K Line: Brief report of the nine months ended December 31, 2019

During 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”), 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)

(i) Dry Bulk Segment
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

(ii) Energy Resource Transport Segment
Tanker and Thermal Coal Carrier 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. LNG Carrier and Offshore Energy E&P Business
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.

(iii) Product Logistics Segment
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-thanJapan 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.

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.

Short Sea and Coastal Business
In the short sea 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.

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.

(iv) Other Segment
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) Qualitative Information on the Consolidated Financial Situation

Consolidated assets at the end of the consolidated 3rd Quarter of this fiscal year were ¥917.646 billion, a decrease of ¥33.615 billion from the end of the previous fiscal year as a result of a decrease in cash and deposits and other factors.
Consolidated liabilities decreased by ¥81.997 billion to ¥688.030 billion as a result of a decrease in other current liabilities and other factors compared to the end of the previous fiscal year.
Consolidated net assets were ¥229.615 billion, an increase of ¥48.382 billion compared to the end of the previous fiscal year as a result of an increase in retained earnings and other factors.

(3) Qualitative Information on the Consolidated Prospects for FY2019

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.

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Source: K Line