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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 2nd Quarter Fiscal Year 2015 consolidated financial results and our estimates for full-year financial position for Fiscal 2015 that ends March 31, 2016.

1) Summary of Consolidated Operating Results for 2nd Quarter FY2015

Results for 2nd Quarter
Six months ended
September 30, 2015
Six months ended
September 30, 2014
Operating revenues 668.3 659.8 8.6
Operating income 18.8 24.9 ▲6.1
Ordinary income 16.0 25.9 ▲9.9
Net income attributable to
owners of parent
11.7 21.2 ▲9.5
Exchange Rate (¥/US$)
(6-months average)
121.76¥/US$ 102.52¥/US$
Fuel oil price (US$/MT)
(6-months average)
US$352/MT US$611/MT

(Billion Yen; rounded to the nearest 100 million yen)

During the first six months of the fiscal year ending March 31, 2016 (from April 1, 2015 to September 30, 2015; hereinafter “the six-month period”), in the global economy, gradual recovery continued in advanced countries, primarily the U.S. and Europe, though there were some signs of slowing business conditions in emerging countries and others, such as Asia. The U.S. economy saw firm consumer spending on durable goods, under the influence of low oil prices. However, the country’s interest rate rise was put on hold due to the destabilization of the international economy and financial situation, and the Federal Reserve Board decided to maintain its current fiscal policy. The European economy followed moderate recovery trend with attractive exports, supported by the euro depreciation effect associated with the additional quantitative easing measures of the European Central Bank, despite concerns over the Greek financial crisis. Meanwhile, China’s economic growth slowed with dull investment on infrastructure and real estate development and notable restraint on capital expenditure, particularly in heavy industry and mining. The slowdown in the Chinese economy and other factors led to a general slump in exports from Asian countries, while growth turned negative in countries such as Russia and Brazil, in the wake of a decline in resource prices. The Japanese economy remained on a recovery trend overall, while it showed signs of sluggishness as consumer spending declined temporarily due to the impact of inclement weather.

In the business environment for the shipping industry, the tonnage supply and demand balance had deteriorated as tonnage supply pressure increased while demand faltered, causing the market to continue to slump in the Dry bulk business and the marine freight rates to fall in the Containership business, despite the low fuel prices due to the fall in oil prices and the continuing depreciation trend of the yen. Notwithstanding the continued efforts to reduce vessel operation costs, such as slow steaming, business performance deteriorated year on year.

As a result, operating revenues for the six-month period were ¥668.338 billion (up ¥8.576 billion year on year), operating income was ¥18.774 billion (down ¥6.134 billion), ordinary income was ¥15.970 billion (down ¥9.913 billion), and net income attributable to owners of parent was ¥11.678 billion (down ¥9.503 billion).

2) Prospects for Fiscal 2015

Prospects for FY2015 Current Forecast
(at the time of
announcement of
the 2nd Quarter result)
Prior Forecast
(at the time of
dated July 31, 2015)
Operating revenues 1,300.0 1,350.0 1,352.4
Operating income 24.0 39.0 48.0
Ordinary income 20.0 40.0 49.0
Net income attribute to
owners of parent
12.0 23.0 26.8
Exchange Rate (¥/US$)
(12-months average)
120.88¥/US$ 119.45¥/US$ 109.19¥/US$
Fuel oil price (US$/MT)
(12-months average)
US$314/MT US$361/MT US$541/MT

(Billion Yen; rounded to the nearest 100 million yen)

In the global economy from the third quarter onward, advanced countries such as the U.S. are expected to continue posting moderate growth. However, while some countries will receive a positive effect from low oil prices, uncertainties remain; geopolitical risks such as the refugee issue in Europe, the slowdown in economies of emerging countries associated with the decline in resource prices, and future trends in the Chinese economy responding to these impacts by adjusting investment and surplus facilities. A further uncertainty is the prospect of an interest rate rise in the U.S.

Under this business environment, in the containership business, the full-fledged recovery of container market is expected to require more time as the slump in the tonnage supply and demand balance is expected to continue with the numerous launches of newly built large-sized container ships in the industry. However, the Group will work to improve income by maximizing the advantage of its alliances on the East-West services, strengthening its cost competitiveness by replacing the older vessels with the five newly-built, large-sized vessels featuring new energy-efficient technologies and a loading capacity of 14,000 TEU, taking initiatives on highly profitable cargo such as reefer cargo, strengthening profit management through advanced IT utilization, and rationalizing service capacity in line with market demand.

In the dry bulk business as well, it will take some more time for recovery of the supply and demand balance. However, the Group will work to capture the seasonal surge in cargo movement demand through second half of the year in addition to the transport demand of medium- to long-term contracts, as well as continuously working to achieve efficient allocation of vessels and cut-backs of vessel operating costs.

In the car carrier business, the Group will continue to reinforce the business to reflect the change in trade structure such as pursuing the cargos from South-East Asian countries and trade within the Atlantic Basin. At the same time, the Group will strive to enhance its revenue base by making maximum use of its successively completed fleet of large-sized and new-generation vessels, featuring larger loading capacity for heavy construction machinery and rail trains as well as improved fuel efficiency.

In the LNG carrier and tanker business, the Group expects to secure stable revenues for LNG carriers and LPG carriers, mainly through medium- and long-term contracts, and to improve cash flow in oil tanker services due to the recovery of freight market conditions and efficient allocation of vessels.

In the offshore energy E&P support business and the heavy lifter business, the deteriorated market are expected to continue due to the low oil prices; however, the Group will expand sales in the logistics business and the short sea and coastal business backed by firm demand.

Expecting a tough business environment, with concerns over the prolonged slump in market conditions mainly in the containership business sector and the dry bulk business sector, the Group is forecasting full-year operating income, ordinary income, and net income attributable to owners of parent to be lower than previously announced.

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

Despite the continuous uncertain outlook for market conditions in the containership business sector and dry bulk business sector, the Group will take all measures to improve its income, including efficient allocation of vessels and cost reduction.

For the annual dividend in the fiscal year ending March 31, 2016, although full-year business results are expected to be lower than the figures announced in the first-quarter financial report, in line with the above policy, we plan to pay an interim dividend of \2.5 per share as announced previously. We also plan to pay a year-end dividend of \2.5 per share.

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.

October 30, 2015

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