Nippon Yusen Kabushik New

Thank you very much for your patience. Now, we would like to start our session. Thank you very much for joining our call despite your busy schedule. Now, we would like to begin the briefing session for NOIK's second quarter results for fiscal 2024. I will be serving as your emcee today. I am Okada, the head of IR group. First, let me introduce the representatives from the company. President, Representative Director, President and CEO, Takaya Soga. Representative Director, Executive Vice President, Executive Officer, CFO, Akira Kono. Managing Executive Officer and Chief Executive of Liner and Logistics Headquarters, Takuji Ban. Today, Mr. Soka, the President, will first give you the overview of the second quarter result, which will be followed by a Q&A session. We will explain how you can ask your questions. The presentation materials for today's session are uploaded on the company website. And as always, this briefing session, including the Q&A session, will be video distributed on an on-demand basis. We ask for your cooperation. Now, without further ado, we'd like to start our presentation. Mr. Soga, over to you. I am Takaya Soga, president of NYK. Thank you very much for taking time to attend this result meeting today. Today, I will first give you an overview of the financial results for the second quarter of FY2024, followed by the full year earnings forecast. I will also update on the progress of the midterm management plan, having finished the first half of the second year under the plan. After the presentation, we will have some time for Q&A. The presentation will be projected on the screen. If you have downloaded the file from our website, please have them ready. Now, I'd like to start with the overview of the financial results for the second quarter of this fiscal year. In sum, first-half results exceeded our initial forecast despite the ongoing global tension, including the volatile currency market, the unresolved Russia and Ukraine situation, and the Middle East situation, namely the Israel and Gaza conflict. Please refer to the table on page 6. The blue column on the right shows the first half results for FY24. Revenues were up by 148.4 billion yen year-on-year to 1 trillion 316.8 billion yen, with recurring profit increasing by 129.9 billion to 289.2 billion yen, and profit attributable to owners of parent growing by 152.5 billion yen year-on-year to 265.8 billion yen, achieving revenue and profit growth at all levels. The profit growth was mainly driven by the higher container freight rates, which rose more than expected. This was due to the tight supply and demand situation caused by the continued inability to pass through the Red Sea. Let's take a look at the segment breakdown on page 7. The lower figures for each segment in the blue column are the first half recurring profit by segment for FY24. In the liner and logistics segment, the revenues for the three subsegments were as follows. For the liner trade business, revenues were 176.6 billion yen, up by 129.9 billion yen per year. For the air cargo transportation, revenue grew by 8 billion to 8.3 billion yen, and revenues for the logistics subsegment were down by 1.4 billion yen per year to 12.4 billion yen per year. In the container shipping business, the freight rates rose more than expected due to strong cargo movements and the continued tightness in supply and demand due to the situation in the Red Sea, resulting in a profit level that significantly exceeded the previous year. The freight rates for the air cargo transportation business also rose year-on-year due to strong cargo movement from Asia to Europe and to the United States, especially driven by the EC trend. In logistics, the profit for the air freight and ocean freight forwarding businesses declined slightly due to the impact of the purchasing prices, but the contract logistics business secured solid earnings. In addition, the equity affiliate earnings of O&E was 163.1 billion yen. The recurring profit for the automotive business grew by 1 billion yen yield near to 61.6 billion. Despite the impact of port congestion and the situation in the Red Sea, the number of vehicles transported and profit levels were maintained at the same level as the previous year through the implementation of flexible and optimal vessel deployment plans. The recurring profit for the dry bulk business declined by 12 billion to 8.5 billion yen. Although the market for each vessel type was better than the previous year, the profit was down due to the factors such as the dropping freight rates and volumes as well as foreign exchange factors. The profit for the energy business dropped by 1 billion to 21.8 billion yen. The LNG carrier business continued to perform well supported by medium to long-term contracts, and the VLGC business also generated stable earnings with contract renewals at charter rates reflecting previous year's strong market, although the current market was somewhat weaker. On the other hand, the VLCC market was favorable, but the vessel utilization rate declined due to an increase in the number of vessels being docked. Please turn to page 8. As the left table illustrates, the 129.9 billion yen EONU increase in recurring profit was driven by the profit growth in the line of trade business, which just so happened to be the same figure. The yen depreciated by approximately 14 yen against the dollar compared to last year, and the uplift from the currency was 19.7 billion yen. But as you can see in the table, there is the currency loss of 10.1 billion yen. And this is because the yen strengthened from the weaker yen level. So this figure includes the valuation loss. Also, overall, the uplift from the currency was 19.7 billion, but we also had some valuation losses from the strengthening of the yen during Q2. Also, that was the result for the first half of FY24. Now, let's turn to the full year forecast for FY2024. Please turn to page 9. For the full year of fiscal 24, we project revenues of 2 trillion and 540 billion yen, recurring profit of 410 billion yen and 390 billion yen in net income, and there are no changes from the previous guidance except for the revenues. However, the recurring profit by segment has been revised, and the details are indicated by the figures in brackets on pages 10 and 11 of the handout. Please turn to page 10. In the liner and logistics segment, the full-year forecast of a recurring profit in the liner trade sub-segment is 205 million yen, revised up by 22 billion yen compared to the previous forecast. In the container shipping business, despite the assumption that the situation in the USA will not improve until the end of the fiscal year in March, We expect that the tight supply and demand situation will ease from the third quarter onwards and that the freight rate will gradually decline towards the end of the fiscal year. That said, we expect the four-year profit level will also exceed the previous forecast, owing to the additional profit recorded in the second quarter and hence the upward revision of $22 billion. The air cargo transportation business is expected to post 13 billion yen, 3 billion yen higher compared to the previous forecast. We expect that air cargo from Asia to Europe and the U.S. will remain strong from the third quarter onwards. The 22 billion yen profit guidance for the logistics business remains unchanged from the previous forecast. Although there may be some deviations in freight and ocean freight forwarding business and contract logistics business, overall we do not expect to see any material change.

On page 11, the full-year recurring profit of automotive is 110 billion yen, down 10 billion against the previous forecast, albeit the decline due to slightly reduced transportation volume and Forex. The profit level is expected to remain high. Compared to last year's results, our forecasts are slightly better than that. The number of transportation or units is slightly down, but the reduction of about 60,000 in six months or so. This doesn't mean that the demand is going to decrease. The demand is very robust and that the shortage of vessel space, but the that the trade using the Kipoho cap, not the Red Sea, will continue to the end of March. So theoretically speaking, the space is going to reduce. This means that the other number of units to be transported is going to go down. For dry bulk, is 20 billion yen down 13 billion against the previous forecast. Due to anemic results in the second quarter driven by Forex, full-year profit is expected to be lower than the previous forecast. Energy business is 42 billion yen down 3 billion against the previous forecast. While stable earnings are expected for LNG and VLGC, market forecast for VLCC is lower than the previous forecast, thus slight decline. So much for comparison with the full-year forecast as of the first quarter earnings briefing. As to comparison with FI 2023 full year results, please look at the table on page 13. Please look at page 9 for shareholders down based on the full year forecast. Year-end DPS remains unchanged at 260 yen per share with yardstick pay at ratio of 30%. As to share buyback, we add 30 billion yen to the current total of 100 billion yen, making the revised total 130 billion yen. Buyback period remains unchanged, namely from May 9th, 2024 to April 30th, 2025. Last year, we repurchased our share, 200 billion yen, on May 8th, as of the announcement for 2024, forecast being the base. From May the 9th, 100 billion yen, the share buyback, additional share buyback was announced. Back then, based on that, we were saying that the 100 billion yen will be returned to the shareholders. But now the first half results are closed. And based on that, we have found that the additional shareholders return So not 100 billion yen, but 130 billion yen share buyback will be exercised. So much for the full year forecast for the year ending March 2025. Next, I explain the medium term management plan. This fiscal year marks the second year of the plan. Please look at page 16. First, progress for each financial metric. The blue column, second from the right, lists metrics based on the full-year forecast this time. With recurring profit greater than forecast, we expect ROIC and ROE, for example, to be far greater than medium-term plan targets. but we will continue to work on reducing shareholders' equity ratio, for example. Please look at page 17. This page shows progress on the investment policy in the mid-term plan. Originally, we planned to invest 1.2 trillion yen in total over four years, but as we announced at the previous earnings briefing, the total is to increase to 1.3 trillion yen, of which 850 billion yen was already earmarked for specific projects as of the end of the second quarter fiscal year 2024. The four quadrants at the center and planned investment amount during four years meet the plan period are the same as shown in the medium-term plan materials. Percentage numbers next to each amount are progress rates, with arrows showing the changes since the previous earnings announcement. Albeit some differences in pace, all in all, there has been good progress. Please look at page 18. progress on cash allocation. On the left is the plan as of May 8th this year, when we announced a full year results for fiscal year 2023. On the right is the latest plan factoring in the first half results and full year forecast for FY 2024. As to cash out items, We added 30 billion yen for share buyback and 50 billion yen for ordinary dividends in our latest plan. On page 19, it's shown shareholders' return in an easy-to-understand manner. The total shareholder return over the four-year midterm plan period was 430 billion yen when we announced the plan. The amount is to be increased to 650 billion yen. in which, as I mentioned earlier, we executed 200 billion yen worth of share buyback, and this year, 130 billion yen buyback. All the shares repurchased are to be retired. Striking a good balance between results and investment, we will continue to consider how to strengthen shareholders' return. Lastly, on page 20. This page illustrates our recent initiatives to achieve a PBR of one or higher to improve return and decrease volatility. We are promoting a collaboration to expand transportation business of liquefied CO2, LNG, and ammonia. We are also expanding and differentiating logistics business by leveraging new logistics technology as well as M&A. We are exploring new customers and businesses to contribute to decarbonization. To reduce shareholders' equity cost and improve capital efficiency, We are enhancing transparency by applying more detailed disclosure of business segments and promoting share buyback. We are also introducing enterprise system to speed up management decisions and ROIC forecast management. By making progress in those day-in, day-out initiatives, we will optimize financial metrics, and by adding fair disclosure of non-financial metrics, we will achieve a PBR of one or more. We will continue to manage our business, focusing on cost of capital and share prices. With that, I end my presentation. Thank you.

Thank you. Now, we'd like to start the Q&A session. And as for how you can ask questions, if you have a question, thank you very much for this opportunity to ask my questions. I have one question regarding cash allocation. I would like to confirm, for one, you revisited the cash allocation strategy, and for March 2025, Is this just reflecting their vision for this fiscal year? But for the next two fiscal years, March 26 and March 27, have you made any changes for the following two years? And based on that, the orbiting cash flow, I think, was increased by 200 billion yen from the previous forecast. And the cash out, to respond to that, in total will be 80 billion yen with a combination of share buyback and dividend increase. So you still have 120 billion yen, which is not allocated yet. Would that be used for additional shareholder return? We will be increasing the investment plans beyond the following fiscal years. Yes, thank you for your question. Also on this point, Mr. Cornell, the CFO, will respond to your question. Yes, thank you very much. As you pointed out, regarding the cash out portion of the cash allocation policy, we have reflected just for the fiscal year ending in March 25, so for FY25 and FY26, We have a target dividend payout of 30%, but the current cash-in is just based on what we have projected in the original midterm plan. So for the additional two years, we have some buffer, as you pointed out. And for that portion, we will look at the balance between the future investment and also the shareholder return. So as you pointed out, yes, that is our intention. Thank you very much. I have a follow-up question. I don't remember if it was May or August, but regarding investment, you have a plan of 1.2 trillion that could go up to 1.4 trillion yen, and I think that was a round figure that was communicated. Have you updated that number, and has that been reflected in the plan? Well, as for what we have announced, we did not mention any specific figure, but investment into NSOcean and also any investment that's not for the vessels are opportunities that we are actively looking at. Also, including those opportunities, the number could be higher. But of course, we have to have an opportunity to invest. So at this point, we are saying 1.2 trillion yen. But we will be looking at the future investment opportunities and also the cash flow of other fiscal years to strike a balance between investment and also shareholder return. So at this juncture, we have set aside 1.2 trillion yen, but it's possible that this number could get bigger. I see. So revisiting the investment plans or the shareholder return, would you be making some announcement when you announce the full year results in May? Yes. So this is Sohga speaking again. If you could turn to page 19. Here we have a policy for shareholder return and it's you have said in the midterm plan we have the four-year plan for profit and also shareholder return. And the profit plan, which is used as the base, is using a certain assumption for FY23, 24, 25, 26. And for those assumed profit, we are looking at the dividend payout of 30 percent and including share buybacks. This is the total amount of the return. The initial projection was 430 billion yen. But the profit plan for each year, as we close the book for the year and as we review the profit, we are renewing our plan every year. Also, then the number went up to $570 billion and $620 billion, and then beyond that, $650 billion. Also, for FY March 26 and March 27, for the remaining two fiscal years, we have not revisited for those fiscal years. Also, the plan will be revisited as needed, and we are making efforts to make this a bigger number We are also looking at investment opportunities, and of course, we would also consider increasing the amount paid back to the shareholders. And as Mr. Kono mentioned, for the total amount, we have been communicating 1.2 trillion yen, and in the presentation, we also have a number of 1.3 trillion yen. And regarding this investment plan, Theoretically and technically, there will be some payback. So not that it will be 1.2 trillion yen, but the actual investment that we are trying to make will be 1.3 trillion yen under the current plan. I see. Thank you very much.

Thank you for the question. Moving on to the next question. Thank you. Hello. I have three questions. First, on page 16, the shareholders' equity ratio. This time, the rate goes up from the level of the beginning of the year. And in two years, you have a quite different number. Could you please talk about the thinking behind those numbers? My second question is on page 19, as to dividends. Here it says, the lower limit that is going to be maintained. Maintain the lower limit on dividends commensurate with enhanced downward resistance, meaning that it remains intact, unchanged. So for the cash allocation, according to your mid-term plan, is likely to increase. So next year, in the year after next, What would you like to do? Payout ratio of 30% is fine, but the potential decrease in dividend if the profit goes down, that's always in mind of investors. So could you please talk about how you are going to think about the dividend when you think about allocation of cash? Also, on the Forex side, the impact and the benefit coming from it for each segment. How much impact is there for the first half and the other for the full year? Dry bulk and automotive probably are the two sectors having some impact. Am I right to understand that way? The first quarter and the second quarter, not so much different in terms of the other profit. Thank you for the question. So Mr. Kono is going to answer your question. Thank you for the question. About the shareholder's equity ratio, 67%, or a little bit less than that, is this time's forecast. So for FI26, the yardstick number is shown here as 57%. So 50 to 60%, somewhere between that, that is the range of target. But currently it is improving, ratio is improving. And I think the intent of the question is that if we are going to the right direction or not. For this fiscal year, There is some one-off effects, for example, the cash in, our president said that there is some, the refund coming from the investment side. For this fiscal year, investment cash flow, there is some, the proceeds from the sales, that included are receiving more than paying out when it comes to investment cash flow. So for FY2024, it so happens the shareholder equity ratio has improved. But for FY25 and 26, our plan is that we are going to make progress in investment. And with that, in addition to 30% of payout ratio, very agile share buyback. In other words, additional return to shareholders is in our plan. So, the 50 to 60% range will be, the actual ratio will be somewhere between 50 to 60% of the range. Your second question, about lower limit, 100 yen. Currently, it stands at 100 yen. Any change or not? And the potential reduction in dividend, less than 100 yen or the 260 yen is the forecast number for the year, whether it will go down below that level or not. I think that's the intent of your question. So 260 yen dividend payout. In addition to that, this fiscal year, we are going to repurchase some shares. We are repurchasing some shares. So next year and onwards, profit plan might change from now on because next year we are going to finalize the plan. So we do not assume that the lower limit will be less than 100 yen, not at all. So it will be a bit meaningless to raise the lower limit now. Even if we change this 100 yen limit, still we will be able to maintain that level So in an absolute level, whether or not the dividend payout goes down or not, in our agile, the plan of shareholders' return, will it be dividend payout or share buyback? As was pointed out earlier, we are going to look at shareholders' equity ratio to think about it. Your third question, impact from Forex. The PL and the other valuation side could be different. I think the explanation will be a bit complicated there. Basically, FX impact, somewhere you will find the 10 yen difference and the impact. Page 12, if you look at page 12, one yen, yen going down, 950 million yen of increase in profit. So for each segment, basically it is denominated in the dollar, and the numbers will change due to forex. And in the first half, the FX, the valuation side, especially for dry, the accounts receivable are quite big number in the dollar. Within this fiscal year, FX has moved significantly, and so the valuation changed. So for example, in the first quarter, As you can see here on this page, on average, 153 yen or so. 155 first quarter, 152.77 in the second quarter. And toward the end of the year, as of the end of June, 161.07. So the accounts receivables on the balance sheet, what is counted in the dollar, we need to convert it to 161.07 to the yen on the balance sheet. And in the second quarter, there's temporarily the yen strengthened. And as of the end of September, it was 142.73 yen. So in the second quarter, some of them will be realized, but the yen strength, the gap with the 161 and 142 yen are giving impact in terms of the revision. And so there was an impact, especially for dry bulk. Because of the big account receivable, there was big impact So I have answered three of your questions. As to your second question, as to my second question, mother, so as to additional, the return for the next year and on, you have such potential room. For example, whether it is 260 yen or not for this fiscal year, you have the shareholders return framework Is it possible that you're going to exercise the share buyback even if it means that you will reduce the dividend payout or you would like to maintain the current payout amount? Thank you for the question. For the time being, one yardstick number of 30% of payout ratio. For the time being, we'd like to respect that number, rather mechanically, to some extent, 30% against our net income. We plan to continue that line, for example, 260 yen for this fiscal year, and next fiscal year, net profit goes down slightly, so 240 yen, for example. But still, we are not saying that we are going to stick to 260 yen level. So the shareholder's return is exercised in a hybrid manner. One of the objectives there is that the number of shares in the market has now increased significantly, and we would like to reduce the number of shares in the market. And by doing so, the value per share held by shareholder will theoretically go up. with a certain numerical targets. One direction that we can take is to reduce the number of shares in the market. Of course, we need to revisit that issue, how long we are going to do that. But for the time being, we are going to take hybrid approach and for the dividend payout ratio. For the time being, we would like to keep 30% at least for this year and for the next fiscal year. Thank you. And one additional comment for investment side, over the financial metrics. Page 16, as Kono-san said earlier, second from the left, gray column, investment cash flow. This is cash in portion, it's positive. So to some extent, in the first half we planned some investment, but as I mentioned earlier, we sold very expensive vessels and associated with that, we disinvested from the other related companies. So the cash flow there is now shown positive on this page. for 2024 forecast on the right hand side compared to last year, compared to 2023, it's just a half of the number of 23. So that is the numerical picture. But in the first half, those positive numbers in the first half were quite big. So this is the result. And so FY 2024, the investment, planned investment in vessels, quite a big number of vessels and projects, part of them are postponed to FY 2025. So that is another factor to reduce the overall number for 2024. So for next fiscal year, the postponed investments, that will be realized. So the investment cash flow, the negative number will be much bigger. And in distributing the debt along with that is probably increase. So shareholders equity ratio naturally will go down. So in short, we will be on the track. So in that sense, cash flow and others this year saw some unique situations. That was an additional comment. Thank you. Thank you.

Thank you for your questions. We'd like to move on to the next question. Thank you. Can you hear me? Yes, we can. I have two questions. Regarding the investment cash flow, what is your projection for next fiscal year? That's my first question. And regarding the question around cash allocation, the operating cash flow was revised up by 200 billion yen this time. And looking at this closely, what are the breakdown? The operating profit It's revised up by 35 million yen from the initial guidance, and also from O&E, the dividend income, I think, was revised up because the projections were increased. So in a simple calculation, I think that will be 100 million yen. And on page 16, when you talked about the financial KPIs, The financial cash flow is higher by 100 billion yen compared to the initial plan, but you have additional 100 billion with 200 billion, so what is the breakdown of that extra 100 billion yen? Yes, on the first question, I will respond, and the second question will be addressed by Mr. Kono, the CFO. Regarding investment cash flow, the projection for next fiscal year and onward, at this point, I cannot give you any concrete number. But as you have seen earlier, page 16, for FY23, we had roughly 300 billion of investment cash flow. And probably, It will be close to this, plus the ones that's postponed from FY24. So I think that will give you some ballpark number. So for FY25 and FY26. I think that will be the level. So this is a ballpark number, but I think the amount will be quite sizable. That's my response to the first question. So moving on to your second question. Yes. So for the number for this fiscal year, as you pointed out, you made the right guess. And on top of that, looking at last fiscal year, there were some incremental numbers. So adding them together, the projection was revised up. As of May 8th, in 1.1 trillion yen, this was not including what was incremental from last fiscal year. Is that right? Well, last time, we had some preliminary figures. So when we announced the full year results with 523, we mentioned 1.1 trillion yen. But we had 1.1 trillion plus alpha, but we rounded up to 1.1 trillion. And this time, we mentioned 1.3 trillion yen. In reality, it's slightly below 1.3 trillion, but again, we rounded number and communicated 1.3 trillion. So the 100 billion yen plus offer that you mentioned in your question would explain the revision. I see. Thank you very much.

Thank you for the question. You can either raise your hand, raise your hand button, or you can use chat function to ask questions. Next question. I have just one question. So the cash flow from investing, the incremental part for the cash flow for this fiscal year, is it part of your strategy or next year and onwards, there will be some similar incremental portion on the investment side so that you can strengthen your cash creation capability. Thank you for the question. As to cash flow from investing activities, some incremental portion, you could say that it was intentional, but to be honest with you, the big portion of that incremental portion was related to our investment in Russia and the sanction on Russia. For example, energy vessels that we have been investing, we withdrew from that business and we sold those vessels. So that was the incremental portion because energy vessel we are talking about, so it's very expensive. It's a big impact. The Ukraine-Russia issue since that issue emerged. Some Russia related businesses, we have been discussing how we should address them, especially in the context of the sanction imposed by Western countries. So that was part of our judgment to sell the vessel to withdraw from the business. And as a result, on a net basis, but it was represented as incremental portion. So you could say that it is intentional on our side, but we are forced to do so. Earlier, we just gave some hints, roughly, for the future direction. the investment with the good expected return, which would allow us to return to shareholders. And we would not hesitate to make such investment to expand business. And for that, we are thinking about how to be prepared in terms of cash. Thank you.

Thank you for the question. We would like to move on to the next question. We would like to call on the person who raised their hand. Go ahead, please. Yes, thank you for the presentation. I have one question. On page 16, regarding the progress of the Metro Management Plan, recently you were seeing 6.5% or more for the target, but I think you have exceeded that target, excluding the line of trade business. I think, is it okay to understand that the heroic progress is steady, or are you still working on, or I know that in advancing your IT system, you still have work to do, but how would you assess other progress on the ROIC? Yes, thank you very much. Please give us a moment. Mr. Conon will take your question. Yes, thank you for the question. Regarding ROIC, as you pointed out, the O&E portion in the first half of this fiscal year made profit contribution. Also, it did contribute to uplift the profit. And naturally, for each of the businesses, the timing for investment will be different. Also, looking at the single year ROIC, there will be some fluctuation. But at this point, for now, we are implementing the IT system And going forward, from next fiscal year beyond, we will have the IT system for real-time monitoring. And at this point, we are aggregating the data by each quarter or by each six months. And at this point, we are on track. For the LNG business, the investment, if they concentrate, at one point the balance sheet will be inflated, and the investment will increase, and ROIC may go below 6.5 percent temporarily. But we are reflecting that in our projection, and overall we are targeting 6.5 percent. So we are on track, and some upside that we enjoyed this year is having a positive implication for the ROIC. Yes, I understand that there will be some single-year fluctuations, but looking at the investment, it seems like the investment is also making good progress. So looking at the expected return from your investment, It seems like you're on track or there might be some upside. It's my understanding. Thank you very much.

Thank you for the question. Any other questions? You can either use raise your hand function or please use the chat. It seems that there is no other questions. It's a bit earlier than the schedule, but we would like to complete the Q&A session. Thank you very much. And that concludes our financial results briefing for the second quarter of FY2024. Thank you very much for your participation. Thank you.