| Dear Shareholders: |
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| First of all, let me express my heartfelt sympathy to all of the victims of the Tohoku Earthquake and Tsunami that occurred on March 11, and those affected by typhoons and floods, on behalf of everyone at "K" Line. |
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| We would like to report our accumulated 2Q (April-September) Fiscal Year 2011 consolidated financial status, and full-year financial position for Fiscal 2011, which have been disclosed today. |
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| During the first half of this fiscal year (April 1 to September 30, 2011; hereafter, the "1st Half"), the global economy remained stagnant as a result of disorder in financial markets, sluggish consumer spending, high unemployment and other factors in the United States. In Europe, uncertainty toward financial systems caused by the financial and fiscal crisis in the euro zone led to economic slowdown. In contrast, demand remained strong in China, India and other countries with emerging economies, but overall economic growth is starting to lose momentum. |
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| The marine transportation business environment deteriorated overall. |
| The containership market slumped because of a lack of recovery in freight rates, which fell earlier in the year, even during summer peak season and thereafter. |
| The dry bulk market had been weak because of supply and demand balance slack caused by deliveries of a large number of newbuildings, but demand recovered, particularly for large vessels, from the beginning of the summer as a result of strong demand in China and India. In the car carrier business, cargo movements of completely-built units have recovered from the drastic drop following the 3-11 earthquake, with a return to normal levels since this summer. |
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| The "K" Line Group is facing an adverse business environment, but has made all-out efforts to cut costs through measures such as eco-friendly slow steaming. |
| However, we were unable to compensate for the losses incurred as a result of changes in the business environment due to the earthquake, market decline caused by supply and demand, high Japanese yen and other factors, resulting in consolidated losses as follows: |
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| (Results for 1st Half Fiscal 2011) (1 April 2011 – 30 Sept 2011) |
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Unit: Billion Yen |
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Consolidated |
(Previous prospects) |
(F2010 1H Results) |
| Operating Revenues |
497.0 |
(500.0) |
(520.4) |
| Operating Income |
 18.4 |
(15.0) |
(50.0) |
| Ordinary Income |
20.3 |
(14.0) |
(42.8) |
| Net Income |
18.6 |
( 2.0) |
(26.3) |
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| (F2011 1H Yen/U.S. Dollar average exchange rate ¥80.24; bunker oil price U.S. $655 per KT) |
| *Data as of the end July, when 1Q Financial Results were announced |
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| We anticipate that demand in the containership segment will remain uncertain for the time being because of financial instability in Europe, sluggish consumer spending and the slow recovery of unemployment in the United States. Under these circumstances, we will closely monitor developments concerning demand on trunk lines from Asia to the U.S. and Europe, adjust the fleet size according to shipping demand, streamline ship operations by making use of alliances) and implement measures to reduce costs through slow steaming and other initiatives while continuing our efforts to restore freight rates. We will also work to improve profitability by expanding service networks in Intra-Asia, an area that is still expected to have firm growth in cargo movements. |
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| In the bulk shipping business segment, shipping demand to China and India in the dry bulk business is continuously firm, and demand for all vessel types is stable, driven by a recovery in the large vessel market. The supply of newbuildings, however, remains high, and the market outlook remains uncertain. Securing stable income from dedicated contract vessels and contracts of affreightment remain top-priority issues for the future, and the Group is addressing these issues by expanding its fleet to an optimal scale and working to secure new revenue sources by taking active measures to acquire new orders in rapidly-growing markets such as China and India. |
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| In the car carrier business, automobile production in Japan has recovered from effects of the 3-11 earthquake and exports from Japan are steadily recovering. Meanwhile, uncertainty is continuing to rise in regards to the extreme appreciation of the yen, the floods in Thailand and the weak global economy involving financial instability in Europe and the United States and other factors. We will continue to pay close attention to cargo movements amidst these rising uncertainties while working to improve profitability by implementing comprehensive and efficient allocation of vessels and restoration of freight rates. |
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| In the energy transportation and tanker business, operation of LNG carriers under long-term and medium-term contracts is expected to remain stable. In the tanker business, the market is likely to remain sluggish due to supply increase caused by the completion of newbuildings and stagnant demand in conjunction with overall economic downturn. The Group will respond by expanding stable revenue base by maintaining and extending existing contracts for VLCC. In the petroleum product tanker business, the Group will expand its customer base and work to improve profitability by increasing fleet allocation efficiency and reducing costs. The supply and demand environment for LPG carriers is improving as a result of increased demand, and consequently, higher income is expected. In the offshore support vessel business, the Group aims to acquire long-term, stable contracts for the six newbuildings that were recently completed. |
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| In the heavy lifter business, although cargo movements will decline in the third quarter because of seasonal factors, the market is undergoing a moderate recovery and we anticipate improved profitability. However, the progress of projects that can be expected to offer high rates has been delayed, and full-scale recovery is not expected until the coming fiscal year at the earliest. |
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| As discussed above, while the marine transportation business environment is expected to keep facing ongoing adversities, the Group will continue making further efforts to improve profitability through streamlining and cost-cutting measures. The Group's forecast of financial results significantly worsened from those initially announced, and as a result, revised forecasts were released on October 3. |
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| In the logistics and harbor transportation business, cargo movements declined following the 3-11 earthquake, but are gradually recovering in conjunction with the restoration of supply chains. Although there are causes for concern, including the financial instability in Europe and yen appreciation, we expect Asian markets to remain firm. |
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| (Revised Prospects for Yearly Fiscal 2011) (1 April 2011 – 31 March 2012) |
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Unit: Billion Yen |
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Consolidated |
(Previous prospects*) |
(F2010 Results) |
| Operating Revenues |
991.0 |
(1060.0) |
(985.1) |
| Operating Income |
30.0 |
( 5.0) |
(58.6) |
| Ordinary Income |
39.0 |
( 6.0) |
(47.4) |
| Net Income |
32.0 |
( 2.0) |
(30.6) |
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| (F2011 2H Yen/U.S. Dollar average exchange rate ¥77.0; bunker oil price U.S. $650 per KT) |
| (F2011 Yen/U.S. Dollar average exchange rate ¥78.62; bunker oil price U.S. $653 per KT) |
| *Data as of the end of July when 1Q Financial Results were announced |
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| Pre-conditions for foreign exchange rate and fuel oil price are as mentioned above, and sensitivity on our yearly Operating Income for this Fiscal 2011 is estimated as follows: |
| Exchange rate: 1 yen/US$ => Operating Income change approx 0.4 billion yen* |
| Fuel oil price: US$10/MT => Operating Income change approx 0.5 billion yen |
| * Yen depreciation is preferable for us. |
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| With respect to payment of dividends this fiscal year, the Group is expected to post a loss for the fiscal year because of the recent deterioration of the business environment, and consequently, the Group does not anticipate being in a position to pay a year-end dividend. |
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| 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 in all honesty, I can without any doubt or hesitation assure you of that. |
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| Thank you very much for your kind attention. |
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