【Financial Highlights Brief Report for 1st Quarter FY2021】
A. Financial Highlights for 1st Quarter FY2021
A-1：Financial Results for 1st Quarter FY2021
For the first quarter of the fiscal year ending March 31, 2022, operating revenues were 174.7 billion yen, operating income was 2.4 billion yen, ordinary income was 88.4 billion yen, and net income attributable to owners of parent was 102.0 billion yen. Regarding operating income, recoveries in the profitability of the Dry Bulk segment and Car Carrier Business contributed to an improvement in performance. Ordinary income was enhanced by robust cargo demand in ONE’s Containership Business. Additionally, extraordinary income was posted as a result of the sale of shares in the logistics subsidiary CENTURY DISTRIBUTION SYSTEMS, INC.
These results are reflected in the key financial indicators as of the end of the first quarter. Equity capital was 321.4 billion yen. DER decreased by 70 points compared to the end of the previous fiscal year to 162%, and net DER also improved to 118%. This was due to the improvement in equity capital as there were no significant changes in interest-bearing liability or cash and cash equivalents at the end of the period. The equity ratio was 30%. It increased to about 33% when including the 50% equity credit assigned by a rating agency to our subordinated loans.
B. Forecasts and Initiatives for FY2021
B-1：Forecasts for FY2021 and Key Factors
Regarding our forecasts for the fiscal year ending March 31, 2022, we forecast operating revenues of 630.0 billion yen, operating income of 4.0 billion yen, ordinary income of 275.0 billion yen, and net income attributable to owners of parent of 265.0 billion yen. Compared to the same period of the previous fiscal year, there are improvements of 25.3 billion yen in operating income, 185.5 billion yen in ordinary income, and 156.3 billion yen in net income. Our full-year assumptions include an average exchange rate of 106.67 yen per US dollar and an average bunker price of 455 US dollars per metric ton.
Concerning sensitivity (impact of fluctuations), each 1 yen fluctuation in the exchange rate would result in a 400 million yen difference over the nine months from the second quarter. The change caused by a 10 dollar fluctuation in the bunker price would be limited to around 10 million yen. At the current time, we are undecided on interim and year-end dividend payments.
B-2：Forecasts for FY2021 by Segment
In the Dry Bulk segment, Cape-size market conditions continued to have strong demand for steel in various countries, including China. Market conditions for Panamax and smaller size vessels are on the rise due to robust demand for grain imports in China, together with steady demand for coal as a result of factors such as the recovery of industrial activities in many countries. During the first quarter, the segment’s earnings were partly affected by negative factors such as COVID-19. However, as future positive factors, we see the improvement in the vessel supply-demand balance, the global spread of COVID-19 vaccinations, and the continuation of financial and economic support policies in various countries. Backed by these positive factors, the seaborne trade volume of dry bulk cargo has been steady and has generally performed well despite some swings. Meanwhile, negative factors include the spread of COVID-19 variants, and the resulting slump in logistics and longer port-stay of vessels. The Chinese government’s policy to restrict steel production is also a factor that needs to be monitored from the second half of the fiscal year. As a result, the Dry Bulk segment as a whole is forecast to post full-year ordinary income of 12.5 billion yen, a 21.6 billion yen year-on-year improvement.
In the Energy Resource Transport segment, sectors other than Offshore Support Vessel Business are supported by medium- to long-term contracts. Therefore, stable revenue is forecast. Meanwhile, market conditions in Offshore Support Vessel Business continue to be weak. We will remain committed to improving profitability through steps such as cost reductions and currency hedging. For the entire Energy Resource Transport segment, we forecast ordinary income of 4.0 billion yen, a year-on-year improvement of 2.9 billion yen.
In the Product Logistics segment, Car Carrier Business has continued to recover from the impact of the spread of COVID-19. Marine transportation demand has grown steadily, reducing the loss in the first quarter. The recovery from the impact of COVID-19 is expected to accelerate from the second quarter. Since the previous fiscal year, we have engaged in fleet scale optimization and route rationalization to improve vessel operation efficiency. We believe that the results of these efforts will be emerging. One of the immediate causes for concern is the impact of the semiconductor shortage on automobile production. Another is the risk of a slowdown in production at parts factories in Asia due to the spread of COVID-19 variants. Logistics Business has been firm due to the shift of cargo to other modes of transportation such as air and land amid the tight supply-demand situation for containership transportation. This was seen in the domestic logistics and terminal business, overseas and international logistics businesses. In Short Sea and Coastal Businesses, Kawasaki Kinkai Kisen, Ltd. as our subsidiary revised the forecast for ordinary income upward from 200 million yen to 850 million yen on July 30. This revision was made because profitability is expected to improve mainly in their Short Sea Business.
In Containership Business within the Product Logistics segment, the robust cargo movement remains unchanged, and this is the largest factor contributing to the improvement in performance. In the first quarter, cargo movements increased by 20% year-on-year globally, and by 40% on Asia-North America routes. There are no signs that this strong transportation demand will decrease from the second quarter. Meanwhile, the problem of supply chain disruption continues to be addressed through initiatives such as ONE utilizing empty sweeper vessels and improving operations. Unfortunately, the situation does not show any signs of significant improvement. In Containership Business, it is assumed that ordinary income will be 192.5 billion yen in the first half of the fiscal year but less than half of it in the second half at 66.5 billion yen. This gap in the forecasts for the first half and the second half is based on two assumptions. One is that we will enter the slack season in which cargo movements slow in the second half of each fiscal year. The other is that supply chain disruption should begin to be resolved as vaccinations progress in the second half of the fiscal year.
Overall, the Product Logistics segment is forecast to post ordinary income of 266.5 billion yen, a 161.9 billion yen year-on-year increase. “K” Line’s own businesses other than Containership Business are anticipated to post ordinary income of 7.5 billion yen.
B-3：Key Factors of Improvement for“K”Line’s own Businesses in FY2021
In fiscal year 2020, “K” Line’s own businesses other than Containership Business posted ordinary loss of 6.2 billion yen. This is forecast to improve to ordinary income of 24.0 billion yen at the end of the current fiscal year. The improvement is due to several factors: 9.8 billion yen from cargo movement recovery, 10.0 billion yen from market recovery, 4.2 billion yen from effective vessel allocation and route rationalization, 5.5 billion yen from fleet scale optimization, and 0.7 billion yen from other factors. This is an indication that “K” Line’s own businesses are overcoming the impact of the COVID-19 pandemic and moving toward improvement alongside the effects of efforts such as fleet scale optimization.
B-4：Initiatives for Growth in Corporate Value
Now we will look back on the initiatives that the Company has taken to improve corporate value in the past. Firstly, the structural reform of Containership Business through the establishment of ONE was finally completed this fiscal year, and this shows the timeline. This initiative resulted in the creation of synergies, and further effects are also being enjoyed at present. Accordingly, ONE’s business plan, investment plan, and dividend policy are currently being drawn up in the establishment of the overall capital policy.
Regarding the profitability of “K” Line’s own businesses, as indicated earlier, we anticipate that around 24.0 billion yen will be generated this fiscal year. Although a loss was posted last fiscal year due to the impact of COVID-19, we are steadily achieving the original goal of accumulating stable income here.
The Company’s initial goals of improving equity capital and ROE over five to ten years in our present management plan are expected to be achieved this fiscal year. The formulation of a growth strategy and capital policy had been intentionally postponed due to uncertainty about the future. However, it will be brought forward as a management issue focused on the enhancement of corporate value. In particular, we have begun preparations aimed at the announcement of a new management plan towards the next fiscal year incorporating growth strategy, further enhancement of financial strength, and return to shareholders.
B-5：Major Containerships companies CY2020 Full-year Results Comparison
This is a comparison of the full-year revenue and market capitalization of major containership companies including ONE and three competitors. ONE is shown on the far left. Company A is the world’s largest containership company based in Europe, Company B is a German containership company around the same size as ONE, and Company C is a Taiwanese containership company. ONE’s EBIT is 3.831 billion dollars, and its EBIT margin is 26.6%. Since Asia-North America routes performed well last fiscal year, containership companies with a high proportion of business in this area had a high EBIT margin. As such, ONE and the Taiwanese Company C each have a high percentage figure.
What we would like to show here is ONE’s potentiality in corporate value. The market capitalization of ONE is not stated because it is unlisted. Company A is valued at more than 5 trillion yen, and Company B, which has around the same revenue and fleet scale as ONE, is valued at over 4 trillion yen. From here, ONE could be viewed potentially have the same level of corporate value.