“K” LINE REPORTThe “K” LINE Group is an integrated logistics company that owns and operates various fleets tailored
to worldwide marine transportation needs. We also engage in other businesses, such as land transportation and warehousing.
The “K” LINE Group has defined the Value (“K” LINE Value) as a symbol of its corporate value.
In this “K” LINE Report, we introduce the corporate value of the “K” LINE Group to a wide range ofstakeholders, providing financial and nonfinancial information. We describe “ Value” in a three-story
format. In the ““K” LINE Group Value Creation” story, we describe “ Value” in the context of our philosophy, vision, and history. In the “Value Creation Initiatives” story, we describe business initiatives
based on our newly announced medium-term management plan. And in the “Foundation of Value
Creation” story, we describe our CSR initiatives and our corporate governance, which together form
the foundation for value creation. For more details on each of these initiatives, please visit our website(www.kline.co.jp/en/) and click on the relevant page below.

Investor Relations
https://www.kline.co.jp/en/ir/index.html

CSR
https://www.kline.co.jp/en/csr/index.html

Corporate Governancehttps://www.kline.co.jp/en/csr/governance/

Reporting Period
Fiscal 2016 (April 1, 2016–March 31, 2017)
Note: The report also includes some developments
after April 2017.
Scope of Reporting
In principle, this report covers the activities and dataof Kawasaki Kisen Kaisha, Ltd. and its subsidiaries
and affiliates, except where otherwise noted.

Guidelines Referred to• International Integrated Reporting Framework• GRI Sustainability Reporting Guidelines Version 4• ISO 26000•E nvironmental Reporting Guidelines 2012,
The Ministry of the Environment of Japan

Forward-Looking Statements
The Company’s plans, strategies and future financial results indicated in this report reflect the judgment made by its managers based on
information currently available and include risk and uncertainty factors. Consequently, the actual financial results may be different fromthe Company’s forecasts due to changes in the business environment, among other factors.

Contents

2“K” LINE Group Value Creation
2 Corporate Value Creation Story
		 2“K” LINE Group Value Creation

		 4

History and Profile

		 6“K” LINE Group Value Creation Model

8 Message from the President
16 	Focus: Aiming to Become the Forefront Company for
Environment-Related Matters
18 Financial and ESG Highlights

22

Value Creation Initiatives
22 At a Glance
24 Business Review and Outlook
		 24 Containership Business / Port Business		 26 Dry Bulk Business		 28 Car Carrier Business		 30 LNG Carrier Business and Tanker Business		 32 Offshore Energy E&P Support Business		 33 Short Sea and Coastal Business		 34 Logistics Business

36

Foundation of Value Creation
36 CSR – ESG Initiatives –38 Environmental Preservation
39 Safety in Navigation and Cargo Operations
40 Human Resource Development
42 Stakeholder Engagement
43 Corporate Governance46 Risk Management System
47 Compliance
48 Chairman × Outside Board Members Roundtable Discussion
54	Directors, Audit & Supervisory Board Members and Executive
Officers / Organization

56

Financial Section / Corporate Data
56 Financial Analysis
58 Consolidated Financial Statements
86 Global Network
88 Major Subsidiaries and Affiliates
90 Outline of the Company / Stock Information“K” LINE REPORT 20171

“K” LINE Group Value Creation

Corporate Value Creation Story“K” LINE Group Value Creation
In shipping business, which serves as key logistics infrastructure supporting worldwide economic activity, the “K” LINE Group earns the trust of customers through the provision of safe, reliable transportation and logistics services.
As an integrated logistics company grown from shipping business, our corporate philosophy is tohelp enrich the lives of people. Under this philosophy, we will make further improvements to

Value(“K” LINE Value), which represents our unique value as a group.

Corporate
Principle~: trust from all over the world ~As an integrated logistics company grown from shipping business,the “K” LINE Group contributes to society so that people live well and prosperously.
We always recognize this principle in our operations.

VisionOur aim is to become an important infrastructure for global society,and to be the best partner with customers by providing the high-quality
logistics services based on customer first policy.
Values the “K” LINE Group’s prizes• Providing reliable and excellent services.........Contributing to society• A fair way of business........................................Fostering trust from society• Relentless efforts to achieve innovation..........Generating new values• Respecting humanity.........................................Corporate culture that respects
individuality and diversity

2“K” LINE REPORT 2017

Placing the customer first, the “K” LINE Group prizes
four value perspectives as the starting point forproviding high-quality services.
Providing reliable andexcellent services– Contributing to society –A fair way of business– Fostering trust from society –We establish an optimal transportation portfolio
and transport cargo safely in order to meet various customer needs.

Recognizing the importance of fair businesspractices, we engage in appropriate dealings incompliance with laws and regulations.

Relentless efforts toachieve innovation

Respecting humanity– Generating new values –– Corporate culture that respects
individuality and diversity –Based on original strategies and the spirit ofchallenge, we create new levels of value aheadof the times.

We respect human rights, individuality, and diversity and endeavor to create environments inwhich various human resources can excel.

“K” LINE REPORT 20173

“K” LINE Group Value Creation

Corporate Value Creation Story

History and Profile
Sustainable Growth as an Integrated Logistics Company
With a history of nearly a century since its establishment in 1919, the “K” LINE Group has overcome fiercely changing business conditions on many occasions while working tirelessly to ensure safe and reliable operations.
With an “enterprising spirit” and “broad-mindedness” corporate culture, we have addressed the increasingly
diversified and sophisticated needs of customers by embracing technological innovation and developing new vessels and services as a pioneer in the industry.
In recent years, we have demonstrated our uniqueness by tackling advanced challenges on the environmental
front. For example, we formulated “K” LINE Environmental Vision 2050, a set of long-term environmental guidelines targeting 2050. We also completed construction of DRIVE GREEN HIGHWAY, an environmentally-friendly
next-generation flagship featuring the most cutting-edge technologies.
Deploying engineering and excellent shipping services amassed through its long history, as well as human resources who support change, the “K” LINE Group will continue growing and developing its business globally as
an integrated logistics company grown from a shipping business.

1994

The wide-beam / shallow draft coal carrier
CORONA ACE, the basic type for the transportof thermal coal, was completed.

1983

Japan’s first LNG carrier
BISHU MARU was completed.

1986

The first intermodal transportation over land andsea among Japanese shipping companies wasstarted on the North American continent using
Double-Stack Train (DST).

1970

Japan’s first pure carcarrier (PCC)
TOYOTA MARU NO. 10
was completed.

1968

Our first full containership,
GOLDEN GATE BRIDGE,
was completed.

1919

Established as
Kawasaki Kisen Kaisha, Ltd.

1919

1965

1970

1975

1980

1985

*Figures up to and including fiscal 1990 are nonconsolidated; figures for fiscal 1991 and thereafter are consolidated.

4“K” LINE REPORT 2017

1990

2019
2016

By utilizing the most advanced technology
in the world, DRIVE GREEN HIGHWAY,
a car carrier with a capacity of 7,500 vehicles
and the goal of becoming an ultimate
energy-saving environmentally-friendly,
was completed.

2015“K” LINE’s
100th Anniversary

Strengths amassed
100 years history

The super-sized (14,000TEU) container
vessel MILLAU BRIDGE with the latest
energy-saving technologies
was completed.

Customer basebuilt on strong
relationships oftrust inmultiple industries

2015

Engineering“K” LINE Environmental Vision 2050
(long-term environmental guidelines for 2050)
was formulated.

2007

Launched the business of Offshore Support
Vessels to support offshore oil drilling
equipment and oil production platforms.

Excellentshipping services

Operatingrevenues

1,030,191
millions of yen

Global network

Human resource
diversity

1995

2000

2005

2010

2016 (FY)“K” LINE REPORT 20175

“K” LINE Group Value Creation Model

Capital input

Financial
capitalCustomer basebuilt on strong
relationships oftrust inmultiple industries

The “K” LINE Group

Creating• Shareholders’ equity• Interest-bearing
liabilities

Engineering

Receipt oforders• Ships• Container equipment
Equipment • Container terminals• Trucks
capital• Warehouses andcold storage facilities

The M
edi
um
-te
rm

“K” LINE Group Value Creation

Corporate Value Creation Story

Excellentshipping services
Humancapital• Global and diverse
human resources• Port Business• Dry Bulk Business• Car Carrier
Business

G ov

Global network

ern
an
ce

• Global network• Trust-based
relationships withoutside parties
Social /relationship (customers,
shipbuilders,
capitalmarine equipment
manufacturers,
fuel suppliers andlocal communities)

Portfolio• Containership
Business

Sales
activities• Maritime know-how• Ship management
know-how• Operational
Intellectual management
capitalknow-how• Sales know-how• Logistics businessknow-how

an
nt Pl
me
e
ag
an
M

Co

Human resource
diversity

m

pli
anc

e

Solutionstudies /proposals

Four Driving Forces
Naturalcapital6• Environmental
resources that
underpin ourbusiness activities(oceans, fuel, water,
air, etc.)“K” LINE REPORT 2017

Shortterm

External factors affecting corporate value
Exchange rate Resource price Competitive Geopoliticalfluctuations
changes
environment
risk

The “K” LINE Group deploys various types of capital to continuously create value. Leveraging the Four Driving
Forces we have built up in nearly 100 years of history, we will work to create new value over the next century as
well, by providing core logistics and trading infrastructure that are indispensable and help enrich the lives of people around the world.

Increase in capital (stock)business model

Output andoutcomes“K” LINE Groupvalue creation

Services
Services centered on
marine transportation
sector• Reliable andexcellent services

Customers• Marine transportation• Provision of logistics
infrastructure• Marine resource
development

Procurement(ships, fuel oil, etc.)• Relentless efforts toachieve innovation– Generating new values• Logistics

“K” L
INE
En
vir
on

> See P.24–P.35 foroutline of each business

50
n 20
isio
lV
ta
en
m

• LNG Carrier Businessand Tanker Business

Ca
rgo
Ope
rations• Consolidated ordinary
incomeProvision ofservices• Net income• Short Sea and Coastal
Business• ROE• Corporate culture that
respects individualityand diversity

EmployeesinSafety

n
tio
a
g
vi
Na

> See P.18–P.21 forfinancial and
ESG highlightsaSocial andenvironmental impacts

Local
communityand global
society• Safety in navigationand cargo operations• Human resource
development> See P.36–P.47 for
CSR / ESG initiatives
Strengthening ofTechnologicalenvironmental innovations and changing
regulationsindustrial structure• A fair way of business• Fostering trust fromsociety• Contribution to society
and local communities• Environmental
preservation

Feedback

Economy andeconomic trends• Establishment ofwork-life balance• Human resource
development• Equity rationd• Logistics Business• Increase corporate
value in considerationof balance between
growth investments
and shareholder return

Financial outcomesManagement• Offshore Energy E&P
Support Business

Shareholders
andinvestors

Longterm

Environment• Create a sustainable
future• Prevent global warming
and protect ecosystem> See P.16–P.17 forenvironmental initiatives“K” LINE REPORT 20177

“K” LINE Group Value Creation

Message from the President

We Will Refine Our High-quality,
Customer-first Logistics Services andTarget “Revival for Greater Strides” as
We Approach Our Next 100 Years of Operation.
In fiscal 2015 and 2016, we faced a severe business environment we never before experienced. In
response, we have taken various decisive measures, including large-scale reforms of the “K” LINE
Group and a decision to integrate our containership business with those of other companies. While
such measures brought great pain, we will leverage the path we have forged to build a frameworkfor generating stable-income as we approach the centenary of the Group’s founding in fiscal 2019,in our quest to improve corporate value and meet the expectations of all stakeholders.

8“K” LINE REPORT 2017

Business Environment
Market stagnation due to oversupply
Conditions in the shipping industry have changed dramatically since the global financial crisis (GFC), which began
in 2008 with the bankruptcy of Lehman Brothers. Prior
to the GFC, we enjoyed significant increases in demand

thanks to strong economic growth in China and emerging economies, as well as unprecedented market prices
caused by an undersupply of vessels. Subsequently, however, despite a temporary slump in demand caused by the
GFC, the supply of vessels continued – compounded byan influx of pre-GFC speculative investments – leading toexcess supply and prolonged market stagnation.

Dry Bulk Vessel Supply-Demand and Market Trend(unit: million deadweight tons)

(BDI)

6,000

8,000

Oversupply
DemandSupply4,500

StrongdemandBaltic Dry Index

6,000

3,000

4,000
Market slump
by oversupply

1,500

0

2,000

Global financial
crisis (GFC)

2000

2001

2002

2003

2004

2005

2006

2007

Fiscal 2016 Business Review
Continued structural reforms centering on
dry bulk carriers
To address the volatile business environment following theGFC, the “K” LINE Group set targets of expanding stableincome and reshaping business portfolio or structure that
can have tolerance to market fluctuations. In fiscal 2016,
however, consolidated operating revenues declined ¥213.7
billion year-on-year, to ¥1,030.2 billion, and we reported an
ordinary loss of ¥52.4 billion. This was due to a historicalslump in the containership and dry bulk carrier sectors, aswell as difficult conditions in the car carrier market.
In the Containership Business segment, market conditions
reached their lowest point ever at the beginning of 2016,

2008

2009

2010

2011

2012

2013

2014

2015

2016 (FY)0causing segment earnings to deteriorate by ¥38.0 billion yearon-year. Despite market conditions having bottomed out,
Dry Bulk Business was affected by contracts that had been
modified during market stagnation, while car carrier business also suffered from weak cargo movements to emerging economies and resource-rich nations. Accordingly,
earnings in the Bulk Shipping Business segment deteriorated by ¥44.0 billion year-on-year. Meanwhile, structuralreforms and cost-reduction efforts, which exceeded our
initial targets, had a ¥30.2 billion positive impact on earnings. However, external factors, mainly worsening market
conditions and cargo movements, had an ¥85.9 billion negative impact on earnings, greatly outweighing the improvements that we made.
Given our estimation that improvements in the

Key Factor: Ordinary Income / Loss(¥ billion)

60

Company Achievement

External Factor
Exchange
rate
(3.1)

Bunkeroil price+2.2

Strong yen¥12 / $

$30 / MTcheaper0¥120.78$295-20¥108.76

$265

40
20

Cost saving
Structuralreforms

+20.9

+9.3

Dry bulk cargo volume,
market volatility
Negative impact of(44)
FY2015 contract
(18)

(38)

Other
(3)

-40
-60

Total
(55.7)

Containershipmarket volatility

Total: +30.2

Total: (85.9)“K” LINE REPORT 20179

“K” LINE Group Value Creation

Message from the President

supply-demand situation will require more time, we continued implementing structural reforms centered on
dry bulk carriers in fiscal 2016, as we did in fiscal 2015,
and we made provision for impairment losses in theContainership Business segment. In Offshore Energy
E&P Support and Heavy Lifter Business segment, we
also posted impairment losses. As a result, the loss
attributable to owners of parent amounted to ¥139.5 billion. Equity capital at fiscal year-end fell to ¥219.5 billion,
and the equity ratio declined from 31.9% to 21.0%.
With regret, we have decided not to pay cash dividends in light of the urgent need to improve our financial position.

containership and Dry Bulk markets. Together with ourown efforts, this should translate into a ¥73.4 billion overall improvement in ordinary income. A fundamental turnaround in the vessel supply-demand situation will require
more time, and we continue to face geopolitical risks andother uncertain factors. Benefiting from the aforementioned measures, however, we will make a united Groupwide effort in fiscal 2017, which we have positioned as a
key period for achieving a return to profitability.

Decision to spin off the Containership Business

Under our new medium-term management plan, we haveadded “provide high-quality logistics services based on acustomer-first policy” to the Group’s vision.
The starting point for any business is to continuously
deliver high-quality services in partnership with customers. This applies to the containership business, which provides uniform services to large numbers of customers, andto the tramper transport business, which focuses on services tailored to specific customers. Adding this perspective to our vision has enabled us to express our values andclarify our goals when engaging in business activities. In
addition to complementing the Group vision, while formulating our medium-term management plan, we reviewed
the recent operating environment and our businesses inorder to determine exactly where the Group’s strengths
lie. After various discussions, we reaffirmed that theGroup’s strengths are its customer base, technologicalexpertise and sales power. We consistently provide safe
transportation and actively incorporate new technologies,
and we have a worldwide network and human resources
who support transformation and interact with customers.
By expertly deploying these strengths, I believe we can

In October 2016, we made a major decision to spin off
our Containership Business (a mainstay business of theGroup) and our overseas container terminal business,
integrating them with the same businesses of two otherJapanese shipping companies. The containership industry
has undergone progressive restructuring in recent years
due to large-scale M&As, mainly driven by European shipping companies, growing the trend of oligopolization in
the industry. To date, Japanese shipping companies haveadopted a strategy of differentiation based on quality, but
the oligopolistic nature of the market will necessitate alevel of cost competitiveness that is beyond the abilities of individual players. For this reason, we decided on
business integration as a way to rank alongside overseas
shipping companies that pursue economies of scale. The
decision also symbolizes our commitment to keeping ourlogistics infrastructure stable and sustainable while adopting best practices to generate synergies of integration andenhance competitiveness.
The integrated containership company will commence
operations in 2018, a milestone year that marks the 50th
anniversary of the launch of our first full containership.
Although the Containership Business will remain a major
pillar of the Group’s operations, in 2018 it will be reborn
under a new format through the integrated company,
which will become an equity-method affiliate.

Outlook for Fiscal 2017
Group-wide efforts to return to profitability
Looking to fiscal 2017 onwards, we have taken measures
such as structural reform of the dry bulk carrier businessand integration of the containership business in order toimprove our future business performance and rebuild
our management foundation. We forecast that our own
efforts will have a ¥44.3 billion positive effect on ordinary income, including ¥20.3 billion from the provision
for losses in the containership business and ¥19.2 billion
from cost reductions and other efforts. In addition, we
anticipate a further ¥29.1 billion improvement, thanks toexternal factors such as moderate recovery trends in the10“K” LINE REPORT 2017

Business Policy Reassessment
Top priority on
providing high-quality logistics services

successfully “provide high-quality logistics services basedon a customer-first policy.”

Refine our strengths to rebuild our portfolio
While trade continues to slow amid ongoing uncertainty about the world economy, it will take some timeto eliminate the vessel oversupply situation. Accordingly,
the operating environment for the shipping industry willremain unstable. For this reason, it is important to build

a business portfolio that is less sensitive to market conditions than ever before. We will deploy and hone theGroup’s strengths, which I described earlier, to rebuild ourbusiness portfolio by enhancing our stable-income foundation and fostering new growth businesses. We have set
a 6% target for ROA (ordinary income basis) by the mid2020s, achievement of which will require ROE in the double digits.

Strengths

Customers (who support “K” LINE’s high-quality services)

Value
To be a best and long-term business partner for customers byproviding logistics solutions that only “K” LINE is capable
High-quality logistics services

Engineering
E.g.;
Eco-friendly flagship
DRIVE GREEN HIGHWAY

Excellent shipping
services• Safety in navigationand cargo operations• Ship management• Operational quality

Global network
313 Group companies
at home and overseas

Human resource
diversity
about 8,000 employees(total in Japan andoverseas)Long-term Target (mid-2020s)

ROA(ordinary income)6%

Shareholders’ equity¥

400 billion

ROE
Achieve double digits
Foster both growing fields andstable-income foundation via
advanced management

Verify benefits from containershipbusiness merger, plan to reset“K” LINE REPORT 201711

“K” LINE Group Value Creation

Message from the President

our centenary of operations. To this end, we will work
to become a “comprehensive marine transportation andlogistics group engaged in growth businesses backed by acompetitively superior and stable-income foundation built
on high-quality services and solid customer base.” We will
also strive to be a “corporate group that continuously generates corporate values while addressing changing business environment through advanced risk management
and governance systems.” In pursuing these aspirations,
we will realize our corporate principle and vision.
To achieve our objectives, we have set three priority initiatives: (1) Rebuilding portfolio strategy, (2) Emphasizing
advancement of management and function-specific strategies and (3) Pursuing ESG initiatives. Through these measures, we will target positive profits for three consecutive
years from fiscal 2017, stable business with ROA of 6%,
ordinary income boosted to around ¥30 billion and an equity
ratio of around 25%.
Priority Initiative 1: Rebuilding Portfolio Strategy

Strengthen stable businesses anddevelop new core businesses

Medium-Term Management Plan
“Revival for Greater Strides” towards our next
100 years
Based on the business plans of the Group outlined earlier,
we have formulated a new medium-term management
plan which positions the three years through fiscal 2019 asa period of “Revival for Greater Strides” as we approach

The main reason for rebuilding portfolio strategy is to comprehensively strengthen our stable businesses and foster
next-generation core businesses aimed at growth.
In stable-earnings businesses, we will reinforce ourearnings base by expanding medium- and long-term contracts and cutting costs. In next-generation core businesses, we will broaden our forwarding and other logistics

Rebuilding Portfolio Strategy
What We Aim to Become

Present Shape
New Business

New BusinessStable BusinessStable Business
Asset base¥500 billion

Ordinary income¥25 billion

ROA (ordinary income)

12

5.0%

a

able
se St

Incre

ess

Busin

Containership BusinessStabilize Revenues via Merger

Market-sensitive BusinessBusiness
et-sensitive
rk
a
M
e
c
u
d
Re

“K” LINE REPORT 2017

Containership Business(equity-method affiliate)
Market-sensitive Business

Rebuilding Portfolio Strategy

ess
usin
B
e
r
n Co
ratio
e
n
e
xt-g
p Ne
o
l
e
Dev

plan to make investments totaling ¥80 billion over the next
three years. Placing top priority on improving our financial position, we will invest ¥35 billion in our fleets, witha policy of meticulous selection and substitution, and ¥15
billion in environment-related areas. As for strategic investments, we plan to spend ¥30 billion, which will be used to
improve income stability and develop next-generation corebusinesses, including the energy value chain business.

businesses by reorganizing and strengthening our global
network. We will also deploy our customer base andtransportation know-how to expand our complete built-up
car distribution business. In addition, we will foster theenergy value chain business, including collaboration withpartners, and we will work to create new services and markets through technological innovation and business modeltransformation. Excluding the containership business, we

Fleet Planning and Investment Plans
Number of key fleet vessels (trend)
FY2015 results

FY2016 results

FY2019 target

Difference (FY2019
vs. FY2015)

Containerships

63

58

—

—

Dry bulk carriers

225

200

194

(31)

Capesize

88

81

81

(7)

Panamax

104

87

73

(31)

Thermal coal carriers

24

23

31

+7

Wood chip carriers

9

9

9

0

Car carriers

102

93

91

(11)

Tankers

23

22

23

0

LNG carriers

41

42

49

+8

Offshore E&P Support

8

8

8

0

Heavy lifter vessels

15

15

15

0

Short sea, coastal and other

51

48

50

(1)

Total

465

428

430

(35)

Reduce market
sensitive fleet

Increase
fleet based oncontracts* Total and disparity vs. FY2015 does not include containerships

Three-year Investment Plan (FY2017-FY2019 excludes Containership Business)• Careful selection of investments so as to improve financial strength• Strategic investment framework of ¥30 billion (three years)
Environment-related
investment
Strategic investment
framework

30 billion

¥

TOTAL

80 billion¥

15 billion¥

Fleet restructuring,
including replacements

35 billion¥

Strategic investment framework
In the three years of our “Revival for greater strides” plan, we will carefully screen investments with a focus on improving our financial
strength, our strategic investment framework for stable-income and next-generation core businesses having been placed directly.

“K” LINE REPORT 201713

“K” LINE Group Value Creation

Message from the President

Priority Initiative 2: E
 mphasizing Advancement ofManagement and Functionspecific Strategies

Introduce risk-return performance indicators
When formulating the new medium-term management
plan, we conducted a review of business in the past. In
stable businesses, our services were given a high value
by customers, especially those with whom we havemedium- and long-term contracts. In the businesses
exposed to market, however, it was reflected that risk by
excessive investment in the past emerged when business environments adversely changed.
Based on this reflection, we plan to further improverisk-return management, especially of business investments. This will require greater attention to capital costs
and on risk-return in each business. By better understanding and managing total business risk, moreover, it willserve as a platform to help rebuild our portfolio strategy
according to the risk-return scenario of each business.
We are now preparing more details about our
risk-return management plan, and will release thosedetails in fiscal 2017.

Strengthen customer relationships inunited Group-wide effort
The Group has a customer base bound by strong relationships of trust covering multiple industries. To strengthen
our function-specific strategies and make our customer
base broader and more robust, we will focus on pursuinghigh-quality services and attracting and fostering capable
human resources through customer relationship management (CRM) reinforcement, technological innovation andbusiness model transformation. Given the diversifying
logistics needs of customers, reinforcing CRM will entail
much more than adopting a vertically-aligned approachby type of vessel. Rather, we will need to establish systems enabling us to advance proposal-oriented sales on across-lateral Groupwide basis. In other words, we needto deliver optimal solutions by combining specialized
responses with the Group’s comprehensive strengths. In
April 2016, we introduced the Unit Supervisory System,
in which one executive officer supervises two businesses– dry bulk business and LNG carrier and tanker business– so we are making proposals from both perspectives ofthe energy business. Our plan is to further strengthen horizontal collaboration in this way across the entire Group.

14“K” LINE REPORT 2017

As logistics demand becomes more diversified andsophisticated, we will need to innovate our technologies
and transform our business model to offer optimal proposals and solutions. With this in mind, we will establish
an advanced technology group that is independent of ourexisting shipbuilding technology group, and we will combine this with CRM to create new services sought by society and industry. As for attracting and fostering humanresources, we will target both qualitative and quantitative
improvements by emphasizing personnel capable of raising the level of existing services and creating new ones.
Priority Initiative 3: Pursuing ESG Initiatives

Towards a sustainable society
ESG (Environment, Social, Governance) plays an important role in our efforts to fulfill our social responsibilities, tomake us sustainable and improve corporate value, and forthis reason we have positioned ESG as one of the priority
initiatives under our new medium-term management plan.
With respect to the Environment, the Group has been
pursuing advanced activities. The “K” LINE Environmental
Vision 2050, formulated in March 2015, is a set of longterm guidelines that identifies issues to be addressedby the Group between now and 2050. Efforts based on
the guidelines have already produced good outcomes,
including the delivery of DRIVE GREEN HIGHWAY, ournext-generation environmentally-friendly flagship that wasawarded “Ship of the Year 2016,” as well as the achievement of our CO2 reduction targets ahead of schedule.
Our sincere activities have gained various good assessments; we were included in the Climate A List for 2016
and in the Supplier Engagement Leader Board by the
Carbon Disclosure Project (CDP); and our CO2 reduction
targets have been certified as science-based targets.
These accomplishments underscore the high praise weare receiving from external parties as an advanced environmental protection company.
Important efforts from the social perspective are
securement and development of human resources andsafety in navigation and cargo operations. Given that ship
operation is the foundation of the Group’s business, we
regard prevention of serious maritime accidents and continuation of safe shipping to be an important obligation tosociety. Accordingly, “providing reliable and excellent services” is stated as one of the Group’s visions.

Strengthen governance defensively andoffensively
The Group maintains a proactive approach to corporate governance. In fiscal 2015, we established a
Nominating Advisory Committee and a Remuneration
Advisory Committee, and in fiscal 2016 we introduceda Unit Supervisory System with the aims of strengthening and enhancing the efficiency of our business execution system.
We also strengthened governance by increasing thenumber of outside directors (from two to three), who
now account for one-third of all directors. Thanks to active
remarks from outside directors, debate within the Boardof Directors has become more robust. We feel that outside directors are fulfilling an important managerial function by providing impartial perspectives from outside theGroup. Meanwhile, executive directors and executive officers utilize their specialized business-related knowledge
and experience to perform their tasks as leaders of eachbusiness division that they supervise. This enables themto make decisions based on clear executive responsibilities and a sense of speed, and also leads to highly specialized functional business operations and stronger sales
capabilities. We will continue targeting sustained improvements in corporate value while strengthening both thedefensive and offensive aspects of corporate governanceto earn the appreciation of stakeholders.
In conclusion, we posted major losses in fiscal 2016 andcaused great concern among shareholders, and we sincerely apologize for our decision not to pay cash dividends
for the year. In addition to structural reforms and othermeasures taken so far, we will achieve a steadfast returnto profitability under our new medium-term management
plan as we target a “revival for greater strides” towards
our next century of operations. We look forward to yourongoing support.

President and CEO

Eizo Murakami“K” LINE REPORT 201715

“K” LINE Group Value Creation

Focus: A iming to Become the Forefront Company
for Environment-Related Matters— Shaping as-yet-unseen Future Technologies —Under our corporate principle ( ) trust from all over the world, and in order to make contributions to the well-being andprosperous lives of people as an integrated logistics company based on the shipping business, we have established along-term environmental management vision, ““K” LINE Environmental Vision 2050: Securing Blue Seas for Tomorrow”> please refer to p. 38 .
The Group is steadily achieving all of its interim targets towards 2019, the 100th Anniversary of its founding, one-byone, such as having successfully accomplished ahead of schedule its CO2 emission reduction targets and having set its
new target towards 2030 (SBT (please refer to 2 )), and building an environmentally-friendly flagship and more. However,in order to achieve the further goals for 2050, we will need to inexhaustibly work to improve transportation quality and also
to pursue and put future technology into practice through our limitless enthusiasm for technological innovations.
As shown in the page “History and Profile” > please refer to p. 4 and 5 , “K” LINE has always captured the technologies of the next generation and opened the new era by developing and operating Japan’s very first pure car carrier
and first LNG carrier. Such superior technologies and transportation quality are the resources for enhancing our corporate
value, “ Value” (“K” LINE Value).
In July 2017, we established an Advanced Technology Group. We will strive unyieldingly toContinuing tocreate new values in order to ensure greater strides and achievement in the next generation.
avoid causing serious“K” LINE Group will push forward at full force in order tomarine accidents
hand on a sustainable society and beautiful blue sea to future
generations in 2050 and beyond.
Introducing
LNG-fueled carriers

Trend in International Environmental Regulations•January 2020:
SOx emission regulation will be strengthened.
•January 2018:
CO2 emission amount reporting system will start.
•September 2017: Ballast Water Management Convention will come into force.
•January 2016:
NOx emission regulations were strengthened.
•December 2015: Paris Agreement was adopted.

Building and implementing
environmental flagships

1

Our Efforts for Advanced Technology•July 2017:
Advanced Technology Group has been established.
•June 2016:
Integrated vessel operation and performance management
system “K-IMS” was developed.
•February 2016: DRIVE GREEN HIGHWAY was delivered.
•July 2015:
The state-of-the-art ship maneuvering simulator was introduced.
•March 2015:““K” LINE Environmental Vision 2050” was formulated.
•December 2013: “DRIVE GREEN PROJECT” was launched.

Diversify energy
sources

Towards changing
the risk to chance
Reduce air
pollution to as close
to zero as possible

16“K” LINE REPORT 2017

Suppressgreenhouse gas
emissions

October 2016
Received “A Rank” for the Second
Time on CDP* Climate Change
Questionnaire
We were awarded with the highest
rating for the survey made of morethan 5,500 listed companies acrossthe world for climate change, andwere also selected as a superior company for our supply chain program in
February 2017.
*CDP
An NPO headquartered in London that conducts
surveys regarding countermeasures against climatechange to companies every year as a representative body of more than 800 institutional investors.
The organization also disclosed its results.

2

Prevent marine
pollution and protect
the ecosystem

2019(interim milestone)

February 2017
Obtained Certification of SBT(Science Based Targets)
Companies’ CO2 reduction target set
consistent with the “2°C goal” for the“Paris Agreement” is called SBT. Eachof 265 companies across the world declared to set an SBT and 44 companies
including our company (6 companies
in Japan) were certified for theirachievement. (As of May 2017)

Continue avoiding
serious marine accidents
and be the industry’s leader
in protection of
the ecosystem

Replacingmajority of energy currently
consumed withnew energy sources

Reducing
CO2 emissions
by half

Zero emissions

Setting a new CO2 emission
reduction target of 25 % for2030 against 2011 level

2

WAY T O D R I V E G R E E N

Completion of Environmentally-friendly Flagship and
Two Other Major Achievements
Environmentally-friendly Flagship was delivered!

Reducing CO2
emissions by
10% from 2011 level[accomplished in 2015]

Upon the development of the construction plan series for car carriers, a movement
to construct a single environmentally-friendly flagship for the new era was formedinternally, in addition to responding to the demand for large ships and ships for awide variety of cargo. We were able to obtain agreement for the idea of creating theequipment in which Japanese technologies would be fully utilized from many persons and entities such as shipyards and manufacturers of ship equipment, which
had led to the launching of a construction plan for a ship loaded with the latest environment machinery. The person in charge had manually drawn a picture (shownon the left) while we were having a discussion, saying, “how about something likethis?”, and that became the starting point for constructing the ship.

Japanese SOx Scrubber*1 System for Ships Acquired First
Certification from Panama

After steady work and repeated adjustments made by manufacturers of ship equipment, shipyards and ship management companies, an SOx scrubber of Japanesequality was installed into a ship without confusion. After that, the SOx emission control effect was approved as conforming to international standards
following detailed data collection and application work based on demonstrated operation, and the scrubber obtained approval for the shipnationality of Republic of Panama in 2017 for the first time as a scrubber manufactured in Japan.

Ship of the Year*2 Awarded in 2016

The DRIVE GREEN HIGHWAY was awarded
with Ship of the Year 2016 due to its environmental performance for reducing the amount of
CO2 emissions by 25% due to solar power generation panels and exhaust gas heat recovery system,
etc., and for reducing NOx emissions, which
are also a cause for acid rain as with SOx,by 80% due to having installed
exhaust gas re-circulation devices,in addition to the SOx scrubber.

At the award ceremony*1 SOx scrubber
Equipment which ensures dust removal and desulfurization by blowing sea water or clear water
onto the emission gas from vessels’ engines*2 Ship of the YearAn award provided by the Japan Society of Naval Architects and Ocean Engineers to marine structures or ships completed in Japan within the same year which utilizes superior technologies and has
superior artistic quality and societal appeal from among those applying to receive the award. The
Ship of the Year is determined by first a preliminary examination done by professional engineers,
and then an official examination which includes representatives of the press. The award has been
provided every year since 1990, and this year is its 27th anniversary.

“K” LINE REPORT 201717

“K” LINE Group Value Creation

Financial and ESG Highlights
Kawasaki Kisen Kaisha, Ltd. and consolidated subsidiaries
Years ended March 31“K” LINE Vision
2008+

The Evolution of Medium-Term
Management Plans

Operatingresults(for the year)

Financial
position(at year-end)

Sustained Growth andEstablishing a Stable
Profitability Structure

Operating revenues
Operating income
Ordinary income*3
Profit attributable to owners of the parent
Total assets
Net assets
Equity capital*4
Interest-bearing liabilities
Capital expenditures
Depreciation and amortization
Cash flows from operating activities
Cash flows from investing activities
Free cash flows
Cash flows from financing activities

Profit attributable to owners of the parent (¥ or US$)Net assets (¥ or US$)Cash dividends applicable to the year (¥ or US$)Dividend payout ratio (%)
Return on equity (ROE)*5(%)
Management Return on assets (ROA)*6(%)
index
Debt equity ratio (DER)*7(Times)
Equity ratio (%)
Average during Exchange rate (¥ / US$)the period
Fuel oil price (US$ / ton)
Per share
data

Consolidated
Vessels in operation*8
business data
Consolidated employees
Unconsolidated employees
Land
Human
Sea
resource
Women (%)
data
Persons with disabilities (%)
Industrial accidents

Land
Sea

Directors
Outside Directors
Management
Audit & Supervisory Board Members
Outside Audit & Supervisory Board Members
Fuel oil (thousands of tons)
Environmental CO2 emissions (thousands of tons)
data*9, 10
SOx emissions (thousands of tons)
NOx emissions (thousands of tons)*9“K” LINE Vision 100“KV” 2010

FY2007

FY2008FY2009FY2010¥1,331,048
129,649
125,868
83,012
968,630
376,277355,763329,716
161,333
36,362
141,238(145,541)(4,303)(7,460)¥1,244,317
71,60460,011
32,421
971,603356,153334,773439,622
168,446
39,427
77,614(148,304)(70,690)
99,844¥838,033(52,075)(66,272)(68,721)
1,043,885
331,865
308,122
516,001
181,489
45,281(23,941)(63,737)(87,678)
109,411¥985,085
58,61047,35030,603
1,032,505
314,986
291,669
483,363
148,993
44,722
84,902(54,117)30,785(24,797)131.36558.46
26.00
19.8
23.7
13.5
0.93
36.7
115
407

50.89
525.43
13.50
26.5
9.4
6.2
1.31
34.5
101
504

(106.24)
403.53——(21.4)
(6.6)
1.67
29.5
93
407

40.08
381.87
9.50
23.7
10.2
4.6
1.66
28.2
86
489

499

504

499

522

7,615
600
432
168
19.5
2.56
1
0
12
0
4
2
4,550
14,150
255
405

7,706
602
417
185
18.6
2.05
0
2
12
0
4
2
4,392
13,677
240
410

7,740
623
433
190
18.5
2.12
0
1
15
2
5
3
3,563
11,096
197
303

7,895
623
437
186
18.9
1.60
0
0
14
2
5
3
3,802
11,838208
308

Notes: *1. Rounded to millions of yen*2. The U.S. dollar amounts are converted from the yen amounts at ¥112.19 = US$1, the exchange rate prevailing on March 31, 2017.
*3. Ordinary income consists of operating income and non-operating income / expenses.
*4. Equity capital: Net assets – (Non-controlling interests + Stock acquisition rights )*5. Return on equity: Profit attributable to owners of the parent / Equity capital*6. Return on assets: Ordinary income / Total assets

18“K” LINE REPORT 2017

“K” LINE Vision 100 “Synergy for All and Sustainable Growth”
New
Challenges
FY2011

Value for our
Next Century

Bridge to the Future

FY2012FY2013

FY2014FY2015

Value for our Next Century–Action for Future–

FY2016FY2016(Millions of yen)*1(Thousands of U.S. dollars)*2¥972,311(40,563)(48,956)(41,351)
1,066,649
259,935
242,573592,523
239,197
50,044(2,909)(83,233)(86,142)
86,307¥1,134,772
14,88728,58910,6691,180,434
361,975
340,571
629,864
134,555
59,66859,756(27,212)32,54426,364¥1,224,126
28,85432,455
16,642
1,254,742
410,690
388,837
643,795
93,37852,24488,228(5,113)
83,115(26,634)¥1,352,421
47,98848,981
26,8181,223,328
467,440
441,532
536,847
89,50253,527
101,826(11,177)
90,648(119,254)¥1,243,932
9,428
3,339
(51,499)
1,115,224
379,914355,376
525,152
116,593
48,30339,636(29,569)
10,066(14,836)¥1,030,191(46,037)(52,389)(139,479)
1,045,210
245,482
219,485
550,51268,04847,421(43,919)(24,882)(68,801)
26,436(54.14)317.59——(15.5)
(4.7)
2.44
22.7
79
672

12.07
363.18
2.50
20.7
3.7
2.5
1.85
28.9
82
671

17.75
414.66
4.50
25.4
4.6
2.7
1.66
31.0
100
626

28.60
471.10
8.50
29.7
6.5
4.0
1.22
36.1
109
541

(54.95)379.185.00—(12.9)
0.3
1.48
31.9
121
295

(148.82)234.19——(48.5)
(4.8)
2.51
21.0
109
265

559

566

583

584

575

560

7,703
664
486
178
22.9
1.60
0
0
13
2
5
3
3,949
12,298
214
323

7,667
659
481
178
22.8
1.90
0
1
13
2
5
3
3,966
12,352
209
319

7,703
652
478
174
24.4
1.93
0
3
13
2
4
3
3,651
11,377
190
292

7,834
676
504
172
25.4
1.87
0
1
10
2
4
3
3,646
11,360
182
283

8,097
716
541
175
26.3
1.94
0
0
9
2
4
3
3,942
12,300
190
290

8,018
735
552
183
24.9
2.29
1
1
9
3
4
2
3,872
12,079183274$9,182,556(410,349)(466,967)(1,243,239)
9,316,427
2,188,091
1,956,369
4,906,961
606,542422,685(391,470)(221,784)(613,254)
235,636(U.S. dollars)(1.33)
2.09——*7. Debt equity ratio: Interest-bearing liabilities / Equity capital*8. Includes project-use vessels owned by special purpose companies (SPCs)*9. For Kawasaki Kisen Kaisha, Ltd.
*10.	Total amounts calculated based on fuels supplied to vessels (the number of the vessels do not agree with that of vessels in
operation), for which “K” LINE arranged refueling. From 2008 onwards, the figures are calculated on a calendar year basis.

“K” LINE REPORT 201719

“K” LINE Group Value Creation

Financial and ESG Highlights
Kawasaki Kisen Kaisha, Ltd. and consolidated subsidiaries
Years ended March 31

Operating Revenues, Ordinary Income(Billions of yen)

1,500(Billions of yen)

1,331.0
1,244.3
125.9

985.1

838.0

1,000

60.0

500

972.3

1,134.8

1,224.1

-500

0
-50

(52.4)-100‘09

Operating revenues (left scale)

100

3.3

(49.0)(66.3)‘08

1,030.2

50

32.5

28.6

0

‘07

150

1,243.9

49.0

47.4

-1,0001,352.4

‘10

‘11

‘12

‘13

‘14

‘15

‘16

(FY)

Ordinary income (right scale)

Amid a slowdown in worldwide trade, the Group’s business performance is impacted significantly by economic trends, commodity markets,
vessel supply-demand balance and other factors. In FY2016, freight rate market fell to a historically-low level, causing operating revenues tofall 17.2% year-on-year and a substantial ordinary loss.

Profit Attributable to Owners of the Parent, Return on Equity (ROE)

Profit Attributable to Owners of the Parent per Share

(Billions of yen)

(%)

(Yen)

15

30

0

0

-15

-30

-30

-60

-45

-90

-60

-120

-75

-150

30

10.7

16.6

3.7

4.6

0

26.8
6.5
(12.9)-30-60(51.5)-90(48.5)-120-150(139.5)
‘12

‘13

‘14

Profit attributable to owners of the parent (left scale)

‘15

‘16

17.75

12.07

28.60

(54.95)(148.82)
‘12

(FY)

‘13

‘14

‘15

‘16

(FY)

Return on equity (ROE) (right scale)

The Group has made efforts to enhance fleet utilization and otherwise improve earnings, while reducing operating costs. Due to severs businesscircumstances, however, in FY2016, the Group recorded provision of allowance for loss related to business restructuring and loss on
impairment of fixed assets, in addition to the ordinary loss. As a result, loss attributable to owners of the parent worsened by ¥88 billion fromthe previous year and loss attributable to owners of the parent per share worsened by ¥93.87 as well.

Cash Dividends per Share, Dividend Payout Ratio

Cash Flows

(Yen)

(%)

10

50

8.50
8

40

29.7

6
4

20.7
2.50

30

5.00

25.4

20

4.50

10

2
0

0.00
‘12

‘13

Cash dividends per share (left scale)

‘14

‘15

‘16

0
(FY)

Dividend payout ratio (right scale)(Billions of yen)

120
100
80
60
40
20
0
-20
-40
-60
-80
-100

101.8

88.2

90.6
83.1

59.8

39.6
32.5

10.1 (43.9)(5.1)(27.2)(11.2)(29.6)(24.9)(68.8)‘12‘13

Cash flows from operating activities

‘14

‘15

‘16

(FY)

Cash flows from investing activities

Free cash flows

In FY2016, we posted a loss attributable to owners of the parent. In
light of the urgent need to improve our financial condition, it is highly
regrettable that no dividend payment had to be decided for the year.

20“K” LINE REPORT 2017

In FY2016, due to the loss before income taxes, early termination
payments for chartered vessels and so on, free cash flows were
negative ¥68.8 billion.

Equity Capital, Equity Ratio

Interest-bearing Liabilities, Debt Equity Ratio (DER)(Billions of yen)

(%)

500

50

441.5
388.8

400
300

40

36.1 355.4
31.9

340.6
31.0

28.9

100

Equity capital (left scale)

‘14

‘15

629.9

643.8

600

536.8

20
10

‘13

4

400

21.0

‘12

(Times)

800

2.51

‘16

(FY)

1.22

1.48

200

0

0

Equity ratio (right scale)

2

1.66

1.85

3

550.5

525.2

30

219.5

200

0

(Billions of yen)

1

‘12

‘13

‘14

Interest-bearing liabilities (left scale)

‘15

‘16

0
(FY)

Debt equity ratio (DER) (right scale)

In FY2016, due to a decrease in retained earnings arising from theloss attributable to owners of the parent, equity capital decreased by¥135.9 billion year-on-year, and the equity ratio fell 10.9%.

In FY2016, due to an increase in long-term loans, interest-bearing liabilities also increased by ¥25.4 billion year-on-year, while equity capitalfell significantly and the debt-to-equity ratio climbed by 1.03 points.

Number of Vessels in Operation (consolidated)

Volume of CO2 Emissions (unconsolidated)(Vessels)

566

600

583

584

575

per freight ton-mile* on an annual basis(CO2 emissions (in grams) / ton of cargo transported one nautical mile)

560

15

500

12

400

11.98

11.55

11.43

10.96

10.76

‘12

‘13

‘14

‘15

‘16

9

300
6

200

3

100

0

0

‘12

‘13

‘14

‘15

‘16

(FY)

(CY)

* Index for transporting one ton of cargo over one nautical mile (1,852 meters)

In both FY2015 and FY2016 we disposed of uneconomic vessels
in our core fleet to improve earnings under depressed market
circumstances.
>See P.13 for number of key fleet vessels.

In line with customer needs, we are actively and continuously
introducing high-quality vessels while enhancing fleet operational
efficiency. Thanks to our constant efforts on land and sea, we
achieved a year-on-year reduction in CO2 emissions.

Number of Employees (consolidated)

Percentage of Women (unconsolidated)(People)(%)

10,000

30

8,000

7,667

7,703

7,834

8,097

8,018
24.4

25
6,000

25.4

26.3

24.9

22.8

4,000

20

2,000
0

0
‘12

‘13

‘14

‘15

‘16

(FY)

In order to continuously provide high-quality logistics services tocustomers, the Group is working to secure and train talented
people who will be the driving force for such efforts.

‘12

‘13

‘14

‘15

‘16

(FY)

In addition to establishing our “Action Plan for Promoting the Advancement of Women” and preparing various frameworks, ”K” LINE has
set a target of increasing the number of female managers and leaders
by 20% by the end of FY2018 compared with the FY2015 level.

“K” LINE REPORT 201721

Value Creation Initiatives

At a Glance

Segment

Containership
Business

Business

Containership
Business
To pages 24-25

Port BusinessTo pages 24-25“K” LINE Group Operating Revenues by Segment (FY2016)
Offshore Energy E&P Supportand Heavy Lifter

Other

Logistics
Business

3.4%

1.9%

Containership

To pages 34-35

50.4%
Consolidated
Operating Revenues
Bulk Shipping

44.3%

Bulk Shipping
Business

1,030.2 billion¥

Dry Bulk
Business
To pages 26-27

Car Carrier
Business
To pages 28-29

LNG Carrier
Business andTanker Business“K” LINE Group Vessels in Operation (as of March 31, 2017)
Heavy Lifter Vessels

Short Sea and Coastal Vessels, etc.

15

To pages 30-31

49

Offshore Energy E&P
Support Vessels

Containerships

Short Sea andCoastal Business

67

8
LNG Carriers
and Tankers

64

To page 33

560 vessels

Car Carriers

97

Dry Bulk Carriers

260

Offshore
Energy E&P
Support andHeavy Lifter
Business

Offshore Energy
E&P Support
Business
To page 32
Bjarne P. Hovland

Heavy Lifter
Business

Other

22

“K” LINE REPORT 2017

Outline
We operate a global service network centered on East-West trunk
routes linking Asia / North America, Asia / Europe and Europe / North
America through an alliance with prominent shipping companies in
Asia and Europe. Our network extends to North-South routes linking
Asia / South America and Asia / Middle East-Africa as well as intraAsia routes. We transport a broad spectrum of cargo – electronicequipment, electrical products, furniture and daily commodities suchas clothing items, as well as frozen and chilled cargo including meatand other foods – by container.

Containership Business
Operating Revenues (unit: Billions of yen)

Ordinary Income (unit: Billions of yen)

800

50
677.4

600

40

614.9

582.4
552.8

519.0

30
20.6

20

“K” LINE operates its group’s container terminals at four ports inJapan (Tokyo, Yokohama, Osaka and Kobe) and three ports overseas(Long Beach, Tacoma and Antwerp).

400
10

6.6

0

200

(0.1)

-10

By combining the expertise and service networks of the entire “K”
LINE Group, we provide comprehensive logistics services that areclosely connected to local areas to meet customer needs, with services not only for ocean cargo freight, but also air and ocean freight
forwarding, land transportation, warehousing and buyer’s consolidation businesses.

We transport a large volume of dry bulk cargos such as iron ore,coking, coal, woodchips, grains and thermal coal for power plants.
In addition to cargo bound for Japan, we are actively expanding ourbusiness bound for China, India and other developing economies, andengage in trilateral transport in the Atlantic region.

Since 1970, when “K” LINE deployed Japan’s first PCC (pure carcarrier), we have been recognized as a pioneer in safe and prompttransportation of passenger cars, trucks and other vehicles. We are
actively upgrading the fleet and working to improve transportation
quality and reinforce RORO cargo transport.

0(10.0)(31.5)

-40

‘12

‘13

‘14

‘15

‘16 (FY)

‘12

‘13

‘14

‘15

‘16 (FY)

Bulk Shipping Business
Operating Revenues (unit: Billions of yen)

Ordinary Income (unit: Billions of yen)

800

50

600

572.7

600.7

41.3

40
567.6

502.6

30
456.5

36.5
24.7

24.1

20

400
10

We provide global transport service not only for industrial energy
resources such as LNG (liquefied natural gas), LPG (liquefied petroleum gas), crude oil and oil products but also for city gas, gasoline andother energy resources used directly by consumers.

0

200

-10
0

-40

‘12
Kawasaki Kinkai Kisen Kaisha, Ltd. provides domestic coastal freighttransportation and ferry services. It operates passenger and truck ferries, express RORO cargo ships, dedicated carriers for limestone usedin steel and cement production, dedicated thermal coal carriers forelectric power production and general cargo carriers. It also operates
general cargo vessels and bulk carriers for cargo to and from destinations in Asia, and it has entered the offshore support vessel business.

K Line Offshore AS, located in Norway, provides offshore support vessel services with seven state-of-the-art vessels consisting of two large
Anchor Handling Tug Supply (AHTS) vessels and five Platform Supply
Vessels (PSV). In addition, “K” LINE participates in an ownership consortium of a drillship which is engaged in oilfield drilling operations underlong-term charter to semi-public Brazilian energy company Petrobras.

(9.5)

‘13

‘14

‘15

‘16 (FY)

‘12

‘13

‘14

‘15

‘16 (FY)

Offshore Energy E&P Support and Heavy Lifter Business
Operating Revenues (unit: Billions of yen)

Ordinary Income (unit: Billions of yen)

800

50
40

600

30
20

In this business, we deploy advanced engineering technologies toprovide transportation services to energy and infrastructure-related
projects.

400
10
0

200

(2.4)
-10

The “K” LINE Group also operates businesses engaging inship management services, travel agency services and realestate rental and administration services.

0(4.5) (5.7) (6.6) (5.1)

35.7 32.8 35.3 24.7 19.4
-40

‘12

‘13

‘14

‘15

‘16 (FY)

‘12

‘13

‘14

‘15

‘16 (FY)“K” LINE REPORT 201723

Value Creation Initiatives

Business Review and Outlook

Containership
Business
Port Business

Executive Officer

Takafumi Kido
In charge of Containerships
Business, Port Business

Placing Top Priority on Securing Earnings,
We Emphasize Profitability across
All Trade Lanes.
Basic Strategies•	Improve profitability and business stability via “THE
Alliance”•	Manage business with emphasis on profitability rather
than handing cargo volume• Provide services that match customer demands•	Thoroughly prepare for business integration of thecontainership business by three Japanese companies commencing from April 2018

Strengths• Stable east-west trunk routes services•	North American-services through our own terminals
and established inland rail network• Intra-Asia service network that also covers Japan•	Our own agency network with close customer ties
in various countries•	Cost-competitiveness, with14,000-TEU energy-efficient
vessels

Overview of Fiscal 2016
In the year under review, the Containership Business benefited from favorable east-west trade environment fromthe third quarter. The cargo volume on North Americanroutes increased approximately 11% year-on-year, andon European routes rose approximately 2%. Moreover,the cargo volume on North-South routes climbed around
7%, while on Asian routes, where we implemented
reforms of services to emphasize profitability, cargovolume remained mostly unchanged from the previous
year. As a result, total cargo volume increased around
6% year-on-year, and the market average-loaded factor for the Asia-North America and Asia-Europe routes
recovered to more than 90% in fiscal 2016.
Although freight rate conditions turned upward in thelatter part of the year due to solid cargo movements,
we were unable to fill the supply-demand gap causedby the series of ultra-large vessel deliveries, and alliance
re-grouping encouraged nervousness in a market which
negatively affected rate increase efforts. Accordingly,
overall rates declined significantly from the beginning of
the period. This led to a year-on-year decline in operating
revenues and increased operating losses in this segment.

Major Alliance Operating Capacity Share (as of May 2017)

Others 1%

Others 6%

THE Alliance
29%

North
Americanroutes

2M+HMM23%

THE Alliance
21%

OCEAN
ALLIANCE
42%

2M+HMM
37％
Europeanroutes
OCEAN
ALLIANCE
41%

THE Alliance: “K” LINE, NYK LINE, Mitsui O.S.K. Lines, Hapag-Lloyd (UASC), Yang Ming
OCEAN ALLIANCE: CMA-CGM, COSCO Shg, Evergreen

24“K” LINE REPORT 2017

2M: Maersk, MSC

Source: Alphaliner (May 2017)

Containership

Fiscal 2017 Policies
With the U.S. economy benefiting from healthy individual
consumption, we expect the long-term market to improve
thanks to demand growth mainly on east-west trade, as
well as a bottoming out of freight rates. Due to the highvolume of new building vessels deliveries, however, thesituation is not conducive to major improvements in supply and demand, so recovery in freight rates will be relatively modest.
Fiscal 2017 is our final year in the containership business under “K” LINE’s own management. During theyear, we will deploy our five state-of-the-art 14,000TEU energy-efficient vessels to enhance competitiveness, while emphasizing profitability of cargo portfolio.
We will also launch new services under “THE Alliance,”
to which we belong, with the aims of enhancing business stability and profitability. In addition, we will work
hard to achieve a return to profitability, our most important mission, by flexibly reducing voyages according toseasonal factors, streamlining services, and reducing
costs. In the meantime, the three major Japanese carriers, including “K” LINE, will integrate their containership businesses starting operation in April 2018.

“K” LINE Ships in Operation (unit: number of vessels)
5,475
13

14
4,982

25

24

4,790 20

16

18

“K” LINE, has formed a new alliance with Mitsui O.S.K.
Lines, Nippon Yusen Kaisha, Hapag-Lloyd (Germany),
and Yang Ming Marine Transport (Taiwan), called “THE
Alliance,” which commenced joint operational services in
April 2017 on Asia / Northern Europe-Mediterranean routes,
Asia / North America West Coast-East Coast routes, Atlantic
Ocean routes, and Asia / Middle East routes.
Together, we as “THE Alliance” operate a fleet of 240
vessels under the “best ship” concept, which means optimally deploying ships provided by each company in thealliance by meeting the demand of each service routing. In
addition, we have established a broad network with morethan 75 ports of direct calling and 31 service loops in total,delivering highly frequent and competitive services.

Change in Freight Index for Cargo Originating in China (January 1998=1,000)
Source: Shanghai Shipping Exchange

2,000

18
8,000 TEU type or more

13

13

19

20

15

14

28

15

Competitive Services Achieved through“THE Alliance”

2,500

5,500 TEU type4,200 TEU type

3

3

3

3

2

‘12

‘13

‘14

‘15

‘16 (FY)

1,500
1,000

1,700 TEU type1,200 TEU or under

16

Initiatives of Medium-term Management Plan

67

13

18 4,811 18

5,579

In the port business, where we aim to operate
high-standard, high-quality terminals, we will continue toupgrade our cargo handling equipment and improve facilities so that we can accommodate larger container ships.

Average TEUs per
vessel

500
0
‘07

‘08

‘09

‘10

‘11

‘12

‘13

China>The Mediterranean
China>Northern Europe
China>North America West Coast

‘14

‘15

‘16

‘17 (CY)

China>North America East Coast“K” LINE REPORT 201725

Value Creation Initiatives

Business Review and Outlook

Dry Bulk Business

Managing Executive Officer

Atsuo Asano
In charge of Coal and
Iron Ore Carrier Business,
Drybulk Planning

Ore Carrier

We Further Enhance Transportation Quality,with Respect to Both Hardware and SoftwareServices, and Deploy Our Strengths to Expand
Medium- and Long-term Contracts andStabilize Earnings.
Basic Strategies•	Enhance medium- and long-term transportation contracts
centered on iron ore, thermal coal, woodchips and pulp
•	Reduce fixed-cost-based surplus fleet, especially small
and medium-sized vessels•	Address need to reduce environmental impacts

Strengths•	Long-standing relationships of trust with leading domestic and overseas customers•	Medium- and long-term contracts conducive to stableearnings•	High-quality transportation services and vessel
management•	Transportation know-how accumulated over many years•	Medium- and long-term charter partners (ship owners)

Top-five Carriers Ranked by Owned Tonnage of Dry Bulkers(as of June 2017)

Overview of Fiscal 2016
During the year, market conditions for all dry bulk carriers emerged from a historical downturn to enter a periodof moderate recovery. We attribute this to several factors, including expanding infrastructural investment in
China, increasing imports of high-quality iron ore and coalfrom overseas against the background of environmental problems, and the progress in scrapping of vessels at
the beginning of the year. We therefore believe that the
supply-demand gap began improving around one year earlier than expected. Although dry bulk market conditions
have been recovering since September 2016, especiallyfor capesize bulkers, the latter half of the year saw a slowdown in scrapping of vessels due to improving market
conditions, leading to a continuation of heavy upside pricemovements.
Under these circumstances, we disposed of uneconomic vessels, reduced operating costs, and sought toenhance ship allocation efficiency. However, depressedmarket conditions from the beginning of the period led toa year-on-year decline in operating revenues and increased
operating losses in this segment.

“K” LINE Ships in Operation (unit: number of vessels)(1,000 DWT)

260

40,00099

30,00099
30

20,00026

14,748

42

56

99

27
55

10,000

0

en
iks
dr
Fre oup

.

.K
.S

E

N
LI

“K” LINE REPORT 2017

Gr

”

E

LIN

26

O
ui
its
M nes
Li

“K

K

NY

O
SC
CO
ina ing
Ch hipp
S
Source: Clarkson

93
29
56

50

50

44

51

22
13

26
10

26
10

‘12

‘13

‘14

95

30

Capesize
Over-Panamax

56

Panamax
Handymax

49

Small Handy

29
9

19
11

Chips and Pulp

‘15

‘16 (FY)

Managing Executive Officer

Kazuhiko Harigai
In charge of Bulk Carrier
Business, Thermal Coal,
Woodchip and Pulp
Carrier BusinessCoal Carrier (Corona Series)

Fiscal 2017 Policies
We expect China to continue enhancing the quality of its
iron ore and coal, resulting in steady dry bulk movements.
Although we expect scrapping of vessels to slow down
due to market recovery, we predict that the previous orderbacklog will firm up, having passed its peak.
Under these circumstances, the Coal & Iron Ore CarrierGroup will work to differentiate itself by providing high-qualitytransportation services amid tightening environmental regulations to further improve operational safety. We will also strive
to maintain and expand medium and long-term cargo transport agreements, with the aim of enhancing earnings stability.
The Bulk Carrier Group will continue working to reduce
market exposure of its small and medium-sized vessels(including Panamax, Handymax, and Small Handy), while
stepping up transportation requiring advanced transportation know-how such as Steel Products.
The Thermal Coal, Woodchip and Pulp Group will focus
on expanding medium and long-term contracts with domestic power companies. To this end, we will reinforce ourfleet of competitive vessels, including the “Corona series”
built especially for domestic coal-fired power plants. As forwoodchips and pulp, practically all of our dealings are withdomestic customers with whom we have exclusive longterm contracts that are not easily affected by market conditions. Here, we will work to maintain a stable earnings
foundation by replacing existing vessels.

Initiatives of Medium-term Management Plan
Strengthen Fleet of Wide-beam, Shallow-draft“Corona Series” of Dedicated Coal Carriers for
Domestic Power Companies
In May 2016, CORONA VICTORY, an 88,000-ton coalcarrier, was delivered to our fleet. Our “Corona series”
of dedicated coal carriers have wide beams and shallow drafts, making them optimal for Japanese coal-fired
power plants where many draft-related restrictions apply.
They also conform to Common Structural Rules (CSR) andnew environmental regulations, and feature improved fuelefficiency thanks to adoption of modified hulls, low-friction paint, and electronically controlled main engines.
With adding CORONA VICTORY, we now have a fleetof 23 dedicated coal carriers in fiscal 2017. Because we
specialize in serving domestic customers who anticipate
stable demand growth in the future, we plan to expand
the fleet to 31 vessels by around 2020.

“K” LINE Cargo Tonnage Carried by Dry Bulk Carriers (in million tons)

Baltic Dry Index

180

2,500
157

150

131

139

153

143

2,000

120
1,500
90
1,000
60
500

30
0

0

‘12

‘13

‘14

‘15

‘16 (FY)

‘12

‘13

‘14

‘15

‘16

‘17 (CY)

Freight rate index for ocean-going bulk carriers, as calculated by the Baltic
Exchange in London. (January 1985 =1,000)“K” LINE REPORT 201727

Value Creation Initiatives

Business Review and Outlook

Car Carrier Business

Managing Executive Officer

Kenji Sakamoto
In charge of Car Carrier
Business

Car carriers

We Aim to Be a “STRATEGIC LOGISTICSPARTNER” to Meet Diversifying Customer
Needs.
Basic Strategies• Sequentially roll out large next-generation vessels
with cost-competitiveness• Increase capacity for high and heavy cargoes, suchas construction machinery, agricultural machines,
and railway cars
• Increase efficiency of fleet operation to improve
profitability• Reorganize and expand service network (route optimization) to capture new transportation demand• Strengthen inland logistics business in complete
built-up cars to meet customer needs

Strengths•	Fleet portfolio that can handle various types of cargo•	Extensive network coverage linking the Pacific andAtlantic regions•	
Top world-level transportation quality with “zerodamage” mission

Top-five Shipping Companies by Number of Operating Car Carriers(as of March 2017)

Overview of Fiscal 2016
The total volume of complete built-up cars exported fromJapan rose by approximately 2%, from 4,280,000 units inthe previous fiscal year to 4,350,000 units, as the trend of
gradual decline came to a halt because the yen remained
weak. Although cargo movements in the Atlantic region
and to Europe and North America remained firm, cargo
movements from Asia to the Middle East, Latin America,
Africa, and other resource-rich regions declined amid falling resource / commodity prices. Cargo movements from
Europe and North America to Asia were also weakened
by economic slowdown in China, and cargo movements
within the European region also declined amid economic
stagnation in Russia.
Under these business conditions, the total volume
of complete built-up cars shipped by “K” LINE groupdecreased about 1%, from 3,150,000 units in the previous
fiscal year to 3,110,000 units. During the year, we continued striving to improve the efficiency of fleet allocationand operation, while scrapping older vessels and otherwise adjusting capacity. Nevertheless, operating incomein the car carrier business declined from the previous year.

“K” LINE Ships in Operation (unit: number of vessels)(Vessels)

150
7
120

93
90

35

60

18

41

46

17

15

46

97
10

43

7,000 units
6,000 units
5,000 units

14

14

15

0

6
6
10

6
6
10

8
6
9

6
6
8

9
5
7
9

‘12

‘13

‘14

‘15

‘16 (FY)

i
ald

im

E

IN

E

SA

LIN

”L

K

LA

W

“K

Gr

18

NY

18

ui s
its ineM K. L
S.
O.

20

W

30

Source: Own-editing based on Hesnes “The Car Carrier Market 2016”

28“K” LINE REPORT 2017

4,000 units
3,000 units
2,000 units
Less than 2,000 units

Fiscal 2017 Policies

Initiatives of Medium-term Management Plan

In fiscal 2017, we expect to carry a total volume of
3,530,000 complete built-up cars, increased by 400,000
year-on-year thanks mainly to shipments within Europe.
While cargo movements from Far East Asia to Europe andNorth America remain firm, we foresee that the recovery incargo movements to the Middle East, Latin America, Africa,and other resource-rich regions will be limited in fiscal 2017.
While we see some concerns about protectionist policies,
however, sales in North America and major European countries are solid, and production in Mexico is expanding and cargo
movements in the Atlantic region are expected to remain firm.
Since we are flexibly adjusting our fleet capacity according tomarket conditions, there is no supply-demand gap.
Regarding export of complete built-up cars from Japan,
the trend is shifting to “mass production in the right place,”
whereby strategic vehicle types are produced in specificregions and distributed overseas. In this environment, we will
respond flexibly to changing market conditions, including the
pursuit of efficient fleet allocation with a view to route reorganization. Between now and the end of fiscal 2018, we arescheduled to complete construction of five car carriers, eachwith a 7,500-vehicle capacity. We will also enhance our cargotransportation capacity and diversity to include construction
machinery and railway cars, in addition to passenger cars.

Strengthen and Expand Complete Built-up
Car Logistics Business

Completed Built-up Cars Transported by “K” LINE Car CarriersWorldwide Movements of Completed Built-up Cars

4

20

(million units)

3.3

3.3

3.2

3.2

Increasing sales of automobiles in emerging economies, especially in Asia, is leading to growth in demand
for services peripheral to inland distribution of complete
built-up cars. Seeking to strengthen and expand our complete built-up car logistics business, we established an
automobile logistics business development team in July
2015. Since then, we have developed land transportation businesses in Indonesia, Thailand, Singapore, India,
Australia, Brazil, and elsewhere, while broadening our terminal and pre-delivery inspection (PDI) services, which
cover pre-delivery inspection, maintenance, and parts
replacement.
In October 2016, we launched a complete built-up carcomprehensive logistics services in Vietnam. Since starting out with customs clearance, vehicle authentication
registration, and storage services, we have expanded
our offerings to include installation of parts, painting, carwashing, and other PDI services, as well as delivery to
dealers. Going forward, we will continue addressing theneeds of automakers while steadily reinforcing our service
network in collaboration with local partners.

(million units)

3.1

15.4

3

15

2

10

1

5

0

16.1

16.3

16.1

‘13

‘14

‘15

17.0

0

‘12

‘13

‘14

‘15

‘16 (FY)‘12‘16 (CY)(Note) Excluding European short sea.
Source: “K” LINE estimate based on multiple source“K” LINE REPORT 201729

Value Creation Initiatives

Business Review and Outlook

LNG Carrier
Business andTanker Business

Managing Executive Officer

Akira Misaki
In charge of Energy
Transportation Business

LNG Carriers

Overview of Fiscal 2016

We Expand Our Fleet and Engage inthe Energy Value Chain Business in
Anticipation of Medium- and Long-term
Growth in Demand.
Basic Strategies•	Expand medium- and long-term contracts in the oiland LPG tanker business by replacing existing vessels and obtaining new business•	
Expand fleet which brings stable earnings to“K” LINE for medium- and long-term, responding
to LNG development projects, and address diversified customer needs, including medium- and shorter-term contracts•	Engage in the energy value chain business, which
will create LNG / LPG demand•	Downsize businesses exposed to market volatility

Oil Tanker Services All 22 vessels in our fleet operated
smoothly. VLCCs (Very Large Crude Carriers) and LPG(Liquefied Petroleum Gas) tankers contributed to the earnings under medium- and long-term charter contracts; however, earnings from Aframax-size tankers (medium-size
crude oil tankers), petroleum product tankers, and chemical tankers fell below our initial forecasts.
LNG Carrier Services At the end of November 2016,
we launched PRACHI, a new ship for India-based Petronet
LNG. For the year, all 42 vessels in our fleet operated
smoothly under medium- and long-term contracts, contributing as a foundation of stable earnings to “K” LINE.
During the year, we appointed staff to Singapore andHouston to further strengthen our customer base andbroaden our business, including in new areas.

Fiscal 2017 Policies

Strengths•	Safe ship operation and high quality of ship management based on solid track record of energy resource
transportation history for more than 80 years•	Stable customer base built on long-term relationshipsof trust with both domestic and overseas customers

Top-five Carriers by Number of Owned LNG Carriers(including co-owned fleet)(as of March 2017)(Vessels)80

Oil Tanker Services We expect steady growth indemand for crude oil and LPG, especially from emerging
economies. However, both VLCC and LPG tanker market
will enter a period of adjustment due to a large number of
new vessel delivery to the market.
“K” LINE Ships in Operation (unit: number of vessels)
2

3

43

43

3

64
3

3

41

42

60

42

43

40

Chemical Tankers
LNG Carriers

20

0

y(
)

da

r)

ta

na
Ca

NE

LI

ka

e
Te

”
“K

Qa

“K” LINE REPORT 2017

t(

E

LIN

30

ila

k
Na

K
NY

s
ui ineits . L
M .S.KO
Researched by “K” LINE

13

11

11

11

10

4
5

4
5

4
6

3
6

3
6

‘12

‘13

‘14

‘15

‘16 (FY)

Oil Tankers
Product Tankers
LPG CarriersOil Tankers

Under these circumstances, we will build up our stableearnings by expanding our fleets of VLCCs and LPG tankers based on medium- and long-term contracts in anticipation of medium- and long-term growth in demand. On
the other hand, we will downsize our fleets of petroleum
product tankers and the like, which are subject to market
exposure. Our plan is to rearrange the content of our portfolio without changing total fleet numbers.
LNG Carrier Services We expect long-term demand for
LNG (Liquefied Natural Gas) to grow as a clean energy
source. However, new LNG development projects arebeing postponed in the wake of falling LNG prices, anda number of LNG carriers ordered speculatively without
reflection of real demand were delivered in the last one or
two years. Accordingly, the market is not expected to start
recovering until 2018.
Under these circumstances, we have seven LNG carriers under construction, representing a major pillar of
stable earnings to “K” LINE, of which four will be completed in fiscal 2017. We will also respond flexibly to thedemand of medium-term charter, which have seven-toten-year horizons, while carefully assessing risks, with aplan to expand our fleet to around 60 vessels over the
medium-term.

Index of VLCC* Freight Rates

Initiatives of Medium-term Management Plan
Start-up “Liquefied Gas New Business Division”
Global demand for energy is expected to grow over the
medium- and long-terms amid economic advancementof emerging economies. In response, in the LNG Carrier
Business and Tanker Business, we will deploy our knowhow, amassed over many years of handling and transporting hazardous cargo – such as crude oil, LPG, and LNG – tobroaden our involvement in both the upstream and downstream business of the energy value chain. At the sametime, we will focus on cultivating new businesses that will
generate medium- and long-term earnings.
In April 2017, we newly set up a liquefied gas (LNG /LPG) new business division. In addition to conventionaltransport business of liquefied gas by large vessels under
medium- and long-term contracts, the division will spearhead efforts to enter new business fields, such as floating storage and regasification units (FSRUs) as offshore
LNG receiving terminals which can cope with needs ofemerging economies that require short lead time until
installment in order to procure LNG as soon as possible
and small-volume liquefied gas transportation and supplyof liquefied gas fuel to help stimulate demand.

Worldwide Demand for Primary Energy(million ton oil equivalent)100(as of January 2017)

20,00080

15,00060
10,000
40
5,000

20

51
601
584
2,379

28
489
453
2,243
1,766

2,185

3,158

3,588

927
1,132
790
4,067

365
893
583

1,245
1,202
865

1,586
1,272
927

4,072

4,033

4,095

4,319

4,922

5,022

3,840
3,135

3,798

4,331

4,785

0

0

‘12

‘13

‘14

‘15

‘16

‘17 (CY)(VLCCs, Arabian Gulf / Japan in Worldscale)
Source: Clarkson*VLCC (Very Large Crude Oil Carrier): 200,000–300,000 DWT tankers‘90
Oil, Biomass, etc.

‘00
Natural gas

‘15
Coal

‘25

‘30

‘35 (Year)

Nuclear power

Hydropower

Other renewable energy

Source: BP Energy Outlook 2035

“K” LINE REPORT 201731

Value Creation Initiatives

Business Review and Outlook

Offshore Energy
E&P Support
Business

Managing Executive Officer

Akira Misaki

In charge of Energy
Transportation Business

Anchor Handling Tug Supply (AHTS) vessels©Harald M. Valderhaug

We Endeavor to Expand Projects that
Generate Stable Long-term Earnings byPartnering with Other Quality Companies.
Basic Strategies• Maintain high utilization rate in Drillship business• Expand stable profits by cultivating new businesses• Stabilize profits of Offshore Support Vessel business

Strengths
Drillship Business• Maintaining World-class high level operation•	
Stable source of revenue generated from fixed
long term contracts
Offshore Support Vessel Business•	High-value-added services provided by high-spec
ships

Overview of Fiscal 2016
Drillship Business We are currently engaged in drilling
operations for ultra-deep water fields 200 kilometers off
the coast of Brazil under a long-term charter contract (upto 20 years / until 2032) with Brazil-based Oil Company
Petrobras. In the year under review, we maintained ahigh utilization rate, which contributed to stable long-term
earnings.
Offshore Support Vessel Business Under operation in
the North Sea, we reported a loss due to oversupply situation in the market and persisting low oil prices.

Fiscal 2017 Policies
Drillship Business We will pursue the achievement of
stable profit by maintaining high utilization rate under longterm charter contracts.
Offshore Support Vessel Business We expect the OSV
demand to gradually recover as oil companies’ cost-cutting efforts accelerate. However, over supply in the market is still persisting and we expect the market to recoverfrom fiscal 2018 afterwards. Under the circumstances,
we will review our asset portfolio and take all options into
consideration to minimize market fluctuation risks andachieve stable profits.

“K” LINE Ships in Operation (unit: number of vessels)

Initiatives of Medium-term Management Plan
8
1

1

5

5

1

5

1

5

Expand Businesses that Generate Stable Profit

1

5

Drillship
Platform supply vessels

32

2

2

2

2

2

‘12

‘13

‘14

‘15

‘16 (FY)“K” LINE REPORT 2017

Anchor handling tug
supply vessels

In line with our effort to cultivate and foster the energy
value chain business, we will work with reliable partners to
expand our activities into the Floating Production Storage
and Off-loading (FPSO) unit and other businesses that will
be expected to generate stable profits for long-term.

Business Review and Outlook

Short Sea andCoastal Business

Managing Executive Officer

Yutaka Nakagawa
In charge of Logistics,
Affiliated Business Promotion

Express RORO Cargo Ship operated by Kawasaki Kinkai Kisen

We Expand Our Coastal and Ferry
Businesses and Upgrade Our Offshore
Support Vessel Business while Working to
Improve the Profitability of the Short Sea
Business.
Basic Strategies• Expand the coastal business• Optimize fleet size in the short sea business• Upgrade the offshore support vessel business

Strengths•	
Swiftly address customer demand related tochanging conditions in short sea and domestic
logistics businesses•	Focus on multifaceted coastal businesses, such as
ferries and cargo ships•	Emphasize offshore support vessel business,
which is expected to evolve•	Promote modal shift to reduce environmental impacts“K” LINE Ships in Operation (unit: number of vessels)

47

32
29

28

27

Overview of Fiscal 2016
In the Short Sea and Coastal Business, the overall transportation volume declined year-on-year. The segment
reported decreases in operating revenues and operating
income due to various factors. These included depressedmarket conditions for short sea ships, cancelled voyages
due to typhoons, and one-time costs incurred in opening
the Shimizu-Oita route.

Fiscal 2017 Policies
In the short sea business, we will carefully monitor thebottoming market as we reinforce our fleet. At the sametime, we will continue proactive sales activities centeredon transportation of palm kernel shells (PKSs) as a fuel forbiomass power generation.
In the coastal business, we look forward to stabletransportation volumes for various dedicated vessels in
the tramper transport services. We also aim to increasetransportation volume of small cargo vessels from theanticipated increase in construction demand related to theTokyo Olympics and other activities. At the same time, wewill focus on cargo collection along new routes of our liner
services with the aim of increasing transportation volume.
Regarding ferry transportation services, we will encourage increased carriage of trucks, passenger cars, and people. We will also deploy the experience and track record of
Offshore Operation Co., Ltd., which became a subsidiary, toexpand and upgrade our offshore support vessel business.

Initiatives of Medium-term Management Plan

24

Reinforce the Passenger Ferry Business
19

17

16

16

18

4

4

4

4

4

‘12

‘13

‘14

‘15

‘16 (FY)

Short Sea Ships
Coastal Ships
FerriesIn April 2018, a new ferry called Silver Tiara will take overthe Hachinohe-Tomakomai route as the successor to Silver
Queen, which started services in 1998. With an interior image
portraying a dazzling jewel-like tiara, the new ship is a notch
above its predecessor. In June 2018, meanwhile, we plan
to open a new ferry route between Miyako and Muroran.

“K” LINE REPORT 201733

Value Creation Initiatives

Business Review and Outlook

Logistics Business

Managing Executive Officer

Yutaka Nakagawa
In charge of Logistics,
Affiliated Business Promotion

K Line Bang Phra Logistics Center and Trucks operated by
Bangkok Marine Enterprises Ltd. (Group company in Thailand)

Overview of Fiscal 2016
We Expand Our Global Network and Stable
Revenue Base with “K” Line Logistics, Ltd.
as the Core.
• Reorganize and strengthen global network•	Expand our local logistics business in Asia, where
growth is expected• Expand and upgrade the forwarding*1 business•	
Expand and upgrade the buyers’ consolidation*2
business

Our international logistics business remained steadyagainst the backdrop of increased demand for air cargotransportation originating in Japan, but overall operating revenues and income declined year-on-year. During
the period, we expanded our warehousing business inThailand and broadened the scope of our services. We
also launched new businesses in Vietnam, namely, cold
storage and completed car logistics services. In addition,
we established a port cargo handling company in India,
Nitto Baxi Private Limited, which has launched cargo handling services for car carriers.

Strengths

Fiscal 2017 Policies

Basic Strategies•	Courteous customer response capability of entireGroup•	Business development know-how in Thailand andelsewhere in Asia
•	
Ability to make proposals based on Groupwide
assets and logistics network*1	Forwarding: Freight transportation business that includes incidental services, such as cargo handling as an intermediary between
shipper and carrier, during the cargo transportation process.
*2	Buyers consolidation : Consolidation-distribution system in which
single buyer uses an agent to collect products from multiple local
manufacturers that are co-mingled into containers for transport
to destination, providing greater shipping efficiency and reduction in cost, lead time inventory and warehouse work.

34“K” LINE REPORT 2017

Demand for domestic logistics services is expected toremain stable at previous-year levels, and our international logistics business will benefit from the full operation of our new warehouse in Thailand. For the logistics
business as a whole, we therefore, anticipate an upward
trend in earnings.
In fiscal 2017, we will work with a sense of speed tostrengthen our forwarding business, while at the sametime expanding our local logistics business in Asia where
growth is expected. In preparation for the integration ofJapan’s three major containership businesses, we willreorganize and strengthen our global network, expand
our business scale, maintain and broaden our network ofbases around the world, and strive to maximize profits.
In addition, we will step up efforts to share knowhow while investing in and supporting priority growthfields in order to functionally connect our various regional
businesses. We will also leverage our high-quality transportation and IT technologies to deliver value-added transportation solutions. For the logistics needs of customers
that cannot be met with existing services, we will harness
our comprehensive Group-wide power to offer one-stop
logistics services.
In the meantime, we will closely monitor the latest
developments and identify potential needs, with a focus

Cold storage warehouse in Vietnam operated by CLK COLD STORAGE COMPANY LIMITED

on tapping demand for buyers’ consolidation services toaddress the trend towards small-lot, multiple-commodity
shipments. We will also target diversification of services
and major business expansion with the aim of becoming astrategic business partner that customers can trust.

Initiatives of Medium-term Management Plan
Actively Advance Our Logistics Business inVietnam
In July 2016, CLK COLD STORAGE COMPANY LIMITED – ajoint venture among our Company, Cool Japan Fund Inc., andJapan Logistics Systems Corp. – completed construction ofa cold storage facility in the suburbs of Ho Chi Minh City,
Vietnam, and started operations. This business draws on
our know-how in the cold storage business, developed in
Bangkok, Thailand since 1989. Our aim is to foster the proliferation of Japanese foods and ingredients in Vietnam,
where demand is expected to continue increasing, by utilizing our marine and air transportation service network.
In October 2016, meanwhile, we launched Vietnam’s firstcompleted car logistics service, in Ho Chi Minh City. Amid
growing demand, we will provide high-value-added services covering imported passenger cars, trucks, construction machinery, and the like.
>	 For details, please refer to“Car Carrier Business” on pages 28-29

Comprehensive Logistics Services with Strong Local Ties

India: Truck transportation service

China
China (Tianjin, Qingdao, Shanghai):
Warehousing business

India

ThailandPhilippines

Finished Vehicles Transport Service
Land Transport (Container Transport Service /Truck Transportation Service)

VietnamWarehousing Business
Cold Storage Business
PDI (Pre Delivery Inspection)

Bangkok: Finished vehicles transport
service, truck transportation service,
warehousing business, cold storage
businessIndonesia

Australia

Vietnam: PDI business, cold
storage business

Australia: Finished vehicles transport service, PDI business“K” LINE REPORT 2017

35

CSR
Foundation of Value Creation– ESG Initiatives –“K” LINE Group’s CSR
The “K” LINE Group recognizes corporate social responsibility (CSR) in the following two large frameworks, namely “Managing the impact of business activities” and “Creating new values” and based onthem, aims to “Build a management structure that emphasizes social responsibility.” Based on theseframeworks, the group contributes to promote a better society by addressing the material issues withhttps://www.kline.co.jp/en/csr/index.html
in these frameworks and implementing measures to resolve them.

Basic CSR Policy*( ): ESG category
Building a Management Structure that Emphasizes Social
Responsibility
The “K” LINE Group strives to achieve sustained growth and improved corporate value by consistently implementing initiatives for the realization of
its corporate principles and vision, and aims to build a management structure, mainly by further strengthening corporate governance, in order to fulfil its corporate social responsibility through initiatives to cope with material
issues that have been identified through dialogue with its stakeholders.
Managing the Impact of Business Activities
One of the key aspects of the “K” LINE Group’s social responsibility as a
globally operating corporate group is to be aware of the potential impactsof our business activities on local and global communities, and to promotebusiness activities based on the above perception. The Group endeavors to provide services in consideration of environmental preservation andsafety in navigation and cargo operations, to conduct fair business activities, and to give due consideration to human rights, health, and safety ofall people concerned with the Group’s businesses.
Creating New Values
Another aspect of the “K” LINE Group’s social responsibility is to create
new values in order to contribute to and grow with society. The Groupaims to create new values and offer them to society by developing humanresources who can succeed on the global stage through a corporate culture that allows free and open-minded discussions, by observing customer
needs and creating new technologies and ideas that contribute to a reduction of the environmental burden and the improvement of service quality.

Selection Process for Material Issues
STEP 1

STEP 2

STEP 3

STEP 436

Specifying issues related to“K” LINE Group’s business activities

Selecting “Material Issues” for“K” LINE Group

Formulating “Annual CSR Action Plans”

Reviewing“K” LINE REPORT 2017

Corporate governance (G)Stakeholder engagement (S)Human rights (S)Fair operating practices (G)Environmental preservation (E)Labor practices (S)Safety in navigation and cargo
operations (S)Risk management (G)Human resource development (S)Innovation (E / S)
Community involvement anddevelopment (S)Employment creation and skills
development (S)Through dialogue with Stakeholders, both internal and external, and referring to frameworks such as OECD Guidelines for Multi-National Enterprises,
ISO26000, GRI Guidelines, etc., “K” LINE Group has specified environmental
and social issues that it may affect or contribute to by its business activities.
Out of those issues specified through STEP 1, “K” LINE Group has selected
10 issues that shall be prioritized in terms of “significance of economic, environmental, and social impacts” and “effects on stakeholders’ evaluation anddecision-making,” has added 2 issues that are essential for establishment ofmanagement structure to settle those issues, and placed all of them as “material issues” that shall be addressed extensively.
For each material issue selected through STEP 2, “K” LINE Group has set“Medium- and Long-term Goals,” and in order to reach them step by step, it
is formulating “Annual CSR Action Plans.”
The progress of “Annual CSR Action Plans” is reviewed at a meeting of the
CSR & Environmental Committee on semi-annual basis, and plans are modified
and reset in case of need. At the end of every fiscal year, the committee evaluates the attainments and the achievements of “Annual CSR Action Plans,”
then formulates annual plans for new fiscal year, taking the level of achievements towards “Medium- and Long-term Goals” as well as changes in society surrounding its business into consideration.

CSR Promotion System
The “K” LINE Group has established the CSR &Environmental Committee, chaired by the President &CEO and two sub-committees, the CSR Sub-Committee
and Environmental Sub-Committee, to formulate policy
to steer CSR initiatives for the entire group’s companies.
These committees are also responsible for the management of the Environmental Management System formulated in line with the “K” LINE Group’s Environmental
Policy. In addition we have a CSR promotion network topromote group-wide CSR initiatives.

Board of Directors
President & CEO
CSR & Environmental Committee

CSR Sub-Committee

Environmental Sub-Committee

CSR Division, General Affairs GroupInteraction

Environmental Management GroupCSR Promotion Network
HQ

Domestic Group Companies

Overseas Group Companies

CSR Initiatives
CSR Seminar

CSR Guidelines for Supply Chain

In March 2017, “K” LINE held a seminar on the themeof “Corporate Management and CSR.” We invited Mr.
Toshio Arima, a board member of UN Global Compact, asa speaker at the seminar, which was attended by its executives and employees as well as persons in charge of CSR
from our domestic group companies.

In July 2016, the “K” LINE Group formulated “CSR
Guidelines for Supply Chain.” These guidelines outline
corporate social responsibility initiatives to be promoted
together with our business partners across our entire supply chain and a range of collaborative requirements foreach of our business partners.

SRI Evaluations
In appraisal of efforts to enhance our CSR initiatives, “K” LINE has
been selected as a component in Socially Responsible Investment(SRI) and ESG indices used all over the world.
• FTSE4Good Global Index• FTSE Blossom Japan Index• Dow Jones Sustainability Asia/Pacific Index• ETHIBEL EXCELLENCE Investment Register• Morningstar Socially Responsible Investment Index• SNAM Sustainability Index• MSCI Japan Empowering Women Index (WIN)

Further, in recognition of our disclosure of climate change information and efforts to reduce greenhouse gas emissions, “K” LINE isthe only Japanese shipping company selected in the CDP Climate A
List and the Supplier Engagement Leader Board.

(As of July 2017)

Sustainable Development Goals(SDGs)*“K” LINE supports the SDGs through its
business activities and CSR initiatives.

* Sustainable Development Goals
The 17 Sustainable Development Goals (SDGs) of
the 2030 Agenda for Sustainable Development –adopted by world leaders in September 2015 at an
historic UN Summit“K” LINE REPORT 201737

Environment
Foundation of Value Creation

Environmental
Preservation

Securing Blue Seas for Tomorrow to
the Year 2050 and to the Future Ahead

PolicyWe, the “K” LINE Group, have made it our social mission
to minimize the impact of our business activities on the
global environment to as close to zero as possible, and at
the same time, to support the affluent lives of people andpass a sustainable future on to the next generation. Since
we believe that addressing potential future global environmental problems as well as providing the new value tosociety to meet the expectations and needs of our stakeholders will lead to creation of corporate value, we set
our determination in the ““K” LINE Environmental Vision
2050 – Securing Blue Seas for Tomorrow,” our long-term
environmental management vision which we introduced
in 2015, and set concrete numerical targets to conduct
environmental preservation activities.
In view of the outlook of future society and the relationship between business characteristics and the global
environment, we have identified four priority issues that
we will face and overcome from two perspectives – thelevel of interest that stakeholders have and the level ofinfluence on “K” LINE’s business – and we have set ourgoals toward turning the risks into opportunities. To further
confirm our navigation track toward these goals for 2050,
we have also set four interim milestones to be reached by
2019, the year marking the 100th Anniversary of the foundation of our company.
> For details, please refer to “Focus” on pages 16-17

We successfully achieved one of the milestones, theinterim reduction target of CO2 emissions (CO2 emission
reductions target of 10% for 2019 against 2011 level) in2015 ahead of the original schedule. This is attributable
to a variety of efforts including the introduction of larger
ships, active introduction of the latest energy-saving technologies and slow steaming being continuously pursued
through close cooperation, at sea and on land.
In light of this achievement, we set the new interim target to reduce CO2 emission by 25% for 2030 against 2011.
In February 2017, this new target acquired certificationof international initiative (Science Based Target Initiative),
which accepted based on scientific grounds that indicatesthe compass of our voyage shows the correct direction.

Initiatives> For details on “CSR Promotion System”, please refer to page 37
Promotion System
In order to fulfill our environmental initiatives, our company’s
persons in charge of the environment in our company every
environmental management system based on the internaother month to share the latest environmental information.
tional standard ISO 14001 obtained certification. We have
In addition, we launched a comprehensive environmental
established an Environmental Sub-Committee that aims to
management promotion system this year to address environpromote the functional operation of this system and othermental conservation activities by the entire “K” LINE Group.
activities related to the environment; the committee meets
We will use the Group Environmental Conference, which is
at least twice a year. This committee is an organization under
held once a year, as an opportunity to review these activithe direct control of the CSR & Environmental Committee
ties and share efforts of each group company to improve thechaired by the President & CEO. In addition to this, we invite
environmental awareness of the entire group.

“K” LINE Group Environmental Awards 2017
Under the “”K” LINE Environmental Vision 2050,” we founded the ““K” LINE
Group Environmental Awards” in 2015 to give recognition to activities that promote environmental protection and share such activities throughout the group.
This year’s Awards 2017, third time for this ceremony, was held on June
5th, World Environment Day*, where the President & CEO directly gave
awards to recipients. The recipients of 2017 awards are as follows.
Photo of the award ceremony
Grand Award•E
 nergy Saving Project by Implementing Detailed Forecasting and Sharing in Future
Demand (KAWASAKI KINKAI KISEN KAISHA, LTD.)*World Environment Day was established in commemoration of
the “United Nations Conference on the Human Environment”
held on June 5, 1972. For details, please refer to the related
website of the Ministry of the Environment.

https://www.env.go.jp/en/index.html
Excellence Awards (eight recipients)• Environmental Activities of Prixcar Services Pty. Ltd. (“K” LINE (AUSTRALIA) PTY LIMITED)• Publication of Petit Eco Information (NITTO TOTAL LOGISTICS LTD.)• Adoption of Document Control Software for Electronic Storage of Office Papers (SEAGATE CORPORATION)• E-learning for vessel crews,“Energy Efficiency On Board” (KAWASAKI KISEN KAISHA, LTD. Marine Energy Saving Division)•“ Why Clean India” – For Our Future Children – (‘K’ Line Ship Management (India) and K Line Maritime Academy (India))•P lanting 240 Trees in Asparuhovo Region, Varna, Bulgaria (STARGATE MARITIME LTD.)•S trengthening Environmental Awareness of Crews by Visiting the Vessels (KAWASAKI KISEN KAISHA, LTD. Containerships Strategic
Group, Container Transport Management Team) aving Cost and Protecting Environment due to Recycling Resource by Selling Wastes (K LINE CONTAINER SERVICE (THAILAND) LTD.)•S

38“K” LINE REPORT 2017

SocialSafety in Navigation
and Cargo Operations

Maintaining World-leading Safety inNavigation and Cargo Operations

PolicySafety in navigation and cargo operations is an immutable
mission in running a shipping business. The “K” LINE
Group includes “providing reliable and excellent services” in its vision, and addresses three policy pillars inorder to fulfill its social responsibility through thoroughsafety in navigation and cargo operation. The first pillar is“Enhancing Safety Management System.” As shownin the following organizational chart, the Ship Safety
Promotion Committee, chaired by the President & CEO,makes decisions on the basic safety policies and various
measures, including those for preventing recurrence ofaccidents and preventing accidents beforehand for ships
which are operated by our company.
Organizational
Chart

KL-Quality with KL Safety Standard
Top Management

Maintaining robust safety in navigation andcargo operations through decision-making

Ship Safety Promotion Committee
Ship Safety Promotion Sub-committee
Special Committee for Liquefied Gas and Crude Oil Carriers

Sales & Operations Department

Formulation of measures for
accident recurrence prevention andprevention of accident beforehand
Ship & Engineering Department

Safety Measures Conference with Ship Owners

Group Ship Management Companies“K” LINE Safety Measures Committee

Reflection and feedback

Determinationof policies

Formulationof policies

Under this organization, we maintain a safety-management
system for all of our ships through onshore operation support and onboard visits. The second pillar is“Strengthening Ship Management System.” Forships owned by our company, we will strengthen specialized ship management according to each type of ship as
well as maintain and continually improve our high levelof quality management as a group of experts. The third
pillar is “Securing and Training Maritime Technical
Personnel.” In order to firmly establish the above two pillars, we are trying to secure and train maritime technicalpersonnel regardless of their nationality.

Proposal for measures for accident recurrence
prevention and prevention of accidents beforehand
Gathering on-site opinions

Chartered ship

Owned ship

Initiatives(1) Five Initiatives to Prevent Accidents Beforehand
Under the above mentioned safety management system, we continue our utmost efforts to prevent accident
recurrence and prevent accident beforehand. Among accidents, the following cases are positioned as important
cases to be focused on.
(1) Prevention of ship collisions(2) Quay wall collisions when docking and undocking
at piers(3) Fires(4) Main engine accidents(5) Accidents causing injury or death.
By taking specific hard and soft measures for eachcase and performing effective measurement together, weare trying to totally avoid ever causing a similar accident
again while effectively implementing the PDCA cycle.

(2) Effort to Strengthen Ship Management System
Through in-house ship management companies whichshare our philosophy, we provide higher quality, safe andsecure services by making full use of our expertise.
“K” Line Ship Management Co., Ltd.

Management of Containerships,
Tankers and Gas Carriers“K” Line LNG Shipping (UK) Limited

Management of LNG Carriers

Taiyo Nippon Kisen Co., Ltd.

Management of Car Carriers andDry Bulk Carriers(3) Efforts to Secure and Train Maritime Technical Personnel
Under the consistent maritime technical personnel training programs based on the ““K” Line Maritime Academy”
scheme which targets all seafarers of our ships, we strive
to train maritime technical personnel; and at the sametime, by providing them equal opportunities (careerpath) when being involved in both onboard and office
work regardless of their nationality, we are improving
our activities to secure and train skilled maritime technical personnel.
> For details, please refer to “Human Resource
Development” on page 40“K” LINE REPORT 201739

SocialFoundation of Value Creation

Development of the World’s
Leading Maritime TechnicalExpert Group

Human Resource Development

Maritime Technical Personnel
PolicyAs one of the three policy pillars that continuously securesafety in navigation and cargo operations, the “K” LINE
Group strives to secure and train skilled maritime technical personnel.
Using our maritime technical know-how, which has
been cultivated and accumulated over many years in ourgroup from experience in meeting each situation’s needs,
as the foundation of the scheme to develop maritime technical personnel, the “K” Line Maritime Academy (KLMA)
has a system in place that reliably educates and teaches
know-how to the next generation. This system includes
onshore training programs at our training facilities in fiveglobal locations in Japan, Philippines, India, Eastern Europe
and Northern Europe, onboard training programs andcareer paths including both onshore and offshore work. In

addition, we are boldly challenging the needs of the new
era such as advanced technologies, and making every
effort to develop maritime technical personnel who areable to be competitively involved in all global operations.
With regards to securing maritime human resources,
our policy is to raise the number of Japanese maritime
technical personnel from current 300 up to 350 people by2020, by setting up career plans in which such persons canexert their knowledge and ability not only in onshore work
but also offshore as well. In addition, for foreign seafarers,
we provide in-house education and training programs sothat they are able to handle various ship types and routes.
Our group is working together to secure and train skilled
maritime technical personnel so that we will be able tomaintain and improve safety, security and trust.

Initiatives
Securing Maritime Human Resources
In order to secure skilled maritime human resources, wehave implemented the following programs.
• Providing quality information about shipping and international mariners at national colleges of maritime technology and universities offering mercantile marinestudies, holding round-table discussions with students
and assigning knowledgeable instructors• Accepting internship from mercantile marine education
institutions•Introducing in-house education and training programfor new graduates from colleges other than mercantile
marine universities.
• Operating a student development program (for foreignseafarers) by offering scholarship program at KLMA
We also provide the maritime industry with educational
activities such as conducting tours both onboard and attraining centers, as well as at facilities and terminals forelementary and junior high school students so that it will
be an option for them when choosing their future careerand providing information on international mariners tocope with various requests from the media.

Maritime Human Resource Development Program
Taking into consideration individuals’ job types and experiences, KLMA provides the following education and training programs.
Onshore training

For Japanese maritime technical personnel who are
expected to be actively involved in both onshore and offshore operations, in addition to providing a variety of training programs to improve knowledge and skills, stratified
education program is also provided so that they can successfully do their work, having the same goals as thecompany about the state of mind required for each job
position. Also, in an effort to foster a sense of safety
awareness for the entire group, we provide Japanesemaritime technical personnel with seminars by ship management companies and training to improve non-technicalskills (teamwork skills).

“K”Line Maritime Academy (KLMA) Philippines
For ships managed by our group, safe and economic operations arebeing maintained by seafarers from various nationalities such as Japan,
Philippines, Bulgaria, China and India. In particular, since there is alarge number of Filipino seafarers onboard ships we arrange, KLMA
(Philippines) plays a central role in “securing and training seafarers,”
which will be increasingly important in the future. For this reason, weare constructing an eleven-story new building with accommodations,parking facilities, a clinic and gym next to the existing training facilities
in Manila (scheduled for completion in February 2018), as well as renovating existing training facilities.

40“K” LINE REPORT 2017

Offshore training•
Cargo handling and engine • OJT (On the Job Training) bydedicated onboard instructors
handling training• Accident case study training • Onboard occupational safety
and health lecturesby simulator• Stress management training

Other Asian andSoutheast Asian countries
1%

India and Bangladesh
12%
China
8%

Europe(Bulgaria,

Percentage
Ukraine,of
Croatia,
Allocated
etc.)
Crew Members
24%(2016)
Philippines
47%

Japan
8%

Human Resource Development

Onshore Employees

Developing Human Resources that Support
Next Generation Core Business and Enable
the Creation of New Services and Markets

PolicyIn order to provide the high-quality logistics services basedon customer-first policy that is incorporated in our company vision, the “K” LINE Group strives to develop humanresources, which is the driving force of this goal. Throughjob rotation and enhanced training programs, we are trying
to help individuals develop high level of knowledge andmorals as professionals as well as foster an organizational
culture that enables diversity among individuals in order tofully exert their abilities and individuality.
In addition, as a work style reform, we are introducing
a new system to cope with the diversity of lifestyles andestablish a working style that aims to increase productivity

and maximize results.
Based on the current situation and targets in the
future, we are engaged in defining following actions.
(1) Human Resource Development• To increase and secure professional human resources toestablish and grow up next-generation core businesses• To develop human resources that enable the creation of
new services and markets through the innovation andreformation of business model(2) Work Style Reform• Actions to support diversity of work style• Actions to promote improvement of labor productivity

Initiatives“stratified training” that enhances both individuals and ourorganization.
In addition, job rotation, working at overseas locations
and personnel exchanges are carried out to further develop
human resources that are capable of organizational management as well as improving their individual work.

(1) Human Resource Development
In order to provide high-quality services to our customers, both individual knowledge and ability as a maritime
professional plus organizational management skills areindispensable. Therefore, “K” LINE have established atraining system that includes of “practical training” and—Training System Chart—
Practical training
Business knowledge

Financialknowledge

Stratified training
IT skills

CSR

Language

Business skills

Management

Advanced

Team management
Newly appointed team leader training

PC training(elementary)(2) Work Style Reform
Actions to Support Diversity of Work Style“K” LINE has introduced the following systems so that
employees can choose their preferable work style inaccordance with their lifestyles and life events.
•
System of flexible labor contract selection thatenables work styles according to life events• System of child care leave, nursing care leave, etc.
with flexible working-hour systems that exceed thestatutory requirement•F lextime system
In 2016, our company received “kurumin,” an official
certification as a childcare-friendly company by the
Ministry of Health, Labor and Welfare.

Chinese conversation training

Basic

Marinetransport
practical
training

English conversation training

Onboardtraining

Environmental training

PC training(intermediate)

Compliance training

Maritime and transport laws

Intermediate Elementary

Financetraining

Management
Pre-management

Yearly business skill training up
to the 5th year

Actions to Promote
Improvement of Labor
Productivity
As a result of our effort
to restructure operations,“K” LINE successfully
reduced overtime working hours in fiscal 2016,
achieving a reduction of
approximately 20% compared to fiscal 2014.

Trend of Overtime Hours Reduction(company-wide average / month)

35.8
hours /
month

2014

14%
reduction
vs. last year

30.7
hours /
month

2015

7% reduction
vs. last year

20% reduction
vs. FY2014

28.5
hours /
month

2016 (FY)* Since we have introduced a 7-hour-a-day work system, compared with thestatutory maximum of 8 hours a day, in actual working hours, there is a further reduction of 20.4 hours per monthly average from the above figure.

“K” LINE REPORT 201741

SocialFoundation of Value Creation

Stakeholder Engagement

Since the “K” LINE Group conducts business activities around the world, it is essential to build goodand solid relationships with various stakeholders, including shareholders, customers, business partners and people in local communities and global society. Through interactive communication withstakeholders, the “K” LINE Group continuously strives to recognize the expectations and the needs ofsociety, integrate them into our business activities as an important part of fulfilling our corporate social responsibility.
https://www.kline.co.jp/en/csr/stakeholder/

Dialogue with Our Customers

Dialogue with Our Employees

Basic Policy
We do our best to respond to customer needs by developing systems for ensuring timely shipping and striving to provide our customers with a wide range of information. We
will continue to improve the quality of our services by maintaining safe navigation and cargo operations to safely andsurely transport the cargo entrusted to us by our customers.

Basic Policy
We respect the basic human rights of our employees anddevelop training programs to maximize the ability of eachindividual. We also strive to enhance benefit programs andimprove working environments to enable each employee
to work vigorously and with a sense of safety.
Opportunities for Dialogue• Labor-management meetings• Labor-management cooperation projects• In-house training

Opportunities for Dialogue• Regular visits to customers• Ship / terminal tours• Loading facility inspections

Dialogue with Local / Global Society

Dialogue with Our Business Partners

Basic Policy
We contribute to society as a good corporate citizen andwork with people around the world to achieve ongoingdevelopment.

Basic Policy
We do business based on our Purchasing Policies, which
aim at maintaining fair and constructive relationships withour business partners. We thus strive to build trust with ourbusiness partners and coexist with them as good partners.

Opportunities for Dialogue• Collaboration with NPOs / NGOs
• Ship / terminal tours• Employee volunteer activities

Opportunities for Dialogue• Technology / Information exchanges• Supply Chain CSR Guidelines (Self-assessment)

Dialogue with Shareholders / Investors
Basic Policy
We have adopted an IR policy designed to meet the
expectations of our shareholders and investors. Under
this policy, we strive to further improve our corporate
value, for example, by properly disclosing corporate information on a timely basis and communicating with ourshareholders and investors at briefings of every kind.

Opportunities for Dialogue• Shareholders’ meeting• Financial results briefings, etc.
• Talks with domestic / overseas corporate investors• Site tours for corporate investors / securities analysists

IR Activities in FY2016
Domestic
IR activities

Overseas
IR activities

Small
meetings

Number of companies

Number of companies

Number of companies

225

Number of participants

241

12

Number of participants

14

39

Number of participants

39

Site tours
Number of companies

4

Number of participants

4

IR activities forprivate investors

114

participants

https://www.kline.co.jp/en/ir/index.html

42“K” LINE REPORT 2017

GovernanceCorporate Governance“K” LINE is developing and strengthening its corporate governance and risk management framework
in order to fulfill its social responsibility, respond to the mandate bestowed by its stakeholders, including shareholders, and achieve sustainable growth. While thoroughly enforcing its corporate ethics across the entire group, “K” LINE will continue to develop an organic and effective governanceframework, strengthen its earnings / financial structure and enhance its corporate value.
Please refer to our website for more information on our basic policy on governance.
https://www.kline.co.jp/en/csr/governance/#1

Corporate Governance Structure
Our corporate governance structure is established, managed and monitored by the Board of Directors and the Audit andSupervisory Board and is also reviewed and revised by a number of committees and other organs.
Corporate Governance Structure

Feature2

Shareholders’ Meeting
Appointment /Dismissal

Audit & Supervisory Board
Members(Audit & Supervisory Board)

Accounting Auditor

ReportingAppointment / Dismissal

Directors (Board of Directors)

Inquiry
Reporting

Nominating Advisory Committee
Remuneration Advisory Committee

Supervising

Auditing

Management Conference (Senior Managing
Executive Officers and above, etc.)

Containerships, Car Carriers, Port Business,
Logistics, Affiliated Business Promotion Unit

President & CEO
Dry and Liquid Bulk Carriers Unit

Executive Officers’ Meeting (Executive Officers
and Audit & Supervisory Board Members)
DirectingFeature1

Unit Supervisory System (Operating Organization)

General Affairs, Legal, Corporate Legal Risk
& Compliance, Human Resources, Corporate
Planning, Research, Project Office forContainerships and Terminal Business Unit

Unit Supervising Executive Officers

Marine Sector, Advanced Technology, Ship
Technical and Environmental Affairs Unit

Executive Officers in charge

Accounting Auditing

Finance, Accounting, IR&PR Unit
Information System Unit
(As of July 1, 2017)

Recent Corporate Governance Reforms

2016
2015

2006

2004
• Establishmentof Internal Audit
Office• Reduction in thenumber of board
members from“not more than 25” to“not more than 15”• Adoption of
Executive Officer
System2009• Non-renewal of takeover
defense measures• Reduction in theterm of office of
Directors from “2years” to “1 year”• Improvement of functions of Board of
Directors, Management
Conferences andExecutive Officers
Meetings• 1st appointment of
Outside Directors (2)• Establishment ofNominating Advisory
Committee &Remuneration Advisory
Committee• Adoption of Unit
Supervisory System• Increased numberof Outside Directors
from 2 to 3
Directors (one thirdof all directors)• Appointment of afemale to managerial position as
Outside Audit &Supervisory Board
Member“K” LINE REPORT 201743

GovernanceFoundation of Value Creation

Characteristics of
our Corporate Governance Structure(1) Unit Supervisory System It is required underthe “Corporate Governance Code” that the Board of
Directors, as their primary role and responsibility, “create an environment to support appropriate risk taking bysenior management.” As one part of establishing a corporate governance system in line with this requirement, “K”
LINE implemented the Unit Supervisory System in orderto further streamline and enhance business execution.
Board of Directors
Supervising

Directing / Instructing
Unit Supervising Executive Officers

Outside Directors (3)Inside Directors (2)>President & CEO

MeritsDivision of management and execution(2) Nominating Advisory Committee, Remuneration
Advisory Committee In our institutional design asa corporation with an Audit & Supervisory Board, “K”
LINE has voluntarily established a “Nominating Advisory
Committee” and a “Remuneration Advisory Committee”
in order to enhance the functions of the Board of Directors.
Each of these committees is comprised of all Outside
Directors, the Chairman and President & CEO and the
Chair is appointed by mutual vote of the Outside Directors
residing on the committees.

•Enhanced supervisory
functions•Streamlined execution of duties

Officer Remuneration
Policy and Procedures for the Determination of
Officer Remuneration
Remuneration for Executive Directors shall reflect “K”
LINE’s medium- to long-term business performance andthe latent risks borne by said Executive Directors and tofurther enhance their willingness to bring about sustainable growth and maximize corporate value. Remuneration
for Outside Directors shall reflect the amount of time
devoted to business of “K” LINE and the responsibility
borne by them. In line with this policy, the Remuneration
Advisory Committee is responsible for the deliberationand determination of the design of our remuneration system and standards etc. and reporting back to the Board ofClassification

Director

Remuneration System
In addition to monthly remuneration, remuneration paid
to Directors is comprised of a Performance-based Share
Remuneration Plan (BBT=Board Benefit Trust) approvedby the Ordinary General Meeting of Shareholders held in
June 2016. The purpose of the BBT is to raise the motivation of Directors to make contributions to enhance theGroup’s medium- to long-term performance and corporate value. See below for an overview of our remuneration system.

Type of remuneration

Nature ofremuneration

Method of determinationM onthly
remuneration

Fixed
remuneration

Remuneration is determined inaccordance with position and performance rating.

Within 600 million yen / year

Variable
remuneration

Points are awarded to Executive
Directors based on level of achievement etc. of consolidated performance goals based on base points inline with duties and responsibilities.

Over the 4 fiscal years from FY ended March
31, 2017 up until FY ending March 31, 2020(1) 
Amount contributed to the trust by theCompany 480 million yen(2) Maximum No. of points awarded to
Directors in any 1 FY: 620,000 points

Fixed
remuneration

Determined following deliberation
among Audit & Supervisory Board
Members

Performance-based
share remuneration*Limited to Executive
Directors

Audit &
Supervisory Board
MemberDirectors. The Board of Directors is responsible for determining levels of remuneration based on this report.

Monthly
remuneration only

Maximum limit of remuneration

Remuneration Paid to Officers in FY2016
Classification

Number of people

Amount paid

Directors (Outside)

12 (4)

316 million yen (29 million yen)

Audit & Supervisory Board Members (Outside)

6 (4)84 million yen (23 million yen)Total

18 (8)

400 million yen (52 million yen)

44

“K” LINE REPORT 2017

*Figures on the left include remuneration paid to 3 Directors and 2 Audit& Supervisory Board Members who
retired upon their full terms of offices
as of the conclusion of the Ordinary
General Meeting of Shareholders heldon June 24, 2016.

Internal Control System
The Board of Directors is responsible for establishing theinternal control system, evaluating its effectiveness andensuring that it functions properly. In addition, through monitoring and verifying the status of the internal control system, the Internal Audit Group plays a role in supporting
the Board of Directors in carrying out its responsibilities
for the development, maintenance and enhancement of
the internal control system. The Audit & Supervisory Board
Members oversee the processes by which the Directors
establish the internal control system and confirm that it
is functioning effectively. Further, while respecting theautonomy of each of our group companies, “K” LINE supports and supervises the establishment and effective management of internal control systems within each of thesecompanies to ensure that activities conducted across allgroup companies are appropriate.
Primary Internal Audit Activities for FY2016
The Internal Audit Group is responsible for formulating
annual audit plans and implementing the audits. Primary
audit activities for FY2016 include the following.
• Work process audits for all divisions of the Company (26processes)• General IT control audit of all primary IT systems (24 systems) of the Company• Company-wide internal control audit of major group companies (27 companies)• Overseas group company audits (13 companies)• Joint audits with the group company internal audit divisions

Taking Advantage of External Perspectives to Enhance Corporate Value“K” LINE is actively seeking to appoint external officers, taking advantage of an external perspective in order to enhance
corporate value over the medium- to long-term. “K” LINE hasestablished a set of criteria to determine the level of independence of Outside Directors and only Directors who do not fallunder any of the set conditions are considered to be independent. For more information on Criteria for Independence ofOutside Directors, please refer to the Notice of the Ordinary
General Meeting of Shareholders.
https://www.kline.co.jp/en/csr/governance/

In order to support the smooth execution of duties of
Outside Directors, they are provided with the necessary
briefings and information prior to meetings of the Board of
Directors and receive reports on important business operations.
Further, “K” LINE has appointed personnel to assist our Audit& Supervisory Board Members and has established regulations
concerning these appointments in order to maintain the framework required to assist Audit & Supervisory Board Membersin their role within the Company. These assistant personnel do
not hold additional posts in connection with their duties and are
examined by the Audit & Supervisory Board Members in orderto maintain a level of independence from company Directors.

Outside Directors

Outside Audit & Supervisory Board Members

Akira Okabe

Toshikazu Hayashi

Profile Former Senior Managing Director at TOYOTA MOTOR CORPORATION,
Former Director and Vice Chairman at Tokai Tokyo Securities Co., Ltd.
Reason for Appointment Mr. Akira Okabe worked for more than 40 years at TOYOTA MOTOR CORPORATION and over that time, led various new businesses
to successful results in emerging countries, mainly in Asia. He then went on to
become director at Toyota and at a securities company and has long-standing
experience in the area of corporate management. He was appointed so that
his experience and insight in this area may be utilized within the Company.
Attendance at Meetings of the Board of Directors in FY2016 10 / 11 Meetings

Profile Former Representative Director and Senior Vice President at
Kawasaki Heavy Industries, Ltd.
Reason for Appointment Mr. Toshikazu Hayashi has been involved in corporate management for many years and based on this extensive knowledge
and experience, was appointed to provide effective audits from an objective perspective in relation to company management.
Attendance at Meetings of the Board of Directors in FY2016 15 / 15 Meetings

Seiichi Tanaka
Profile Former Representative Director, Executive Vice President at Mitsui& Co., Ltd.
Reason for Appointment Mr. Seiichi Tanaka joined Mitsui & Co., Ltd. after
completing a Master’s degree in marine engineering. After many years in
the Ship and Marine Project Division he gained experiences in corporate
management in his capacity as Representative Director at Mitsui & Co
from 2008 to 2014. He was appointed so that his experience and insightin this area may be utilized within the Company.
Attendance at Meetings of the Board of Directors in FY2016 11 / 11 Meetings

Kiyoshi Hosomizo (new appointment)
Profile Former Commissioner of Financial Services Agency, Outside Audit& Supervisory Board Member at SEIREN Co., Ltd.
Reason for Appointment Mr. Kiyoshi Hosomizo has experiences in prominent
positions at the MOF and Financial Services Agency, from which he has
obtained deep insight into financial and other general economic affairs aswell as extensive knowledge and deep insight in the area of corporate governance, he was appointed to provide appropriate advice on managementof the Company and appropriate monitoring of the execution of company
business operations.

Attendance at Meetings of the Audit & Supervisory Board in FY2016 15 / 15 Meetings

Kozue Shiga
Profile Partner at Shiraishi Sogo Law Office, Outside Audit & Supervisory
Board Member of Shinsei Bank, Limited. and Outside Director of RICOHLEASING COMPANY, LTD.
Reason for Appointment Ms. Kozue Shiga possesses specialized knowledge and experience as a lawyer as well as experience as an Outside
Director and Outside Audit & Supervisory Board Member of multiple listed
corporations and was appointed based on her ability to provide effective
audits from an independent and external perspective.
Attendance at Meetings of the Board of Directors in FY2016 10 / 11 Meetings
Attendance at Meetings of the Audit & Supervisory Board in FY2016 10 / 10 Meetings> For details, please refer to “Directors, Audit &Supervisory Board Members and Executive Officers”
on pages 54-55“K” LINE REPORT 201745

GovernanceFoundation of Value Creation

Risk Management System

We need to recognize diverse management crises and risks, prepare for them, and fulfill our corporatesocial responsibility when the risks become reality. To this end, we have established our own system
for managing crises and risks. Specifically, we divide crises and risks into four types and have established four committees for responding to each of these types. We have also set up a Crisis Management
Committee as an organization to unify the four Committees to control and facilitate overall crisis andrisk management activities.

Major Risks Which Affect Our Business
The Group’s main business field, marine transport, is influenced by numerous international factors such as economic
trends in various countries, product market conditions, supply and demand balance for ships, as well as intra-industry
competition. Changes in any of these factors can have a negative impact on the “K” LINE Group’s marketing activities andbusiness results. In particular, a change in tax systems or economic policies, or an invocation of protective trade policies
in Japan or major trading regions and / or countries such as
North America, Europe, China, etc., can result in a decrease in
overall volume of international cargo transport or worsen conditions for freight markets. This can have a serious impact on
the Group’s financial situation and operating results.
Other major factors that can have a negative impact
on our business include, but are not limited to, fluctuationof exchange rates, interest rates and fuel oil prices, public regulations of environmental issues, and occurrence ofserious marine incidents, conflicts or natural disasters. For
more information, please access “K” LINE’s website.
https://www.kline.co.jp/en/ir/policy/risk.html

Risk Management Promotion System
We have divided various crises and risks into four types:
risks in ship operations, risks from disasters, risks concerning compliance and other risks related to management and have also established four Committees to
respond to each of these types. Furthermore, the Crisis
Management Committee unifies the four Committees inorder to control and facilitate overall risk management.
Our President & CEO chairs all the committees with thecommittee meetings being regularly held in order that we
continue to strengthen risk management.
Board of Directors
President & CEO
Crisis Management Committee
Ship Safety Promotion Committee
Disaster Response Committee
Compliance Committee
Management Risk Committee

46“K” LINE REPORT 2017

Committees Responding Professionally to
Risks
Crisis Management Committee
We discuss and develop systems to respond to all mannerof crises and risks as well as control the activities of thefollowing four Committees.
Ship Safety Promotion Committee
We discuss and determine necessary basic policies
from a company-wide perspective as well as various measures based on basic policies for preventing marine accidents and to manage risks concerning
safety of operations for all our vessels including ourowned, chartered and entrusted vessels.
Disaster Response Committee
We are continuously making every effort to strengthen
our disaster prevention system. In case of a disaster, we will determine if establishment of a disaster
response headquarter is needed and then strive tominimize damage by providing relief to any victims
plus restoring damaged offices, preparing policies
for business continuity and providing instructions andsupervision regarding business continuity.
Compliance Committee
We discuss policies that secure our compliance system and measures to address compliance violations.
Management Risk Committee
Risks related to management are not limited to thoseconcerning terrorism, threats from anti-social forces,
harmful rumors or information security as well as economic fluctuation. We will control expected risks otherthan risks in ship operations, risks of disasters andrisks concerning compliance when such risks become
reality, dealing with them case-by-case as appropriate.

BCP in Response to Large-scale Disasters
We have established “BCPs (Business Continuity Plans)” fortwo different types of disasters: an inland earthquake in theTokyo metropolitan area and a pandemic outbreak involving
a highly virulent new influenza. We give top priority to thelives of people, and aim to continue important operations as
an entity that is part of the social infrastructure by transferring operations to our domestic and overseas branches andsubsidiaries or by shifting to telecommuting. Also, to avoid
the loss of data in the event of a disaster, we have set up asystem in which back-up data can be stored remotely.

Compliance

The “K” LINE Group discusses its policy for securing our compliance system and measures to address compliance violations through a Compliance Committee chaired by the President & CEO. Undera Chief Compliance Officer (CCO) as the individual with the ultimate responsibility for compliance, weare strengthening compliance system throughout the organization.

Global Compliance Policy

Major Compliance Promotion Initiatives

As one part of strengthening an effective group compliance framework to ensure compliance with competition
laws and prevent bribery and corruption, in January 2017
we established the “K” LINE Group Global Compliance
Policy. The Global Compliance Policy serves as a more
specific guideline on the group’s policy of compliance withdomestic and international laws / regulations and social
norms for fair, transparent and free competition and fairtrade as stated in our Charter of Conduct: “K” Line Group
Companies and “K” Line Implementation Guideline for
Charter of Conduct, and further clarifies our thinking on
compliance as a company.
The Global Compliance Policy consists of the main
policy and individual policies. The main policy sets forthcommon items applicable to general compliance, and theindividual policies set forth items applicable to specificfields such as competition legislation and Anti-corruption
Law. In response to regulations grounded in laws and ordinances to promote fair competition that steadily become
stricter year after year, the “K” LINE Group aims tostrengthen its compliance systems on a global level.

(1) Initiatives to Raise Compliance Awareness“K” LINE is strengthening its initiatives to raise compliance awareness by setting November each year as themonth of compliance.
Furthermore, “K” LINE is also implementing stratified compliance training programs on an on-going basis.
As one initiative in fiscal 2016, “K” LINE conducted an
E-learning program for officers and employees of domestic group companies and approximately 2,600 personnel in
total have participated in this program. We have also held
seminars inviting external lecturers on key topics including insider trading regulations and the prevention of bribery and corruption.

Whistle-blowing System
The “K” LINE Group has introduced an internal reporting system called “Hot Line System” in order to promptly
detect and rectify possible compliance violations. In addition to an internal contact, we have also established an
external point of contact with outside lawyers and haveappointed full-time Audit and Supervisory Board Members
as an additional contact window.
Further, by establishing a user-friendly whistle-blowing
system, where protection of the whistle-blower is clearly
documented and that provides a prior point of consultation for personnel unsure of how they should proceed,“K” LINE aims to prevent compliance violations.

(2) Initiatives to Prevent Bribery and Corruption
As a member of the Maritime Anti-Corruption Network(MACN), a global business network dedicated to achieving the vision of a maritime industry free of corruption“K” LINE is strengthening activities to prevent bribery
and corruption.
Further, in May 2017, we also issued Guidebook on
Prevention of Bribery and distributed it to our officers
and employees. We issued this guidebook in a more
specific and easy-to-understand format of questions
and answers including practical cases our directors,
officers and employees are likely to encounter, aiming
to be used as a guideline for specific action in performing daily operations.
(3) Initiatives to Ensure Compliance with Competition Laws
Regarding compliance with domestic and foreign competition laws, “K” LINE is ensuring compliance with all regulations for compliance with the Anti-Monopoly Act andis implementing the initiative to further strengthen compliance awareness concerning competition laws throughcontinuous implementation of training and awareness-raising activities by a division dedicated to the initiative. In
addition, we monitor and supervise the status of implementation of compliance-related measures by conducting business process audits. With respect to contacts withcompeting companies, we strictly enforce regulations onprior reporting and approval, recording and storing detailsof those contacts in accordance with nature of the contact.

“K” LINE REPORT 201747

GovernanceFoundation of Value Creation

Chairman Outside Board Members
Roundtable Discussion
How is the management of “K” LINE, a company that has weathered a range of unprecedented storms,
perceived by its outside board members with diverse backgrounds? Chairman of the Board of Directors,
Jiro Asakura, served as moderator for this roundtable discussion.

Jiro Asakura

Akira Okabe

Seiichi Tanaka

Kozue Shiga

Director, Chairman

Outside Director

Outside Director

Outside Audit & Supervisory
Board Member> Please refer to P.45 for outside board members biography

Looking Back at Fiscal 2016
Asakura The shipping industry implemented largescale structural reforms last year on the back of an
unprecedentedly harsh business environment. I would
like to invite those appointed to the position of outside
director or outside auditor to help steer the management of “K” LINE to share their honest impressions
from their perspective looking at the management of“K” LINE from the outside.
Tanaka I have been engaged in the shipping industry fora period spanning 40 years during my employment with
Mitsui & Co., Ltd. While over this period there were a number of downturns in the economy, the current downturnin the market is the most severe and has been sustained

48“K” LINE REPORT 2017

the longest. Especially in fiscal 2016, as a result, we saw
irregular circumstances in which losses were recorded
across all ship types. I have never seen a situation where
profit could not be generated from any type of ship. Whileit was common that when liner services were unprofitable, tramp services would be generating profit and evenif dry bulk carriers were not generating income, then tankers would make up for the shortfall; however, the current
market downturn has been totally destructive. Overseas
shipping companies are also facing crushing conditions,marking the start of an unprecedented downturn in themarine transport industry.
Amidst these conditions, the three major shipping companies in Japan, including “K” LINE, made the decision tomerge their containership businesses and this was a decision that required a large degree of courage. For a longtime, there had been rumors of such a move; however,
it is no easy feat to actually sit down and discuss it withyour competitors and the decision to spin-off our containership business, one in which we have a long history andtradition, was one that required considerable resolve andaccountability. While in my position as an outside director I considered this decision to be extremely admirable,at the same time, I highly respect the management teamthat reached such a decision.
On the other hand, working in the marine transport industry for such a long time, there was also the fear that in growing too accustomed to market conditions which significantly
affect earnings, we might be swayed by the attitude that if
we could just hold on for a little longer… However, as a representative of our external stakeholders, I could not take an
indifferent approach to red figures over three consecutive
terms. Therefore, I have continued to state that fiscal 2016
was the year to get rid of all the dead wood.
Okabe Amidst talk that the current situation was worse
than the global financial crisis at every board meeting, I had
intended to take a step back in voicing my opinion; however,the situation did not really permit this stance. Being forced
into such harsh circumstances, firstly I will focus my attention on whether there are any wasteful practices we caneliminate. While this is a natural and necessary course ofaction, external stakeholders are already starting to look atwhat we intend to do in the time ahead and I tried to voice
my opinions from this perspective.
Be that as it may, unlike Mr. Tanaka, I had always been
involved in the development of new business in developing countries at Toyota Motor Corporation and am notexactly that familiar with the shipping industry. Based on
this, I asked myself what was expected of me. At present,
I am working on understanding the factors for improving
corporate value, approaching this firstly from the perspective of a framework designed to generate profit and its
operation, and secondly organizational strength and corporate culture. In particular, I hope to prove useful in thelatter, the area of organizational strength and corporate
culture. In respect to strategies and tactics relating to
the former, I aim to respect the judgment of the currently
serving executive officers and as an outsider, do not wish
to become a hindrance by not demonstrating belief in theirabilities. On the other hand, I do intend to state my opinion as a representative of our stakeholders and as a representative of the views of the general public in relation toorganizational strength and corporate culture, an area that
often cannot be looked at objectively by internal personnel. Fundamentally, this is the stance I aim to take.
It is only natural that a company cannot survive withoutsound business models and strategies. On the other hand,organizations with problems in their corporate culture, thosethat are not accepted by society as a whole and organizations where there is a significant gap in the passion demonstrated by the management team and that of front line

Jiro Asakura
Director, Chairman

employees and other personnel will also struggle to survive.
Further, circumstances surrounding an organization and its
corporate culture are also significantly affected by collaboration with other corporations. I hope to be able to provide
beneficial advice in the management of such areas.
Shiga In recent years, in addition to a protective governance role, ensuring that the execution of the duties ofthe directors comply with the relevant laws and regulations and the articles of incorporation, the role of auditors
has expanded to providing advice on how an organization
can sustain growth and improve its corporate value overthe midium- to long-term. My principal occupation is thatof a lawyer and while I don’t have experience in the areaof corporate management, in addition to my role of providing my frank opinion to the serving directors from my independent view as an outside auditor, I also aim to directly
voice those factors that I can identify that may come froma different perspective than that of management.
I started my career at Japan Airlines Co., Ltd. It is thesame transportation industry and the industry is competing fiercely in the pursuit of “safety” and “reliability”
and in the case of passenger transportation, “comfort.”
I believe that my role, unlike that of Mr. Tanaka and Mr.
Okabe, is to question how “K” LINE can separate itself
from its competitors in its principle industry of cargo transportation from the perspective of someone who is not anexpert in management.

Our Corporate Governance Rating
Asakura Corporate governance reforms started in 2015
under an initiative of the Japanese government and theTokyo Stock Exchange, and “K” LINE was relatively quick
to invite outside personnel to join our board of directors.

“K” LINE REPORT 201749

GovernanceFoundation of Value Creation

Chairman Outside Board Members Roundtable Discussion

detail beforehand, leaving ample time to digest the information and provide input. While I try to provide input without restraint in meetings of the board of directors, there
are time restraints; therefore, I make an effort to put forward probing questions during management conferences
and briefing sessions held in advance. These meetings area forum for brainstorming and I therefore use them as anopportunity to point out things that the participants probably do not want to hear or find hard to say themselves.

Seiichi Tanaka
Outside Director

However, initially there was not so much input fromoutside directors at our board of directors’ meetings
and this system failed to function to its full potential.
I feel that the reason for this was, at the time, meetings of the board of directors were large meetings
attended by all officers, including executive officers, andas a result, were more a forum to make final decisions
rather than to discuss items on the agenda. There was alarge number of matters where discussions were alreadyexhausted or completed prior to the board of directors’
meeting. As a result, outside directors were not given
the opportunity to sufficiently observe management of
the company and unfortunately, I also believe there wasmore room to involve them in discussions concerning
risk / return on matters concerning investment.
Currently, three of our nine directors are outside
directors. While I serve as Chairman, I am a non-executive officer, meaning the board is comprised of four
non-executive officers versus its five executive officers
and I believe this has helped to clarify its role as a monitoring board. I would like to ask all of you how you rate
our current board of directors’ meetings.
Okabe Board meetings of “K” LINE are always characterized by heated, frank discussions and I really feel that it
is an open forum for discussion. However, there is a certain chemistry or implicit understanding, that while naturalamongst internal personnel, can be hard for people outside the company to follow and I find myself asking forthis to be explained according to the evaluation standard
outside the company.
Tanaka I believe that governance within “K” LINE is functioning extremely well. Important matters are explained in

50“K” LINE REPORT 2017

Shiga Just as Mr. Tanaka mentioned, in addition to theinformation received from the full-time corporate auditors,“K” LINE is extremely courteous in providing prior explanations. All auditors are always in attendance at the meeting of executive officers held the day before the boardof directors’ meeting, enabling the appropriate sharing of
information. Further, people with extensive experience ascore members of management, such as Mr. Tanaka andMr. Okabe, are outspoken in the meetings. On the other
hand, other meeting participants listen carefully to the
input of people such as myself, who come from a different background, enabling the exchange of opinions from avariety of perspectives.

Preserving Our Corporate Culture
Asakura While talk has come up about our corporate culture, because “K” LINE does not belong to alarge holding group, we have continued to grow for
close to a century now based on a corporate culture ofwhich the main elements are an “enterprising spirit”
and “broad-mindedness.” However, since the global
financial crisis of 2008, we have fought a long and hardbattle against periods of economic downturn with afeeling of some fatigue. And it is one of my personal
concerns that this spirit, that is part of our history andtradition, is starting to fade. What, as people looking
from the outside in, is your impression of our corporate culture in recent years?
Shiga My first impression was that “K” LINE was a“smart” company. However, there are instances where
I feel you have become too smart in areas where by allrights you need to adopt an unflagging challenging spirit
coupled with broad-mindedness and I have mentioned in
the past that perhaps it would be better to return to basics
and adopt a more unrefined approach. It is in such harshtimes as these that we need to embrace a corporate culture of an enterprising spirit and broad-mindedness andreally show what we are capable of.
Tanaka There is a tendency for all corporations to suppress investment and lose direction when faced with sucha severe business environment. While it is difficult amidst
such an environment not to become dispirited, I believethat “K” LINE has worked to rid itself of all its deadwoodin fiscal 2016. As a result, fiscal 2017 is a time to adopt
a “Shrink to Grow” approach. In other words, now is thetime to take the proactive with a forward looking approach.
In this day and age, it is easy to say no but if such a culture is sustained, the mindset and motivation of employees will deteriorate. Instead, we need to try and test othermeans of achieving our goals, including those backed bynumerical data and keep our foot on the accelerator. While
improving the decision-making process is an issue weneed to address, the mindset of our employees is the driving force behind “K” LINE and I believe we must embrace
the corporate culture of enterprise that forms the foundation of “K” LINE.
Okabe It was mentioned during a recent meeting that “K”
LINE was the first shipping line in Japan to bring into service an LNG carrier. I instantly added that before that “K”
LINE was the first in Japan to introduce pure car carriers. If
we lose our “enterprising spirit” and “broad-mindedness,”“K” LINE will cease to be “K” LINE. While we may beranked third in Japan in terms of size, “K” LINE has playeda pioneering role in the domestic marine transport industry
and I believe that it is our grave responsibility to preserve
the foundations that allow us to exercise such strengths.

Working towards Creating New Value
Asakura Shipping is not an industry where you cangenerate your own demand. This is one area where we
differ greatly from passenger transportation. However,provided that as long as the world’s population andeconomic growth in developing countries continues togrow, I believe that the volume of cargo will also continue to grow steadily.
However, regardless of this trend, ours is an industry subject to severe swings in short-term demand. On
the other hand, ships can be used for periods of 15, 20
or 25 years; therefore, once they are built, it is not soeasy to reduce their numbers. A well-known shipping
analyst once said that while demand can change easily, changes in supply are slow and this statement isright on the money.
In 2002, the volume of iron ore transported to China

Akira Okabe
Outside Director

was only 100 million tons; however, by 2016 this hadvolume increased to 1 billion tons and we can assume
that this volume has reached its peak. Further, while
the marine transport of finished motor vehicles fromJapan has increased by approximately 80% since
2000, the increasing trend of manufacturing vehicles inlocations that offer optimal production has led to thistrend flat lining over the past several years. In otherwords, while the volume of cargo for marine transport
is expected to continue to increase in the years ahead,
it is expected that the rate of growth will fall well shortof previous years.
Taking into consideration this business environment, how do you see the future of the shipping
business? Further, in addition to structural reforms
implemented to date, what do you believe to beimportant for “K” LINE to further enhance its appeal
amidst future changes in the business environment?
Tanaka The marine transport market experienced a slighteconomic bubble in line with strong economic growth indeveloping nations; however, this rapidly cooled following
the global financial crisis and demand fell sharply not longafter that However, China quickly ramped up fiscal measures to the value of 4 trillion yuan, saving the global economy from the brink of collapse. On the other hand, it also
created a new economic bubble, which served as one factor
that prolonged the downturn in the marine transport market.
Around the time of the global financial crisis, a large
injection of money in the form of hedge funds, etc. withno direct relation to demand in the shipping industry
was made to specialist organizations, such as shippinglines. As these specialist organizations went about their“K” LINE REPORT 201751

GovernanceFoundation of Value Creation

Chairman Outside Board Members Roundtable Discussion

business based on supply and demand they were flooded
with these speculative funds and made extensive orders
for the production of new ships. This led to the current
acute oversupply in the market.
However, as the market declined, these speculative
funds backfired and even if market conditions did improve,
I believe they would have proceeded cautiously. On theother hand, while concerns surrounding trade protectionism may be on the rise, the global population is definitely increasing and because there is no doubt that thevolume of marine transport cargo will steadily increase, I
believe that in time, the gap between supply and demand
will resolve itself and the market will recover to a soundsituation. However, I don’t believe we will see anything
like the era prior to global financial crisis where economic
growth experienced by developing nations generated a
rapid increase in supply and demand.
In a slowly growing market, I feel that it will be importantto accurately identify problems being experienced by our customers and working together to resolve them. As a result,
we have a great deal of work to do on the front line in thearea of sales and whether we emerge victorious will dependon how we can respond to these challenging demands. I
believe that the current medium-term management plan iscomprised of policy that addresses these issues.
Shiga I would like to answer this question from the perspective of diversity. There is no doubt that in the years
to come, the number of female managers in client companies of Japanese corporations will increase. In a lot ofareas, females perceive things differently from their malecounterparts and they are particularly sensitive to issues
surrounding the environment and safety. I believe building organizations and establishing business management
approaches to address this kind of diversity will become

increasingly important.
On the other hand, one defining characteristic of “K”
LINE is that we attract a lot of employees that joined thecompany with passion for the ocean. I feel that we should
be channeling our energy into ensuring that these people
gain a range of experience early in their career and develop
human resources that can take the helm of a new “K” LINE.
Okabe In terms of my expectations of “K” LINE and thefuture of the ocean transport industry, I often hear the
Chairman saying “99.7%” to his young employees. This figure indicates the percentage of Japan’s transportation volume in foreign trade accounted for by ocean transportation.
This implies that ships form the only economical meansof mass transport for trade goods required all around theworld. This is indicative of the importance of the business
we are engaged in. I believe we are about to enter a stage
where we will be required to meet a variety of challenges,
including how we change our business structure, how webuild our value chain from the perspective of our customers
and how we can draw on our strengths based on “enterprising spirit” and “broad-mindedness” from the point ofstructural reforms aimed at rebuilding our finances.

Diversity to Give Rise to Improvement ofCorporate Value
Asakura Ms. Shiga just touched on the subject ofdiversity. Shipping lines are engaged in business on a
global scale, therefore I believe it is necessary to cultivate a corporate culture that is rich in diversity. How
do you think we should address diversity so that itgives rise to improvement of corporate value?

Kozue Shiga
Outside Audit & Supervisory Board Member

52“K” LINE REPORT 2017

Okabe The working population is in decline so I canunderstand the importance of measures to encourage
more females to enter the workforce and the effective
use of female personnel is an important theme in any
organization. However, in order to tie this in with improvement of corporate value it is necessary to address this notfrom the view of uniform measures, much less take a formalized approach to the proportion of males to females
in the workforce, but to consider strategies based on thetype of business and industry in which we are involved.
In terms of strategy, based on the fact that opportunities to work together with and integrate with outside
parties, including collaboration and M&As, are likely toincrease, it is important that we exercise the strength thatcomes with diversity in a variety of forms. As for external measures, I feel it is inadequate to rely on a verticallydivided organization based on work authority. Based on
the needs of our sales personnel, at times we may require
integrated project teams that involve members across theorganization and opportunities for top management to be
directly involved in sales and negotiations are also likely toincrease. This is also one form of diversity. If we are able toexercise diversity in line with our strategies and businessvisions, I believe we can continuously invent new areas ofbusiness, much like the movement of an amoeba.
Tanaka While it may serve to facilitate discussion when
there is a large group of people that have gained the same
experiences in the same working environment, they also
tend to be passive about taking on new challenges. It canbe difficult to cause a chemical reaction among a group ofpeople that share the same ideas. The promotion of diversity can be effective in order to break free from such situations. In other words, it is important to breathe newlife into an organization by incorporating different pointsof view. Whether this comes in the form of female personnel, personnel from other countries or personnel thathave grown in a different corporate culture, I believe it isimportant to think about this in terms of our goals. I also do
not consider diversity to be limited to the classification ofmale or female. We have already established clear policyin order to proactively create new areas of business and I
believe that taking in personnel with perspectives that wecurrently lack at “K” LINE will serve as a valuable addition.
Shiga The declining birthrate and aging population in
Japan are rapidly progressing and there is no doubt thatthe use of female staff will become important for all organizations. In saying that, I also feel that depending on thetype of business and industry, it is not necessary to takea formalized approach to diversity and it is not unusual forthere to be a varied composition of males and females in
the workplace. Simply trying to achieve diversity by matching the ratio of males to females is akin to putting the cart
before the horse. However, if we look at diversity as an
issue of male and female roles in the workplace, females
do tend to place restrictions on their own roles that theyplay and this is embedded in the work practices and ethicof corporations in Japan. Removing these invisible barriers
and providing a path for female employees to gain accessto positions in core management and draw out their abilities is surely one way to enhance corporate value.
Asakura I would like to thank everyone for providing
your frank opinions on a range of topics. I believe theintegration of the containership businesses of the threeleading shipping companies in Japan and the structuralreforms implemented to address unprofitable businesssegments in fiscal 2016 were all possible at once thanks
to your support and encouragement. From this point
forward, “K” LINE will steer a course to “Revival for
Greater Strides” and hope for your continued support.

“K” LINE REPORT 201753

GovernanceFoundation of Value Creation

Directors, Audit & Supervisory Board Members andExecutive Officers

Director, Chairman

Representative Director,
President & CEO

Representative Director,
Senior Managing
Executive Officer

Representative Director,
Senior Managing
Executive Officer

Representative Director,
Senior Managing
Executive Officer

Director,
Managing Executive
Officer

Jiro Asakura

Eizo Murakami

Toshiyuki Suzuki

Hiromichi Aoki

Tsuyoshi Yamauchi Yukikazu Myochin

Outside Director

Outside Director

Outside Director

Audit & Supervisory Board
MemberOutside Audit &Outside Audit &Supervisory Board Member Supervisory Board Member

Akira Okabe

Seiichi Tanaka

Kiyoshi Hosomizo

Keisuke YoshidaToshikazu Hayashi

Kozue Shiga

Directors

Audit & Supervisory
Board Members

Executive Officers

Director, Chairman

Audit & Supervisory Board
MemberPresident & CEO

Managing Executive Officer

Eizo Murakami

Yukio Toriyama

Jiro Asakura

Keisuke Yoshida

Representative Director

Eizo Murakami

Outside Audit &Supervisory Board Member

Representative Director

Toshikazu Hayashi

Toshiyuki Suzuki
Representative Director

Hiromichi Aoki

In charge of Accounting, Finance, IR&PR

Senior Managing Executive Officer

Toshiyuki Suzuki

Managing Executive Officer

Responsible for Containerships, Car Carriers,
Port Business, Logistics, Affiliated Business
Promotion Unit

In charge of Car Carrier BusinessOutside Audit &Supervisory Board Member

Senior Managing Executive Officer

Kozue Shiga

Hiromichi Aoki

Representative Director

Tsuyoshi Yamauchi
Director

Yukikazu Myochin
Outside Director

Akira Okabe
Outside Director

Seiichi Tanaka
Outside Director

Kiyoshi Hosomizo

Responsible for Dry and Liquid Bulk Carriers Unit

Senior Managing Executive Officer

Tsuyoshi Yamauchi
Responsible for General Affairs, Legal, Corporate
Legal Risk & Compliance, Human Resources,
Corporate Planning, Research, Project Office forContainerships and Terminal Business Unit,
Assistance to Internal Audit, CCO (Chief
Compliance Officer)

Senior Managing Executive Officer

Eiji Kadono
Responsible for Marine Sector, Advanced
Technology, Ship Technical and Environmental
Affairs Unit

Senior Managing Executive Officer

Harusato Nihei
Responsible for Finance, Accounting, IR&PR
Unit,CFO (Chief Financial Officer)

Managing Executive Officer

Kazuhiko Harigai
In charge of Bulk Carrier Business, Thermal Coal,
Woodchip and Pulp Carrier Business

Managing Executive Officer

Atsuo Asano
In charge of Coal and Iron Ore Carrier Business,
Drybulk Planning

54“K” LINE REPORT 2017

Kenji Sakamoto
Managing Executive Officer

Yasunari Sonobe
President of “K” LINE AMERICA, INC.

Managing Executive Officer

Yutaka Nakagawa
In charge of Logistics, Affiliated Business
Promotion

Managing Executive Officer

Akira Misaki
In charge of Energy Transportation Business

Managing Executive Officer

Nobuo Ishida
Managing Director of K LINE (THAILAND) LTD.

Managing Executive Officer

Kunihiko AraiManaging Director of KLINE (CHINA) LTD.,Managing Director of “K” LINE (HONG KONG)
LIMITEDManaging Executive Officer

Yukikazu Myochin
In charge of Human Resources, Corporate
Planning, Research, Project Office forContainerships and Terminal Business

Managing Executive Officer

Shuzo Kawano
Responsible for Information System Unit,
CIO (Chief Information Officer),CEO of “K” Line Business Systems, Ltd.

Organization (as of July 1, 2017)
Assistant to Auditors

Shareholders’Meeting

Internal Audit Group

Remuneration Advisory
Committee
Nominating Advisory
Committee
Senior Managing
Executive Officer

Directors(Board of Directors)

Eiji Kadono
Management
Conference

Audit & Supervisory
Board Members(Audit & Supervisory
Board)

Port Business Group
Containerships Strategic Group

Containerships,
Car Carriers,
Port Business,
Logistics,
AffiliatedBusiness
Promotion Unit

Senior Managing
Executive Officers andabove, etc.

Harusato Nihei(As of July 1, 2017)

Executive Officer
In charge of Legal, Corporate Legal
Risk & Compliance

Crisis Management
Committee

Executive Officer

Takafumi Kido
In charge of Containerships Business,
Port Business

Executive Officer

Daisuke AraiManaging Director of “K” LINE(EUROPE) LIMITED

Ship Safety Promotion
Committee
Disaster Response
Committee

Kiyotaka Aya
In charge of Marine Sector

Management Risk
Committee

Executive Officer

Shingo Kogure
In charge of General Affairs, CSR

Advanced Technology
Development and Energy
Management Committee

LNG Group

GeneralAffairs, Legal,
Corporate
Legal Risk &Compliance,
Human
Resources,
Corporate
Planning,
Research,
Project
Office forContainerships
and Terminal
Business Unit

In charge of ShipTechnical andEnvironmental Affairs, General
Manager of Ship Technical Group

Executive Officer

Executive Officer

Tomoyuki Okawa
Assistance to Energy Transportation
Business, in charge of Tankers,
General Manager of Energy &Off-Shore Business Planning Group

Legal Group
Corporate Legal Risk &Compliance Group
Human Resources Group
Assistant to Managing Executive
Officer for Corporate Planning
Corporate Planning Group
Project Office for Containerships
and Terminal Business
Registered Head Office /Kobe General Affairs Group

Marine Sector,
Advanced
Technology,
Ship
Technical andEnvironmental
Affairs Unit

Marine Human Resources Group
Ship Management Group“K” LINE Training Center
Advanced Technology Group
Ship Technical Group
Environment Management Group

Real Estate Management
Committee
Proposition Committee

Nobuyuki Yokoyama
Assistance to Car Carrier Business

General Affairs Group

Marine Safety Administration Group

Executive Officer

Toyohisa Nakano

Bulk Carrier Group

Tanker Group

Compliance Committee

Executive Officer

Thermal Coal, Woodchip and
Pulp Group

Energy & Off-Shore Business
Planning Group

Ship Management
Committee

Makoto Arai

Car Carrier Quality andOperations Group

Coal & Iron Ore Carrier Planning &Operation GroupCSR & Environmental
Committee

Investment Committee

Car Carrier Business Group

Coal & Iron Ore Carrier
Business Group

Executive Officers andAudit & Supervisory Board
Members

Dry and Liquid
Bulk Carriers
Unit

Senior Managing
Executive Officer

Car Carrier Planning &Development Group

Business Promotion Group

President & CEO
Executive Officers’
Meeting

Containerships Business
Management Group

Health Enhancement
Committee

Finance,
Accounting,
IR&PR Unit
Information
System Unit

IR & PR Group
Finance GroupAccounting Group
Information System Group
Nagoya Branch
Kansai BranchOverseas Representative Offices
ManilaYangonDubai“K” LINE REPORT 201755

Financial Section / Corporate Data

Financial Analysis
Results of Operations
Operating Revenues
In fiscal 2016, the year that ended March 31, 2017, the “K” LINE
Group reported consolidated operating revenues of ¥1,030,191
million, down 17.2% from fiscal 2015.
By business segment, operating revenues from the containership business segment declined 15.6% year-on-year, to ¥518,954
million, impacted by factors such as depressed conditions in thefreight market.
In the bulk shipping business segment, operating revenues
fell 19.6%, to ¥456,542 million. This segment was affected bysluggish conditions in dry bulk business from the beginning of theperiod, as well as weakness in car carrier business as declines inresource prices affected cargo movements from Asia to resourcerich countries in the Middle East, Latin America, Africa and elsewhere, while a slowdown in the Chinese economy impactedcargo movements from Europe and North America to Asia. In
LNG carrier business and tanker business, medium- and longterm charter contracts progressed steadily, but market-linked
contracts were affected by softening market conditions.
In the offshore energy E&P support and heavy lifter businesssegment, operating revenues declined 21.2%, to ¥19,421 million.
Despite healthy conditions in the drillship business, the offshore
support vessel business was affected by weakness in offshoredevelopment caused by depressed crude oil prices. Market conditions also remained weak in the heavy lifter business, prompting the Company to downsize its fleet.
Operating revenues from other businesses declined 4.0%
year-on-year, to ¥35,274 million.
Cost of sales and selling,
general and administrative expenses
Cost of sales (marine transportation and other operating costs andexpenses) fell ¥159,245 million, or 13.7%, from ¥1,159,989 million in the previous fiscal year to ¥1,000,744 million, due mainly
to a decrease in operating costs amid ongoing weakness in cargo
movements. The cost of sales ratio rose 3.9 points, to 97.1%,
as the decreased cost of sales did not fully compensate for the
decline in operating revenues. Selling, general and administrative
expenses increased ¥969 million, or 1.3%, to ¥75,484 million.

Other (non-operating) income (expenses)
The net balance of interest and dividend income and interest
expense was negative ¥3,822 million, from negative ¥3,118 million in the previous year. This resulted from a decrease in dividend income. The Company recorded an exchange loss of ¥4,006
million, from ¥7,370 million in the previous fiscal year, and equity
in earnings of affiliates of ¥3,155 million, compared with ¥3,587
million in fiscal 2015. As a result of these and other factors, other(non-operating) loss amounted to ¥6,351 million, compared witha loss of ¥6,089 million in the previous fiscal year.
Profit before income taxes
Total extraordinary gains amounted to ¥6,375 million, due mainly togain on sales of vessels, property and equipment.
Total extraordinary losses amounted to ¥85,213 million, due
mainly to impairment loss and provision of allowance for loss
related to business restructuring. As a result of these gains andlosses, loss before income taxes was ¥131,227 million, comparedwith ¥31,279 million in fiscal 2015.
Income taxes
Income taxes decreased ¥12,668 million, from ¥18,810 million in
the previous fiscal year to ¥6,142 million in the year under review.
This was due mainly to the recording of a loss before income
taxes at the filing company.
Profit attributable to non-controlling interests
Profit attributable to non-controlling interests totaled ¥2,110 million, versus ¥1,410 million in fiscal 2015. The increase is partly
attributable to an increase in non-controlling interest in theincome of K Line (Thailand) Ltd.
Profit attributable to owners of the parent
The Company reported a loss attributable to owners of the parent of ¥139,479 million, from ¥51,499 million in the previous fiscal year. The loss attributable to owners of the parent per sharewas ¥148.82, from ¥54.95 in fiscal 2015.

Analysis of Sources of Capital and Liquidity

Operating income
Due to a decrease in gross profit, the Company reported a consolidated operating loss of ¥46,037 million, compared with operating
income of ¥9,428 million in the previous year.

Cash flows
As of March 31, 2017, cash and cash equivalents stood at¥156,792 million, down ¥41,953 million from a year earlier. The
details of cash flows are as follows.
Net cash used in operating activities amounted to ¥43,919
million, compared with net cash provided by operating activities

Operating Revenues / Operating Income

Profit Attributable to Owners of the Parent / ROE(Billions of yen)(Billions of yen)

1,500

150
1,030.2

1,000
500

50

0

0

-500
-1,000(46.0)
‘07

‘08

‘09

‘10

Operating revenues (left scale)

56

100

‘11

‘12

‘13

‘14

‘15

-100
‘16 (FY)

Operating income (right scale)“K” LINE REPORT 2017

-50

(Billions of yen)

(%)

90

30

60

20

30

10

(139.5)

0

0

-30

-10

-60

-20

-90

-30

-120
-150

-40

(48.5)
‘07

‘08

‘09

‘10

‘11

‘12

‘13

‘14

Profit attributable to owners of the parent (left scale)‘15‘16 (FY)-50

ROE (right scale)of ¥39,636 million in the previous year. Main factors were theloss before income taxes and payments for cancellation of chartered vessels.
Net cash used in investing activities totaled ¥24,882 million, from ¥29,569 million in the previous fiscal year. This mainlyreflected purchases of vessels.
Net cash provided by financing activities was ¥26,436 million,
compared with net cash used in financing activities of ¥14,836
million in the previous fiscal year. This change mainly reflected
proceeds from long-term loans.
Funding requirements
The “K” LINE Group’s major working capital requirement comesfrom shipping business expenses in connection with containership services and bulk shipping services. These expenses
include operating costs, such as port charges, cargo handlingcosts and fuel costs; vessel expenses, such as crew expenses
and expenses for overhaul of vessels; and chartering expenses.
Other expenses are the costs of service operations, such as laborcosts in connection with the operation of our logistics / harbortransportation business and general administrative expenses for
the Group’s business operations, such as personnel expenses,
information processing costs and other non-personnel expenses.
Capital requirements include investments in vessels, logistics
facilities and terminal facilities. In fiscal 2016, the “K” LINE Groupmade capital investments of ¥68,048 million.
Financial policy
The “K” LINE Group places importance on securing low-cost,stable funds to support its business continuity and expansion.
The Company meets long-term funding requirements mainly
by means of long-term debt from financial institutions, supplemented by the issuance of bonds and new shares. The Company
procures short-term operating funds by means of bank loans andthe issuance of commercial paper, and invests temporary surplus
funds in highly stable and liquid financial assets. The Company
employs a cash management system to effectively utilize surplus
funds of Group companies in Japan and overseas.
The Company secures liquidity by preparing for any urgent
capital requirements by means of a commercial paper issuanceprogram of up to ¥60.0 billion, a ¥46.0 billion line of credit established under overdraft agreements with financial institutions, andthe establishment of a ¥30.0 billion multi-year commitment linewith financial institutions in Japan.
The Company has been rated by two Japanese rating firms.
As of June 23, 2017, the Company maintained a rating of BBB

Net Assets / Equity Ratio

from Japan Credit Rating Agency, Ltd. (JCR), and BBB– from
Rating and Investment Information, Inc. (R&I). The Company also
has short-term credit ratings (commercial paper ratings) of J-2
from JCR and a-2 from R&I.

Financial Position
As of March 31, 2017, total assets amounted to ¥1,045,210 million, down ¥70,014 million from a year earlier. Current assets
declined ¥20,091 million year-on-year, to ¥381,124 million, mainly
due to a decrease in cash and deposits.
Fixed assets decreased ¥49,923 million, to ¥664,086 million.
Within this amount, vessels, property and equipment declined¥57,164 million, to ¥526,388 million, mainly due to a reduced
number of vessels. Investments and other assets increased¥7,437 million, to ¥133,693 million, mainly due to a rise in investment securities.
Total liabilities on March 31, 2017 amounted to ¥799,728
million, up ¥64,418 million from a year earlier. Current liabilities declined ¥22,189 million, to ¥223,434 million, due mainly
to a decrease in short-term loans. Long-term liabilities increased¥86,607 million, to ¥576,294 million, due mainly to an increase inlong-term debt.
Net assets on March 31, 2017 totaled ¥245,482 million, down
¥134,432 million from a year earlier. Within this amount, shareholders’ equity fell to ¥190,462 million, due mainly to a ¥140,109 million
decrease in retained earnings. Accumulated other comprehensive
income increased ¥4,188 million, to ¥29,023 million, mainly attributable to a ¥5,437 million increase in deferred gain on hedges.

Dividend Policy
The Company regards maximization of returns to shareholders as
an important priority. To this end, we endeavor to pay stable dividends while retaining necessary internal reserves to fund investments in plant and equipment and strengthen our financial positionin order to achieve sustainable growth, which is a main priority of
our management plan.
The Company’s year-end dividend (record date: March 31 of eachyear) is subject to resolution at the Annual Shareholders’ Meeting.
As prescribed in the Articles of Incorporation, “by resolution of theBoard of Directors, an interim dividend may be distributed by theCompany as of the record date of September 30 of each year.”In fiscal 2016, the Company regrettably decided not to pay dividends, giving urgent priority to improving its financial position inlight of the loss attributable to owners of parent.

Interest-bearing Liabilities / DER(Billions of yen)(%)(Billions of yen)

500

50

750

400

40

600

30

450

20

300

10

150

0

0

300

245.5
21.0

200
100
0

‘07

‘08

‘09

Net assets (left scale)

‘10

‘11

‘12

‘13

‘14

‘15

‘16 (FY)

Equity ratio (right scale)

Equity ratio: Equity capital / Total assets
Equity capital: Net assets – (Non-controlling interests + Stock acquisition rights)(Times)

7.5
550.5

6.0
4.5
3.0

2.51

1.5

‘07

‘08

‘09

‘10

‘11

‘12

‘13

‘14

‘15

‘16 (FY)

0Interest-bearing liabilities (left scale)
DER (Debt Equity Ratio) (right scale)
DER: Interest-bearing liabilities / Equity capital“K” LINE REPORT 201757

Financial Section / Corporate Data

Consolidated Financial Statements
Consolidated Balance Sheet
Kawasaki Kisen Kaisha, Ltd. and Consolidated Subsidiaries
March 31, 2017

Thousands of
U.S. dollars(Note 1(a))

Millions of yen

Assets

2017

2016

2017

241,101$ 1,779,820
744,986

Current assets:
Cash and deposits (Notes 6, 13 and 16)¥

199,678¥

Accounts and notes receivable – trade (Note 13)

83,58079,653

Allowance for doubtful receivables(2,035)(598)(18,139)

Inventories (Note 4)

29,714

22,245

264,854408,789

Prepaid expenses and deferred charges

45,862

41,573

Deferred income taxes (Note 7)

5,599

856

49,906

Other current assets

18,726

16,385

166,914381,124401,215

3,397,130

Total current assets

Investments and other assets:
Investments in and advances to unconsolidated subsidiaries andaffiliates (Notes 6, 13 and 18)

58,89253,457524,931

Investments in securities (Notes 3, 6 and 13)

36,02632,125321,116Long-term loans receivable

7,358

8,172

65,585

Deferred income taxes (Note 7)

3,268

5,153

29,129Asset for retirement benefits (Note 9)
Other assets
Allowance for doubtful receivables
Total investments and other assets

494

586

4,403

28,58627,963

254,800(931)(1,200)(8,298)

133,693

126,256

1,191,666

755,260

817,550

6,731,973

Vessels, property and equipment:
Vessels (Notes 5 and 6)
Buildings, structures and equipment (Notes 5 and 6)

101,047

99,472

900,677

Accumulated depreciation(410,252)(405,571)(3,656,761)
3,975,889

446,055

511,451

Land (Notes 5, 6 and 11)

24,782

24,863

220,893

Construction in progress

55,551

47,238495,151

526,388583,552

4,691,933

Vessels, property and equipment, net (Note 18)

Intangible assets:
Goodwill (Note 18)
Other intangible assets
Total intangible assets
Total assets

58“K” LINE REPORT 2017

—

43

—

4,005

4,158

35,698

4,005

4,201

35,698¥ 1,045,210¥ 1,115,224$ 9,316,427

Thousands of
U.S. dollars(Note 1(a))

Millions of yen

Liabilities

2017

2017

2016

Current liabilities:
Short-term loans (Notes 6 and 13)

¥

4,513

¥

5,487

$

40,226

Current portion of long-term debt (Notes 6 and 13)

43,33566,679386,264

Accounts and notes payable – trade (Note 13)

89,77099,746800,160
209,350

Advances received

23,487

22,820Current portion of obligations under finance leases

3,246

6,958

28,933

Accrued income taxes (Note 7)

1,142

1,715

10,179Allowance for loss related to the Anti-Monopoly Act

5,223

5,223

46,555

Allowance for loss related to business restructuring (Note 20)

19,867—177,084

Deferred income taxes (Note 7)
Other current liabilities
Total current liabilities

13

433

116

32,83836,562292,701

223,434

245,623

1,991,568

466,364

409,047

4,156,912

Long-term liabilities:
Long-term debt, less current portion (Notes 6 and 13)
Allowance for directors’ and audit and supervisory board members’
retirement benefits

1,646

1,643

14,672

Accrued expenses for overhaul of vessels

12,00012,064

106,961

Allowance for loss related to business restructuring (Note 20)

28,022—249,773

Obligations under finance leases, less current portion

33,05536,982

294,634
119,627

Deferred income taxes (Note 7)

13,421

4,488

Deferred income taxes on land revaluation (Notes 7 and 11)

1,874

1,874

16,704

Derivative liabilities

8,862

11,96378,991

Liability for retirement benefits (Note 9)

7,514

7,748

66,976

Other long-term liabilities

3,536

3,878

31,518576,294

489,687

5,136,768

Total long-term liabilities
Commitments and contingent liabilities (Note 12)
Net assets
Shareholders’ equity (Note 10):
Common stock (Note 19):
Authorized – 2,000,000,000 shares in 2017 and 2016

75,45875,458672,591

Capital surplus

60,33460,297537,784

Retained earnings

55,754

195,863496,961

Issued– 939,382,298 shares in 2017 and 2016

Less treasury stock– 2,188,538 shares in 2017 and 2,162,825 shares in 2016
Total shareholders’ equity(1,084)(1,077)(9,662)

190,462

330,541

1,697,674

Accumulated other comprehensive income (loss):
Net unrealized holding gain on investments in securities (Notes 3 and 7)

8,850

6,486

78,884

Deferred gain on hedges (Notes 7 and 14)

10,1904,753

90,828

Revaluation reserve for land (Notes 7 and 11)

6,263

6,267

55,825

Translation adjustments

6,555

9,689

58,428Retirement benefits liability adjustments (Notes 7 and 9)
Total accumulated other comprehensive income(2,835)(2,360)(25,270)

29,02324,835

258,695

Non-controlling interests

25,997

24,538

231,722

Total net assets

245,482379,914

2,188,091¥ 1,045,210¥ 1,115,224$ 9,316,427

Total liabilities and net assets
The accompanying notes are an integral part of the consolidated financial statements.

“K” LINE REPORT 201759

Financial Section / Corporate Data

Consolidated Statement of Operations
Kawasaki Kisen Kaisha, Ltd. and Consolidated Subsidiaries
Year ended March 31, 2017
Thousands of
U.S. dollars(Note 1(a))

Millions of yen

2017

2016

2017

Marine transportation and other operating revenues (Note 18)¥ 1,030,191¥ 1,243,932$ 9,182,556

Marine transportation and other operating costs and expenses

1,000,744

1,159,989

8,920,082

Gross profit
Selling, general and administrative expenses
Operating (loss) income

29,447

83,943

262,474

75,48474,515

672,823(46,037)

9,428(410,349)

Other income (expenses):
Interest and dividend income (Note 18)

2,803

4,537

24,984

Interest expenses (Note 18)(6,625)(7,655)(59,052)

Equity in earnings of subsidiaries and affiliates, net (Note 18)

3,155

3,587

28,122

Exchange loss, net(4,006)(7,370)(35,707)(Loss) gain on sales of vessels, property and equipment, net(3,125)

10,221(27,855)

Loss on impairment of vessels, property and equipment (Notes 5 and 18)(20,363)(19,249)(181,505)

Provision of allowance for loss related to business restructuring (Note 20)(47,889)—(426,856)

Loss on cancellation of chartered vessels(7,943)(20,079)(70,800)

Other, net (Note 3)(1,197)(4,699)(10,667)(85,190)(40,707)(759,336)(131,227)(31,279)(1,169,685)

Loss before income taxes
Income taxes (Note 7):
Current

3,794

5,941

33,818Deferred

2,348

12,86920,9296,142

18,81054,747(137,369)(50,089)(1,224,432)

Total income taxes
Loss
Profit attributable to non-controlling interests
Loss attributable to owners of the parent
The accompanying notes are an integral part of the consolidated financial statements.

60“K” LINE REPORT 2017

2,110
¥ (139,479)

¥

1,410

18,807(51,499)$ (1,243,239)

Consolidated Statement of Comprehensive Income
Kawasaki Kisen Kaisha, Ltd. and Consolidated Subsidiaries
Year ended March 31, 2017
Thousands of
U.S. dollars(Note 1(a))

Millions of yen

Loss

2017

2016

2017

¥ (137,369)¥ (50,089)$ (1,224,432)

Other comprehensive income (loss) (Note 15):
Net unrealized holding gain (loss) on investments in securities

2,330(8,384)

20,768Deferred gain (loss) on hedges

4,636(4,619)41,323

(0)

59

(0)

(2,580)(13,858)(22,997)Retirement benefits liability adjustments(433)(2,389)(3,860)Share of other comprehensive income of subsidiaries and affiliates
accounted for by the equity method

644

457

5,741

Revaluation reserve for land
Translation adjustments

Total other comprehensive income (loss)
Comprehensive loss

4,597

(28,734)

40,975¥ (132,772)¥ (78,823)$ (1,183,457)¥ (135,288)¥ (78,522)$ (1,205,883)

2,516

(301)

22,426(Breakdown)Comprehensive loss attributable to owners of the parent
Comprehensive income (loss) attributable to non-controlling interests
The accompanying notes are an integral part of the consolidated financial statements.

“K” LINE REPORT 201761

Financial Section / Corporate Data

Consolidated Statement of Changes in Net Assets
Kawasaki Kisen Kaisha, Ltd. and Consolidated Subsidiaries
Year ended March 31, 2017
Millions of yen
Number ofshares in issue Common(Thousands)
stock

CapitalsurplusRetainedearnings

Net unrealized
Total
holding
Retirement accumulated
Total
gain onDeferred Revaluation
benefits
other
NonTreasury shareholders’ investments gain on reserve for Translation
liability comprehensive controlling
Total
stock
equityin securities hedges
landadjustments adjustments income
interests net assets

Balance at April 1, 2016
939,382 ¥ 75,458 ¥ 60,297 ¥ 195,863 ¥ (1,077) ¥ 330,541 ¥ 6,486 ¥ 4,753
Changes in items during theyears:Cash dividends———(2,344)—(2,344)——
Loss attributable to owners of
the parent——— (139,479)— (139,479)——
Purchases of treasury stock
—
—
—
—
(7)
(7)
—
—
Disposal of treasury stock
—
—
—
—
—
—
—
—
Change in ownership interests
due to transactions with noncontrolling interests
—
—
37
—
—
37
—
—
Reversal of revaluation reserve
for land
—
—
—
3
—
3
—
—
Net change in retained
earnings from changes inscope of consolidation orequity method
—
—
—
1,711
—
1,711
—
—
Net changes in items otherthan shareholders’ equity
—
—
—
—
—
—
2,364
5,437
Net change during the year——
37 (140,109)(7) (140,079)
2,364
5,437
Balance at March 31, 2017939,382 ¥ 75,458 ¥ 60,334 ¥ 55,754 ¥ (1,084) ¥ 190,462 ¥ 8,850 ¥ 10,190¥ 6,267¥ 9,689

—

—

—

—

—

—
—
—

—
—
—

—
—
—

—
—
—

— (139,479)
—
(7)
—
—

—

—

—

—

—

37

—

—

—

—

—

3

—

—

—

—

—

1,711

(4)
(4)
¥ 6,263¥ (2,360) ¥ 24,835 ¥ 24,538 ¥ 379,914(2,344)(3,134)
(475)
4,188
1,459
5,647
(3,134)(475)
4,188
1,459 (134,432)¥ 6,555 ¥ (2,835) ¥ 29,023 ¥ 25,997 ¥ 245,482

Millions of yen
Number ofshares in issue Common(Thousands)
stock

CapitalsurplusRetainedearnings

Net unrealized
Total
holding
Retirement accumulated
Total
gain onDeferred Revaluation
benefits
other
NonTreasury shareholders’ investments gain on reserve for Translation
liability comprehensive controlling
Total
stock
equityin securities hedges
landadjustments adjustments income
interests net assets

Balance at April 1, 2015
939,382 ¥ 75,458 ¥ 60,312 ¥ 254,922 ¥ (1,071) ¥ 389,621 ¥ 14,823 ¥ 8,720
Changes in items during theyears:Cash dividends———(7,969)—(7,969)——Loss attributable to owners of
the parent——— (51,499)— (51,499)——
Purchases of treasury stock
—
—
—
—
(7)
(7)
—
—
Disposal of treasury stock
—
—
(1)
—
1
0
—
—
Change in ownership interests
due to transactions with noncontrolling interests
—
—
(14)
—
—
(14)
—
—
Reversal of revaluation reserve
for land
—
—
—
54
—
54
—
—
Net change in retained
earnings from changes inscope of consolidation orequity method
—
—
—
355
—
355
—
—
Net changes in items otherthan shareholders’ equity
—
—
—
—
—
—
(8,337)(3,967)
Net change during the year——(15) (59,059)(6) (59,080)(8,337)(3,967)
Balance at March 31, 2016
939,382 ¥ 75,458 ¥ 60,297 ¥ 195,863 ¥ (1,077) ¥ 330,541 ¥ 6,486 ¥ 4,753¥ 6,209 ¥ 22,201¥(42) ¥ 51,911 ¥ 25,908 ¥ 467,440

—

—

—

—

—

(7,969)

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

(51,499)
(7)
0

—

—

—

—

—

(14)

—

—

—

—

—

54

—

—

—

—

—

355

58 (12,512)(2,318) (27,076)(1,370) (28,446)
58 (12,512)(2,318) (27,076)(1,370) (87,526)¥ 6,267 ¥ 9,689 ¥ (2,360) ¥ 24,835 ¥ 24,538 ¥ 379,914

Thousands of U.S. dollars (Note 1(a))

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

Net unrealized
holding
Total
gain onshareholders’ investments
equityin securities

Balance at April 1, 2016
$ 672,591 $ 537,454 $ 1,745,816 $ (9,600) $2,946,261 $ 57,813
Changes in items during theyears:Cash dividends——(20,893)—(20,893)—
Loss attributable to owners of
the parent—— (1,243,239)— (1,243,239)—
Purchases of treasury stock
—
—
—
(62)
(62)
—
Disposal of treasury stock
—
—
—
—
—
—
Change in ownership interests
due to transactions with noncontrolling interests
—
330
—
—
330
—
Reversal of revaluation reserve
for land
—
—
27
—
27
—
Net change in retained
earnings from changes inscope of consolidation orequity method——
15,250—15,250—Net changes in items otherthan shareholders’ equity
—
—
—
—
—
21,071
Net change during the year—
330 (1,248,855)(62) (1,248,587) 21,071
Balance at March 31, 2017
$ 672,591 $ 537,784 $ 496,961 $ (9,662) $1,697,674 $ 78,884
The accompanying notes are an integral part of the consolidated financial statements.

62“K” LINE REPORT 2017

Deferredgain onhedges

Total
Retirement accumulated
Revaluation
benefits
other
Nonreserve for Translation
liability comprehensive controllinglandadjustments adjustments income
interests

Total
net assets$ 42,366 $ 55,861 $ 86,362 $ (21,036) $ 221,366 $ 218,718 $ 3,386,345
—

—

—

—

—

—

(20,893)

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

(1,243,239)
(62)
—

—

—

—

—

—

—

330

—

—

—

—

—

—

27

—

—

—

—

—

—

15,25048,462(36) (27,934)(4,234) 37,329
13,00450,33348,462(36) (27,934)(4,234) 37,329
13,004 (1,198,254)$ 90,828 $ 55,825 $ 58,428 $ (25,270) $ 258,695 $ 231,722 $ 2,188,091

Consolidated Statement of Cash Flows
Kawasaki Kisen Kaisha, Ltd. and Consolidated Subsidiaries
Year ended March 31, 2017
Thousands of
U.S. dollars(Note 1(a))

Millions of yen

2017

2016

2017

¥ (131,227)¥ (31,279)$ (1,169,685)

47,421

48,303422,685

(235)

1,428

(2,095)Decrease in asset for retirement benefits

92

1,020

820

Increase (decrease) in retirement benefits liability adjustments

235(2,441)

2,095

Cash flows from operating activities:
Loss before income taxes
Depreciation and amortization(Decrease) increase in liability for retirement benefits

Increase in allowance for directors’ and audit and supervisory board
members’ retirement benefits
Decrease in accrued expenses for overhaul of vessels

1

114

9

(14)

(2,054)

(125)

—

3,551

—

Interest and dividend income(2,803)(4,537)(24,984)

Interest expenses

6,625

7,655

59,052

Exchange loss, net

261

3,063

2,326

Loss on impairment of vessels, property and equipment

20,363

19,249181,505

Increase in allowance for loss related to the Anti-Monopoly Act

Equity in earnings of subsidiaries and affiliates, net(3,155)(3,587)(28,122)

Loss on cancellation of chartered vessels

7,943

20,07970,800

Provision of allowance for loss related to business restructuring

47,889—426,856

Loss (gain) on sales of vessels, property and equipment, net

3,125(10,221)27,855

Changes in operating assets and liabilities:(Increase) decrease in accounts and notes receivable – trade(5,378)12,933(47,937)(Increase) decrease in inventories(7,550)12,976(67,297)(Increase) decrease in other current assets(5,201)

6,918(46,359)

Increase (decrease) in accounts and notes payable – trade

11,294(19,168)

100,669

190

(747)

1,694

Other, net

861(10,247)

7,673(82,565)

Increase (decrease) in other current liabilities
Subtotal(9,263)53,008Interest and dividends received

4,571

5,936

40,743

Interest paid

(6,658)(7,835)(59,346)

Payments for cancellation of chartered vessels(27,886)(500)(248,560)

(285)

(460)

(2,540)

Payments related to the Anti-Monopoly Act
Income taxes paid
Net cash (used in) provided by operating activities(4,398)(10,513)(39,202)¥ (43,919)¥ 39,636$ (391,470)“K” LINE REPORT 201763

Financial Section / Corporate Data

Consolidated Statement of Cash Flows (continued)
Kawasaki Kisen Kaisha, Ltd. and Consolidated Subsidiaries
Year ended March 31, 2017
Thousands of
U.S. dollars(Note 1(a))

Millions of yen

2017

2016

2017

¥ (125,187)¥ (102,465)$ (1,115,848)

124,715

92,8601,111,641(5,063)(5,475)(45,129)

Cash flows from investing activities:
Payments into time deposits
Proceeds from withdrawal of time deposits
Purchases of marketable securities and investments in securities
Proceeds from sales of marketable securities and investments insecurities

1,981

13,09817,658Purchases of vessels, property and equipment(66,434)(112,415)(592,156)

Proceeds from sales of vessels, property and equipment

45,76091,071

407,879

(753)

(805)

(6,712)

Payments of long-term loans receivable(747)(2,914)(6,658)

Collection of long-term loans receivable

1,653

1,171

14,734Purchases of intangible assets

Other, net
Net cash used in investing activities(807)(3,695)(7,193)(24,882)(29,569)(221,784)

Cash flows from financing activities:
(613)

51

(5,464)

Proceeds from long-term loans

107,237

96,449955,852

Repayment of long-term loans and obligations under finance leases(76,462)(111,379)(681,540)—

10,000

—

(378)

(378)

(3,369)(Decrease) increase in short-term loans, net

Proceeds from issuance of bonds
Redemption of bonds
Cash dividends paid

(2,351)(7,958)(20,956)

Cash dividends paid to non-controlling interests(1,033)(1,302)(9,208)Other, net
Net cash provided by (used in) financing activities

36

(319)

321

26,436(14,836)

235,636(37)(5,929)(330)

Net decrease in cash and cash equivalents(42,402)(10,698)(377,948)

Cash and cash equivalents at beginning of year

198,745

209,425

1,771,504
4,002

Effect of exchange rate changes on cash and cash equivalents

Increase in cash and cash equivalents arising from initial consolidation ofsubsidiaries

449

7

Increase in cash and cash equivalents resulting from merger

—

11

—

¥ 156,792¥ 198,745$ 1,397,558

Cash and cash equivalents at end of year (Note 16)
The accompanying notes are an integral part of the consolidated financial statements.

64“K” LINE REPORT 2017

Notes to Consolidated Financial Statements
Kawasaki Kisen Kaisha, Ltd. and Consolidated Subsidiaries
March 31, 2017

1. Summary of Significant Accounting Policies(a) Basis of preparation
The accompanying consolidated financial statements of Kawasaki
Kisen Kaisha, Ltd. (the “Company”) and its consolidated subsidiaries have been prepared on the basis of accounting principles generally accepted in Japan, which are different in certain respects
as to the application and disclosure requirements of International
Financial Reporting Standards (“IFRS”), and are compiled from theconsolidated financial statements prepared by the Company as
required by the Financial Instruments and Exchange Act of Japan.
In preparing the accompanying consolidated financial statements,
certain reclassifications and rearrangements have been made topresent them in a form which is familiar to readers outside Japan.
However, no adjustments have been made which would change
the financial position or the results of operations presented in theoriginal consolidated financial statements.
Certain reclassifications of previously reported amounts havebeen made to conform the consolidated financial statements forthe year ended March 31, 2016 to the 2017 presentation. Such
reclassifications had no effect on consolidated profit, net assets
or cash flows.
The translation of Japanese yen amounts into U.S. dollar
amounts is included solely for convenience and has been made,as a matter of arithmetic computation only, at ¥112.19=U.S.$1.00,
the approximate rate of exchange prevailing on March 31, 2017.
Furthermore, the translation should not be construed as a representation that Japanese yen have been, could have been, or could in
the future be, converted into U.S. dollars at that or any other rate.
(b) Principles of consolidation
The accompanying consolidated financial statements include theaccounts of the Company and 313 and 316 subsidiaries for theyears ended March 31, 2017 and 2016, respectively. The principles
of consolidation are to include significant subsidiaries, whose voting interests are owned 40 per cent. or more by the consolidated
group and whose decision-making control over their operations is
significantly affected by the consolidated group through financial
or technical support, personnel, transactions, and so forth. In addition, significant affiliates whose decision-making control over theiroperations is significantly affected by the consolidated group in
various ways are accounted for by the equity method.
For the purposes of consolidation, all significant intercompany
transactions, account balances and unrealized profit among theconsolidated group companies have been eliminated.
Goodwill is amortized by the straight-line method over a periodof five years.
(c) Accounting period
The Company and 304 consolidated subsidiaries have a March 31
year end, and the remaining nine consolidated subsidiaries havea December 31 year end. For three of these consolidated subsidiaries with a December year end, adjustments have been madefor any significant transactions which took place during the period
between their year end and the year end of the Company, and forthe other six, a provisional closing of their accounts as of the year
end of the Company has been used.

(d) Translation of foreign currencies
Revenues earned and expenses incurred in currencies other thanJapanese yen of the Company and its subsidiaries that maintaintheir books in Japanese yen are translated into Japanese yen
either at an average monthly exchange rate or at the rate prevailing on the date of the transaction. Monetary assets and liabilities denominated in currencies other than Japanese yen aretranslated into Japanese yen at the exchange rate prevailing at
the balance sheet date. Subsidiaries that maintain their books
in a currency other than Japanese yen translate revenues andexpenses and assets and liabilities dominated in foreign currencies into the currency used for financial reporting purposes inaccordance with accounting principles generally accepted in theirrespective countries of domicile.
(e) T ranslation of accounts of overseas consolidated
subsidiaries
The accounts of the overseas consolidated subsidiaries, except
for the components of net assets excluding non-controlling interests of consolidated subsidiaries, are translated into Japanese yenat the rates of exchange in effect at the balance sheet date. The
components of net assets excluding accumulated other comprehensive income (loss) and non-controlling interests are translated
at their historical exchange rates. Differences arising from translation are presented as translation adjustments and non-controllinginterests in the accompanying consolidated financial statements.
(f) Cash and cash equivalents
Cash and cash equivalents include cash on hand and in banks andother highly liquid investments with maturities of three months
or less when purchased.
(g) Allowance for doubtful receivables
An allowance for doubtful receivables is provided at an amountcalculated based on the historical experience of bad debts on
ordinary receivables plus an additional estimate of probable specific bad debts from customers experiencing financial difficulties.
(h) Inventories
Inventories are mainly stated at cost based on the moving-averagemethod (The method includes write-downs based on decreased
profitability).
(i) Securities
Securities are classified into three categories: trading securities,
held-to-maturity debt securities or other securities. Trading securities, consisting of debt and marketable equity securities, are stated
at fair value. Gain or loss, both realized and unrealized, are credited
or charged to income. Held-to-maturity debt securities are statedat their amortized cost. Marketable securities classified as othersecurities are carried at fair value with any changes in unrealized
holding gain or loss, net of the applicable income taxes, reported
as a separate component of net assets. Non-marketable securities
classified as other securities are carried at cost determined principally by the moving-average method.

“K” LINE REPORT 201765

Financial Section / Corporate Data

Under the Companies Act of Japan (the “Companies Act”), net
unrealized holding gain on investments in securities of the related
taxes, is not available for distribution as dividends.
(j) Vessels, property and equipment and depreciation
Depreciation of vessels is computed by the straight-line or the
declining-balance method over the estimated useful lives of therespective vessels.
Depreciation of property and equipment is computed principally by the declining-balance method over the estimated useful
lives of the respective assets. However, the depreciation of buildings (excluding accompanying facilities) acquired on or after April
1, 1998 and facilities attached to buildings and structures acquiredon or after April 1, 2016 are computed by the straight-line method.
Maintenance, repairs and minor improvements are charged toincome as incurred. Major improvements are capitalized.
(k) Capitalization of interest expense
Interest expense is generally charged to income as incurred.
However, interest expense incurred in the construction of certain
vessels is capitalized and included in the costs of the assets if theconstruction period is substantially long.
(l) Leases
Leased assets under finance lease transactions that transfer
ownership to the lessee are depreciated by the same methods
used for owned fixed assets.
Leased assets under finance lease transactions that do nottransfer ownership to the lessee are depreciated to a residual
value of zero by straight-line method over the lease term.
Finance lease transactions that do not transfer ownership tothe lessee, starting on or before March 31, 2008 are accounted
for as operating lease transactions.
(m) Research and development costs and computer
softwareResearch and development costs are charged to income as
incurred.
Expenditures relating to the development of computer software intended for internal use are charged to income whenincurred, unless these are deemed to contribute to the generationof future income or cost savings. Such expenditures are capitalized
as assets and amortized by the straight-line method over their estimated useful life of five years.
(n) Retirement benefits
The liability for retirement benefits has been provided principallyat an amount calculated based on the retirement benefit obligation after the fair value of the pension plan assets are deducted.
The retirement benefit obligations are attributed to each periodby the benefit formula method.
Actuarial differences are amortized in the years following theyear in which the differences are recognized by the straight-line
method principally over a period of nine years, which falls within
the estimated average remaining years of service of the eligible
employees.
Past service cost is amortized by the straight-line method

66“K” LINE REPORT 2017

principally over a period of nine years, which falls within theestimated average remaining years of service of the eligible
employees.
The expected long-term rate of return on plan assets is determined as a result of consideration of both the portfolio allocation
at present and in the future, and the long-term expected rate of
return from multiple plan assets at present and in the future.
Certain consolidated subsidiaries also provide for retirement
benefits to directors and audit and supervisory board members based on their internal rules at the amount which would be
required to be paid if all directors and audit and supervisory board
members retired at the balance sheet date.
(o) Accrued expenses for overhaul of vessels
Vessels of the Company and its consolidated subsidiaries (“theGroup”) are subject to periodic overhaul. An accrual is provided
on the basis of the estimated amount of total expenses expected
to be incurred for overhauling the vessels.
(p) Allowance for loss related to the Anti-Monopoly Act
In order to prepare for fines and penalties required by overseas
authorities relating to the Anti-Monopoly Act, an amount reasonably estimated to the extent possible is recorded.
(q) Allowance for loss related to business restructuring
In order to prepare for future losses resulting from businessrestructuring, the estimated amounts are recorded.
(r) Derivatives and hedging activities
The Group utilizes derivatives to hedge the risk arising from fluctuations in forward foreign currency exchange rates, mainly on
forecast transactions denominated in foreign currencies, interest
rates, mainly on loan and lease transactions and market prices,
mainly on bunker fuel.
If interest rate swap contracts are used as hedges and meetcertain hedging criteria, the net amount to be paid or received
under the interest rate swap contract is added to or deductedfrom the interest on the assets or liabilities for which the swap
contract is executed under “Special treatment.”
Forward foreign exchange contracts which meet certain criteria are accounted for by the allocation method which requires thatrecognized foreign currency receivables or payables be translated
at the corresponding contract rates.
The hedge effectiveness is assessed based on a comparison of the cumulative changes in cash flows or fair value ofthe hedged items with those of the hedging instruments in the
period from the start of the hedging relationship to the assessment date. However, an evaluation of effectiveness is omitted
for interest-rate swaps which meet certain conditions for applying the Special treatment.
The Group executes and manages transactions for the purpose of risk control of financial market and others in accordancewith internal rules. These rules have been established not only toprevent derivative or other transactions from being used for any
objective other than their original purpose or from being executedwithout limitation, but also to ensure the management body exercises its oversight functions.

(s) Income taxes
Deferred income taxes have been recognized with respect to thedifferences between financial reporting and the tax bases of theassets and liabilities. Deferred income taxes are measured at therates which are expected to apply to the period when each asset or
liability is realized, based on the tax rates which have been enacted
as of the balance sheet date or are subsequently enacted.
(t) Deferred assets
Bond issuance costs are charged to income as incurred.
(u) Distribution of retained earnings
Under the Companies Act and the Company’s Articles ofIncorporation, the distribution of retained earnings with respect to agiven fiscal year end is made by resolution of the shareholders at a
general meeting held subsequent to the close of the financial year.
The distribution of retained earnings with respect to the interim
financial period is made by resolution of the Board of Directors.
(v) Revenues and related costs
Revenues of the Group from cargo freight and the related costs
and expenses, except for those from container vessels, are recognized in full as of the dates on which the vessels complete theirrespective voyages (the voyage completion method). Revenues
from container vessels are recognized based on the passage ofthe transportation period (the complex transportation progress
method). The related costs and expenses are charged to income
as incurred. Revenues and costs with respect to charter services
are accounted for on an accrual basis.
(w) Consolidated taxation system
The Company and certain domestic consolidated subsidiaries
adopt the consolidated taxation system.
(x) Accounting Standards issued but not yet effective
On March 29, 2017, the Accounting Standards Board of Japan(“ASBJ”) issued “Revised Practical Solution on Unificationof Accounting Policies Applied to Foreign Subsidiaries for
Consolidated Financial Statements” (ASBJ Practical Issues
Task Force (“PITF”) No.18) and “Revised Practical Solution
on Unification of Accounting Policies Applied to Associates
Accounted for Using the Equity Method” (ASBJ PITF No.24).
(1) Overview
These revisions require the Company to include its domestic
subsidiaries or affiliated companies, which prepare their consolidated financial statements in accordance with designated
IFRS or modified IFRS and prepare disclosures in its securities reports based on the Financial Instruments and Exchange
Act of Japan, in scope of “Practical Solution on Unificationof Accounting Policies Applied to Foreign Subsidiaries for
Consolidated Financial Statements” and “Practical Solution
on Unification of Accounting Policies Applied to Associates
Accounted for Using the Equity Method.”(2) Scheduled date of adoption
The Company expects to adopt the revised practical solutions
from the beginning of the fiscal year ending March 31, 2018.
(3) Impact of adopting revised practical solutions
The effect of adopting these revised practical solutions on its
consolidated financial statements is unknown.

2. Changes in Method of Accounting(Application of Practical Solution on a Change inDepreciation Method Due to Tax Reform 2016)
The Company and its domestic subsidiaries adopted “Practical
Solution on a Change in Depreciation Method Due to Tax Reform
2016” (PITF No.32 issued on June 17, 2016) in accordance withthe revision of the Corporation Tax Act of Japan, and changed
their method of accounting for depreciation of the facilities
attached to buildings and other structures acquired on or after
April 1, 2016 from the declining-balance method to the straightline method.
The effect on the consolidated financial statements for theyear ended and as of March 31, 2017 was immaterial.
Additional Information(Application of Guidance on Recoverability of Deferred Tax
Assets)The “Revised Implementation Guidance on Recoverability ofDeferred Tax Assets” (ASBJ Guidance No.26, issued March 28,2016) was adopted from April 1, 2016.

3. Marketable Securities andInvestments in Securities
At March 31, 2017 and 2016, marketable securities and investments in securities with quoted market prices classified as
held-to-maturity debt securities are summarized as follows:
Millions of yen
2017
Carrying
value

Estimated
fair value

Unrealized
gain

¥5

¥5

¥0

Securities whose estimatedfair value exceeds theircarrying value:
Government and municipal
bonds
Securities whose estimatedfair value does not exceed
their carrying value:
Government and municipal
bonds

—

—

—

Total

¥5

¥5

¥0

“K” LINE REPORT 201767

Financial Section / Corporate Data

Millions of yen
2016
Carrying
value

Securities whose estimatedfair value exceeds theircarrying value:
Government and municipal
bonds
Securities whose estimatedfair value does not exceed
their carrying value:
Government and municipal
bonds

Estimated
fair value

Thousands of U.S. dollars
2017
Unrealized
gain

¥3

¥4

¥1

—

—

—

¥3

¥4

¥1

Equity securities$ 228,443 $ 129,468$ 98,975

Securities whose estimatedfair value exceeds theircarrying value:
Government and municipal
bonds
Securities whose estimatedfair value does not exceed
their carrying value:
Government and municipal
bonds

Estimated
fair value

Total

Total

$ 45

7,924

(891)
$ 98,084

$0

—

—

—

$ 45

$ 45

$0

At March 31, 2017 and 2016 marketable securities and investments in securities with quoted market prices classified as othersecurities are summarized as follows:
Millions of yen
2017
Carrying
value

Acquisition
costs

Unrealized
gain (loss)¥ 25,629¥ 14,525¥ 11,104889¥ 26,518

989¥ 15,514(100)¥ 11,004

Thousands of
U.S. dollars

Millions of yen

Unrealized
gain

2017

2016

2017

¥ 1,741¥ 13,135$ 15,518

Aggregate gain

342

6,321

3,048

Aggregate loss

—

(5)

—

Proceeds from sales

$ 45

8,815

$ 236,367 $ 138,283

Proceeds from sales of investments in securities classified asother securities for the years ended March 31, 2017 and 2016
are summarized as follows:

2017
Carrying
value

Loss on impairment is recorded on securities whose fair value has
declined by 50 per cent. or more, or whose fair value has declined
by 30 per cent. or more, but less than 50 per cent., if the decline
is deemed to be irrecoverable. Loss on impairment is recorded on
securities whose fair value is difficult to determine if the decline
is deemed to be irrecoverable considering the financial position of
the securities’ issuers.
The Company has recognized loss on devaluation of investments in securities classified as other securities of ¥6 million ($53
thousand) and ¥8,369 million for the years ended March 31, 2017and 2016, respectively. The Company has also recognized loss
on devaluation of investments in unconsolidated subsidiaries andaffiliates of ¥0 million ($0 thousand) for the year ended March 31,
2017. Loss on devaluation of investments in securities and unconsolidated subsidiaries and affiliates included in other, net is disclosed in consolidated statement of operations.

4. Inventories
Millions of yen

Inventories as of March 31, 2017 and 2016 are summarized asfollows:

2016
Carryingvalue

68

Unrealized
gain (loss)

Securities whose carrying
value does not exceed theiracquisition costs:
Equity securities

Thousands of U.S. dollars

Securities whose carrying
value exceeds theiracquisition costs:
Equity securities
Securities whose carrying
value does not exceed theiracquisition costs:
Equity securities
Total

Acquisition
costs

Securities whose carrying
value exceeds theiracquisition costs:

Total

Securities whose carrying
value exceeds theiracquisition costs:
Equity securities
Securities whose carrying
value does not exceed theiracquisition costs:
Equity securities
Total

Carrying
value

Acquisition
costs

Unrealized
gain (loss)

2017

Raw materials and supplies ¥ 29,547
Others¥ 13,972¥ 5,944¥ 8,028

8,523¥ 22,495

8,806¥ 14,750(283)¥ 7,745“K” LINE REPORT 2017

Thousands of
U.S. dollars

Millions of yen

Total

2016

2017

¥ 22,132$ 263,366

167

113

1,488

¥ 29,714¥ 22,245$ 264,854

5. Loss on Impairment of Vessels, Property and Equipment
Losses on impairment of vessels, property and equipment for the years ended March 31, 2017 and 2016 were as follows:
Millions of yen
Asset Description

Usage

Classification

Assets for heavy lifter services businessBusiness assets
Assets for offshore energy E&P support business Business assets
Assets for container services businessBusiness assets
Assets for iron ore carrier businessBusiness assets and assets for sale
Assets for bulk carrier businessBusiness assets and assets for sale
OthersBusiness assets, assets for sale and idle assets
Total

Vessels
Vessels
Vessels
Vessels
Vessels
Land, building and others

Thousands of
U.S. dollars

2017

2017

¥ 9,583
4,650
3,127
2,051
929
23
¥ 20,363$ 85,418
41,44827,872
18,281
8,281
205$ 181,505

Millions of yen
Asset Description

Usage

Classification

Assets for bulk carrier businessBusiness assets and assets for sale
Assets for iron ore carrier businessBusiness assets and assets for sale
Assets for short sea and coastal businessBusiness assets and assets for sale
Assets for offshore energy E&P support business Business assets
Assets for container services businessBusiness assets
OthersBusiness assets, assets for sale and idle assets
Total
The Group groups vessels, property and equipment for businessuse based on the smallest identifiable groups of assets generating cash flows whose income and expenditure are monitored perpetually; however, it groups idle assets individually.
Assets for sale have been grouped as business assets.
However, the carrying values of these assets were reduced to
the respective recoverable amounts as they are planned for sale.
The recoverable amount was measured at net selling value basedon the planned sales of amount.
As profitability decreased significantly, the carrying values ofassets were reduced to the respective recoverable amounts andloss on impairment was recorded for the year ended March 31,
2017. The recoverable amounts are measured by the value-inuse method based on estimated future cash flows discounted
at rate of 5.0 per cent. for the assets of the heavy lifter services business and 6.5 per cent. for the assets of the bulk carrier business and iron ore carrier business. As to the assets of
the offshore energy E&P support business and container services
business, the recoverable amounts were measured at net selling
value, which is reasonably measured by certain third parties, orby the value-in-use method based on estimated future cash flows

2016

Vessels
Vessels
Vessels and others
Vessels
Vessels
Vessels, land, building and others¥ 10,537
2,657
2,203
1,842
610
1,400
¥ 19,249

discounted at rate of 6.2 per cent. and 4.3 per cent., respectively.
As profitability decreased significantly, the carrying values ofassets were reduced to the respective recoverable amounts andloss on impairment was recorded for the year ended March 31,
2016. The recoverable amounts are measured by the value-inuse method based on estimated future cash flows discounted
at rate of from 6.0 to 6.5 per cent. for the assets of the bulk carrier business and iron ore carrier business, 3.8 per cent. for theassets of the short sea and coastal business and 5.0 per cent.
for the assets of the offshore energy E&P support business. As
to the assets of the container services business, the recoverable
amounts were measured at net selling value, which is reasonably
measured by certain third parties.
Since the idle assets’ carrying values were deemed to be irretrievably lower than the respective recoverable amounts mainly
due to decreasing land prices, the carrying values were reduced
to their respective recoverable amounts and a loss on impairment
was recognized for the years ended March 31, 2017 and 2016.
The recoverable amounts were measured at net selling value,
which was reasonably measured mainly by real estate appraisers.

6. Short-Term Loans and Long-Term Debt
Short-term loans from banks and insurance companies principally represent loans on deeds with average interest rates of 0.34 per cent.
and 0.48 per cent. per annum at March 31, 2017 and 2016, respectively.
Long-term debt at March 31, 2017 and 2016 consisted of the following:
Millions of yen
2017
2016

Loans from banks and insurance companies due in installments through September 2075 ataverage interest rates of 0.90% and 0.89% per annum at March 31, 2017 and 2016, respectively
Euro-yen zero coupon convertible bonds with stock acquisition rights in yen, due September 26, 2018
Bonds in yen, interest rate indexed to TIBOR, due July 16, 2019
0.69% bonds in yen, due August 31, 2020
1.05% bonds in yen, due August 31, 2022
Total
Less: Current portion¥ 447,134
50,000
2,565
3,000
7,000
509,699(43,335)¥ 466,364¥ 412,783
50,000
2,943
3,000
7,000
475,726(66,679)¥ 409,047

Thousands of
U.S. dollars
2017$ 3,985,506
445,673
22,863
26,74062,3944,543,176(386,264)$ 4,156,912“K” LINE REPORT 201769

Financial Section / Corporate Data

The Euro-yen zero coupon convertible bonds with stock acquisition rights due 2018 are convertible at ¥305.6 ($2.72) per shareand are exercisable from October 10, 2013 to September 12,
2018. When holders of bonds with stock acquisition rights who
intend to exercise their stock acquisition rights request conversion of the repayment of the bonds to the payment of the exercise price, the Company regards the payment of the exercise
price as the repayment of the bonds. When holders of bonds withstock acquisition rights exercise their stock acquisition rights, theCompany also regards the repayment of the convertible bonds as
the payment of the exercise price.
The aggregate annual maturities of long-term debt subsequent to March 31, 2017 are summarized as follows:Year ending March 31,

Millions of yen

Thousands of
U.S. dollars

2018¥ 43,335$ 386,264

2019

90,145803,5032020

45,001

401,1142021

86,557

771,5222022

125,890

1,122,1142023 and thereafter
Total

118,771

1,058,659¥ 509,699$ 4,543,176

A summary of assets pledged as collateral at March 31, 2017
for short-term loans and the current portion of long-term loans
in the amount of ¥31,641 million ($282,030 thousand), long-termloans of ¥211,509 million ($1,885,275 thousand) and loans to be
incurred in the future is presented below:
Millions of yen

Thousands of
U.S. dollars¥ 288,023$ 2,567,279

Buildings, structures and equipment

2,586

23,050

Land

1,689

15,055Investments in securities

Vessels

13,962

124,450

Other

340

3,030

Total

¥ 306,600$ 2,732,864

Investments in securities of ¥13,962 million ($124,450 thousand)were pledged as collateral to secure future loans for investments
in vessels of subsidiaries and affiliates. Therefore, no corresponding liabilities existed as of March 31, 2017.
Out of vessels at net book value of ¥288,023 million($2,567,279 thousand) above, ¥3,546 million ($31,607 thousand)was pledged as collateral for entrusted guarantees.

7. Income Taxes
The Company and its domestic consolidated subsidiaries are subject to a number of taxes based on income, which, in the aggregate, resulted in statutory tax rates of approximately 28.7 percent. and 29.5 per cent. for the years ended March 31, 2017 and2016, respectively.
The details of the differences between statutory tax rate andeffective tax rate for the years ended March 31, 2017 and 2016
are omitted because the Group recorded a loss before income
taxes for the years.

70“K” LINE REPORT 2017

The tax effects of temporary differences which gave rise to significant portions of the deferred tax assets and liabilities at March
31, 2017 and 2016 are analyzed as follows:
Millions of yen
2017
2016

Thousands of
U.S. dollars
2017

Deferred tax assets:
Liability for retirement
benefits¥ 2,792¥ 2,821$ 24,886

Other allowances

7,793

3,122

69,463

Loss on impairment ofvessels, property andequipment

1,998

2,924

17,809Elimination of unrealizedintercompany profit

954

947

8,503

Accounts and notes
payable – trade

1,812

1,848

16,151

Loss on devaluation of
investments in securities

11,992

1,668

106,890

Net operating loss carryforwards

48,96926,737436,483

Loss on cancellation ofchartered vessels

298

5,871

2,656

Allowance for loss related
to business restructuring

14,175—

126,348

Other

6,699

7,425

59,712Gross deferred tax assets

97,48253,363868,901

Valuation allowance(82,822)(38,131)(738,230)

Total deferred tax assets

14,66015,232

130,671

Reserve for special
depreciation

(549)

(421)

(4,893)

Deferred gain on tangible
fixed assets for tax
purposes

(861)

(946)

(7,674)

Unrealized holding gain
on investments insecurities(3,301)(2,323)(29,423)

Accelerated depreciationin overseas subsidiaries(3,829)(1,433)(34,130)

Deferred gain on hedges(4,516)(2,807)(40,253)

Deferred tax liabilities:(6,171)(6,214)(55,006)

Total deferred tax liabilities(19,227)(14,144)(171,379)

Net deferred tax assets(liabilities)¥ (4,567)¥ 1,088$ (40,708)

Other(Change in balance of deferred tax assets and deferred tax liabilities in line with changes in corporate tax rates)
The “Act for Partial Revision to the Partial Revision, etc. of theConsumption Tax Act for the Drastic Reform of the Taxation
System for Ensuring Stable Financial Resources, etc. for Social
Security” (Act No.85 of 2016) and the “Act for Partial Revision
to the Partial Revision, etc. of the Local Tax Act and the Local
Allocation Tax Act for the Drastic Reform of the Taxation System
for Ensuring Stable Financial Resources, etc. for Social Security”(Act No.86 of 2016) were enacted during the Japanese Diet session on November 18, 2016, and the timing of the Japanese
consumption tax rate hike was postponed from April 1, 2017 to
October 1, 2019.

This resulted in the postponing of the abolition of the special
local corporation tax, the restoration of the corporation enterprisetax, and the revision to the local corporation tax rate and the corporation inhabitant tax rate on a per capita basis from fiscal years
beginning on or after April 1, 2017 to fiscal years beginning on orafter October 1, 2019.
Although the effective statutory tax rate used to measure theCompany’s and its domestic consolidated subsidiaries’ deferred
tax assets and liabilities was not changed, there was a reclassification between the national corporation tax and the local corporation tax. The effect of this reclassification was immaterial.

Future minimum lease payments subsequent to March 31, 2017
for finance leases accounted for as operating leases are summarized as follows:

8. Leases(As lessees)

The following pro forma amounts represent the acquisition costs,
accumulated depreciation and net book value of assets leased
to the Group at March 31, 2017 and 2016, which would havebeen reflected in the accompanying consolidated balance sheets
if finance leases, other than those which transfer the ownershipof the leased assets to the Group, that started on or before March
31, 2008 (which are currently accounted for as operating leases)
had been capitalized:

Year ending March 31,

Millions of yen

Thousands of
U.S. dollars

2018¥ 31,134$

Millions of yen
Vessels

Acquisition costs¥ 18,517

Accumulated depreciation
Net book value

Others

Total

¥ 740

(2,887)(673)(3,560)¥ 15,630¥ 67¥ 15,697

2016
At March 31, 2016

Vessels

Others

Total

Acquisition costs¥ 23,042¥ 740¥ 23,782

Net book value(6,345)(612)(6,957)¥ 16,697¥ 128¥ 16,825

Thousands of U.S. dollars
2017
At March 31, 2017

Vessels

Acquisition costs$ 165,050

Accumulated depreciation
Net book value(25,733)$ 139,317

OthersTotal$ 6,596 $ 171,646(5,999)$(31,732)

597 $ 139,914

Lease payments related to finance leases accounted for as operating leases and depreciation and interest expenses for the years
ended March 31, 2017 and 2016 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

Lease payments
Depreciation
Interest expense

2019 and thereafter
Total

Millions of yen

Thousands of
U.S. dollars¥ 1,017$ 9,065

9,809

87,432¥ 10,826$ 96,497

Future minimum lease payments or receipts subsequent toMarch 31, 2017 for non-cancellable operating leases are summarized as follows:2019 and thereafter
Total

277,511

143,655

1,280,462¥ 174,789$ 1,557,973

Millions of yen

Thousands of
U.S. dollars(As lessors)Year ending March 31,

2018

¥ 54

Total

$ 481

3

27

¥ 57

$ 508

¥ 19,257

Millions of yen

Accumulated depreciation

20182019 and thereafter

2017
At March 31, 2017

Year ending March 31,

2017

2016

2017

¥ 1,527¥ 5,066$ 13,611

1,129

1,192

10,063

207

304

1,845

9. Retirement Benefits
The Group has funded and unfunded defined benefit plans anddefined contribution plans.
The defined benefit corporate pension plans (all of them are
funded plans) provide for a lump-sum payment or annuity payment determined by reference to the current rate of pay and thelength of service.
The retirement lump-sum plans provide for a lump-sum payment, as employee retirement benefits, determined by reference
to the current rate of pay and the length of service.
Certain consolidated subsidiaries calculate asset for retirement benefits, liability for retirement benefits and retirement
benefit expenses, for the defined benefit corporate pension plans
and the retirement lump-sum plans based on the amount which
would be payable at the year-end if all eligible employees terminated their services voluntarily (a “simplified method”).
Certain consolidated subsidiaries participate in a small-andmedium-sized enterprise mutual aid plan as a defined contribution plans.

“K” LINE REPORT 201771

Financial Section / Corporate Data

The defined benefit plans
The changes in the retirement benefit obligation, except for plans
which apply a simplified method, for the years ended March 31,2017 and 2016 are as follows:
Thousands of
U.S. dollars

Millions of yen
2017

2016

2017

¥ 25,853¥ 22,949$ 230,439

Service cost

1,571

1,327

14,003

Interest cost

82

269

731

(775)

2,231

(6,907)Retirement benefit obligation
at beginning of the year

Actuarial differences
Payment of retirement
benefits

(706)

(821)

(6,293)

Past service cost

106

(37)

945

Foreign currency exchange
rate changes

0

(113)

0

Other

—

48

—

Retirement benefit obligation
at end of the year

¥ 26,131¥ 25,853$ 232,918

The changes in pension plan assets, except for plans which
apply a simplified method, for the years ended March 31, 2017and 2016 are as follows:
Thousands of
U.S. dollars

Millions of yen
2017

2016

2017

Pension plan assets at fairvalue at beginning of the year

¥ 20,806¥ 20,501$ 185,453

Expected return on pension
plan assets

1,057

1,143

9,422

Actuarial differences(1,181)(1,437)(10,527)

Contributions by theemployer

1,142

1,246

10,179Payment of retirement
benefits(540)

Foreign currency exchange
rate changes
Pension plan assets at fairvalue at end of the year(639)

(4,813)

(0)

(8)

(0)

¥ 21,284¥ 20,806$ 189,714

The changes in liability for retirement benefits calculated by asimplified method for certain consolidated subsidiaries for theyears ended March 31, 2017 and 2016 are as follows:
Thousands of
U.S. dollars

Millions of yen

Liability for retirement
benefits, net at beginningof the year

2017

2016

2017

¥ 2,130¥ 2,258$ 18,986

401

285

3,574

Retirement benefit
expenses
Payment of retirement
benefits

(187)

(201)

(1,667)

Contributions to the plans

(171)

(212)

(1,524)

Liability for retirement
benefits, net at end of theyear¥ 2,173¥ 2,130$ 19,369

72

The following table sets forth the funded status of the plans andthe amounts recognized in the consolidated balance sheets as ofMarch 31, 2017 and 2016 for the Group’s defined benefit plans:

2017

2016

2017

Funded retirement benefit
obligation¥ 28,246¥ 27,916$ 251,769

Plan assets at fair value(23,433)(22,853)(208,869)

Subtotal

4,813

5,063

42,900Unfunded retirement
benefit obligation

2,207

2,099

19,673Liability for retirement
benefits in the
consolidated balance
sheet, net¥ 7,020¥ 7,162$ 62,573

Liability for retirement
benefits¥ 7,514¥ 7,748$ 66,976

(494)

(586)

(4,403)¥ 7,020¥ 7,162$ 62,573

Asset for retirement
benefits
Liability for retirement
benefits in the
consolidated balance
sheet, net

The above includes retirement benefit plans which apply a simplified method.
Retirement benefit expenses for the Group for the years ended
March 31, 2017 and 2016 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen
2017

2016

2017

Service cost

¥ 1,571¥ 1,327$ 14,003

Interest cost

82

269

731

(1,057)(1,143)(9,422)

778

292

6,935

(7)

(25)

(62)

401

285

3,574

¥ 1,768¥ 1,005$ 15,759

Expected return on
pension plan assets
Amortization of actuarial
differences
Amortization of past
service cost
Retirement benefit
expenses calculated by asimplified method
Retirement benefit
expenses

Retirement benefits liability adjustments included in other comprehensive income before tax effects for the Group for the years
ended March 31, 2017 and 2016 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen
2017

Past service cost
Actuarial loss“K” LINE REPORT 2017

Thousands of
U.S. dollars

Millions of yen

Total¥ (114)

2016

¥

11

2017

$ (1,016)

373(3,359)

3,325

¥ 259

¥ (3,348)$ 2,309

Retirement benefits liability adjustments included in accumulated
other comprehensive income before tax effects as of March 31,2017 and 2016 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen
2017

Unrecognized past service
cost
Unrecognized actuarial
differences
Total

¥

128

242

$

1,141

(3,286)(3,659)(29,290)¥ (3,158)¥ (3,417)$ (28,149)

The fair value of pension plan assets by major category as ofMarch 31, 2017 and 2016 is as follows:
2017

Bonds

41%

45%

20

20

General account assets
under insurance plan

31

28

Other

8

7

Total

100%

100%

2016

Discount rates

Mainly 0.0%

Mainly 0.0%

Expected rates ofreturn on plan assets

Mainly 7.4%

Mainly 8.2%

Mainly from
Rates of salary increase
1.2% to 16.3%

Increase

Decrease

March 31,2017

Common stock

939,382——

939,382

Treasury stock*1

2,163

26

—

2,189

Number of shares (Thousands)
April 1,
2015

Increase

Decrease

March 31,
2016

Common stock

939,382——

939,382

Treasury stock*2

2,138

26

1

2,163

11. Land Revaluation

The assumptions used in actuarial calculations for the above
defined benefit plans for the years ended March 31, 2017 and2016 are as follows:
2017

April 1, 2016*1	The increase in the number of shares in treasury stock of 26 thousand
shares is due to purchases of shares of less than one voting unit.
*2	The increase in the number of shares in treasury stock of 26 thousand shares is due to purchases of shares of less than one voting unit.
The decrease in the number of shares in treasury stock of 1 thousand
shares is due to sales of shares at request of shareholders owning lessthan one voting unit.

2016

EquityNumber of shares (Thousands)

2017

2016

¥

Movements in common stock and treasury stock of the Company
for the years ended March 31, 2017 and 2016 are summarized
as follows:

Mainly from 1.2%
to 16.3%

Total contributions paid by consolidated subsidiaries to thedefined contribution plans amounted to ¥753 million ($6,712
thousand) and ¥643 million for the years ended March 31, 2017and 2016, respectively.

10. Shareholders’ Equity
The Companies Act provides that an amount equal to 10 per cent.
of the amount to be disbursed as distributions of capital surplus(other than the capital reserve) and retained earnings (other thanthe legal reserve) be transferred to the capital reserve and thelegal reserve, respectively, until the sum of the capital reserveand the legal reserve equals 25 per cent. of the capital stock
account. Such distributions can be made at any time by resolution of the shareholders, or by the Board of Directors if certain
conditions are met.
The Company’s legal reserve included in retained earnings at
March 31, 2017 and 2016 amounted to ¥2,540 million ($22,640
thousand).

The Company and certain domestic consolidated subsidiaries
revalued the land used in their business in accordance with the
Act on Revaluation of Land (Act No. 34, March 31, 1998) and the
Act to Partially Revise the Act on Revaluation of Land (Act No. 19,
March 31, 2001). The effect of this revaluation has been recorded
as revaluation reserve for land in net assets, excluding the related
deferred income taxes on land revaluation.
The timing of the revaluation was effective March 31, 2002.
Certain affiliates accounted for by the equity method also
revalued the land used in their business in accordance with the
Act on Revaluation of Land (Act No. 34, March 31, 1998) and the
Act to Partially Revise the Act on Revaluation of Land (Act No. 19,
March 31, 2001).
At March 31, 2017 and 2016, the fair value of land was lower
than its carrying value after revaluation by ¥2,656 million ($23,674
thousand) and ¥2,675 million, respectively.

12. Commitments and Contingent
Liabilities
At March 31, 2017, commitments made by the Group for theconstruction of vessels amounted to ¥79,603 million ($709,537
thousand).
Contingent liabilities for guarantees of loans to affiliates andthird-party companies and obligations for additional investment,
etc. as of March 31, 2017 are as follows:

Guarantees of loans
Obligations for additional
investment, etc.

Millions ofyen

Thousands of
U.S. dollars

2017

2017

¥ 11,386$ 101,489

2,944

26,241“K” LINE REPORT 201773

Financial Section / Corporate Data(Other Important Matters Related to Current Conditions of
the Corporate Group)
The Group has been investigated by the competition authorities in Europe and certain other countries in relation to allegedanti-competitive behavior (alleged formation of a cartel) relating to the transportation of automobiles, automotive construction machineries, and other automotive vehicles. In addition, theGroup is currently subject to class actions in North America in
relation to the same matter and it is possible that further private
legal actions will be filed against the Group in the future. The
Group is currently unable to predict what the eventual outcomeof these investigations or legal actions will be. If the outcome ofany such action is unfavorable to the Group, this could materiallyadversely affect the Group’s business, financial condition and its
operation results.

13. Financial Instruments
Status of financial instruments
The Group obtains necessary funding, mainly through bank loans
and the issuance of bonds, in accordance with their capital expenditure plans. Temporary excess funds are invested in highly liquid
financial assets, and short-term operating funds are financed bybank loans. The Group utilizes derivatives only for avoiding risks,
but does not utilize them for speculation.
Trade accounts and notes receivable are exposed to credit
risk in the event of the nonperformance by counterparties. As
revenues from marine transportation are mainly denominated inforeign currencies, trade receivables are exposed to foreign currency exchange risk and a portion of them, net of trade payables
denominated in the same foreign currencies, are hedged by forward foreign exchange contracts. Future trade receivables suchas for freight and chartered vessels are exposed to market risks,and some of them are hedged by forward freight agreements.
The Group holds marketable securities and investments in securities, which are mainly issued by companies who have a business
relationship or capital alliance with the Group, and these securities are exposed to the risk of fluctuation in market prices. The
Group also has long-term loans receivable mainly from other subsidiaries and affiliates.
The Group has trade accounts and notes payable, whichhave payment due dates within one year. Funds for certain capital expenditures, such as construction of vessels denominatedin foreign currencies, are exposed to foreign currency exchangerisk, which are hedged by forward foreign exchange contracts.
Future trade payables such as payments for bunker fuel are
exposed to the risk of fluctuation of market prices, and someof them are hedged by bunker fuel swap contracts. Loans payable, bonds, bonds with stock acquisition rights and lease obligations for finance lease contracts are taken out principally for the
purpose of making capital investments. The repayment dates oflong-term debt extend up to 58 years subsequent to the balance
sheet date. Certain elements of these transactions are exposed
to interest rate fluctuation risk. The Group hedges this risk byentering into interest rate swap transactions. The Group hasentered into currency swap contracts to hedge foreign currency
exchange risk against trade payables.

74“K” LINE REPORT 2017

Regarding derivatives, the Group has entered into: 1) forward foreign exchange contracts and currency swap contracts
to hedge foreign currency exchange risk arising from receivables
and payables denominated in foreign currencies and funds forcapital investment to acquire operating assets such as vessels
and others; 2) bunker fuel swap contracts to hedge the risk ofbunker fuel price fluctuation; 3) forward freight agreements tohedge the risk of fluctuation of market prices; and 4) interest-rate
swap contracts to hedge the risk of interest rate fluctuation arising from interest payables for long-term payables and bonds.
For information on hedge accounting policies of the Group,
see Note 1. Summary of Significant Accounting Policies, (r)Derivatives and hedging activities.
The Company monitors regularly the condition of major business counterparties by each related business division with whom
the Company has accounts receivable for business or loans
receivable, and manages the outstanding balances and due dates
by counterparties, to minimize the risk of default arising from any
decline in the financial condition of counterparties. Its consolidated subsidiaries also monitor the condition of accounts receivable and loans receivable under a similar management policy.
The Group believes that the credit risk of derivatives is insignificant as the Group enters into derivatives transactions onlywith financial institutions which have a sound credit profile.
For receivables and payables denominated in foreign currencies and future loans related to investment in vessels, theCompany has entered into currency swap and forward foreignexchange contracts to hedge foreign currency exchange rate fluctuation risk, and interest-rate swap contracts to minimize interest
rate fluctuation risk of loans and bonds. For marketable securities and investments in securities, the Company continuously
reviews the condition of holding securities considering the stock
market and the relationship with issuing companies, taking into
account market value of securities and financial condition of issuing companies in accordance with internal regulations.
The Company enters into derivative transactions with theapproval from authorized officers in accordance with internal
regulations, which set forth transaction authority and maximum
upper limit on positions. Results of derivative transactions are
regularly reported at the executive officers meeting. Its consolidated subsidiaries also manage derivative transactions undersimilar regulations.
The Company manages liquidity risk by preparing and updating cash management plan on timely basis and maintaining liquid
instruments on hand based on reports from each business group.
The fair value of financial instruments is based on market
price, if available. When there is no market price, fair value isreasonably estimated. Fair value can fluctuate because different assumptions may be adopted for calculations of fair value
considering various factors. In addition, the notional amounts ofderivatives in Note 14. Derivatives and Hedging Activities are notnecessarily indicative of the actual market exposure involved in
the derivative transactions.
Estimated fair value of financial instruments
The carrying value of financial instruments on the consolidatedbalance sheets as of March 31, 2017 and 2016, and the estimatedfair value and the difference between them are shown in theThousands of U.S. dollars
2017
Carrying
Estimatedvalue
fair value
Difference

following table. The table does not include financial instruments
for which it is extremely difficult to determine the fair value.
Millions of yen
2017
Carrying
Estimatedvalue
fair value
Difference

Assets¥ 199,678 ¥ 199,678
Cash and deposits
Accounts and notes
receivable – trade
83,58083,580Marketable securities andinvestments in securities:
Held to maturity debt
5
5
securities
Other securities
26,51826,518Investment inunconsolidated
subsidiaries and affiliates
3,934
1,300
Total assets¥ 313,715 ¥ 311,081
Liabilities
Accounts and notes¥ (89,770) ¥ (89,770)
payable – trade
Short-term loans, inclusiveof current portion of longterm loans(47,470)(47,603)
Long-term debt, lesscurrent portion:(62,187)(65,916)
Bonds
Long-term loans(404,177) (405,427)
Total liabilities¥(603,604) ¥(608,716)
Derivative transactions*¥(539) ¥

(697)

¥

—
—

0
—
(2,634)¥ (2,634)

¥

—
(133)

(3,729)(1,250)¥ (5,112)¥(158)

Millions of yen
2016
Carrying
Estimatedvalue
fair value
Difference

Assets¥ 241,101 ¥ 241,101
Cash and deposits
Accounts and notes
receivable – trade
79,65379,653Marketable securities andinvestments in securities:
Held to maturity debt
3
4
securities
Other securities
22,49622,496
Investment inunconsolidated
subsidiaries and affiliates
3,827
1,022
Total assets¥ 347,080 ¥ 344,276

¥

—
—

1
—
(2,805)¥ (2,804)

Liabilities
Accounts and notes¥ 99,746 ¥ 99,746
payable – trade
Short-term loans, inclusiveof current portion of longterm loans
71,788
72,105Long-term debt, lesscurrent portion:
62,56560,970
Bonds
Long-term loans
346,482
348,136
Total liabilities¥ 580,581 ¥ 580,957(1,595)
1,654
¥ 376

Derivative transactions*¥¥(8,797) ¥(9,026)¥—
317

AssetsCash and deposits$ 1,779,820 $ 1,779,820
Accounts and notes
receivable – trade744,986
744,986
Marketable securities andinvestments in securities:
Held to maturity debt
securities
45
45
Other securities
236,367
236,367
Investment inunconsolidated
subsidiaries and affiliates
35,065
11,587
Total assets$ 2,796,283 $ 2,772,805
Liabilities
Accounts and notes
payable – trade$ (800,160)$ (800,160)
Short-term loans, inclusiveof current portion of longterm loans(423,121) (424,307)
Long-term debt, lesscurrent portion:
Bonds(554,301) (587,539)
Long-term loans(3,602,611) (3,613,753)
Total liabilities$(5,380,193)$(5,425,759)
Derivative transactions*$(4,804)$(6,213)

$

—
—

0
—
(23,478)$ (23,478)$—(1,186)(33,238)(11,142)$ (45,566)$ (1,409)* The value of assets and liabilities arising from derivative transactions isshown at net value, and the amounts in parentheses represent net liability position.

Fair value of cash and deposits and accounts and notes receivable – trade is based on carrying value as most of them are settled
within a short term and their fair value approximates carrying value.
Fair value of equity securities and investments in securities is based on market prices prevailing in the applicable stock
exchange. Fair value of debt securities is based on market prices
provided by financial institutions. For information on securities
classified by holding purpose, please refer to Note 3. Marketable
Securities and Investments in Securities.
Fair value of accounts and notes payable – trade and shortterm loans is based on carrying value as most of them are settled within a short term and their fair value approximates carrying
value, except for the current portion of long-term loans whose fairvalue is based on the same method as long-term loans.
Fair value of bonds is mainly based on market prices.
Fair value of long-term loans is mainly based on the present
value of the total amount including principal and interest, discounted by the expected interest rate assuming a new borrowingof a similar loan.
The financial instruments whose fair value is difficult to determine as of March 31, 2017 and 2016 are summarized as follows.
Millions of yen

Unlisted investments insecurities

Thousands of
U.S. dollars

2017

2016

2017

¥ 50,264¥ 44,570$ 448,026(229)“K” LINE REPORT 201775

Financial Section / Corporate Data

For unlisted investments in securities, there is neither market value nor estimated future cash flow, and it is difficult to determine the fairvalue. Therefore, the fair value of unlisted investments in securities is not included in investments in securities in the summary table of financial instruments.
The redemption schedule as of March 31, 2017 for cash and deposits, accounts and notes receivable – trade and held-to-maturity
securities is summarized as follows:
Millions of yen
2017
Within 1 year

Cash and deposits

Over 1 year
within 5 years

Over 5 years
within 10 years

Over 10 years¥ 199,678

¥—

¥—

¥—

83,580

—

—

—

0

3

2

—

¥ 283,258

¥3

¥ 2

¥—

Accounts and notes receivable – tradeMarketable securities and Investments in securities
Held-to-maturity securities:
Government, municipal bonds and others
Total

Thousands of U.S. dollars
2017
Within 1 year

Cash and deposits
Accounts and notes receivable – trade

Over 1 year
within 5 years

Over 5 years
within 10 years

Over 10 years$ 1,779,820

$—

$—

$—

744,986———

Marketable securities and Investments in securities
Held-to-maturity securities:
0

27

18

—

$ 2,524,806

$ 27

$ 18

$—

Government, municipal bonds and others
Total

14. Derivatives and Hedging Activities
Information on the estimated fair value of the derivatives positions outstanding not qualified for deferral hedge accounting at March 31,2017 has been omitted due to immateriality.
The estimated fair value of the derivatives positions outstanding not qualified for deferral hedge accounting at March 31, 2016 is summarized as follows:
Currency-related transactions
Millions of yen
2016Classification

Over-the-countertransactions

Transaction

Total contract value(notional principal amount)

Estimated fair value

Unrealized gain (loss)

Forward exchange contracts
Buying:USD¥ 4,479¥ (56)¥ (56)

GBP

364

0

0

Selling:
EUR
Total

20,873(97)(97)¥ 25,716¥ (153)¥ (153)

Fair value is mainly based on relevant prices quoted by financial institutions and others.

76“K” LINE REPORT 2017

The estimated fair value of the derivatives positions outstanding qualified for deferral hedge accounting at March 31, 2017 and 2016 issummarized as follows:
Currency-related transactions

Method ofhedge accounting

Transaction

Deferral hedge Forward exchange contracts
Buying:
USD
CAD
Selling:
USD
Currency swaps
Receiving JPY, paying USD
Fair value
hedge

Forward exchange contracts
Buying:
NOK
Total

Method ofhedge accounting

Transaction

Deferral hedge Forward exchange contracts
Buying:
USD
EUR
CAD
Selling:
USD

Major hedged item

Millions of yen
2017
Contract value
Total contract (notional principal
value (notionalamount) overprincipal amount)
one year¥ 95,655¥ 70,033¥ 6,6954—0Forecasted foreign currencytransactions

2,629

—

(48)

Vessel chartering revenues andforecasted foreign currencytransactions

19,297

12,581

1,026

2,200
¥ 119,785

0¥ 82,614

62¥ 7,735

Capital expenditures and others
Forecasted foreign currencytransactions

Long-term loans

Major hedged item

Millions of yen
2016
Contract value
Total contract (notional principal
value (notionalamount) overprincipal amount)
one year

Capital expenditures and others
Forecasted foreign currencytransactions
Forecasted foreign currencytransactions
Forecasted foreign currencytransactions

Currency swaps
Receiving USD, paying EUR
Receiving JPY, paying USD

Vessel chartering expenses
Vessel chartering revenues andforecasted foreign currencytransactions

Total

Method ofhedge accounting

Transaction

Deferral hedge Forward exchange contracts
Buying:
USD
CAD
Selling:
USD
Currency swaps
Receiving JPY, paying USD
Fair value
hedge

Forward exchange contracts
Buying:
NOK
Total

Estimated
fair value

Major hedged item

Estimated
fair value¥ 38,864¥ 34,995¥ 3,899

8

—

(0)

3

—

0

1,814

—

131

270

—

43

25,555¥ 66,514

19,068¥ 54,063

1,307¥ 5,380

Thousands of U.S. dollars
2017
Contract value
Total contract (notional principal
value (notionalamount) over
Estimatedprincipal amount)
one yearfair value

852,616$ 624,236$ 59,676

36—0Forecasted foreign currencytransactions

23,433—(428)

Vessel chartering revenues andforecasted foreign currencytransactions

172,003112,140

9,145

19,610$ 1,067,698

0$ 736,376

553$ 68,946

Capital expenditures and others
Forecasted foreign currencytransactions

Long-term loans$

Fair value is mainly based on relevant prices quoted by financial institutions and others.
Fair value hedge is used by an overseas subsidiary that applies IFRS.

“K” LINE REPORT 201777

Financial Section / Corporate Data

Interest rate-related transactions
Millions of yen
2017

Method ofhedge accounting

Deferral hedge
Special treatment forinterest rate swaps

Transaction

Interest rate swaps
Receive floating / Pay fixedInterest rate swaps
Receive floating / Pay fixed
Total

Major hedged item

Contract value
Total contract (notional principal
value (notionalamount) overprincipal amount)
one year

Estimated
fair value

Long-term loans¥ 91,700¥ 90,154¥ (8,170)

Long-term loans

2,855¥ 94,555

2,425¥ 92,579(158)¥ (8,328)

Millions of yen
2016

Method ofhedge accounting

Deferral hedge
Special treatment forinterest rate swaps

Transaction

Interest rate swaps
Receive floating / Pay fixedInterest rate swaps
Receive floating / Pay fixed
Total

Major hedged item

Contract value
Total contract (notional principal
value (notionalamount) overprincipal amount)
one year

Estimated
fair value

Long-term loans¥ 92,912¥ 90,344¥ (11,615)

Long-term loans

3,335¥ 96,247

2,945¥ 93,289(228)¥ (11,843)

Thousands of U.S. dollars
2017

Method ofhedge accounting

Deferral hedge
Special treatment forinterest rate swaps

Transaction

Interest rate swaps
Receive floating / Pay fixedInterest rate swaps
Receive floating / Pay fixed
Total

Major hedged item

Contract value
Total contract (notional principal
value (notionalamount) overprincipal amount)
one year

Estimated
fair value

Long-term loans$ 817,363$ 803,583$ (72,823)

Long-term loans

25,448$ 842,811

21,615$ 825,198(1,408)$ (74,231)

Fair value is mainly based on relevant prices quoted by financial institutions and others.
OthersMillions of yen
2017

Method ofhedge accounting

Deferral hedge

Transaction

Bunker fuel swaps
Forward freight agreements
Total

Major hedged item

Bunker fuel purchases
Ocean freightContract value
Total contract (notional principal
value (notionalamount) overprincipal amount)
one year¥ 5,480
1,898¥ 7,378¥ 1,070—¥ 1,070

Estimated
fair value

¥ 292
(485)
¥ (193)

Millions of yen
2016

Method ofhedge accounting

Deferral hedge

Transaction

Bunker fuel swaps
Forward freight agreements
Total

Major hedged item

Bunker fuel purchases
Ocean freightContract value
Total contract (notional principal
value (notionalamount) overprincipal amount)
one year¥ 7,831376¥ 8,207¥ 1,064—¥ 1,064

Estimated
fair value¥ (2,399)(10)¥ (2,409)

Thousands of U.S. dollars
2017

Method ofhedge accounting

Deferral hedge

Transaction

Bunker fuel swaps
Forward freight agreements
Total

Major hedged item

Bunker fuel purchases
Ocean freight

Fair value is mainly based on relevant prices quoted by financial institutions and others.

78“K” LINE REPORT 2017

Contract value
Total contract (notional principal
value (notionalamount) overprincipal amount)
one year$ 48,846
16,918$ 65,764$ 9,537—$ 9,537

Estimated
fair value$ 2,603(4,323)$ (1,720)

15. Other Comprehensive Income
The following table presents reclassification adjustments and tax effects allocated to each component of other comprehensive income
for the years ended March 31, 2017 and 2016.
Thousands of
U.S. dollars

Millions of yen
2017

2016

2017

$ 28,229

Net unrealized holding gain (loss) on investments in securities:¥ 3,167¥ (14,249)

Reclassification adjustments to profit or loss

(308)

2,187

(2,745)

Amount before tax effect2,859(12,062)

25,484

Amount arising during the year

Tax effect

(529)

3,678

(4,716)

Net unrealized holding gain (loss) on investments in securities

2,330(8,384)

20,7682,056(13,467)

18,326

Reclassification adjustments to profit or loss

6,197

11,26455,237

Adjustments for acquisition costs of vessels due to valuation of hedges(1,908)(6,177)(17,007)

Deferred gain (loss) on hedges:
Amount arising during the year

Amount before tax effectTax effect
Deferred gain (loss) on hedges

6,345(8,380)56,556(1,709)3,761(15,233)

4,636(4,619)41,323

Revaluation reserve for land:
(0)

59

(0)

(0)

59

(0)

(2,667)(13,642)(23,772)

87

(216)

775

(2,580)(13,858)(22,997)

Amount arising during the year(468)

(3,580)(4,171)

Reclassification adjustments to profit or loss

727

232

6,480

Tax effectRevaluation reserve for land
Translation adjustments:
Amount arising during the year
Reclassification adjustments to profit or loss
Translation adjustments
Retirement benefits liability adjustments:

259(3,348)2,309

Tax effect

(692)

959

(6,169)Retirement benefits liability adjustments(433)(2,389)(3,860)

Amount arising during the year

(540)

(408)

(4,813)

Reclassification adjustments to profit or loss

1,184

865

10,554

Amount before tax effect

Share of other comprehensive income of subsidiaries and affiliates accounted for by the equity
method:Share of other comprehensive income of subsidiaries and affiliates accounted for by the equity
methodTotal other comprehensive income (loss)

644

457

5,741

¥ 4,597¥ (28,734)$ 40,975

16. Supplementary Information on Consolidated Statements of Cash Flows
Cash and cash equivalents in the accompanying consolidated statements of cash flows for the years ended March 31, 2017 and 2016 arereconciled to cash and deposits reflected in the accompanying consolidated balance sheets as of March 31, 2017 and 2016 as follows:
Millions of yen

Cash and deposits
Time deposits with a maturity of more than three months after the purchase dateCash and cash equivalents

Thousands of
U.S. dollars

2017

2016

2017

¥ 199,678¥ 241,101$1,779,820(42,886)(42,356)(382,262)¥ 156,792¥ 198,745$1,397,558“K” LINE REPORT 201779

Financial Section / Corporate Data

17. Amounts per Share

18. Segment Information

Amounts per share at March 31, 2017 and 2016 and for the years
then ended are as follows:

Segment information for the years ended March 31, 2017 and2016
1. Overview of reporting segments
The Company’s reporting segments are its structural units, forwhich separate financial information is available, and which
are subject to periodic review by the Board of Directors inorder to assist decision-making on the allocation of managerial
resources and assessment of business performance.
The Group is a shipping business organization centering on marine transportation service and has three reporting
segments, which are the containership business segment,
the bulk shipping business segment and the offshore energy
exploration and production (“E&P”) support and heavy lifterbusiness segment, considering the economic characteristics,
service contents and method of the provision and categorization of the market and customers.
The containership business includes container ship service
and logistics service. The bulk shipping business includes thefollowing services: dry bulk carrier service, car carrier service,energy transportation and tanker business and short sea andcoastal business. The offshore energy E&P support and heavy
lifter business includes the following services: offshore energy
exploration and production business, offshore support vessel
business and heavy lifter business.

Yen

Net assets

U.S. dollars

2017

2016

2017

¥ 234.19¥ 379.18$ 2.09(148.82)(54.95)(1.33)

—

—

—

—

5.00

—

Loss attributable to ownersof the parent:
Basic
DilutedCash dividends applicableto the year

Net assets per share have been computed based on the numberof shares of common stock outstanding at the year end.
Basic loss attributable to owners of the parent per share has
been computed based on loss attributable to shareholders ofcommon stock and the weighted-average number of shares ofcommon stock outstanding during the year.
Diluted loss attributable to owners of the parent per share forthe years ended March 31, 2017 and 2016 has not been presented although dilutive potential common shares exist, because
losses for the years were recorded.
The financial data used in the computation of basic loss per
share for the years ended March 31, 2017 and 2016 in the table
above is summarized as follows:
Millions of yen
2017

2016

Thousands of
U.S. dollars
2017

Information used incomputation of basic
loss per share:
Loss attributable toowners of the parent¥ (139,479)¥ (51,499) $ (1,243,239)

Thousands of shares
2017

Weighted-average
number of sharesof common stock
outstanding

80

937,211“K” LINE REPORT 2017

2. Calculation method of reporting segment profit (loss)
Reporting segment profit (loss) represents ordinary income(loss), which consists of operating income (loss) and nonoperating income / expenses. Nonoperating income / expenses mainly
include interest income, dividend income, interest expenses,
exchange loss net, equity in earnings of subsidiaries and affiliates, net and other, net.
Intra-group revenues and transfers are intra-group transactions which are based on market price and other.

2016937,233

3. Application of Practical Solution on a Change inDepreciation Method Due to Tax Reform 2016
As described in Note 2. “Changes in Method of Accounting,”
the Company and its domestic subsidiaries adopted “Practical
Solution on a Change in Depreciation Method Due to Tax Reform
2016” (PITF No.32 issued on June 17, 2016) in accordance withthe revision of the Corporation Tax Act of Japan, and changed
their method of accounting for depreciation of the facilities
attached to buildings and other structures acquired on or after
April 1, 2016 from the declining-balance method to the straightline method.
The effect of the change on the segment profit (loss) for theyear ended March 31, 2017 was immaterial.

4. Information on operating revenues, profit or loss, assets, and other items by each reporting segment
Reporting segment information for the years ended March 31, 2017 and 2016 consisted of the following:

Millions of yen
2017

1. Revenues:(1) Operating revenues from customers(2) Intra-group revenues and transfers
Total revenues
2. Segment profit (loss)*3
3. Segment assets
4. Others(1) Depreciation and amortization(2) A mortization of goodwill and negative
goodwill, net(3) Interest income(4) Interest expenses(5) E quity in earnings of subsidiaries andaffiliates, net(6) Investments in subsidiaries andaffiliates accounted for by the equity
method(7) Increase in vessels, property andequipment and intangible assets

Containership

Bulk shipping

Offshore energy
E&P supportand heavy lifter¥ 518,954
5,129¥ 524,083¥ (31,489)¥ 239,333¥ 456,542
2,442¥ 458,984¥ (9,477)¥ 634,434¥ 19,421—¥ 19,421¥ (5,119)¥ 64,741¥ 35,274
44,696¥ 79,970¥ 2,519¥ 83,801¥

8,354¥ 32,008¥ 4,809¥ 1,870 ¥

47,041

43
598
658

—
778
4,775

—
7
1,064

—
151
160

968

929

1,145

12,585

10,705

11,78955,077

Other*1

Total¥ 1,030,191
52,267¥ 1,082,458¥ (43,566)¥ 1,022,309

Adjustments
andeliminations*2

Consolidated¥— ¥ 1,030,191(52,267)—¥ (52,267) ¥ 1,030,191¥ (8,823) ¥ (52,389)¥ 22,901 ¥ 1,045,210
¥

380 ¥

47,421

43
1,534
6,657

—
(160)
(32)

43
1,374
6,625

113

3,155

—

3,155

6,547

3,962

33,799—33,7999846

67,721327

68,048Adjustments
andeliminations*4

Consolidated

Millions of yen
2016

1. Revenues:(1) Operating revenues from customers(2) Intra-group revenues and transfers
Total revenues
2. Segment profit (loss)*3
3. Segment assets
4. Others(1) Depreciation and amortization(2) A mortization of goodwill and negative
goodwill, net(3) Interest income(4) Interest expenses(5) E quity in earnings of subsidiaries andaffiliates, net(6) Investments in subsidiaries andaffiliates accounted for by the equity
method(7) Increase in vessels, property andequipment and intangible assets

Containership

Bulk shipping

Offshore energy
E&P supportand heavy lifter¥ 614,908
8,055¥ 622,963¥ (10,050)¥ 231,471¥ 567,617
2,534¥ 570,151¥ 24,656¥ 686,164¥ 24,6560¥ 24,656¥ (6,554)¥ 88,077¥ 36,751
50,475¥ 87,226¥ 1,828¥ 80,809¥

7,478¥ 33,045¥ 5,147¥ 2,271 ¥

47,941

173
871
852

—
683
5,159

—
32
1,426

—
121
164

2,180

428

899

8,460

7,937

31,16882,852Other*1

Total¥ 1,243,932
61,064¥ 1,304,996¥
9,880¥ 1,086,521¥— ¥ 1,243,932(61,064)—¥ (61,064) ¥ 1,243,932¥ (6,541) ¥3,339¥ 28,703 ¥ 1,115,224
¥

362 ¥

48,303

173
1,707
7,601

—
7
54

173
1,714
7,655

80

3,587

—

3,587

6,172

4,108

26,677—

26,67733

2,024

116,077516

116,593“K” LINE REPORT 201781

Financial Section / Corporate Data

Thousands of U.S. dollars
2017

1. Revenues:(1) Operating revenues from customers(2) Intra-group revenues and transfers
Total revenues
2. Segment profit (loss)*3
3. Segment assets
4. Others(1) Depreciation and amortization(2) Amortization of goodwill and negative
goodwill, net(3) Interest income(4) Interest expenses(5) Equity in earnings of subsidiaries andaffiliates, net(6) Investments in subsidiaries andaffiliates accounted for by the equity
method(7) Increase in vessels, property andequipment and intangible assets

Containership

Bulk shipping$ 4,625,671
45,717$ 4,671,388$ (280,676)$ 2,133,283$ 4,069,364
21,767$ 4,091,131$ (84,473)$ 5,654,996$$

Offshore energy
E&P supportand heavy lifter

Adjustments
andeliminations*2

Other*1

Total$ 173,108—$ 173,108$ (45,628)$ 577,066$ 314,413
398,395$ 712,808$ 22,453$ 746,956$ 9,182,556
465,879$ 9,648,435$ (388,324)$ 9,112,301$—(465,879)$ (465,879)$ (78,643)$ 204,126$ 9,182,556—$ 9,182,556$ (466,967)$ 9,316,427

285,302$ 42,865$ 16,668

$

$

$

383
5,330
5,865

—
6,935
42,562

—
62
9,484

—
1,346
1,426

383
13,67359,337—(1,426)(285)

383
12,24759,052

8,628

8,281

10,206

1,007

28,122—

28,122

112,176

95,41858,35635,316301,266—

301,266

105,081490,92680

7,541

603,628

2,914

606,542

74,463419,298

3,387

Consolidated

422,685*1	The “Other” segment consists of business segments not classified into aforementioned three reporting segments, including ship management service,
travel agency business and real estate rental and management business and others.
*2 (1)	The adjustment and elimination of segment profit (loss) of ¥8,823 million ($78,643 thousand) includes the following elements: ¥851 million ($7,585
thousand) of intersegment transaction eliminations and ¥7,972 million ($71,058 thousand) of corporate expenses, which are not distributed to specific segments.
(2)	The adjustment and elimination of segment assets of ¥22,901 million ($204,126 thousand) includes the following elements: ¥53,166 million ($473,893
thousand) of intersegment transaction eliminations and ¥76,067 million ($678,019 thousand) of corporate assets, which are not distributed to specificsegments.
(3)	The adjustment and elimination of depreciation and amortization of ¥380 million ($3,387 thousand) is depreciation and amortization of assets thatbelong to the entire group, which are not distributed to specific segments.
(4)	The adjustment and elimination of interest income of ¥160 million ($1,426 thousand) includes the following elements: ¥249 million ($2,219 thousand)of intersegment transaction eliminations and ¥89 million ($793 thousand) of interest income, which are not distributed to specific segments.
(5)	The adjustment and elimination of interest expenses of ¥32 million ($285 thousand) includes the following elements: ¥249 million ($2,219 thousand)of intersegment transaction eliminations and ¥217 million ($1,934 thousand) of interest expenses, which are not distributed to specific segments.
(6)	The adjustment and elimination of increase in vessels, property and equipment, and intangible assets of ¥327 million ($2,914 thousand) is the increasein assets that belong to the entire group, which are not distributed to specific segments.
*3 Segment profit (loss) is adjusted for ordinary income (loss) as described in 2. Calculation method of reporting segment profit (loss).
*4 (1)	The adjustment and elimination of segment profit (loss) of ¥6,541 million includes the following elements: ¥548 million of intersegment transaction
eliminations and ¥5,993 million of corporate expenses, which are not distributed to specific segments.
(2)	The adjustment and elimination of segment assets of ¥28,703 million includes the following elements: ¥40,327 million of intersegment transaction
eliminations and ¥69,030 million of corporate assets, which are not distributed to specific segments.
(3)	The adjustment and elimination of depreciation and amortization of ¥362 million is depreciation and amortization of assets that belong to the entire
group, which are not distributed to specific segments.
(4)	The adjustment and elimination of interest income of ¥7 million includes the following elements: ¥191 million of intersegment transaction eliminations and ¥198 million of interest income, which are not distributed to specific segments.
(5)	The adjustment and elimination of interest expenses of ¥54 million includes the following elements: ¥191 million of intersegment transaction eliminations and ¥245 million of interest expenses, which are not distributed to specific segments.
(6)	The adjustment and elimination of increase in vessels, property and equipment, and intangible assets of ¥516 million is the increase in assets thatbelong to the entire group, which are not distributed to specific segments.

Revenues by countries or geographical areas for the years ended March 31, 2017 and 2016 are summarized as follows:
Millions of yen
2017

RevenuesJapan

U.S.A.

EuropeAsia¥ 412,456¥ 208,213¥ 139,355¥ 231,893

Others¥ 38,274

Total¥ 1,030,191

Millions of yen
2016

RevenuesJapan

U.S.A.

EuropeAsia¥ 493,552¥ 251,283¥ 161,518¥ 293,076

Others¥ 44,503

Total¥ 1,243,932

Thousands of U.S. dollars
2017

Revenues

82“K” LINE REPORT 2017

Japan

U.S.A.

EuropeAsia

OthersTotal$ 3,676,406$ 1,855,896$ 1,242,134$ 2,066,967$ 341,153$ 9,182,556

At March 31, 2017 and 2016, vessels, property and equipment by countries or geographical areas are summarized as follows:
Millions of yen
2017Singapore
OthersJapan

Vessels, property and equipment¥ 362,111

Japan

Vessels, property and equipment

Singapore¥ 375,347

Total¥ 103,742¥ 526,388

Millions of yen
2016
UK

Others¥ 64,206¥ 59,951$ 3,227,658$ 539,576

Total¥ 84,048

Thousands of U.S. dollars
2017
Singapore
OthersJapan

Vessels, property and equipment¥ 60,535¥ 583,552

Total$ 924,699$ 4,691,933

The loss on impairment of vessels, property and equipment for the years ended March 31, 2017 and 2016 is as follows:

Loss on impairment of vessels, property and equipment

Loss on impairment of vessels, property and equipment

Loss on impairment of vessels, property and equipment

Containership

Bulk shipping¥ 3,132¥ 2,984

Containership

Bulk shipping¥ 1,189¥ 15,397

Containership

Bulk shipping$ 27,917$ 26,598

Millions of yen
2017
Offshore energy
E&P supportand heavy lifter
Other*¥ 14,233¥1

Millions of yen
2016
Offshore energy
E&P supportand heavy lifter
Other*¥ 2,062

Adjustments
andeliminations¥ 13

Adjustments
andeliminations

¥ 601

¥—

Thousands of U.S. dollars
2017
Offshore energy
E&P supportand heavy lifter
Other*

Adjustments
andeliminations$ 126,865

$9

$ 116

Total

¥ 20,363

Total¥ 19,249

Total$ 181,505* The “Other” segment consists of business segments not classified into aforementioned three reporting segments, including ship management service,
travel agency business and real estate rental and management business.

The amortization and balance of goodwill for the years ended and as of March 31, 2017 and 2016 are as follows:

Amortization for the year
Balance at the year end

Amortization for the year
Balance at the year end

Amortization for the year
Balance at the year end

Containership

Bulk shipping

¥ 43
—

¥—
—

Containership

Bulk shipping

¥ 173
43

¥—
—

Containership

Bulk shipping

$ 383
—

$—
—

Millions of yen
2017
Offshore energy
E&P supportand heavy lifter
Other*¥——¥——

Millions of yen
2016
Offshore energy
E&P supportand heavy lifter
Other*¥——

Adjustments
andeliminations

Adjustments
andeliminations

¥—
—

¥—
—

Thousands of U.S. dollars
2017
Offshore energy
E&P supportand heavy lifter
Other*

Adjustments
andeliminations

$—
—

$—
—

Total

¥—
—

¥ 43
—

Total

¥ 173
43

Total

$—
—

$ 383
—

* The “Other” segment consists of business segments not classified into aforementioned three reporting segments, including ship management service,
travel agency business and real estate rental and management business.

“K” LINE REPORT 201783

Financial Section / Corporate Data

19. Subsequent Event(Share consolidation and change in number of shares constituting one share unit)
The resolution to put forward the proposal on a share consolidation at the 149th Ordinary General Meeting of Shareholders on
June 23, 2017 was made at the Board of Directors’ meeting heldon May 18, 2017. Simultaneously, the resolution for a change in
the number of shares constituting one share unit was made subject to the approval of the proposal on the share consolidation
at the general shareholders’ meeting. The proposal on the shareconsolidation was subsequently approved at that general shareholders’ meeting.
(1)	Purpose in the share consolidation and the change in the number of shares constituting one share unit
The Japanese Stock Exchanges published an “Action Plan
for Consolidating Trading Units” and are aiming to unify the
trading units to 100 shares for common stock of domestic
companies listed on Japanese stock exchanges. As a listedcompany, the Company adheres to this plan and decided tochange the number of shares constituting one share unit of
the Company’s shares from the current 1,000 shares to 100
shares. Simultaneously, the Company implemented the shareconsolidation (consolidating ten shares into one share) for the
purpose of adjusting investment units to appropriate levels
while taking the medium- to long-term share price trends into
consideration.
(2) Details of the share consolidation(a) Type of shares to be consolidated
		Common stock(b) Method and ratio of the share consolidation
With respect to the shares owned by the shareholders
recorded in the shareholder register as of September 30,
2017, ten shares will be consolidated into one share as of
October 1, 2017.
(c) Decrease in number of shares due to share consolidation
Total number of outstanding shares before shareconsolidation (As of March 31, 2017) 939,382,298 shares
Decrease in number of shares due to share consolidation
845,444,069 shares
Total number of outstanding shares after shareconsolidation
93,938,229 shares
The decrease in the number of shares due to the shareconsolidation and the total number of outstanding shares
after the share consolidation are theoretical numbers calculated on the basis of the total number of outstanding
shares before the share consolidation and the share consolidation ratio.
(d) Treatment for any fractional shares less than one share
If any fractional shares less than one share are produced
as a result of the share consolidation, the Company willsell or purchase such shares in bulk in accordance with theCompanies Act, and the proceeds from the transactions
will be distributed to shareholders of fractional shares at
the ratio of fractional shares ownership.

84“K” LINE REPORT 2017(3)	Total number of authorized shares as of the effective date
As a result of the total number of outstanding shares
decreased due to the share consolidation, the total numberof authorized shares will also be reduced from 2,000,000,000
shares to 200,000,000 shares as of the effective date, that is,
October 1, 2017.
(4)	Details of change in the number of shares constituting one
share unit
As of October 1, 2017, the number of shares constituting one
share unit of the Company’s common stock will be changed
from the current 1,000 shares to 100 shares.
(5)	Schedule of the share consolidation and change in the numberof shares constituting share unit
Resolution at the Board of Directors’ meeting
May 18, 2017
Resolution at the general shareholders’ meeting		June 23, 2017
Effective date for the share consolidation and change innumber of shares constituting one share unit October 1, 2017(6) Impacts of this change on per share information
Per share information, which was calculated as if the shareconsolidation had been implemented at the beginning of previous consolidated fiscal year, for the years ended March 31,2017 and 2016 was as follows:
Yen
2017

Net assets

U.S. dollars
2017

2016

¥ 2,341.93 ¥ 3,791.81$ 20.87(1,488.23)(549.48)(13.27)———

Loss attributable toowners of the parent:
Basic
Diluted

Diluted loss attributable to owners of the parent per share forthe years ended March 31, 2017 and 2016 has not been presented because losses for the years were recorded.

20. Agreement to Integrate Container
Shipping Businesses
The Company, Mitsui O.S.K. Lines, Ltd., and Nippon Yusen
Kabushiki Kaisha have agreed, based on the resolutions by the
Board of Directors of each company at meetings held on October
31, 2016 and subject to regulatory approval from the relevant
authorities, to establish a new joint-venture company to integrate
the container shipping businesses (including worldwide terminal
operating businesses excluding Japan) of all three companies andto enter into a business integration contract and a shareholders’agreement.
Related to the integration of the container shipping business, a
one-time restructuring expense in the amount of ¥11,448 million($102,041 thousand) and loss relating to chartered vessels in theamount of ¥36,441 million ($324,815 thousand) were recorded inprovision of allowance for loss related to business restructuring.

Independent Auditor’s Report“K” LINE REPORT 201785

Financial Section / Corporate Data

Global Network

Oslo
Copenhagen
Gothenburg

ArendalHamburg
Bremerhaven

Helsinki
St. Petersburg

IpswichLondonAntwerp
Le Havre
Rotterdam
BilbaoMadridBarcelona
Valencia

GdyniaBremenPragueViennaGenoa
Istanbul

Nanjing
Zhengzhou
Xian
Wuhan
ChengduChongqingMersinLisbonDubai
MundraDelhi
Pipavav
MumbaiNhava Sheva
Kolkata
Chennai

Johannesburg
DurbanCape Town

DalianQingdao
Seoul
Busan

Tianjin

Dhaka

Tokyo
SuzhouShanghaiHangzhou
NingboKeelung
Taipei
Kaohsiung
ManilaCebu
Davao
XiamenZhuhai
YantianZhongshan
Hong Kong
Shenzhen

Guangzhou
Hanoi

Chittagong
Haiphong
YangonBangkokLaem Chabang
Ho-ChiMinh City
Shah AlamPort Kelang
Singapore
Jakarta
Semarang
Surabaya

Brisbane
Adelaide
Fremantle

Overseas major affiliates and representatives offices

Melbourne
SydneyWorld headquarters
Domestic

Overseas Major Affiliates and Representatives Offices

Japan[Europe]

Italy

Sweden[Middle East]

Tokyo (Headquarters)

Austria

Genoa

Gothenburg

United Arab Emirates

Kobe

ViennaNetherlands

TurkeyDubai

NagoyaBelgium

Rotterdam

Istanbul

etc.

Antwerp

NorwayMersinCzech Republic

ArendalUnited Kingdom

PragueOslo

IpswichDenmark

PolandLondonCopenhagen

GdyniaFinland

Portugal

Helsinki

LisbonFranceRussiaLe Havre

St. Petersburg

Germany

Spain

BremenBarcelona

Bremerhaven

BilbaoHamburg

MadridValencia

86“K” LINE REPORT 2017

[Asia]
Bangladesh
Chittagong
Dhaka
China

[Africa]ChengduSouth Africa

Chongqing

Cape Town

DalianDurbanGuangzhou

Johannesburg

HangzhouHong Kong
Nanjing
NingboQingdao
ShanghaiDetroit
Cleveland
VancouverSeattlePortlandSan Francisco
Los Angeles

Columbus

TorontoBoston
New York / New Jersey
Baltimore

ChicagoSt. Louis
MemphisHoustonRichmond
Charleston

Mexico City

Atlanta
New Orleans

Lima

Rio de Janeiro
Sao Paulo
Santiago

ShenzhenIndonesia

Taiwan[North America]

PortlandSuzhouJakarta

Kaohsiung

CanadaRichmond

Tianjin

Semarang

Keelung

TorontoSan Francisco

Wuhan

Surabaya

TaipeiVancouverSeattleXiamen

Korea

Thailand

United States

St. Louis

Xian

Seoul

BangkokAtlanta

YantianBusan

Laem Chabang

Baltimore

Zhengzhou

Malaysia

VietnamBostonZhongshan

Port Kelang

Haiphong

Charleston

ZhuhaiShah Alam

Hanoi

Chicago

India

MyanmarHo-ChiMinh City

Cleveland

KolkataYangonChennai

Philippines

Delhi

Cebu

Mumbai

Davao

MundraManilaNhava Sheva

Singapore

Pipavav

Singapore[Oceania]
Australia
Adelaide
BrisbaneFremantle
Melbourne
SydneyColumbus
Detroit
HoustonLos Angeles
Memphis[Central and South America]
BrazilRio de Janeiro
Sao Paulo
Chile
Santiago
MexicoMexico City
Peru
Lima

New Orleans
New York / New Jersey“K” LINE REPORT 201787

Financial Section / Corporate Data

Major Subsidiaries and Affiliates
Domestic

Marinetransportation
Shipping agency
Ship management

Harbortransportation /Warehousing

Logistics
Land transportation

Container repairing
Travel business
Other businessCompany name

Shipping agency

88(as of March 31, 2017)“K” LINE’sownership (%)*2

Paid-in capital(millions)

51.0
100.0

Shibaura Kaiun Co., Ltd.

100.0

20

660

“K” Line (Japan) Ltd.

100.0

150

2,386

Shimizu Kawasaki Transportation Co., Ltd.

50.0

10

158

“K” Line Ship Management Co., Ltd.
Taiyo Nippon Kisen Co., Ltd.
Escobal Japan Ltd.
Daito Corporation
Nitto Total Logistics Ltd.
Hokkai Transportation Co., Ltd.
Seagate Corporation
Nitto Tugboat Co., Ltd.

100.0
100.0
100.0
100.0
100.0
80.1
100.0
100.0

75
400
10
842
1,596
60
270
150

10,74433,875614
23,574
12,684
11,3206,708
4,584

Rinko Corporation

25.1

1,950

16,491“K” Line Logistics, Ltd.
Japan Express Transportation Co., Ltd.
Shinto Rikuun Kaisha, Ltd.
Maizuru Kousoku Yusou Co., Ltd.
Intermodal Engineering Co., Ltd.
“K” Line Travel, Ltd.
“K” Line Engineering Co., Ltd.
Shinki Corporation“K” Line Business Systems, Ltd.
KMDS Co., Ltd.
Kawaki Kosan Kaisha, Ltd.
“K” Line Accounting and Finance Co., Ltd.

91.9
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0

600
100
10
25
40
100
50
80
40
40
30
100

17,117
3,403
836
662
806
7,344
2,193
2,516
1,109
1,300
510
218

Company name“K” Line Pte Ltd“K” Line Bulk Shipping (UK) Limited“K” Line LNG Shipping (UK) Limited
SAL Heavy Lift GmbH“K” Line European Sea Highway Services GmbHK Line Offshore AS¥ 2,368
100

Fiscal 2016 revenue(millions)

Kawasaki Kinkai Kisen Kaisha, Ltd.
Asahi Kisen Kaisha, Ltd.

Overseas

Marinetransportation*1¥ 42,246
331“K” LINE’sownership (%)*2

Paid-in capital(millions)Fiscal 2016 revenue(millions)

100.0
100.0
100.0
100.0
100.0
100.0

US$41.1
US$33.9
US$35.9
EUR155.5
EUR5.3
NOK1,120.1

US$246.5
US$150.8
US$76.7
EUR133.6
EUR74.4
NOK260.9

Northern LNG Transport Co., I Ltd.

49.0

US$47.9

US$16.4

Northern LNG Transport Co., II Ltd.

36.0

US$52.8

US$15.2‘K‘ Line (India) Shipping Private Limited“K” Line America, Inc.
“K” Line (Australia) Pty Limited“K” Line (Belgium) N.V.
“K” Line Canada Ltd.
KLine (China) Ltd.
“K” Line Chile Ltda
“K” Line (Deutschland) GmbH“K” Line (Europe) Limited“K” Line (Finland) OY“K” Line (France) SAS“K” Line (Hong Kong) Limited

80.0
100.0
100.0
51.0
100.0
100.0
100.0
100.0
100.0
51.0
100.0
100.0

INR755.4
US$15.5
A$0.0001
EUR0.06
US$0.09
US$2.6
US$0.6
EUR0.2£0.01
EUR0.01
EUR0.5
HK$15.0

INR451.4
US$65.1
A$14.7
EUR3.2
US$0.5
RMB285.7
US$5.0
EUR11.8£13.1
EUR1.3EUR3.5
HK$65.0

K Line España Servicios Maritimos, S.A.

50.0

EUR0.06

EUR17.8‘K‘ Line (India) Private Limited

50.0

INR60.0

INR441.8“K” Line Italia S.R.L.

50.0

EUR0.1

EUR9.2“K” Line (Korea) Ltd.

100.0

KRW400KRW8,251.8“K” LINE REPORT 2017

Overseas

Ship management
Terminal operator
Freight consolidation

Warehousing
Logistics

Land transportation
Container repairing
Holding company

Other business*1*2“K” LINE’sownership (%)*2

Company namePaid-in capital(millions)Fiscal 2016 revenue(millions)“K” Line Maritime (M) Sdn Bhd
K Line Mexico SA de CV“K” Line (Nederland) B.V.
K Line (Norway) AS
K Line Peru S.A.C.
“K” Line (Portugal)-Agentes de Navagação, S.A.
“K” Line (Scandinavia) Holding A/S“K” Line Shipping (South Africa) Pty Ltd“K” Line (Singapore) Pte Ltd
K Line (Sweden) AB“K” Line (Taiwan) Ltd.
K Line (Thailand) Ltd.
“K” Line (Vietnam) Limited
PT. K Line Indonesia“K” Line Ship Management (Singapore) Pte. Ltd.
International Transportation Service, Inc.
Husky Terminal & Stevedoring, Inc.
Century Distribution Systems, Inc.
Century Distribution Systems (Canada), Inc.
Century Distribution Systems (Europe) B.V.
Century Distribution Systems (Hong Kong) Limited
Century Distribution Systems (International) Limited
Century Distribution Systems (Shenzhen) Limited
Century Distribution Systems (Shipping) Limited
Universal Logistics System, Inc.
Universal Warehouse Co.
“K” Line Logistics (Hong Kong) Ltd.
“K” Line Logistics (Singapore) Pte. Ltd.
K Line Logistics South East Asia Ltd.
K Line Logistics (Thailand) Ltd.
“K” Line Logistics (UK) Ltd.
“K” Line Logistics (U.S.A.) Inc.
ULS Express, Inc.
PMC Transportation Company, Inc.

57.5
100.0
100.0
100.0
100.0
51.0
51.0
51.0
95.0
100.0
60.0
34.0
75.0
93.0
100.0
70.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
95.0
86.5
100.0
100.0
100.0
100.0

MYR0.3
MYR9.2
US$0.005
US$0.3
EUR0.1
EUR4.3
NOK0.1NOK3.4
PEN1.3PEN9.5
EUR0.2EUR2.3
DKK1.0
DKK12.3
ZAR0.0001
ZAR134.5
S$1.5
S$12.2
SEK0.1
SEK14.1
NT$60.0
NT$296.5
THB30.0
THB2,165.8
US$3.5 VND104,071.9
IDR463.6
IDR64,896.2
US$518.0
US$50.9
US$33.9
US$342.0
US$0.1
US$70.9
US$2.3
US$16.7
US$0.0001
US$0.5
EUR0.02
EUR0.8
HK$0.08
HK$43.5
HK$1.8
HK$93.1
RMB5.0
RMB321.7
HK$0.000001
HK$1.1
US$12.3
US$0.7
US$0.05
US$9.2
HK$8.0
HK$107.5
S$1.15
S$27.8
THB73.0
THB0.0
THB20.0
THB777.8£0.2£5.0
US$0.5
US$60.4
US$0.05
US$6.1
US$0.0
US$0.7

Multimodal Engineering Corporation

100.0

US$0.15

US$11.3

Bridge Chassis Supply LLC.
Kawasaki (Australia) Pty. Ltd.
“K” Line Holding (Europe) Limited“K” Line Heavy Lift (Germany) GmbH“K” Line Drilling / Offshore Holding, Inc.
Cygnus Insurance Company Limited“K” Line TRS S.A.

100.0
100.0
100.0
100.0
100.0
100.0
100.0

US$7.5
A$4.7£84.8
EUR18.0
US$0.001
US$3.0
US$0.006

US$46.5
A$10.9£0.0
EUR0.0
US$0.0
US$4.0
US$0.0“K” Line Auto Logistics Pty Ltd.

50.0

A$27

A$7.1

Includes main consolidated subsidiaries, equity-method subsidiaries and equity-method affiliates.
Includes holdings of subsidiaries
Subsidiaries and affiliates accounted for with the equity method¥: Japanese yen

THB: Thai baht

HK$: Hong Kong dollars

KRW: Korean won

VND: Vietnamese dong£: Pounds sterling

IDR: Indonesian rupiah

MYR: Malaysian ringgit

DKK: Danish krone

ZAR: South African rand

A$: Australian dollars

S$: Singapore dollars

US$: United States dollars

NOK: Norwegian krone

PEN: Peruvian nuevo sol

RMB: Chinese renminbi

EUR: Euro

NT$: New Taiwan dollars

SEK: Swedish krone

INR: Indian rupee“K” LINE REPORT 201789

Financial Section / Corporate Data

Outline of the Company / Stock Information
Outline of the Company (as of March 31, 2017)

Stock Information (as of March 31, 2017)

Name

Kawasaki Kisen Kaisha, Ltd. (“K” LINE)

Authorized

2,000,000,000 shares of common stock

Established

April 5, 1919

Paid-in capital¥75,457.64 million

Issued939,382,298 shares of common stock

President

Eizo Murakami

32,732

Employees

On-land Duty
At-sea Duty
Total

Number ofshareholders

Business lines

Marine transportation, Land transportation,
Air transportation, Through transportation
involving marine, land and air transportation,
Harbor transportation, etc.

Shareholder
registryadministrator

Sumitomo Mitsui Trust Bank, Limited
4-1, Marunouchi 1-chome,
Chiyoda-ku, Tokyo

Listing of shares

Tokyo, Nagoya and Fukuoka

552
183
735

Offices
Iino Building, 1-1, Uchisaiwaicho 2-chome,
Chiyoda-ku, Tokyo 100-8540, Japan
Phone: (+81) 3-3595-5000
Fax: (+81) 3-3595-5001

Head office

Registered head
officeBranches

Shinko Building, 8 Kaigandori, Chuo-ku,
Kobe 650-0024, Japan
Phone: (+81) 78-332-8020
Fax: (+81) 78-393-2676
Nagoya:Nagoya International Center Building, 47-1,
Nagono 1-chome, Nakamura-ku, Nagoya
450-0001, Japan
Phone: (+81) 52-589-4510
Fax: (+81) 52-589-4585
Kansai:Daidouseimei Kobe Building, 2-7,
Sakaemachidori 1-chome, Chuo-ku,
Kobe 650-0023, Japan
Phone: (+81) 78-325-8727
Fax: (+81) 78-393-2676

Overseas
representative offices

Manila, Yangon, Dubai

Overseas agents

Korea, China, Taiwan, Thailand, the Philippines,
Singapore, Malaysia, Indonesia, Vietnam, India,
Australia, United Arab Emirates, U.K., Germany,
France, the Netherlands, Belgium, Italy,
Finland, Denmark, Norway, Sweden, Spain,
Portugal, Turkey, Canada, U.S.A., Mexico,
Chile, Peru, Brazil, South Africa, etc.

Affiliatedcompanies(to be consolidated)

Principal Shareholders (as of March 31, 2017)
Number of Percentage
shares held of shares(thousands) held (%)

Shareholders

ROYAL BANK OF CANADA TRUST COMPANY
210,164(CAYMAN) LIMITED

22.37

CGML PB CLIENT ACCOUNT / COLLATERAL

80,084

8.52

MLI FOR CLIENT GENERAL OMNI NONCOLLATERAL NON TREATY-PB

51,745

5.50

Trust & Custody Services Bank, Ltd.
(Kawasaki Heavy Industries, Ltd. retirement
benefit trust account re-entrusted by Mizuho
Trust & Banking Co., Ltd.)33,923

3.61

The Master Trust Bank of Japan, Ltd. (trust
account)

30,498

3.24

IMABARI SHIPBUILDING CO., LTD.

28,3003.01

JFE Steel Corporation

28,174

2.99

Japan Trustee Services Bank, Ltd. (trust
account)

25,142

2.67

GOLDMAN SACHS INTERNATIONAL

19,324

2.05

Sompo Japan Nipponkoa Insurance Inc.

19,1072.03

26 (domestic), 317 (overseas)
Open

High

Close

Close

Low

Open

VolumeStock Price Range & Trading Volume (Tokyo Stock Exchange)

(Yen)

400
300
200
100
(Thousands)

600,0000

450,000
300,000
150,000
090

Apr. May Jun.
2015

Jul. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May Jun.
2016

“K” LINE REPORT 2017

Jul. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar.
2017

Iino Building, 1-1,
Uchisaiwaicho 2-chome,
Chiyoda-ku, Tokyo 100-8540, Japan
Phone : (+81) 3-3595-5000 (Switchboard)
Fax : (+81) 3-3595-5001
http://www.kline.co.jp/en/

E-Book“K” LINE REPORT 2017 is also available in e-book format.
https://www.kline.co.jp/en/ir/library/annual/index.html

Consideration for the Environment
The paper used to print this report is Forest
Stewardship Council® certified as being produced
from responsibly managed forests. The ink used
is derived from vegetable oil and contains few volatile organic compounds.