Dear Shareholders:

  Your Board of Directors always appreciates your continuing support.

 

  We would like to herewith report consolidated financial results for the 1st Quarter of fiscal year ending March 31, 2021 (from April 1, 2020 to June 30, 2020; hereinafter “the period”), and our forecasts for the Fiscal Year 2021 that ends March 31, 2021.

 

  Operating revenues for the period was ¥152.2 billion (down ¥31.1 billion year-on-year), operating loss was ¥6.6 billion (down ¥10.6 billion year-on-year), and ordinary loss was ¥1.0 billion (down ¥3.7 billion year-on-year). Loss attributable to owners of the parent was ¥1.0 billion (down ¥8.7 billion year-on-year).

1) Summary of Consolidated Operating Results for 1st Quarter of FY2020

Results for the first nine months of FY2019 Three months ended
June 30, 2019
Three months ended
June 30, 2020
Change
Operating revenues 183.3 152.2 (31.1)
Operating income (loss) 4.1 (6.6) (10.6)
Ordinary income(loss) 2.7 (1.0) (3.7)
Profit (loss) attributable to
owners of parent
7.8 (1.0) (8.7)
Exchange Rate (¥/US$)
(3-month average)
¥110.73 ¥107.74 (\2.99)
Fuel oil price (US$/MT)
(3-month average)
US$443 US$377 (US$66)

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

 Performance per segment was as follows.

 

  Regarding Dry Bulk Business, in the Cape-size sector, the market rates weakened because cargo movements of iron ore became sluggish worldwide due to the spread of COVID-19 and unfavorable weather conditions in production sites in Brazil and also because a large vessel supply surplus arose due to an excessive concentration of shipments to China, which remained robust, in short-distance sources. However, toward the end of the three-month period, market rates rose rapidly due to a recovery in exports from Brazil.

  In the medium and small vessel sector, cargo movements were sluggish worldwide because of the spread of COVID-19. In particular, the market rates for Atlantic trades fell steeply due to the impact of lockdowns. However, market rates recovered rapidly due to effects of the resumption of economic activities in China, robust demand for shipments of grains from Brazil to China and a recovery in market rates in the Cape-size sector.

  Under these circumstances, the Group strove to reduce operation costs and improve vessel operation efficiency, but the overall Dry Bulk Segment recorded a year-on-year decline revenue and a loss was expanded.

 

 

    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 fleets adjustment measures such as vessel operation stoppage and temporary trade service revision, 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, towage and container terminal operations were affected by a decline in cargo volume due to the spread of COVID-19.

 In the international logistics sector, while air and ocean cargo transportation were at first affected significantly by a decline in cargo movements from China, cargo movements related to buyers' consolidations mainly targeting e-commerce business operators as major customers stayed robust. Consequently, the impact of the spread of COVID-19 was limited. 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, the transportation volume decreased in steel materials, timber products and coal year-on-year basis due to the decline in cargo movement and the spread of COVID-19.

  In the coastal business, the Group carried out measures such as reducing the number of voyages for some trades due to a decline of major cargo movements 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. However, truck transportation volume remained flat.

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

  

  Regarding Containership Business, as for the performance of OCEAN NETWORK EXPRESS PTE. LTD. (hereinafter referred to as "ONE"), the Company’s equity-method affiliate, global cargo movements declined due to the spread of COVID-19. However, profit increased year-on-year, as the company strove to improve profitability through such measures as flexibly reducing the number of voyages in accordance with demand, reducing operational costs through optimal vessel operation, and reorganizing the cargo portfolio. Consequently, the overall containership business recorded to become profitable.

 

  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

Results for the first nine months of FY2019 Fiscal year 2020
Ended March 31, 2021
Operating revenues - 600.0 -
Operating income (loss) - (27.0) -
Ordinary income(loss) - (28.0) -
Profit (loss) attributable to
owners of parent
- 0 -
Exchange Rate (¥/US$)
(12-month average)
¥107.25
Fuel oil price (US$/MT)
(12-month average)
US$368

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

  In the Dry Bulk Segment, amid concerns over the impact of the spread of COVID-19 on the global real economy, there are signs of recovery for the supply-demand environment for ocean transportation, mainly of raw materials, due to economic stimulus measures taken by various countries. However, it is expected to take some more time before a full-fledged recovery is realized. Under these circumstances, speculative investments in vessels are expected to be restrained and the pressure for vessel supply is expected to be kept low due to an increase in the scrapping of old and uneconomical ships related to the enforcement of environmental regulations. Therefore, market rates are expected to gradually recover, mainly for Cape-size vessels. The Group will continue to implement measures to improve profitability, such as increasing vessel operation efficiency and reducing costs as well as 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 and keep a close watch on the impact of oil price decline on profitability.

 

  As for 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, vessel operation stoppage, as well as mooring vessels. In the logistics business, transportation volume and work volume are expected to continue to be affected by the spread of COVID-19 in the second quarter and later, but a recovery is expected to start gradually in the third quarter. In the first half, the Group will strive to reduce fixed costs in response to the decline in cargo demand and minimize the negative impact on profit by securing additional cargoes while closely watching cargo movements related to e-commerce business, which have remained firm. In the third quarter and beyond, when demand is expected to recover, the Group will strive to increase order receipts for cargo transportation while closely watching developments related to customers' supply chains. In the containership business, there are concerns that cargo movements will remain sluggish in the second quarter and beyond due to the spread of COVID-19. ONE will continue to implement various measures to improve profitability, including flexibly reducing the number of voyages in accordance with demand.

 

  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 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.

  Regarding our management plan, please refer to “Financial Highlights Brief Report for 1st Quarter FY2020” which was disclosed today.

 

  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.

 

August 5, 2020

 

Yukikazu Myochin
President & CEO
Kawasaki Kisen Kaisha, Ltd