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Message to Our Shareholders

January 31, 2014

Dear Shareholders:

Jiro Asakura

Jiro Asakura
President and CEO

Your Board of Directors always appreciates your continuing support.

We would like to herewith report our accumulated first three quarters (April-December) of Fiscal Year 2013 consolidated financial status, and full-year financial position for Fiscal 2013 which have been disclosed today.

[ Results for accumulated 3Q FY2013 (1 April 2013 – 31 December 2013) ]

Unit: Billion Yen

(F2013 1-3Q Results) (F2012 1-3Q Results)
Operating Revenues 918.0 (802.4)
Operating Income 24.1 (10.6)
Ordinary Income 29.2 (10.6)
Net Income 15.7 (9.4)

(F2013 1-3Q Yen/U.S. Dollar average exchange rate ¥98.54; bunker oil price U.S. $626 per MT)

During 3rd cumulative consolidated fiscal quarter (April 1, 2013 to December 31, 2013, hereinafter referred to as the "Current Cumulative Period"), the world saw the U.S. economy on a mild recovery trend and signs that the prolonged economic downturn owing to the sovereign debt issue in Europe was receding. Among emerging econmies, decelerating economic growth in China is bottoming out while India and other countries continued to show low rate of economic growth.

The freight rates in containership sector continued at lower levels, especially in Asia-Europe service routes, due to the stagnant European economy. In car carrier business, the growth of outbound cargo of completed cars from Japan showed slowing down in momentum. On the other hand, freight rate markets in the dry bulk sector substantially recovered in and after summer due particularly to increased shipments of China-bound iron ore, etc. Overall, despite continued instability of the business environment surrounding the shipping industry, there were positive factors towards our business performance, including the easing of oil price which improved profitability and the continuous trend of yen depreciation which increased revenues.

As already announced, "K" Line recorded an extraordinary loss of 5,721 million yen as a loss provision related to the Anti-Monopoly Act during third quarter term of Fiscal Year 2013. This is in preparation for losses that may occur in conjunction with the recent announcement titled “Receipt of Advance Notice of Draft Orders from the Japan Fair Trade Commission" dated January 9, 2014.

We view the situation in which we have received such a notice with the utmost gravity and we will examine the details of the Advance Notice and consider our response carefully. We express our sincere regret for the concern this matter has caused our shareholders and other stakeholders.

(Updated Forecasts for Yearly Fiscal 2013) (1 April 2013 – 31 March 2014)

Unit: Billion Yen

Consolidated (Previous prospects*) (FY2012 Results)
Operating Revenues 1,210.0 (1,180.0) (1,134.8)
Operating Income 28.0 (28.0) (14.9)
Ordinary Income 30.0 (27.0) (28.6)
Net Income 16.0 (16.0) (10.7)

(F2013 4Q Yen/U.S. Dollar average exchange rate ¥103.00; bunker oil price U.S. $622 per KT)
(F2013 Yen/U.S. Dollar average exchange rate ¥ 99.66; bunker oil price U.S. $625 per KT)
*Data as of the end of October, when 2Q Financial Results were announced

Pre-conditions for foreign exchange rate and fuel oil price are as mentioned above, and sensitivity on our Operating Income for this 4th Quarter Fiscal 2013 is estimated as follows:
Exchange rate: 1 yen/US$ => Operating Income change approx 0.2 billion yen*
Fuel oil price : US$10/MT => Operating Income change approx 0.3 billion yen
* Yen depreciation is preferable for us.

As for business circumstances in the future, in containership business, in view of continued strong uncertainty in the freight market, the “K" Line Group will keep ourselves engaged in prudent business operations.
Coming into winter slack season, when demand for cargo transportation is drastically down, especially after Lunar New Year holidays, we will make efforts to improve profitability by cutting ship operating costs through seasonal adjustments to our tonnage in accordance with actual demand, further enhancing slow steaming navigation and implementing cost-cutting measures globally, and also by negotiating rate restoration with persistence.

In logistics business, there have been some signs of improvement in ex-Japan air cargo services since beginning of the second half. We expect robust operations in domestic logistics service, including land transportation, and international logistics of inter-/intra-Asia service. We have been pursuing further deepening and expansion of our logistics business in certain Asian regions where economic growth continues and we will further enhance our stable profit based on this business segment as well.

In dry bulk business, although we will face market volatility due to seasonality for a while, thanks to trends for supply-demand balance between vessels and cargo improvement, we expect favorable market conditions will continue generally. The "K" Line Group will continuously try to achieve stable profit conditions that are not significantly impacted by short-term market situation, based on mid-/long-term contracts. We will keep working on implementing all available means for profitability improvement, such as more efficient vessel allocation and reduction of operating costs.

In car carrier business, despite our concern about a slowdown in emerging economies including China, India and Russia, etc., demand for maritime transportation of completed cars as a whole is expected to stay strong. Together with completed car transportation, we will aim to reinforce our business base through further deepening the transport of construction machineries and non-wheeled cargoes.

In energy transportation segments, we expect continued stable operations of our LNG carriers under long-/mid-term charter contracts. In oil tanker business, we will have VLCCs and LPG carriers operating under medium- to long-term contracts to secure stable revenues while seeking further profitability on AFRAMAX tankers and product tankers in which we have many contracts linked to market freight level, through efficient vessel allocation.

In short sea business, we will keep ourselves engaged in prudent business operations through making adjustments to our tonnage and reducing ship operating costs for enhancement of competitiveness.
In coastal business, we generally anticipate an increase in the transportation demand owing to the momentum for recovery in Japan and pre-VAT hike rush.

In energy E&P support vessel business we expect continuous contribution to earnings by offshore support vessels and drill ships through their stable operations.

In heavy lifter business, we expect that it will still take more time before the market recovers in mid-/small-sized vessels sectors where competition is rather tough, and it seems that we will have to continue the uphill battle a while longer. On the other hand, with the expectation of a larger volume of cargo prompted in line with increase in energy/infrastructure-related projects in the future, we will improve our earnings by taking advantage of more project cargoes and offshore businesses with higher profitability.

The Company's highest priority is maximizing return to shareholders while taking into consideration the need for securing our internal reserves necessary for reinforcing the Company's financial standing and capital investment to achieve sustainable growth, both key issues of the Company's management plan. Our policy for payout ratio is to gradually increase the dividend payout as a percentage of consolidated net income, with a target of reaching 30% by the mid-2010's.

As for annual dividend payment for the current fiscal year, we will sustain our plan to pay \3.5 per share as was previously announced since our updated estimations that we announced today. Net Income remains unchanged from our previous announcement as of last October.

We express our appreciation for your support and look forward to your continued cooperation to our "K" Line Group.

Thank you very much for your kind attention.

Jiro Asakura
President & CEO
Kawasaki Kisen Kaisha, Ltd

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