Kawasaki Kisen Kaisha,Ltd. Q1 FY2026 earnings call

Core Quarterly Results

• Total 1Q net sales hit 244.9 billion yen, with operating profit of 19.8 billion yen, ordinary profit of 21.6 billion yen, and net profit attributable to parent shareholders of 29.9 billion yen; this represents year-over-year lower revenue and profit, driven primarily by yen appreciation, weak dry bulk market conditions, and falling container freight rates. Net profit was supported by special gains from the sale of vessels and a portion of the company's equity holdings.
• The company changed its allocation method for foreign exchange gains/losses starting this fiscal year: FX gains/losses on unallocated foreign currency receivables/payables are now recognized at the corporate headquarters level, rather than allocated to business segments. Prior year comparative figures have been restated to match this new methodology for consistent comparison.

Capital Policy & Shareholder Returns

• The company maintains its longstanding policy: after securing required investment for growth and preserving financial stability, excess capital above the optimal capital structure will be actively returned to shareholders, in line with operating cash flow generation.
• The medium-term plan total shareholder return target of 8.0 trillion yen or more remains unchanged. The current full-year dividend forecast of 120 yen per share for 2025, and 100 yen per share for 2026, also remains unchanged.
• The planned flexible additional return of 500 billion yen or more, announced in May, remains under ongoing review; the company continues to evaluate timing and method based on current business conditions.
• The company identifies improving its current PBR of ~0.8x as its top capital policy priority, and is actively working to demonstrate long-term growth by leveraging its core strengths to lift valuation.

Operational Changes

• The company is operating on the assumption that the Suez Canal will remain closed to transit for the full 2025 fiscal year, as a swift reopening is not currently expected.

1Q 2025 Actual Performance:

• Dry Bulk Segment: A negative operating profit of -0.5 billion yen. Weak overall market conditions from accidents and labor disputes at loading ports, slow coal/grain cargo movements for small/medium vessels, and yen appreciation combined to drive the segment loss.
• Energy Resources Segment: Profit is up year-over-year, as a one-time loss booked in the prior year 1Q has fallen off; the segment's large share of long-term contracts kept overall volatility low.
• Product Logistics Segment: (New disclosure: car carrier results are broken out separately this quarter)
  • Car Carrier Sub-segment: Global demand remained solid despite new US import tariffs, keeping overall transport volumes and profit at strong levels, though both revenue and profit declined year-over-year due to yen appreciation.
  • Container Ship Sub-segment: OCEAN NETWORK EXPRESS (ONE) shipment volumes saw a slight year-over-year increase including pre-tariff front-loading demand, but falling freight rates caused a large year-over-year profit decline.
  • Other Product Logistics (logistics/port operations, coastal/shortsea shipping): Minimal tariff impact, solid overall handling volumes, delivered higher profit year-over-year.

2025 Full-Year Forecast:

• Dry Bulk Segment: Expected to deliver lower profit than the initial forecast, due to Q1 weak market conditions and disruptions from loading port accidents and labor disputes around Guinea, plus significant yen appreciation impact.
• Energy Resources Segment: Expected to deliver higher profit year-over-year, as the prior year's one-time loss has fallen off; earnings are expected to remain stable due to the segment's large share of long-term contracts.
• Product Logistics Segment:
  • Car Carrier Sub-segment: Profit forecast has been revised upward by 12 billion yen from the initial outlook.
  • Container Ship Sub-segment: Kawasaki Kisen's share of profit from ONE has been updated to align with ONE's new full-year net profit forecast of 700 million USD.
  • Other Product Logistics: No material changes to the prior forecast.

• Full-year 2025 forecasts have been revised upward from the May guidance: new forecasts are net sales of 968.0 billion yen (+0 billion from prior), operating profit of 90.0 billion yen (+10.0 billion from prior), ordinary profit of 120.0 billion yen (+15.0 billion from prior), and net profit attributable to parent shareholders of 115.0 billion yen (+15.0 billion from prior).
• Initial guidance had incorporated a total 30.0 billion negative impact from US tariff policy: 13.5 billion from car carriers and 16.5 billion from container shipping. The forecast was revised upward to reflect smaller-than-expected tariff impact: 10.0 billion upward revision from reduced car carrier tariff impact, 2.0 billion upward revision from updated container shipping profit expectations, and 3.0 billion upward revision from favorable FX movements, for a net 15.0 billion total upward revision to ordinary profit.
• For car carriers: the 15% final tariff rate (down from an expected 25%) resulted in much lower volume impact than feared. The initial forecast of a 30% decline in North America-bound cargo in H2 2025 was revised down to a 15% decline, leading to a 12.0 billion upward revision to the full-year car carrier profit forecast, with almost no impact expected in H1 2025.
• For container shipping: ONE updated its full-year 2025 net profit forecast to 700 million USD, matching Kawasaki Kisen's prior conservative estimate that incorporated tariff and freight rate impacts, leading to a small upward adjustment to Kawasaki Kisen's share of profit.
• Assumptions for dry bulk and tanker market conditions have not been changed from the initial May forecast. The core assumptions for the full-year forecast are: average FX rate of 140 yen/USD from August 2025 onward, average bunker price of 566 USD per ton, and no Suez Canal transit for the full fiscal year.
• The planned October 2025 U.S. entry port fee for Chinese-origin goods has not been incorporated into the current forecast, as final details are still pending.

• Ongoing geopolitical and macroeconomic uncertainty: US trade policy, China's economic slowdown, and Middle East tensions all pose significant downside risk to global shipping volumes and demand, with very high outlook uncertainty.
• Persistent closure of the Suez Canal creates ongoing supply/demand disruptions for global shipping, and adds operating cost and route adjustment risks for the full fiscal year.
• The full impact of the upcoming October 2025 U.S. entry port fee for Chinese-origin goods remains unclear, and has not been incorporated into current earnings projections.
• US tariff policy negotiations with China are ongoing, so the full long-term impact on global trade patterns and shipping demand is still uncertain, requiring ongoing monitoring.
• Dry bulk shipping markets remain weak, with ongoing volatility from loading port disruptions (accidents, labor disputes) and soft cargo demand for key commodities including coal and grain.

Q: ONE reported an 86 million USD after-tax profit for 1Q 2025, which looks softer than expected. How does this result compare to Kawasaki Kisen's internal expectations, including the impact of higher operating costs? / A: Management notes that 1Q was heavily disrupted by US tariff policy uncertainty, which created volatility for both carriers and shippers across global trade routes. This volatility forced widespread ship repositioning across all major lines, including those managed by ONE, which generated unplanned one-time additional costs. There was also a temporary drop in cargo volumes out of China in April and May that recovered later, and this short-term volatility combined to produce the weaker than anticipated 1Q result. This confirms management's prior expectation of short-term disruption from trade policy changes.

Q: Are the ship repositioning costs tied to early tariff implementation considered one-time costs that will not repeat in future quarters? / A: Yes, management confirms these are one-time costs that are not expected to recur as trade patterns adjust to the new tariff regime.

Q: Can you confirm that the 100 million USD increase in variable costs and 300 million USD increase in operating costs reported year-over-year are largely driven by these one-time disruption costs? / A: The year-over-year cost comparison referenced is between 1Q 2025 and 1Q 2024. While the specific numbers do not directly map to 1Q 2025 stand-alone costs, the one-time tariff-related disruption costs are indeed included in this year-over-year cost increase. This aligns with management's view that most of this cost increase is one-time.

Q: What is Kawasaki Kisen's current approach to shareholder returns, particularly the 500 billion yen planned additional return? / A: Management reaffirms that the company's core return policy of returning excess capital to shareholders after securing required investment and financial stability remains fully in place. The 500 billion yen additional return is still actively being planned, and the company aims to announce details as soon as possible while evaluating ongoing business and market conditions. The base annual dividend forecasts for 2025 and 2026 remain unchanged at 120 yen and 100 yen per share respectively.