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Message to Our Shareholders

Dear Shareholders:

Eizo Murakami
President & CEO

Your Board of Directors always appreciates your continuing support.

We would like to herewith report our Fiscal Year 2014 consolidated financial results and our estimates for full-year financial position for Fiscal 2015 that ends March 31, 2016, together with notice regarding payment of dividend.

1) Summary of Consolidated Operating Results for FY2014

During the fiscal year ended March 31, 2015 (from April 1, 2014 to March 31, 2015; hereinafter “the fiscal year”), the global economy continued along a gradual recovery trend overall, with a continued economic recovery in the US, despite concerns over Ukrainian issues as well as the political situation in southern Europe. In emerging countries, China saw slowing economic growth, while India saw continued recovery. The Japanese economy was on a recovery trend, although there were temporary falls in capital expenditure and consumer spending due to the consumption tax hike in April 2014.

In foreign exchange rate trends (yen / US dollar), the yen’s appreciation was corrected to the ¥120 per dollar level in expectation of an interest rate hike in the US. The downward trend in crude oil prices has grown stronger since summer of 2014, and the WTI crude oil price fell to US$40/barrel level before recovering to around US$50/barrel after the Organization of the Petroleum Exporting Countries (OPEC) decided at its regular meeting in November 2014 to leave production targets unchanged.

Besides there were positive factors of yen depreciation and low bunker oil price which were F2014 1H Yen/U.S. Dollar average exchange rate ¥102.52; bunker oil price U.S. $611 per mt.

In the business environment for the shipping industry, the continued market slump in the dry bulk business sector and the declining trend in the export volume of finished vehicles from Japan in the car carrier business sector were negative factors. However, the market recovered further in the oil tanker business sector due to improvement in the tonnage supply-demand balance, as well as in the containership business sector where freight rates recovered on East-West services, particularly in Asia-North America, atop steady cargo volumes.

As a result, we achieved both revenue and profit increase in year on year comparison.

Summary of Consolidated Operating Results for FY2014

(Billion Yen; rounded to nearest 100 million)

Fiscal 2013
(Ended March 31, 2014)
Fiscal 2014
(Ended March 31, 2015)
Operating Revenues 1,224.1 1,352.4
Operating Income 28.9 48.0
Ordinary Income 32.5 49.0
Net Income 16.6 26.8
Exchange rate (¥/US$)
(12-month average)
¥99.75 ¥109.19
Fuel oil price (US$/MT)
(12-month average)
$626 $541

2) Prospects for Fiscal 2015

In the containership business, the Group expects steady cargo movements on the Asia-North America service as the US economy continues to recover. On the Asia-Europe service, the Group expects severe conditions in the freight rates market to continue owing to a strong sense of uncertainty hanging over the economies of Europe as well as increasing tonnage supply pressure due to deliveries of a large volume of new large-sized vessels. In this business environment, the Group will maintain prudent business management and strive to improve its earnings by means of strengthening competitiveness through the deployment of five state-of-the-art and energy-efficient large-sized vessels with the loading capacity of 14,000TEU together with alliance partners; reducing vessel operation costs through temporary reduction in service capacity in line with the market demand; strengthening of sales activities to acquire more reefer cargos; and IT-assisted, fine-tuned service management.

In the logistics business, the Group is expecting brisk air freight cargos exported from Japan given the economic recovery trend in the US. The Group will also develop its business to capture steady logistics service demand, mainly in Japan and Asia.

In the dry bulk business, while steady cargo movements are expected in the large-vessel business sector, the market is expected to take some time to recover owing partly to a persistent supply pressure arising from deliveries of new-build vessels. The market for medium-sized and small-sized vessels is also showing signs of recovery. However, it is expected to continue at a low level, partly due to the impact of market trends for large vessels. The Group will continue to take all measures to improve income, such as efficient allocation of vessels and reduction of vessel operating costs, as well as reducing the number of cargo-free vessels in an effort to build an earnings structure that is resilient against market fluctuations.

In the car carrier business, the Group expects to see steady global demand for sea-borne transportation of finished vehicles, despite a sense of uncertainty surrounding countries exporting natural resources, such as those in the Middle East, and emerging countries, such as Russia. In response to structural changes in trade where the volume of transportation of finished cars from Japan is declining, the Group will reinforce its business operations to pursue cargos from Southeast Asia and within the Atlantic Basin. At the same time, the Group will build a more stable and stronger business platform for our additional fleet which are large-sized, new-generation vessels, featuring higher loading capacity and improved fuel efficiency, to carry cargos such as heavy construction machinery and rail trains.

In the LNG carrier business, the Group expects stable utilization of vessels based on medium- and long-term charter contracts. In the oil tanker business, the Group will secure stable earnings through medium- and long-term charter contracts for VLCCs and LPG carriers. With respect to medium-sized crude oil carriers and oil product carriers, the Group expects market condition to recover and will strive to improve earnings by allocating vessels efficiently.

In the short sea business, the Group will further improve its earnings by widening sales activities, more efficient vessel allocation, etc. In the coastal business, the Group will strive to increase the volumes of passengers and freight cargos by pursuing new customers with appropriate fleet management.

In the offshore energy E&P support business, the drill ship is expected to continue bringing in stable earnings. In the offshore support business, the Group expects market recovery to take some time, but will work to improve earnings by securing medium- to long-term contracts.

In the heavy lifter business, despite concerns that the declined oil price would hamper cargo movements in this sector, the Group will continue to pursue business opportunities of profitable contracts such as transportation of project cargos and offshore installation operations, as well as continuing efficient vessel allocation in semi-liner services in order to improve business profitability.

Prospects for Fiscal 2015

(Billion Yen; rounded to nearest 100 million)

Fiscal 2014
(Ended March 31, 2015)
Fiscal 2015
(Ended March 31, 2016)
Operating Revenues 1,352.4 1,460.0
Operating Income 48.0 43.0
Ordinary Income 49.0 40.0
Net Income 26.8 23.0
Exchange rate (¥/US$)
(12-month average)
¥109.19 ¥118.00
Fuel oil price (US$/MT)
(12-month average)
$541 $350

Preconditions for foreign exchange rate and fuel oil price are as mentioned above,
and sensitivity on our yearly Ordinary Income for this Fiscal 2015 is estimated as follows:
Exchange rate: 1 yen/US$ => Ordinary Income change approx 0.85 billion yen*per annum
Fuel oil price: US$10/MT => Ordinary Income change approx 1.8 billion yen per annum
  * Yen depreciation is preferable for us.

3) Basic Dividend Policy and Dividend Payments for Fiscal Year 2014 and Following Fiscal Years

As for annual dividend payment for the fiscal year, which we have previously announced to pay 2.5 yen per share, we are pleased to announce that we now plan year-end dividend of 6.0 yen per share which will make annual dividend 8.5 yen when added to interim dividend of 2.5 yen per share to meet our consolidated dividend payout ratio target of 30% in consideration that the fiscal year was the final year of our previous mid-term management plan ““K” Line Vision 100 –Bridge to the Future-“.

Our important task is to maximize returns to our shareholders while, for the sake of sustainable growth which is a main task of our management plan, maintaining necessary internal reserve to fund for our investments in plant and equipment and strengthen our financial position. Under our new medium-term management plan “ Value for our Next Century”, we are aiming to achieve a balance between stability and growth, while paying stable dividends and sharing profit exceeding a designated level in line with total return ratio target.

For the annual dividend in Fiscal Year of 2015, we plan 5.0 yen per share in accordance with above-mentioned policy (interim dividend is 2.5 yen per share).

The “K” Line Group will maintain a sound financial position as its highest priority task, and work for thorough-going rationalization in our services and cost curtailing to earn profits for dividend payout to the maximum extent.

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.

April 30, 2015

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