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Explanation by article

Ladies and Gentlemen,

Thank you for joining us today.

It is a pleasure to share this report with you on "K" LINE's consolidated and non-consolidated financial results for 3rd Quarter Fiscal 2003, and my prospect regarding financial position for full-year Fiscal 2003, which were disclosed on February 12th.

My talk will take about 30 minutes including slides.

Slide 1-1: Financial Highlights for 3rd Quarter Fiscal 2003

As you can see, the comparison between Fiscal 2003 and Fiscal 2002 in the last column of this table is based on accumulation from 1st Quarter through 3rd Qurater, or from April through December each year.
In spite of such negative factors as 5.9% rise in Yen/US Dollar exchange rate and 9.6% increase in bunker price mentioned in the bottom line of this table, Consolidated Operating Profit for 3Q Fiscal 2003 increased by 145%, and Income before Income Taxes and Extra-ordinary Items and Net Income by 186%, while Operating Revenues were up13%. These tendencies were the same as in 1st Half of this fiscal year.

Slide 1-2: Business Environment for 3rd Quarter Fiscal 2003

Although the global economic situation remained almost unchanged from the end of 1st/* Half Fiscal 2003, I would like to make some added comments about conditions relative to our business in the event you care to take notes:

Value of Japanese Yen against U.S. Dollar kept rising from mid-September.
Fuel-oil price had increased and kept staying at higher level.
These were negative factors.

Positive container movements and freight restoration were unchanged.
Bulker and Tanker markets, which are shown in other slides later, kept moving favorably and went further upward.
Trends in PCTC service were almost the same. In this 3 rd Quarter, trade for Middle East and Australia was considerably positive.

Slide 1-3: Trend of Division-wise Results for 3rd Quarter Fiscal 2003 (in Container Business)

Loaded cargo volume of Container Business increased by 11% year-on-year basis.
The background is same as for 1st Half. We could enjoy continuous positive cargo movement, mainly from China, and more containers than expected were carried in trades from Asia to North America and to Europe.
Regarding freight rates, which we will come back to later, our average freight level was down slightly in this 3rd Quarter due to change in cargo mixture. This is attributed to cargo increase in Intra-Asia trade and slack season in Asia-North America and Asia-Europe trades. Overall, however, circumstances in Container service remained stable, and freight restoration has been proceeding smoothly.

We had also reinforced our Asia-Mediterranean service where container movement is really strong.

However, exchange rate and fuel-oil prices in the last quarter were minus factors for all divisions in the company.

Slide 1-4: "K" Line Container Loading Volumes

This table shows our company's loading volumes and load factors in Asia-North America and Asia-Europe trades. You can see that the load factors declined in 3rd Quarter, which, I believe, is inevitable due to seasonal effect.

Slides 1-5 and 1-6: Trend of Average Container Freight in Asia-North America and Asia-Europe Trades

The first slide shows transition of average freight rate in Asia-North America Trade, quoted from 'Containerization International.' This data is shown on calendar year basis, so 2nd Quarter '03 at far right means our 1st Quarter Fiscal 2003. Dotted lines have been added by ourselves and suggest prospects for 2nd and 3rd Quarters.

As you may know, an article roughly translated as 'Container Freight's Historical Hike' recently appeared in the Nihon Keizai Shimbun (the Japan Economic Journal).
However, as you can see in this graph, present freight level does not even closely touch the peak in 1999, although we really appreciate articles about our shipping industry in such quality papers for greater understanding by the public.

Rather than that scenario, you have been aware of how low the bottom freight level has stayed from latter part of 2001 to the beginning of 2002, and it has just recently started to recover.

One of the main reasons for improvement in our company's income, of course, was that the results of our container business turned into the black, with freight restoration supported by our customers contributing quite noticeably.
However, the restoration itself was not huge or sharp, as you can see.
I would also like to emphasize that there were other points than freight recovery, such as cost reduction, service rationalization, merit of scale by larger-size ships, etc.

The second slide shows graph with similar results for Asia-Europe trade.

Slide 1-7: Trend of Division-wise Results for 3rd Quarter Fiscal 2003 (in Bulker & Car Carrier Services)

This division also achieved better results than prospected as of the close of 1st Half financial results.
Bulker business in this division contributed more to the overall improvement.
As some of you may very well know, factors affecting this Division are much different from Container Business.

Slide 1-8: Transition of Crude Steel Production and Iron Ore Import

Iron ore and coking coal transportation is one of the main sectors in our Bulker service.
These 2 graphs show Crude Steel Production and Iron Ore Import. The pink line is for China.
As you can see, China has extended its iron ore import very rapidly.

China's huge demand for Iron Ore and Coking Coal resulted in a tighter supply of cape-size bulkers and buoyant
charterage; then the effect spread to 'panamax' bulkers, and further to smaller-sized ones.
This tendency still remains unchanged at present.
Our operating tonnage also increased by 18%

Slide 1-9: Bulker Market

This graph shows market freight level picking up from mid-September 2003, even though 1st Half 2003 level had already been higher than 2002 and 2001.

Slide 1-10: Transition of Cars/Trucks Transported by PCTC

Regarding Car Carrier services, volume carried for North America and Europe decreased slightly.
As mentioned before, the number of cars transported from Far East to Middle East or Australia actually increased, and also in the area from and to other than the Far East, such as trans-Atlantic, or within Southeast Asia.
As a result, total cargo volume carried increased 4%.
In this business, freight levels do not fluctuate, and so income is rather stable..

Slide 1-11: Trend of Division-wise Results for 3rd Quarter Fiscal 2003 (in Energy Transportation)

Energy Transportation is another Division significantly affected by Market rates.

Among sectors in this Division, we have secured long-term contracts only for LNG Carriers, from which we can earn quite stable profit, just the same as with the other two major carriers in Japan.

With regard to Thermal Coal Carriers, which is one of the areas we have tried to enhance, operating tonnage shows a remarkable increase of 21%, including effect of the newbuilding of an 88,000 deadweight ton-type vessel with wider hull and shallower draft, designed especially for thermal coal transport, which I can say has actually been a 'hit.'

Let us now move to the next graph.

Slide 1-12: Transition of Thermal Coal Results

This graph shows increase in volume carried by ourselves.

Regrettably, however, we could not fully enjoy this cargo volume increase.
Most of our freight contracts with electric power companies are longer-term and quite stable, and many of which allow our customers to have options that allow us to carry extra cargo but at longer-term contract rate basis.
Considering present spot market level, of course, they exercised their options and we had to secure vessels in the open market to meet the extra demand.
Since serious delays are being experienced at loading ports due to a rush of ships, in some trades we have even had to charter extra vessels at charterage rates higher than actual freight level.

Slide 1-13: Tanker Market

Let us move to the tanker market graph.

The red line showing a steep hike in October is the one for 2003.
You can see we could enjoy a rather preferable market in Oil Tanker Services overall this year, although there has been considerable fluctuation.

Unfortunately, however, we have only one free vessel among our VLCC fleet based on our policy of seeking stability in our financial results.
Our favorable results in this division are owed to free vessels in our fleet of AFRA MAX or middle-sized tankers that are operated by KLPL, our 100% subsidiary headquartered in Singapore.

Freight market for AFRA MAX has not completely followed that of VLCC's, but showing a similar trend.

Slide 1-14: Trend of Division-wise Results for 3rd Quarter Fiscal 2003 (for Consolidated Subsidiaries)

Among the "K"Line group companies, domestic shipping services in Japan and short-sea services in the Asian region are operated by Kawasaki Kinkai Kisen Kaisha, Ltd, another listed company. As Kawasaki Kinkai has officially announced, they have also improved their own profit thanks to positive cargo movements in short-sea service together with efficient operations.

The segment of 'Services Incidental to Transportation,' such as Port Terminals and Shipping Agencies, also improved along with the increase in container handling volumes.

Slide 2-1: Prospects for Fiscal 2003

Now, let us turn to yearly prospects for Fiscal 2003 that ended March 31, 2004, and which have been revised with results through the 3rd Quarter and prospects for 4th Quarter. The prospects are based on Yen/US Dollar exchange rate of 105 Yen and Bunker-oil Price of 170 U.S. Dollars per Kilo ton.

Revenues for 4th Quarter decreased compared with highest season such as 2nd Quarter because 4th Quarter consists of the months of January, February, and March.
In Container Business, we see a clear seasonal effect every year in January and February which is usually a slack season but followed by a rush of cargo that starts in March.
Considering this trend, even now in mid-February some flexible factors still remain, but until now, things seemed to be moving within our expectations.

As to minus factors, I have some concern about further increase in value of Japanese Yen against the U.S. Dollar, also higher Bunker Price because OPEC has decided to decrease production.

Factors of P&L Volatility for 4th Quarter based on Income before Income Taxes and Extra-ordinary Items are mentioned below the table.

Slide 2-2: Trend of Division-wise Prospects for Fiscal 2003

As shown here, we believe some improvements have been made in each division compared to last year.

Slide 2-3: Breakdown in Cash Flows, Investment

Fiscal 2003 figures are calculated based on investment plans already fixed by now. In the investment amount, cash pay-out or pay-in for vessels financed by operating lease scheme is excluded.

Summary of KV-Plan

Slide 1-1: Updated Status of KV-Plan

As I mentioned when 1st Half results were announced, we have been achieving targets as expected, in fact better than expected, as set in our management's 3-year KV-Plan.
The green column in the center of this table shows yearly prospects for Fiscal 2003, which I previously explained in earlier slides.
Achievement ratio shown in the last column is comparison between the prospects for Fiscal 2003, which is 2nd year of the KV-Plan, and the final target set for Fiscal 2004,
As you can readily see, we are achieving all targets in P&L items one year ahead of schedule.

Slide 1-2: Transition of Consolidated Income

We included the letter "V" in our management plan in anticipation of a V-shaped recovery, and even though our V-shape appears to be leaning a little bit, I can say without hesitation that we are now in a V-shape recovery track.

Slide 1-3: Transition of "KV-Plan" Numerical Targets on Consolidated Basis
Slide 1-4: Transition of Interest Bearing Liability on Consolidated Basis

The center column in the first slide shows prospects for Fiscal 2003 in brown letters, and in the right-hand column final targets set for the third year of the "KV-Plan." Fiscal 2004 final targets are mentioned in blue letters, and the achievement ratio in green letters in the far right column.
Interest Bearing Liabilities for Fiscal 2003 shown in the 4th line are expected to be 290.0 Billion Yen, which does not reach the final target. Final target for Shareholders' Equity Ratio in the 4th line from the bottom had been expected to touch 22% by the end of this year, but present prospects have slightly decreased to 21%.

Because some additional investment plans were fixed during this year, we were unable to achieve our final target goal for Interest Bearing Liabilities.
Next year, however, even in the new management plan, we will continue our efforts to decrease it to 275 Billion Yen, the target for Fiscal 2004 in our present "KV-Plan"

Slide 1-5: Prospects for our 'CS-300' Cost Curtailment Plan

"Cost Slash-300" is a cost-curtailment campaign included within our "KV-Plan" that targeted total cost reduction of 30 Billion Yen in 3 years. When we say cost-curtailment, it does not mean just cuts in general or administrative costs, but also changes in cost scheme by way of vessel replacement, container terminal contracts, etc.
We achieved 23.4 Billion Yen in the first year, and 9.3 Billion Yen is our revised prospects for this second year. So, we will have achieved 32.7 Billion Yen in total by the end of this year, well over our target of 30.0 Billion Yen.

Slide 2: Achievement Evaluation of KV-Plan Fundamental Assignments

Here we mention the updated status of Fundamental Assignments, which we cannot achieve numerically, but which we must show in the change of our structure.

Slide 2-1: <Fundamental Assignment No. 1 of KV-PLAN>

Among the 5 items listed, "GAPP", our global application network is a project to improve service quality in Container or Car Carrier Business as a total system by way of integrating independent service in each region, and that has been most challenging in Europe, and which we are now completing.
GAPP became operative from last April. After being customized for almost one year, it has become more convenient and is now is contributing to our "jump-up" in this field.
The last of the 5 items, Development of VMS (our Visibility Management System) will be the next key issue. We have been trying to globally extend our Visibility Management System with IT, which has already been preceding in Logistics business in the U.S. I expect the system will be a platform for our Logistics business once it becomes ready.

Slide 2-2: <Fundamental Assignment No. 2 of KV-Plan>

We established "K" Line (Japan) Ltd to concentrate on providing services suitable for customers in Japan, our major market. Now we are increasing the number of employees following our business expansion.

We started short sea car carrier services in Europe using our own flags, and a new joint venture with China Shipping for coastal car transport service in China.

The London-based regional headquarters for Bulk and Energy Transport services has succeeded in establishing a strong relationship with customers in Europe and has placed an order to build Capesize vessels for their own business. I will appreciate your referring to our press release made on February 13th that includes further details.
With the expectation that import of natural gas into the U.S. will be rapidly growing, we strengthened our business base in the U.S., aiming at gas transport similar to that by LNG carriers but by using CNG carriers which we are now newly developing with our partners.

With regard to last item in this slide, "K" Line Pte Ltd. in Singapore has been proceeding most successfully among our regional headquarters. They first started to undertake accounting and operating services for Container Business, then for Car Carrier business and subsequently established a regional headquarter function for Bulk and Tanker business. They have done very well in regionally-based business in the Asian region.

Slide 2-3: <Fundamental Assignment No. 3 of KV-Plan>

Our Logistics business had been progressing mainly in the U.S., but now making expansion in other areas. We have eventually succeeded in starting a joint venture in China, also extending 1-stop services in Thailand and Indonesia.

Slide 2-4: <Fundamental Assignment No . 4 of KV-Plan>
I imagine that most of these items are rather well known among you:
issuance of our Environmental Report, 100% double hull tanker fleet, ISO 14001 expansion, and so on.
We are very proud that we have been listed in the "FTSE 4 Good Global Index" and "Dow Jones Sustainability World Indexes" (DJSI World), and we will make continued efforts to maintain this nomination by them.

Slide 2-5 <Fundamental Assignment No.5>

We established a Compliance Committee headed by myself, and Chairman of the Board, together with a hotline system. While this is not expected to be frequently utilized, it has, however, actually proved to work efficiently even among offices overseas.

We have repurchased some of our own corporate shares, and have also made stock exchange provisions to increase our ownership to 100% in two of our subsidiaries.

It is my intention to continue holding future IR meetings in this style for each quarter.


Thank you very much for joining us today.

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