Nippon Yusen Kabushik New

Thank you for waiting. Thank you for joining us despite your busy schedules. It is time to start. This is the NYK line fiscal year 2024 financial results briefing. I'll be acting as moderator. I am the head of IR group. My name is Okada. First, I'd like to introduce the presenters. President, Representative Director, President and Chief Executive Officer, Soga. Representative Director, Executive Vice President and CFO, Kono. And Chief Executive of Liner and Logistics Headquarters, Banno. President Soga will explain the fiscal 2024 full year results. After that, we will have time for questions and answers. I will explain how you can ask questions. The presentation materials are on our website. Please refer to them. This briefing will be provided in terms of on-demand streaming, including the Q&A session. We ask for your understanding. I'd like to now have the presentation. Mr. Soga, please. This is Soga, president of NYK Line. Thank you very much for taking time out of your busy schedules to attend today's briefing. Today, we will deviate slightly from the usual pattern and start with an update on the progress of our medium-term management plan. With the current plan covering fiscal years 2023 to 26 reaching its midpoint, I would like to take this opportunity to review the past two years and discuss revisions for the remaining two years. After that, I will present the overview of our fiscal 24 full-year financial results, followed by our earnings forecast for fiscal 25. After the presentation, we will have time for Q&A. The presentation materials will be displayed on the screen, but if you have downloaded them from our website, you can refer to that as well. First, the progress of our current medium-term management plan. Please turn to slide 4. The strategic foundation of this plan is ambidextrous management, based upon which we have advancement of existing core business and new growth business. Supporting these strategies are initiatives for talent and organizational transformation, climate change response, and digital transformation, DX. And we have undertaken various activities in the first two years. That will be fiscal 2023 and 2024, and the major initiatives are outlined here. For advancement of existing core business, we have made growth investments in the LNG fleet where demand growth is expected, and we secured new contracts. Also, by acquiring Eneos Ocean, we expanded our fleet and personnel in areas where we had relatively small share. such as the LPG and chemical tanker segments. Also, we have expanded our logistics business mainly through USEN logistics. In terms of new growth business, we have completed a demonstration vessel that runs on ammonia deemed to be the next generation marine fuel and demonstrated 95% CO2 reduction and technical safety paving the way for future fuel transition. We've also deepened our concrete activities, such as delivering crew transfer vessels, CTVs, for offshore wind projects and opening a training center for crew members. Also, we consolidated one of Europe's largest CTV operators, aiming to enhance our global knowledge and technological capabilities. Also, in CX, one of our supporting strategies, we are re-examining what it means to be a global organization where all 35,000 employees around the world can work vibrantly toward enhancing the corporate value of the group, and we're implementing action plans to achieve this goal. In EX, our climate change countermeasures and decarbonization strategy, we have published the NYK group decarbonization story, an advanced and ambitious plan, and the progress report outlining our decarbonization initiatives, roadmap, and progress. Additionally, we published our first TNFD report last year, which focuses on maintaining and improving natural capital, particularly marine ecosystems, and we plan to deepen these activities going forward. In DX, we are achieving results in applying 3D models in ship design, and maintaining and enhancing safety technology through the use of high-frequency data communication between ships and the shore. Next, I will explain the other key component of the medium-term management plan, that is our capital policy. In terms of our profit planning, recurring profit target for the final year Fiscal 26 is 270 billion yen. Actual was 261.3 billion in fiscal 23. And last year in fiscal 24, it was 450.8 billion. Looking ahead, we forecast 255 billion for fiscal 25, 270 billion for fiscal 26. Further out in fiscal 2030, we are forecasting 440 billion yen in recurring profit. Next, cash flow. Investments are progressing steadily. And we increased the four-year planned investment from the initially planned 1.2 trillion to 1.4 trillion yen. Let's go to slide 24. So you see the four quadrants. So these are the investment plans that we presented when we put together this plan. But near the bottom, you see our progress rate and the latest progress. numbers in terms of how much investment we will make to where. And we see steady progress in all areas. And for enhancing LNG fleet and others, we have seen increase in investment. Let's go to slide 26, cash allocation. So operating cash flow, because of higher performance, From $820 billion over four years, it has now increased significantly to $1.6 trillion. And toward the target of optimizing equity ratio, we will use debt. And also, we have the management allocation. and we are increasing investment and we are acquiring our own shares and increasing returns to shareholders and we are enhancing efficiency. In terms of returns, 430 billion over four years is increasing to 890 billion yen. Page 26. shareholder return progress and adjustments or revisions. So from 2025 payout ratio, we are going to raise from 30 to 40%. And also minimum dividend, we are going to raise from 100 yen to 200 yen. Also fiscal 2025 Well, it was until end of April, 2026, we will conduct a share buyback of 150 billion yen. And despite the forecast of lower year-on-year profits for fiscal 25 and heightened sense of uncertainty in the external environment like tariffs, we have determined that the strengths of each business, the profit level, and our confidence in future growth have all been raised compared to when we first formulated the medium-term plan We therefore will raise both the payout ratio and the minimum dividend, hoping to enhance the predictability of shareholder returns. Going back to slide seven, this summarizes our latest financial forecasts. We expect, well, this also includes our forecast for fiscal 2030. And we see strength compared to the initial forecast. And there will be an increase of $100 billion to $440 billion. And ROE, we expect 10.3%. So these will be the fruits of the growth investments that we are conducting. And also we have strengthened the foundation of non-ONE business, and that has led to stronger business. And also we are seeing stability in the performance of ONE, and that will all contribute to this. So slide eight, toward 2030, this is the image that we have. Next slide. like to talk about the full year results for fiscal 24. In summary, despite various challenges such as lower yen, sometimes rapidly rising yen, the Red Sea issue, and uncertain interest rate situation, rising material and labor costs, and also Red Sea issue and large fires and earthquakes, other natural disasters. With all of that, we were able to close the year with results significantly exceeding our initial forecast. The main reason for the significant upward revision was a strong performance of O&E, but also significant for the strong and stable performance of businesses other than O&E. PLEASE TURN TO THE TABLE ON PAGE 13. THE BLUE COLUMN IN THE CENTER SHOWS THE RESULTS FOR FISCAL 24. REVENUE INCREASED BY 201.4 BILLION YEAR ON YEAR TO 2 TRILLION 587.7 BILLION YEN. RECURRING PROFIT INCREASED BY 229.5 BILLION TO 490.8 BILLION. NET INCOME ROSE BY 249.4 249.1 billion to 477.7 billion with all metrics showing year-on-year increases. However, I would note that this is the third best results following the record-breaking over 1 trillion yen earnings in the previous two years. During fiscal 24, O&E, our container shipping business, saw much higher than expected earnings. Automotive Business also maintains strong performance, and we managed to maintain last year's profit level for dry bulk business despite market fluctuations. These factors led to the higher than expected results. Also, as special factors such as the logistics disruptions during COVID-19 subsided, we believe that we have steadily strengthened our profitability, particularly in our bulk shipping business.

Next, please refer to the table on page 14 for the results by segment. Here too, the blue columns are the results for FY2024. The recurring profit of the liner and logistics business, which consists of liner trade, air cargo transportation and logistics, increased by 206.4 billion yen year-on-year to 274.3 billion yen for liner trade, increased by 15.3 billion yen year-on-year to 21 billion yen for air cargo transportation, and decreased by 4.6 billion yen year-on-year to 21.2 billion yen for logistics. All of these results are due to the strong cargo movement from Asia, and rising freight rates due to tired demand and supply conditions because of the situation in the Red Sea. The profit level of the contract logistics in the logistics segment was slightly lower than the previous year due to the temporary expenses associated with gross investments made in the previous year. The equity method earnings from O&E was 247.1 billion yen. Recurring profit of the automotive segment increased by 7.5 billion yen year-on-year to 113.3 billion yen. Recurring profit of the dry bark segment was the same level as last year at 18.1 billion yen. Recurring profit in the energy segment was 46.1 billion yen down 0.2 billion yen from the previous year. In the automotive business, despite continued port congestion and rut changes due to the situation in the Red Sea, we were able to improve vessel utilization rates and capture solid transportation demand. In the dry bark business, although market conditions differed slightly from each vessel type, the results were roughly at the same level as the previous year. In the energy business, market conditions declined for VLCC due to a decreasing demand from China and for VLGC, market conditions declined with an increasing shipping capacity due to the easing of the Panama Canal route. However, all in all, the segment performed at roughly the same level as the previous year with the LNG career business, which did well with long and medium-term contract supporting the segment. Please go to page 10. To repeat, the recurring profit was 490.8 billion yen up to 129.5 billion yen year-on-year, and net income was 477.7 billion yen, including extraordinary profit, and tax. Based on these results, we plan to increase the dividend by 15 yen per share from the previous forecast to 195 yen. Combined with the interim dividend of 130 yen per share that has already been paid, the annual dividend will be 325 yen per share. The additional share repurchase worth 130 billion yen was completed on April the 4th, and all the shares repurchased will be retired as of May the 30th. Please look at page 15. As shown in the table on the left, about 17 billion yen in recurring profit increase of 229.5 billion yen a year was due to the weaker yen. So much for the overview of the financial results of the FY2024. Next, I would like to explain the full year forecast for the current fiscal year 2025. Please look at page 16 of the material. FY2025 full year forecast is for revenue to be 2,380 billion yen down 208.7 billion yen year on year, recurring profit to be 255 billion yen down 235.8 billion yen year on year, and net income to be 250 billion yen down 227.7 billion yen year on year. We expect a decrease year on year in revenue and profits on each buying item. As for dividend focus based on this forecast, we have decided, as I mentioned earlier, to raise the dividend payout ratio from 30% to 40% from this fiscal year and to raise the minimum dividend from 100 yen to 200 yen. For now, we plan to pay an interim dividend of 115 yen and the year-end dividend of 120 yen for a total annual dividend of 235 yen. In addition, following on from the last year, we will repurchase our shares for a total of 150 yen this fiscal year. Please note that these business performance forecasts do not include much of the impact coming from changes in the external environment, such as tariff measures in various countries and US maritime policy. For example, with regard to the issue of tariffs, it is virtually impossible to predict at this point how much and for how long the cargo movements of which customers and which vessel types will be affected by the escalation of the tariff war or whether they will decrease or increase or how severe the economic stagnation in each country will be due to the decline in cargo movements. There are too many parameters. Therefore, we will not incorporate these factors into our earnings forecast this time. That said, we have estimated the maximum negative impact for each business, that is for each vessel type, and have inserted it as nodes by segment. Since there is a possibility that there will be almost no impact in some cases or for some segments, we have estimated the impact to be 0 to minus 45 billion yen for liner trade, 0 to minus 5 billion yen for logistics, 0 to minus 20 billion yen for automotive, 0 to minus 20 billion yen for dry bulk, and 0 to minus 10 billion yen for energy. So for each segment, because each segment has different assumptions, we showed some estimates. Adding these together, we get zero to minus 100 billion yen. But at this point, we do not know whether this will affect all segments and all vessel types at the same time, or only certain vessels for a certain period of time. Depending on the type of vessel, things may actually move in a positive direction. Taking these factors into consideration, we have noted the estimated range of amounts at risk faced by each segment on pages 16, 17, and 18. With this premise, please look at slide 20. I will explain the full-year forecast for each business segment. The blue column on the right shows the forecast for FY2025. First, for liner trade, we expect recurring profits to decrease by 193.3 billion yen year-on-year to 81 billion yen. The environment surrounding container ships is said to have peaked last fiscal year, but we expect the delivery of new container ships to continue this year, softening the supply and demand for shipping capacity. As for air cargo transportation, the transfer of all shares of Nippon Cargo Airlines to Anna Holdings is scheduled for May 23rd of this year, so it is not included in this full-year forecast. Next, in the logistics, we expect recurring profit to be 18 billion yen down 3.2 billion yen year on year. In the forwarding business, we expect the volume of both ocean and air freight to increase, but freight rates will decline slightly. In the contract logistics, we expect a temporary increase in expenses due to gross investment as in the previous year. Next, In the automotive transportation, we expect recurring profit to be 96 billion yen down 17.3 billion yen year-on-year. Transport demand will be strong, but we expect a slight softening of demand and supply conditions due to the delivery of new ships. For the dry bark, we expect recurring profit to be 17 billion yen down 1.1 billion yen year-on-year. we expect the supply demand environment to remain largely unchanged for all vessel sizes with market conditions roughly at the same level as fiscal of 2024. In the energy business, we expect recurring profit to be 48 billion yen up 1.9 billion yen year on year. Regarding market conditions, we expect VLCCs to be slightly better than last year, while VLGCs are expected to be worse, depending on cargo movements from North America to China and in Asia, which is, of course, related to the tariff situation. We expect stable earnings from energy carriers with medium to long-term contracts. Finally, please look at slide 21. Here is the factor analysis. of the 235.8 billion yen decrease in recurring profit compared to last fiscal year, and so much for the full year forecast for 2025. From slide 23 onwards in the materials, there is a supplementary explanation on the progress of the medium-term management plan. I touched upon it slightly. We would like to refer to those pages if necessary during Q&A session. That concludes my presentation. Thank you.

Thank you very much. So that was the fiscal 24 full year results presentation. Next, we will have the Q&A session. So anyone with a question, please. We see a hand. Please. Three questions about shareholder returns. So during the medium-term management plan, you made some change. What's the background to that? And you changed the payout ratio from 30% to 40% with a minimum to 200%. So what's the background for how you decided on these numbers? Second question, impact of tariffs. you have calculated for each segment. So what are the assumptions upon which you came up with these numbers, if you can briefly explain? Number three, progress, well, page 23, progress of the medium-term management plan. So let's go 26. And on another page, there was a progress number. So shareholders' equity ratio in ROE, a little bit lower than the initial projection, especially for ROE, next year will be lower, maybe impact of O&E, and the rate of equity ratio coming down, maybe slower. How do you look at that and how are you going to manage these things? If you have some ideas, please share them. Thank you for the question. For the first two questions, I would like to address them. The third question about the fiscal 26 financial indicators, CFO, Senior Vice President Kono will respond. Your first question. We have two years remaining, so we're at the midpoint of the Million-Term Management Plan. And during this time, we have changed the policy about shareholder return. What's the background to that? That was the question. For one thing, past two years and a year before that, so past three years, we have looked at a non-ONE business and we have conducted various measures to strengthen those businesses. And if you look at the actual results, we have seen that those measures have been very effective and we have a stable and strong earning power of these businesses. And so growth investments are being made in those areas as well. And by making those growth investments, we can expect that shrinks to lead to fruits that we can harvest. So we're more confident about that. That is one thing. The other thing is From shareholders perspective, there is this level expectation that we are hearing from the shareholders and for dividends, they're looking for predictability and the stability for dividends. So quite a large number of comments we received on that front. And so in terms of payout ratio, we have always said that we will look into this and 30%, is not the median in the market. So we decided to raise that. And also to enhance predictability, visibility, we have set 200 yen minimum dividend. By setting that level, well, what is the grounds for 200 yen? That is, well, 4% of the dividend yield. And that is why we have decided to raise the minimum dividend. And also, another thing is inclusive of dividends, shareholder returns. But not only that, but we have the operating cash flow. And what comes out of that there is the growth investment that should be made and we have to plan for the future and we've done various simulations about the future investments. And so we can maintain the necessary funding for the investment. And so we checked on that and then we looked at the several factors and we decided that we can expand the shareholder return. So we've been able to make those calculations. And that is why we have decided to change the shareholder return policy. And we want to minimize the impact on the share price. And so although it's during the medium term management plan, we decided to implement this change. Your second question about the impact of tariffs. For each business, it's a little bit different, but for the container business, O&E, O&E has made the announcement that, well, $1,100 million, that will be the annual profit at the steady state. If there's an impact, that will be lowered to $200 million if there's an impact of tariffs. So two scenarios are presented. And so the risk that we have, L&L minus $45 billion, that is the risk. And the there's 250 million worse scenario for O&E. So we calculated the risk based on that. For automotive, the maximum risk is 20 billion is how we phrase it. So this is simply for the North American route, the number that will be shipped may fall. So we set that assumption and made this calculation. So for the automotives, Those for North America, the number of vessels, is about 25% of total. So from Asia, Japan to North America, that's about 20%. And Europe to North America, that's about 5%. So together, it's 25%. And the impact of tariffs may lower that number. And with that assumption, we say maximum 20 billion impact. And USTR has announced, well, this was a surprise, that for automotive carriers, regardless of whether it's registered in China, for those automotive carriers, they're going to charge a fee for using the port. And so we are making various studies about this for the automotive carriers. But the number of vessels that call on the U.S. ports and the number that is being carried, if we simply calculate, that will be about $10 billion that will need to be paid for the additional port fees. And this, well, the shipping company will pay, will it be borne by a shipping company? That's not certain. And whether this will be levied is uncertain. There's a lot of lobbying activity conducted. So it's unclear. So for this part, perhaps this may be something that will be passed on to the customer. So we're saying this is maybe more than 10 billion, but this may actually be zero or maybe several billion. So those two things together, we're saying maximum 20 billion. For LNG and bulkers, so how much less vessels or How many shipments? That's not what we're looking at. But we're looking at the overall economic condition. We expect that to worsen a bit. So market condition should deteriorate a bit. And we calculate that and we reflect that in this number. So for energy, that will be 10 billion max. And dry bulk, minus 20 billion. So those are the numbers that we came up with. But those two numbers, energy and dry bulk numbers, the probability of these things happening, we think, is very low. And as we said at the outset, the maximum negative risk to happen simultaneously at a certain time the probability of that is very minimal. Probably won't happen. So it's minus 100 billion just by adding it all up. But this is really the theoretical maximum. So that will be the response to your second question. Third, about the financial indicators, I'd like to have the CFO respond. Thank you for the question about these indicators. As you pointed out, ROE, and shareholders' equity ratio compared with fiscal 25. Fiscal 26, it's a little lower. And when we announced the medium-term plan at the end of fiscal 26, so March 27, we showed these numbers. That was sort of a projection rather than a target. And the 57% is what we had for shareholders' equity ratio. and 49%, including charter liabilities. And so for shareholders' equity ratio, compared to the number in the medium-term plan, we have a better number. I don't know if it's suitable to say if it's better or the larger is better, but the number is higher. ROE compared to the medium-term plan is lower. That is because during this time, we have bigger shareholders' equity, and we have made a lot of investment, and the balance sheet total assets increased. That is the reason for this. So fiscal 26, if you look at that single year as of now, this will be sort of provisional numbers. So this is not detailed calculation in budget. It's just a review at this point of time. So there is room for further change or revision. But as of now, 270 billion recurring profit. Based on that, we will have these numbers. So fiscal 27 onwards toward fiscal 2030, we have these numbers indicators for 2030. So there's upfront investment. And the management allocation, maybe this will come up later again, but as the president explained, management allocation, there's still about $200 billion that we have secured. And so for future investments, well, if there is no investment, then that could perhaps be used for shareholder returns. growth investment for the future, if that should bear fruit, then for fiscal 2030, ROIC and ROE numbers should improve. That's how we see it. That will be my response. Thank you very much.