Nippon Yusen Kabushik New

Thank you very much for waiting. Now we'd like to thank you very much for taking time out of your busy schedule to attend our business results briefing of NYK. Now we'd like to begin the results briefing for the third quarter of FY2024. My name is Okada, head of IR group. I'll emcee this event. Let me now First, I'd like to introduce our speakers. Representative Director, Executive Vice President, Executive Officer CFO Akira Kono, Chief Executive of Liner and Logistics Headquarters, Banno. First, we'll be inviting CFO Kono-san to outline FY24 Q3 results Then we'd like to take questions from the audience. Detailed instructions as to how to raise questions will be given later. Today's materials are posted on our company website. Please have a look. Also, as usual, today's conference, including the QA session, will be video streamed on demand. Please be advised. Now we'd like to proceed with the presentation. Mr. Kono, the floor is yours. I am CFO Kono. Thank you very much for taking the time out of your busy schedule to attend our briefing. Today, I'm going to outline our financial results for the third quarter of fiscal year 2024, which will be followed by our full year forecast for the year. After the presentation, we'd like to entertain questions from the audience. The presentation materials will be projected on the screen. The materials can also be downloaded from our website. Please have them ready at hand. First, let me explain the overview of financial results for the third quarter of FY24. Please refer to page six. The second column from the right, shown in blue, represents our cumulative results through the third quarter. Net sales increased by 187.7 billion yen year-on-year to top 1.9769 trillion yen. Recurring profit rose by 236.1 billion yen to reach 436.4 billion yen. Net profit was up ¥241.9 billion to ¥395.4 billion. Therefore, we have achieved an increase in both revenue and profit. The main attributable factors behind the changes since the second quarter include favorable exchange rates with a weaker yen than expected, and strong performance in O and E because of continued robust cargo movements in container vessels, although softening compared to the previous quarter, and market conditions buttressed by tight demands due to the Red Sea situation. In addition, Both air transport and automotive mojo businesses were supported by brisk market conditions. Moreover, the positive effects of the weaker yarn were felt across all business segments. Thus, we achieved an overall year-on-year increase in both revenue and profit. Next, please look at the table on page 7 for our performance by segment. The second column from the right, shown in blue, represents our cumulative results through the third quarter. Regarding the recurring profit of our liner and logistics business, which consists of liner, air cargo, and logistics, liner increased by 204.8 billion yen year-on-year to top 250.2 billion yen. Air cargo rose 13.8 billion yen to reach 19 billion yen. And logistics dropped by 0.3 billion yen to 20.7 billion yen. In the liner business, as I mentioned earlier, O&E's strong performance led to a significant increase in profits. In the air cargo business, we achieved an increase in both revenue and profit as freight rates remained high because of tight supply and demand situation, but just by strong cargo movements from Asia, particularly for e-commerce. In our logistics business, Air and ocean freight handling operations saw an increased volume, supported by active cargo movements from Asia and within Asia. On the other hand, the logistics division incurred temporary expenses related to gross investments made in the previous fiscal year, resulting in a slight year-on-year decrease in profit for the overall logistics business. As a result, the entire liner and logistics business registered a recurring profit of 289.9 billion yen, an increase of 218.3 billion yen compared to the same period last year. Regarding our automobile business, recurring profit increased by 3.6 billion yen year-on-year to top 91.6 billion yen. Although the transport volume went down year on year because of the ongoing port congestion and route changes associated with the Middle East situation, we have achieved an increase in both revenue and profit because of efficient vessel operations capturing solid transport demand. We also benefited from the weaker yuan and achieved a stable performance in our automobile logistics business, which contributed to our financial results. Next, in the dry bulk business, market conditions for both the Cape Size and Panamax vessels are softened towards the end of the year. However, strong market conditions buttress the business performance until the first half of the year. As a result, recurring profit rose by 5.5 billion yen year-in-year to top 21.8 billion yen, resulting in an increase in both revenue and profit. In the energy business, LNG vessels and offshore operations performed steadily, supported by long-term contracts. Meanwhile, VLCC experienced reduced demand from China, and VLCC saw market conditions falling below the previous year's level because of new vessel completions and the easing of Panama Canal drought impact. As a result, recurring profit plunged to 32.3 billion yen, lower than the previous year level. Please return to page 3 of our material. As I mentioned earlier, the overall recurring profit rose by 236.1 billion yen to top 436.4 billion yen. After accounting for extraordinary gains and losses and taxes, profit attributable to the owners of Perin increased by 241.9 billion yen year-on-year to top 395.4 billion yen. Regarding the share buyback program for fiscal 2024, which commenced on May 9th, we have acquired a cumulative total of 25.8158 million shares as of January 31st for approximately 125 billion yen. Now please turn to page eight. As shown in the table on the left, recurring profit was up 236.1 billion yen year-on-year. This was largely attributable to market improvements in the liner and air cargo segments, as well as the impact of the weaker yen.

This concludes the summary of the third quarter results for fiscal year 2024. Next, I would like to explain our full-year performance forecast for fiscal year 2024. Please turn to page nine. With regards to our full year performance forecast for FY2024, compared to our previous forecast when we announced our second quarter results for FY2024, we have revised upward our revenue forecast by 40 billion yen to 2.58 trillion yen recovering profit by 70 billion yen to 480 billion yen and net income by 60 billion yen to 450 billion yen. I will explain the details by segment later, but compared to the previous forecast, there has been an upward revision in all business segments except logistics, with liner trade having the biggest upward revision by 57 billion yen. please refer to page 12 for profits as well as bunker oil prices and exchange rates in assumptions. Based on the revised forecast, the dividend forecast is 180 yen at the end of the fiscal year, an increase of 50 yen from the previous forecast, taking into account the target dividend payout ratio of 30%. and together with the interim dividend of 130 yen, the annual dividend per share is 310 yen. In addition, as mentioned in the review of the third quarter financial results, we are currently buying back our shares, and the total annual dividend forecast is based on the number of shares, excluding the shares bought back by January 31st. Next, I will explain the full year performance forecast for each business segment in comparison with the previous forecast. Please look at page 14. The blue column in the center is the revised forecast for the full year performance for fiscal year 2024. First, for liner trade, We expect recurring profit to be 262 billion yen, an increase of 57 billion yen from the previous forecast. We expect short-term container ship freight rates to fall toward the end of the fiscal year, but since market conditions and profit levels up to the third quarter have improved compared to the previous forecast, we expect the full-year profit level to exceed the previous forecast. Next, for air cargo transportation as announced in June last year, we have formulated a full year forecast assuming that the share exchange between Yippon Cargo Airlines and ANA Holdings will be completed on March 31st, 2025. Supported by favorable cargo movements in the third quarter, we expect to achieve full year recurring profit of 19 billion yen. 6 billion yen higher than the previous forecast. Next, for logistics, we expect the full year recurring profit of 22 billion yen, the same as the previous forecast. In the forwarding business, profits will fall in the fourth quarter due to seasonal factors, but for the full year, we expect the same profit level as the previous forecast, combined with contract logistics business. for the automotive business, we have revised our forecast upward by 5 billion yen from the previous forecast to 115 billion yen. In the automotive business, We continue to assume that routes will be changed to bypass the Suez Canal, but we are working to improve vessel deployment efficiency and capture solid cargo movement, so the number of vehicles transported is expected to increase slightly from the previous forecast. The main factors behind the upward revision for the full year are the increase in the number of vehicles transported, as well as the impact of the weekend and exchange rate fluctuations. In the dry bulk business, we have revised up recurring profit forecast by 2 billion yen to 22 billion from the previous forecast. Although the market conditions are expected to be less favorable for all vessel types compared to the previous forecast, footing appropriate levels are expected to exceed the previous forecast due to the positive impact of exchange rate fluctuations in the third quarter. recurring profit for the energy business is expected to be 44 billion yen and upward revision by 2 billion from the previous forecast. Although the market's assumptions for VLCC and VLGC are less favorable compared to the previous forecast, we expect solid performance trends in the energy carrier and offshore business supported by medium to long-term contracts. In addition, due to changes in the docking schedule of some vessels, and the impact of the VTM, we expect profits to increase for the full year. Please refer to the table on page 13 for the comparison with the previous fiscal year. This concludes my explanation of our full year forecast for fiscal year 2024. In addition to the slides that we showed today, the materials on our website also contain reference materials such as estimated values for the main specifications of each business segment in the appendix, so please refer to them as well at your convenience. That's all I have. Thank you very much.

Thank you very much for the presentation. Now we'd like to move on to the QA session. Now the floor is open for questions. First question. Thank you very much. My first question pertains to the shareholder's return, which is described on page 20, the total shareholder return trend, which was presented. And for the next year, during the first half, I confirmed this question, but Regarding the current mid-term management plan, the equity ratio will be reduced, so in line with that, what is your view? Your policy is not to lower any dividend, but any further, but what is your view, Kono-san? That's what I'd like to confirm, please. Thank you very much for the question. Regarding shareholders' returns, traditionally, regarding dividend payout ratio, which is set at 30%, and the share buyback. In combination of these two, we'd like to take agile shareholder return while achieving a delicate balance with the investment level. That is our policy that we remain the same, which remains the same. And for fiscal 2024 full year forecast, there is remaining only one quarter, and we are currently in February, so we are near to the end year, year end. Therefore, the equity ratio, which remains quite high, and this is partly attributable to the return of investment and favorable performance, higher than expected. So there is a remaining two years in the current NTP period So in our perception, capital allocation policy, the equity ratio, we would like to focus on these two elements. And though we are yet to formulate the P&L forecast internally, and the details are being discussed internally for the next year's full forecast. And the dividend payout ratio of 30%, yes, that is our target. additional dividend may be paid out. That is a possibility. And also regarding share buyback, that is also an alternative choice. So we'd like to take a flexible approach. On this table, 30% is the dividend payout ratio. And starting from the 2023, which marks the first year of the current MTP, but prior to that, 25% was our target previously. And this just happened that way. However, the amount of shareholder return after 2021 was about 25 or 26 billion in terms of combining both the dividend as well as share buyback. In addition, the total shareholder return starting from 2033 remains very high from the year 23 level. So the dividend pay ratio of 30% is our benchmark. However, total shareholder return is quite flexible in our view. That is our policy. Although we are not at the liberty of disclosing the detailed foliar protection for next year, but that is our basic policy. Thank you very much for the confirmation. And my second question pertains to the resumption of operation of vessels you just mentioned. Regarding the Middle East situation, the FUSI will continue to attack these Charlie vessels and whether or not there was another, whether the conflict will be protected any further. So you need to, what are the things, specific things that you need to monitor and check in order to resume your operation of vessels? This is a very difficult judgment that we must make because speaking of container vessels, O&E operates those vessels. Therefore, O&E is trying to garner information relating to the conditions there. And other container vessel operators, their moves are also watched. Because we go through the Suez Canal, so automotive, excuse me, energy vessels, LNG vessels, those are what we operate. And first of all, We need to, rather than us passing the Suez Canal for the first time, but we need to make sure the safety of our vessels. So I cannot specifically say what will trigger the resumption of operation at this point in time, as you rightly pointed out. Depending on the situation in Gaza, and Fusi is still attacking Israeli-related vessels. But I mentioned Israeli-related, or maybe that includes vessels that have docked in Israel. So we need to actually monitor the situation quite carefully in order to make the final decision. So in that sense, by the end of this fiscal year, whether or not we can resume operations, I think it will be difficult for us to resume operations by the year end. Thank you very much. In addition, automotive, this business, depending on the export situation from China, would there be impacted by the situation? And also the freight level for the next year, that is the questions that I'd like to clarify. So regarding the automotive transport vessels, Yes, we do ship from China, but the proportion of it is quite not that substantial. So at this point in time, we don't feel the significant impact of that. And for the next year, the impact of Trump's tariffs on Chinese products, so the situation remains very uncertain. But at this point in time, still, the demand is robust and the freight level is not plunging significantly and will not plunge significantly as far as we understand. And in terms of the charter fees, that is the market condition for charter fees, and we sense that it is softening compared to the previous level, but In our perception, we are still at the historically high level. That is the current condition. Therefore, how the market will unfold and the owners of the automotive vessels, transport vessels, we don't see that the outlook is softening that much.

Thank you very much. Next question, please raise your hand. Thank you. I have two questions. First, SHERCO does return. Could you please elaborate on that? You said that you are cautious of total payout ratio as well and you're still thinking about the next fiscal year and the 30% of the payout ratio as the other stake. Is there any thought to change it and focus more on total payout ratio? As much as you can, could you please elaborate on that point? That's my first question. And the second question is the air freight business. So it's not relevant for the next fiscal year, but what about the upward revision? I think the freight conditions are very good and as to the logistics, are there any negative impact like the procurement cost is rising probably? Could I confirm that point? Thank you. First question, let me answer your first question. Total payout ratio, at this moment we are not having the discussion to change structure more to total payout ratio. And we are based on 30% of dividend payout ratio and after share buyback last year and with this fiscal year, we have been doing it in a flexible manner. And that policy is not likely to change greatly, but for the next midterm plan, because we are coming to the halfway through. So I think that kind of discussion should happen for next fiscal year. But at this moment, we are not discussing to change our metrics for the next fiscal year. As to dividend payout ratio, the 30% is a yardstick. It's not that it's a must. that we need to stick to that number. That's not the case. So we are still open about the other level. That said, let me repeat. As I mentioned earlier, the equity ratio is at the higher level than our assumption. So we still have, we could have some more capacity to increase the dividend payout. Of course, that should be the balance to raise investment. And Banu-san is going to answer your second question. As to the air freight, the third quarter, the cargo movements were robust. and the freights as well. Of course, NCA enjoyed the good market. And as to Youth and Logistics, the third quarter, the good cargo movements, they enjoyed it as well. So good numerical results. And the fourth quarter, as is the case for every year, in the fourth quarter, partly because of impact of China. Figures go down, and it's actually happening from January. That's the use and logistics. And the fourth quarter. The space is not that tight. And we are not feeling the big pressure on our freight, the race freight. Thank you.

Thank you very much for the questions. Moving on to the next person. Thank you very much for the presentation. I'd like to raise two questions. First, regarding the recurring profit and net profit, the difference versus the previous forecast is widening. So extraordinary losses or gains, or is it because of the taxes? What is the factor behind the change? And also, second pertains to the free cash flow outlook for this year. Regarding the revised forecast, the operating cash flow will go up, but what is your outlook for free cash flow and cash flow? Those are my two questions. Thank you. Thank you very much for the questions. Pertaining to the first question, the difference between the recurring profit and net profit, Previously, I think that it is attributable to taxes. That is a simple explanation we can give. Traditionally, in the past, well, our company was operating at a loss for a quite long time, and there were some deferred losses that were incurred or carried over, but that is diminishing. So that is why it is revised upwards. And that portion, or the increase, is used to pay taxes. And in terms of extraordinary losses or gains, we didn't have any main attributable factors from that segment. And pertaining to the second question, what was your second question? Regarding free cash flow. Operating cash flow, as you rightly pointed out, is increasing, and investing cash flow As we previously announced one session before and two sessions before, we withdrew our business in Russia, from Russia, and there was some return associated with the withdrawal. So we just think cash flow is down than the initial forecast, and this is a special factor just for this year. So in that sense, free cash flow, will was expanded down the previous forecast that is our view i hope that answered your questions thank you very much and regarding the second question in november um investment cash flow outlook remains the same almost the same as november yes but for the vessel business it is in line with our plan but In business investments, part of them were delayed or deferred. So come next year, everything else is in line with our expectation. That is our view. And going forward, at this point in time, we are not at liberty of disclosing what's going to happen. But for the business investment projects, upcoming ones, we are near to the closing of these contracts. So those will be registered or reported from next year onwards. Thank you very much for the clarification.

Thank you for the question. Next question. I have three questions. First, about MCA. The first quarter, or is it the season? but on a near basis, the property is expected to go down. Three billion, four billion, five billion. What is the reason that the numbers are getting so worse? Are there any special reasons behind it? And is the deal with ANA, is it already a done deal? Am I right to understand that there will be no additional special factors because profit is better than the original assumption and maybe you were expecting to sell it at a better price but the deal is already done so there will be no change. Am I right to understand that way? Let's check on the question. So in light of the NCAA situation the Profits coming from NCA will be non-existent for the next fiscal year. Dry energy and the auto and the logistics, to what extent those other businesses can compensate for that? And also, the deal with Oriental Land for cruise business, what is the merit for your company? Thank you. So your first question, Banner-san is going to answer your question. Banner-san, please. Thank you for the question. So as to the fourth quarter, it's almost break-even for air freight, air cargo. It's true that the market conditions were good towards the third quarter, but there was some rush that ran before the Trump trade in the third quarter, and usually the market conditions were lower in December, but we saw very strong numbers in the third quarter. In January, the market is now disciplined. And in February, we have stopped some of our developments. So, 400 million is at the same level, almost the same level as last year. Your second question? ANA, about ANA. But ANA deal, the agreement with ANA Holdings, as you pointed out correctly, the price is already fixed. So in that sense, it will not move anymore. It's already reported in mass media in Japan, and approval from the Fair Trade Commission has already been issued, but we need to get an approval from the Chinese authorities. And that is what the ANA is doing. And if there is no delay in that process, as the original schedule, the deed will be done within this fiscal year. Have I answered your question, the first question? Yes, thank you. And the second question, so the 19 billion yen for this year will not be there next year and how are we going to compensate for that? So after NCA, the performance has been much better than our expectation. So in the short run, we cannot pinpoint which business is going to compensate but on mid to long term, because of the expansion of business, the benefit might not come next year right away, but the best of business deal with the NLs, for LNG or the consolidated consolidation rather, to make the business subsidiary or business investment, especially logistics or automotive transportation in these areas. By expanding business in those areas, we can get stable flow of revenue and the research that we would like to compensate for for the NCA. Your third question about the deal with Oriental Land. We are going to help them. It's not about investing in their business or capital relationship, the help in operation or staffing. And currently, the German Meyer is the shipyard, and where we made our ASCA-3. And in April, ASCA-3 is going to be completed and delivered. And in that same shipyard, we're going to learn the ease of making their ship, and we are helping how to supervise the construction process. So what does it mean to us? Indirectly, first of all, Japanese cruising market is to expand with a different category. So our operation, Houston Cruise, ASCA 2 and ASCA 3 this year, it's not that we are going to compete directly with them, but the Disney brand is very strong. So those customers, users enjoying the Disney-related vessels are expected to be interested in ASCA as well. So timing-wise, this fiscal year, ASCA 3 is going to be delivered, and Oriental Lines Vessel is expected to be completed in 2028, so there's some time. So, staffing or the hotel staffing, the non-Japanese in particular. In the Philippines, we have been developing the hotel staff in the Philippines, for example, and that could help boost demand for the rental land, combined with the demand for rental land, we could enjoy the scale merit. And in the form of consultation, it's a business, but without investment, so it's not a very big business, but it's going to be the positive for us. So that's the answer for your question. Thank you.

Thank you very much for the questions. Moving on to the next question. This is a rather detailed question, but for the segment that says others, there is very little explanation about the other segment. The passenger vessels with the resumption of the cruise, which used to plunge, but the cruising is recovering. And we are in the recovery track. But regarding the passenger vessels, what is the P&L situation going forward? Well, thank you very much for the passenger vessels related question. ASCA-2 is commissioning and operating. And after the pandemic, we are over and we are in the recovery tracks. and we have a very high passenger rate, so the operation is quite brisk for ASCA-2. And for next year and onwards, we can expect the similar robust trend, but for ASCA-3, which will be commissioned and will be delivered in April of this year, and as we commission in Japan, then the vessels' ownership will be converted to Japan and it will be commencing sometime around August or during the summer in Japan. But prior to that, there is this one-time cost that we have to incur for this year. And after the second half of next year, ASCA III will be included and it's going to expand at the sales scale. So as ASCA III expands, contributes full-scale, full-fledgedly, we expect that will happen after two years from now, so sometime after 2026. And for the next year, there will be some long-term costs associated with this, but we are still on the recovery track, and we'd like to continue that momentum. So regarding the recurring profit of $7 billion, contributing factor from the segment and that is mostly from this passage of vessel but there are other items I believe but mostly it will come from this passage of vehicle is my understanding correct no that is not the only factor we have other substantial elements to this thank you very much for the clarification thank you for the question next question I have additional question

For mid-term plan, what is the progress on the mid-term plan? 26 profit other than O&E, 150 billion yen. Now you have exceeded it quite a bit, but there are some special factors like the first canal. What is the difference? What is the factor for the actual numbers? And as to ESG strategy, globally, there is some rather passive attitude toward ESG in some areas. What is your thought on ESG side? So your first question, is it about O&E or other than O&E? As to market conditions, It is mixed. So for example, dry bark, market is bad. Still, we could secure a certain level of profit, and that is the benefit coming from the structural reform that we had in the past. Going forward, the Chinese economy How will it develop? How will it evolve? There are some uncertainties, including geopolitical issues. But the operation, we operate in such a way that we're not to be vulnerable to such geopolitical issues. And we have been making some improvements in avoiding the vulnerabilities. And for energy, LNG and others, We are getting relatively stable profit and relatively speaking our support operation that is getting smaller is decreasing. So we are expanding the size at the same time we secure the stable flow of revenue. As to automotive business for next year on, it's rather uncertain but as I have touched upon earlier, the market Abrupt worsening is not expected to happen. Have I answered your question? Yes, thank you. As to ESG strategy, it was a global trend, and there might be some return, the demand for fossil fuel, but that will not come with the decreased coal utilization the LNG, the low carbon LNG, that will continue to be during the tension. So in a business portfolio, I think it's something that we can cover and also enjoy business chances. As to mid to long term basis, the decarbonization is not something that we can avoid. So for example, ammonia, the fuel, or hydrogen that we are working on. Under the current midterm plan, we really don't expect that it will be the profitable business. It is something that we can establish as business in 30 years and 20 years time at all. So not too much change there, but of course we need to be more sensitive. to changing the environment, and we need to make a good judgment call on the pace or speed of the things being developed.

Thank you very much for the questions. Are there anyone with other questions? We took all the questions, so now we'd like to conclude the QA session. Thank you very much for the questions. With that, we'd like to conclude our business results briefing for the third quarter of FY2024. Thank you very much for taking time out of your busy schedule to attend our briefing. Thank you for your kind attention.