shareholders' equity has been accumulated in small steps to become 400 billion yen at the end of Fiscal 2007 if the prospects are accomplished.

Interest bearing liabilities have slightly increased, but we feel this item is still not at a level where we must be greatly concerned for now.

Because convertible bonds issued before have been partly converted to shares, DER will not increase as much as the rise in interest bearing liabilities, and may even be improved.

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

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