MOL President Reports Slack Performance

MOL President, President, Koichi Muto reported that the performance of the company was slack.

 

Muto reported, "I am sad to report that our business performance fell short, and we could not achieve our initial target of ¥70 billion in consolidated ordinary income. Taking a serious look at ourselves in light of these results, I think our highest priority is to swiftly alter the course of the midterm management plan by decisively implementing measures already started in each business division to improve our business performance."

A Review of FY2014

Looking back at FY2014, the containership business could not achieve our targets despite the favorable winds of a depreciating yen and lower bunker prices. This was due to factors including inaccurate projections regarding the trade environment, freight rate market, and bunker prices, as well as construction delays in our terminal automation project, and led to a significant loss. In addition, repeated downward revisions of our forecasts have eroded shareholders’ trust in our company. Liner division executives and employees must realize that we have fallen into a slump in comparison to our competitors. And please take a hard look at whether your past plans and measures were hampered by outdated rules of thumb and obsolete ways of thinking. Were we flexible enough in responding to changes in the business environment? Were our efforts on business operation and cost reduction really enough in comparison with our competitors? Were we able to create a strong enough organization? Please consider about these issues and get our business back on course toward a resurgence this year.

In the dry bulker division, stable profits based on long-term contracts in the iron ore carrier and dedicated bulk carrier divisions shored up our business performance. On the other hand, we anticipated a recovery in the spot market during the second half of FY2014 in our initial forecasts, but the market remained sluggish, matching the record low for February set back in 1986. Considering the worsening loss in free tonnage, which does not operate on mid- and long-term contracts, we need to review the effectiveness of our market projections and evaluate how well we manage market exposure risks.

In the tanker division, a decline in crude oil prices spurred a sharp upturn in both VLCC and product tanker markets. In combination with our past cost reduction efforts, the division’s business performance improved significantly, breaking into the black after five consecutive fiscal years of losses. This was the only bright spot in our business performance for FY2014.

Turning to safe operation, we continued to achieve 'Four Zeroes' — zero serious marine accidents, zero oil pollution, zero fatal accidents, and zero cargo damage — since 2013, but we had some cases that inconvenienced our customers due to vessel technical problems and extended downtime, leading to unexpected losses for our company. We must work harder to prevent marine incidents and downtime by enhancing all of our ship management systems, and recognize the importance of minimizing the impact of any tiny failure by ensuring a nimble response, with close cooperation of our members at sea and on land.

Full Steam Ahead in FY2015!

We went off the course we charted for growth last year. But this year, we must return to that course and proceed, full steam ahead, to make up for lost time. Our goal is within sight, and we must fully execute our action plan and achieve positive results. It is essential that you have a full understanding of what is happening on site, and dedicate all your strength and passion to our success, while being ready to make corrections to the course as needed.

The containership business as absolutely must return to profitability in FY2015, as it underpins the mid-term management plan’s company-wide targets. We see this will not only eliminate transient factors that deteriorate profits, but also ensure progress in the automation of our cargo loading/unloading operations at the TraPac Container Terminal, which will increase the value that our terminal business adds to our shipping services. I believe we can achieve our profit target, backed by the tailwinds of a depreciating yen and lower bunker prices. I want to ask all liner division executives and employees to work as one to make sure this is the year of our successful counteroffensive and return to profitability.

The bulkship business has accumulated stable profits by making full use of our worldwide capabilities to develop businesses in sectors outside the LNG carrier and offshore fields. But please keep pushing ahead to add “market + alpha” value. I hope you will move more quickly to adopt innovative changes to establish a business structure in which our success does not hinge on market recovery and sustained favorable market conditions.

At the risk of repeating myself, we must also continue our efforts in every division to ensure safe and stable transportation. Those on land and at sea must work as a team and pay careful attention to improve vessel operation performance. This is also a year in which we must focus on reforming our organizational climate and enhancing our sales force capabilities. General managers, you must play the key role in developing a customer-oriented approach to business, while developing your own style of leadership and creating a more vigorous organization.

Progress of the Midterm Management Plan

Profits for FY2014 fell below our targets, but we have moved steadily forward on a course toward “solid growth by differentiating our services.” The tanker division has entered the crude oil shuttle tanker business, and the LNG carrier division has won several long-term contracts to transport shale gas to Japan. Since the beginning of the year, the LNG carrier division has signed long-term transport deals with major customers in Europe, setting the stage for expanded business in this market. The dry bulker division has also concluded some new long-term transport contracts. To win all those contracts, we made proposals that appropriately meet customer needs, reflecting their high regard for our advantages such as safe operation and cost competitiveness. In addition, we decided to build six of the world’s largest 20,000 TEU class containerships, which will be launched on the European routes in 2017. These massive new ships will reduce unit cost thanks to their superior fuel efficiency in combination with expanded capacity, further enhancing our business base toward 2020.

The corporate divisions have made various efforts to fulfill shareholders’ expectations in line with the STEER FOR 2020 action plan. They reviewed the management system for the non-liner segment and reinforced the functions of the Marine Safety Division while enhancing its authority and responsibility. The financial division moved proactively, taking various measures to put our company on firmer financial ground.

Compliance, of course, is another critical issue. We improved the content of our compliance-related education and training related to competition laws in different countries, and presented these programs to more of our executives and employees. And we have made a range of moves to improve our organizational structure. In addition, we have worked to build a solid awareness among executives and employees of rules prohibiting bribery and other unethical conduct.