January 6, 2014

Completing the “Bridge to the Future” , our 3-year Management Plan

Let me start by wishing our stakeholders and all the members and their families of the “K” Line Group a Happy New Year. As we embark on a new chapter in 2014, I would like to take this time to reflect on the past year and offer a look forward to the challenges ahead.

In 2013, the global economy modestly trended toward recovery, driven by the more developed economies, mainly the US. Although consumer spending did not make a full-fledged recovery, the US housing market and automobile sales exhibited their highest levels of growth seen in the past five years, and the stock market climbed to an all-time high. Meanwhile, the EU’s economy, after enduring prolonged sluggishness, touched bottom at long last, returning to positive growth for the first time in three years. Emerging economies, such as China and India, which provided catalysts for global economic recovery after the collapse of Lehman Brothers, experienced some slowdown from their previous high level of growth. After undergoing a correction phase, these emerging economies are expected to switch to a stable and sustainable growth trajectory.

Looking at economic trends in Japan, the yen underwent some correction from its excessive strength owing to bold monetary easing policies and flexible fiscal policies implemented by the Abe administration, which took office at the end of 2012. In addition, the Tokyo stock market recorded the highest annual growth among global stock markets. These were the first positive signs for the Japanese economy in a long time. Moreover, news of Tokyo’s successful bid to host the 2020 Olympic Games, a major topic in 2013, reinvigorated Japan’s enthusiasm, which had been somewhat dampened since the Great East Japan Earthquake.

We plan to announce our 3Q FY2013 financial results and 4Q estimates at the end of January. The structural reforms, which have been underway since 2012, are gradually delivering favorable outcomes. We also saw larger-than-expected benefits from a reduction in fuel costs as a result of company-wide initiatives to expand eco slow steaming. Since FY2012, we have achieved current account to surplus owing to the fruits reaped from these types of companywide measures. Our earnings have now recovered to a level such that in FY2014, the final year of our Bridge to the Future plan, we expect them surpass levels posted in the past two years.

In our current three-year management plan, I outlined management’s commitment to protecting the company from a collapse of the marine transport market. However, from this point onward, I want to focus on policies for taking the steps necessary to move from a protective to an offensive approach. Global political and economic scenes are undergoing major transformations each year. In the same way, various industries cannot avoid reforms in technology and intensified competition. Kawasaki Kisen is no exception. We are exposed to relentless international competition on a daily basis. In light of these factors, it is crucial that we make radical changes to our traditional structure and methods to remain in the race. I hope to leverage your strengths and competencies to take our company in a better direction starting in 2014.

As a first step in our offensive management strategy, we decided to resume investments in our strengths in 2013. We announced plans to build eight car carriers, with a maximum capacity to carry 7,500 cars. In the Dry Bulk Business, we are positively moving forward with the construction of a large iron ore carrier and coal carrier, which has a 25% improved fuel economy, in comparison with existing ships. In the Energy Transportation Business, we acquired contracts for three LNG carriers in 2013, and in the New Year, we are expecting to secure contracts for a shale gas-related transport project that is currently under negotiation. In the Containership Business, in the first half of 2013, we decided to build five 14,000 TEU ULCVs (Ultra Large Container Vessels). We placed our orders at the best time possible. These cutting-edge vessels will all be in the water from 2015 to 2016, and I am confident they will contribute to a major recovery in earnings.

Also, in our new management plan, we prioritize the fortification of our logistics business in Asia and Oceania, and the offshore energy E&P support business, in regions such as the North Sea and Brazil. The logistics business takes time to generate profit but we believe that, coupled with demand in Asia, where growth is pronounced, we can develop this into a core business in ten years by expanding operations in accordance with a long-term strategy.

In the offshore energy E&P support business, we plan to establish a structure that will facilitate the active entry into fields that require a high level of technology and expertise—offshore support vessels, drillships, FPSOs, and subsea construction vessels. In this manner, we are determined to never remain content with our present situation, and we are constantly moving forward, forging ahead step-by-step.

Last but not least, I would like to end my New Year’s message by emphasizing the following.

From 2013, the “K” Line Group has engaged in the work-life balance movement to eliminate long work hours. At this stage, we have yet to see any positive results. All the executives of the “K” Line Group share in the idea that the sense of fulfillment one gains from attaining a healthy work-life balance is the source of one’s energy and vitality. In the new fiscal year, I would like to take this movement to the next level and produce results without fail. Although this too is a very basic issue, it is also extremely important. I would once again like to ask that everyone make sure they fully adhere to legal compliance mandates. There are those statutes and regulations that should be obeyed as an adult. However, I am referring to laws and social standards, including those which regulate competition and prevent corrupt business practices, that must obeyed by all means in the course of conducting your work duties. I have previously spoken about this on several occasions but would like to mention it once again. Please undertake your tasks without forgetting to conform to laws and regulations, in other words compliance, which is the fundamental requirement for all corporate activities.

In closing, I wish all the members of the “K” Line Group and their families good health and happiness, and pray for the safe passage of all our ships.

President & CEO

Jiro Asakura