Thank you for your patience. Thank you for taking part today despite your busy schedule. We will now begin the NYK Line financial results briefing for the first quarter of FY 2026. My name is Yanase, Head of the IR Group, and I will be serving as your moderator. Thank you very much for having me. I would like to introduce speakers today. We have Mr. Takuji Banno, Senior Managing Executive Officer and CFO. Mr. Tomotaka Aso, Managing Executive Officer and Chief Executive of the Liner and Logistics Headquarters.
We will have Mr. Banno provide an overview of our financial results for the first quarter of FY 2026, followed by a Q&A session. I will give a notice to you on how to ask questions later. Today's presentation materials are available on our website. Please note that we plan to make an on-demand recording of this briefing, including Q&A session, available later.
Thank you very much for your understanding. Now let's begin the presentation. Mr. Banno, the floor is yours.
Thank you for joining us at the financial briefing today. I will be leading the presentation based on this material. Once again, thank you for your kind attention. We revised our financial results in a timely disclosure last week regarding the content I am about to present, as well as the information released earlier today. The actual figures have not changed at all from those figures we presented already, and we appreciate your understanding for that. Please take a look at the table of contents. As usual, we will cover the first quarter financial results and the revision to our full-year earnings forecast.
In addition, since we announced a TOB for the NS United shares last Friday, I would like to take a few minutes to briefly walk you through the particular topic as well. The presentation material includes an ONE slide at the end. Now then, let's dive right in. The figures for the first quarter financial results are detailed starting on Slide three. Please could you take a look at the accompanying items later. Now take a look at the table on Slide six, please. The key points. The company as a whole, ordinary profit was JPY 71.2 billion. Profit attributable to owners of the parent was JPY 67.1 billion, resulting in increased capital and higher profit. Compared to the same period last year, Trump administration's tariff took effect in April, and by that, we struggled quite a bit in April and May.
On the other hand, there was a trend toward front-loading that led to a rapid surge in freight rates in June, particularly for containers. We were able to catch up for a significant portion of the shortfall in June, and our first quarter result for last year stood at JPY 55.9 billion over the three-month period. This time, we exceeded that figure by an additional JPY 15.2 billion, ending up with an ordinary profit of JPY 71.2 billion. Moving on, here are the figures for each segment. Please take a look at the numbers. Broadly speaking, the three divisions, liner trade, logistics, and automotive, observed increased revenue but decreased profit.
On the other hand, dry bulk and energy observed significant increases in both revenue and profit. To provide some additional context regarding the energy segment, we actually reported an ordinary profit of JPY 16.4 billion for the first quarter at this time last year.
The figure in this presentation is JPY 12 billion. The reason for this decrease is that we acquired NYK Energy Ocean, and PPA was not included in last year's figures since the acquisition had not yet taken place. Whereas this year's figure reflects the figures following the acquisition. Consequently, last year's figures have been restated, making them appear lower. If I may, I'd like to briefly explain the consistency between the contents presented in May at the start of the fiscal year and what I'm about to explain now. You may also recall that during this briefing in May, when we announced our full-year forecast of JPY 185 billion, we explained that just under JPY 20 billion had been factored in as the effect of the Strait of Hormuz.
I explained in May that most of these figures were due to rising bunker prices for each vessel, as well as the likelihood that automobile vessels would be unable to transport vehicles to the Middle East, which in turn would negatively impact the automotive segment. Regarding how this actually played out, let me please start by saying that as for the automotive segment, we were ultimately able to transport 1.11 million units in the first quarter. This is roughly the same level as last year and the year before. So looking at the results alone, the reality is that we were able to maintain steady exports to the Middle East. However, looking solely at the financial results, while the goods were transported, there were instances where the route or port of discharge changed in various places. In addition, port congestion disrupted operation in various ways.
Furthermore, there was a severe shortage of vessels, and in order to make up for this shortfall, we significantly accelerated vessel rotations that resulted in poor fuel efficiency and higher fuel consumption. Because costs rose significantly even though goods were being shipped to the Middle East, when looking solely at the results, the automotive segment ended up at a level nearly identical to the budget we had prepared already, that we assumed no shipments to the Middle East. On the fuel front, however, our company had announced in May that we expected the bunker price for the first half of the year to be $806. However, when we reviewed our financial statements, the actual bunker price we used turned out to be more than $150 cheaper.
The reason for this is conspicuous in the dry bulk segment that we apply an accounting treatment where fuel held for temporary sale is consumed on a first-in, first-out basis. The fuel burned in April and May had already been purchased in February and other months. So we were burning fuel that we had purchased when prices were lower. By around June, we were burning fuel at a rate roughly in line with the market condition. And for the period leading up to that point, our accounting treatment reflected the use of cheaper fuel. In reality, fuel costs did not rise as much as anticipated. Therefore, to focus solely on the result of JPY 120 billion figure I mentioned, the automotive segment, which is a part of this total, came in slightly below expectations as anticipated.
On the other hand, the fuel segment showed almost no such downward deviation. That covers the figures for the first quarter. Next, I'd like to provide a brief explanation by segment following this presentation material. For O&E, at the time of initial forecast, we projected a loss of JPY 50 million on their 100% basis. This is for the first half of the fiscal year combining the first and second quarters. We had projected a loss of JPY 350 million for the second half and a full- year loss of JPY 300 million.
But in reality, we achieved a profit of JPY 31 million in the first quarter. That is in just three months. Originally, the first half deficit was projected to consist of a fairly large loss in the first quarter and a slight return to profitability in the second quarter, resulting in a combined deficit of nearly JPY 50 million.
Looking solely at the results, we already posted profits starting in the first quarter. Fuel prices have naturally risen, and we were burning more expensive fuel. We introduced an emergency fuel surcharge in March, and we were able to collect them effectively. Furthermore, North America was quite conspicuous that cargo movement was also quite active in Europe. Given that vessel capacity remained tight throughout April, May, and June, we introduced peak season surcharges at an early stage. Although market conditions were already strong to begin with, freight rates surged, which contributed significantly to the upward revision. Moving on to logistics. We had originally projected a JPY 2 billion loss for the first half of the fiscal year.
Looking solely at the results, we already posted a JPY 2.4 billion loss in the first quarter, which feels as if we have already used up the entire half-year loss in just three months. This is partly due to changes in how we allocate internal expenses. In terms of underlying performance, though, the results were largely in line with our original projections. The integration of the financial results for Golden Ocean Group, this is an acquisition we closed last December. It has been proceeding smoothly since April, and there have been no significant deviations from our projections. PMI is also on the right trajectory, and there have been absolutely no major surprises in that regard. I hope you understand that things are progressing as planned. Regarding dry bulk, as I mentioned earlier, we have observed a significant upside.
The budget for the first half of the year was JPY 7 billion, and the revenue for the first quarter alone, just three months, has already reached JPY 19.4 billion, representing a substantial increase. Market conditions have been extremely strong, particularly for Capesize bulk carrier, with rates hovering above $40,000. This trend is not limited to Capesize bulk carriers, but as I mentioned earlier, we had originally factored in a significant portion of the surge in fuel prices, especially for the dry bulk segment, but the actual fuel costs turned out to be lower than expected. This is also contributing to exceeding guidance significantly. For the energy segment, we had projected a surplus of JPY 25 billion for the first half alone, but we already achieved JPY 23.9 billion in the first quarter, essentially generating nearly the entire first half profit in just three months.
Here as well, the VLGC market has skyrocketed, and it is much higher than we anticipated. In the case of VLGCs, we are observing rates of 40,000 or 400,000 even. But since our tanker fleet has limited exposure to these spot markets, we have not been able to fully benefit from all of this. That being said, even with the limited exposure, we were able to exceed guidance significantly in our earnings. To summarize, for the first quarter, we significantly exceeded our initial budget. Roughly half of that upside came from the container segment, while the automotive and logistics segment performed largely as expected. The remaining upside came from dry bulk and energy. Please consider half of the gains from dry bulk and energy to be attributable to the fuel cost benefits that I have already elaborated. That concludes my overall assessment of the first quarter financial results.
Thank you very much. Moving forward, I will now walk you through our full- year earnings forecast. First, please take a look at Slide nine. As a prerequisite, our initial budget was based on the assumption that the situation in the Strait of Hormuz would continue through June. This revised projection assumes that the situation will be extended by another three months, lasting until September. In other words, while conditions may not normalize immediately by September, we have based our calculations on the provisional assumption that the Strait of Hormuz will at least be open. Regarding the Suez Canal and the Red Sea, we have maintained our original assumption that our vessels will not enter those waterways until the end of the fiscal year, that is March. Based on this assumption, we recalculated the figures, and the results are as you can see here.
We have revised upward our forecast for revenue, ordinary profit, and profit attributable to owners of parent. Regarding shareholders' return, in light of this, we had originally stated that we set an annual dividend of JPY 200. However, we will now increase the dividend to a total annual dividend of JPY 240, consisting of an annual dividend of JPY 40, an interim dividend of JPY 20, and a year-end dividend of JPY 20. Following this, on Slides nine through 10 and beyond, we provide various explanations. Please turn to Slide 14. As explained earlier, this slide compares the figures announced in May with our current forecast. I would like to briefly walk you through this slide. Overall, we had originally projected ordinary profit of JPY 185 billion annually, but we are revising this upward by JPY 65 billion- JPY 250 billion. This is exactly what we announced last week.
Breaking it down, of the JPY 65 billion, just over half, JPY 34 billion, comes from Liner Trade. Liner Trade was originally projected to post a loss in the first quarter, but it significantly exceeded expectations, so the results have improved. In fact, for Liner Trade, there is sometimes an inevitable slight delay in recognizing freight revenue for accounting purposes. In fact, the current very strong market conditions are typically reflected in the second quarter results. While the company as a whole posted a profit of JPY 31 million in the first quarter, the second quarter is expected to yield significantly higher figures. On the other hand, as shown on Slide 14, regarding the second half of the fiscal year, which displays figures in JPY 100 million for our company, we had originally forecast a profit of JPY 35 billion for the second half.
However, we have revised this forecast to JPY 21 billion, representing a downward revision of JPY 14 billion. Mr. Aso, Managing Executive Officer, may provide a more detailed explanation of this later. For the first half, we did not necessarily conclude that we were seeing front-loading like last year. That is, that the peak season had shifted earlier than the usual August. However, given that cargo movement was exceptionally brisk in the first and second quarters, we do not think that cargo movement in the third and the fourth quarters may decline slightly compared to our original assumptions. Furthermore, regarding fuel, we had originally assumed that once the Strait of Hormuz reopened in June, bunker prices would gradually decline starting in July. However, if current trend continues, bunker prices will likely not begin to decline until October or later.
Consequently, we have included downwardly revised figures for the second half of the year. Regarding logistics, this is largely the same as the previous explanation, as our outlook for the whole year has not changed significantly from what we presented in May. The figures for this period are again close to zero. Air cargo transportation is performing quite well, but we experienced a one-time dip in other areas. Golden is performing as expected. The PMI is also progressing smoothly, so there have been no changes here either. As for the Automotive segment, we slightly revised downward our projections for the first and second quarters due to the impact of the Strait of Hormuz, but we expect to make up for that in the second half of the year.
Looking at the full year, the results are JPY 3 billion below the figures we represented in May, but this is largely in line with our expectations. As for dry bulk, we significantly exceeded expectations in the first quarter. Since market conditions remain strong in the second quarter, we anticipate that we will generate a reasonable amount of profit. Our market outlook for the second half and beyond is included in the appendix at the end of this deck. As you can see there, we have revised our focus upward. While market conditions themselves are improving, fuel costs remain high, which will have a particularly significant impact in the second half. Therefore, for the second half, we are maintaining our previous forecast of JPY 7 billion for after profit and loss.
Regarding the energy sector, we made significant profit in the first quarter due to fuel price effects and our tanker operations. While this trend will continue into the second quarter, our projection indicates that the situation will deteriorate slightly once the Strait of Hormuz reopens. This is because there is possibility that LNG carriers could be halted, particularly in the second half around July, August, and September. Since this will be reflected in the income statement starting in October or later, our focus is quite conservative. Consequently, we have issued a downward revision for the energy segment in the second half. That concludes my explanation for the assumptions underlining our full-year earnings forecast. I will wrap up my explanation on the income topics for now. As I mentioned at the top, I would like now to talk about NS United Kaiun Kaisha, Ltd, which we announced last Friday.
From here on, I will refer to the company as NSU. We have announced a TOB for NSU, and the materials we released contain very detailed information on various aspects of the deal. I encourage those of you with time to review them. There are about four slides of material today, so I'd like to give you a brief explanation. First, Slide 16. There are three items listed here regarding the rationale for this transaction. Since this section is quite detailed, I will not be reading it aloud today. I believe you will get the gist of it if you read through it. First and foremost, I'd like to draw your attention to the fact that NSU is a dry bulk shipping company that is firmly managed as an independent entity.
By partnering with them, we can achieve various synergies, and it is with strong belief that we have reached this point. Specifically regarding the benefits for our company, while our dry bulk business generates stable revenue, it is also significantly influenced by market conditions. For this reason, we operate our business while maintaining a balance. We also wish to further increase our stable revenue and incorporating NSU's business will help us achieve this. That is the first benefit. What we are most looking forward to is the domestic shipping business. Given that our company is not particularly strong in this area, the opportunity to collaborate on this stable revenue stream is a key point in the significance of this transaction. Next is Slide 17. This slide lists the facts, so please read through it. The total acquisition cost is JPY 156.8 billion, which is just under JPY 160 billion.
Regarding the future schedule, it will likely take three to four months to obtain regulatory clearance under the Anti-Monopoly Act and other relevant laws, after which we will launch the TOB. At this point in time, we plan to proceed at a pace that will allow for closing around April of next year. Next Slide 18, please. I'd like you to take a look at this material a bit farther. This overlaps with Slide 16, but here we have listed the synergies from this transaction as currently anticipated by NYK Line. We have only announced the TOB so far. Certainly, we have completed due diligence on NSU's financials and business operations, but we have not yet reached, nor should we be at the point where we can discuss how we will generate synergies for both parties moving forward.
That is why we are stating this information on our own initiative, but I believe the most significant benefit is, after all, the ability to achieve economies of scale. We already have a relatively large fleet, particularly of Capesize bulk carriers, but by combining it with NSU's fleet, we could become a company with a fleet that ranks quite high even on a global scale. By doing so, we believe we can leverage our strengths in various areas such as vessel deployment and securing. There are various other points mentioned on this deck, but I'd like to highlight one more item. The fourth point mentioned on this slide is human capital, and indeed, human capital will be the most important factor going forward. There are valuable staff members who have developed their capabilities within NSU.
For example, those who normally work on board vessels, as well as shore-based staff members, and we expect that having these individuals work alongside people with a slightly different background than ours will create various synergies and positive effects. There is also mention of decarbonization in particular, and we are approaching this deal with a strong desire to work on it together as well. Next up is Slide 19. This is the final slide of explanation from my end. In the past, in our midterm management plans and the first and third quarter financial briefings, we respectively omitted explanations of these financial metrics. This time, however, as demonstrated on the left-hand side of the slide, we have made this information public following the announcement of the merger with NSU. Accordingly, we have briefly outlined on the left-hand side of the slide what changes this will bring.
As you might expect, investment cash flow will increase. Interest-bearing debt will also increase accordingly. As for the rest, we would like you to take a look at that. Following the strong performance in this first quarter, various figures have improved significantly. On the right-hand side, this is the cash allocation, which we always cover in our explanation of the midterm management plans. I'd like to provide an update on this as well. The investment in NSU is just under JPY 160 billion. To be exact, JPY 158.4 billion. Since some of the other planned investment projects have been slightly postponed, investment cash flow will increase by JPY 150 billion. In addition, since we have increased our dividend, that will add about JPY 10 billion. As for operating cash flow, due to strong performance and an upward revision, this will also increase by JPY 40 billion.
However, after profit and loss, it will decrease by JPY 110 billion. Coincidentally, the figure of JPY 110 billion was included in the management allocation line item in May. So mathematically, this will effectively be reduced to zero at this point. It's not that we originally included the JPY 110 billion figure with any ulterior motive. This is simply how the numbers work out at this moment. If business performance changes again in the future, these figures will also change, and if there is any exceeding of expectation happens, we will consider separately how to utilize any new management allocation fund that arise at that time. That concludes my explanation. Thank you so very much for your kind attention. We will now move on to the Q&A session.
I have three questions. First, regarding containers.
As briefly mentioned in your explanation about whether there were any last-minute orders, how does NYK Line analyze the background behind such strong performance and the rise in freight rates during the April-June period? Setting aside any assumptions, what I'd like to confirm is the actual facts of the situation, please. My second question concerns dry bulk. The upward revision this time is very significant compared to previous projections. In particular, since the increase occurred only in the first half, I'd like to confirm whether this was due to market conditions, exchange rates, or a significant rise in cargo handling volume. Specifically, whether these factors caused this outcome solely in the first half. That's my second question, please. My third question concerns the energy segment.
Here as well, looking at the market assumptions, particularly for the second quarter and beyond, it does not seem realistic given current market conditions. Taking that into account, I would like to confirm what kind of sensitivity this would have on profits if this were to be the situation for April through June. That is the three questions that I would like to ask. Thank you very much.
Thank you for your question.
Regarding your question about ONE, Mr. Aso will take that question.
Thank you very much for your question.
This is Aso speaking.
This is about ONE on the container business, whether we have last-minute surge across the entire business, and also about the upwards trend and our significant improvement in our financial results. First, regarding cargo handling volume, the European and South American routes were quite strong around April and May, and the trend was exceeding last year's level.
We have already factored this in to some extent. The figures started off slightly exceeding those expectations. On the other hand, North America was not quite as strong in April and May. We had anticipated, or rather expected, that the numbers for the first quarter would not rise significantly. However, from late May through June, cargo handling volume in North America increased considerably, rising significantly more than ONE had anticipated in the first place. At the same time, freight costs in Europe and South America started off relatively strong from the beginning, while in North America, although they were largely in line with expectation in April and May, they rose significantly in June. As for last-minute rush, we definitely believe it did occur. On July 24, the Trump tariff took effect, raising the rate from 10% to 12.5%, an increase of about 2.5 percentage points.
Customers wanted their shipments to arrive in North America before that. Since tariffs are applied upon arrival, I believe there are customers who wanted their shipments to arrive in North America before that, the tariffs took effect. Furthermore, as is generally said, the later in the year gets, the more so-called benefits kick in retrospectively. So some customers likely wanted to ship earlier rather than in the second quarter. Others concerned that consumption might decline in the second half of the year due to various factors like inflation, they prefer to ship in the first half. However, looking at the current situation, we had anticipated that the rates might finally start to decline once July began, partly due to the impact of Trump's tariff. As you know, however, the strong momentum from the second quarter has continued well into July, and rates remained high across all routes until around mid-July.
Since then, rates for Europe have declined slightly. While the trend has been gradual, freight rates have been falling little by little to the present, though the decline has been extremely gradual. As for North America, rates initially dropped once around mid-July, and I believe that GRI, effective August 1st, played a role. Freight costs have since risen again due to the rate adjustment implemented by various carriers. In fact, the fact that rates were raised has led to speculation that demand remains strong. As for ONE's second quarter, the situation has been quite strong, but we anticipate that demand will begin to decline starting in the third quarter, that is, from September onward. The key focus, of course, is how long the relatively strong demand we are observing now will continue even as we enter the month of August.
There are currently mixed views on this, and some naturally believe that demand has already peaked out. That being said, looking at current trends, we cannot say that for certain, and we are closely monitoring shipment trend for each commodity. For example, products such as toys, clothing, and consumer electronics, which typically peak in the fall season, have not seen much frontloading, and we are now seeing an upward trend. In short, they are following a pattern similar to a typical year, so it's entirely possible that these commodities will reach their peak in the near future. It is quite difficult for us to predict, and while housing constructions are not performing well, I have heard that home renovations are quite popular in the United States right now.
Demand for building materials is reportedly on the rise, and various factors are incorporated, and our assumption is that prices will peak in the second quarter and then decline. But our current view is that the extent of that decline might not be as severe as expected. Regarding bunker fuel, Mr. Banno mentioned that earlier in his presentation. Bunker prices did not rise as much as expected in the first quarter, which has improved our profit and loss situation accordingly. However, we expect bunker prices to remain relatively high from the second quarter onward and then decline relatively gradually from the third quarter onward. Therefore, depending on our bunker price trend, the outlook for the third quarter and beyond may change. This concludes my remark. Thank you very much.
Thank you very much. To your second question on dry bulk, I'd like to take that question from my end.
I believe your question is why the second half of the fiscal year is expected to do so much worse compared to the first half. We have revised our market outlook this time regarding the first and second halves of the year, which we had previously focused. We took a broad look at all the vessel types, from Capesize bulk carriers to Handysize carriers. While the impact on Handysize carriers is not as significant, we expected the rates to rise by roughly JPY 3,000 in both the first and second halves. Overall, we should be able to benefit from this trend.
That being said, regarding the question of why rates aren't rising as much in the second half, as I explained earlier regarding fuel, the fuel we had in stock prior to the current period was cheaper than the actual bunker price, and we benefited from the difference in the first quarter. Going forward, as bunker price gradually decline, the opposite will occur. Essentially, because we effectively frontloaded some of the benefits in the first quarter by using cheaper fuel, our accounting will now require us to consume fuel at a higher price than the actual market rate. The impact of this is quite significant. We are operating under the assumption that the benefits we frontloaded in the first quarter will gradually emerge in the third and fourth quarters, thereby offsetting the rise in market prices. As for energy, you are absolutely correct.
Currently, our projections, particularly for VLCC, suggest that while the first half may remain at around JPY 400,000, the second half will likely drop to around JPY 150,000. For VLGCs as well, the projection is JPY 130,000 for the first half and JPY 50,000 for the second half. I do have my doubts as to whether rates will actually fall that low. These tanker contracts are originally set up to be index-linked based on the assumption that cargo is transported from the Middle East, although there are not that many such contracts. However, in reality, ships are not even entering the Middle East at all right now, and in some cases, they are sailing in completely different regions. Yet there are contracts stipulating that freight rates should be calculated based on those indices. We are proceeding accordingly.
Going forward, when the time draws near for us to review these contracts upon renewal, we will look into using indices more closely so that we can reflect actual conditions or consider using other indices. While index-linked contracts are fine for us, I think it is possible we will negotiate to link the other contract to different indices. Regarding the VLCC figures of JPY 400,000 I mentioned earlier, we have no actual transactions, but the number itself has remained consistently high. We are not basing our calculations for the second half of the year on that figure. Instead, we have used a more realistic estimate, factoring in that rates will likely decline to some extent once the Strait of Hormuz reopens. Although we have only included a rough estimate at this point, we have entered figures of around JPY 150,000 for the VLCCs and JPY 50,000 for VLGCs.
Therefore, even if conditions remain as they are today, we do not believe that the strong performance we saw in the first quarter will continue indefinitely.
I also like to ask a follow-up question to my third question. Since routes through the Bab el-Mandeb Strait and other passages are currently blocked, resulting in longer distances, detours, and transshipments going on, is your company able to charge customers those additional costs extra, assuming you are not using the Middle East or the Far East for freight rates? Is that possible?
Yes. Thank you for your question again. Compared to dry bulk contracts, many of our tanker contracts are structured entirely along the lines of the idea of, "We are lending you the vessel, so please feel free to use it as you see fit," meaning we are perfectly fine with however the client chooses to utilize it.
In reality, even if we are told to head off to, we will not sail through the Bab el-Mandeb Strait anyway. However, if we receive instructions to go to a specific location because a client wants to conduct a ship-to-ship operation, we will of course comply and carry out the operation accordingly. That being said, contractually speaking, even if we go to a location that we do not normally visit, we may be able to charge for special costs, such as those incurred by physically handling various materials during a technical ship-to-ship operation. But we do not bill in a way that increases the net freight rate. In short, as I understand it, this concept of surcharges, such as asking customers to pay extra because bunker prices have risen, as is done in other parties, is virtually nonexistent in tanker business.
There are no upward adjustments based on these factors.
Okay. Thank you very much. Fully understood.
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I have two questions here. First, I would like to confirm your assessment of the future supply and demand outlook for the car carrier business. Given that automotive cargo from China has been quite strong since the beginning of the year, I believe the volume of spot-chartered vessels has been on a steady upward trend. What is your assessment regarding the possibility that the medium-to-long term contract within your automotive vessel business might be revised upward, maybe, or whether you are beginning to see any positive signs in this regard? I would like to know that as my first question, please. My second question concerns the JPY 900 billion forecast for investment cash flow in the current fiscal year. I would like to confirm your assessment of whether you will actually be able to utilize this entire amount during the current fiscal year.
Even considering the operating cash flow and interest-bearing debt projection you have disclosed, I believe investing JPY 900 billion is a significant undertaking. I would like to confirm the nuance here, such as whether there are any major asset liquidations not factored into the plan, or whether this plan itself presents a fairly ambitious target.
Thank you very much in advance for answering my questions. Yes. Thank you very much for your question. I will take that question for you. First, regarding the automotive sector, as you are aware, export of Chinese vehicles has been increasing significantly, so the market is extremely tight overall. It is true that the market has reached a point where if we are to charter available vessels, we would have to pay extraordinary amounts, such as $70,000, and that is an order of magnitude higher than usual.
On the other hand, a significant portion of our automotive vessels are either our own vessels or long-term chartered vessels. For example, we rarely enter into new short-term charter agreements for one or two years. In fact, although market conditions have remained extremely high for roughly the past two years, we have almost never brought in vessels from outside sources. In that sense, it does not directly lead to increased cost. That is the situation. As for freight rate agreement with our customers, we do not decide them on a spot-by-spot basis. Rather, we negotiate freight costs annually from a medium to long-term perspective and revise them accordingly. The question is, when the external environment or market condition change significantly, will those changes be directly and progressively reflected in the freight cost of our long-term contract? That is your question. It certainly gets some impact.
Of course, costs are rising and the CPI rising worldwide, including labor costs and other factors. We naturally reflect those increases. Regarding the argument that since chartering ships from outside sources has become so expensive, you should raise freight rates accordingly. For this type of mindset, we do not actually incur those costs. I do not believe we will reflect such factors in freight rates increases. That being said, we are expanding our services in various ways, and we are of course making our own efforts to adjust freight rates accordingly. It is not as if there are absolutely no increases in freight costs, but you can safely assume that we will almost certainly not raise cost or rate in direct response to market conditions. Next, regarding investment cash flows, JPY 900 billion is certainly an ambitious target.
It may sound boastful coming from us, but it is a number we have never seen before. First, regarding the question, can you really do this much? Do investment projects of that scale actually exist? That is your question. At this point in time, we have laid out the project, what we believe we can undertake. Of course, it is possible that some of these deals may ultimately fall through, resulting in those investment being canceled, but we have included those possibilities in our estimate of how much we expect to spend.
This is not something that we will continue indefinitely, and it is not limited as to this NSU TOB, but it just so happened that last year, the investment cash flow of FY 2025 actually ended up being lower than anticipated. However, because some projects span from March into April, a significant portion of those figures is actually reflected in the FY 2026.
If you look at the FY 2026 standalone, the figures appear very high and substantial. In reality, some of these expenses were originally intended for FY 2025, and they have been carried over to this year. Furthermore, I believe the underlying concern behind your question is along the lines of, is it really okay that you might not generate that much cash? That is probably your question. Of course, we have no comment regarding the sale of asset, but since the COVID-19 pandemic, we have significantly strengthened our balance sheet and substantially reduced our interest-bearing debt. That trend bottomed out around FY 2025, and we are now seeing a reversal where debt is beginning to increase. To some extent, we also believe we need to adopt a management approach that utilizes leverage a little bit more.
While we have no intention of increasing debt indiscriminately, we recognize that we have sufficient financial strength to manage, even if we increase debt slightly. If I go a little bit extreme, even if we have this JPY 900 billion refinancing entirely through debt, we believe that as of the end of this fiscal year, our balance sheet would still fall well within the fairway we have defined. I hope that concludes my explanation well enough to you.
Thank you very much. Super clear. Thank you so much.
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Thank you very much. Thank you for having me. I'd like to ask you some questions, please. I'd like to confirm two points regarding the TOB. First, regarding the background behind announcing this TOB this go around. I would appreciate it if you could just explain, to the extent possible, the reasons that led you to this conclusion, please.
Second question, you earlier mentioned that consultation with the, or maybe with the approval from the relevant regulatory authorities are required. Which will take some time, but may I ask if you're assuming this is merely a matter of formal procedures, or is there any of the specific issues that give you any concerning items or points? Thank you.
Okay, thank you very much for your question. Regarding your first question, your question about why we chose this timing, we did not arbitrarily select this particular moment to make this announcement. We have been conducting negotiations with parties in various forms, and it was at this point that we were finally able to reach various agreements, so we made the announcement at this point in time. As a result, though this is subject to subsequent clearance, that we expect to close the deal around April of next year.
We are not saying we aimed specifically for this date in particular. Rather, we are stating that this is the schedule that naturally emerges as we proceed. One more item, I believe the intent of your question was in what form have the discussions been conducted? If you read materials we posted on our website, they contain a great deal of details in very small letters, but you will find the answers there. Originally, as an 18% shareholder, we had a business relationship with NSU. However, as an 18% shareholder, we were essentially unable to consult with them on the business matters at all. Moreover, in some business areas, we are direct competitors vis-a-vis each other.
Since they are profoundly a wonderful company, and given that our dry bulk operations are conducted in relatively similar ways in some respects, we have long held the hope that we could work together. I am not sure if my way of saying the time was ripe is entirely appropriate here, but last fall, we took the initiative to approach Nippon Steel Corporation, their current largest shareholder, with a proposal along the lines of, "Is this kind of possibility feasible?" We have asked them. The situation we find ourselves in today is the result of the various discussions we have had step by step since then. So that is the first point I'd like to make about this timing of this particular transaction. For the second point, regarding the regulatory clearances, as you may recall, upon the transaction of NCA, we were the selling side.
The negotiations were conducted by ANA Holdings, but we experienced a situation where it took much longer than we had anticipated. Therefore, we are by no means absolutely certain that this will go smoothly, or that it can definitely be completed in coming three or four months. That being said, however, based on the information we have at this time, the number of countries that we need to obtain clearance from is limited. Given the current overall market condition for dry bulk business, particularly in the global market, we believe at this point that the merger of these two companies is unlikely to cause any major problems or disruptions. Of course, we cannot predict what will happen in the future. That's where we stand today. I hope that I answered you correctly and sufficiently. That concludes my remark.
Understood. Thank you very much. Thank you very much.
I have an additional question, and I'd like to piggyback a little bit on the question earlier on the TOB. I imagine there are various considerations regarding this clearance, such as antitrust laws and competition laws. Just to confirm, is my understanding correct that the issues in Brazil and Australia related to pricing power? Also regarding the Capesize bulk carriers, I imagine the scale will be large, but I'm trying to wrap my head around what the approximate scale it will be. The document says top class, but I'd like to get a better sense of that if possible. Thank you.
Thank you for your question. I'd like to answer your second question first. As noted at the very top of Slide 18, please, NS United Group operates 211 vessels. The NYK Group operates 414 vessels.
We describe this part as being among the world top-class fleets, and the figures do include vessels of various sizes. The greatest impact comes from the Capesize bulk carrier segment. If we consider only this segment, the two companies combined would rank second in the industry. We'd like you to understand that the merger has an impact of that magnitude. As for your first question, since it is based on so-called standard competition law framework, while price-setting power is of course a major concern, we understand that the relevant authorities will likely examine whether specific cargo owners in various countries will suffer any harm as a result of the merger of these two companies, as you correctly pointed out.
That's a start, and as for which countries are involved, I cannot name any countries, but we understand that the process is proceeding sequentially, though it may not have started yet. I hope that I answered you correctly, and this concludes my response to you. Thank you very much. Hope it makes sense to you.
Yes, it does. Thank you very much. Thank you very much for that question. Thank you very much. I'd like to ask you one question, please. In my recognition that on April 30th, you acquired a stake in the LNG business company, MidOcean Energy, from Mitsubishi Corporation. I'd appreciate it if you could share any insights regarding the strategic significance of this move and its impact on financial performance, please.
Thank you very much for your question. Indeed, this might be a little bit confusing for you.
This company was originally established by Mitsubishi Corporation as a shareholder of the firm called MidOcean. They operate as an investment fund. Mitsubishi Corporation had already invested in that firm, and the company was created by Mitsubishi Corporation for investment purposes. We acquired a majority stake of that company, called Diamond Gas MidOcean Limited, also known as DGMO, and that is the nature of the transaction. The original company, MidOcean, specializes in identifying and investing in high-return LNG upstream projects. For NYK Line, the shipping business has, of course, always been our core business. That being said, we also hope to participate in LNG-related business in various ways. For example, we are expanding into the bunkering vessel business to supply LNG to vessels that burn LNG as fuel, and that is known as LNG boil-off gas.
Like the LNG carriers we operate, including many of the PCCs, pure car carriers, in a slightly different direction, we are also moving into the upstream sector as well. Since our core business is always shipping, we do not directly invest in upstream projects. Instead, we are partnering with Mitsubishi Corporation to make investments with the aim of standardizing the profit generated from our LNG-related business. So that's the whole point of this. Does that explain things clearly? I hope it does.
Yes, it certainly does. Thank you very much for answering my question.
Thank you very much. As we hit the time, we would like to conclude the Q&A session. Thank you very much for your insightful questions. This concludes our financial results briefing for the first quarter of FY 2026. Thank you so very much indeed for joining us today. Thank you very much.