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Explanation by article

Ladies and Gentlemen,

Thank you very much for joining us today.
It is a pleasure to share this report with you on "K" LINE's Fiscal 2004 3rd Quarter consolidated and non-consolidated financial results, and our prospects for the financial position for full-year Fiscal 2004, as well as our basic thoughts for Fiscal 2005.

<A. Financial Highlights for 3rd Quarter Fiscal 2004>

In this table, the second column shows results for just this 3rd Quarter alone, the 3-month period from October 1 to December 31, 2004; and the next column in blue letters shows accumulation from 1st Quarter through 3rd Quarter, or from April to December for Fiscal 2004.
For comparison, our previous prospects for the 9 months are in the second column from the right, which were published November 12th following announcement of Fiscal 2004 1st Half financial status.

The year-on-year comparison between the first 9 months of Fiscal 2004 and Fiscal 2003 is provided in the third column from the right. As you can see, our Operating Revenues for 2004 have increased 72%; Ordinary Income up slightly under100%; and Net Income up over 100%.

In spite of such negative factors as 7 yen rise in value of Japanese yen against U.S. dollar, and 18 U.S. dollar jump in fuel oil prices, which are almost equivalent to total of 8.8 billion yen loss in Ordinary Income, we have achieved 41.8 billion yen increase in Ordinary Income. So, I think we can comfortably say that our Ordinary Income doubled.

Net Income for the first 9 months of Fiscal 2004 decreased from our previous expectations as shown in the last column. This is because of loss from liquidation of an overseas financial subsidiary which had originally been scheduled in 4th Quarter was brought forward to the 3rd Quarter. The loss is about 2.5 billion yen on Non-consolidated basis, and 3.1 billion yen on consolidated basis, which will be recognized as plus impact later in the 4th Quarter.

<B. Business Environment for 3rd Quarter Fiscal 2004>

Business environment for 3rd Quarter Fiscal 2004 was almost as expected per our announcement of 1st Half Financial results November 12th.
In terms of global economy, the U.S., E.U., and Asian region except for Japan have been in an upward trend due to capital investment, or economic vitalization.
In Japan, as you have been aware, corporate earnings and capital investments have been enhanced so that we can enjoy positive seaborne cargo volume due to increase in imports of raw materials.

Our business condition is mentioned in greater detail from the next slide.

<C-1. Trend of Division-wise Results in 3rd Quarter Fiscal 2004 for Container Business>

The number of loaded containers increased by 9% as noted here.
Major cause of this growth, of course, is the positive cargo flow from China.
In every trade, container volume carried has shown remarkable growth: Asia-North America trade 6%; Asia-Europe 6%; and intra-Asia 15%. You can refer to this trend in the graphs in the "Supplementary Report" which you received.

Another major factor is that strong freight restoration in Asia-Europe and Asia-North America trades has been realized, about which you can again refer to the graphs in the "Supplementary Report," or in the "Financial Highlights." In Asia-North America trade, average freight rate has almost touched the level of the previous peak experienced in 1999, and in Asia-Europe trade, even exceeded the 1999 level.

As to scale expansion, in response to overall expansion of global container movements, we have extended our service network. We started new services in the Asia-Aegean Sea trade, also in North and South America East Coast trades, and reinforced our Asia-Southeast Australia service and the all-water service between Asia and the U.S. East Coast via the Panama Canal.

As negative factors, there were hikes in ship-charter rates and fuel oil prices, and rise in value of Japanese Yen against U.S. Dollar.

<C-2. Trend of Division-wise Results in 3rd Quarter Fiscal 2004 for Bulker and Car Carrier Service>

For this sector, in a sense, profit has grown drastically compared to the previous year.
In the Bulker sector, the market boomed to a historical high level overall in the 2nd Quarter, while it had slumped temporarily in 1st Quarter, which you can see by taking a glance at the bulk market graph in the 'Supplementary Report.' Operating tonnage increased by 5%, which also contributed to better profit.

As to Car Carrier sector, the number of cars we carried from both Japan and Korea to the U.S. increased 31% for the year-on-year basis.
In addition, cargo movements in the trades from Asia to Europe and Australia, and also in off-shore trades, have been favorable.
As a minus factor here, we have been forced to charter more PCTCs during a very tight market at elevated charterage costs to carry this mounting cargo volume, where there is a strictly limited number of PCTCs.

In addition, there have been the hike in fuel oil prices and the rise in value of Japanese Yen against U.S. Dollar, which are common negative factors among all of our business sectors.
On the one hand, in Car Carrier business, when cargo loadings significantly increase,our customers themselves cooperate with efficient vessel operations, which somewhat reduces operating costs and enables us to maintain, or even slightly improve profit level.

<C-3. Trend of Division-wise Results in 3rd Quarter Fiscal 2004 for Energy Transportation>

Energy Transportation covers services for LNG, Thermal Coal, Crude Oil and oil products.
Regarding LNG Carrier sector, vessels for two new projects have been delivered and so we are now engaged in the operations of a total of 26 LNG carriers.
This sector has continued to keep stable profitability, although operating tonnage decreased by 4% because one vessel in our fleet, the 'Bishu-Maru,' had to be dry-docked for periodic inspection. This dry-dock term is also compensated in our income scheme, and does not reduce our profit.

In the Thermal Coal Carrier sector, cargo carried increased considerably with smooth delivery of new Corona-type vessels specified for thermal coal transport with wider hull and shallower draft, the type which is our strong point.
Freight market level has been positive and no loss was caused from vessel delays due to heavy congestion at ports as previously happened, 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.
Thanks to these factors, profit from this sector has noticeably improved.

As for the Tanker sector, as indicated in our 1st Half financial announcement issued on November 12th, a new VLCC completed in the 1st Quarter, together with a fleet of so-called AFRA-Max, middle-size tankers, increased our operating tonnage by 19%, and allowed us to enjoy the buoyant spot market.
However, in the beginning of 2nd Half, the newly built VLCC was committed to enter into a long-term contract with a new important customer in Japan, therefore she can no longer enjoy the present record high freight market level.

<C-4. Trend of Division-wise Results in 3rd Quarter Fiscal 2004 for Consolidated Subsidiaries>

Coastal Shipping and Ferry services around Japan mainly operated by Kawasaki Kinkai Kisen Kaisha, Ltd., another listed company in our group, have been stable.
Despite such negative factors as hike in fuel oil prices, or abnormal weather conditions this past summer, they have carried more cargoes, and have secured good levels of revenue and income.

In Air Forwarding section, both Operating Revenue and Income have been enhanced as air and marine cargo movements continue growing.

In the Freight Forwarding/Harbor Transportation segment, along with the growth in container handling volume of our own Container Business and together with that of other shipping companies, agency and container terminal sections improved so that we could enjoy better revenue and income as a whole.

<D. Outline of upward/downward Profit Factors for 3rd Quarter Fiscal 2004>

This slide shows outline of various upward/downward profit factors for 9 months from April to December 2004. Ordinary Income increased 41.8 billion yen year-on-year basis, and 1.9 billion yen compared to our last prospects announced on November 12th when 1st Half Fiscal 2004 financial status was disclosed.
This 1.9 billion yen improvement results from positive market conditions in each segment of our marine transportation business, so we can basically say that the result is almost in line with expectations.

Compared to last year results, as I mentioned before, negative effect from factors of Exchange Rate and Bunker Price totaled 8.8 billion Yen. Positive effects from Market Improvement result mainly from container freight restoration, together with dry bulk and tanker market improvement, which amounted to 33.7 billion yen altogether. Cost Reduction is 5.3 billion yen which we can see in greater detail in later part of these slides.

<E. Prospects for Fiscal 2004>

Next, I will touch on Fiscal 2004 yearly prospects, which is sum of results through the 3rd Quarter and expectations for 4th Quarter.

The next column shows Fiscal 2003 yearly results, and then comparison between the two.
I will not read out these figures, but Operating Income is expected to go up around 50%; Ordinary Income 70%; and Net Income 80 % for year-on-year basis.

As an assumption to those figures, average 7 yen rise in value of Japanese yen against U.S.dollar, and $21 increase in fuel oil prices are expected, and the effect to Ordinary Income is calculated based on 1 Yen rise in exchange rate negatively affects by 1 billion Yen, and increase in bunker oil price of 10 Dollars per ton has about 2.3 billion Yen per year, which have already been included in present yearly prospects for Fiscal 2004.

Comparison between the revised yearly expectations for Fiscal 2004 and previous prospects, which is indicated in the last column, shows a few billion yen improvement for each item of revenue or income. This depends on at least a small improvement in every section of our business.

Coming to Net Income, as explained before, liquidation loss originally scheduled in 4th Quarter was actually recorded in 3rd Quarter. Apart from that, our yearly Net Income is projected to improve slightly.

As we have previously often commented, we recognize profits upon completion of a voyage except for Containership Business section. As you are aware, whether vessels can complete their voyages by the end of March sometimes depends on ocean weather condition around the end of March, and so does the earnings from such voyages.
As for containership business, revenues are recognized upon vessels sailing out from a loading port, so revenues fluctuate by cargo volume to be picked up after Chinese New Year holidays.

<F-1. Trend of division-wise prospects for Fiscal 2004>

For the Container Business environment, in the 3rd Quarter there was some confusion, or inefficiency in railway services, etc. at U.S. West Coast gate ports in Southern California.
To avoid that chaos, we have started to deploy our 8 newly built 4,000-TEU Panamax-size containerships in services between Asia and the U.S. Pacific Northwest together with strengthening services between Asia and the U.S. East Coast from this January.
Load factors for both services are much better than were forecasted, and so we expect that we can offset some cost increase caused by problems in the Pacific Southwest.
Then in the Asia - Europe trade, positive cargo movements have continued though we still expected some downward adjustment around Chinese New Year holidays, which is just as our projections indicated.
Intra-Asia service is going well, whereas North-South trades are slightly on a soft note.

As a whole, we expect slight improvement from our previous prospects stated on November 12th in Containership Business.
The other business segments are market oriented and as the markets stay rather calm these days, our profits will be stable.

<G. Outline of upward/downward Profit Factors for Fiscal 2004 >

These factors that cause yearly prospects to fluctuate are in just about the same trend as that for the 9 months up to December 2004 which I outlined beforehand.
As to Market Volatility and Business Expansion factors, almost half of the plus effect for year-on-year basis is due to Containership Business, also contribution from Business Expansion factor of containership service expansion as I touched on before.

<H. Cash Flows, Investments, and Major Financial Indices>

We are afraid that we have not updated Cash Flow prospects for Fiscal 2004 since 1st Half financial announcement on November 12th.
Present income prospects are expected to extend slightly over the last prospects, so Cash Flows from operating activities will also improve. Investment Cash Flows will increase slightly because of some payment scheme change or so and thus Free Cash Flows will remain almost unchanged.

We feel we can achieve 30% in Equity Ratio. Target for Interest Bearing Liabilities remains unchanged. Both ROE and ROA are expected to stay at almost their same levels because total assets and shareholders' equity increases while our profit level also rises.

<I. Updated Status of "K" Line Vision 2008 Fundamental Assignments>

This slide shows qualitative fundamental assignments in "K" Line Vision 2008, our 5-year management plan.
As one of our major targets, Positive Efforts for Addressing Strategic Domain or Areas, we have established our agency network in main parts of the so-called BRIC countries.

"K" Line Air Service, our air and marine forwarder subsidiary, founded a logistics company in Shanghai and a subsidiary in Shenzhen utilizing CEPA.

Two new cape-size bulkers were delivered for iron ore and coking coal transport service.
In Energy Transportation sectors, we have secured new LNG business with Sakhalin Energy, Qatar, Osaka Gas, etc. Among various new projects we have made a long-time charter agreement with YARA for two new 38,000 cubic meter ammonia carriers, which is our first contract for ammonia.
In our Cost Curtailing Campaign, we now expect 7 billion yen achievement in fiscal 2004, which is broken down in the next slide. In Strengthening of Financial Constitution, our Bonds were upgraded as A, or A - (minus), by JCR or R&I.

<J. Cost curtailing campaign>

This table shows our cost curtailing campaign progress in detail. We had been targeting 5 billion Yen in total during this fiscal year from its beginning, and we have piled up small items step-by-step so that we are achieving 7 billion yen annually, which is the same amount as we expected upon announcement of our interim financial results. I believe this campaign has been successfully taking root as a gene of our corporation.

Now, I have explained about actual results and expectations up to the end of this fiscal year. As to business conditions for Fiscal 2005 and targets for Vision 2008, Mr. Maekawa will now explain. He has been our Senior Managing Director responsible for corporate planning and was recently appointed as our new President effective from this April.


<K. "K" Line Vision 2008 Achievement Goals (Numerical Targets)>

I am Maekawa, and let me start with this slide.

As you can see, while we are still in the 1st year of our new 5-year business plan that started in Fiscal 2004, we will be able to achieve far better profits than the targets for this year, or even for Fiscal 2008 in some items.
It is really a shame as I suppose you might be blaming us for lack of foresight, however, business environment has been moving far beyond our prediction at the time when we set the targets. Now I would like to re-examine the thinking of our plans or targets as to whether the change is structural, or just a temporary adjustment in supply and demand balance.

As to Fiscal 2005, basically we expect the scenario will not change considerably from this year, at least we cannot see any descending factors so far. As accumulated figures for which each of our business sections are now working, I believe we will come to issue revised targets for fiscal 2005, or even 2006.

<Business Prospects for 2005>
Now I will outline Business Prospects for 2005.

<Business Environment for 2005>

As to global economy, in the U.S. E.U. and Asia, including China, we see it will be strong overall.
In regards to turnaround in shipping markets, China has truly been an important factor, as in the security market, so shipping sector has recently been regarded as so-called China relation business, as you know very well.
Especially segments of non-container business have been significantly affected directly or indirectly by Chinese economy with the surge in demand for iron ore, crude oil and so forth.

In case of Containership Business, our core business, exports from China to the U.S. or E.U dominate a very large share in each service and so as long as the economy in the U.S. or E.U. is positive, we will be able to enjoy fairly good cargo movement from China, or any other Asian region. In that sense, I see this business as continuing in a favorable trend during Fiscal 2005.

<Business Strategy 1. Containerships>

As section-wise business conditions seem to have been explained adequately by now, I will just briefly touch on some characteristic points.

In Containership Business, the same as in Fiscal 2003 and 2004, cargo flow growth is forecasted at over 10% in Asia-North America and Asia-Europe trades, thanks to stable economies in each area as described previously.

On one hand, in viewing vessel supply, there once seemed to be a so-called 2006 concern that giant containerships were intensively delivered within 2006 to cause enormous gap in supply and demand. As far as we see now, that is no longer a serious problem, and rather, even in 2006, supply and demand situation will be continuously balanced.

In this environment, the most critical point is trend of freight levels. As commented in this slide, for us carriers there are various cost increase factors, so we believe every carrier will be trying very hard to ask customers to share cost increases, and also the costs for replacements to maintain services in the future. Therefore, we should never see another heated rate-cutting war as we once had, and prospect that reasonable freight rate restoration will be realized.

Our customers, mainly manufacturers, have strong intentions for long-term stable purchases, and so they recently tend to appreciate multiple-year contracts, for which we ourselves would like to increase the ratio.

<Business Strategy 2. Coal & Iron Ore Carriers>

This is an area that is recently drawing attention from various media with world crude steel production exceeding over 1 billion tons per year, and still growing, which reflects positive trends in the overall global economy. Going along with this trend, cargo volume of iron ore and coking coal has been extended remarkably.

Our expectation is that cargo movement will increase by 40 million tons year-by-year while vessel capacity growth is almost matching that. So, at least for a few more years, we will be able to enjoy a firm market level.

Considering these backgrounds, we will continue with positive investments, especially for Cape-size bulkers to become major carriers of those products in world markets.
Furthermore, not only in the domestic market in Japan, where we see a plateau in demand growth in general, but also in overseas markets, we are going forward to expand our business, and strengthen business bases especially in Singapore and Europe.

<Business Strategy 3. General Bulk Carriers>

As shown here, demand for major cargoes in this division---grain or coal---is also expected to be steady or at least no substantial change within fiscal 2005.

In the area of woodchip carriers, paper mills in Japan have plans to start production in China, which will not be realized within fiscal 2005, but will bring about strong demand in the future, and we are trying to enter into such projects.

At any rate, market for smaller bulkers is supposed to be pulled by Cape-size market, Panamax, or smaller type, even handy bulker market is expected to move but be rather stable.

<Business Strategy 4. Car Carrier Business>

In the sector of Car Carrier Business, world car sales are expanding year-by-year, which is around 60 million cars annually at present.

Nowadays many Japanese automobile manufacturers continue to transfer their plants abroad, which in a sense is reducing volume of seaborne cargo, but we expect their plants will increase exports out of each country to surrounding areas, like Southeast Asian region, Eastern Europe, South Africa, or South American countries.
This trend has already started and has been becoming stronger and stronger.

Moreover, we are continuing with expansion of our service network, not only in completed car transport by PCTC's, but also in service by RO/RO carriers.

Off-shore trades are expected to grow the most, so the same as in the bulk carrier section, our business expansion overseas becomes more and more of an important factor, and human resources as well as any other resources must also be strengthened,

<Business Strategy 5. LNG Carriers>

In LNG sector, contracts are made for very long-terms, and work for a new project takes a long time. So, although in the long view, LNG demand is prospected to increase remarkably, and we are aggressively working to secure new business, because of it taking a long time to bear fruit, Fiscal 2005 is expected to just go along with our present plans.

<Business Strategy 6. Thermal Coal Carriers>
Thermal coal consumption in Japan is expected to peak out at around 70 to 75 million tons per year, but according to our customers, their needs seem to be steady for the future. So, this is not an area of sharp expansion, but stable demand will continue. We will continue trying our best to provide better services to our customers with our Corona type fleet.

<Business Strategy 7. Tankers>

In regard to crude oil tankers, it is very difficult to make forecasts in such a volatile market; however, if we continue to see the world economic situation as positive overall, and especially demand from China stays at a high level for at least a few more years, average market level will be favorable.

In our long-term management plan, as we have been stressing for a long time, we intend to enhance our non-container sectors, especially energy transport business, so we are planning to enlarge our VLCC fleet from 4 to 10 vessels.

In this business area, we are seeking for long-term stable contracts based on long-term relationships with customers. Based on such contracts, we would also like to hold some extra fleet for the spot market; however, we are now still in the stage of obtaining long-term contracts to form our desired foundation.

Thank you very much for joining us today.

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