Japan’s K Line is putting a renewed emphasis on improving its share price and profitability through corporate reforms as its major shareholder increases its influence on the company.
Tokyo-based K Line is hoping the reforms will help it bounce back from a ¥111bn ($99m) loss in fiscal 2018, in what was a dismal earnings season for it and Japan's other leading shippers — MOL and NYK Line.
K Line has been under pressure from its largest shareholder, Japanese-backed fund Effissimo Capital, which holds 38.9% of the stock, to improve its share price and profits.
Last week, K Line announced that for the first time an Effissimo Capital candidate has been proposed as a board member. Ryuhei Uchida has been nominated as a non-executive director.
Despite previous criticism from Singapore-based Effissimo Capital, K Line insists the companies' realtionship is good and that Uchida’s experience will be of benefit.
"K Line has established a cooperative relation with ECM [Effissimo Capital Management] through regular constructive dialogues over more than two years," the shipowner said in a statement.
“K Line intends to take advantage of ECM’s knowledge gained through its experience of long-standing investments in Japanese companies to facilitate its efforts to increase long-term corporate value, so that the company can satisfy expectations of all of its stakeholders.”
K Line said Uchida has “abundant experience and insight into corporate value enhancement”, which it will look to in attempting to raise the share price.
Recently appointed chief executive Yukikazu Myochin, 57, is relatively young by Japanese standards, and is expected to inject some vitality into K Line.
The influence of Effissimo Capital appears to be reflected in a new performance-based executive remuneration structure at K Line.
The company’s board benefit trust scheme, which rewards directors with shares, will no longer be evaluated on consolidated performance targets but instead on the company’s total shareholder returns. The idea is to incentivise executives to “increase our medium to long-term corporate value”, K Line said.
The added emphasis on shareholder value comes as analysts warn K Line, NYK and MOL face a long road to a recovery in profits. Future profit performance will hinge largely on the performance of the three companies liner joint venture, Ocean Network Express (ONE), analysts predicted.
Bloomberg transport analyst Rahul Kapoor forecast MOL's earnings growth will outpace those of K Line and NYK, despite the risks from slowing shipping demand growth.
“We expect a fiscal second-half recovery in the dry bulk and tanker segments, which could provide an earnings boost, while losses at its container segment are expected to recover further,” said Kapoor.
“A sharp recovery in container profitability is unlikely and significant improvements in overall group earnings hinge on realising targeted integration synergies and cost savings from ONE.”
Kapoor added: “Favourable tanker market conditions in the second half of the year could drive further improvement in its energy transport unit, while increasing investments in LNG and LPG segments will provide stable profit contributions in the long term.”
K Line may report a “slim profit” this year he predicted, but any earnings rebound are likely to occur at a “muted pace” despite the ongoing operational recovery at ONE.
In fiscal 2018, NYK reported a ¥44.5bn ($400m) loss, while MOL was the only one to report a profit, of ¥26.8bn.
