Although Kawasaki Kisen Kaisha Ltd. (“K” Line) recorded a fiscal year 2019 net profit of 5.3 billion yen ($49.4 million), the Japanese carrier is not paying dividends or issuing a 2020 forecast amid uncertainty over the total financial hit it will take from the coronavirus pandemic.
“K” Line did say Monday that it expects fallout from the coronavirus crisis to negatively impact all business segments — dry bulk and container shipping, energy resource transport, car carriers, and logistics.
Effects from the global pandemic began hitting “K” Line in the second half of the April 1 to March 31 fiscal year, and the carrier said Monday the net profit recorded was “far below” the previous forecast of 11 billion yen ($102.5 million) announced Jan. 31. Still, “K” Line turned a sharp corner from the 111.2 billion yen ($1 billion) loss the previous fiscal year.
“K” Line, Japan’s third-largest carrier, pooled its container ship assets with Nippon Yusen Kabushiki Kaisha (NYK) and Mitsui O.S.K. Lines Ltd. (MOL) to launch Ocean Network Express (ONE) in 2018. ONE reported last week that it had dug out from a $586 million fiscal-year loss to turn a $105 million profit.
“K” Line said Monday its countermeasures for FY 20 include laying up vessels to correspond with the decline in volume caused by the pandemic but that it would not issue a forecast for the fiscal year because the full impact from the coronavirus on the global economy and ocean cargo movement remains unclear.
“Our priority is to control the damage to our financial results in FY 2020. Therefore we will disclose a new medium-term management plan planned to start in FY 2020 after examining the situation of post-COVID-19 carefully,” it said.
The company also said Monday that it would pay no dividends for the 2019 fiscal year. The company said its dividend payout policy is to consider current and future financial conditions, necessary internal reserves to fund investment for sustainable growth and the strength of its capital base.
“Based on this policy, it is with sincere regret that the company announces it has decided to pay no dividend” for the fiscal year that ended March 31, “K” Line said.
“K” Line had forecast total FY 19 operating revenue of 740 billion yen ($6.89 billion). Actual operating revenue came in at 735.3 billion yen ($6.85 billion).
Operating income of 6.84 billion yen ($63.7 million) and ordinary income of 7.4 billion yen ($68.96 million) exceeded forecasts in part because of the disposal of unprofitable container ships and dry bulkers; “the realignment of trades with the robust cargo movements in the car carrier business”; and a profit recorded by ONE, “K” Line said.
In FY 18, “K” Line had an operating loss of 24.73 billion yen ($230 million) and an ordinary income loss of 48.9 billion yen ($455.6 million).
Because of the continuing pandemic, “K” Line expects a FY 20 decline in raw materials transport demand in its dry bulk business; a decline in offshore oil field development and related transport due to oil price declines in its energy resource transport segment; weaker demand due to prolonged factory shutdowns to impact its product logistics business; and a global economic downturn and decline in consumer consumption to affect the ONE business.
In the dry bulk segment, operating revenue was down 14.6%, from 273.8 billion yen ($2.5 billion) in FY 18 to 233.8 billion yen ($2.17 billion) in FY 19.
“K” Line said highlights in the dry bulk business included strong demand for grain shipments from South America in the first half of the year. However, that declined in the second half, as did iron ore volume from Brazil. Effects from the spread of COVID-19 resulted in a contraction of demand for all vessel types in the second half.
“Under these circumstances, the group strove to reduce operation costs and improve vessel operation efficiency, but partly due to the vessel downtime for the installation of environmentally compatible equipment, the overall dry bulk segment recorded a year-on-year decline both in revenue and profit,” the company said.
Dry bulk segment profit dropped 7.9%, from 4.4 billion yen ($41 million) to 4.1 billion yen ($38 million).
Energy resource transport
The energy resource transport division includes “K” Line’s business conducted on very large crude oil tankers and liquefied natural gas, liquefied petroleum gas and thermal coal carriers.
Segment revenue was down 4.5%, from 88.7 billion yen ($826.9 million) in FY 18 to 84.7 billion yen ($790 million) in FY 19. Profit, however, increased by more than 298%, from 2.5 billion yen ($23.3 million) to 9.9 billion yen ($92.2 million).
“K” Line said within the segment, vessel supply and demand as well as the market improved in the offshore support vessel business.
The product logistics segment operating revenue was down 12.8%, from 441 billion yen ($4.1 billion) to 384.5 billion yen ($3.58 billion).
That segment includes the 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,” the company said. “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, a recovery in freight and optimization of the fleet allocation.”
“K” Line through “route rationalization and rate restoration” achieved a 5 billion yen ($46.6 million) profit improvement in the car carrier line in FY 19.
The company said the international logistics business, which includes air cargo transportation, decreased and “as a result, the overall logistics business recorded a year-on-year decline both in revenue and profit.”
The product logistics segment improved dramatically, from a loss of 49.2 billion yen ($458 million) in 2018 to a loss of 2.9 million yen ($27 million) in 2019.
The container ship business is included in the product logistics segment. Of that business, “K” Line said that in the first half of the fiscal year, ONE “achieved recovery in liftings and space utilization, improved the cargo portfolio and implemented measures to improve its profitability, including reduction of the operational costs through realignment and rationalization of the trades.
“In the second half of the fiscal year, despite the decline in cargo movement starting after the Lunar New Year triggered by the COVID-19 outbreak, ONE carried out tasks to improve its profitability, including flexibly reducing the number of voyages in accordance with demand, and recorded a year-on-year decrease in revenue, but a loss was narrowed,” the company said.