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Explanation by article

Ladies and Gentlemen,

Thank you for joining us today.

My name is Maekawa, and I have assumed the responsibility of the presidency from Mr. Sakinaga (current Chairman) from April this year. It is a pleasure to share this report with you on "K" LINE's Fiscal 2004 Yearly consolidated and non-consolidated financial results, and our prospects for Fiscal 2005, this being my first appearance here as President.

I will outline Fiscal 2004 results, and then prospects for Fiscal 2005 according to the documents given to you.

A. A-1. Financial Results for Fiscal 2004

In this table, the figures in the first column in blue letters show results for Fiscal 2004 which ended March 31, 2005. As you can see, Operating Revenues are 828.4 billion yen and Ordinary Income is 107.2 billion yen, which has surpassed 100 billion yen for the first time in our history, and Net Income has increased to 59.9 billion yen. We feel we have achieved very good results for Fiscal 2004.

During the year, average exchange rate was 107.46 yen per U.S, dollar, and average bunker price 191.71 U.S. dollars per metric ton. On a year-on-year basis, 6.5 yen rise in value of Japanese yen against U.S. dollar, and over 20 U.S. dollar jump in fuel oil price were experienced. Even though there have been such cost-up factors, we were able to gain more profit from our business expansion, favorable market freight rates and also more cost reduction than expected.

Based on these results, we have declared 16.5 yen per share dividend for Fiscal 2004 in accordance with our basic dividend policy to return benefit to our shareholders based on appropriation of 20 percent of net income on a non-consolidated basis, which resulted in 49 billion yen,

A-2. Key Points for Fiscal 2004 results

As is indicated here, we have recorded new highs in consolidated net income for three consecutive years. Our Operating Revenues are at a 5-year high, and Operating Income and Ordinary Income* at new highs for the second year in a row.

The results for Fiscal 2004 have exceeded income targets set for Fiscal 2008, final year in our 5-year management plan, "K"LINE Vision 2008 that started in April 2004, due to the freight market unexpectedly being more favorable than predicted at that time.
Regarding our financial constitution, let me explain with Slide 14 "C-2. "K"Line Vision 2008 Numerical Targets" in these documents. As you can see in the graph on the right side, our financial indices have greatly improved.

Shareholders' Equity has increased with accumulation of profits, and Interest Bearing Liabilities were reduced.

Returning to Slide 4, factors accounting for growth in revenues and incomes are, as I touched before, business expansion; far more positive market situation than expected; and achievements in our targeted cost-cutting program.

However, the buoyant market has simultaneously resulted in higher charterage, which is our cost when we charter ships, and, as you are aware, there have been such negative factors as slight yen appreciation against U.S. Dollar and increased bunker price due to crude oil hike.

As mentioned here, beyond negative effects of 6.5 billion yen from currency exchange rates and 5 billion yen from bunker price, affirmative effects contributed 36.5 billion yen from market improvement, 12.5 billion yen from business expansion and 7 billion yen from cost reduction.

Under such an upturn in business, we posted extraordinary losses resulting from application of accounting for the impairment of fixed assets earlier than legalized this year in Japan. Annual dividend of 16.5 yen per share has been declared as was explained before.

Next, I will talk about division-wise business trend.

A-3. Trend of Division-wise Results in Fiscal 2004 for Container Business

First, I will look at Containership sector, our core business, which had earnings over our original prospects.

Container volume carried shows positive growth overall of 8% for the year-on-year basis: 8% in Asia-North America trade, 6% in Asia-Europe trade, and 11% in Intra-Asia trade.

Freight restoration was realized in our major services: almost 8% in Asia-Europe trade, and nearly 3% in Asia-North America trade. Average increase ratio as a whole was approximately 8%, almost in line with our original estimation.

In our cost curtailing program, we have achieved 4.4 billion yen from Container Business for Fiscal 2004, which is the primary portion of the total 7 billion yen.

However, one specific incident affecting Container Business was the serious delay of cargo handling due to labor shortage and heavy congestion problems at West Coast ports of the U.S. since last summer, the impact of which has resulted in approximately 1 billion yen loss to us.

As to Container Business division, operating revenues increased 40 billion yen compared to the previous year, and ordinary income up 14 billion yen.

A-4. Trend of Division-wise Results in Fiscal 2004 for Bulker & Car Carrier Service

For this division, profit has also grown well over last year's results.

Especially in the Bulker sector, the market boomed to a historical high level, and further business expansion was also undertaken. As you can see here, operating tonnage grew by almost 6%.

Stable crude steel products in Japan and positive flow of various cargoes into China from all over the world have contributed to such a high level of the market. In particular, concerning the so-called 'China effect,' a hot topic in the world nowadays is the fact that iron ore transported to China during the year was beyond 200 million tons, and this has affected various aspects of our business.

China has also brought about cargo growth for middle-size, or even small-size bulkers, in commodities such as grain and coal.

As for Car Carrier sector, the number of cars we carried increased by 17% for the year-on-year basis, and for the first time since this business started, has exceeded 200 million units.

Completed car movements all over the world have become truly active, which we have estimated at over 10 million units for the previous year. We especially see high growth in trades from Asia to E.U., the U.S. and Australia as well as in the intra-Asia region.

In this division, we could achieve increases in both revenues and profits because of business expansion and continued cost savings.

A-5. Trend of Division-wise Results in Fiscal 2004 for Energy Transportation

This division has also earned very positive profit in general.

LNG projects have progressed satisfactorily and maintained stable profitability, although operating tonnage decreased slightly because one vessel in our fleet had to be dry-docked for periodic inspection, which was very abnormal situation that only happens on a rare occasion.

In the Thermal Coal Carrier sector, our fleet of 14 Corona-type vessels has been smoothly operated including the one delivered within the year, which are specially designed for thermal coal transport with wider hull and shallower draft under "K"Line brand. As a result, we transported a total of 13 million tons for the year and increased market share to 20%.

We secured fair profits for the year, with no loss caused from vessel delays due to heavy congestion at ports as happened in the previous year, and which had led to shortage of vessel capacity and forced us to charter more vessels in a buoyant spot market at high charter market prices in order to fulfill our cargo contracts.

As for the Tanker sector, again the market freight level has been very positive. The average World Scale for VLCCs in Fiscal 2004 is 150, although our tanker fleet is rather small, and especially all of our VLCCs are now committed in long-term contracts and not affected by the market at all. Only a new VLCC delivered in the 1st Quarter was able to enjoy such a favorable spot market up to the beginning of the 2nd Half, when she also came under a long-term stable contract.

A fleet of AFRA-Max, middle-size tankers, has also contributed to increase revenues and profits, together with one newly delivered vessel.

A-6. Trend of Division-wise Results in Fiscal 2004 for Consolidated Subsidiaries

I will briefly touch on the other divisions, Coastal Shipping and Ferry Services around Japan, and Freight Forwarding /Harbor Transportation operated by our subsidiaries. Businesses are stable in the Coastal Shipping sector. In Freight Forwarding /Harbor Transportation segment, along with the growth in container handling volume, each of our group companies involved in agency and container terminal operations has grown profitability.

These are overviews for Fiscal 2004 which ended March 31, 2005.

B-1. Prospects for Fiscal 2005

I suppose many of you might be more interested in the prospects for this year than the past. I will now start with the figures for Fiscal 2005.

The projections for this year are as indicated in the documents here. As an assumption for those figures, exchange rate is set as 105 yen per U.S. dollar, and bunker oil price is 250 dollars per metric ton for the 1st Quarter, 240 for the 1st Half, and average for entire year is 230, considering the present historically high level of bunker price.

Based on these conditions, Operating Revenues are expected to be 900 billion yen, a nearly 9% rise compared to the previous year. Ordinary Income will go down slightly by approximately 2% to 105 billion yen, which is mainly affected by the significant rise in fuel price. We can still say, however, that we can maintain profit level of over 100 billion yen.

We expect 69 billion yen Net Profit, a 15% increase from previous year, because we have already counted impairment losses for Fiscal 2004.

With these prospects, we will propose 18 yen per share as annual dividend, which means dividend ratio of 22 to 23% of non-consolidated net income, in spite of our having implemented our basic dividend policy at the beginning of last year so as to pay out whichever is the higher between a continuous stable payment of 10 yen per share annually or a payment based on an appropriation of around 20% of non-consolidated net income when we achieve better results than expected.
Background for this 18 yen dividend is that we now have an intention to increase the dividend ratio gradually to respond to shareholder expectations in consideration of present-day social tone toward the final year of our "K" Line Vison 2008, and also that we have become confident of maintaining good profit level for some years to come.

As also mentioned in our official "Financial Highlights," we will revise the management plan within this year after careful thought and watching how the world is going, because our business circumstances have been drastically changed from the time when the plan started.

In accordance with the revision, we would like to set out our concept for dividend payments in more depth. It may well be that we will pay in excess of 18 yen per share even for this fiscal 2005, depending on the circumstances.

The ratio of Consolidated to Non-Consolidated shows tendency of increase: 1.26 last year and 1.27 in current year for Operating Revenues; 1.23 to 1.35 for Ordinary Income; and 1.22 to 1.44 for Net Income.

As you are aware, freight forwarding and harbor transport businesses operated by our subsidiaries have been growing.

To put it another way around, you can say parent company basis income has declined comparably, which we think is dependent on the temporary market situation, or cost factors such as bunker price, etc. We rather see the increase of the ratio as a positive sign reflecting fruits of our management policy in recent years to grow our group companies.

B-2. Key Points for Fiscal 2005 prospects

Regarding the minus factors to our income, apart from the effect of exchange rates or fuel oil prices about which I mentioned before, we see increase of charterage, cost for some of our fleet chartered from the market, resulted from such a positive market trend overall. This hike in charterage plus the other various operating costs are estimated to total over 30 billion yen. But with plus factors of business expansion and slight rise in freight rate off-setting these cost up factors, we will be able to secure almost flat Ordinary Income compared with the previous year.

B-3. Trend of division-wise prospects for Fiscal 2005

Trend for Containership sector, our core business, has not changed much from last year.

We see steady trade increase in trunk lines from Asian countries, especially China, to the U.S. and E.U., and so our trade volume is expected to increase.

Some rise in freight rates is also predicted in many routes, including service between Asia and North America for which negotiations for service contracts have almost been completed for this year. On the other hand, imbalance of cargo volume between Eastbound and Westbound is expected to become larger so that freight rates in Westbound service from U.S. to the Asia region will decline. In view of these factors overall, we prospect slight improvement in this division.

Market trend for bulkers appears to be continuously positive in general, although a partially soft tone is expected. In this regard, we see a slight decrease in profit, but I will say again that market as a whole is going fairly strong.

For Car Carrier sector, number of units to be loaded is projected at more than 10% growth. However, due to increase of bunker price and charterage, some profit reduction is forecasted.

Energy transportation sector remains stable. However, as crude tanker freight market is expected to soften slightly, profit is estimated to decrease just a little.

Outlining the overall picture, we have projected some profit increase for Containership sector and slight decrease for each of the other business divisions.

C-1. Cash Flows/Investment, and Major Financial Indices

As you can see, results and prospects of Cash Flow, Investment amount, and Major Financial Indices are indicated in this slide. Thanks to favorable results, cash flow has greatly improved and Interest Bearing Liabilities have decreased.

Shareholders Equity has almost touched 200 billion yen at the end of Fiscal 2004, and for this year it is rising well above 200 billion, and Shareholders' Equity ratio has reached around 35%.

While Interest Bearing Liabilities are to be slightly up for this year, Debt Equity Ratio is improved to almost 100%.

We plan fleet enhancement with the ships indicated on the right side of this table. About 20 vessels will be delivered one-by-one during this fiscal year.

These new ships will improve the tight ship operation suffered in some divisions step-by-step.

C-2. "K"Line Vision 2008 Numerical Targets

These graphs show transition of results and prospects, and comparison between those and original targets set for Fiscal 2008, the final year of our "K" Line Vision 2008. We will revise 2008 targets and set targets for 2006 and 2007, which are blank at present, after careful consideration to various circumstances.

C-3. Fleet Scale Expansion

Our fleet expansion has progressed along with the management plan for a net increase of 100 ships from 361 to 461 by the end of Fiscal 2008.

For accomplishment of this plan, as you know, total investment of 730 billion yen for gross total of 181 vessels is scheduled. Up to now, approximately 80% of the contracts for the ships are completed, or almost completed.

Of the remaining 20% of planned ships, although we are trying our best to achieve our original plan, in the case of some types of vessels, however, shipyards are already sold out until year 2008, and regardless of ship type, shipbuilding costs have escalated sharply.

An our effort to avoid obtaining ships at relatively high costs, we will be carefully reviewing the rest of our fleet expansion plan.

We are not expecting any considerable difference in planned investment amount so far.

C-4. Cost Curtailing Campaign

When it comes to cost curtailing campaign, as described in our "K" Line Vision 2008, I would like to retain our corporate culture which is severely cost-conscious as an inherent gene of our company. For Fiscal 2004, we have achieved 7 billion yen, exceeding our original target of 5 billion yen. For the current year, we have targeted 5 billion yen at present, and only a part of the 5 billion yen has already been accounted for in the whole company projection.

C-5. Updated Status of "K" Line Vision 2008 Fundamental Assignments -1.

Qualitative fundamental assignments for "K" Line Vision 2008 have progressed steadily as planned.

For Containership Business, we have decided to add four more newbuildings of 8000 TEU-type containerships, which will be completed by 2009. With these four, we will be operating 8 of the 8000 TEU-type in total.

In the so-called BRIC emerging countries, we have established our own agency or a branch network. In China, we also have founded a logistics company and an agent company utilizing 'CEPA.'

As to iron ore carriers, if you have a look at slides in the Supplementary Report (Investors' Guide) distributed today, you will be able to confirm our steady fleet expansion. During the term of the present management plan, our cape-size bulker fleet is scheduled to increase to 60 vessels.

Car Carrier fleet is also to be expanded gradually, including 3 new ships for this year. In this business sector, our principal task is high-quality service: first, safety in navigation, and then damage-free transportation service.

Contracts for various new LNG projects are being completed, and we are also working on some new projects.

We have secured long-term contracts for ammonia carriers for the first time in our history, and also we have made first crude oil transportation contract by VLCC with Idemitsu Kosan Co., Ltd., one of the major companies in Japan.

KLPL in Singapore is operating AFRA-max tankers and has maintained positive gains together with some newly-built ships. We are looking forward to their having even further future growth.

C-5. Updated Status of "K" Line Vision 2008 Fundamental Assignments -2.

Cost curtailment is as mentioned before, and we believe our genes will certainly allow us to succeed.

As profits have improved, our financial structure has also improved. Therefore, in the future I would like to pull up the level of a stable dividend payment of 10 yen per share. In revising the management plan, I would like to show our policy toward dividend payment more clearly.

Thanks to you investors, our bonds have been upgraded to A Class, and we succeeded to issue convertible bonds totaling 30 billion yen, which was actually paid in April. In summary, I believe we have been doing fairly well in strengthening our financial constitution.

Thank you very much for joining us today.

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