May 13, 2016

KWE aims for 50% more volume in new mid-term plan

Nobutoshi Torii, newly appointed president, on the left, and Satoshi Ishizaki, the current president

Kintetsu World Express (KWE) held a press conference in Tokyo on May 13 in the presence of the top officials and executives including Satoshi Isizaki, president, explaining about a new mid-term management plan for three years starting from the current FY2016 (ending March 2017) and other matters. In the plan, KWE upholds a goal to increase handling volume of air and marine cargo by 50% each compared with the current levels. Ishizaki said at the conference that, "We will expand volume focusing on corporate accounts (priority customers), and offer bold rates for customers of APL Logistics (APLL) centering on retail-related ones, utilizing our purchasing power," indicating that it will shift a business policy of placing the highest priority on profits to one of being conscious of the expansion of its volume share.

The last business term's target numbers of performance and handling volume and their growth rate compared with the full year ending March 2016 (previous term) upheld in the mid-term plan are as shown in the tables. It will consolidate sales of APLL into those of KWE for a full fiscal year from the current year on, and plans to expand them by half as much again by way of increasing volume. As both air and marine cargo volume is planned to grow 1.5 folds, especially marine cargo volume is forecast to rise at the similar rate as the last three years in the previous mid-term plan when it surged dramatically. However, while air cargo's growth rates have stayed at around 3% for the past three years, it seems not easy for it to mark an additional growth of more than 50%.

The priority customers include about ten European and American companies, and their total share in the air cargo volume is 27%. The company is to increase cargo volume commissioned from existing clients in those areas, while accelerating its effort to garner new customers.

As the company will positively offer competitive rates for contracts which it expects will generate profits in future, Ishizaki said it will "not target contracts which would not yield profits for long." In particular, the company aims to focus on ex-Asia cargo bound for North America in a bid to expand volume.

While its international business went well in the first half of FY2015, the company was compelled to mark a steep fall in its profit, and see the profit decline at the phase of operating profit and loss in the consolidated result due to the red ink stemming from APLL business whose accounting of the first-half fiscal term was consolidated. Although APLL posted a profit of about Y2.5 billion in the second half of FY2015, KWE, saddled with costs of more than Y800 million from the acquisition of APLL and more than Y3.3 billion from the amortization of goodwill, marked a deficit of more than Y1.4 billion in the final result for the whole fiscal year. Ishizaki explained, "APLL had been expected to make Y1 billion more operating profits than the actual result. However, both sales and profits eventually nosedived, against a background of the customers who had a special rate contract with us. Affected by stagnant cargo flow on the whole, the performance did swing downward."

In the current fiscal year, profits generated by APLL is estimated to rise. As the goodwill amortization will cost it approximately Y6.4 billion per year for the next 20 years, the final contribution to the profit will be limited. But the company plans to gradually accumulate the profit size. According to the profit plans in the new mid-term plan period, it is forecast to post a deficit of Y400 million in the current fiscal year, a profit of Y110 million in the full year ending March 2018, and a profit of Y210 million in the final year.

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