Dear Shareholders:

Your Board of Directors always appreciates your continuing support.

 

We would like to herewith report the first nine months of the fiscal year ending March 31, 2020 (from April 1, 2019 to December 31, 2019; hereinafter “the nine-month period”), consolidated financial results and our forecasts for Fiscal Year 2019 that ends March 31, 2020.

 Operating revenues for the nine-month period was ¥567.189 billion (down ¥71.308 billion year-on-year), operating income was ¥21.627 billion (compared to operating loss of ¥9.273 billion in the same period of the previous fiscal year), and ordinary income was ¥24.539 billion (compared to ordinary loss of ¥27.427 billion in the same period of the previous fiscal year). Profit attributable to owners of the parent was ¥25.223 billion (compared to loss attributable to owners of the parent of ¥30.953 billion in the same period of the previous fiscal year).

1) Summary of Consolidated Operating Results for the first nine months of FY2019

Results for the first nine months of FY2019 Nine months ended
December 31, 2019
Nine months ended
December 31, 2018
Change
Operating revenues 567.2 638.5 (71.3)
Operating income (loss) 21.6 (9.3) 30.9
Ordinary income(loss) 24.5 (27.4) 52.0
Profit (loss) attributable to
owners of parent
25.2 (31.0) 56.2
Exchange Rate (¥/US$)
(6-month average)
¥109.05 ¥110.80 (\1.75)
Fuel oil price (US$/MT)
(6-month average)
US$445 US$454 (US$9)

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

 Performance per segment was as follows.

 

  Regarding Dry Bulk Business, in the Cape-size sector, under a declining tendency of iron ore volume shipped from Brazil, the vessel supply increased in the Atlantic region because the vessels with non-compliant fuels made ballast voyages to that region, ahead of upcoming introduction of environmental regulations. In the medium and small size vessel sector as well, market rates began to become sluggish from the middle of the quarter as cargo movement of grains from South America and steam coal to China slowed down.

 

  As a result, the overall Dry Bulk Segment recorded a year-on-year decrease in revenue, but a profit increased by endeavoring reduction of the operational costs and improvement in the vessel operation efficiency

 

 

  Regarding Energy Transportation Business, concerning large crude oil tankers (VLCCs), LPG carriers, 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, the vessel supply and demand partially improved, and a loss was narrowed.

 

   As a result, the overall Energy Resource Transport Segment recorded a year-on-year decrease in revenue, but a profit increased.

 

 

  Regarding Car Carrier Business, the volume of finished vehicles shipped by the Group decreased year-on-year because of the rationalization including cancellation and realignment for some unprofitable trades including other-than-Japan trades, even though stable cargo movements were maintained in the trades from the Far East.

As a result, the overall car carrier business recorded a year-on-year decrease in revenue, but turned a profit by tackling to improve its profitability including improvement in the vessel operation efficiency, optimization of the fleet allocation, and reduction of the operational costs.

  Regarding Logistics Business, despite the steady performance mainly in towage, sea-land integrated transportation and warehousing business in the domestic logistics sector, by having large effect of the air cargoes lifting decline due to the trade dispute between the United States and China in the international logistics sector, the overall logistics business recorded year-on-year decrease in both revenue and profit.

  Regarding Short Sea and Coastal Business, the transportation volume steadily increased mainly in steel materials and biomass fuel; in the meantime, it decreased year-on-year in timber products. In the coastal business, the transportation volume increased in liner transportation by the schedule stabilization as well as it increased steadily in ferry business. As a result, the short seas and coastal business overall recorded a year-on-year decrease, but a profit increased.

  Regarding Containership Business, in the operating revenues of OCEAN NETWORK EXPRESS PTE. LTD. (hereinafter referred to as “ONE”), the Company’s equity-method affiliate, by recovery of the liftings and the space utilization, improvement of the freight rate of long-term contracts in North America dominant services, improvement of the cargo portfolio, and the tackles to improve its profitability including reduction of the operational costs through realignment and rationalization of the trades, ONE overall recorded a year-on-year increase and turned a profit.

  Regarding the containership business remaining in the Company, a year-on-year decrease in revenue was recorded, but a loss was narrowed due to a decrease of the temporary losses occurred by the business transfer.

 

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

2) Consolidated Forecasts for Fiscal Year 2019

Fiscal Year 2019,
ended March 2020
Prior Forecast
(at the time of announcement
of the 2nd Quarter result)
Current Forecast
(at the time of announcement
of the 3rd Quarter result)
% indicates year-on-year change
Operating revenues 740.0 740.0
Operating income 6.0 5.0 (1.0)
Ordinary income 5.0 5.0
Profit attributable to
owners of parent
11.0 11.0
Exchange Rate (¥/US$)
(12-month average)※
¥108.58 ¥108.92 ¥0.33
Fuel oil price (US$/MT)
(12-month average)※
US$485 US$470 (US$15)

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

 

 In Dry Bulk Segment, while there is a concern about impact to the cargo movements by slowdown in Chinese economy, the Group will continue to improve the vessel operation efficiency, save the costs, and reduce the market exposure.

 

   In Energy Resource Transport Segment, securing stable profit under mid- and long-term contracts is on-going expected.

 

   In Product Logistics Segment, the car carrier business is expected to secure a profit by recovery of the freight rates and effect of the trades rationalization, despite expected decline in demand due to external factors, such as political instability in the Middle East. ONE expects to improve its profitability by optimizing the cargo portfolio and saving the costs, despite some concerned causes, including a decrease of the cargo movements after the Chinese New Year and the trade dispute between the United States and China.

 

   As described above, even the business environment surrounding the Company is continuously uncertain, the Company has kept unchanged its previously announced forecasts of full-year results, including operating revenues, ordinary income, and profit attributable to owners of the parent by tackling to improve the revenue and expenditure through further enhancement to reduce the costs and to improve the vessel operation efficiency. 

  

   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. However, the slow down in the global economic outlook, by the trade dispute between the United States and China and escalating geopolitical tensions in the Middle East, could lead to deterioration in the transportation demand and the business environment remains critical toward achieving the consolidated full-year business forecasts, though the Company is taking measures to improve earnings now; thus, the year-end dividend remains yet to be determined. We will update you again in due course once further judgment has been made as to dividend payment forecast after comprehensively taking into consideration the full-year forecasts 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.

 

January 31, 2020

 

Yukikazu Myochin
President & CEO
Kawasaki Kisen Kaisha, Ltd