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Message to Our Shareholders

Dear Shareholders:

Eizo Murakami
President & CEO

  Your Board of Directors always appreciates your continuing support.


  We would like to herewith report our 3rd Quarter Fiscal Year 2016 consolidated financial results and our estimates for full-year financial position for Fiscal 2016 that ends March 31, 2017.

1) Summary of Consolidated Operating Results for 3rd Quarter FY2016

Results for 3rd Quarter FY2016 Nine months ended December 31, 2015 Nine months ended December 31, 2016 Change
Operating revenues 977.8 760.9 (216.9)
Operating income(loss) 15.2 (34.7) (49.9)
Ordinary income(loss) 11.7 (36.9) (48.6)
Profit(loss) attributable to
owners of parent
9.3 (54.6) (63.9)
Exchange Rate (¥/US$)
(9-month average)
¥121.58/US$ ¥106.92/US$
Fuel oil price (US$/MT)
(9-month average)
US$325/MT US$244/MT

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

  During the first nine months of the fiscal year ending March 31, 2017 (from April 1, 2016 to December 31, 2016; hereinafter “the nine-month period”), the US economy expanded gradually amid firm employment environment and solid consumer spending. The European economy, after passing a temporary period of confusion due to the U.K. decision to exit the E.U., recovered a sense of stability and continued a gradual recovery supported by firm exports and solid consumer spending. The Chinese economy managed some respite from slowing growth, supported by an expansion of government public investments, but generally remained flat. In Brazil and other emerging countries, although a rise in resource prices marginally boosted some resource-rich countries, the impact of such price rise was uneven across the various countries, the overall tempo of recovery in the emerging economies weakened.
  As for the Japanese economy, despite signs of a pickup concentrated on exports against the backdrop of yen depreciation, such effects were not enough to bolster consumer spending, keeping the pace of recovery slow overall.
  In the business environment for the shipping industry, the outlook for the economic environment remained uncertain. Although a full market recovery is still expected to take some time, we expect a rise in resource prices and a gentle recovery in the global economy will gradually push freight rates out of the historical bottom of the freight market. In the container ship business, a loss was reported mainly due to low freight rate based on the vessel supply-demand gap, despite signs of a revenue pickup, such as improvement in the short-term freight market, particularly on East-West services.
  In the dry bulk business, the market has lifted out of the historically low levels at the start of the year and is on a course for recovery. While the vessel supply-demand gap is still on the way to improve, the market conditions were weighed down.
 The Group worked on measures to improve profitability, such as more efficient vessel allocation, and strove to reduce vessel operation costs. Nevertheless, business performance declined year on year.

  As a result, operating revenues for the nine-month period were ¥760.932 billion (down ¥216.851 billion year on year), operating loss was ¥34.682 billion (compared to operating income of ¥15.192 billion for the previous fiscal year), ordinary loss was ¥36.906 billion (compared to ordinary income of ¥11.729 billion for the previous fiscal year), and loss attributable to owners of the parent was ¥54.578 billion (compared to profit attributable to owners of the parent of ¥9.275 billion for the previous fiscal year). Performance per segment was as follows.


2) Prospects for Fiscal 2016

Prospects for FY2016 Prior Forecast
(at the time of announcement dated October 31, 2016)
Current Forecast
(at the time of
announcement of
the 3rd Quarter result)
Change
Operating revenues 970.0 1,010.0 40.0
Operating income(loss) (44.0) (43.0) 1.0
Ordinary income(loss) (54.0) (47.0) 7.0
Profit(loss) attributable to
owners of parent
(94.0) (94.0) -
Exchange Rate (¥/US$)
(12-month average)
¥103.66/US$ ¥108.23/US$
Fuel oil price (US$/MT)
(12-month average)
US$268/MT US$260/MT

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

  Looking at the global economy from the fourth quarter onward, while there are rising expectations for stimulation of the global economy through the aggressive fiscal initiatives and other policies of the new administration in the U.S., global economic trends are being monitored due to concerns that the new government’s commitment to protectionism may cause global trade to stall. In Europe, the outlook remains uncertain as ever due to geopolitical risks such as terrorism, and overall the region is expected to lack vigor going forward.
  In the containership business, although the freight rate market appears to have bottomed out, mainly in the East-West services, the recovery in short-term freight rates is expected to stall on account of an anticipated weakening of the freight market due to seasonal factors. The Company will strive to improve profits by adjusting vessel allocation through its alliance scale in line with supply and demand, strengthening its handling of relatively profitable cargo, such as reefer cargo, as well as taking even more meticulous cost cutting measures.
  In the dry bulk business, although demand for marine transport continues to increase slightly, adjusting the global tonnage surplus is expected to take more time. In this situation, the Group will continue to take steps to improve operating efficiency, as well as ensuring cost competitiveness by targeting uneconomical vessels for downsizing and so forth, and strengthening an income structure that is resilient against market fluctuations.
  In the car carrier business, the Group will continue to reinforce its business platform to reflect the change in the trade structure such as pursuing cargoes from South-East Asian countries and trade within the Atlantic Basin. At the same time, the Group will strive to enhance its revenue base by making maximum use of its successively completed fleet of large-sized and new-generation vessels, featuring larger loading capacity for heavy construction machinery and rail cars as well as improved fuel efficiency. In addition, the Group will work to reduce vessel costs and operation costs.
  In the LNG carrier business and Tanker business, the Group will work to secure stable revenues for LNG carriers, VLCCs and LPG carriers supported by medium- and long-term charter contracts.
  In the offshore energy E&P support business and the heavy lifter business, although it is expected to take some time for the market to recover due to the continuous effect of crude oil prices, the Group will work to improve its profitability through cost cutting and other means. In the logistics business, short sea business and coastal business, the Group will continue to aggressively expand its business operations.
  As noted above, although signs of recovery in the overall marine transportation market conditions are finally beginning to appear, it is going to take some time before the balance between vessel supply and demand improves fundamentally. In these conditions, the Group will strive to improve profitability through efficient vessel allocation and further cost cutting while implementing structural reforms as planned.
  Our important task is to maximize returns to our shareholders while maintaining necessary internal reserves to fund our capital investment and strengthen our financial position for the sake of sustainable growth, which is a priority of our management plan. However we consider it an urgent management priority to improve our financial strength in light of the current fiscal year’s forecast of a loss attributable to owners of parent. Accordingly, it is with sincere regret that the Company announces it has decided to pay no interim dividend and has forecasted no year-end dividend for the current fiscal year.

  Our sincerest apologizes to shareholders but we would greatly appreciate your understanding.

  All directors and employees of "K" LINE and the "K" LINE Group 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, 2017

  Eizo Murakami
  President & CEO
  Kawasaki Kisen Kaisha, Ltd

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