Mar 3, 2015

K Line eyeing Y85 billion ordinary profit in FY2019

Eizo Murakami, vice president
Reinforcing businesses with stable revenues/profits under new midterm plan

Kawasaki Kisen Kaisha (K Line) on March 2 unveiled its new medium-term management plan "K Line Value for our Next Century" covering five years from fiscal 2015. K Line has set its ordinary profit targets at Y60 billion for fiscal 2017 and Y85 billion for fiscal 2019, against estimated Y48 billion for fiscal 2014 (ending March 2015). On top of LNG carriers, LPG carriers, Capesizes and coal carriers, all promising to secure medium/long-term contracts, K Line also aims to reinforce its logistics business centering on Asian emerging economies to reduce its dependence on containership sector. By beefing up such business segments, K Line hopes to increase its stable revenues/profits to Y52 billion from Y36 billion in fiscal 2014.

K Line held a press briefing on March 2 with Eizo Murakami, vice president/executive officer, who will assume presidency effective April 1, 2015, as well as Hiromichi Aoki and Tsuyoshi Yamauchi, both senior managing executive officer, in attendance.

Under its new midterm management plan, K Line has set three targets of (1) stability by improving financial strength, (2) further business growth based on financial soundness, and (3) dialogues and collaboration with stakeholders.

K Line will maintain its surpluses in free cash flow and continue to slash its interest-bearing debts. K Line then will develop businesses based on the basic policy of 40% capital adequacy ratio and 80% debt equity ratio (DER). "We intend to thoroughly practice the discipline of finance by investing while controlling the gas and brake pedals corresponding to market state," said Murakami. He stressed that K Line will keep the upward trend in its profits during the period covered in the new plan, saying that, "We plan to improve the balance of payments not by boosting revenues/expenses through market fluctuations, but by boosting the sources of stable revenues/profits and reducing costs." In fiscal 2019, K Line aims to achieve more than 10% in return on equity capital (ROE), which has been a major focus for it in recent years.

K Line aims to realize a business portfolio with reduced risks, and raise the ratios of non-liner and logistics business in its total sales in fiscal 2019 to 50% (48% projected in fiscal 2014) and 8% (5%), respectively, while cutting down the ratio of boxships to 36% (41%). Broken down, K Line's Y85 billion ordinary profit target for fiscal 2019 is envisioned to be made up around 30% by boxships/logistics, a little less than 70% by non-liner and a few percent by the offshore business.

As to its boxship business, K Line will further push its traditional policy focusing on East-West trunk routes. With regard to the possibility of reinforcing its businesses in North-South routes again, Murakami opined that, "We may boost our presence in this segment at some point, but expanding our business here over the next five years will only lead to the collapse of the market."

Dry market is currently stagnant for all ship types, but K Line has mapped out a plan to reinforce its operations in Capesizes and power utilities-bound coal carriers. "We will boost our business of large-size bulkers that are expected to secure medium/long-term contracts. As to small/medium-size ships vulnerable to market fluctuations, we will cope with the segment by minimizing losses via careful study on market condition," said Murakami.

In energy segment, K Line will beef up its interest in LNG and LPG carriers expected to fetch long-term contracts. On impacts to the market from low price of crude oil, Aoki claimed that, "We drew up our plan based on the premise that crude price will be about $80. So, we have drawn a scenario under the forecast that this segment will recover if crude price is at that level."

In logistics sector, Yamauchi said, "We project ordinary profit of around Y8 billion on sales of Y110 billion in fiscal 2019, against ordinary profit at the lower Y3 billion level on sales of Y67 billion in fiscal 2014."

As to dividends, K Line has set its target to a 30% dividend payout ratio. Murakami claimed that, "We are studying the introduction of stable dividends, thinking of paying out dividend of around Y4 regardless of our business results and increasing the shareholder returns accordingly when we exceed a certain level of business results."

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