NS United Kaiun Kaisha : Value Creation —Business, ESG, Finance—

PART 3

BUSINESS, ESG, FINANCE

NS United Kaiunʼs Value Creation

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BUSINESS OVERVIEW

AND STRATEGIES

During fiscal year 2022, the global economy generally slowed, largely as a result of China's zero-COVID policy as well as intensifying uncertainty due to inflation accompanying high resource prices worldwide. Under these circumstances, the NS United Kaiun Group achieved record profit for the second consecutive year, supported by stable earnings from long-term contracts and the progressive depreciation of the yen.

International Shipping

Overview for FY2022

Revenues

¥224.1Billion

Up 30.1% year on year

Operating income

¥30.1Billion

Up 20.6% year on year

Change in revenues /
operating income	30.1
(billion yen)

Revenues	24.9	224.1
Operating
income	172.2
	2021	2022

Breakdown of revenues

89.3％

PART 3

Overseas subsidiaries: United Kingdom, United States, Hong Kong, Singapore, the Philippines

Representative offices: Shanghai, Vietnam

Iron ore

Steel products

Biomass fuel

Grains

Raw sugar

Steel structure

Gypsum

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1 Business Overview and Strengths

Capesize Group

Tramp Chartering Group

Making an integral contribution to the worldʼs steel infrastructure

The Capesize Group specializes in transporting iron ore and coking coal, and has a fleet of 50 vessels ranging in size from 100,000 to 400,000 dwt. We are focusing on ensuring safe navigation and reducing costs while at the same time building business structures that allow us to respond to customers' needs in a precise, swift, and agile manner. As such, we play an important part in supporting the world's steel infrastructure.

Within our fleet portfolio, 200,000-plus dwt vessels are assigned to long-term shipping contracts with NIPPON STEEL CORPORATION and other customers. Highly versatile, 180,000 dwt vessels serve short- and medium-term contracts with steel companies in Europe and major resource companies in Australia and Brazil. While maintaining good relationships with world-leading steel companies, we are looking for new customers, including those for spot delivery service. We also strive for safe navigation as a basis of ESG management, focusing on respect for human rights of seafarers and improvement in working conditions and employee welfare and aiming for further improvement.

Type of vessel *As of March 31, 2023

90,000 to 200,000 dwt bulk carrier and 250,000 to 400,000 dwt ore carrier Total: 50 vessels

Major cargoes

Iron ore, Coal

Responding to various transportation needs at any time to any place

The Tramp Chartering Group's business centers on transporting steel products and other bulk cargoes. Our fleet consists of highly versatile and favorably regulated supramax and handy-size bulk carriers. We connect the world through a range of transportation services, particularly in the steel products segment, where we have developed unrivaled expertise since entering the market in 1966. To the Americas and Asia, we carry steel products and on the return routes we transport grains, ore, biomass fuels, and other cargoes. These services have been highly appreciated by our customers around the world. In the steel products shipping segment, we manage and operate a vessel boasting the capacity to carry structures measuring up to 150 meters in length. In addi- tion, our US subsidiary operates its own fleet in the Atlantic Ocean to better serve customers in that geography.

Type of vessel *As of March 31, 2023

20,000 to 60,000 dwt bulk carrier:

33 vessels

Major cargoes

Steel products, Nonferrous metals,

Grains, Fertilizers, Salt, Cement,

Limestone, Biomass fuel

Energy Group

Contributing to energy supply in Japan and around the world

The Energy Group is responsible for transporting bulk cargo and LPG for both domestic and overseas customers and transporting raw materials for steel companies around the world through our overseas offices. It also undertakes combined transportation, specifically for delivering raw materials from Asia to India and then delivering grains in South America to Asian countries.

Seeking to respond to the needs of customers around the world effectively and to facilitate efficient provision of services, we have transferred operations of part of our fleet to offices in the UK and Singapore. This rational structure helps to keep us constantly updated of regional situations to be able to capture more business opportunities in a timely manner. We also procure marine fuel for the Company's fleet. We are committed to environmental consideration, specifically by purchasing biofuels, as well as stable, competitive fuel procurement activities. Based on our wealth of skills and experience built up over long years, we are offering quality services to customers, working to increase their trust in our business.

Type of vessel *As of March 31, 2023

80,000 to 100,000 dwt bulk carrier:

22 vessels

VLGC (Very Large Gas Carrier):

3 vessels

Major cargoes

Coal, Industrial salt, Iron ore, Grains,

LPG (liquified petroleum gas)

Near Sea Group

Supporting logistics for China and

Southeast Asian countries

The Near Sea Group has extended transportation networks across the entire region covering China and Southeast Asia and handles various sizes and volumes of cargo in a flexible manner. In Japan- China trade in particular, we have established our presence as a leading shipping service provider for the route since entering the market in the 1950s.

In order to provide competitive services, we promote efficient operations, specifically round-trip combined transport to export steel products and other goods and import bulk items. Especially for steel products, we offer a range of comprehensive transport options to cater to customers' needs. These include inland trucking services form discharging ports to the customer's factories, as well as transshipment to barges at coastal ports for transport to river ports inland.

Type of vessel *As of March 31, 2023

8,000 to 19,000 dwt general cargo carrier: 23 vessels

Major cargoes

Steel products, Biomass fuel,

Fertilizers, Dolomite, Gypsum

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PART 3

BUISINESS OVERVIEW AND STRATEGIES

Kiyoshi

Kanemitsu

Managing Executive Officer

Capesize Group

2

The cape-size bulk carrier (roughly 180,000 dwt) market was robust at the beginning of the fiscal year under review, reflecting expectations of a recovery of the global economy, with the average daily charter rate for the five major routes reaching the upper 30,000-dollar range by late May. However, the market softened from the summer onward because cargo movements became stagnant due to the slowdown of the Chinese economy caused by the zero-COVID policy and the sluggish real estate market, in addition to the increased shipping tonnage supply resulting from elimination of demurrage at ports owing to the relaxation of quarantine controls concerning COVID-19. Furthermore, even at the beginning of 2023 and thereafter when China's zero-COVID policy was lifted, the market remained sluggish because of a delay in shipments, coinciding with the rainy season in Brazil, where much iron ore is loaded. In these circumstances, the Company concluded medium- to long-term contracts with domestic and overseas customers, including NIPPON STEEL CORPORATION, a major shipper, as a measure to secure stable earnings, and also made efforts to book cargo for shipments for third countries. As a result, earnings greatly exceeded the initial targets.

In the Panamax bulk carrier (between 70,000 and 80,000 dwt) market, the average charter rate for the five major routes exceeded 30,000 dollars in May, reflecting increased ton-miles due to diversified patterns of coal transportation to Europe against the backdrop of the Russian-Ukrainian conflict and India's increased coal imports. Subsequently, the average charter rate fell to

the 7,000-dollar level in February, reflecting the easing of the shipping tonnage supply-demand balance caused by delays in grain shipments due to bad weather in South America, in addition to a decline in demand for coal and grains due to the slowdown of the Chinese economy, but turned upward in March as grain shipments recovered. In these circumstances, despite the impact of the market decline in the second half of the fiscal year under review, earnings greatly exceeded the initial targets owing to the efforts to operate vessels efficiently.

All of the Company's VLGCs (very large gas carriers) are engaged in time charter-out contracts and contribute to securing stable earnings. Certain vessels with market -linked contracts also benefitted from the generally upbeat market conditions. Consequently, earnings greatly exceeded the initial targets.

The market for handy-size bulk carriers (between 20,000 and 60,000 dwt) was robust in the first half of the fiscal year under review but softened as special factors, such as the strict quarantine controls at ports, which had tightened the shipping tonnage supply-demand balance, dissipated and cargo movements slowed due to increasing inflation worldwide and China's zero-COVID policy. Despite these circumstances, the Company accumulated stable earnings because cargo movements of steel prod- ucts, one of the Company's principal cargoes, remained strong on outbound voyages and the Company had proac- tively secured cargoes in advance with medium- to long- term contracts on inbound voyages. As a result, earnings greatly exceeded the initial targets despite the impact of the decline in the market conditions.

In the market for near sea going vessels (around 19,000 dwt or below), the shipping volume of steel products exported to China, which are the principal cargo in this market, decreased from the previous fiscal year owing to stagnant economic activity in China. In addition, in the second half of the fiscal year, the shipping tonnage supply-demand balance eased as demurrage at ports in China was eliminated, which led to the decline in the market conditions. In these circumstances, earnings greatly exceeded the initial targets, supported by bulk cargo transportation, for which contracts were concluded while the market conditions were upbeat, and thanks to efforts to efficiently allocate vessels for round-trip ser- vices, mainly for steel products for Southeast Asia and bulk cargoes.

As a result, the international shipping business as a whole achieved higher revenues and profits compared with the previous fiscal year.

3 Future Issues and Plans

For large vessels, we are facing two major challenges associated with carbon neutrality initiatives.

The first is associated with introducing next-generation

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fuel-powered vessels. The selection of candidate targets is yet to be finalized due to concerns about shipbuilding costs and fuel procurement. However, we will carry out investments in a timely manner, in cooperation with shipbuilders and other related companies while accumulating necessary technical capabilities and seafarers' skills. The second is to respond to changes in steel-making processes being made by steel companies, one of our major customers. In anticipation of growing shipping demand for alternative materials to iron ore and coal, such as direct reduced iron, we need to take additional measures to ensure safe operations. Also, transport demand for steel scrap is expected to rise along with a shift from the blast furnace to electric furnace method.

Provided these two main changes as described above, we are expecting that demand for medium- and small- size vessels in addition to large-size vessels will increase in terms of raw materials delivered to steel companies. For this purpose, we will take advantage of our strength in offering one-stop services based on the broad-ranging fleet portfolio covering from ultra large vessels to coastal shipping carriers, seeking to respond to changes in customer needs agilely.

For medium-sized vessels, we have resumed previous business to deliver raw materials to steel companies in Brazil while continuing business for India, and began to backload soy bean for China or other cargo as part of efforts for efficient vessel allocation. Going forward, we will strive to further expand the shipping ratio for overseas customers by working closely with offices in the UK, the US and Singapore. We are also pursuing efficient management for chartering, especially by switching from long-term to medium- to short-term contracts at the time of renewal of contracts while effectively combining market-linked schemes, to be able to allocate vessels suited for specific shipping contracts.

For small vessels and near sea going vessels, we are working on expanding business scale and improving efficiency in vessel allocation by ramping up cargo booking activities. In the steel product shipping, we are working to expand capabilities to handle a broader range of cargo types covering various general cargo items such as plant facilities and miscellaneous goods in addition to steel products, our major cargo item, through mobilizing our internal officers with in-depth expertise as a stowage

supervisor. In the segment for fuel for power generation, we are anticipating a continuous growth in demand for biomass fuels. In line with this anticipation, we will build an appropriate fleet portfolio to ensure stable operation for delivery while acquiring new customers to expand business scale.

As part of our initiatives for safe navigation, we utilize safety meetings and other forms of communication with owners of chartered vessels to improve onboard working conditions across the entire fleet, and we are endeavoring to increase trust of customers in our operations by sharing information. To ensure safety for time charter vessels, we assign our internal superintendents for inspection across the fleet. In the Tramp Chartering Group and Near Sea Group, external condition surveys are performed on vessels engaged in shipping steel products on an as-needed basis. Additionally, we are promoting activities to raise shipping quality under the leadership of the project team to support steel products shipping a cross-organizational function comprised of members from divisions in charge of sales, marine, and port captains.

Our environmental conservation initiatives are promoted by type of vessels. For large vessels, research and development activities are being promoted to introduce next-generationfuel-powered vessels. Specifically, trial operations were conducted using biodiesel fuel, and the joint ammonia-fueled ship development project obtained an Approval in Principle (AiP) for the basic design of the ship from Nippon Kaiji Kyokai (ClassNK) and we are preparing for its delivery and implementation in 2026. For medium-size vessels, we are engaging in the ongoing project with our long-established customers to improve fuel economy using wind power. Major ongoing VLGC projects are related to transport of ammonia, known as an environmentally-friendly material for multi-fuel thermal power generation as well as marine fuel. We will respond to its transshipment from international transportation to coastal transportation to meet related demand, drawing on the expertise of group companies. In addition, we are facilitating slow steaming operations to keep the output down to below the 50% level for all vessel types, and promoting other ongoing measures for higher operational efficiency. Going forward, we will continue with our groupwide endeavors toward the challenging goal of achieving carbon neutrality by 2050.

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