President and CEO
Your Board of Directors always appreciates your continuing support.
We would like to herewith report our Fiscal Year 2013 consolidated financial results and our estimates for full-year financial position for Fiscal 2014 that ends March 31, 2015, together with notice regarding payment of dividend.
During the current fiscal year (April 1, 2013 to March 31, 2014) the world saw a mild recovery trend in the U.S. economy and also some signs of improvement in Europe as well after prolonged stagnation because of the sovereign debt crisis. Among emerging economies, China continued to grow mildly, albeit at a slightly decelerating pace, while economic growth in India and some other countries remained more sluggish than our expectations.
Our Containership business was affected by the prolonged slump of the European economy and tremendous decline in freight rates due to overall excess supply situation, so earnings deteriorated severely. However, supported by cost curtailment measures, including reorganization of unprofitable routes, beneficial usage of ship space, efficient fleet deployment, thorough management of fuel price, etc., we almost achieved a balance in profit and loss.
Although car carrier business faced weak growth in the number of ex-Japan built-up cars, both revenue and profit increased due to our reinforced efforts on cargoes for trans-Atlantic services, homebound routes toward Asian region, construction machinery, etc., together with review of our transportation contracts and efficient ship deployment, including reformation of service network. In dry bulk freight rates, we were favored by a substantial improvement in and after the summer months on the back of increased volume. principally of iron ore cargo bound for China.
For energy transportation businesses, including oil tanker segment and LNG carrier segment, we almost secured profit as expected based on mid-/long-term contracts.
Offshore energy E&P support business took off 5 years after we started that business.
In heavy lifter business, the market was severe in mid-/small-sized vessels sectors, and we were pushed to post more loss than our expectations.
In short sea and coastal business, we continued to earn rather stable profit.
Reviewing overall financial results for Fiscal 2013, we have summarized that even with significant negative factor of containership freight market, we still achieved both revenue and profit increase in year-on-year comparison due to fruits from cost-cutting activities deployed throughout all group companies and profit improvement effect of yen depreciation.
(Results for Consolidated Fiscal 2013 (1 April 2013 – 31 March 2014))
Unit: Billion Yen
|FY13 results||(FY12 results)|
|Operating Income||28.9||( 14.9)|
|Ordinary Income*||32.5||( 28.6)|
|Net Income||16.6||( 10.7)|
* Ordinary Income is Income before income taxes and extraordinary items
(FY2013 Yen/U.S. Dollar average exchange rate \99.75; bunker oil price U.S. $626 per MT)
(Guidance for Consolidated Fiscal 2014 (1 April 2014 – 31 March 2015))
In containership business, we expect cargo movement to recover on East-West routes for the reason that the U.S. economy is on a recovery trend and that the European economy, which had long been in a slump because of the sovereign debt crisis, appears to have hit bottom amid uncertainties stemming from the Russian-Ukrainian situation. However, it will take a longer time before the freight market recovers in a full-fledged manner in view of so many giant-size containerships being put into services. On East-West routes we will take maximum advantage of the streamlining effect expected to be generated by our alliance while working to reduce vessel operating costs by means of thorough-going slow steaming for profitability improvement.
With respect to logistics business we expect ex-Japan air cargo to continue recovering, and Asia-centered logistics activities to stay robust.
In dry bulk business, we expect large-size vessels to enjoy a further market recovery because the pace of increasing supply by the massive delivery of newly-built vessels has peaked out and firm iron ore movement has continued. The medium-/small-size vessel markets are also expected to be steady in concert with recovery of large-size vessel market while improvement in supply-demand balance for the medium-/small-size vessels will still take more time.
In car carrier business, we see the number of ex-Japan built-up cars is in a gradual diminishing trend, but on worldwide basis, demand for marine transportation of built-up cars out of South-East Asia and in regions in Atlantic waters, etc. continues to be strong. We will flexibly work along with such change in trade patterns and also focus on further efforts to secure such high and heavy cargoes as construction machinery.
In energy transportation businesses, we expect LNG carriers to work steadily supported by medium-/long-term charter contracts. In tanker business, we will work to have VLCCs and LPG carriers earn stable profits operating under long-/medium-term charter contracts, while seeking profitability improvement on medium-size tankers and product carriers through their efficient allocation.
In short sea and coastal business, we will work to secure fleets and provide service that meets the market conditions and demand trend of customers while we will be engaged in more careful business operations continuing to earn stable profit toward further revenue and profit increase together with enhanced cost competitiveness from ceaseless effort to use ship space most efficiently.
In offshore energy E&P support business, we expect offshore support vessels and a drill ship to work in a stable manner in contribution to earnings.
In heavy lifter business, it will still take more time before any improvement is seen in the relatively competitive medium-/small-size vessel market. Contrastingly, for the future we expect cargo growth in line with an increase in the number of energy- or infrastructure-related projects, and our group companies will work to win more of such highly- profitable orders for transportation as well as for marine installation works, and will continue to cut costs for improved earnings.
As of today, we expect our 2014 yearly forecasts as follows:
Unit: Billion Yen
|FY14 forecasts||(FY13 results)|
|Operating Revenues||1, 230.0||( 1,224.1)|
|Operating Income||36.0||( 28.9)|
|Ordinary Income*||34.0||( 32.5)|
|Net Income||18.0||( 16.6)|
* Ordinary Income is Income before income taxes and extraordinary items
(Premises for FY2014: Yen/U.S Dollar exchange rate \100/US; fuel oil price U.S. $621 per MT)
Pre-conditions for foreign exchange rate and fuel oil price are as mentioned above, and sensitivity on our yearly Ordinary Income for this Fiscal 2014 is estimated as follows:
Exchange rate: 1 yen/US$ => Ordinary Income change approx 1.0 billion yen*per annum
Fuel oil price: US$10/MT => Ordinary Income change approx 1.2 billion yen per annum
* Yen depreciation is preferable for us.
The Company’s highest priority is maximizing return to shareholders while taking into consideration the need for securing internal reserves necessary for reinforcing the Company’s financial standing and capital investment to achieve sustainable growth, both key issues of the Company’s management plan. Our policy for payout ratio is to gradually increase the dividend payout as a percentage of consolidated net income, with a target of reaching 30% by the mid-2010’s.
As to payment of term-end dividend for the current fiscal year, although we had advised that our plan was to pay 3.50 yen per share as previously announced in our 3rd Quarter financial results at the end of January, the "K" LINE Group has posted consolidated net income of 16.6 billion yen for this full fiscal year, so we, therefore, have decided to pay term-end dividend of 4.50 yen per share.
In the next fiscal 2014 (fiscal year ending March 2015), an annual dividend of 5.0 yen per share (including 2.5 yen per share of interim dividend) is planned in line with the above policy.
We now see somewhat improved circumstances in business surrounding marine transportation business, and our own business performance has also improved. However, when unpredictable events occur in terms of market conditions for any field of marine transportation business, exchange rate, or fuel oil price, etc., they can have a negative impact on business in related areas and markets and also on the financial status of our overall “K” Line Group.
In addition, the Japan Fair Trade Commission (“JFTC”) investigated the group due to a suspected violation of the Antimonopoly Act of Japan regarding ocean shipment of automobiles and wheeled construction machineries, etc., and moreover, authorities related to anti-trust laws of both the E.U. and U.S, as well as other countries, have also been investigating us. Among them are the JFTC-issued cease-and-desist orders and administrative surcharge payment (5,698 million yen) orders to us for violating Article 3 (Unreasonable Restraint of Trade) of the Antimonopoly Act of Japan in March 2014.
Additionally, in the U.S. group class action lawsuits against several carriers, including “K”Line Group, were filed and in the future more civil lawsuits could be filed against us. When these investigations and a series of further procedures due to administrative, civil and criminal laws associated with those investigations other than Japan are completed, and the results indicate whether our group will have further legal responsibility, including any surcharge, fine, penalty, damage compensation, etc., we cannot forecast firmly at present. Depending on the results, our business operations, financial status and profit loss condition could be negatively affected.
The “K” Line Group will maintain a sound financial position as its highest priority task, and work for thorough-going rationalization in our services and cost curtailing to earn profits for dividend payout to the maximum extent.
We express our deepest appreciation for your support and look forward to your continued cooperation to our “K” Line Group.
Thank you very much for your kind attention.
April 30, 2014
President & CEO
Kawasaki Kisen Kaisha, Ltd
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