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Explanation by article

Ladies and Gentlemen,

Thank you for joining us today.
It is a pleasure to share with you this report on "K" LINE's Fiscal 2003 consolidated and non-consolidated financial results and my prospect regarding full-year financial positions for Fiscal 2004.

A-1. Financial Highlights for Fiscal Year 2003 <sheet #3>

My explanation is based on the scenario you have in your hands, or you can look at the screen here, which is based on regular format as many of you see. In this table, the first column shows results for previous year, Fiscal 2002, and the next column indicated in blue letters shows financial results for Fiscal 2003. For reference, our fiscal year starts from April and ends in March. The next two columns show comparison between Fiscal 2003 and Fiscal 2002, and the far right column is for the latest yearly prospects published following announcement of Fiscal 2003 3rd Quarter financial status. As you can see, we achieved a substantial increase both in sales and profit in Fiscal 2003 compared with Fiscal 2002. Furthermore, we even improved from the latest prospects announced at the time our Fiscal 2003 3rd Quarter results were publicized.

During Fiscal 2003, our yearly prospects have improved in each quarter almost evenly.
I could say it reflects this fiscal year's general tendency; many factors of volatility became better and better as time went by, while some of them just revealed that they were not as bad as expected.

As the ratio of Consolidated to Non-Consolidated is not shown here, we usually feel it is estimated around 1.3 times. As to Fiscal 2003, 1.24 times for Operating Revenues; 1.28 for Operating income; 1.26 for Income Before Income Tax and Extra-ordinary Items; and 1.36 for Net Income. The ratio for Net Income became slightly less compared to Fiscal 2002, which means that improvement in Non-Consolidated-basis Net Income contributed more than in Fiscal 2002.

A-2. Consolidated Financial Results on Segment Basis for Fiscal Year 2003 <sheet #4>

We will go on to the next slide.
This table shows Consolidated Financial Results on Segment Basis for Fiscal Year 2003.
As you can see, our core business is Shipping and the improvement in Shipping greatly affected the overall results. I will explain about the reason why Shipping has improved later, but all divisions in shipping contributed to the improvement with expansion of business, and market improvement also made Bulker and Tanker sector results better.

Speaking of 'Services Incidental to Transportation,' where main businesses in the segment relate to Container Terminal and Shipping Agency, this improved along with the increase in container handling volume.

You see Operating Income of the segment "Others" shows slight minus figure compared with the previous year. This is because a financing subsidiary caused or added deficits under the influence of exchange rates. We would like to clarify that it is not a structural issue, but rather a temporary one.

A-3. Business Environment <sheet #5>

This slide shows business environment as I partly mentioned earlier.
From a macro-economic point of view, 4 items are indicated. Our business is, as you know, strongly influenced by situations outside of Japan. About 80% of our operating revenues is earned overseas. Our major business areas, U.S., E.U., and Asia, were all in favorable condition for our business.

And especially talking about Asian region, though we had been concerned about effect by spread of SARS at the beginning of Fiscal 2003, fortunately it was very limited. Anyway, all of the areas, more or less, have been in economic recovery or growth.
And as to the situation for our own company, or maybe common to the shipping industry overall, as we mentioned here, fuel price has moved to a relatively high level, and it is rising now, which may well affect the prospects for Fiscal 2004.

A sharp rise in the value of Yen against U.S. Dollar from mid-September resulted in some exchange loss, which is rather weak at present, but the latter four items are positive factors.

There are positive container movements in various trades. Freight restoration in container services realized in Asia to North America and to Europe trades, and also in trans-Atlantic trade. You can find container freight rate transition in our Investor Guidebook in your hands.
Bulker and tanker market had been quite positive, as you were aware, although Bulker market at present is rather soft. You can also find graphs about transition of each market in the Investor Guidebook.
Then, car exports from Japan did not increase to North America or to Europe, but did show an increase to Australia and in off-Japan trades. In total, the number of cars transported was increased.

A-4. Trend of Division-wise Results in Fiscal Year 2003 for Container Business <sheet #6>

In the next slide general comment is indicated in blue letters. Yearly results exceeded original prospects in the beginning of the year. We could enjoy 10% plus in loaded cargo volume, and freight restoration realized in three major trades as mentioned earlier, which is noted as the third item. As I mentioned, too, there is a positive cargo flow from China, which might be the main reason accounting for raise in total container volume carried. .

As to our own business activity, we have reinforced our services for trade in Asia to the Mediterranean Sea, which is more favorable than expected. But we see as a negative factor a hike in fuel oil price that was approximately 170 U.S. dollars as yearly average.

In our "Cost Slash 300," a cost curtailment program in our 3-year management plan, and which aimed to realize cost savings of 30 billion Yen in 3 years, we achieved 10 billion Yen in Fiscal 2003. About three-fourths of this 10 billion Yen was achieved in the container business division. More on achievement of "Cost Slash 300" will be shown in another slide later.

A-5. Trend of Division-wise Results in Fiscal Year 2003 for Bulker & Car Carrier Service <sheet #7>

In Bulker & Car Carrier service, compared with our prospects, the key point for our having achieved the considerably better results than our original prospect was that market freight levels persisted higher than our expectations.

Operating tonnage in Bulker sector increased 19%, as mentioned here, and every category in Bulker also expanded.
However, what increased here did not necessarily contribute so much to our profit, that is, we chartered ships at higher rates and provided them at higher rates; nevertheless, the balance resulted in plus figures, but we could not fully enjoy the historical hike in market rates.

Then, as I mentioned before, the number of cars carried by PCTC for North America or Europe from Far East Asia was almost flat, while total cars carried increased from 1.62 million cars to 1.76 million compared to previous year. However, off-Japan trade growth does not directly produce the same level of profit, nevertheless we secured almost the same profit compared to previous year together with efforts for charterage reduction and so on.

For Bulker & Car Carrier Service as a whole, we achieved significant improvement.

A-6. Trend of Division-wise Results in Fiscal Year 2003 for Energy Transportation <sheet #8>

In Energy Transportation division, results almost met prospects.
LNG Carriers kept stable operating tonnage and profitability, as we cannot expect a large extent of growth here. Thermal Coal Carriers carried more cargo volume, however some trades turned unprofitable because charterage sharply increased, and so, profit or profitability here did not actually improve. In Tanker business, the Fiscal 2003 results exceeded both latest prospect and results of Fiscal 2002, as the market remained comparably stable at higher level.

As to Thermal Coal Carriers, as you know, demand increased more than predicted, and furthermore, severe delays and lost time in vessel operations resulted from extraordinarily heavy congestion at loading ports.

As a result, we faced vessel shortages in meeting our secured cargo contracts and were forced to charter regular, inefficient Panamax vessels from the escalating short-term charter market while we had secured a good number of vessels specified for thermal coal transport with wider hull and shallower draft, which type is our strong point.
We regret that this ultimately resulted in a slight loss for this sector.

A-7. Trend of Division-wise Results in Fiscal Year 2003 for Consolidated Subsidiaries <sheet #9>

Next slide shows results of Consolidated Subsidiaries. One of them, Kawasaki Kinkai Kisen Kaisha, Ltd., another listed company in our group who manages short sea and coastal shipping around Japan, as they already announced officially, improved profitability considerably and still have been growing steadily.
Services incidental to transportation were in good condition with positive cargo movement, as the major businesses here, terminal and agency business, are expanding along with the increase in container volume that I mentioned earlier.

A-8. Outline of upward/downward Profit Factors for Fiscal Year 2003 <sheet #10>

This slide shows outline of upward/downward Profit Factors for Fiscal 2003. As we have already revised our prospects after each quarterly financial closing, effect of exchange rate or bunker price has not made much impact compared to latest prospects. The 6.6 billion yen improvement from the latest prospects was mainly caused by better conditions in the market with some effect from business expansion and cost reduction.

Compared with Fiscal 2002 results, a rising yen against U.S. dollar resulted in 10 billion yen loss. An exchange rate difference of 8.40 Yen caused this 10 billion yen loss. Bunker price stayed higher and caused negative effect of 1.9 billion yen. Though we had forecast that it would go up in our prospects, we find actual price was even higher than predicted.
Then, market improvement, which is the largest reason for increase, totaled 35.3 billion yen; business expansion was 5.5 billion yen; and cost reduction and others amounted to 10 billion yen that was mentioned earlier. Consequently, we improved approximately 39 billion yen compared with Fiscal 2002.

B-1. Prospects for Fiscal Year 2004 <sheet #12>

Now, I'll explain about the prospects for Fiscal 2004. Yearly prospect is shown in blue letters. The column next to that shows results for Fiscal 2003 that I have been explaining up to now. The difference between them is shown in the next column, and Increase Ratio is shown in the far right column. As you can see, generally speaking, Fiscal 2004 prospect stays rather flat at relatively high level.

In regard to Operating Revenues or Operating Income, it just goes along with the trend. Ordinary Income and Net Income are expected to improve somewhat better because of cost-savings that I will talk about again later, and also a decrease in extraordinary loss.
In Fiscal 2004, we expect our business operation to be flat, but our financial structure will show more improvement.

We assume exchange rate of 105 yen per 1 U.S. dollar for the first half; 110 yen for the second half; and 108 yen for yearly average. Bunker price is put at 170 U.S. dollars per Kilo ton as yearly average, while we see slight increase compared to the prediction at present and this could cause some negative effects.
Ratio of Consolidated to Non-consolidated reflects similar tendency as Fiscal 2003, as the ratio is usually around 1.3, so it returns to normal condition this year.

B-2. Consolidated Financial Prospect on Segment Basis for Fiscal Year 2004 <sheet #13>

We expect balance of segment-wise profit to remain almost the same, in which Shipping Business takes major part, as we maintain our present corporate structure. In the category of Shipping Business, we expect bulker division to be greatly improved because present positive market condition has started from mid-2003 and it is expected to continue throughout the Fiscal 2004 year.
In terms of Services Incidental to Transportation, as I mentioned before, we expect increase both in sales and profit with increased container volume. As for Others, it will be flat as there is no special factor this year as I also mentioned earlier.

B-3. Trend of division-wise result <sheet #14>

In regards to division-wise results, Container Business will have positive cargo movement in general, but the profit level will continue to be flat. As negative factors, fuel price remains higher and charterage is up because market rate for this section is getting higher, reflecting increase of cargo movement all over the world, and we have to accept that charter rates will go up upon contract renewal of each chartered vessel to keep them in our fleet. This year we do not see a large-scale structural improvement for navigation cost such as that seen in "Cost Slash 300," but we can count on some cost-savings by rationalization in terminal or trade network costs, etc.

Bulker sector consistently seems to have stable market with positive cargo movement. However, the market level is slightly declining these days compared with peak level. We believe we can achieve our prospect in this level of market.

In sector of Car Carrier, the trend in the number of cars transported from Japan is not increasing, even though growth seen in off-Japan trades has continued for these few years. It seems this tendency will last and we are confident that we can manage this situation by our own efforts.
Therefore, we expect Bulker and Car Carrier division can make more preferable achievements than in Fiscal 2003.

In the Energy Transport Division, operating revenues increased according to expansion of the LNG fleet.

As to Thermal Coal Carriers, timing of contract renewal is coming so we can almost settle the situation whereby existing COA performed with vessels at higher charterage caused net loss, so profitability should be getting back to normal condition. This business is expanding little-by-little with two vessels of wider hull and shallower draft being delivered within Fiscal 2003.

In Tanker sector, most VLCC have been under long-term contracts and profit here is stable. We have Aframax tankers, which are our strong point, and whose market is currently stable, so the result seems to be stable in general.

B-4. Outline of Upward/Downward Factors Affecting Prospects for Fiscal Year 2004 <sheet #15>

This slide is shows the Outline of Upward/Downward Factors Affecting Prospects for Fiscal 2004. Effect from fluctuation in exchange rate will be around 6 billion yen as we set exchange rate at 108 yen for Fiscal 2004, almost a 6 yen rise from the previous year. We do not see much change in Bunker Oil Price that remains 170 dollars in Fiscal 2004. However, the price is now going up, and if it continues at the present extremely high level, it could become a negative factor.

Going to Market volatility, it will not improve 12 billion yen in a single burst, but there are shifts in middle term contracts to more profitable levels one-by-one upon renewal, which are negotiated and revised in favorable market situation.

Then, as cargo movement is still positive, we are expanding business with vessels that are newly chartered, etc. Effect of this business expansion is about 5 billion yen plus; and in Other Business segment a plus effect of 0.4 billion yen.
We prospect results for Fiscal 2004 will improve by 11.0 billion yen compared with Fiscal 2003 results.

B-5. Investment and Cash Flows <sheet #16>

Regarding this Investment and Cash Flow table, we have changed the way of disclosure, or perhaps I should say, the way of compiling, although we had done it based on the investment cash flow for so-called on-balance vessels up to the last time. Investment amount at the top of this table includes payment in operating lease scheme.

For Fiscal 2003, 2 vessels of our own including 1 containership and 1 VLCC tanker, and 5 under operating lease scheme and 2 co-owned LNG carriers were newly delivered, whle we disposed of 7 vessels, including 2 containerships.

In Fiscal 2004, 2 vessels of our own, 7 under operating lease, and 2 of LNG carriers are scheduled to be delivered while no disposals are planned. .
In this regard, as you can see, we expect Operating Cash Flow of 80 billion yen, with Investment Cash Flow 55 billion yen and Free Cash Flow of 25 billion yen.

These figures are just based on our present projection. We would like to consider various ways of raising funds to combine them to achieve greatest profitability along with pursuit of cost reduction. So, final figure of investment could be considerably changed.

Well, I have completed explanation about our financial results for Fiscal 2003 and prospects for Fiscal 2004.

C-1. KV-Plan Achievement (Profit & Loss) <sheet #18>

Before I talk about the new middle term management plan that is replacing our KV-Plan, let me overview the KV-Plan that has finished one year earlier than originally scheduled.

In this slide No.18, you can find a column in green color on the left side of the table, which is results for Fiscal 2003.
KV-Plan was originally a 3-year plan from Fiscal 2002 to 2004. In the far right column, percentage of achievement ratio to the original final targets set for Fiscal 2004 is shown. As you can see, the ratio for each item is over 100%. The graph on the right in the table shows the tendency.
On the far right side of the bar graph, you can see figures originally planned for Fiscal 2004. After the disaster in the 2nd half of Fiscal 2001, we accelerated our efforts for rapid recovery, and I feel we have made a V-shaped recovery.

This, of course, reflects both a favorable market situation and also our own achievements in cost-curtailment.

C-2. KV-Plan Achievement (Management Indices) <sheet #19>

The table to the left in this slide shows achievement of management indices including both Balance Sheet and Profit & Loss items. The column in red letters is yearly results for Fiscal 2003, and column in blue letters on the right side of the table shows targets set for Fiscal 2004. I suppose that there could be discussion as to whether we have achieved these targets completely. Perhaps Interest Bearing Liability would be a point, which has not even touched the targeted figure.
However, as a matter of fact, we front-loaded some investments, and so we feel confident that our achievement is almost equivalent to 275 billion yen of the original final target for Fiscal 2004.
Equity ratio is slightly under the target of 22%, but almost reached.
As a whole, I believe I can safely announce that the plan has been successfully completed.
Not only these numerical targets, but also qualitative items have almost been achieved, so we feel quite confident to conclude the KV-Plan earlier than scheduled.

As you can see in this graph, Interest Bearing Liability has decreased continuously, which is the fruit of not only our KV-Plan, but also 4 years under the previous "New-K 21" Plan that started just after "KR-Plan" ended in March 1998.

C-3. KV-Plan Achievement (Cost curtailing plan in KV-Plan /Cost Slash-300) <sheetb #20>

When I discussed the cost curtailing program in KV-Plan named "Cost Slash-300" two years ago, I explained that it was one of the biggest points in our KV-Plan, and we had confidence to achieve the target, including structural changes such as replacement of containerships, and that we had almost acquired the procedure for achieving this target.
Finally, we achieved 23.4 billion yen in Fiscal 2002, and 10 billion in Fiscal 2003, exceeding our total 30 billion yen target.
As I mentioned, cost-savings in container business totaling 24.2 billion yen in two years represents the largest part here, and it has been the biggest reason that containership business recovered.

C-4. Positioning of "K"LINE Vision 2008 <sheet #21>

In the next part, we will talk about our new middle-term management plan, "K"LINE vision 2008, which is rather a vision for five years that consists of a firm 2-year projection and a 3-year expectation, including some assumptions, rather than just a 5-year management plan. I would like to see the vision as our 'target.'
The concept is a combination of plan and target, and as shown on the far right side, our fundamental assignment is sustainable growth and establishment of a stable profitability structure.
We remain in a remarkably high position after the significant improvements of Fiscal 2002 and 2003, which the global economic environment including China seems to be bringing. However, I cannot imagine that it will continue as long as 5 years, but I expect it to continue at least 2 years, that is through Fiscal 2004 and 2005.
So, during these years, we will steadily advance to follow the new management plan, confident of achieving the numerical targets. As our results significantly increased during Fiscal 2003, we expect the level of profit should become rather normal. We would like to focus on the establishment of stable profitability structure by pursuing sustainable growth.

From Fiscal 2005 to 2008, our plan is still somewhat open.
For example, when looking at our main shipping business, the building slips in shipyards have already been booked far ahead of time, and we cannot have a free hand in the building of new vessels until Fiscal 2008. As I will mention concerning the number of vessels later, lack of having a free hand means that we cannot expect further extensive expansion even during the entire 5-year term, but we see the term as a runway for making remarkable leaps forward, in other words, as the time to enhance corporate structure when we should work to reinforce our business base more firmly.
This is our fundamental stance.

C-5. Fundamental Assignments <sheet #22>

I suppose these Fundamental Assignments might give a rather ordinary impression to you.
We will need further reinforcement of our business base and ensuring stable profitability, or making present conditions as our norm. It is very important for us to see that this situation continues for a long time, as we are just now having our second year of stability.

During internal discussions for the second task, to describe ourselves as a global entity expanding business all over the world and accepting various cultures, a variety of expressions are considered, such as "trans-national" or so forth; at any rate, we would like to create our own corporate culture, as a globally expanded "K"LINE Group, to establish the "K" Line brand firmly, and to keep continuously upgrading.

To realize these, we must incorporate a comprehensive risk management system, as it is deeply inbedded in our minds that shipping business has its inherent risks. Then, further strengthening corporate governance as a global, or trans-national group, is required. With these measures we would like to pursue stable growth on a worldwide scale.

C-6. Financial objective for "Vision 2008"-1 <sheet #23>

Regarding numerical targets, this table shows the results for Fiscal 2003 and plan for 2 years ahead. We expect moderate, stable growth, in these two years, not drastic expansion or improvement.
Operating income, ordinary, or net income should be going along with this trend.

Figures of 2008 are targets, and so average increase ratio in operating revenues for first two years is somewhat different from that for latter three years. After all, the ratio for 5 years is estimated as 3.7%.
Assuming global marine transport grows 3-4% annually, a 3.7 % increase in operating revenue would be reasonably achievable.
Based on this assumption, we set the targets for Fiscal 2008.

We will move forward to achieve these targets, which are our commitment, and which we can achieve without fail, or we are achieving, unless any unexpected incidents occur.
I suppose that some of you might regard our attitude as a little too conservative, or having a lack of enterprise. However, our targets are set and currently based on such thoughts.

C-7. Financial objective for "Vision 2008"-2 <sheet #24>

Next slide is for management indices. As I have been explaining up to now, our financial condition is improved and corporate structure is strengthened. Therefore, as a matter of course, every factor for the indices keeps improving.
Figures to be targeted are as follows:

Shareholder's Equity more than 300 billion yen
Equity Ratio more than 40%
ROE more than 16%, and
Debt Equity Ratio less than 80%

With accomplishment of these targets, we are aiming at constant A rating with annual dividend of 10 Yen per share.

In terms of Shareholders' Equity, we are not intending on equity finance, or so, but we will be accumulating cash from our operating activities considering balance of cash for investment, etc. Our average operating cash flow for 5 years is estimated at 75 billion yen per year, and investment cash flow is 70 billion yen. I see those figures as quite moderate. Results for Fiscal 2003 were fairly good, and to continue cash flow around that level is truly required.

C-8. Fleet scale transition & Amount of investments <sheet #25>

Let us talk briefly about fleet scale projection. We expect total cost of 730 billion yen for 181 vessels in total, which includes 215 billion yen for chartered vessels. We have disclosed our prospect to this extent; however, please kindly note that composition of the whole amount could be changed.
As I mentioned, ship slips are now very tightly booked and a considerable number of vessels to be built has already been reserved. Almost no room remains open, and so we do not anticipate any prominent fluctuation will occur here.

That is our new "K"LINE Vision 2008 that replaces our previous KV-Plan.

Thank you very much for joining us today.

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