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K Line Enjoys Strong Energy Transportation Results

During the first three months of the fiscal year ending March 31, 2020 (from April 1, 2019 to June 30, 2019; hereinafter “the three-month period”), operating revenues for the three-month period was ¥183.312 billion (down ¥28.865 billion year-on-year), operating income was ¥4.052 billion (compared to operating loss of ¥13.370 billion in the same period of the previous fiscal year), and ordinary income was ¥2.713 billion (compared to ordinary loss of ¥17.095 billion in the same period of the previous fiscal year). Profit attributable to owners of the parent was ¥7.779 billion (compared to loss attributable to owners of the parent of ¥19.272 billion in the same period of the previous fiscal year).

(i) Dry Bulk Segment
Dry Bulk Business
In the Cape-size sector, market rates weakened at the beginning of the current fiscal year due to the lingering effects of a dam break accident occurred in Brazil in the previous fiscal year. However, as crude steel production in China became active later, leading to a rise in iron ore prices, chartering market generally recovered following the resumption of iron ore exports from Brazil in the end of June 2019.

In the medium and small size vessel sector, shipments of grains from South America, which came into full swing due to the effects of the trade disputes between the United States and China, drove a rise in market rates for Atlantic trades. As this caused a concentration of vessels in the Atlantic region, market rates temporarily eased amid a growing sense that there was a vessel supply surplus. However, the market stayed stable due to the effects of a rapid recovery in market rates in the Cape-size sector.

The overall vessel supply-demand balance did not recover in earnest despite progress in the scrapping of vessels, mainly Cape-size ones, as the new medium and small size vessels were launched one after another.

Under these circumstances, the Group strove to reduce operation costs and improve vessel operation efficiency; however, as a result by having the effects of hovered market rates in the beginning of the current fiscal year, the overall Dry Bulk Segment recorded a year-on-year decline and a loss was recorded.

(ii) Energy Resource Transport Segment
Energy Transportation Business (LNG Carrier, Tanker and Thermal Coal Carrier Business) Concerning LNG carriers, large crude oil tankers (VLCCs), LPG carriers and thermal coal carriers, the business stayed firm for mid- and long-term charter contracts. The overall energy transportation business recorded year-on-year increase in both revenue and profit.

Offshore Energy E&P Support Business and Liquefied Gas New Business
The drillship business and the FPSO (Floating Production, Storage and Offloading system) business performed steadily and contributed to securing stable long-term earnings. However, in the offshore support business, the market remained weak as the vessel supply-demand balance did not improve. The overall offshore energy E&P support business and liquefied gas new business recorded a year-on-year increase in revenue, and a loss was narrowed.

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

(iii) Product Logistics Segment
Car Carrier Business
The volume of finished vehicles shipped by the Group decreased year-on-year because of sales decline in some regions, including South America, even stable cargo movements were maintained in the trades from the Far East, and the implementation of the rationalization and realignment for some unprofitable trades, including other-than-Japan trades.

However, because of an improvement in vessel operation efficiency due to the rationalization of trades, a recovery in freight rates and optimization of the fleet allocation, the overall car carrier business recorded a year-on-year increase in revenue and turned a profit.

Logistics Business

In the domestic logistics sector, business performance remained steady, mainly in towage, sea-land integrated transportation, and warehousing business. Although there was previously some space vacancy with respect to warehousing business, the operation ratio was improved from the current fiscal year.

Regarding domestic terminal business, progress was made in effective use of assets through an alliance with Kamigumi Co., Ltd. (hereinafter referred to as “Kamigumi”), which started from April 2019.

In the international logistics sector, cargo movements related to semiconductors within inter Asia in the air cargo transportation business declined compared with the same period of the previous fiscal year, when demand for such cargo movements was robust. In addition, air cargos and cargos related to ecommerce shipped from China to the United States decreased due to the effects of the trade disputes between the two countries. As a result, the overall logistics business recorded a year-on-year decline both in revenue and profit.

Short Sea and Coastal Business
In the short sea business, the transportation volume, mainly of biomass fuel, remained steady, and market rates improved. In the coastal business, the number of voyages remained flat compared with the same period of the previous fiscal year due to factors such as an increase of passengers and vehicles during the long holiday period and number of truck transportation decrease. As a result, the short sea and coastal business overall recorded a year-on-year increase in revenue but a loss was recorded.

Containership Business
The operating revenues of OCEAN NETWORK EXPRESS PTE. LTD. (hereinafter referred to as “ONE”), the Company’s equity-method affiliate, achieved freight rates increase of long-term contracts in North America dominant services, had steady liftings in North America dominant services, and carried out tasks to improve its profitability, even there was a decrease in freight rates in Europe dominant services compared to the ones in the beginning of the current fiscal year. As a result, ONE overall recorded a yearon-year increase in revenue 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 decline in revenue but turned a profit.

(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 increase in revenue but a profit was narrowed.

(2) Qualitative Information on the Consolidated Financial Situation
Consolidated assets at the end of the consolidated 1st Quarter of this fiscal year were ¥931.816 billion, a decrease of ¥19.445 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 ¥46.989 billion to ¥723.038 billion as a result of a decrease in short-term loans and current portion of long-term loans and other factors compared to the end of the previous fiscal year.

Consolidated net assets were ¥208.777 billion, an increase of ¥27.543 billion compared to the end of the previous fiscal year as a result of an increase in non-controlling interests and other factors.

In the dry bulk business, there are concerns over the effects of the protracted trade disputes between the United States and China and a slowdown in demand for steel products in China, whereas there are expectations for an improvement in the vessel supply-demand balance due to the deepening of the practice of navigating at reduced speed following the implementation of new environmental regulation and an increase in scrapped vessels. As a result, market rates are expected to generally improve, mainly in the Cape-size sector, while fluctuating. The Group will implement measures to improve earnings, including improving vessel operation efficiency and reducing costs. At the same timing, the Group will strive to secure stable profit by expanding long-term contracts that take advantage of its strengths.

In the energy transportation business, the Group will strive to secure stable profit under mid- and longterm contracts with respect to LNG carriers, large crude oil tankers (VLCCs), LPG carriers, and thermal coal carriers.

In the offshore energy E&P support business, though it is expected to take certain period for market recovery, the Group will strive to improve earnings by continuous measures to reduce costs.

In the car carrier business, as there is growing uncertainty over finished vehicle sales markets in major countries due to such factors as the effects of the United States tariff hikes on the economic conditions and the United Kingdom’s planned withdrawal from the European Union (Brexit), there are concerns over the risk that demand for ocean transportation may decline. However, in the current fiscal year, earnings are expected to improve because of improvements of vessel allocation and vessel operation efficiency through the trades realignment that had been implemented since the previous fiscal year and a recovery of freight rates.

In the logistics business, securing stable earnings is expected in the domestic logistics sector mainly because of the continued steady performance of towage, sea-land integrated transportation and warehousing business. The Group continuously aims to create synergies by promoting service efficiency improvement, enhancement of cost competitiveness and effective use of assets through the alliance with Kamigumi. In the international logistics sector, the air cargo volumes, mainly semiconductors, declined.

However, despite the effects of the trade disputes between the United States and China, demand for North America is continuously expected to remain robust, with Southeast Asia and Central America used as alternative exporting areas.

In the containership business, although there are concerns that ONE may be affected by the effects of the trade disputes between the United States and China in the 2nd Quarter and beyond, earnings are expected to be kept at the level set in the beginning of the current fiscal year, by conducting measures such as to reduce operation costs.

As explained above, although market rates are recovering as a trend, mainly in the dry bulk business, the vessel supply-demand gap has not been fully resolved and the business environment is expected to remain challenging. However, as the Company will strive further to improve earnings by promoting additional cost reduction and operation efficiency improvement, the Company has kept unchanged its previously announced forecasts of full-year results, including operating income, ordinary income, and profit attributable to owners of the parent.

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.

Although the forecasts of full-year results are expected to be recovered into profit, we consider it an urgent management priority to improve our financial strength and stabilize our business foundation. The dividend policy remains yet to be determined as announced in the beginning of the current fiscal year. We will announce in due course when we have judged that we can forecast dividend payments after comprehensively taking into consideration the forecasts of full-year results and the Company’s financial conditions.

Full Report

Source: K Line

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