Nov 13, 2014

TIACT to establish profit structure for full-year ordinary profits

Tatsuo Kita, president, Tokyo International Air Cargo Terminal, Ltd. (TIACT)

Tatsuo Kita, president of Tokyo International Air Cargo Terminal, Ltd. (TIACT), was recently interviewed by Daily Cargo, where he looked back on the company's business results for the first half of fiscal 2014 and talked about future endeavors. In addition to independent efforts toward the improvement of its management/sales, TIACT also has the support and understanding of its subcontractors and companies in the industry, thereby helping it to generate profits in the operating gain/loss segment in fiscal 2013 that ended in March 2014. Fiscal 2013 marked the first time since the company was founded that it posted operating surpluses. It also enjoyed surpluses in its business results for the first half (April-September) of fiscal 2014 ending March 2015, with Kita disclosing that they plan to establish a solid profit structure, saying that, "We are targeting profits in the ordinary gain/loss segment for the entirety of the year." With regard to its work/operation system, the company has also entrusted its import-related administrative tasks to Haneda Air Ground Handling (HAG) starting August, he claimed that, "Our biggest issue in the second half of the year is complete reinforcement in the area of organizational operation system."
The gist of the interview with Kita is as follows.

[Review of the first half of fiscal 2014]

*According to our business results from April until October, our company's cargo throughput grew by 50-60% compared to the same period a year earlier thanks to the increase in international arrival/departure slots for the daytime at Haneda in April to 60,000, from the hitherto 30,000 slots per annum, and the boost given by the growing business climate. Sales in the first half (April-September) surged by a little more than 30% from the previous year. With this, we managed to post operating and ordinary profits. For the entirety of fiscal 2014, we project handling volume totaling a little less than 200,000 tons, against the approximately 127,000 tons we registered in fiscal 2013.

*However, the main reasons behind our forecast of surpluses in fiscal 2014 are the results of the management improvements that our whole staff realized from the review of our cost structure for more than a year under our "reinvention" program that aims to create a new TIACT. We stopped our independent "cargo handling (CLISTy) and truck guiding system" at the end of July, switched to a simplified system and slashed maintenance costs such as operation maintenance expenses. We also reviewed our outsourcing activities with subcontractors, and checked the contents of each individual agreement. The number of employees on loan from our parent company Mitsui & Co. stood at seven people as of April last year, but they number just three persons now, manifesting our efforts toward reducing personnel overhead costs, too.

We have somehow come to a point where we got a new lease on life after suffering from chronic deficits in the past in light of the changing environment characterized by the increase in slots/flights and the virtually absent increase in expenses.

*The private finance initiative (PFI, which is the arrangement of company capital through private funds) had been premised on the development of facilities and systems that have the capacity to handle 500,000 tons of international cargoes at Haneda. But amid the continuous drop of our handlings to below our expected volumes, we have decided to target realistic management/business and concentrate on core regions for management resources in order to realize the optimum business state. Now together with the dedicated efforts and ingenuity of our employees and the massive support from our subcontractors, we would like to express our deepest gratitude to the cooperation we have been getting from a wide range of entities in the industry, including airline companies, shippers and all our customers.

Entrusting import-related administrative work to HAG

[Business condition]

*Our business results for fiscal 2013 that ended in March 2014 revealed that we raked in sales amounting to about Y4.6 billion and operating profit of Y100 million, indicating that we had eliminated our deficits. However, our results from last fiscal year also reflected the effects of our across-the-board loss management campaign in the Y15.1 billion fixed assets from fiscal 2012 ending March 2013. Without such amount, we would still need to impute costs amounting to several billion yen per fiscal year as depreciation, so we would be unable to revert to the black yet. We know that we still could not afford to let our guards down, but what we aim to do first is to realize a return to ordinary profits on a full-year basis and then establish a profit structure in this segment.

*Following the improvement of our revenues/profits, we have also been enhancing our cash flow, with our sights set toward the upward revision of our long-term business plan. However, the fact remains that we are still in a severe condition due to our massive accumulated debts. It is highly probable that we will be able to settle our preferred liabilities, but we do not expect to be able to repay up to the shareholder-financed subordinated debts just yet.

*As a result of our independent efforts toward business/management improvement, there are virtually no more areas where further improvements are possible. It would be a different thing if the cargo handlings enjoy ever-increasing growth, but we have told the countries and banks that there are naturally limits to tolerance and flexibility toward event risks and volatility. Taking into account our mission to contribute to public interest in PFI ventures, should we be faced with a severe environment in the future, we ask all our stakeholders for their further support and cooperation in order to guarantee the continuity of our business.

[Actions for the second half of fiscal 2014]

*We have outsourced our import-related administrative work to HAG starting August in 2014. Together with system review, this is a major theme for us in our drive to reform our business. The new setup will be entering its fourth month from commencement, but our biggest issue for the second half of fiscal 2014 is to map out the complete reinforcement of our organization work/operation system. We consider HAG as a valuable subcontractor and we have thus far entrusted cargo handling operations to them. The import-related administrative work follows such deal in cargo handling.

*Our cargo handling volume is not expanding and our fixed costs continue to be a burden, so we thought it necessary to shift to a flexible manpower system corresponding to the fluctuations in supply and demand, and to convert our fixed costs into variable costs. We believe that we need ideas on cost control through the ordering volume, when needed, by partnering with and outsourcing to other companies.

*We decided to keep our export-bonded management operations and then outsource some parts of our import operations after thinking about the quality and expertise of our export/import operations, and the segment that we ought to position as the core of our company's operations. This has an affinity to changing to a simplified system, too. We reconciled our strategies/needs with those of HAG and we have been engaged in this venture since nearly a year ago.

*However, it does not necessarily mean that we do not need to foster personnel who are adept in import anymore. We think that outsourcing requires a wide array of views and rich knowledge, more than what is needed when engaging on the work on our own. That is because we must manage the subcontractors and properly give orders and request them to undertake the work involved. We are not considering outsourcing our export operations following our move related to import work. Our company believes that is now more important to develop and foster human resources in order to ensure that our employees will absorb our core works/operations, broaden their knowledge and boost their skills.

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