| Annual Report 1999 | (For year ended March 31,1999) |
A Message from the Management |
| During the year
under review, the Company's total revenues on a consolidated basis increased ¥1.3 billion, up 0.25% from the previous year to ¥525.4 billion (US$4,358 million). Total revenues exceeded the ¥500 billion (US$4,148 million) level for the second consecutive year. Net income amounted to ¥1,596 million (US$13 million), down a modest ¥72 million or 4.3% from the previous year, while the annual dividend per share remained ¥3 (US$0.025). Return on equity came to 2.3%. |
 Isao Shintani, President |
| Business Environment |
| During the current fiscal term, the global economy was under
the serious impact of Asian economic and financial crises which continued dragging on,
except for the U.S. economy. The U.S. economy could sustain economic development at a relatively high level centering on favorable domestic demand despite overseas demand being sluggish. In Europe, a fall in exports, particularly to Asia, began to cast a shadow over its business conditions, mainly in export-related industries. In Asia, personal consumption dropped due to an increase in unemployment as a result of worsening economic conditions, but meanwhile serious and desperate efforts were being successfully redoubled for improvement of financial systems and stabilization of foreign exchange. An environment for recovery of these economies was thereby gradually being favorably re-arranged. In Japan, private-sector plant/equipment investment and personal consumption continued to be on the decline. It did become clearer, however, that the drop in production had possibly but gradually come to a halt due to significant increase in investment in public works towards the close of the current fiscal term against the backdrop of urgent economic measures promoted by the government. |
| Business Results and Activities |
| Container Business |
|---|
| In North America Service, cargo movement to the U.S. from
Asia proceeded to be extremely steady, resulting in a significant increase in cargo
loadings and some restoration of freight rates. Cargo movement to Asia from the U.S.,
however, did not get back on track with a large fall in freight rates. The difference in
cargo volume between Asia-USA and USA-Asia widened, increasing necessity for return of
large numbers of empty containers which incurred extra costs. In Europe Service, cargo movement from Asia to Europe proceeded in a steady condition, with some restoration in freight rates. Taking this opportunity, the Company placed larger containerships into service and began making a new call at an Egyptian port. Such operational efforts could make an increase in cargo loadings become a reality. On the other hand in the service route from Europe to Asia, cargo loadings declined and freight rates also dropped to a significant extent as in the case of USA to Asia. In the North Atlantic Service linking Europe & North America, we succeeded in increasing cargo loadings in volume by token of re-arrangement of the service, but freight rate levels fell due to the extra number of competitors in the trade. In Intra-Asia Service, cargo movements could not recover due to the lingering economic crises in the Asian nations and the continuing stagnancy in Japan's economy. Exposed to such harsh and adverse situations, the Company took pre-emptive measures such as unification of two services, i.e., Japan/Philippines Service and Japan/West Australia Service, which enabled us to minimize minus results. Under such circumstances, despite efforts for rationalization on each service route as well as entrance into new markets and reduction in costs and expenses being carried out, the bottom line of Container Business this year fell short of the same period last year because of the declines in Asia-bound cargo volumes and freight rate levels in both North America and Europe Services, caused mainly by the stall in the Asian economies. |
| Bulk Carrier and Car Carrier Services |
| In Bulk Carrier
Services, current market for general dry bulk carriers proceeded in a somewhat repressed
state regardless of type of ships. The market for large bulk carriers stayed in low-key
condition due to a fall in import of raw materials for steel because the Asian countries,
mainly Japan, and European countries carried out reductions in crude steel production. The market for medium bulk ships also continued to be depressed under the influence of the economic turmoil and fall in consumer and industrial demand in Asian nations and also due to pressure from tonnage supply by new buildings. The market for small carriers stayed in a sluggish condition since last year and there were no prospects for recovery. Under such difficult market situations, the Company made efforts to secure profitable contracts of affreightment and practiced competitively-sophisticated alignment of its fleet with improved efficiency in ship operation. The bottom line, however, fell this year under that of last year. In Car Carrier Services, car exportation from Japan continued to be favorable. We concentrated on efficient operation of available fleet and successfully coped with an increase in space demand through timely chartering on short-term basis. The Company went on to make business efforts in the fields of cross-trade and importation into Japan. As a consequence we could attain the same level of bottom line this year as enjoyed in the corresponding previous period. |
| Tanker and Energy Transportation Services |
| In Steaming Coal Carrier Services for electric power
companies, we completed a seven-carrier line-up composed of two dedicated carriers with
long-term cargo guarantees, three carriers of the Corona Ace type invented and developed
by the Company on its own specially for steam coal, and two long-term chartered PANAMAX
carriers. With the above seven players in place, we could enlarge our overall business
scale, transporting approximately 5 million tons. In Liquefied Natural Gas Carrier Services, the fleet was grown to a significant extent under the backdrop of three newcomers for the Qatargas LNG Project added during the current term. The entire fleet in operation worked well as planned in advance under long-term contracts, earning profit in a stable way. The markets for oil tankers stayed brisk favored with buoyant cargo movement during the first half. During the second half, however, the tempo fell to a stall due to the long-dragging economic depression and influence from production reductions by oil companies. Markets for oil-product carriers were generally low-key due to a stagnation in product demand. In terms of Oil Tankers, we fell short of last year despite efforts being made to secure advantageous shipments and carrying out greater efficiency in operations. Under the above circumstances in general, we redoubled efforts throughout the Company for rationalization and business creation. We could attain a little increase in total revenues, summing up less net income on a consolidated basis this year as compared with last year. |
| Recent Developments in Japan's Shipping Industry |
| Alliances and mergers on a worldwide scale are the prevalent
trend in many industries, with oceangoing shipping being no exception. Throughout its 80-year history, however, "K" Line, one of the world's top-ranking shipping companies, has adhered to independent management as the fundamental business principle of an oceangoing shipping company. To maintain this independence, it is crucial for us to steadily strengthen our competitive edge in the international market. We aim to create a well-balanced corporate structure that will enable us to expand business scale steadily and improve profitability. |
| Safe Navigation Helps Protect the Environment |
| With safe navigation one of the four pillars of New K-21,
our five-year management plan implemented from April, 1998, we are reconsidering our ways
of coping with critical situations right after accidents, as well as our methods of
preventing such accidents from occurring in the first place. A simulation drill was held
in November 1998, based on the assumption that an accident involving one of our tankers
had caused an oil spill. On the drill, which was conducted in line with our newly compiled
manual on large-scale oil spills, our customers were on the whole impressed and gave it
high marks. In addition, our product tanker River Spring was chosen "Best Ship of
1998" in the oceangoing vessel category at the Ninth Safe Cargo Work Contest
sponsored by Fuji Oil Co.'s Sodegaura Refinery. As an oceangoing shipping company with a strong environmental commitment, we constantly study and take measures aimed at reducing the pollution of the world's oceans. In Japan, for example, we have voluntarily replaced TBT (Tributyl Tin) paints with tin-free paints since the beginning of the nineties. In an environmental protection effort, the Company offered its car carrier Olympian Highway for use in experiments to verify NOx reduction in ship engine exhaust gasses. |
| Deregulation of Coastal Shipping |
| In September 1999, our subsidiary Kawasaki Kinkai Kisen
Kaisha, Ltd., is scheduled to replace a general-cargo ferry on the Tokyo-Tomakomai route
with a newly-built ship of 12,500 DWT, which can carry 200 trucks of up to 8.5m in length
and 46 passenger cars under a system that does not require on-board truck drivers. The
commissioning of this state-of-the-art ship will reduce sailing time by 10 hours thanks to
its navigation speed of 30 knots, the world's fastest. This ultra high-speed vessel will
be a pioneer that is expected to promote a "modal shift" against the background
of the deregulation of coastal shipping, in line with overall deregulation in Japan. In Autumn 2000, the firewall separating cargo ferry operations from roll-on/roll-off ferry operations will come down due to the partial revision of the Marine Transportation Law. This will be an opportunity for the company to expand its coastal shipping operations thanks to freer competition. |
| Outlook for Fiscal 1999 |
| Although Asian economies are expected to bottom out, full
scale recoveries will take some time. While an economic slowdown is predicted for most
European economies, the prospects for economic recovery in Japan remain cloudy. Against this backdrop we will do our best to achieve our goals of globalizing and consolidating management, reducing interest-bearing debt, invigorating our organization, and making navigation safer. Against the background of recent developments in the business environment, we forecast that our containership business will show some degree of recovery during the term ending March 2000. Moreover, we at the "K" Line Group are convinced that we will be able to strengthen our business structure in the year of our 80th anniversary through steady implementation of the new ideas described in the New "K" Line Spirit for 21 (New K-21). For the current term we will increase the annual dividend by ¥1 to ¥4 per share provided we achieve the projected level of profitability. With stable dividends remaining a top priority, we will continue with our efforts to steadily improve our business results. We request the continued support and understanding of our shareholders. |
 Isao Shintani President |