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Explanation by article

Ladies and Gentlemen,
Thank you very much for joining us today. I will explain our 3rd Quarter (October - December) Fiscal Year 2009 consolidated financial status and our revised estimate for full-year (April 2009-March 2010) financial position for Fiscal 2009. We would like to also explain our revised Mid Term Management Plan "K"LINE Vison100 KV2010 today after the explanation of financial status, so we will shorten the financial status explanation and provide brief summary only.
 
A. Financial Highlights for 3rd quarter Fiscal 2009
 
A-1-1. Financial Results
 
I will start off with outline of "K" LINE's 3rd Quarter Fiscal 2009 financial results.
3rd quarter's consolidated Ordinary Income is 14.6 billion yen loss. Looking back to that of 1st and 2nd quarters, the 1st quarter's loss was more than 20.0 billion yen and that of 2nd quarter was a little bit less than that figure. However 2nd quarter's loss included 5.2 billion of Structural Reform Cost in Containership department, as I explained previously, so actually 1st and 2nd quarters both hit bottom, then finally seemed to be bottoming out in 3rd quarter. Compared with last year, Operating revenues and Ordinary Income decreased drastically.
For your information fuel oil price was close to$450 per metric ton and exchange rate was ¥90 for 3rd quarter, which means business environment is not so favorable for us.
 
A-1-2. Financial Results
           (Business-wise Operating Revenues/Ordinary Income)
 
With regard to rough division-wise results: regarding Ordinary Income for Containership business sector during this 3rd quarter, deficit decreased drastically because rate restoration was carried out to a respectable degree. However, it just represents shrinkage from loss of 20.0 billion yen for each quarter, and we think it will go upwards gradually after hitting bottom at last.
About Other Marine Business sectors except for Containership, total results did not end in the black, and that is because cargo volume of our Car Carriers did not recover to the level which we expected.
 
A-2. Key Points
 
Although both revenues and profit decreased, it was almost the same as we forecasted at the end of 2nd quarter. As mentioned, recovery of cargo volume for Car Carriers was slower than we expected, which was the main reason.
With regard to each business department, we think it is better to explain yearly estimate in advance, so please see Slide B-1.
 
 
B. Estimate for Fiscal 2009
 
B-1. Estimate for Full Year Fiscal 2009
 
We will now explain our Estimate for full year here. As we mentioned, from 2nd quarter to 3rd quarter our profit is in a slightly recovery trend, and by 4th quarter Ordinary Income will recover to loss of 6.5 billion yen. Looking at full year estimate, loss will be 71.0 billion yen at level of Ordinary Income. It is almost the same figure that we expected at the end of 2nd quarter.
We said that it includes 50.0 billion yen for Structural Reform Cost in Containership department as loss in the period of 1st half; however, that cost will decrease from 50.0 billion to 43.0 billion yen.
Although there's some change in Structural Reform, the reason Structural Reform Cost in Containership department decreased by 7.0 billion yen is that impairment loss on fixed assets decreased from over16.0 billion yen which we estimated at the end of 2nd quarter to 9.0 billion yen after we made a very concentrated search at the end of 3rd quarter, so we officially decided to post the impairment loss in 3rd quarter.
Though the year impairment loss is 9.1 billion yen, we posted nearly 9.0 billion yen in 3rd quarter and about 0.2 billion yen in 4th quarter. This is the reason for the 7.0 billion yen decrease in Structural Reform Cost in Containership department. From this factor, deficit will be reduced by about 9.0 billion yen at stage of net income compared with estimate as of October 2009.
 
B-2. Prospects for Full Year Fiscal 2009 with Business-wise Operating Revenues/Ordinary Income
 
Looking at Containership business and Other Marine Business, as we show here, Ordinary Income of Containership business in each quarter is expected to shift as 20.0, 27.1, 15.5, 9.4 Billion yen from 1st quarter to 4th quarter. As we mentioned above, we posted loss of 5.2 billion yen as Structural Reform Cost in Containership department in 2nd quarter, which means that 1st and 2nd quarters hit bottom, showing tendency of recovery from 3rd quarter. As to yearly estimate, it is 72.0 billion yen deficit for only Containership Business department.
Other than Containership sector, in terms of results Car Carriers will also not move into the black in 4th quarter. Total Other Marine Business will be move into the black in 4th quarter because it includes results of Dry Bulk where the market is better than expected.
Total company estimate for 4th quarter is deficit of 6.5 billion yen including Containership business. As for yearly deficit, there will be a loss of 71.0 billion yen. It remains unchanged that how to restore profitability of Container business is the most important and urgent issue for us as yearly estimate of Containership business department deficit is 72.0 billion yen.
 
B-3. Key Points for Full Year Fiscal 2009 Estimate
 
Compared with previous estimate when 2nd Quarter results were announced in October 2009, yearly estimate almost remains unchanged. Fuel Oil Price does not change so much, and Exchange rate is almost as expected.
It may make no sense to compare with previous year, in case of comparison with previous estimate, but we think we can say that it is almost as expected, although there is a slight change in variation factor of cost increase/decrease.
 
B-4-1. Division-wise Trends for Full Year Fiscal 2009 Estimate
(Containership Business)
 
With regard to our concern about Containership Business, compared to our previous forecasts as of October 2009, there has been a trend for revenues and profit to grow slightly, partly because of freight rate recovery. Although loading volume is estimated to decrease by 1% from the same term last year, our gut feeling tells us it might be fairly well considering cargo trend overall.
As you see in this slide, freight rates dropped by nearly 30% for Asia-North America trade in year-on-year comparison, and for Asia-Europe trade, though the rates fell significantly at the end of this 2nd Quarter, they have recovered to a level of 20% down for full-year basis.
Especially after August or September, freight rate restoration was significantly promoted, and which would be achieved with great effort by each Containership operator, probably considering profit loss situation after last January. Especially in the term from October to December 2009, compared to the same period previous year, freight rates in Asia-Europe trade drastically increased, and that tone still remains unchanged.
However, as reflected by the loss from our Containership Business, it is still miles away from break-even. So now every containership operator is struggling to restore freight rates further, which has proved quite prominently fruitful.
 
B-4-2. Division-wise Trends for Full Year Fiscal 2009 Estimate
(Dry Bulk Business/Car Carrier Business)
 
In Dry Bulk Business, fortunately market level has been much better than we expected, and our earnings from this business have improved.
 
As for Car Carrier Business, and as I also touched on before, car shipments have not started to increase notably. Going back to the transition, during April and May last year inventory adjustment was once completed, and then after summer season it gradually showed signs of recovery. At that time we had expected cargo volume would return to a level of not less than 80% of the peak by January-March this year, and it went back close to that level until last October-December. However, partly because present forecasts for January-March shipments have not yet reached our estimation, I very much regret to say that in this Fiscal year we will not be able to make a profit for this business on Quarterly basis.
 
B-4-3. Division-wise Trends for Full Year Fiscal 2009 Estimate
(Energy Transportation/Heavy Lifters)
 
With regard to Energy Transportation, it is finally almost at the level expected as of October last year. In short-term range, market for VLCC has been moving up, and some of those for AFRAMAX and product carriers that were once in a slowdown have started to recover, which is reflected in this updated estimate, though it was not so big change.
 
Estimate for Heavy Lift Business is almost as we forecasted. Present business circumstances are temporarily in a slump partly due to world economic downturn.
 
 
 
Revisions to "K" LINE Medium-Term Management Plan "K" LINE Vision 100 "KV2010"
 
As promised previously, the revisions to the "K" LINE Medium-Term Management Plan were released at the end of January. As they have only just been formulated, I will now provide an introduction to those revisions.
"K" LINE Vision 100 portrayed in a broad sense the intended shape of "K" Line in the 10 years leading up to the 100th Anniversary of its foundation, which will take place in 2019. However, as you know, since Vision 100 was formulated, the economic environment has changed dramatically. Although this has not altered our qualitative thinking and goals, as the surrounding environment has changed greatly, it is appropriate to revise the numbers at least. To that end, we have now made revisions to the figures for 2010, 2011 and 2012. In doing so, rather than focusing on the 100th Anniversary in 2019, we have set out a broad outline of the figures, based on our projections for the mid-2010s, together with the steps to be taken for the next three years.
 
In "K" LINE Vision 100 we set out five major tasks: Activities to promote environmental protection; Stable and safe ship operation administrative structure; Borderless management through the best and strongest organization; Proper allocation of strategic investment and management resources; and Improvement of corporate value and complete risk management.
We do not intend to change these tasks. Rather, by way of addition, in the light of the major losses posted in the current term, we have allocated costs of 43 billion yen towards structural reform of our containership services, as mentioned earlier. Further, we have tried to set out a unified approach, taking into account the position in which "K" Line is placed, to changing the business structure of the containership business and determining the business portfolio as a whole, from a long-term point of view.
 
In any event, in the near future, we need to make a turnaround from being in the red. Although I didn't mention it earlier, in the current fiscal term we will still be in the red and, unfortunately, are afraid that we have to ask shareholders to accept that we are unable to provide dividends this year. We are aiming to return to the black in the next fiscal term and resume payment of dividends at the earliest possible stage. These steps constitute one of the important "Missions" to be added to the list of the five tasks I referred to a moment ago.
 
Regarding the second additional "Mission," in spite of the background of the greatest economic changes in a century, the large losses are obviously a major concern for the company and we have reflected deeply on this. For that reason, we wish to establish a stable earnings base. In addition, as a business, we wish to expand, not shrink. Consequently, we will diligently continue with the existing services and, in addition, will invest in growth areas, with a view to the long term. We wish to grow in a sustainable way. Those are the elements of our second "Mission."
 
With the posting of large losses for the current period, "K" Line's financial makeup, especially its shareholders' equity, has suffered considerable damage. In those circumstances, we wish to quickly rebuild profits and improve and strengthen our financial structure. This is the third of our "Missions" in our revised plan for the next fiscal term and beyond.
 
We are frequently asked about how we differentiate "K" Line from other shipping companies. Compared to large manufacturing industries, ours is an industry in which there are no major technological innovations. This is not to say that there are no other ways to differentiate "K" Line, but it is extremely difficult. It is an industry in which technological innovations by the industry itself, and the creation of new demand through technological innovation, are infrequent.
 
In those circumstances, we have considered ways in which a shipping company can differentiate itself. Ultimately, what counts most is the trust that we gain from our various customers. When freight is the same and shipping services provided are not particularly different in quality, we believe that, among a small number of factors, it is the customer's trust that we have achieved that sets the company apart when customers are considering entering into contracts with "K" Line.
 
To gain that trust, whichever way you look at it, it is imperative to guarantee a financially stable management. What is a stable financial makeup? In the final analysis, it is not posting losses and the sustained making of profits. Ultimately, it is not the only way in which to gain the customer's trust, but we think that it is the most important way.
 
Accordingly, to return to the black at an early stage and be able to re-commence payment of dividends to shareholders again is foremost in our plans.
 
Next is safe ship operation. Other factors involved in customer's trust than financial stability is safe ship operations. While crossing rough seas, we are entrusted with our customers' important cargo, in some cases worth many billions of yen, so we must properly carry out measures for safe operations.
 
Another issue of great importance associated with gaining the customer's trust is the progress of globalization. Cargo decreased briefly during 2009 but it is likely that from now on the trend will be for long-term growth in marine transportation. Under these circumstances, in terms of our customers, we expect to see, in addition to Japanese customers, stronger relations with foreign customers, a trend that has already begun. We believe that communication and the relationships we have with our overseas customers, especially in Asia where we are expecting to see future growth even in these times of dramatic economic fluctuations, are extremely important.
 
As an organization, "K" Line will strengthen its relations with customers in terms of developing two-way communication on a global scale with customers and foreseeing their future needs so that we can proactively approach them with proposals instead of waiting to be approached ourselves. Securing and training personnel capable of carrying this out is very important. We will secure such personnel not just within Japan but globally, both in sales activities and sales support functions as well as crews working at sea being not only Japanese but also including foreign nationals.
 
We believe that if we carry out these efforts, we will gain the trust of customers.
 
In line with this thinking, in order to increase our customer base and expand business, we believe that we should target upstream customers in growth areas. By creating a business foundation at the cargo source, it will be possible to capture new business and customers from the outset. Based on this thinking, we propose to invest in such growth areas, which I will explain later.
 
This introduction has become a little long but hopefully provides a basis for understanding the approach on which the current revisions to the Medium Term Management Plan have taken place.
 
 
Slide 3
Background of Revisions to "K" LINE Vision 100
-Business environment upheaval: supply-demand relationship downturn-
 
As I have explained already, after the publication of Vision 100, there was upheaval in the business environment. In particular, there was a major downturn in the supply-demand relationship for containerships and car carriers, both being general products transportation sectors. The amount of marine cargo movement, excluding the dry bulk sector, declined greatly and, as can be seen from the recent financial statements, major changes took place in the business environment. For those reasons, it was necessary to make revisions to the management plan.
 
 
Slide 4
Background of Revisions to "K" LINE Vision 100
-Divergence of earnings plan and performance (and forecasts)-
 
In that context, large divergences emerged in relation to the management capital and the income and expenditure and earnings plans initially put forward. Consequently, it has become necessary to revise the numerical values, at least for the coming three years.
 
 
Slide 5
Business Structural Reform Committee Measures
 
In fact, in December 2008 an Emergency Task Force was set up that provided a broad outline of measures for the period up to the end of March 2009. In addition and evolving from that, the Business Structural Reform Committee, consisting of three subcommittees, was set up. Through comprehensive debate, especially in the Cost-cutting subcommittee, on how to sort out the current problem areas, it was decided that reform of the containership business would be necessary.
In the end, a decision was made to dispose of surplus ships and other unused assets, the results of which will be seen in the next fiscal term or thereafter. While that was a matter of considerable importance, it was also decided that it was necessary to make revisions to the business portfolio. With the proportion of "K" Line's containerships sector being relatively high, containership business is very volatile and there are large fluctuations in earnings. The question of what should be done about that was considered. Also, as I have already mentioned, in terms of the development of business globally, the issues of what should be done structurally, and what sort of human resources development should take place, were reviewed by the three subcommittees.
 
 
Slide 6
 
Regarding the name of the new revised plan, with "K" LINE Vision 100 providing the major framework, it was decided to call it KV 2010. In terms of the meaning of the "V," there are various words with the initial letter "V" such as "V-shaped recovery" and "Victory." However, with its position within the broader framework of "K" LINE Vision 100 aimed at the 100th Anniversary, it was decided not to change the framework. On that basis, and against the background of the greatly changed business environment, the "V" in KV 2010 means "Version 2010" of "K" LINE Vision 100, and so we named KV2010 with intention that it was revision within the framework of "K" Line Vision 100.
 
 
Slide 7
Business Environment Outlook for Early 2010s
 
In terms of the business environment in the early 2010s, it is of course possible that there will be big changes henceforth, but our view is as mentioned in this slide.
From now on, economic multi-polarization will progress and the presence of the emerging economies will increase, including in particular in recent times the VISTA nations in addition to BRICs Everyone already knows that the growth of China and India's GDP is remarkable. As populations will increase globally, it is likely that, in the globalized economy, basically consumer goods trade will become more vigorous, and so our business of marine cargoes will also continue to increase.
In addition, resources demand will also expand in conjunction with the activation of the emerging economies. To sum up, in broad terms, we believe that our shipping business is likely to continue to be a growth industry.
 
 
Slide 8
KV 2010 MISSION
 
As I have already mentioned, without changing the five fundamental, qualitative tasks of "K" LINE Vision 100, it has been decided to add to them, through KV 2010, the three "Missions" described in this slide.
 
 
Slide 9
KV 2010 Basic Strategies
 
Even with such missions, in terms of strengthening the makeup of our containership business, and how we should consider our business portfolio from now on, we believe that in order to strengthen the makeup of our containership business, one task for the time being will be not to downsize our containership business, but rather to first maintain its current reduced state until cargo movement and demand have demonstrably increased. Maintaining the current state refers to a state in which the supply-demand relationship is now slack, and there is an excess of supply, not only by "K" Line but also around the world. Although "K" Line disposed of a sizable portion of our fleet as part of structural reforms this fiscal term, looking at the situation from a medium-term perspective there is still an excess supply of multiple vessels.
 
This is not a significant burden at the present stage, which we will handle over the next several years. This means, for example, operating surplus ships as extra tonnage for the service loops navigating with Super Slow Steaming speed, which has been attracting attention recently. We will probably be able to retain ships that become surplus in the future, by means that will not cause any relatively significant burden. However, our view remains that because it will take time for overall supply and demand to match up, at the least we will not be able to increase the size of our fleet and we will also freeze new investments until supply and demand is balanced.
 
Meanwhile, in planning for stable earnings, we think that future cargo movement, such as that for bulk trade, will probably grow in the future in accordance with the world economic structure as previously mentioned. We would like to strengthen and expand our dry bulk business. There may also be various movements from now on in the car carrier business. We think that there will be various questions as to what type of trade structure will emerge if electric cars begin to become widely used. But because motorization of the entire world has not yet been accomplished, and until emerging nations reach a certain degree of motorization, we expect car shipments will continue to grow in the future, we would like to enhance this business continuously.
The KV 2010 basic strategies are, as mentioned earlier, that we will actively invest in such growth areas in order to approach upstream customers, and in doing so we would like to conduct activities in accordance with supply and demand for the near future and invest in areas that will grow in the future, while of course taking on the pressing task of strengthening our financial base.
 
 
Slide 10
1-1. Strengthening Makeup of Containership Business
 
Talking about strengthening the makeup of our containership business, although it may be difficult see the numbers on the graph here at the bottom left side in this slide, we have given a great deal of thought. As for the question of what kind of supply-demand relationship will emerge for the containership business in the near future, various research results have come out recently, and it is believed that supply for the world's containership capacity is currently 14 to 15 million TEU. Of that, approximately 10% actually consists of idling vessels, laid-up or detained, and we think that the gap between supply and demand at its widest is approximately 20% or more.
 
Our view as a company that actually operates containerships is that if a loading factor of approximately 90% overall cannot be achieved continuously, it may be difficult as a whole for freight rates in general to return to normal, for that business to return to a level at which it can return to reproduction on an expanded scale.
 
Accordingly, we think that after the sharp drop last year it can only be expected that there will be growth from 2010 onward, and as severe as last year's drop was, we think that based on last year's figures there will be growth of approximately 10% for North America and Europe and we also expect that other routes will grow 5 to 6 percent.
 
Meanwhile, regarding ship supply, there are already orders for newbuildings up to roughly the end of 2012 or even the first half of 2013, and we think that until then the number of ships will probably increase by almost 10 percent each year, although there will also be some portions that decrease. In such circumstances, talking about supply-demand balance, our view is that 3 to 5 years cannot help but being required until total loading factor returns to 90% as mentioned earlier. Due to these and other factors we will conduct a significant amount of disposal in terms of structural reform costs for this fiscal term.
However, we think that it is uncertain whether or not it will take 3 to 5 years for freight rates to return to a profitable level. There are two types of containership owners: owner-operators such as "K" Line, which operate ships themselves, and those that are simply owners. Actually operators put maximum efforts into effectively using their ships, and their primary concern is how they will treat those ships. On the other hand, we think that newbuildings that were ordered by owners for no particular contracts would be kept out of use even for 10-20 years if demand is not recovered, even if they are launched.
 
Considering that, the number of ships held and controlled by operators probably makes up about half of the gap between supply and demand.
While I said unless there is a return to an overall 90% loading factor, restoration of freight rates will not reach a level at which reproduction on an expanded scale is possible, unless the fleet is squeezed further, or certain disposals can be made. As for ships for which operators themselves have to bear responsibility, the freight restoration level at which at least the ships operated by those operators can achieve economic feasibility and profitability on some level, may surprisingly be possible to some extent. The current situation may be a clear indication of this. Although my above wording is too lengthy and in a complicated way, the reasons why we think so are indicated here in Slide 10. Although it may be somewhat difficult to see, the point is that the supply-demand relationship for ships operated only by operators is still contracting slightly.
 
 
Slide 11
1-2. Strengthening Makeup of Containership Business
 
Although this may sound like an excuse, even though we actually will have a deficit of 72 billion yen for containership business in fiscal 2009, this graph shows how we plan to improve income for the next fiscal term and thereafter, and also includes some negative factors. We have premised the bunker price for the next term and thereafter at 500 dollars, with an exchange rate of 90 yen. Since the bunker price will therefore rise in comparison to the projection for 2009, the negative factor will expand correspondingly.
Meanwhile, 43 billion yen is allocated for structural reform costs this year, and consequently we think that improvements by our reform will be around 8 billion yen in stage of ordinary income next year. Although we initially assumed that this might reach approximately 10 billion yen, there were factors such as a slight reduction of structural reform costs that brought this down to approximately 8 billion yen. We also think that various rationalization measures for ship allocation based on alliances or on a further expanded base may have an initial effect of approximately 5 billion yen. Further, we think that Super Slow Steaming, which we have recently begun to implement in earnest, will likely bring about a cost reduction of approximately 7 billion yen.
There are also various other cost reductions, some of which are included here. However, ultimately it is simply unfeasible to go forward as a containership operator as the situation now stands. We think that for fiscal 2009 there will probably be losses of nearly 2 trillion yen by the leading 20 containership companies alone. We therefore think that we cannot stand any longer in such a situation. In the area of restoration of freight rates, for which we have already tried various measures, it would be somewhat premature to say that at present the situation is remedied, as there is a possibility that freight rates will decline further. Even if there were an accumulation of effects such as that at the stage when they have just about risen, there has already been a freight rate improvement effect of an equivalent degree, and then in or after May there is renewal of the North American service contracts or continued rate charge rises in Europe, and rates then gradually rise on home-bound routes as well, the container income for the next fiscal term, which will be shown shortly, would in actuality not even allow us to break even.
I think this will probably be announced at the end of April, but at the current stage the deficit in Containership business next year will not shrink to the tens of billion yen, let alone billions of yen level. At the current stage, our expectation is that despite taking the outlined measures, the range of the deficit will not be reduced to the billions of yen level. Given this, we have consulted with our accountants and decided to dispose of impairment losses. However, as mentioned previously, we will not simply insist on raising freight rates in the next fiscal term to cover these losses. We are convinced that we can move ahead by adopting the approach outlined here, based on logical thinking and looking at the present situation.
 
 
Slide 12
2. Restructuring Business Portfolio
-Expansion of Dry Bulk Business-
 
As part of reconstructing our business portfolio, we plan to move ahead with expanding the dry bulk business to the fullest extent possible, as mentioned earlier. Although we will of course be realistic, as you know the amount of increased Chinese iron ore imports last year was 180 million tons. If coking coal and steam coal were combined I believe the amount might grow by about 100 million tons. We think that in addition to this, the amount of bulk trade will also increase in accordance with the expansion of China's domestic demand. In addition to China, India's economy has also become very active. Based on these factors, we think that in the future there will probably be an active market for the bulk division, in accordance with an increase in ton-miles. We would therefore like to expand our scale in accordance with demand or, if possible, at a pace that exceeds the increase in demand. As for our reconsidered investment plan, which will be presented later, we would like to move ahead by actively investing for dry bulk. Although we are considering various factors in this respect, that is our basic opinion.
 
 
Slide 13
2. Restructuring Business Portfolio
-Strengthening Car Carrier Business-
 
As for strengthening our car carrier business, the slump of 2009 had an extremely significant effect. The amount of sales in the US was 10.5 million vehicles, which was a return to a level of sometime in the 1980s. Based on hearing a variety of opinions, the general view seems to be that although the slump was of course significant, there are still financial-related problems of the sub-prime loan issue, and it is expected that consumption probably will not return to its previous level. Nonetheless, but, sales for fiscal 2010 are expected to grow by a considerable level, and it seems to be thought that there will be growth of approximately 10% and that sales this year will grow by approximately 1 million vehicles over the 10.5 million vehicles of last year.
Further, the market in China has grown remarkably and India is also showing significant growth. Looking at the matter from that perspective, we think that from now on the everyday living conditions in those countries will continue to improve and their economies will continue to develop, bringing about a likely increase in car sales that will lead to gradual recovery of our marine transportation. However, as mentioned previously, there will probably also be changes in the various production structures of automobile manufacturers. Production in foreign countries will continue to increase. Considering these factors, as for the quantity of exports from Japan or South Korea, which we have made our bases, it is possible that cargo movement will not grow as much as the growth of cargo movement overall or that of cargo movement worldwide. Therefore, we think that this will probably only grow gradually and will likely take time.
On the other hand, however, among the production configurations that have become globalized, there is one different type of export that will now increase. We think that different routes will emerge, such as the already commenced route from India to Europe, or that there will be an increase in automobiles produced in India being exported to, for example, potentially developing nations in Africa. We are thinking about how to respond to such changes, and as such we would like to strengthen our car carrier business, for which demand will probably continue to increase in the future.
 
 
Slide 14
2. Restructuring Business Portfolio
-Strengthening Oil Tanker and LNG Carrier Business-
 
Regarding strengthening Oil Tanker and LNG Carrier business, although the scale of our business in these divisions is not very large at present, and despite the fact that it is uncertain whether demand for energy by developed nations will increase in total, from now on there will be strong demand for energy from at least the emerging economies and countries that will develop in the future.
Further, the type of energy used by already developed nations will change. For example, we think that there will probably be a change from coal and oil to LNG. Even among LNG, for example, there are various factors that should be considered, such as what will likely happen with competition from shale gas, about which various comments are now being said in the US. However, we believe that the demand for energy will probably increase from now on, and we would like to include industrialization in oil-producing nations and gas-producing nations in our perspective and increase the scope of our business. In other words, we think that demand for transport of oil products will increase more than that for transport of crude oil, and that among transport of oil products there will be an increase in demand for such items as nearly finished products, such as chemicals. We would like to put our efforts into those sorts of business areas.
In addition, as for LNG, in combination with approaching upstream customers that will be discussed later, we would like to bring about a synergy effect in accordance with our existing LNG transport business.
 
 
Slide 15
2. Restructuring Business Portfolio
-Strategic investment in growth areas (energy resources development related business)-
 
As indicated in this slide, in terms of tackling growth areas, we would like to continue supporting materialization of the future businesses of offshore shipping, drill ships and LNG producers that we are already involved in. We believe that if this is realized, business will likely expand considerably.
 
 
Slide 16
2. Restructuring Business Portfolio
-Strategic investment in growth areas (heavy cargo ships, logistics)-
 
For the heavy cargo business that we are already involved in, currently we have ordered two newbuildings with a capacity of 2,000 tons (1,000 tons x 2) each. When these ships are delivered it will be possible to move single items of heavy cargo that weigh several hundred tons, such as reactors used for nuclear power generation, which will increase from now on. Further, due to the strengthening of natural energy in Europe, such heavy cargo as wind-power generation will continue to increase in the future. Heavy cargo ships will make it possible to respond to the various demands for transport of such cargoes. In that sense, we would like to strengthen this area under the expectation that targeting transport of resources or business closer to resource development in various ways will have a synergy effect on "K" Line's other business areas.
In addition, as stated in a press release made today, we have reached a basic agreement to acquire capital in an entity called Air Tiger Express Companies Inc., an American forwarder that mainly conducts air forwarding. From now on we would like to continue to strengthen this freight forwarding and to use this to strive for future synergy with "K" Line's existing logistics business.
 
 
Slide 17
3. Adaptation to business environment fluctuations and strengthening of financial base
-Screening and control of investmentsEFlexible response of fleet organization-
 
As for investment, we moved a further considerable amount of our already determined existing investment plan off the balance sheet, delayed delivery for some of vessels already ordered, and for the years 2010 to 2012 we compressed the initially planned investment cash flow from 550 billion yen to 200 billion yen. We also plan to have 537 ships in 2012, in comparison with our 470 operating ships at the end of fiscal 2009, with an aim of having our scale in the mid 2010's reach a little less than 600 ships. This is a significant readjustment of our initial plan.
 
 
Slide 18
3. Adaption to business environment fluctuations and strengthening of financial base
-Strengthening of financial base through building up stable earnings and investment control-
 
We will proceed with these plans and we are aiming for a gradual V-shaped recovery of "K" Line's profits as compared with 2009. Although we certainly would like to achieve a sharp V-shaped recovery, we expect that the rebound will not be quite so dramatic and therefore we would like to aim for a gentler recovery.
 
 
Slide 19
Numerical Target
 
By taking the measures discussed, finally by the mid 2010's we would like to raise results to our initially targeted 4 financial rules and their objectives of DER of 95% or less, ROA of 8% or more, an equity capital ratio of 40% or more, and a debt-to-operating cash flow ratio of 4.5: 1 or less and, as first mentioned, to put forth our fullest efforts aimed at resuming dividend payments as early as possible.
If there are solid profits and as we initially promised, we plan to increase the dividend payout ratio each year aiming for a dividend payout ratio of 30% in the mid 2010's.
Through investing in growth areas, we would also like to develop them, so that the profits from the previously explained offshore business, heavy cargo ships and freight forwarding reach into the tens of billion yen by the mid 2010's.

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