January 5, 2015
Kawasaki Kisen Kaisha, Ltd.
2015 New Year Message from President Asakura
Let’s Join Hands to Raise our Corporate Value
A Vision for our New Management Plan
To everyone of the “K” Line Group, I extend to you my sincerest wishes for a Happy New Year. As we enter 2015, I would like to take this opportunity to reflect on the past year and offer a look forward to the challenges ahead.
The year 2014 was a time of spotty recovery in the global economy.
In the United States, a third round of quantitative easing (QE3) proved successful and consumer spending and the housing market are showing recovery. As a result, the US economy improved and served to drive the global economy.
Meanwhile, recovery in the European economy lacked robustness and thus stagnation continues to prevail.
China, which had been enjoying continuously strong growth, took steps toward achieving more stable growth, and the disposal of bad debts, which includes dealing with a real estate bubble that occurred during the high-growth period and wealth management products, has emerged as a challenge for the future.
In addition, geopolitical risks—namely outbreaks of the Ebola virus and conflicts in the Middle East and Ukraine—continued to intensify.
As for Japan, although capital investment and private consumption showed temporary sluggishness under the effects of the higher consumption tax rate, the economy is expected to remain on a generally upward track. Nonetheless, 2015 will likely prove to be a crucial year if the nation is to finally break out of its deflationary spiral.
Looking at our own performance, our Containership Business did better than initially expected on the back of favorable conditions in the freight rate market during the first half. This came within an overall environment marked by a weak yen and falling fuel prices. As a result, we enjoyed a significant improvement in our balance of payments compared to our competitors in the same sector.
On the other hand, our Bulk Shipping Business showed a slight year-on-year decline due to a decrease in the number of automobiles transported and continuing sluggishness in the dry bulk market. However, it continues to serve an important role as a mainstay that supports us.
We also expect our Energy Transportation Business, which includes the healthy LNG and LPG carriers segment, to show better performance given a clear upswing in the tanker market that was evident in the second half.
In addition, our company-wide initiative to lower costs, an effort that is now in its third consecutive year, is helping support recovery in our business performance.
In particular, our fuel-saving vessel operations—which are practiced fully throughout the company but particularly in Marine Energy Saving Division are bearing fruit by substantially lowering our fuel costs while helping us reduce our greenhouse gas emissions.
As a result of our efforts here, we were recognized for the first time as a leading company in climate change information disclosure and performance by an international organization in the field in October of last year.
I think our sales and management departments can join together in feeling great pride in this accomplishment.
Moreover, careful selection of investments under the leadership of our management department has resulted in a stronger management base.
We have made good progress in reducing the interest-bearing liabilities of the “K” Line Group by keeping our free cash flow in the black over the past three years, including the current fiscal year.
We believe we can achieve stronger financial strength, which is the most important priority of our current management plan, very nearly as scheduled due to the accumulated results of such efforts. I know that everyone involved took ownership of this objective and endeavored tirelessly to achieve it, and for this I would like to reiterate my gratitude.
Attaining this goal of stronger financial strength required us to take a careful stance vis-à-vis investment, and we applied this stance to areas of investment we deemed necessary in preparation for the future.
From March of this year and into 2018, a series of exceptional cutting-edge vessels for our main business segments will be delivered.
Among those already announced are 10 large 14,000-TEU containerships, 10 large car carriers capable of carrying 7,500 cars (thus meeting specifications for transport of large construction equipment and rail cars that the market is expected to demand), and 25 dry bulk carriers.
Our main purpose here is to replace existing vessels that are deficient in terms of fuel economy and transport efficiency with state-of-the-art vessels. By doing so, we intend to achieve lower operational costs and per-unit capital costs with the latest environment-friendly and fuel-efficient vessels and to improve our competitiveness in the market.
Meanwhile, in energy transportation, a sector that is currently in the spotlight, we are studying possibilities for participating in several additional projects that will line up with five LNG carriers we have already ordered.
Moreover, in our Offshore Energy E&P Business, which we view as a strategic growth sector for our company, we are proactively looking at new undertakings, among them expansion of our offshore support vessel business, which has developed into a solid business platform for us, and FPSO. We believe that projects in which we can take concrete steps forward will come to light as a result.
Looking forward, we will maintain our willingness to invest in growth fields whenever we deem that they are capable of producing stable return based on careful and comprehensive study.
As you know, in 2019, we will be celebrating the 100th anniversary of our founding in 1919.
One step we will be making toward this landmark occasion is our new medium-term management plan, which will come into effect in April this year.
The plan will spell out the direction forward for the “K” Line Group, provide the basic philosophy upon which this direction is based, and serve as an important guideline for the Group’s business initiatives and other matters.
Details will not be announced until the beginning of March, at which time we will seek to obtain an accurate understanding of our company’s intentions going forward in the interest of all of our stakeholders.
However, I can say right now that the plan will contain measures for establishing a strong financial standing as well as particulars concerning investment of personnel and assets in business sectors that are resistant to market fluctuations and can provide stable revenue. It will then become the responsibility all employees of the “K” Line Group to execute the plan.
As we enter the New Year, I would like to take a new look at what “existential value” means for a company. I believe companies have several purposes for being, the most important of which is social contribution within the broad context of continuity.
Logistics are essential to the transport of the goods and raw materials we use in our daily lives.
As a central component of logistics infrastructure, the shipping industry supports social living by providing safe, secure, and reliable service.
It is an immutable fact that this forms the foundation of our social contribution.
The earnings we gain as a result are returned to all of our stakeholders and used in investment to create new value and tackle new challenges.
And these activities must go hand-in-hand with environmental conservation. The “K” Line Group undertakes a variety of environment-oriented initiatives, and it is clear that our thoroughgoing framework for the safe operation and management of our vessels provides the foundation for all of them.
If we develop a corporate culture that allows us to clearly see the direction we must take based on accurate understanding of all changes in the environment surrounding us and then execute responses quickly and surely—and also to make course corrections with courage when we find we are heading in the wrong direction—then we can become a self-reforming organization capable of responding precisely to any environmental change.
We intend to reinforce our efforts with regard to the three points of corporate governance reform (which we have been initiating sequentially since last year), elimination of long work hours, and full compliance. However, if we are to achieve success here, we will need to employ an approach that moves simultaneously from the bottom up and top down. Moving in just one direction will only result in incomplete reform that will lack company-wide acceptance. If we can synchronize these two movements, we will undoubtedly benefit from an improved corporate culture.
Although at first glance 2014 appeared to be a smooth year, the fact is that we had to overcome numerous challenges.
The favorable conditions generated by the weak yen and lower fuel prices will not continue forever, and we cannot allow ourselves to depend on such improvements in our external environment.
The shipping industry will be confronted with various challenges in 2015 as well. Let us tackle them by keeping our minds focused as we also devote ourselves to the steady execution of our new management plan.
In closing, as we celebrate this New Year, I wish all members of the “K” Line Group and their families good health and happiness, and pray that all of our ships will enjoy safe passage throughout 2015.
President & CEO