Nippon Yusen Kabushik New

Good afternoon, everyone. I am Soka, President and CEO of the company. Thank you very much for taking time despite your busy schedule to attend this briefing today. Today I will provide an overview of the financial results for the second quarter of fiscal year 2023 and explain the revisions to the full year earnings forecast for fiscal year 2023, followed by a brief explanation of the progress of the new medium-term management plan that has started this fiscal year. After that, we will have a question and answer session. As the moderator said, the presentation materials are the ones for the second quarter financial results briefing, which was uploaded at your website at noon today. You can either download it or see it on the screen. First, I would like to give you an overview of the Q2 financial results. Please turn to the table on page 6. As you can see in the blue column on the right, cumulative revenues for Q1 and Q2 combined 1,168.3 billion yen. Operating profit was 98.7 billion yen. Recurring profit was 159.2 billion yen, and net income was 113.3 billion yen, all of which were lower than the same period last year. The recurring profit decreased by 606 billion yen from the same period of the previous year. The main reasons for which is, as shown in the far right column on page 7, titled Year on Year, 590 billion yen decrease in the liner and logistics business. This was mainly due to 520 billion yen reduction in profit from the liner trade segment, including O&E, and 43.6 billion yen reduction in profit from air cargo transportation segment. In the container ship business of O&E, demand for cargo remained sluggish throughout the first half of the year and market conditions did not recover. In the air cargo transportation segment as well, freight rate levels were sluggish due to an increase in supply of space and a softened supply-demand balance as international passenger flights, which can also carry cargo, recovered. On the other hand, in the bulk shipping business, the first half of this fiscal year has been solid with more than 100 billion yen recurring profit, the same as last year. In the dry bulk carrier business, although cargo volumes were firm, Recurring profit declined compared to the first half of last year when market conditions were robust due to the impact of the economic slowdown in China, etc. However, the automotive and energy business supported the division as a whole. In the automotive business, demand for transportation remained strong, and in the energy business, in addition to the strong LNG business, demand for long-distance transportation by VLGC also increased. contributing to market conditions improvement. What I have just explained is described on pages three to five of the presentation material, which I would like you to refer to. One thing I would like to add, although it is not explicitly stated in the material, is while the first half recurring income decreased by 606 billion yen compared to the same period last year, it was about 27 billion yen above the previous forecast, made in early August. Next, I would like to explain the full year forecast for FY 2023. Please refer to page 12. The blue figures on the right side are for the full year. As a result of a review of the full year forecast for FY2023, which we announced in early August, net income remains unchanged, but revenue, operating profit, and recurring profit have been revised up. For the full year, we now forecast a revenue of 2,280 billion yen, up 110 billion yen from the previous forecast, operating profit of 165 billion yen, up 19 billion yen, recurring profit of 235 billion yen, up 15 billion yen, and net income of 220 billion yen unchanged from the previous forecast. Please return to page 14 of the document. Looking at the current full-year forecast of recurring profit by segment, the overall increase of 15 billion yen from the previous forecast consists of an increase of 23.5 billion yen in the bulk shipping business, a decrease of 10 billion yen in the liner trade business, including O&E, and an increase of 1 billion yen in air cargo transportation and logistics segments. so air cargo transportation and logistics segments combined.

As for O&E's container ship business, we expect a moderate recovery in the cargo traffic towards the second half of this fiscal year, but a full-fledged recovery is still expected to take some time as the pressure on the shipping supply capacity due to the introduction of the new vessels will continue in the second half. we may have to go one step further down from the last forecast. On the other hand, the profit for the bulk shipping business is expected to increase by 23.5 billion yen from the previous forecast. Out of this, in the dry bulk business, we do not expect any change from the previous forecast. But in the automotive business, that tight supply and demand for shipping space will continue in the second half, and strong demand for the transportation will continue for some time. And in the energy business, in addition to strong LNG carriers, we also expect active cargo traffic demand of VLGC, especially the long-distance transportation from North America. So all in all, we expect a positive growth of income. If you can go back to page 12 of the document, and look at the forecast for the current fiscal year from the perspective of the comparison with the previous year, the recurring profit will decrease by 874.7 billion yen from last year's 1 trillion 109.7 billion yen. But this was already factored in at the time of the initial forecast and is not a surprise. Rather, the recurring profit for this fiscal year has been increasing from 200 billion yen in the initial forecast to 220 billion yen in the August revision and up to 235 billion yen in the current revision. In the new mid-term management plan starting from this fiscal year for the coming four years, which we announced back in March, we aim to achieve in the range of 200 billion yen to 300 billion yen so we believe that the current forecast is a good start as the first year of the new mid-term plan. Now, as for the dividend based on these four-year forecasts, please refer to page 9. Since the net income forecast of 220 billion yen remains unchanged from the previous forecast, the interim dividend of 60 yen is now fixed, and the year-end dividend is planned to be 70 yen. However, the year-end dividend of 70 yen is calculated based on the total number of shares before the share buyback and will be finalized based on the change in the total number of shares at the end of the fiscal year due to the share buyback currently underway. The target annual dividend payout ratio of 30% will remain unchanged. So much on the explanation of our four-year forecast for fiscal year 2023. Next, I would like to briefly touch upon the progress of our newly launched medium-term management plan. Please refer to page 16 of the document. First, on the left-hand side, I would like to talk about our core strategies. In the air cargo transportation business, we have decided to transfer all shares of NCA to ANA Holdings. and we are in the process of final confirmation for the transfer on February 1st, 2024. In the logistics business centered on use and logistics, several new investments, including M&A, are being considered, although there is nothing specific we can announce at this point in time yet. In the energy business as well, We have secured several new medium to long-term contracts for LNG carriers, and we are working to expand our fleet. In our efforts to achieve net zero emissions, we are expanding our fleet of environmentally friendly vessels, including LNG-fueled vessels, LPG-fueled vessels, and methanol-fueled vessels. We are also preparing for the launch of the world's first ammonia-fueled tugboat in Yokohama next year as a demonstration vessel. And we're working with related companies to develop an ammonia-fueled medium-sized ammonia carrier to be in service in 2026. We have also recently completed a review of the NYK Group's decarbonization targets as suggested in the Midterm Management Plan and have included details in the NYK Group ESG Story 2023, which was released separately today. We will provide a detailed explanation at a briefing scheduled later today in the evening. With regard to our financial strategy, We are currently implementing a share buyback program totaling 200 billion yen, which is scheduled to be completed by the end of April 2024. In addition, we are in the process of issuing transition bonds and introducing ROIC or ROIC within the company as planned. Progress on the main financial indicators is shown on the next page, page 17. So the progress on the financial indicators will be shared with you on a regular basis going forward. So much on the brief explanation of the progress made in the Midterm Management Plan. Now I would like to conclude my presentation. Thank you very much. So thank you very much. Now I would like to move on to a Q&A session. So any questions, please?

The first, the question. Can you hear me? Yes, I can. Thank you. I have two questions, July to September, or the first half results vis-a-vis the company plan. The bulk shipping business was rather robust, but the automotive, dry bulk, the bunker, if you could share with us the split, and also if you could share with us the assumptions for the second half. Given the rather good first half results, how things are likely to evolve in the second half, I would like to understand more in details. My second question is, so the net profit forecast remains unchanged, but are there any special factors like special profit and loss and the like? So, or are there any ups and downs anticipated at this point in time? Thank you for your question. Your first question, July to September. the bulk shipping business was rather robust, and you are interested in knowing the split. And in the second half, this bulk shipping business is likely to decline somewhat. And how much is your question? I understood. So July to September, the second quarter, automotive and dry bulk, as well as LNG, vessels compared of its original budget. All three exceeded the budget. To some extent, dry bulk, market conditions, or market assumptions, we took a conservative view, but basically, all of the three businesses had the positive growth. Having said that, however, automotive, as was pointed out in the past, our forecast for automotive business was rather pessimistic, and therefore, in comparison, the automotive business is likely to enjoy a rather huge upside. So, that is July to September situation. Turning to the second half, dry bulk, which I touched upon, is unclear. at this point. Of course, we have set some assumptions, but we would assume that it will decline somewhat. With regards to the automotive business, in the second half, we are not assuming a decline and whether it will be at the same level as the first half. Maybe not. So taking into account all those factors, compared with the first half, inclusive of July to September, the second half will be somewhat smaller, but how much smaller it will not be so different from the assumption included in the original budget. In other words, it is within the expectation. So, this is my response to your first question. Responding to your second question, the net income seems low. So, only net income remains unchanged, and background of that will be explained by CFO, the Vice President Takuno. Thank you for your question. So, net income from recurring profit minus tax, et cetera. and carried over losses, there was a big amount. And therefore, effective tax rate was suppressed to low level, but it was almost entirely used up in the first half. And therefore, inclusive of international taxation, the taxes, which were almost non-existent, is now added on top. So that is one impact. So I hope we answered your question. Thank you.

So next question is from someone with the hand up. If you can unmute yourself and ask a question. Thank you very much. I have two questions or points of clarification on O and E. The first point is why you have announced $80 million dividend. So, ONE's first half results was based for the payout ratio of 30 percent dividend, I believe. But compared to the conventional 50 percent payout ratio, it has gone down. Of course, it was not your policy to have it at 50 percent, so that's fine, but the fact that the payout ratio has come down to 30 percent. So what was the background? What was the process of coming to this conclusion? For the international vessels, the future container, the forecast, there is some consciousness. So there is a move to shrink the share buyback. And it just so happened that there was the same timing with the lowering of the payout ratio. So if you can elaborate on that. And my second point is also on the O&E, the progress of the revision of the investment plan as well as the mutual management plan. Has there been any progress made? Or what are you expecting going forward as much as you can share with us? Those are my two points. Thank you very much for those questions. So two questions on O&E. I'd like to ask Mr. Abanno, the managing executive officer, to respond. Thank you for those questions. The first point on dividend, as you pointed out, the pay ratio for the first half is 30 percent. on that. So the specific ratio, so far it had been at 50 percent, but it's not that there was a specific rule set, but each time between the shareholders there's a discussion and this time it just happened so that it's at 30 percent. And as you had guessed, looking at the second half Well, what we originally announced in August, there has been a downward revision to the August revision. And for the rest of fiscal 23 and fiscal 24, as there is going to be a larger capacity, how would that impact the market? There is still uncertainty. So this time, for the time being, we've decided to pay the dividend at 30% pay ratio. Moving on to your second question about the midterm. Rather than the midterm, and I think you know, OAN in Singapore had a media conference for the first time in two years. explained what we would like to do going forward. And so both the capital policy, the funding, that part was somewhat missing from that explanation on that day. So three shareholders, there is a discussion going on. So when it comes to investment, or rather should I say cash allocation, where are we going to spend And what's the plan for the business expansion with the investment? We need to have specific numbers. And now that five years have passed, so for ON needs a future with the shareholders and operation company, we'd like to align ourselves and we'd like to spend as much time as possible to have a discussion around that. And honestly speaking, from other shareholders. Well, it seems like there was a comment by the end of the calendar year, but I myself would like to spend a good time. I would like to make an announcement at least by the end of the fiscal year, but by the end of December, it might be quite challenging for us to share with you anything. But when we do, we would like to share with you what we have in mind, the future of O&E, and would like to share the plan with you. That's all from me. Thank you. Thank you. Another point of clarification. So by the end of the fiscal year, in terms of the timeline, downward revision and half of right late for the Europe traffic, I think with those factors, it's taking time for you to reach a conclusion. Or in two months or so, The freight rate has come down more than we had anticipated, and that resulted to the downward revision for the second half. But the midterm is up to 2030 for seven or eight years. So rather than just a short term of one or two years, but beyond that, how can we expand this fleet, and what would be the investment, and how much leverage should we have? We're focusing on that discussion, so the latest market is not necessarily the factor for allowing this discussion. Thank you. I understand it very well. Thank you very much.

Thank you very much. Let us move on to the next question. I have two questions. You have just explained about the dividend payout, O&E. So, you said that three parties will discuss this matter. My understanding may not be correct, but it will be no less than the parent company dividend payout, a ratio of 30 percent. Am I correct or not? And my second question is, inclusive of a container ship, the Panama Canal restriction, I do not think it has a major impact, but has it been impacting operation or market conditions? If there are any, please share with us. Thank you. Your first question about dividend from ONA, I would like Banu to respond. And the second one with regards to the Panamanian, I will respond. So, thank you for your question, dividend. It's not that this tri-party agreement stipulates the dividend policy, so we can discuss each time and make decisions. Each party needs to pay a dividend, and O&E, which is equity-based subsidiary, we understand that due amount of dividend needs to be paid. Based upon that discussion, we came up with this decision. And it's not that it must not go below a 30 percent. It may, in fact, go below a 30 percent, but each company how? each company pays a dividend, we will discuss that matter from each shareholder's perspective. And your second question, a Panamanian kennel question, I would like to respond. If you say there are no impacts There are some impacts, although it depends on the vessel type how much impact is there. And as I explained, the BLGC And it's from North America, east coast to the Gulf. And if the Panama, if it cannot go through the Panama, it is a huge burden. And VLGC market in itself has become much tighter. And freight rate increase is because of this. But the demands will not decrease because of this, and the demands remain robust. Take, for example, automotive transportation from Asia to east coast of North America or Latin America. It needs to go through. So, there are some impacts, but the NYK automotive fleet is not impacted severely, at least not at this point, but the NYK lines. the vessel space has been large. I mean, the vessel space allocated to us has been large to begin with, so maybe we are in an advantageous position. But if this Panama issue becomes much more serious from Pacific Ocean to Atlantic Oceanside, if the number of vessels is reduced significantly, then it may end up in a shuttle service going back and forth. And the automobiles were transported to the East Coast, but it may have to be uploaded on the West Coast and then brought on the ground, such a possibility is not zero, although at this point in time, we are not seeing big impact. I hope I answered your question. Thank you for your question. I understood fully. Thank you very much.

Let us move on to the next question. Thank you very much. Page 11. Can you hear me? Yes, we can hear you. On page 11, revision of the four-year forecast, the logistics, you made an upward revision, not necessarily that big. So if you can elaborate. air cargo transportation is still rather sluggish. But on the other hand, I think logistics are offsetting that, and there is a slight upward revision. So for logistics, what are you working on, and what is contributing to this upward revision, if you can elaborate further? Thank you. Thank you very much for that question. So I would like to respond to your question. So, recently in the new material management plan, we said that the logistics is one of our core businesses, and we do intend to grow this business as one of the core businesses. There are several significances or meanings to that. One big part is that the container ship business using O and E that we would like to grow, the volatility for that business is quite high. And the source of the demand is quite broad in the logistics and the general logistics itself compared to the container business. The volatility is quite limited for the general logistics. Therefore, by having logistics face the O&E, then we can sort of offset the impact. That's what we said in the midterm. and that remains unchanged, but this logistics business, in this logistics business, as it explains here, the air freight and ocean freight, the forwarding part of the business, that is, ONG, the container vessels freight situation and the space situation, and for the air freight, the actual supply capacity and the station of the freight, those are the factors that could bring about a significant impact. So in terms of the volatility, or an E container, it's very close to that. On the other hand, contract logistics, what we call contract logistics, so the real core part of the logistics, the big network businesses especially where it's impacted by the forwarding that is very much limited where it's impacted so that part has a limited volatility so that's why we would like to continue to expand that part of the business that's our aspiration now this time only 500 million yen but we did make an upward revision but basically in that sense The logistics is quite steady in making a contribution to the profit. As a matter of fact, in Europe and in the United States, inflation or there's a financial And that would also have an impact on the logistics customers' clients as well. But realistically speaking, where we receive orders and we handle the logistics, it's quite steady both in US and Europe. We see a robust business. So in terms of our outlook, we'd like to make sure for the entire year to generate revenue and profit. That concludes my response. Thank you very much. I understand it very well. Thank you.

Thank you very much. Let us move on to the next question. So another person who has raised his hand, please ask a question. So I have been able to unmute myself. I have two additional questions. One, O&E, the freight rate strategy, what is the situation? Spot rate in the past two weeks in Shanghai, the spot rate has been rising, and how O&E is responding to that? As Alliance, what is the capacity schedule? inclusive of the situation of the competitors, if you could share with us, please. My second question is on page 17, KPI based upon a midterm plan and the latest results, profit and share buybacks. Because of that, the ROE seems good, and the capital ratio has declined a little bit. But the operating cash flow, 50 billion or 60 billion yen up. So a half year later, probably you will put together another plan and then I can repeat that. But when the difference of is the plan gets expanded, do you feel it is necessary to make adjustment in a meticulous way? Or in the longer term, like one year or two years, are you planning to look at a cumulative situation? So my question is about how you manage these plans. Thank you for your question. Inclusive of O&E, particularly regarding ONA, the freight rate strategy, G Alliance capacity. plan included. So, O&E, whether O&E has a strategy or not is your question, I understood. So, I would like to ask Mr. Bando to respond. Your second question, these financial positions which are the targets, stipulated in the midterm plan, and there are some variances and how we will respond to them. Regarding that question, I would like to ask CFO Kuno to answer. So, the first question over to you, Mr. Bando. Thank you for your question. So, recently, September and October We were expecting that the rate would be decided sooner, and we were hoping that it would not decline much. However, actually, it dropped more than we expected. In early October, the freight volume has been recovering. Us, O&E, not only O&E, but other companies, towards year end or January, up till the Chinese New Year, people are wanting to increase the numbers, so they are now trying to tighten the vessel supply. So, GE Alliance, we have sort of suspended services to China and North America, but the North America East Coast, we are also suspending and reducing the overall services at the same timing on November the 1st. the price hike we announced at the same time. It's quite huge increase of $400 for North America and Europe. because prices in Europe dropped significantly. And therefore, we decided to raise a price in Europe significantly. I, of course, haven't discussed with other companies, but looking at other companies' movement, probably they are inclined towards European market even more than us, and therefore they seem to be raising prices for Europe rather than changing the route. the European companies that have not – that did not suspend their services in the past are now suspending some of the services, and therefore, the rate is increasing as a result. But market conditions are not recovering quickly, and therefore, To what extent the demands can recover as a result of a tightened supply, it's something we are carefully watching. But in January and February, I think there is a possibility that the rate would drop once again. So, that is how we look at the situation in the short term. I hope I answered your question. Thank you. So I would like to respond to your second question, the financial position. Thank you for your question regarding financial positions. This year's plan at this point, the forecast, the recurring profit is recovering a little bit, and the net income remains the same. So it's basically in line with the expectations, but investment, the cash flow, And MCA's share transfer involved money lending, and it will be repaid about 100 billion yen. So that is included in the number this time. which was not decided at the time of formulation of a medium-term plan. So inclusive of that, investment amount itself is somewhat bigger at this point. The reason for that is one thing is weak yen. because the vessel service price is oftentimes dollar-denominated, and because of weekend investment amount is becoming bigger, and also material cost increase is also impacting. And there are many other variable elements, the forex and the like. So it is quite possible that the investment amount will change in a single year basis, whether we will review the overall financial position. We have not decided anything yet at this point, but inclusive of the current situation, probably at this point, the midterm plan target for 2026, I think it's basically in line with the plan. If the situation changes dramatically, we may consider changing the numbers. But as is announced as part of a medium-term plan, management allocation exist. Within that, we can make additional investment or the additional amount that can be absorbed. And we have about 200 billion yen of own shares and the DER and shareholders' equity ratio have not worsened or rather have improved. And therefore, additional shareholder return is quite possible. And it's not that we need to review financial position at this point in a single-year basis. I hope I answered your question. Thank you.

Jomana Musmar- Moving on to the next question. Are we okay? Is there anyone else with questions? Well, since there are no further questions, we are a bit early, but we would like to close today's briefing. So with this, we would like to close the briefing for the financial results for the second quarter of Financial Fiscal Year 2023. Thank you very much for attending the briefing today.