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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 Fiscal Year 2015 consolidated financial results and our Prospects for Fiscal Year 2016 that ends March 31, 2017.

1) Summary of Consolidated Operating Results for FY2015

Results for FY2015 Year ended
March 31, 2016
Year ended
March 31, 2015
Operating revenues 1,243.9 1,352.4 ▲ 108.5
Operating income 9.4 48.0 ▲ 38.6
Ordinary income 3.3 49.0 ▲ 45.6
Net income attributable to
owners of parent
▲ 51.5 26.8 ▲ 78.3
Exchange Rate (\/US$)
(12-months average)
¥120.78 ¥109.19
Fuel oil price (US$/MT)
(9-months average)
US$295/MT US$541/MT

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

During the fiscal year ended March 31, 2016 (from April 1, 2015 to March 31, 2016; hereinafter “the fiscal year”), despite weakness in some areas, the global economy recovered gradually overall. In the U.S., personal consumption and real estate investment increased, providing a backdrop for a continued strong economic recovery. Amid this, the Federal Reserve Board meeting held in March decided to keep the target policy of interest rate in the range between 0.25% and 0.50%. In Europe, the economy showed weakness in some areas, amidst the ongoing Greek fiscal crisis and refugee issue as a new concern, but gradually recovered by the euro’s depreciation due to additional quantitative easing by the European Central Bank. Meanwhile, the slowdown in the Chinese economy became clear, with ongoing reduction of excess investment and adjustment of surplus facilities, despite solid growth in consumption. Also, the sharp fall in resource prices such as crude oil affected the economic conditions in emerging markets in Asia, and the economies of countries exporting natural resources, such as Brazil and Russia, also deteriorated.

The Japanese economy continued its gradual recovery trend with the improvement in employment and income environment; however, although the yen depreciated temporarily against the U.S. dollar due to quantitative and qualitative easing with the Bank of Japan adopting a negative interest rate, the yen proceeded to strengthen subsequently, and the Nikkei Stock Average continued to exhibit volatility and unstable movements.

In the business environment for the shipping industry, market conditions turned favorable in the oil tanker business amid a fall in fuel oil prices, due to expansion in stockpiles and transport demand associated with the drop in crude oil prices. Nevertheless, in the containership business, the freight rate market slumped as the gap between vessel supply and demand widened due to stagnating cargo movement combined with the continued launching of newly-built large-sized containerships. In the dry bulk business as well, freight rates stagnated at historically lowest market levels, as an oversupply of vessels overlapped a retreat in demand due to the slowdown in the Chinese economy and other factors. The Group made efforts to improve profitability, such as more efficient vessel allocation, and strived to reduce vessel operating costs. Nevertheless, business performance declined year on year.

As a result, operating revenues for the fiscal year were ¥1,243.932 billion (down ¥108.488 billion year on year), operating income was ¥9.427 billion (down ¥38.560 billion), ordinary income was¥3.338 billion (down ¥45.642 billion), and net loss attributable to owners of parent was ¥51.499 billion (compared to net income attributable to owners of parent of ¥26.818 billion for the previous fiscal year), due to the recording of extraordinary losses etc. during the fourth quarter, as the business environment faced structural changes, such as disposal of ships, early cancellation of charter contracts and loss on impairment. These extraordinary losses were posted as the result of Group’s business structural reform to reduce the risk of exposure to market conditions and further accelerating the reduction of fleet scale, focused on small- and medium-size vessels, in the dry bulk business.

2) Prospects for Fiscal Year 2016

For the fiscal year ending March 31, 2017, the Group is projecting operating revenues of ¥1,100 billion, operating income of ¥17 billion, ordinary income of ¥15 billion and net loss attributable to owners of parent of ¥35 billion.

Prospects for FY2016 Fiscal 2016
(Ended March 31,2015)
Fiscal 2015
(Ended March 31, 2016)
Operating revenues 1,100.0 1,243.9 ▲ 143.9
Operating income 17.0 9.4 7.6
Ordinary income 15.0 3.3 11.7
Net income attribute to
owners of parent
▲35.0 ▲51.5 16.5
Exchange Rate (¥/US$)
(12-months average)
¥110.00 ¥120.78
Fuel oil price (US$/MT)
(12-months average)
US$275/MT US$295/MT

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

In the business environment for the shipping industry, there is concern of a sluggish demand for cargo movement due mainly to marked slowdown of the Chinese economy, weakness in economies of emerging markets accompanying a slump in resource demand, and the effect of uncertainty in the European economy where there is political unrest caused by the refugee issue. In addition, with the currently ongoing vessel supply pressure, it’s expected that a certain amount of time will be needed for full-fledged recovery of supply and demand balance and market conditions, which reached record low levels. Under such structural changes to the business environment, the Group carried out revisions to the medium-term management plan which has “Ensuring competitiveness through business structural reform in addition to ensuring stability” as its top priority initiative. As a result, an extraordinary loss is expected to be recorded due to the implementation of structural reform for the dry bulk business, affiliated subsidiaries, etc., following the current fiscal year.

3)Medium- to Long-Term Management Strategy and Target Indicators for Management

In March 2015, the Group announced a medium-term management plan with fiscal 2019 as the target year. Since then, however, global economic growth has slowed, notably so in China and other emerging countries since mid-2015. In addition to this, we have seen rising geopolitical risks such as the refugee issue in Europe. Against this backdrop with widespread uncertainty, the Group decided to review the medium-term plan in light of the structural changes afoot in the business environment, giving particular attention to the weakening growth in demand and the continuation of tonnage supply pressure. As a result, in April 2016, the Group formulated a new medium-term management plan “Value for our Next Century - Action for Future -”.

Under the new medium-term management plan, the Group will carry out initiatives for achieving sustainable growth and enhancing corporate value guided by the following three core themes:

  • (i) Ensuring stability by improving financial strength and competitiveness through business structural reform
  • (ii) Further business growth based on financial soundness
  • (iii) Dialogues and collaboration with stakeholders (in order to achieve sustainable growth and enhance corporate value)

Financial results of the fiscal year, and projections and key financial indicators for “Value for our Next Century - Action for Future -”

* Please visit our following website for the details, such as related documents.

4)Basic Dividend Policy and Dividend Payments for Fiscal Year 2015 and Following Fiscal Years

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.

For the annual dividend in the fiscal year ended March 31, 2016, we plan to pay a year-end dividend of ¥2.5 per share as previously announced.
The annual dividend in the fiscal year ending March 31, 2017 has yet to be decided because net loss attributable to owners of parent is expected.

We express our 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 28, 2016

Eizo Murakami
President & CEO
Kawasaki Kisen Kaisha, Ltd

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