President's Interview

Q Operating environment and summary of financial results in the fiscal year ended March 31, 2017
A

During the fiscal year ended March 31, 2017, the Japanese economy continued to be sluggish in response to lackluster external demand due to the growth slowdown in emerging economies and instability in Europe, as well as weak domestic demand due to a prolonged slump in personal consumption. Near the end of the fiscal year, signs of a partial recovery began to appear in the form of a shift to increased exports backed by the turnaround in overseas economies centered on the U.S. and China.

However, the start of full-scale negotiations over the U.K.’s withdrawal from the EU and the increasing uncertainty caused by the lack of policy transparency by the new U.S. administration are exerting downward pressure, and we expect the move toward economic recovery to remain gradual for the foreseeable future.

In the logistics industry, personnel expenses related to transportation and cargo handling are experiencing large increases due to impacts from serious labor shortages, and with costs continuing to rise, the overall operating environment remains challenging.

Amid this operating environment, the KONOIKE Group focused on improving its domestic sales bases, such as expanding the Kitakanto Distribution Center, which handles mainly food products, and moving and expanding its Nishi Osaka Distribution Center, which handles life-related products.

Overseas, aiming for a new entry in the growing railway container transportation market in India, the Group established JOSHI KONOIKE TRANSPORT & INFRASTRUCTURE PVT. LTD. In Thailand, to develop its steel products and other heavy goods transportation operations developed in its domestic steel business, the Group also established KONOIKE J. TRANSPORT (THAILAND) CO., LTD.

The Group’s business results for the fiscal year ended March 31, 2017 saw a strong performance from Steel-Related Business, maintained strength from Food-Related Business, and continued growth in Airport-Related Business due to increased inbound activity, with net sales rising 2.3% year on year to ¥258,332 million. In terms of profit, research and other expenses in the overseas market led operating profit to fall 0.3% year on year to ¥10,232 million and ordinary profit to rise 0.1% to ¥10,721 million, while profit attributable to owners of parent rose 14.0% to ¥7,310 million.

Q Progress made in the medium-term management plan and challenges going forward
A

We created a medium-term management plan covering the period from the fiscal year ended March 31, 2016 through the fiscal year ending March 31, 2018, naming three priority objectives: (1) enhance our ability to generate earnings to achieve sustainable growth; (2) strengthen corporate governance policy; and (3) engage in social responsibility initiatives. We took various initiatives toward achieving our numerical management targets of net sales of ¥300.0 billion, operating profit of ¥15.0 billion, and return on equity (ROE) of 8.7% in the fiscal year ending March 31, 2018. Looking back on the past two years, while there was growth in areas including the Food-Related Business and Airport-Related Business, net sales and operating profit missed initially planned targets, and it will be challenging to achieve the numerical targets of the medium-term management plan ending March 31, 2018. In light of these conditions, we have renewed our recognition and resolve that we must seriously face the challenges to be dealt with and continue to make steady progress toward the future.

Changes to the operating environment surrounding the KONOIKE Group include more serious labor shortages, the progressing work style reforms, the technological revolution in logistics and manufacturing through the fusion of automated driving technologies and robots with communication technologies, and the industry restructuring and globalization trends that customer industries and the logistics industry commonly face. As long as we stick to our conventional business, the coming changes will become a headwind against the KONOIKE Group. However, from the standpoint of involvement in the entire operational processes of our customers, the need for personnel supply created by the labor shortages and the need for contract manufacturing can also be viewed as an excellent chance, with a large number of business opportunities being created with the changing times.

We will work to sharpen the Group’s overall consciousness and senses to quickly identify and seize upon the early signs of change and opportunity.

Q Realizing growth strategies and revising our organizational structure
A

To achieve sustainable growth, in addition to the existing strategy for our core business segment of “expanding contract operations in the manufacturing industry,” going forward we must make even more progress in “acquiring contract operations in the service industry” and “developing domestic best practices at overseas operating bases and increasing profitability.”

When looking at the industrial structure of Japan, which is shifting its center of balance from the manufacturing industry to the service industry, we still see ample room for improvement in productivity. At the KONOIKE Group, we have both knowhow and experience cultivated through deep involvement in the operational processes of our customers in the manufacturing industry. With this knowhow and experience as the foundation, we believe we can contribute to the improvement in productivity of society as a whole by accelerating our approach to the service operations.

To clarify the management team’s position of commitment to overcoming a challenging market environment and sustainably enhancing corporate value, the KONOIKE Group has recently abolished its takeover defense measures. Going forward, we will advance three policies to enhance corporate value: defining and realizing growth strategies, improving capital efficiency and strengthening governance.

To increase the effects of these initiatives, in April 2017 we changed our organizational structure. We are moving forward with the separation of management oversight and operational execution. The Board of Directors will focus on “decision and management oversight related to the Group’s overall direction including the management vision and strategy,” playing the leading role for the entire Group from an awareness of large changes in the operating environment. At the same time, we will move forward with the transfer of broad authority for specific strategy execution and operational management to the Executive Officers serving as Executive General Managers of business divisions, allowing us to respond immediately both to our customers’ needs and to changes in the operating environment.

Q To shareholders, investors and other stakeholders
A

The operating environment surrounding us is welcoming a historic turning point. The KONOIKE Group will not cling to existing values or convention, but rather create and execute a bold vision that sees beyond potential change. However, we also take to heart the existence of KONOIKE’s DNA, which must not be changed even in the midst of these reforms. Through involvement and familiarity with our customers’ manufacturing processes, we have sparked innovation. Based on our knowledge and experience of contributing to the optimization of our customers’ value chains, we have grown by providing safety, high quality, and enhanced productivity to a wide range of customers both domestically and overseas. This direction will not change even amid the management reforms we will pursue going forward.

We will continue to be a partner our customers can trust, an attractive company with which both our partner companies and our employees wish to work, and a reliable member of the community that everyone in the local community can depend on. We are also resolved to enhance corporate value while responding to the expectations of all of our shareholders and investors.

I ask for your continued understanding and support of the KONOIKE Group.