1. Corporate Principles and Numerical Targets

We would like to inform you that the Company has been carrying out the five-year-long management plan named “New “K”LINE Spirit for 21” (New K-21) since April 1998. Under this plan, we have been targeting to realize a well-balanced corporate structure that will enable us to expand business scale steadily and improve profitability to such extent that stable payment of dividends can be made. In terms of the corporate image we are aiming at a steady and forward-looking business group developing logistical enterprise centering on shipping business globally with a constant and in-depth concern over customer needs.

The Corporate principles are:
a. globalization of management
b. maximization of profit of the “K”LINE group on a basis of consolidated management
c. placement of the right person for the right job at the Group level through revitalization of the organization
d. safe transport of cargo through safe ship operation and contribution to preservation of the earthly environment

The numerical targets as of March 2003 are:
Sales revenues Yen 600 billion (consolidated), Yen 450 billion (non-consolidated), ordinary profit on sales revenues 3-3.5%, ordinary profit Yen 18 billion (consolidated), Yen 15 billion (non-consolidated), shareholders’ equity on total assets 18% (consolidated), 30% (non-consolidated), return on equity 8% (consolidated), 10% (non-consolidated), a scale of fleet in operation numbering 300 ships amounting to 17 million deadweight tons.

2. Policy of Payment of Dividends

The Company’s fundamental policy is to exert payment of dividends depending upon how much profit we can create. Decision on dividends should be made from a medium-and long-term viewpoint. Comprehensive and deep consideration should be given to:
a. reinforcement of corporate structure against intensifying competition the ocean-going shipping industry is confronted with
b. an increase in retained earnings in preparation for evolution of future business
c. constant payment of dividends

3. Recent Development in Company’s Management Structure

Management resolved to abolish the Jyomu-kai from September 1, 1999, installing newly the Yakuin- Kyogikai. The Jyomu-kai used to consist of directors beyond the post of managing director. However, a director in charge of a sector of the Company’s activities is not always above managing director. That is why the Jyomu-kai was transformed into the Yakuin-Kyogikai in which all directors in charge are entitled to taking part when any matter concerned is taken up. The new system will encourage us to upgrade job efficiency and make decision procedures more transparent and speedy.

4. Current Challenges

We are keeping an eye on overall competition moving to be harsher with the backdrop of a series of mergers and new entrants in the ocean-going shipping industry and the influences incurred by deregulation in the fields of domestic ports and logistic business. They are making the management circumstances more severe.
The “K”LINE group should address the following assignments:
a. improvement in profitability of Container Business which is the major sector for the Company
b. unification of management goals and upgrade of efficiencies in consolidated management through rearrangement of the Group companies according to functions
c. innovation of various Company’s systems such as what is called “an Accounting Big Bang” and promotion of company’s management for upgrade of Company’s credit ratings by third parties.

More in details, explanation is being given:

a. With respect to Container Business, the Company has been endeavoring to improve its profitability by realization of restoration of freight rates with the backdrop of favorable demand for ship space. We will continue to make further efforts for improvement in cost competitiveness and for restoration of freight rates. More practically we are planning to put best updated new containerships in service to ensure that we can provide the transport services to our customers to meet their needs better.

b. In terms with restructuring the Group companies according to functions, efforts are under way to develop a unified structure where the core business of maritime shipping such as owner’s work, ship operation and management will be carried out at the common level and on common criteria and with maximum efficiency. In pursuit of this objective the parties concerned have agreed that on March 1, 2000, “K”LINE rebuild its consolidated company, Taiyo Kaiun Kabushiki Kaisha into its fully-owned subsidiaries. The agreement has been concluded in conformity with the Stock Exchange in the Japanese Commercial Law taking effect on October 1, 1999. For the oceangoing shipping, the world’s single and non-regulated market faced with harsh competition is indispensable:
     1. to put management of the shipping business at the common level and on the common criteria
     2. to restructure and strengthen diversified business by respective Group companies
    3. to promote efficiencies in consolidated management
The above points will lead to stabilization of profitability and upgrading value of the Group companies.

c. To cope with the prevailing trend of the Accounting Big Ban and an improvement of the credit ratings, we reviewed the Company’s system of the Tekikaku Nenkin. It is a Non-governmental Retirement Pension under the approval of the Ministry of Treasure and the National Tax Administration. The scheduled yield was reduced to 3.5% from 5.5% in March 1999. Furthermore, amortization on the liabilities for employees’ past services was accelerated to 35% from 20% in October 1999. We also reviewed the total assets the Company held, resolving to make a sale of land located at the hinterland of the Tokyo “K”LINE Container Terminal.

Regarding the world economy during the first half of fiscal 1999, the U.S.A. economy stayed favorable while the Asian economy could also show a better recovery than anticipated because of an increase in investment from overseas and an improvement in export competitiveness with depreciated local currencies.
The European economy could ensure its recovery more sure with the support of the increase in exports which was derived from the depreciation of the euro and steady consumption.
The Japanese economy was beginning to get back on the track towards recovery with an encouragement in public works and housing construction and an improvement in exports to the Asia countries. However, the recovery had not been substantial yet with a view to consumption and investment in plant and equipment moving on at a lower rate. The steep appreciation of Japanese Yen towards the end of the first half makes severe and harder an outlook for the Japanese economy showing a sign of advancing upward.

Under such harsh circumstances, the Company made continuous efforts for cost reductions and rationalization, carrying out scores of measures with a top-priority to an increase in profit in accordance with the Management Plan, “New “K”LINE Spirit for 21.”

The overall bottom line at the close of the first half of fiscal 1999 is: operational revenues amounted to Yen 181,159 falling under last year (Yen 207,057 million last year); ordinary profit (profit before special items and income taxes) increased to Yen 6,628 (Yen 4,490 million last year) owing to an improvement in Container Business. After adjustment of special accounts of profit and loss, the interim net profit resulted in Yen 2,052. (Yen 1,539 million last year)

In view of the surrounding circumstances becoming harder as you could see from upvaluation of the Japanese currency and hike of bunker prices, we would like you to understand that we have decided to omit payment of an interim dividend.

In North America Route Service, the eastbound service could contribute to an improvement in profitability with the support of steady cargo movements to the U.S.A. from Asia and restoration of freight rates taking place in May 1999. In the meantime, cargo movements to Asia from the U.S.A. proceeded to be low-key and softened freight rates further. Overall, however, profitability could improve greatly during the interim term over the corresponding term last year.

In Europe Route Service and Inter-Asia Route Service, the Company’s loading tonnage could increase and the freight rates were also partially restored. In the meantime reduction in costs and expenses and also improvement in services could be realized through tie-ups with other shipping lines.
The bottom line of Container Business could improve as compared with last year.

In terms of the dry bulk carrier markets, the market for large bulk carriers turned round to be a little firmer in the mid of the first half of fiscal 1999 due to an increase in demand for transport of materials for steel production. The changing trend resulted from that production of crude steel showed a sign of recovery in quantities owing to a mild recovery in domestic demand and an increase in exports of iron and steel to the Asian countries. The market for medium bulk ships also showed a moderate recovery centering on transport of coal and grain but that for small bulk carriers continued to be low-key.

In Car Carrier Services, the Company fell under last year in loaded units of vehicles. Despite securing units as targeted on the main routes for the United States and Europe from Japan, exports from Japan to the Middle East, South America and Asia decreased and furthermore the cross-trade transport was inactive in the Atlantic Ocean mainly centering on Brazil. In the face of such severe situation, we pursued a maximum efficiency in ship’s operation and continually endeavored to develop our share in the cross-trade but were unable to completely cover up the unfavorable impact of the reductions in cargo movements.

As a consequence, the bottom line of Bulk Carrier and Car Carrier Services could not reach the level of last year.

The markets for oil tankers continued to be low-key due to a slowdown in oil movements caused by a steep rise in oil prices. The markets for oil-product carriers stayed at a low level despite cargo movements were firm.
In terms of transport of steaming coal for power companies, efforts had been carried out to develop business in scale with a view to three new specialized carriers of an 88,000 dwt type placed into service during the second half of fiscal 1999.
In Liquefied Natural Gas Carrier Services the expanded fleet with newbuildings could perform so smoothly.

The bottom line of Tanker and Energy Transportation Services fell short of last year due to the markets slipping.

The surrounding circumstances are expected to become harsher during the second half as compared with the first half in view of the prevailing trends of appreciation of the Japanese Yen and hike of bunker prices. We prospect that the exchange rate of Yen against the U.S. dollars be Yen 105.00 per U.S.$ and the bunker price be U.S.$125.00 per ton. Such being the case the second half bottom line covering all the business sectors- Container Business, Bulk Carrier and Car Carrier Services, and Tanker and Energy Transportation Services will fall a little under the first half.
We consider, however, that we will be able to post such amount of profit that will enable payment of a dividend of Yen 4.00 per stock, by Yen 1.00 larger than at the close of fiscal 1998 unless the circumstances worsen more than presently anticipated. An outlook for consolidated bottom line of fiscal 1999 on a yearly basis is sales revenues Yen 490 billion, ordinary profit Yen 14 billion and net profit Yen 6 billion.
In conformity with New K-21, we will make further efforts to strengthen business competence and cut down costs and expenses. In the meantime we, at the Group companies, are committed to realizing the management targets in synergies and improving business achievement by downsizing assets and making group management more efficient and stronger.

We, at Kawasaki Kisen Kaisha, Ltd. would like to firmly confirm that we recognize the issue of Y2K as a top-priority assignment of management. Across all the departments of the Company, we have been tackling this issue positively and carefully at the System Committee under the chairmanship of the senior managing director in charge.
With respect to the main systems, the new Y2K-compliant systems started to be put into operation since April 1997 meanwhile we completed all modifications of the sub systems before the end of December 1998. From January 1999 through March 1999, we simulatively operated the test machines with dates of Year 2000 under the same circumstances as the acting main computers. In such manner we finished a series of Y2K-compliance tests, confirming that all were completely Y2K compliant.
We also confirmed through the shipbuilders and related manufacturers that all computerized equipment onboard ships and at port terminals were completely Y2K compliant. As to what was required to indicate a date we confirmed that there arose no problem, simulating and inputting a given date.
However, we understand that no countermeasure against this issue could be too complete. We moved on to establish a Contingency Plan in conformity with the Japanese Government and the Advanced Information and Telecommunications Society Promotion Headquarters (provisionally named at present) of the Ministry of Post and Telecommunications. Under the plan we are endeavoring to prepare ourselves to act best and most effectively possible on January 1, 2000 regarded as a dangerous day and to minimize any Y2K-related problems or conveniences if they should occur.
We would like to take up the Year 2000 Issue at all company’s level and to ensure safe transportation for the benefit of each and every customer.
Finally, with respect to the costs and expenses for work on the Y2K compliance, it is being informed that those for the main systems are involved in a total of costs for installing the new ones at the time of the SR (system re-engineering) Project from 1996-1997. As a result, we are unable to clarify the costs at issue. For other systems than the main ones, we spent some Yen 75 million to modify them into Y2K compliant.
We would like to advise that those costs accruing in the future make no change to prospect for the Company’s achievement of fiscal 1999.

1999

1999