Annual Report 2000 (For year ended March 31,2000)

Message from the Management
During the year under review the Company’s operating revenues on a consolidated basis decreased by ¥27.4 billion to ¥485.7 billion (U.S.$4,576 million), a 5.3% decrease as compared with fiscal 1998. The decrease was incurred by a ¥17 upward valuation of Japanese currency against US$ over the previous year.
     Consolidated net income amounted to ¥6.8 billion (U.S.$64 million), 328.7% up as compared with the previous year, marking a record high in the Company’s history. The annual dividend per share increased by ¥1, raising it to ¥4 per share. Return on equity (ROE) reached 9.6 % on a consolidated basis.
 
sankaku.gif (951 bytes)      The Global Economy Roundup
Regarding the global economy in fiscal 1999, the U.S. economy could sustain a high level of economic growth mainly driven by domestic demand with the support of positive personal consumption expenditures against the backdrop of the asset effect incurred by a hike in stock prices.
      In Europe the economy looked up due to an increase in exports supported by a cheaper euro and steady consumption expenditures. In Asia, despite precisely certain differences existing country-wise, the Asian economy on the whole got on track towards a recovery favored by steady development in exports centering on a constantly-expanding import market in the U.S.
      Turning an eye to Japan’s economy, brighter and more active business sentiments over the economic prospects began to emerge in view of increasing exports resulting from favorable overseas circumstances. But the economy could not attain any degree of assured recovery yet because personal consumption expenditures still remained low-key, primarily due to the employment situation remaining so harsh in the midst of continual restructuring by a large number of Japanese businesses.
 
sankaku.gif (951 bytes)     Business Review
Marine Transportation
     Yasuhide Sakinaga, President
    Isao Shintani, Chairman (seated)

On the whole our business activity in marine transportation was carried out successfully and profitably against rough weather conditions where the appreciated Japanese yen against the U.S. dollar and a steep/huge hike in bunker price greatly impacted the industry.
      The container business could emerge with a turn for the better after years of stagnation. The reasons are analyzed into the restoration of container cargo freight rates, particularly in the trade from Asia to U.S.A. that progressed under the U.S.’s Ocean Shipping Reform Act of 1998 (OSRA) and the increased volume in cargo movements, especially from Asia to the U.S. and Europe throughout fiscal 1999 as well as in Inter-Asia trade. Under such favorable situations, our long and patient efforts for rationalizations led to favorable results.
      The tramp markets, in general, continued to be flat in the first half of fiscal 1999. In the second half of the same term, however, a sign of recovery of the markets could be observed concerning large- and medium-sized carriers. Under such market climate, we poured all efforts toward securing more profitable cargo, making rearrangements for a more competitive fleet and performing the most efficient ship operations.
      The company’s complete-car transportation activity stayed at the same level as last fiscal year in trunk service lines from Japan and could not improve in cross-trades as much as expected. Efforts were undertaken to rationalize overall operations and tap new markets to cover a little of the decrease in number of loaded vehicles.
      Steady development could be made in transport of LNG with two newbuildings for the Qatar Gas Project, while steaming coal for powerhouses increased to 6.5 million tons with new dedicated vessels introduced. In the oil transport business, two newly-built tankers were placed into service with updated double hulls for navigational safety.
      In the coastal transport business a 30-knot (56 km per hour) cargo ferry, the fastest ship in Japan’s cargo history, contributed greatly to shortening lead-time for customers and also is expected to support the national government project called "Modal Shift," a truck-to-ship shift policy that most hopefully will earn society in general the benefits of cleaner transportation.
 
Services Incidental to Marine Transportation
Domestic subsidiaries could increase their operating revenues mainly because air cargo movement was on the increase due to economic recovery in Asia. In the meantime, overseas subsidiaries resulted in a decrease of operating revenues because of a ¥13 appreciation in Japanese currency against the U.S. dollar as of December 31, 1999 versus 1998.
      On a "K" LINE group basis, operating revenues decreased to ¥83,408 million (0.2 % down over last fiscal year). Efforts continued to be carried out for cost reductions and improvements in work efficiency. Operating income amounted to ¥3,893 million (a 219.1 % increase as compared with last fiscal year) .
    
Other
In the bottom line, operating revenues amounted to ¥11,855 million (13.2 % down versus last fiscal year) with operating income reaching ¥829 million (25.1 % down versus last fiscal year).

As a result, for fiscal 1999 we could post consolidated operating revenues of ¥485,693 million, a 5.3% decrease as compared with ¥513,100 million last fiscal year due to an average hike in the exchange rate of Yen against U.S. dollar of ¥17 during fiscal 1999. Consolidated operating income increased by ¥5,309 million to ¥26,817 million, a 24.7% increase as compared with ¥21,508 million last fiscal year. Such improvement is attri-buted to restoration of ocean freight rates on container services bound to North America despite being unfavorably hit by substantial hikes in bunker price. After adjustment of special accounts of profit/loss and deductions of corporate income tax, residents’ tax and enterprise tax, consolidated net income increased by 328.7% to ¥6,843 million as compared with ¥1,596 million last fiscal year.
Cash flows are summarized as follows;
Cash provided by operating activities resulted in ¥44,615 million with income before income taxes and depreciation etc.
Cash used for investment activities resulted in ¥37,584 million with expenditures for acquisition of fixed assets, and so forth.
Cash used for financing activities amounted to ¥11,494 million with expenditures for repayment of borrowings.
      On a consolidation basis, cash and cash equivalents decreased by ¥5,866 million. In terms of the bottom line results, cash and cash equivalents amounted to ¥25,968 million at the closing date of fiscal 1999.
A dividend of ¥4 per share for fiscal 1999 has been proposed, which represents, an increase of ¥1 per share.
      In terms of the Y2K issue, we are pleased to confirm that no problem rose in headquarters, branch offices, ships in operation or group companies as a result of our having squarely grappled with the issue across the group.
   
sankaku.gif (951 bytes)     Encouragement of Consolidation-based Management
In view of our accounting systems changing on a full scale in compliance with global standards, we would like to radically improve and reinforce Company management practices on a consolidated or group basis. It simply means that we have to channel and pour all energies and strengths of the "K" LINE Group into realization of the Company’s greater and stronger-than-ever competitiveness in today’s harsh global competition. Along this line we came up with the start of a new organizational unit called "Group Business Division" within the Company, which is committed to encouragement and the practice of group-oriented management through efficient and effective coordination between the Company and its group companies.
      Overall, the group-management policies are being comprehensively reviewed as regards Personnel Policy, Business Composition Policy, Capital Policy, Profitability & Management Efficiency Improvement Policy and Finance Policy. Under such policies, the Company proceeded to exercise organizational reforms so that the ship management/administration business as a core business of the Group has been placed under our more direct and entire control. Similarly-designated reform will be progressed in the field of ports and logistics business in the not too distant future.
      All the reforms towards perfection in practice of group management are to be promoted in accordance with the five-year management plan named the New "K" LINE Spirit for 21(New K-21) inaugurated in April 1998.
    
A Change of Presidency
A change of the presidency was resolved at the meeting of the Board of Directors of the Company on February 25, 2000. Mr. Yasuhide Sakinaga, former Executive Vice President succeeded Mr. Isao Shintani, former President, effective April 1, 2000. Mr. Isao Shintani was elected as Chairman of the Board of the Company effective the same date.
    
sankaku.gif (951 bytes)     Outlook for Fiscal 2000 and thereafter
In the next fiscal year new accounting systems including fair value accounting and retirement compensation accounting are to be put into practice in Japan. The Company will endeavor to do its best to reinforce the financial structure still more by adapting to the new accounting systems with increasing profit-making capability.
      Our perspective for fiscal 2000 and thereafter is rather bright. With a view that the Asian economy will run in full swing, we expect that cargo movements on a global basis will be more positive and markets will be more favorable to the shipping industry.
      Utilizing all possible measures, we will continue to make further strenuous efforts to best grow "K" LINE and its Group as a top-ranked, customer-oriented Transport & Logistics Company in all sectors and in all major global markets.
      In terms of Information Technology, major importance is being given to joint use of data/information within the Company itself and with its group companies in our globally-expanding intra-network. Making the most of the Internet, we will continue with effective investment in IT for e-commerce with a wise and profitable approach. What is being targeted is improvement and expansion of our present homepage and adaptation to e-business dealings for e-settlement of foreign trade activity.
      Safety in navigation is an eternal theme in which none could be too perfect. As a major goal of the New "K" LINE Spirit for 21(New K-21), every possible effort for safety will be ceaselessly continued. Drills were carried out in simulation of possible accidents and disaster. Our team-spirited work with updated technology will guarantee our customers safe transportation at any time and any place.
      Under the above climate of the world economy, the Company prospects for the next fiscal year on a consolidation basis that operating revenues will be ¥530 billion with net profit of ¥3 billion predicated on an exchange rate of ¥105 against U.S. dollar and bunker price of US$135.00 per ton. This prospect assumes that at the time of a change to the standards of retirement benefit accounting, a differential of ¥13.8 billion will be depreciated on a lump-sum basis during the next fiscal year, the first year in which the new standards will be applied.
      In terms of payment of annual dividend, we expect to be able to raise its ratio to ¥5 per share when the aforementioned targets in prospect are accomplished.
  
  
Isao Shintani,Chairman
     
Yasuhide Sakinaga,President

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