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Message to Our Shareholders

Dear Shareholders:

Eizo Murakami

Eizo Murakami
President & CEO

  Your Board of Directors always appreciates your continuing support.

  We would like to herewith report our 3rd Quarter Fiscal Year 2017consolidated financial results and our estimates for full-year financial position for Fiscal 2017 that ends March 31, 2018.

1) Summary of Consolidated Operating Results for 3rd Quarter FY2017

Results for 3rd Quarter FY2017 Nine months ended
December 31, 2016
Nine months ended
December 31, 2017
Operating revenues 760.9
884.1 123.1
Operating income(loss) (34.7)
7.1 41.8
Ordinary income(loss) (36.9)
9.4 46.3
Profit(loss) attributable to
owners of parent
9.3 63.9
Exchange Rate (¥/US$)
(9-month average)
¥111.68 ¥4.76
Fuel oil price (US$/MT)
(9-month average)
US$336 US$92

(Billion Yen; rounded to the nearest 100 million yen)

  In the first nine months of the fiscal year ending March 31, 2018 (from April 1, 2017, to December 31, 2017; hereinafter “the nine-month period”), the global economy continued to be steady on the whole despite rising geopolitical tensions in some regions.
  The U.S. economy stayed firm against the backdrop of continued favorable employment and income environments. As capital investment continued to grow due to a recovery in foreign demand and improvement in corporate earnings, the economy kept expanding. Meanwhile, the European economy grew at a moderate pace as private-sector consumption maintained relative high growth and exports remained firm in the euro zone despite a slowdown of the U.K. economy.
  In China, although private consumption continued to expand against the backdrop of strong exports due to a recovery in the global economy and a favorable income environment, the pace of economic growth slowed down moderately because the increase in industrial production decelerated as a result of monetary tightening and strengthening of environmental regulation.
  Emerging economies stayed generally strong because of such factors as the recovery of the economies of resource-rich countries due to a resource price rise, an improvement in the Indian economy and a pickup in domestic demand in ASEAN countries.
In Japan, production activity recovered moderately and exports stayed firm. As employment and income environments also remained steady, the Japanese economy continued to recover at a moderate pace on the whole.

  As for the business environment for the shipping industry, cargo movements in the East-West services remained firm in the containership business, but as the supply-demand balance did not improve, freight rates remained top-heavy. As a result, the containership business lacked strong momentum even in the busy season ahead of the Chinese national day holiday. In the dry bulk business, market continued to recover moderately owing to continued strong steel product demand in China in the Cape-size sector and robust cargo movements of grain and coal in the medium and small vessel sector. In addition to the structural reforms carried out in the previous two fiscal years in order to enhance competitiveness, the Group implemented measures to improve its profitability, including continued cost reduction and improvement of vessel allocation efficiency.

  As a result, operating revenue for the nine-month period was ¥884.066 billion (up ¥123.133 billion year on year), operating income was ¥7.148 billion (compared to operating loss of ¥34.682 billion in the same period of the previous fiscal year), and ordinary income was ¥9.395 billion (compared to ordinary loss of ¥36.906 billion in the same period of the previous fiscal year). Profit attributable to owners of the parent was ¥9.295 billion (compared to loss attributable to owners of the parent of ¥54.578 billion in the same period of the previous fiscal year).

2) Consolidated Prospects for Fiscal 2017

Prospects for FY2017 Prior Forecast
(at the time of announcement
dated October 31, 2017)
Current Forecast
(at the time of announcement of
the 3rd Quarter result)
Operating revenues
1160.0 20.0
Operating income(loss)
11.0 (2.0)
Ordinary income(loss)
3.0 (10.0)
Profit(loss) attributable to
owners of parent
8.5 -
Exchange Rate (¥/US$)
(12-month average)
¥111.51 ¥0.68
Fuel oil price (US$/MT)
(12-month average)
US$349 US$24

(Billion Yen; rounded to the nearest 100 million yen)

  In the fourth quarter and beyond, the global economy is expected to remain on the path of moderate growth on the whole despite signs of a slowdown of the Chinese economy, driven by the European and U.S. economies. However, a careful watch should be kept on the economic conditions, as a rise in geopolitical tensions or the rollback of monetary easing in various countries could cause the economy to slow down by inducing risk-aversion.
  In the containership business, freight rates are recovering from the historic low recorded in the previous fiscal year, but it is expected to take some more time for the supply-demand balance to improve in earnest. While consolidation and mergers between shipping companies are proceeding, the business environment is expected to remain harsh including the anticipated effect from rising fuel price. In this environment, the Company will provide full support for the start of the Ocean Network Express business scheduled for April 2018 and make efforts to improve profitability by developing a high level of competitiveness and service quality through the synergy effects gained through the growth of the business scale.
  In the dry bulk business, market is on the path of recovery as marine transport demand continues to increase slightly. Although it is likely to take some more time to resolve current situation of vessel supply being excessive, the supply-demand balance is expected to improve. In addition to continuing to improve the efficiency of vessel operation and reduce costs, the Group will strive to expand stable income by increasing medium- and long-term contracts through its strengths.
  In the car carrier business, despite the lingering uncertainty over the future course of the economies of resource-rich and emerging countries as well as oil-producing countries, mainly in the Middle East, global demand for marine transport of finished vehicles is expected to stay firm over the medium to long term in line with growth in global vehicle sales. On the other hand, automakers’ production bases are becoming increasingly diverse amid a shift to trends such as “promotion of Electric Vehicles (EVs)”, “local production, local consumption”, “mass production in the right place”, and “appropriate production volume in the right place”. In order to make a flexible and timely response to changes in and the increasing complexity of the trade structure, the Group will reorganize the trade network and maintain an optimal fleet scale in an appropriate manner. The Group is also strengthening its business foundation by winning new transport contracts for the period from 2018 onwards, mainly with European and U.S. shippers, for example. In addition, the Group will strive to enhance its revenue base by making maximum use of a new generation of large vessels featuring greater loading capacity for heavy construction machinery and rail cars. It will also continue strenuous efforts to reduce vessel expenditure and operation costs.
  In the energy transportation business, the Group will strive to secure stable revenue for LNG carriers, VLCCs, LPG carriers and thermal coal carriers by maintaining medium- and long-term charter contracts.
  In the offshore energy E&P support business, although it is expected to take some time for the market to recover, the Group will continue efforts to improve its profitability through cost cutting and other measures.
  In the domestic logistics business, demand for logistics services is expected to remain firm, mainly for warehousing and inland transport, thereby securing stable revenue and profit. In the international logistics business, handling volume related to air cargoes, mainly of aircraft parts and semiconductors, is expected to remain firm. The Group will maximize its profit in the international logistics business by strengthening its global network developed through the containership business in addition to expanding localized services.
  In the short sea and coastal business, the Group will strengthen its sales base through the expansion of existing businesses and diversification such as the offshore business.

  As described above, although the market has started to recover moderately, mainly in the dry bulk business, it is expected to take some time before the vessel supply-demand gap is fully resolved. Although freight rates for containerships are recovering after hitting bottom, they have remained top-heavy since the third quarter. As a result, the forecasts of the Group’s overall results in the full year have been revised downward.
  The Group regards it to be its important task to maximize the return to its shareholders while maintaining necessary internal reserves to fund its capital investment and strengthen its financial position so that the Group can achieve sustainable growth, which is one of the priorities of its management plan. However, as outlined in the medium-term management plan announced in April 2017, improving the financial structure and stabilizing the business foundation are its top priorities for the current fiscal year. Therefore, as was already announced, the Group has maintained its forecast on no year-end dividend for the current fiscal year.
 Our sincerest apologizes to shareholders but we would greatly appreciate your understanding.

  All of "K" LINE Group members are vigilantly dedicated to the accomplishment of our goals with one voice, and we appreciate your continued support and encouragement.

  Thank you very much for your kind attention.


January 31, 2018

Eizo Murakami
President & CEO
Kawasaki Kisen Kaisha, Ltd

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