President Akimitsu Ashida's Speech on the Anniversary of MOL's Founding
April 03, 2006
On the occasion of Mitsui O.S.K.Lines (MOL) 122nd anniversary, we are pleased to bring you a message from our President, Akimitsu Ashida.
April 1, 2006, marked the 122nd anniversary of the founding of our company.
Achieved positive earnings for two consecutive years from FY2004
We expect that the MOL Group consolidated financial results for FY2005, unfortunately, will not reach the revised goals set forth in the MOL STEP Review, but our earnings remained strong, and will be at about the same level as FY2004. Though some divisions are showing signs of decline, I am satisfied with these results, especially in light of the drastic change in our market climate. At this time, I want to take the opportunity to express my respect and appreciation for the hard work of Group management and employees alike, who were the real driving force behind another successful year.
Improved financial position and stable profits support earnings
In the past two years, we have steadily expanded the MOL Group's business by carefully meeting the needs of the ocean shipping market, which is enjoying favorable conditions driven by rising trade volumes and global economic growth. But we see signs that container freight rates have declined somewhat on some routes since the end of 2005. We see this as an overreaction to the restructuring of major shipping companies and the launchings of nearly 30 large-scale containerships. Since the container trade is increasing almost exactly according to forecasts, this will not change the overall supply/demand balance. However, we may see a severe business environment over the next year or two, as a succession of large-scale containerships come into service. On the other hand, we expect a firmer tone in the non-container segment, with expanding trade and increasing ton-miles both in the dry bulk and tanker trades.
Under this environment, I believe the MOL Group is positioned for long-term growth and stable profits. The grounds for my belief are the MOL Group's improving financial strength, and our well-balanced fleet and business portfolio.
The keys to improving our financial position are an increase in shareholders' equity and a decrease in interest-bearing debts. Shareholders' equity, which totaled 221.5 billion yen at the end of March 2004, the beginning of MOL STEP, increased to 400 billion yen over the following two years. We expect it to continue to grow, reaching 500 billion yen by March 31, 2007. On the other hand, we had 491.7 billion yen in interest-bearing debt as of March 31, 2004, and this rose to only 570 billion yen at the end of March 2006 in spite of our massive vessel/facility investment and the increase of our equity stake in Daibiru Corporation to make it a consolidated subsidiary of MOL. We expect to reduce that figure to about 540 billion yen by the end of March 2007. As a result, the gearing ratio (interest-bearing debt divided by shareholders' equity) will be 1.4 at the end of March 2006, compared to 2.2 on March 31, 2004. It will decrease to just above 1.0 by the end of March 2007. I believe this will further enhance the MOL Group's reputation as a leading global company that has the financial means and strength to make the necessary investments and to cope with any unforeseen circumstances. In addition, as we increase our corporate strength, the financial community will gain more confidence in us, further improving our competitiveness by reducing funding costs in a time of rising interest rates.
Our profitability benefits from our well-balanced fleet and business portfolio, which encompasses sectors that are susceptible to market fluctuations as well as sectors that are more stable and generate long-term profits. It is clear that the MOL Group's strong performance is the result of aggressively seizing new opportunities in the ocean shipping industry and a rising freight rate market. It is also apparent that our success comes from our willingness to take risks on new ventures - made possible by the stable profits from our mid- and long-term contracts in bulk shipping and real estate, such as Daibiru Corporation, which are minimally affected by market changes. A deep, solid profit base of 90 billion yen annually supports the MOL Group's continuous growth even in a rapidly changing business environment.
Enhancing our fleet
The key to any company's competitiveness in the ocean shipping industry is the size of its fleet. We can meet a broader range of customer needs with a larger, more diversified fleet. And while securing profits with mid- and long-term contracts, we can also seek short-term market opportunities. The MOL Group already has the world's largest merchant fleet in terms of transport capacity. According to the MOL STEP Review, we will expand our fleet from 645 to 750 vessels in the three years from April 2004 to March 2007, and to 900 in the subsequent three years until March 2010. As of March 2006, our fleet exceeded 700 vessels, and we plan to launch 49 new vessels in this fiscal year, moving us steadily toward our goal of 900 vessels.
Safe operation supports our growing fleet
However, we cannot achieve our goals solely by expanding our fleet. We must also operate them safely and efficiently. We set new policies on the restructuring of the tanker and dry bulker management system in 2005. We intend to improve communication among the Head Office, ship management companies, and vessels, even as we build up our fleet. Our new structure allows us to more effectively communicate Head Office policies on safe operation to the entire fleet by placing several overseas ship management companies under a core umbrella ship management company. This year, we will start up this network and implement meticulous ship management program that places a top priority on safety-first operation.
A paradigm shift in the world economy is taking place through market globalization. At the same time, emerging economic players such as Brazil, Russia, India, and China (BRICs) continue to generate new demand. Both of these factors generate new demand for ocean transportation.
I also believe the Japanese economy has matured to such an extent that we can't really expect huge increases in either inbound or outbound cargo traffic. However, we should not neglect our services to Japanese customers, who are critical to the MOL Group's success. But to keep growing, we must not only maintain and expand our current businesses in Japan, but also aggressively expand our overseas activities. That will require stronger overseas marketing/sales capabilities. Please take specific actions to strengthen our group wide overseas capabilities while also building up the strength of individual personnel.
People support all growth
Needless to say, the most important asset of the MOL Group is its people. I believe that people are the engine behind our success and the key to our future growth. As I mentioned earlier, the ship management network in Japan and overseas is key to our success. This relies on marine engineering and management capabilities. We cannot reach our goals without recruiting and training ship's officers, engineers and crew members from around the world as well as from Japan. Indeed, the MOL Group fleet's non-Japanese crew members come from 28 nations. While each of them comes from a different culture, I hope they work with a sense of unity as part of the MOL Group under the new organizational structure. What's more, I hope they will thoroughly grasp the MOL Group's technologies, operational know how, and safety practices, and pass them on to the next generation.
At the "Can-Do" meetings of both sales and administrative divisions, I have heard people say there is a personnel shortage because the volume of work is increasing. Our efforts to recruit and train quality personnel will not pay off overnight, but we must attract new graduates and mid-career specialists to the entire Group. What's more, we must train and energize our personnel by providing training tailored to their needs and take steps such as recruiting contract employees as a staff for ship operation as the MOL Group fleet expands.
It's easy to say that rising costs are a natural result of increasing cargo volume and increasing workloads in an expanding market. "Keep moving forward, one step at a time." Never lose your sense of challenge, and approach every task with confidence that you will learn something and gain new ideas. Cost reduction does not mean just cutting current costs; it also means minimizing future cost increases. During this year, we'll be taking group wide action toward creative cost reduction, including ways to increase operational efficiency. I hope everyone at MOL and throughout the MOL Group will take a close look at their activities and find ways to further reduce costs.
Finally, let me ask once more for your continued efforts to ensure the safety of our Group operations that support our worldwide growth. I pray for the safety of all our vessels, and hope that fiscal year 2006 will be a healthy, happy, and prosperous one for you and your families.jp