2018 Annual Report + FORM 10 K BOARD of DIRECTORS
Total Page:16
File Type:pdf, Size:1020Kb
2018 Annual Report + FORM 10K BOARD OF DIRECTORS MATTHEW J. COX, 57 W. BLAKE BAIRD, 58 (a)(b) DR. MICHAEL J. CHUN, 75 (b)(c) ADMIRAL THOMAS B. FARGO, U.S. NAVY RET., 70 (a) Chairman of the Board and Chief Chairman of the Board, Chief Retired President and Headmaster, Executive O cer, Matson, Inc. Executive O cer and Co-Founder, Kamehameha Schools, Kapa¯lama Non-Executive Chairman Terreno Realty Corporation Campus of the Board, Huntington Ingalls Industries, Inc.; Former Commander of the U.S. Pacifi c Command Notes: Ages as of March 2019 (a) Audit Committee Member (b) Compensation Committee Member MARK H. FUKUNAGA, 63 (b)(c) STANLEY M. KURIYAMA, 65 (b)(c)(d) CONSTANCE H. LAU, 66 (a)(c) (c) Nominating and Chairman and Chief Executive Chairman of the Board and Former President, Chief Executive O cer Corporate Governance O cer, Servco Pacifi c, Inc. Chief Executive O cer, Alexander and Director, Hawaiian Electric Committee Member & Baldwin, Inc. Industries, Inc. (d) Lead Independent Director EXECUTIVE MANAGEMENT RONALD J. FOREST, 63 VICENTE S. ANGOCO, JR., 52 BRANTON B. DREYFUS, 65 PETER T. HEILMANN, 50 President Senior Vice President, Pacifi c Vice President, Alaska Senior Vice President, Chief Administrative O cer and General Counsel JOHN P. LAUER, 58 RUSTY K. ROLFE, 61 JOEL M. WINE, 47 Senior Vice President and Chief President, Matson Logistics Senior Vice President and Chief Commercial O cer Financial O cer TO OUR SHAREHOLDERS DANIEL K. INOUYE Launched in 2018, Daniel K. Inouye is the largest Jones Act containership ever built. Matson’s goals are simple — move freight better than anyone and grow shareholder value by organic improvement in our businesses and disciplined deployment of shareholder capital. The key to our story is how we generate cash and how we deploy that cash throughout our value chain — from investments in new vessels and shore-side assets to paying down debt and returning capital through dividends and share repurchases. To that end, our most important long-term Since our inception as a public company fi nancial metric is return on invested capital in 2012, this ROIC focus has produced (ROIC). And while we have little control a more than doubling of our Book over the day-to-day movement in the price Value per Share, which has grown of our shares, sustained focus on improving at a compounded annual rate of 14.6%.1 ROIC generates a return of cash and increased shareholder value over time. 1 Book value per share defined as shareholders’ equity divided by shares outstanding. Based on the 2018 shareholders’ equity excluding the net positive adjustment of $151.1 million related to the Tax Cuts and Jobs Act in 2017. Including the adjustment, the compounded annual growth rate would be 18.6%. RECAP OF FISCAL YEAR 2018 South and West Pacific, we have diversified 2018 marked a milestone in Matson’s history and strengthened our business model, which with the launch of the largest Jones Act was once almost solely dependent upon the container ship ever built, Daniel K. Inouye Hawaii economy. (DKI), the first of four new vessels for our To be sure, there were challenges in the Hawaii service. From the drawing board six year – most notably profit compression years ago to the first loading of cargo this in Guam as we fought to maintain market past November, DKI is the first of the share. However, these challenges were transformative investments we have taken to more than oset by favorable contributions shape our next 40 years of service to Hawaii. from our China service as a result of higher And with nearly three-quarters of the $925 average freight rates and record million investment in new vessels already performance from both our SSAT terminal paid to our shipyard vendors, the financial joint venture and Logistics segment. realization of operational gains in our service Within Logistics, we saw improvements are imminent. I will say more about this later across all of our service lines, with in the letter, but let me be clear, While this transportation brokerage providing investment initially yields low single-digit exceptional performance as a result of tight returns, it will yield double-digit returns over truck conditions. Despite di¢cult economic the life of the decades-long investment. conditions in Alaska, Span Alaska had Our financial performance in 2018 a strong year due to its enduring customer exemplified the benefits of a diverse relationships and leading market position, portfolio of transportation and logistics coupled with the tremendous eort of services. Over the course of the past six our employees who are always willing to years, we have built an enviable, and go the extra mile to deliver for customers. highly defensible, position in the Pacific In short, we have positioned ourselves oering supply chain solutions to customers well in each of the markets we serve from Chengdu to Chicago. From our and witnessed the benefits of a diversified acquisition of Alaska shipping and logistics portfolio across an integrated customer operations to network optimization in the platform. OUR 2018 RESULTS ARE AS FOLLOWS: Operating income increased 11.2% The return on shareholders’ equity (ROE) to $163.8 million with the Logistics was 15.2% and the return on invested segment showing a year-over-year capital (ROIC) was 7.8%. We are nearing increase of 56.5% to $32.7 million. the timeframe when the commensurate profi tability from the vessel investment We earned $109.0 million in net income cycle will begin to power our earnings and $2.53 per diluted share compared and drive higher returns on capital. to $77.0 million and $1.78 per diluted share in 2017.2 In June 2018, the Board of Directors authorized the sixth consecutive annual Cash fl ow from operations (CFFO) increase in our quarterly dividend from increased 35.6% year-over-year to $0.20 to $0.21 per share. a new high of $305.0 million. WHAT WE DO BEST a de facto just-in-time inventory solution. Matson’s mission is to move freight better This is particularly true in Hawaii, where our than anyone. It is ingrained in our DNA, dedicated interisland barge service extends whether in Ocean Transportation or Logistics, our transpacifi c services to each of the major to execute as a world-class operator by neighbor islands. providing the most reliable service to Our CLX service, spanning the two largest our customers, and doing what is right for economies in the world, provides a highly our customers and the communities we di erentiated, expedited transportation serve. Cargo availability is paramount for solution, and typifi es our mission and our customers in geographically remote thinking. Since its inception in 2005 following economies like Hawaii, Alaska, Guam and a prior large investment cycle (four vessels), the South Pacifi c. We are the supply lifelines we have run at near full utilization, garnering for these communities, which means we accolades for this premium service. More not only ensure that our vessels arrive on importantly, as an increasingly viable time, but also that our terminal operations alternative to air freight, our CLX service has realized the highest freight rates in the tradelane. Our mission is to move freight better than One of the keys to this successful service anyone, and our best-in-breed customer is our joint venture with SSA Marine, the preeminent terminal service operator on the service and on-time performance extends U.S. West Coast. We formed this working to our Span Alaska operations. partnership almost 20 years ago, combining assets and capabilities from several ports. Today, our dedicated terminal service delivers industry-leading cargo availability are e¢ cient and that the right type of and best-in-class truck turns, allowing our equipment is available at the right time, customers to get their products to market on in the right place, for customers. Customers an expedited basis. often take goods from our ports directly to storefronts, 2Fiscal year 2017 figures adjusted for the one-time positive impact of $154.0 million, or $3.56 per diluted share, related to the Tax Cuts and Jobs Act. Logistics provides the transportation and 1. Complete the Hawaii fleet renewal and technological backbone to the movement of renovation of Sand Island terminal our customers’ goods whether at any of our four ports in Long Beach, Oakland, Tacoma The next two years will be very busy for or Seattle, or through intermodal touchpoints us as we deploy three new vessels for the throughout the U.S. mainland. Matson Hawaii service and de-commission and Logistics was born out of customer demand recycle the last of our steamships. Ensuring to oer our dierentiated Matson shipping a smooth operational transition is essential service deeper into the supply chain. Today, to maintaining our vessel schedule and those tentacles stretch to warehouses on the avoiding unnecessary disruption in the Lurline East Coast, in Alaska and in the Bay Area. terminals. Once is in service in late We are particularly proud of our operations 2019, we expect to be in a fixed nine-ship at Span Alaska, a 2016 acquisition that deployment in our Hawaii service, which completes the Matson just-in-time model will bring approximately $13 million in 2020 in that market. cost savings, along with the benefits of lower maintenance on all of the new ships. In 2021, we expect approximately $30 million MATSON’S STRATEGIC PRIORITIES in annual cost benefits as a result of the The Company’s top three strategic priorities vessel re-fleeting compared with our 2018 for the coming years are focused on run-rate costs.