Dear Shareholders:

  Your Board of Directors always appreciates your continuing support.

 

  We would like to report consolidated financial results for the 3rd Quarter of fiscal year ending March 31, 2021 (from April 1, 2020 to December 31, 2020; hereinafter “the period”), and our forecasts for the Fiscal Year 2021 that ends March 31, 2021.

 

  Operating revenues for the period was ¥468.7 billion (down ¥98.5 billion year-on-year), operating loss was ¥3.2 billion (down ¥24.8 billion year-on-year), and ordinary income was ¥42.9 billion (up ¥18.4 billion year-on-year). profit attributable to owners of the parent was ¥63.2 billion (up ¥38.0 billion year-on-year).

  Due to significant business performance improvement of OCEAN NETWORK EXPRESS PTE. LTD. (hereinafter referred to as "ONE"), the company recorded ¥527.67 million yen of equity in earnings of subsidiaries for the third quarter. Within the recorded equity in earnings of subsidiaries, “ONE” accounted for ¥519.46 million yen in consolidated cumulative third quarter, and ¥297.21 million yen in the third quarter alone.

1) Summary of Consolidated Operating Results for 3rd Quarter of FY2020

Nine months ended
December 31, 2019
Nine months ended
December 31, 2020
Change % Change
Operating revenues 567.2 468.7 (98.5) (17.4%)
Operating income (loss) 21.6 (3.2) (24.8) -
Ordinary income (loss) 24.5 42.9 18.4 74.9%
Profit (loss) attributable to
owners of parent
25.2 63.2 38.0 150.8%
Exchange Rate (¥/US$)
(9-month average)
¥109.05 ¥106.14 (\2.91) (2.7%)
Fuel oil price (US$/MT)
(9-month average)
US$445 US$347 (US$99) (22.1%)

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

 Performance per segment was as follows.

 

 Regarding Dry Bulk Business, in the Cape-size sector, market rates rose at the beginning of the third quarter because of increased vessel supply demand due to a recovery in crude steel production in major producing countries in addition to robust demand for steel in China. However, the rates dropped steeply later as a result of the effects of unfavorable weather at iron ore-loading locations in Brazil and a decline in shipment volume due to maintenance.

 In the medium and small vessel sector, market rates stayed firm throughout the third quarter, supported by robust demand for Australian coal for shipment to India, Japan and South Korea as well as brisk transportation of grains from the United States to China. As for the vessel supply-demand balance, the completion rate of newly built ships rose to a high level due to a recovery in shipyards' operations that had slumped because of the spread of COVID-19. On the other hand, as there was little progress in scrapping of small and medium-size ships, the supply-demand gap did not improve.

 Under these circumstances, the Group strove to reduce operation costs, improve vessel operation efficiency, and fleet restructure by sale of old vessel initiatively but remaining effect of weakened market rates in last quarter, the overall Dry Bulk Segment recorded a year-on-year decrease in revenue and a loss was recorded.

 

 

 Regarding Energy Transportation Business, concerning large crude oil tankers (VLCCs), LPG carriers, and thermal coal carriers, the business stayed firm for mid- and long-term charter contracts and contributed to secure stable profit.

 Concerning LNG carriers, and drillship and FPSO (Floating Production, Storage and Offloading system), the business stayed firm for mid- and long-term charter contracts and contributed to secure stable profit.

 Concerning the offshore support vessel business, market rates declined due to the impact of oil price decline.

 

 As a result, the overall Energy Resource Transport Segment recorded a year-on-year decline both in revenue and profit.

 

 

 Regarding Car Carrier Business, demand for ocean transportation declined steeply because of sluggish global sales and the production shutdown of factories in various countries due to the spread of COVID-19. Although the Group carried out to reduce costs by vessel operation stoppage, temporary trade service revision, and fleet restructure by sale or redelivery, the car carrier business recorded a year-on-year decrease in revenue and a loss was recorded.

 

 Regarding Logistics Business, in the domestic logistics sector, demand remained sluggish for steel and paper materials due to the effects of the spread of COVID-19, resulting in decreases in cargo movements and towing work. Regarding land transportation as well, cargo movements decreased year-on-year due to the effects of COVID-19. On the other hand, the warehousing business stayed firm.

 In the international logistics sector, in the third quarter, cargo movements entered a recovery trend. Cargo movements related to e-commerce business, which have been increasing due to the global change in lifestyle in this fiscal year is staying robust. As a result, the overall logistics business recorded a year-on-year increase in revenue, but a profit was narrowed.

  

 Regarding Short Sea and Coastal Business, in the short sea business, regarding transportation of steel materials, as the shipment volume of steel products declined due to the effects of steelmakers' closures of blast furnaces in the first half, the Company's transportation volume also fell year-on-year. As for transportation of timber products, the transportation volume of imported plywood declined year-on-year because of sluggish demand, but the transportation volume of biomass fuel increased year-on-year due to the robust demand for environmentally responsive energy sources. As for bulk transportation, the transportation volume of Russian coal, the main cargo item, decreased year-on-year because of a fall in domestic demand.

   In the coastal business, the transportation volume decreased year-on-year despite dealing with food and dairy products to make up for a decline in major cargo movements (e.g., paper and automobile) in the liner transportation.

 In the ferry business, the number of passengers and the transportation volume of passenger vehicles recorded steep a year-on-year decline because the movement of people was restricted following declarations of emergency due to the spread of COVID-19. Regarding ferrying of trucks, despite a decline in cargo movements of construction materials and some other goods, transportation volume declined only slightly year-on-year because the transportation of frozen goods and door-to-door delivery cargoes increased.

 In the tramp service, the transportation volume of limestone or coal decreased year-on-year due to the decline in demand.

 As a result, the short sea and coastal business overall recorded a year-on-year decline in revenue and a profit was narrowed due to a lower transportation volume.

 

 

 Regarding Port Business, in the domestic terminal service sector, despite the effects of COVID-19, Trans pacific trade stayed firm and Intra-Asia trade also entered a recovery trend in the third quarter. Although handling in volume also increased, the domestic terminal sector recorded a year-on-year decline in revenue and a profit was narrowed.

   The international terminal service sector, regarding the Group's container terminal (managed by INTERNATIONAL TRANSPORTATION SERVICE, INC.) in North America, cargo movements from Asia to North America increased steeply from summer onward due to "nesting" demand in the United States, so container handling volume remained on a firm trend. Moreover, as business with new users started in September, both revenue and profit increased.

 

 Regarding Containership Business, as for the performance of "ONE", profit increased year-on-year because of the effects of flexible operations adapted to robust demand and contributions from the continued high level of market rates.

 

 As a result, the overall Product Logistics Segment recorded a year-on-year decline in revenue but a profit increased.

 

 

 Other Segment includes but not limited to the Group’s ship management service, travel agency service, and real estate and administration service. The segment recorded a year-on-year decline both in revenue and profit.

1) Forecast for consolidated financial results for FY2020

Prior Forecast
(at the time of announcement of
the 2nd Quarter result)
Current Forecast
(at the time of announcement of
the 3rd Quarter result)
Change % Change
Operating revenues 590.0 612.0 22.0 3.7%
Operating income (loss) (25.0) (21.0) 4.0 -
Ordinary income (loss) 0 50.0 50.0 -
Profit (loss) attributable to
owners of parent
20.0 65.0 45.0 225.0%
Exchange Rate (¥/US$)
(12-month average)
¥105.98 ¥105.73 (\0.25) (0.2%)
Fuel oil price (US$/MT)
(12-month average)
US$362 US$358 (US$3) (0.9%)

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

 

 In the Dry Bulk Segment, market rate was significantly affected in the first half by the stagnation of economic activity caused by the spread of COVID-19 in countries around the world. However, as demand for ocean transportation recovered later because of economy-stimulating measures implemented by various countries, demand for transportation is expected to remain firm in the second half. There is a possibility that there remains downside risk for economic recovery due to COVID-19 and restriction of operation (e.g. Crew change). In the Dry Bulk Segment, resiliency to market rate changes will be enhanced through appropriate fleet development and limitations on exposures, and at the same time, to strive to secure stable profit by expanding mid- and long-term contracts that take advantage of its strength in high quality transportation.

 

 In the Energy Resource Transport Segment, the Group will strive to secure stable profit under mid- and long-term contracts with respect to large crude oil tankers (VLCC’s), LPG carriers, thermal coal carriers and LNG carriers. In the offshore support vessel business, the Group will continue efforts to improve profitability through several cost reductions. In the drillship business, there is a possibility of worsening business results due to anticipated market rates after on-going time charter party.

 

 In the Product Logistics Segment, demand for ocean transportation is expected to fall steeply in the car carrier business due to the spread of COVID-19. The Group will strive to further reduce costs by temporary trade service revision, fleet restructure by sale or redelivery. In the logistics business, despite concerns over a resurgence of COVID-19, the impact on business is expected to be limited because the effects on movements of general cargoes are limited and also because the ongoing recovery in container handling volume is projected to continue for a while. On the other hand, the sluggish demand for steel and paper materials is unlikely to recover by the end of the current fiscal year. In the international logistics sector, cargo movements related to e-commerce business is expected to be staying robust. In addition, because of the current container shortage for ocean transportation, demand for cargo storage is expected to grow in the short term in some countries, causing demand in the warehousing business to become robust. In the port business, container handling volume at the Company's domestic terminals is expected to remain firm on the whole and revenue is expected to be stable due to the recovery trend in Asian traffic as well as the continued firmness of North American traffic in the third quarter and later. Regarding International Transportation Service, Inc. (ITS), located in the North American West Coast, the transfer of shares to an infrastructure investment fund operated by Macquarie Infrastructure and Real Assets was completed in December 2020. In the containership business, with the uncertain outlook for cargo movements in the fourth quarter and beyond due to the spread of COVID-19, “ONE” will continue to implement steady business operation, while closely watching market trends.

 

 

 As explained above, regarding the Company’s full-year results ending 31 March, 2021, a harsh business environment is expected with the spread of COVID-19, and the business environment surrounding the Company is to be kept uncertain, placing the top priority on controlling the damage to the full-year results, the Group will steadily implement such measures as reducing operational costs through scaling-back of the fleet in accordance with the decline in cargo volume, rationalization of vessel allocation, suspension of vessel operation and mooring of vessels, securing sufficient liquidity on hand, and asset sales intended to support the capital base.

 

 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. The Company will make a concerted effort to further improve its financial results, the year-end dividend policy remains yet to be determined. We will announce in due course, when we have judged that we can forecast dividend payments after comprehensively taking into consideration the forecasts of the full-year results and the Company's financial conditions.

 

 All of "K" LINE Group members are vigilantly dedicated to the accomplishment of our goals with one voice, and we appreciate your continued support and encouragement.

 

 

Thank you very much for your kind attention.

 

February 3, 2021

 

Yukikazu Myochin
President & CEO
Kawasaki Kisen Kaisha, Ltd