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Explanation by article

Ladies and Gentlemen:

Thank you for joining us today in spite of it being the summer vacation season.

It is a pleasure to share this report with you on "K" LINE's consolidated and non-consolidated financial results for 1st Quarter Fiscal 2003, and prospects of financial position for half-year and full-year Fiscal 2003 which were diclosed on August 7th..

My talk will take about 30 minutes.

For your guidance, our report for this 1st Quarter was made in accordance with almost the same procedure as yearly or half-yearly financial closing except for valuation of marketable securities.
If valuation had been made, unrealized loss from the securities would have been only 13 Million yen on Consolidated basis, and Nil for Non-Consolidated.

The results have been reviewed by a certified audit firm; however, please note that the one for 1Q Fiscal 2002 had not been audited, just being for the purpose of our inner office use. We are mentioning this just for your reference. We will continue doing our best to assure that our financial situation is as transparent as possible .

Sheet No. 2: Financial Highlights for 1st Quarter Fiscal 2003

In the first column, you can see results for 1Q Fiscal 2003 which ended on June 30, 2003.

Operating revenues were 174.5 Billion Yen on Consolidated basis, and 141.3 Billion Yen for Non-Consolidated

Operating income was 12.1 Billion Yen for Consolidated, and 9.9 Billion Yen for Non-Consolidated.

Income before income taxes and extraordinary items was 11.5 Billion Yen for Consolidated, and 9.9 Billion Yen for Non-Consolidated.

Net Income was 5.9 Billion Yen for Consolidated, and 5.5 Billion Yen for Non-Consolidated.

Taking 9.9 Billion Yen of Income before income taxes and extraordinary items for Non-Consolidated, it is 7.1 Billion Yen above Fiscal 2001 full-year results, while 11.5 Billion Yen on Consolidated basis almost matches the 12.0 Billion Yen for Fiscal 2001.

As you may be aware, the 9.9 Billion Yen of Non-Consolidated Income before income taxes and extraordinary items is just the same as Operating Income. This is one of the features for 1Q when we receive dividend income.

You can see results for 1Q Fiscal 2002 in the last column of the table. Comparing 1Q 2003 with 2002:

Consolidated Operating Revenues were up 16.3%
Non-Consolidated Operating Revenues were up 19.0%

Consolidated Operating Income was up 2.3 times
Non-Consolidate Operating Income was up 2.9 times

Consolidated Income before income taxes and extraordinary items was up 4 times
Non-Consolidated Income before income taxes and extraordinary items was up 6 times

Although the 1Q in the previous year had still been in a turndown after the September 11 incident, we can still say this was a noticeably sharp improvement.

Furthermore, Extraordinary loss for 1Q this year amounted to about 1.0 Billion Yen on Consolidated basis, which was mainly from disposal of fixed tangible assets; and most of the 0.9 Billion Yen for Non-Consolidated was due to allowance for doubtful accounts of our subsidiaries.

Ratio of Consolidated to Non-consolidated had usually been around 1.3; however, in this 1Q it was 1.2 because of improvement in Non-Consolidated basis.

Sheet No. 3 : Business Environment for 1Q Fiscal 2003

The results of 1Q were based on such following global economic factors as:

*Earlier end of the Iraq War
*Stock prices recovery
*Negative forecast of U.S. economy toned down
*Effect by spread of SARS (Severe Acute Respiratory Syndrome) against shipping business has been limited

Major factors regarding our own shipping business were:

*Positive container volumes in various trades
*Freight restoration in container services realized in Asia-North America/Europe, and trans-Atlantic trades
*Bulker and tanker markets were positive
*PCTC had volume increases for both Europe and Australia

We also implemented additional cost reductions to achieve these results.

Let's take a closer look at each factor:

Sheet No. 4 : Trend of division-wise results in 1Q 2003 for Container Business

Cargo volume in Asia-North America/Europe trades, mainly from China, was very positive and beyond our prospects.
Compared with forecasted 1Q as of May 2003, the number of containers handled in total increased 5%, and 12% over the results of 1Q 2002. In Asia-North America trade, total was up 11% to 185,000TEU and in Asia-Europe trade, up 22% to 138,000TEU, compared with 1Q last year.

Freight rates as a whole improved 22% over 1Q 2002, and 3.8% over that prospected for 1Q 2003F.

In addition, we have had enhanced capacity in Asia-Mediterranean Sea trade since this April.

Furthermore, we are achieving 4.5 Billion Yen of cost reduction compared with Fiscal 2002 cost level within this 1st Half.

Thanks to these factors, Container Business contributed significantly to improvement of company results.

Operating Revenues from Container Business are 54.6% on Non-Consolidated basis, compared to 51.5% in 1Q last year.

Sheet No. 5 : Trend of division-wise results in 1Q 2003 for Bulker & Car Carrier Services

In Bulker section, market freight levels in every size of bulker were positive. This was truly because of increase in cargo movements to China. For example, Iron Ore trade to China in this 1Q increased 22%, and our operating tonnage also increased 29 % compared with 1Q Fiscal 2002.

In Car Carrier Services, cargo movements to North America from Far East and Europe diminished, but from Far East to Europe and Australia slightly increased. Total number of cars transported was almost equivalent to our prospect.

Taking all these factors together with cost reductions through more efficient operations, this division earned more than our expectation.

Sheet No. 6 : Trend of division-wise results in 1Q 2003 for Energy Transportation

Each project of our LNG carriers has been proceeding stably, and profit has also been stable.

With regard to Thermal Coal Carriers, we have tried to enhance our business by adding newbuildings to our fleet. One 88,000 deadweight ton-type vessel was completed in this 1Q and operating tonnage increased 9% compared with 1Q 2002.

The Oil Tanker market was relatively high although it fell some from the hike before the Iraq War. Average World Scale in VLCC trades was 84 while that in 1Q 2002 was 38, and our prospect for this 1Q was 70. Operating tonnage increased 9% compared with last year's 1Q.

In total, the Energy Transportation Division achieved more than expected.

Sheet No. 7 : Trend of division-wise results in 1Q 2003 for Consolidated Subsidiaries

Coastal shipping service has secured stable profit just as prospected.

Apart from shipping, the segment of 'Services Incidental to Transportation' such as Air Freight Forwarding, Port Terminal and Shipping Agency was stable, or slightly improved along with the increase in container handling volume.

Sheet No. 8 : Outline of Upward/Downward Factors Affecting Profit Results for 1Q 2003 compared with 1Q 2002

Consolidated Income before income taxes and extra-ordinary items improved 8.7 Billion Yen to 11.5 Billion Yen from the 2.8 Billion Yen of 1Q 2002.
Factors of exchange rate and bunker oil price in total caused 3.0 Billion Yen loss, while market level and business expansion improved by 10.0 Billion Yen.
Additional cost reductions of almost 2.0 Billion Yen were also achieved.
The end result of these factors was 8.7 Billion Yen profit.

Making comparison with prospected 1Q 2003 as of May 2003, effects of exchange rate and bunker oil price are almost balanced. Influence from market improvement in Container business, Bulker, and Oil tanker, with business expansion mainly in Container business, and favorable progress in cost reduction amounted to 3.5 Billion Yen.

Sheet No. 9 : Prospect for 1st Half 2003

Our view is that basic trend in each division will remain unchanged in the coming 2Q and 2nd Half of this year, while we expect a 'peak season' in container business in the 2Q.

In the first column, you can see revised prospects for 1st Half of Fiscal 2003 which ends September 30, 2003.

Non-Consolidated Operating revenues total 286 Billion Yen including 1Q results of 141.3 Billion, and 144.7 Billion Yen prospected for 2Q.

Non-Consolidated Operating income totals 24.0 Billion Yen with 9.9 Billion for 1Q and 14.1 Billion for 2Q.

Income before income taxes and extraordinary items totals 23.5 Billion Yen with 9.9 Billion for 1Q and 13.6 Billion for 2Q.

Net Income totals 11.5 Billion Yen consisting of 5.5 Billion Yen for 1Q and 6.0 Billion Yen for 2Q.

Group companies' business in each quarter is expected to remain almost the same.

You can see results of 1st Half Fiscal 2002 in the last column of the table. Comparison with 1st Half 2003 prospects shows:

Consolidated Operating Revenues up 14.7%
Non-Consolidated Operating Revenues up 17.1%

Consolidated Operating Income up 2.6 times
Non-Consolidate Operating Income up 3.3 times

Consolidated Income before income taxes and extraordinary items up 3.6 times
Non-Consolidated Income before income taxes and extraordinary items up 4.5 times

Comparing previous prospects for 1st Half Fiscal 2003 as of May 2003, you can see ratios in the table show that Operating revenues increased about 5% for both Consolidated and Non-Consolidated; and that both Operating Income and Income before income taxes and extraordinary items for both Consolidated and Non-Consolidated are expected to improve nearly 30%.

As you can also see, the variation in Net income is relatively large, 88% for Consolidated and 64% for Non-Consolidated. This is because unrealized holding losses on investment securities have decreased following some recovery in stock prices.

Sheet No.10 : Prospect for Fiscal Year 2003

Yearly Operating revenues of 700.0 Billion Yen for Consolidated and 560.0 Billion for Non-Consolidated are expected.

I believe you will agree that the increase in Operating revenues is remarkable.
Our historical record for operating revenue was the 630 Billion Yen last year, which was the first experience for us to achieve the level of 600 Billion Yen. Now we are passing that mark just one year later to another new record level of 700 Billion. On Non-Consolidated basis, after over a decade at the 300 Billion Yen level, then staying 3 years at the 400 Billion level, we are now approaching the 500 Billion Yen mark for the first time.

At the same time, each item of income, if realized, will not only be historical highs but a substantial level-up compared with past records. We feel that we are stepping into a new zone.

As regards extraordinary items, for Non-Consolidated we are expecting about 11.0 Billion Yen extra loss, and for Consolidated nearly 6.0 Billion Yen extra loss.

Now, comparing these prospects with results for Fiscal 2002, we can see that:

Consolidated Operating Revenues are up 10.6%
Non-Consolidated Operating Revenues are up 12.0%

Consolidated Operating Income is up 1.8 times
Non-Consolidate Operating Income is up 2.2 times

Consolidated Income before income taxes and extraordinary items is up 2.2 times
Non-Consolidated Income before income taxes and extraordinary items is up 2.5 times


Comparing previous prospects for Fiscal 2003, you can see the comparison ratios in the table as with the previous sheet:
Operating revenues show increase of 4-5%, and both Operating Income and Income before income taxes and extraordinary items are expected to improve around 30%.
The reason why variation in Net income is so large, 70 or 80% is the same as was explained for 1st Half Fiscal 2003, because of decrease of unrealized holding losses on investment securities.

Annual dividend announced at 6 Yen per share has remained unchanged. We will make a further review and final decision once we have a more definite forecast for Fiscal 2003.

Sheet No. 11 : Trend of division-wise prospects for Fiscal 2003.

These prospects are based on following preconditions:

In container business, that the U.S. economy recovers, stable cargo movements from China to North America/Europe remain unchanged, ocean freight level is stabilized, and further cost curtailments by reorganization of service routes, etc. are achieved

In Bulk and Car Carrier Business, stable bulk market and stable cargo movement in Car Carrier business continues.

In Energy Transportation, along with enhancement of our Thermal Coal carrier fleet, business itself has expanded, and the oil tanker market will become stable once the winter season arrives.

Subsidiaries' businesses are regarded as just stable without fluctuating factors.

Sheet No. 12 : Outline of Upward/Downward Factors Affecting Profit Prospects for 1st Half Fiscal 2003 Compared with 1st Half 2002

Comparing the forecast for 1st Half Fiscal 2003 with results of 1st Half 2002F, income before income taxes and extraordinary items is expected to decrease 3.0 Billion Yen due to Yen's rising exchange rate and bunker price.

Sheet No. 13 : Outline of Upward/Downward Factors Affecting Profit Prospects For Fiscal 2003 Compared with Fiscal 2002 results

Compared with Fiscal 2002 yearly results, 27.3 Billion Yen increase is expected, which is mainly attributed to market improvement, expanding business and cost reduction. Variation from previous prospects for Fiscal 2003 is mostly owed to market improvement.

Market improvement consists of freight recovery in Container services and a more positive bulk freight market, while expansion of business is mainly that achieved in container business.
Same factors are expected as for half yearly basis shown in sheet 12.

Sheet No. 14 : Factor in P&L volatility

These prospects are based upon the preconditions of Yen/U.S.Dollar exchange rate being 120 Yen and bunker oil price U.S.$ 170.00 per metric ton for 1st Half, $160.00 for 2nd Half, and then $165.00 per metric ton annually.

The influence from changes in these preconditions is shown in this sheet based on Income before income taxes and extraordinary items.
1 Yen rise in exchange rate results in 0.7 Billion Yen loss for Consolidated, and a 10 U.S. dollar increase in bunker oil price leads to 2.4 Billion Yen loss per year on Consolidated Basis.
The influence from market fluctuation to each business is as mentioned. Regarding container freight, a 10 U.S. Dollar difference in freight per container results in 2.2 Billion Yen volatility.

Sheet No. 15 : Updated status of KV-Plan

This table shows comparison between revised prospects for Fiscal 2003 and targets in our 3-year management plan, "KV-Plan."

The second column shows prospects for Fiscal 2003, and in the last column, you can see targets for Fiscal 2004, the third and final year of our "KV-Plan."

We are pleased to point out that Fiscal 2003 expectations exceed the final target in all P&L items.

Sheet No. 15 : Transition of "KV-Plan" Numerical Targets on Consolidated basis

The center column shows prospects for Fiscal 2003 in red letters, and in the last column, final targets set for the third year of the "KV-Plan," Fiscal 2004, are shown in green letters.
As of the end of Fiscal 2003, if the prospects are realized, we will have achieved many of these final targets.

Shareholders' Equity in the third line will reach the final target.

Interest Bearing Liability in the 4th line is expected to be 295.0 Billion Yen, which will not yet reach the final target, but does achieve target for Fiscal 2003 in line with the "KV-Plan."

Expected ROE & ROA are beyond final targets.
Equity Ratio exceeds target for this year, but must go a step further to reach the final target.

Cash flow from operating activities exceeds the final target.

Regrettably, we expect that we cannot achieve the target set in Free Cash Flows since we have decided upon additional investment for new vessel buildings. Although many of the vessels are scheduled to be ultimately off-balanced, some cash-out will be required during construction.

We can confidently say that we will be completing the "KV-Plan" by the end of this year.

That completes my report, and I thank you very much for your patience.

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