Thank you very much for participa ting despite your busy schedule. We'd like to start the fiscal year 2023 first quarter financial results briefing of NYK. I am the emcee today, Okada, head of IR. Thank you very much. First of all, I would like to introduce today's attendees. We have the Vice President, CFO, Mr. Kono, President Director, and the Managing Executive Officer and Logistics Business Head, Mr. Banno. Today, from Mr. Kono, we will have a presentation about the first quarter of results briefing for fiscal 2023. After that, we will have the question-and-answer session. I would like to explain how to ask questions afterwards. The presentation material will be on our website. Please download that if according to your necessity. Including the Q&A session, this presentation will be shown on on-demand streaming. Please understand. Let us start the presentation. Mr. Kono, please.
As of first of April, I assumed the position of CFO. I am Kono of NYK. Thank you very much for taking time out of your busy schedule to attend this briefing today. Today, I will first provide an overview for the first quarter financial results for fiscal year 2023, followed by an explanation of the full year earnings forecast for fiscal year 2023. After that, we will have time for questions and answers. The presentation materials will be projected on the screen you are looking at, or if you have downloaded them from our website, please have them ready at hand. First, I would like to give you an overview of the first quarter results for fiscal year 2023. Please refer to the table on page 6.
The second blue column from the right shows the results for the first quarter of fiscal year 2023. Revenue decreased by JPY 105.5 billion year-on-year to JPY 567.5 billion. Recurring profit decreased by JPY 288.3 billion year-on-year to JPY 89.4 billion. Net income decreased by JPY 269.8 billion year-on-year to JPY 73.4 billion. Both revenues and profits decreased. The main reasons behind this is that the liner and logistics segment, which consists of ONE, air cargo, transportation, and logistics, which had been strong in the same period of the previous year, saw a decline in freight rates and handling volumes due to the easing of supply-demand as a result of the resolution of supply chain disruptions.
Both revenue and segment, and segment profit declined. The Dry Bulk market also declined compared to the high market situation in the same period of the previous year. Please see the table on page 7 for comparison by segments. Here, too, the second blue column from the right shows the first quarter results. Recurring profit loss and of liner and logistics business, which consists of liner trade, air cargo, transportation, logistics. For instance, for liner, so the year-on-year decrease of JPY 238.5 billion to JPY 31.6 billion. For air cargo transportation, a year-on-year decrease of JPY 24.1 billion to JPY 0.4 billion. For logistics, a year-on-year decrease of JPY 12.2 billion to JPY 7 billion.
Each of the businesses were affected by the decline in transportation demand, which became pronounced from the fourth quarter of the last fiscal year and onward. In the liner trade business in ONE, profit level fell due to a decline in spot freight rates caused by an easing of supply-demand, which also affected contract renewals. In the air cargo transportation business, freight rate levels fell due to a decrease in cargo movement and an increase in supply space resulting from a recovery in the international passenger traffic, which caused the supply-demand to ease. In the logistics business, the logistics division performed well, as explained earlier, the ocean freight and air freight handling business were affected by the liner trade and international air freight markets, resulting in a decline in profit levels.
As a result, the liner and logistics segment as a whole, recurring profit was JPY 39.1 billion, down JPY 275 billion from the same period last year. The bulk shipping business posted recurring profit of JPY 53.7 billion, down JPY 10 billion from the same period last year. In the Dry Bulk carrier business, although efforts were made to reduce the risk of market fluctuations through futures trading and other means, market conditions for each type of vessels were worse than in the same period of the previous year, due to the delayed recovery of the Chinese economy and other factors. On the other hand, in automotive transportation business, the supply-demand balance remained tight due to strong transportation demand since the second half of the previous fiscal year.
A result of the efforts to optimize vessel allocation improve operating rates, the number of units transported increased compared to previous year.
... In the energy business, LNG and offshore business remained steady, supported by long-term contracts, and market conditions for VLCCs and VLGCs improved significantly from the same period of the previous year. Please turn back to page 3 of the document. Again, overall recurring profit decreased by JPY 288.3 billion year-on-year to JPY 89.4 billion. Net income decreased by JPY 269.8 billion year-on-year to JPY 73.4 billion, after adjusting for extraordinary losses and taxes and other items. Next, please refer to page 8. As shown in the table on the left, the JPY 288.3 billion decrease in recurring profit compared to the same period last year, was largely due to the fluctuations in the shipping market, particularly in the liner trade segment.
This has been a summary of the financial results for the 1st quarter of FY 2023. Next, I would like to explain the full year forecast for this fiscal year, FY 2023. Please refer to page 9. With regards to full year forecast for FY 2023, these figures are versus the forecast announced in May at the time of the full year results briefing. The revenue rate was revised down by JPY 130 billion to JPY 2,170 billion. Recurring profit and net income were both revised up by JPY 20 billion to JPY 220 billion. I will cover the details of each segment later. Versus the previous forecast, liners and logistics segment was impacted by the sluggish market, and the forecast was revised down by JPY 19.5 billion.
In bulk shipping segment, there was a benefit from a strong performance of automotive transportation business and VLCC, VLGC, a market which led to forecast revision of JPY 39.5 billion. On page 12, you can find the profit at each level and exchange rate assumptions, as well as bunker prices. The dividend forecast, in accordance of the payout ratio guidance of 30%, led to upward revision by JPY 10 of the dividend, which is JPY 130 annually. JPY 60 per share for interim dividend, and JPY 70 per share for year-end dividend.
In addition, as we have explained in the Medium-Term Management Plan, it has been decided to acquire treasury stock of up to JPY 200 billion during the period of August 4, 2023, and April 30, 2024. In the Board of Directors meeting held today, this was re-resolved. The acquired treasury stocks will all be retired. The dividend forecast that I just explained is based on the number of shares before this share buyback. Next is the full year forecast by segment, compared with the forecast announced at the previous full year results. Please turn to page 14. The blue column in the center is the revised forecast for FY 2023. First, with regards to liner trade, recurring profit was revised down by JPY 2 billion to JPY 67 billion.
The, with regards to the environment surrounding container ships, currently, the transportation demand is low, and there is oversupply of container shipping capacity. Therefore, spot freight rates are staying at low level. In the 2nd quarter, forecast, compared to 1st quarter, the profit level shall be lower. However, after fall, we expect the inventory level in the US retail sector to decline, and the market will start to recover. For air cargo transportation business, as was announced, the assumption is that the sales of the entire stocks of Nippon Cargo Airlines Company to ANA Holdings is to be completed on October 1st this year. Also, we expect the current soft market condition to continue. Therefore, the forecast versus last forecast is down by JPY 7 billion to ±0. Next is Logistics.
Versus last forecast, we expect the decline by JPY 10.5 billion-JPY 23 billion. Both the ocean and air cargo market is soft, and we expect the profit level to decline. On the other hand, in the logistics business, we expect the robust demand in the US and Europe to contribute, and we do not expect the profit level to decline in a major way. Next is bulk shipping. Versus last forecast, we revised upward by JPY 39.5 billion to JPY 141.5 billion. In the automotive transportation business, we expect strong demand to continue higher than last forecast. Through optimization of vessel deployment and efficient operation of vessels, versus last forecast, we expect transportation volume to increase by 70,000 cars.
In Dry Bulk business, the recovery of economy in China is delayed than anticipation, and so we revised downward the market assumptions for 2nd quarter and beyond. In Energy business, in LNG vessels and offshore business, we expect strong, strong performance, supported by medium to long-term contract. For VLCC and VLGC, we expect tighter than expected supply and demand conditions to continue, and revised upward the market assumptions, assumptions. On page 13, there is a, a table that compares with last year. For your information, on this page, in the notes at the bottom of, of the slide, we explained that the calculation method for the interest amount allocated to each segment was changed. For the sake of apple-to-apple comparison, we revised the previous year's recurring profit numbers, reflecting the number, reflecting the new calculation method.
The main change is the small decline in the cost of other segment, and in response, each business segment profit declined by a small amount. There is no impact to the total number and to the total revenue. That was the explanation of the full year forecast for FY 2023. In the presentation material, published in the home page, there are additional pages in the appendix, which covers information on the assumptions of each business segment and other reference materials. Please refer to those slides as well. This concludes my explanation. Thank you very much for your attention.
Thank you very much. Next, we would like to go to a question and answer session.
Thank you. Can you hear me?
Yes, we can.
I have two questions. This time around, the vision against your plan. I would like to ask about your assumptions that you have used. For instance, for the bulk shipping business, the first quarter, rather than first quarter, the second quarter, the profit is going to decline. In terms of the season, at the Dry Bulk, at the second half, the market will improve. The profit going be, be lower than the first half, I just want to question about the assumption.
In the same vein, in terms of the logistics business, in the first half, rather than the first half, the second half has to be the peak of the demand, and I think the profit should increase, but it is not reflected to the plan. I was just wondering what type of assumptions that you are using. My second question is that in the Midterm Plan, trying to control your capitals, how are you what the initiative you're taking in the Midterm Plan in terms of the... JPY 200 billion of share buybacks you have made that announcement. In terms of the, including the off balance, improving the actual equity, more than 50%, how this is going to progress?
The plan has been slightly revised upwards, but against the plan, the more the profit is over the plan, it means that the capital will increase as well. It means that you will have to go forward in those initiatives. I would like to hear about your initiatives against this.
Thank you for your question. First, to your first question about the assumptions that we're using for our revised plan. For the bulk shipping and for the logistics business, the question was that compared to the first half, the second half profit level is lower. The background or the assumptions we're using, I understand you're questioning about that.
In terms of the bulk shipping business, so currently, so with tankers and VLCCs, it currently, we are being able to enjoy a high level, so $70,000, $80,000, we are at a high level. In the going forward, I think if you look at the appendix, I think you'll be able to understand. As you can see there, in the appendix, going forward, we think that the market is going to decline. That is the reason we reflected in our assumptions. In terms of the other world transportation vessels, as we have said, overall, against our initial outlook, in terms of the volume, has gone up.
Going forward, the cost, because we have to reuse some of our chartered vessels, so the cost will be going up a bit. For the bulk shipping business overall, that will lead to the difference of the profit between the first half and the second half. In terms of the logistics business, Mr. Banno will answer your question.
Thank you for your question. In terms of the logistics business, why does the second half be worse than the first half? I think the general consensus is the second half will be better than the first half. Well, that's true. In terms of volume, it will gradually improve, and the second half, volume-wise, it will improve. Well, before that, Kono, Mr.
Kono said that, that the contract logistics services focusing on warehousing is basically the same, whether it be the first half or the second half. The forwarding business, air and ocean forwarding business, is where the difference is. For the, for these businesses, in terms of the procurement price from the beginning of the year, which has started to decline. But in terms of the rates that we have been receiving from the customers, there's a lag in terms of how this is reflected. Because of this, the margins was higher, was better. That was the background. The rate has started to become closer to the procurement cost, meaning that the margins that we'll be able to get will be lower.
That will be more pronounced in the second half rather than in the first half. In terms of the revenue, it's going to grow, but in terms of the profit, it's going to decline. A follow-up to your second question. In terms of the adjustment for the shareholders' equity, JPY 200 billion of share buybacks as a result for the full year, at the end of the full year, in terms of the forecast of the balance sheet, which are the indices, was your question? As we have been saying, for this fiscal year's profit, forecast is JPY 20 billion. In terms of the...
Even after we cover our own shares, and of course we pay out dividends, if you include that, it means that the shareholders' equity ratio and the balance sheet, these type of indices will not, well, will, will not be, I see, a larger level of leverage. I do not think that it's going to be the case. That said, we have to strike a balance between our investment plans. Currently, in our Medium-Term Management Plan, we have a investment plans as well. Under my, according to my understanding, the investment plans are going forward very smoothly. The speed, depending on the speed of the progress in the single year, maybe the cash flow on, on the investment, cash flow related to investment will change on the balance sheet.
Reflecting this, I think the next year onwards, figures or numbers will be decided. In that sense, the, through this, the debt equity ratio, the shareholders' equity ratio, against the initial plan, or in terms of the adjustment I want to make in terms of shareholder equity, of course, it will, it will progress, but it will all depend on how much investment or the progress of the investment that we're going to make. In terms of the logistics business, is there a delay in terms of the payment of procurement, in terms of the freight situation? I think they have already known about that from April or May. If you, is there any, any major change in the market condition in the last two months, if you're going to revise it, your outlook downwards?
In terms of the shareholder equity reduction, yes, I, I think I understand that you have a plan, but to be able to achieve this means that in terms of the capital reduction, I think you have to invest in any case. So is it the, basically, you will do that according to your formula? You're going to stick to your formula. Is that what, what you're saying?
Let me first talk about the situation of logistics. 3 months ago, in comparing right now, the situation hasn't changed that much. But the major element here is that the rates, the freight rates decline has been larger than we have estimated, especially, especially for air forwarding business, the freights there.
Well, the market overall, it's declining, but what we are in, are dealing with, there are maybe less of the shipment of what we are handling, so we have started to see that in May. That is the reason why the profit has declined. Going to your second question, let me explain about that. As you have pointed out, basically, we are progressing according to the Midterm Plan, so JPY 200 billion of share buybacks within the Midterm Plan. It will be a two-year time frame, but we are doing this part of that for this year. There's a timing difference, but the numbers already reflects that.
On top of that, in the Midterm Plan, about JPY 140 billion management allocation is included, and that will be according to the progress of the investment plan or the other changes in the profit plan.
... including additional return, we'll be utilizing that very flexibly. Basically, that scenario hasn't changed. As I've said, investment, we have conducted up to within JPY 20 billion, based on the numbers that has been put out at the end of this fiscal year, we will consider about the capital plan from next fiscal year onwards. That is basically in line with what we have anticipated within our Medium-Term Management Plan.
Thank you. Understood.
Thank you very much for your question. We would like to entertain the next question.
I have two questions. First question is regarding the bulk business. The bulk shipping business, what are the factors that for are revising upward the profit plan?
Per business, what is the largest contributor to the upward revision or any business area where you reduced the profit plan? That is the first question. Second question is regarding your cash position. As of the end of June, the cash on the balance sheet is JPY 220 billion, and the share buyback funding will likely to be covered by the funding plan. Am I correct? From medium to long-term working capital, what would be the right level of cash to be held? Those are the two main questions.
Thank you for your question. Regarding your first point, the breakdown of bulk shipping strong areas and weaker areas, well, as I have explained, the automotive, vessels, and energy, VLCC and VLGC in particular, they outperformed our assumptions.
On the other hand, Dry Bulk was more or less in line with our expectations. For dry, second half onward, we do expect deceleration of the market. The assumption is revised downward from our initial assumption, so for the full year, that will be the factor for negative contribution. For automotive and energy, the number of transported cars, that, that contribution is larger. With regards to the cash position, as you have pointed out, this time, JPY 200 billion share buyback will be executed, and in addition to cash at hand, we fund using debts, such as transition bond issuance. We did issue recently, and along with the progression of the investment plan, we will cover with the fundraising as well through debt.
The current JPY 220 billion cash position, we do feel that it is slightly larger than optimum. We will likely to make some adjustments going forward. That was my reply.
Thank you. I have one additional question as a follow-up. For bulk shipping business, the FX assumption is changed by only JPY 2 on annual basis. Am I correct to assume that FX rate, exchange rate assumption change impact is not significant?
Second half assumption is JPY 130 to the dollar. This is unchanged. In the first half, we factored in the current rate to a certain extent. The impact is relatively small. In the first quarter, we explained on the material, which page was it? It's on page 8.
In the first quarter, it is JPY 135, so the change is JPY 5. Versus last quarter, it says JPY 3 billion, so the assumption is weaker yen by JPY 5. Second quarter onward, the FX impact amount for this? Well, revenue and each business revenue is being reviewed once again, and slightly, the sensitivity has risen compared to the previous assumption. The initial assumption was JPY 1.16 billion per yen, but the current sensitivity assumption is JPY 1.24 billion per JPY 1 fluctuation.
I understood fully. Thank you very much.
Thank you for your question. Going to the next question.
This is an overlap with the previous person, but more than assumed profit and cash, if that is generated, if more than accepted profit is generated, I would like to talk about the optimization of capital and the return policy. The upward revision this time, with the additional return that you have announced, with the increased dividends or JPY 200 billion of share buybacks, is that basically the all that you're going to do in terms of the enhanced return? Going forward, for instance, if the profit is better through the weaker yen, maybe through the ONE, additional dividends coming from ONE, if that happens, is there a newly additional return that you're going to conduct to the shareholders?
What is the timing or the methodology? Is it just basically increase the dividend based on the 3% or the payout ratio, or some room of your dividend payment policy? If you have any ideas in terms of how are you going to manage that, if you're going to do some additional returns, and how are you going to do that?
Thank you very much for your question. Going to your first question. This time, the additional return, well, in terms of the increase of the dividend... This is due to the revised revision. JPY 2,200 billion of the net income is the outlook. Based on the 3% payout ratio target that we have, in line with that, we are forecasting or have decided to increase our dividend.
Going forward, we are not, you know, forecasting a downward revision, but if it's an upward, upward move, then 3% payout ratio is our target starting from this fiscal year. I think in terms of returns, we'll consider that looking at that target. This JPY 200 billion of share buyback, some, this is based on the Midterm Plan, from the beginning, we have been explaining about that, and it's just that the timing has been front-loaded. Going forward, in terms of our shareholder return policy or the methodology that we're going to take, we have not decided definitely for more, maybe more than 30% of the payout ratio, going to 35%.
We have not discussed about that, currently, but this 30%, will be a, is a type of the, criteria, and that will be our dividend policy. It will be based on this, 30%. For the additional return to our shareholders, I think what you are asking is that, further, share buybacks, whether that is going to do that or not, I think that's the gist of your question. At in the midterm plan, we have explained that the JPY 140 billion of management allocation, will be, will be there. On top of that, based on our future investment, plans, this, if there is additional profit that we're going to generate this fiscal year, we'll, we'll take a comprehensive view and then, discuss what we want to do with that.
Whether it's going to be through share buybacks or is it going to be through additional payment of our dividends, currently, it's not decided, but the further share buyback, Well, what we are doing right now is not the end. As a possibility, there is a possibility that we're going to do further share buyback.
That's all from me.
Thank you for your question. I would like to assign the person who raised the hand.
With regards to container shipping, what is the situation? For April to June period, on a monthly basis, what is the P&L? There are former contracts which contributed to profit, and what is the status of that? From July to September period, what would be the rates, spot freight rates, that make up, the business? If you could share that with us.
Thank you for the question. On this question, Mr. Banno will reply.
Thank you for the question. With regards to the market trend, from the beginning of the year, the level has gradually come down. In June, we see that the, the bottom has been hit, and then the trend started to rise since that time. With regards to the container ship P&L, there's some time gap to reflect the market trend. From 1st quarter to early 2nd quarter, 1st half of the 2nd quarter, deterioration continues, and then recovery will start. Especially in April, last fiscal year's high rate-
...contract still existed, remained. We were able to generate quite a large profit, and that led to the first quarter result. Second quarter results, a lot of adjustments are being already done, and that is reflected in the second quarter, the reason for deterioration. Those are the assumptions. Currently, I think you are aware that from mid-July or second half of July to August, the spot rates are recovering gradually. Depending on the trend, there may be potential for overshoot, but we need to remain vigilant. That was my reply.
Understood. Additional question, the freight rate assumption for the second half, currently, the spot is rising, and once that has stabilized, then you will be able to generate more profit. What is the assumption of the freight rates?
The freight rates and the volume, both are the factors, and for the volumes, we are making adjustments on the vessel capacity to maintain high capacity utilization rate. But still there is sufficient capacity. We do not expect a rapid increase, but compared to three months ago, we made some downward revision, but currently, we expect the volume will increase. On the other hand, on the rate side, currently, it is rising slightly. In the future, for a certain period of time, well, we do assume the rates will further rise a little bit. In the beginning of the year, it comes down again. There is such seasonality. That is our assumption.
Understood. Thank Thank you very much.
Thank you for your question. Let's go to the next question. There's a question via chat. This is about shareholder return. I will read it up.
With the share buyback, the number of shares is going to decrease substantially, so JPY 100 will be the minimum level. Why are you continuing to pay this dividend?
This time around, in terms of a dividend payment, as I have said in the previous explanation, the, the, we haven't expected the decline in the number of shares due to the share buybacks, because we don't know how many shares we're going to be able to buy back, what time this is going to happen. In terms of the term average number of shares, what it's going to be, it's very difficult for us to make a radical, a rational assumption. The JPY 10 is not reflected in the JPY 10 increase of a dividend. Including the minimum level of JPY 100, our target will be 30% of the payout ratio.
At the end of the fiscal year, we will look at the, the average number of shares during the fiscal year and how far the share buyback has been progressing. I think ultimately, we'll look at these situations and decide about our dividend. In this context, how much number of shares is going to decline depending on the number, maybe we will review the minimum whole year dividend payment. That is possible, but as of now, it's difficult for us to make a forecast, so it's not reflected, included in our dividend payment, prediction.
Thank you. We are still accepting questions. Please either raise your hand or write your question in the chat. Please go ahead.
I would like to make an additional question. The assessment of the first quarter, with regards to the progress of profit, how was this being assessed? The ordinary profit is up by JPY 20 billion, and first quarter, is assessed to be in line or positively assessed.
Thank you for the question. Basically, you are correct. First half, especially in the first quarter, the performance was higher than our assumptions in some areas. As I have been explaining, at ONE, the contract from last period, before renewal, contributed, and in Dry Bulk, currently, market is slightly down. We have been able to enjoy the higher level of rates. On top of that, the market itself has been continuously been able to, not a kind of one-off on the first quarter, but the second quarter onwards, we think that the automotive car transportation business is going to be strong, but the tanker is VLCC, VLGC is strong. These were, were the factors. That's the reason why the first quarter, we have been able to show a good result in that sense.
Of course, there are some ups and downs, but for the second half, the positive elements will be able to offset the, the wrap of the liner and logistics segment. Now, we'll, that's the reason why we have, the, not change the full year outlook that we have announced at the beginning of the year. That's all from me.
Thank you.
Thank you for your question. There seems to be no further questions. It's earlier than planned, but with this, we'd like to end the Q&A session. Thank you. First quarter, earnings, briefing for the fiscal year 2023. Thank you very much for your participation. Thank you.