Ladies and Gentlemen, thank you very much for joining us on such a hot summer day.
Before explaining our financial results, we can report that the new share issuance that was resolved in our July 2nd Board meeting has been successfully completed.
We fully realize and deeply appreciate this could be accomplished primarily thanks to your support.
Approximately 50.0 billion yen obtained from the fund raising will henceforth be utilized for capital expenditures and strengthening of our financial base in order to further increase our corporate value.
We ask for your kind understanding that no report was made to you until completion of the public offering due to legal restraints, etc.
We will be very grateful to have your continued understanding and assistance to Kawasaki Kisen Kaisha, Ltd. ("K" LINE) in the future.
A-1. Financial Results for 1st Quarter Fiscal Year 2012
Now I will explain our 1st Quarter Fiscal Year 2012 (April 2012 – June 2012) consolidated financial status along with slides and documents in your hands.
Let me indicate financial data first: Operating Revenues were 273.6 billion yen. Operating Income was ‘plus’ 4.1 billion yen, Ordinary Income plus 7.2 billion yen, and Net Income was deficit of 0.7 billion yen.
Average exchange rate for 1st Quarter was 80.77 yen per U.S. dollar which appreciated by 1.27 yen for year-on-year basis, and average fuel oil price was 716 U.S. dollars per metric ton, up by 72 dollars per ton.
Impact from these two factors on our profit is mentioned at the bottom of this slide: Negative effect from exchange rate was about 0.4 billion yen and from fuel oil price was about 2.3 billion yen compared to the same term in the previous year. However, the result is, as mentioned in this slide, that we have achieved posting a profit at the level of both Operating Income and Ordinary Income, which is the first time in 6 consecutive Quarters that we can report this to you.
As for Net Income, because we recognized revaluation loss from investment securities as of the end of 1st Quarter, we have had to regretfully and continuously post loss of 0.7 billion yen.
Apart from those numerical data, there are two features in our financial results of this 1st Quarter about which I will explain.
First, we have changed our accounting policy to review vessel depreciation term (service life). In particular, the service life of containerships, car carriers, oil tankers, and a part of dry bulkers, which means only dry bulkers that were built in line with new ballast tank paint standards adopted by the International Maritime Organization, was prolonged to 20 years from this fiscal year.
Accounting effect from the review of service life is estimated as plus 3.0 billion yen for the 1st Half and plus 4.0 billion yen for the 2nd Half.
Please note that our updated forecasts for this full fiscal year include these effects.
Second, as mentioned in the table on the right for segment-wise revenues and profit, we have amended segments from this fiscal year and we added Logistics to Containership Business, which was heretofore included in ‘Other Businesses.’
One reason is that Logistics and Containership businesses are very closely related, and another reason is that another major Japanese shipping company also shows their financial data in almost the same manner, so we will go along with them.
Then, out of the Bulk Shipping Business, we have sorted some rather newly started businesses; Offshore Support Vessel business, Heavy Lifter business as well as ‘energy development and transportation business.’ From among them, the one which we have already started is Drill Ship business and we have formed a new independent business segment named ‘Offshore E&P Support and Heavy Lifter business’, which is where we will discuss these new businesses from now on.
As the first disclosure for these new categories, in this 1st Quarter in Fiscal 2012, you can see Containership Business with 133.2 billion yen Operating Revenues and Ordinary Income of 0.6 billion yen, a drastic recovery from the previous year as indicated in this slide.
In the same way, Bulk Shipping Business Ordinary Income was plus 6.0 billion yen, another significant improvement for year-on-year basis as well. Then, talking about the newly-formed segment, for this 1st Quarter, Ordinary Income was also a plus, and aggregating all segments, total Ordinary Income was 7.2 billion yen, which I touched on at the beginning.
Now, there is one more point where I should call your attention, which is not systematic change or such, but this 7.2 billion yen profit includes considerable valuation profit from overseas subsidiaries’ debt in yen, whose accounting currencies are Norwegian Krone, etc. The exchange rates at the end of this March were favorable for us.
A-2. Estimate for 1st Half Fiscal Year 2012
Now let’s turn to the next page and you will see our 1st Half estimate?
I will talk about 2nd Quarter forecasts where Operating Revenues are almost the same as 1st Quarter.
However, Operating Income is down to 0.9 billion yen from 4.1 billion yen for 1st Quarter, and Ordinary Income is minus 3.2 billion yen while it was plus 7.2 billion yen in 1st Quarter.
Net Income is also minus 4.3 billion yen. In total for 1st Half, Operating Income is plus 5.0 billion yen and Ordinary Income plus 4.0 billion yen with Net Income minus 5.0 billion yen.
What we have grasped up to now is these estimations. Obviously, you may ask later whether 2nd Quarter should usually be better than 1st Quarter and why.
So I will now answer that it actually is true. So investigating details about difference between 1st and 2nd Quarter, we found some vessel schedules fluctuated before and after 30th of June, the breakpoint in determining whether profit is posted in 1st or 2nd Quarter, as is often the case for shipping companies.
This time a considerable number of vessels expected to be booked for 2nd Quarter moved forward in 1st Quarter, which is another factor for unbalanced figures between 1st and 2nd Quarters.
In the light of these factors, 1st Half Operating Income is plus 5.0 billion yen and Ordinary Income is plus 4.0 billion yen, which includes 3.0 billion yen inflation by change of vessels’ service life which I explained before.
So, it might be most natural if you suppose our updated Ordinary Income for 1st Half is, substantially, around just 1.0 billion yen.
Indicated in this table, as per our original estimate announced this April, Ordinary Income was minus 1.0 billion yen and Ordinary Income minus 2.0 billion yen, when we still felt a slight uneasiness about how long containership freight rate levels would keep increasing and our estimates were rather conservative. We can still say that compared to these estimations, our updated ‘substantial’ profit level has improved.
A-3. Estimate for Yearly Fiscal Year 2012
Moving to Slide A-3, I will talk about full-year forecasts for Fiscal Year 2012. As I touched before, updated 1st Half plan improved from our original estimate as of this April.
As for 2nd Half, actually our 2nd Half predictions basically remain unchanged from what we set in April, because fuel oil price, freight rate level of each business, or talking from a broader viewpoint, global economies, especially the European economic situation, have been quite chaotic, so we therefore suppose we should not assume any exact figures at this moment.
Briefly stated, we have not worked on that yet. However, effects from the change of service life of our fleet that I mentioned before, and some other minute factors which have already been fixed, were counted and from which we made this revised 2nd Half plan.
Finally, a total of 1st Half and 2nd Half is this year's prediction: Operating Revenues of 1 trillion 130 billion yen; Operating Income plus 27.0 billion yen; Ordinary Income plus 22.0 billion yen; and Net Income 8.0 billion yen. We will now give you our present guidance.
Segment-wise estimate for this full year is at the bottom of this slide.
Talking about containership business in which you are most interested, during 1st Half, as I explained before, partly because we started to include logistics business in this category, it returned to the black. 2nd Half estimation is based on freight rate levels set as of April, slightly lower than 1st Half, and based on that level, Ordinary Income of 1.0 billion yen is estimated at the present time.
As to Bulk Shipping Business, I suppose our Vice President, Mr. Saeki, will give some further explanation later. But because market for dry bulk carriers, especially for Cape-size, the largest type, has been significantly falling, I feel the premises for the market we set as of April will need to be revised later.
However, even including all such factors, we have assumed 2nd Half in this way, and we will inform you of those yearly estimates as of now, partly because we will make them our target.
A-4. Key Points
For the rest, we will report about ‘Key Points’ and then ‘Progress of Cost Saving Plan’. Regarding ‘Key Points’ for variation of profit, I have talked about many points until now and I think I have touched on everything, so now let's move to the next slide.
A-5. Progress of Cost Saving Plan
As to our yearly cost saving targets set as of April totaling 28.0 billion yen, during 1st Quarter we achieved 5.8 billion yen, ratio of 21% progress. As we will keep making continuous cost reductions as scheduled, I believe we can achieve the original targets.
Although I hesitate to repeat it too often, the biggest factor in our cost saving plan is fuel oil costs being down due to slow steaming, then fruit of rationalization or consolidation in service routes in containership business is also significant. By including general and administration costs and costs in affiliate companies, we are now promoting "cost cut campaigns."
The remaining part of this report is business-wise trends. Now, as our directors who administer or are in charge of each business are here, it would be better to let them explain rather than for me to talk, particularly involving points in which you are interested. Let us start with Containership Business.
B-1. Division-wise Trends
Here we mention freight fluctuation and I would like to give further explanation as you probably want to know the reason for improvement in this 1st quarter for year-on-year basis, because other explanations are already explained as you can read here.
As explained previously, result of 1st quarter 2011 was deficit of 7.2 billion yen and it is 0.6 billion yen in 1st quarter of 2012 which means increase of nearly 8.0 billion yen although it contains effect from change of business segments. About 8.0 billion yen of increase is because of Freight restoration and cost decrease by rationalization of service, that’s all.
In addition to those factors, we offset minus factor for bunker cost increase because bunker price hiked from $640/mt in 2011 to $710/mt in 2012, and including all other factors such as change of business segments, the improvement is about 8.0 billion yen.
Comparing result of minus 18.0 billion yen in 1st half 2011 and estimate of plus 2.0 billion yen in 2012, there is about 20.0 billion yen improvement, this also being due to freight restoration and cost decrease through service rationalization as I said previously. We estimate an increase of 20.0 billion yen, including bunker price increase and effect of business segment changes in addition to those factors.
Then another issue is that our estimate for 1st half changed from minus 2.0 billion yen to plus 2.0 billion yen which is an improvement of 4.0 billion yen as a result of review this time.
You may question if that improvement in this part is too small. In this 1st quarter freight restoration advanced more than we expected, but in 2nd quarter, as you may know, further freight restoration was a bit slow after achieving break-even point in AE (Asia-Europe) and TPS (Transpacific). In AE, freight was restored once, then adjusted back, which was repeated twice, so estimate of 2nd quarter is a bit lower than estimate as of April, although it is a drastic improvement, of course, from last year.
In addition to freight, we think our cargo volume will also slightly decrease from our original estimate considering current European economy, or at least that is our way of looking at this time. On the other hand, we think we can achieve 4.0 billion yen improvement in 1st half considering all factors such as bunker price drop, effect of additional slow steaming and improvement of profitability of agents due to freight restoration.
B-2. Division-wise Trends
-Dry Bulk Business-
With regard to Dry bulk, as all of you well know about this segment, no one has "good news" in this segment, which all comes down to the supply pressure of newbuildings still being strong. At the beginning of this year, there were 270 newbuildings to be delivered in 2012 on orderbook basis, and about 100 vessels have actually already been delivered up to now, so another 180 or 200 vessels will be delivered within this year. In these circumstances, scrapping of vessels is increasing but may be around 70-80 vessels, 100 in maximum case At the end there will be around 100 vessels of net increase, considering that we think it will be difficult to have any picture for recovery of the market within this year.
Under the circumstances, although the market was not so good in 1st quarter, our results were not too much lower than our estimate as of April.
One of the reasons for this is our decreasing market exposure by using FFA, or making them 1-year contracts although that means fixing loss amount in advance.
Otherwise, one of the largest impacts is from cost decrease through our going forward with slow steaming which provides bunker consumption savings.
In addition, we try to manage most efficient allocation of vessels by best composition of cargo balance in close consultation in each trade.
From those combinations we are constantly striving to maintain our profit.
Although it may be a bit early to talk about it, the main issue is 2nd half.
We have not yet changed our market premises for 2nd half, but we think $23,000 for Capesize may be a bit difficult. Let me say now, as there will be same question later, in 9 months after 2nd quarter our market exposure of Capesize will roughly be 20% of our fleet which means around 18 vessels. This means that sensitivity of $1,000 is about 0.4 billion yen. I do not think the difference will be $10,000, but that could be the worst scenario, but we will continue trying appropriate countermeasures as we mentioned. We have not posted a deficit in this Dry bulk segment for 33 years, thanks to the successful effort of our seniors. In order to defend this record at all costs, we will use all countermeasures by any means, although we do not think it will be easy.
B-3. Division-wise Trends
-Car Carrier Business-
Next is Car Carriers. As we mention here, loading results in 1st quarter were 900,000 units which is 25% increase compared with 730,000 in 1st quarter of 2011.
This reflects drastically improved export volume from Japan following severe earthquake damage in March last year.
On the other hand, exports to Europe are decreasing while exports to other destinations are holding steady.
Off-shore trading which does not directly involve Japan and return voyages from Europe to Asia are comparatively firm.
Bunker prices were a bit higher, same as we mentioned for Containerships, but cargo volume increased more than bunker impact, which makes for profitability improvement.
As to focus for the future, economic conditions in Europe and strong yen are still continuing, so export volume of Japanese Automakers is still of some concern.
We think we can achieve somewhere near 3,700,000 units which was our loading volume target for this year which we set at the beginning of the year, although it may decrease slightly.
B-4. Division-wise Trends
-LNG Carriers and Oil Tankers-
Please first look at the market chart in B-4. Looking at 1st quarter, the market of VLCC and Aframax, and even that of Clean Tankers, is very weak for each of them.
For VLCC, it is even much worse, being in the 30s recently.
This is basically the same structure as that of Dry Bulk Carriers as there is strong supply pressure from newbuildings.
In this segment we incurred huge loss last year and we are trying to turn it into the black by any means.
Although it is tough for us to return VLCC, Aframax and Clean Tankers into the black straight away from this year, we will try to minimize the loss as per our target.
For VLCC, our current fleet is 8 vessels as we sold 1 so there is no loss here, instead in the black as all vessels are under long-term contracts.
With regard to Aframax, although all our vessels are under COA contracts, they are all exposed to market fluctuations because freight is linked to market.
Our fleet was 14 vessels 2 years ago, 9 in the 1st half of this year, but now totals 5.
Charter contract of one vessel will expire soon, so there will be 4 vessels eventually which means deficit will decrease largely by significant weight loss.
With Clean Tankers, we do the same way as with bulk carriers.
We try to minimize loss by medium-term contracts, even though some deficit is fixed, instead of exposing them to the market because we cannot scrap this fleet as the vessels are not owned by us.
But for LNG Carriers, as you may know, the demand is very strong. Under such circumstances almost all our vessels are under long-term contracts but we have 3 that are operated under medium-term contracts.
All 3 of these contracts expired between last year and this year, and we were able to make new contracts with better conditions for all 3, so the business will make a profit and turn into the black from this year.
We will try to reach break-even by offsetting the loss for Tankers with profit from LNG Carriers.
B-5. Division-wise Trends
- Offshore Energy E&P Support & Heavy Lifter Segment -
Finally we would like to explain Offshore Energy E&P Support & Heavy Lifter Segment.
With regard to Offshore Support Vessels, we started full scale business operations from last year after deliveries of 6 newbuildings.
At the very beginning we went through some hard times before the Majors accepted us because we were a newcomer in this area, but business is now going well.
At the beginning of this year, however, there was a time when operating days decreased due to bad weather in Norway.
This company is based in Norway and Norwegian Krone is used for accounting, so according to exchange rate of Norwegian Krone, there is profit or loss due to revaluation of debt.
And with regard to Focus for the Future, we would like to mention Drillship.
The operation of Drillship started from 1st Quarter but the first drillship in which we participated was completed in Korea last December.
Upon completion, she sailed from Korea to Brazil with chartering by Petrobras starting from April, a bit later than original schedule.
Financial results for this business are posted to consolidated accounting 3 months behind, so profit of the business in 1st quarter will be posted in the 2nd quarter period.
Another factor about Heavy Lifter business is that the market from latter half of last year to the beginning of this year was extremely tough which may be attributed to effects of Euro Crisis.
Although there were some very tough times, it has recovered to some level now. And in latter half of this year, project cargo which was contracted before will start operation, so we think the business will recover.
Still, last year and this year, amortization of goodwill which resulted when we bought the SAL company in Germany is such a large amount that the situation will still be difficult to make a profit in this year.