Earnings Call: Q1 2022

Aug 4, 2021

To begin, I will provide an explanation of the Q1 results for the fiscal year ending March 2022. You should have in front of you the presentation materials and fiscal statement announced today. Day. Primarily, the presentation materials will be used, and I will provide an overview of the Q1 results, Full year forecast and status of each segment. In the Q1, revenue was 504,600,000,000 yen Operating profit was 53,000,000,000 yen and recurring profit and net income were both over 150,000,000,000 yen These excellent results exceeded our initial forecast. For the full year, we expect to achieve revenue of JPY1850 billion, operating profit of JPY150 billion and recurring profit and net income of €500,000,000,000 Based on these results, we plan to issue an interim dividend of €200,000,000 and a year end dividend of yen 500 for a full year dividend of yen 700. Moving on, Using the presentation materials, I will provide an overview of the Q1 results followed by the full year forecast. Please turn to Page 3 in the presentation materials for the Q1 results. In the Q1 of the fiscal year ending March 2022, revenue was 504,600,000,000 Again, since transferring the liner business to Ocean Network Express 1 in fiscal 2018, Quarterly revenue has never been above 500,000,000,000 yen and this is the first time to exceed 500,000,000,000 yen As you can see, higher revenue in the Logistics and Bulk Shipping segments had a major impact. Recurring profit and net income both exceeded 150,000,000,000 On the recurring profit level, profit significantly increased in the liner and logistics business. In the bulk shipping business, a loss was recorded in the same period last year, while this year the bottom line improved and the business returned to profitability. Last year started under the cloud of the COVID-nineteen pandemic. Initially, we forecast profit to breakeven, but Through the efforts to do whatever it takes to achieve a profit, we recorded a profit of 11,600,000,000 yen in the Q1. Subsequently, profit increased to 30,000,000,000 yen 75,000,000,000 yen 90,000,000,000, The first quarter recurring profit of last year of €93,200,000,000 This is an increase of €60,000,000,000 The higher profit in liner and logistics, which includes 1 in the liner business and NCA and YLK in the logistics business as well as the improvement in the bulk shipping business led to the better results compared to the 4th quarter last year. The overview continues on Page 4. Shown here is a breakdown by segment of the JPY153,600,000,000 recurring profit. As stated, profit in the China segment increased by more than 100,000,000,000 yen compared to the same period last year. In container shipping, which refers mainly to Ocean Work Express, the robust transportation demand resulted in liftings increasing by almost 20% year on year. Short term freight rates remained at high levels and long term freight rates also rose leading to the extremely strong results. In the air cargo segment too, while the supply and demand balance remain tight as a result of the continued Suspension and cancellation of international passenger flights due to the ongoing impact of COVID-nineteen, Freight rates stayed high on support from strong cargo volumes from Japan. In addition, Some of the ocean freight was shifted to airfreight due to a lack of container shipping space And by capturing this demand recurring profit in the Q1 exceeded 15,000,000,000 yen which is an extremely high level. Please turn now to Page 5. Shown here are the Logistics and Bulk Shipping segments. The Logistics segment recorded recurring profit of 11,500,000,000 yen up about 9,000,000,000 yen year on year. The profit levels are improving in ocean freight and in the airfreight business along with the tighter supply As mentioned earlier, some of the ocean freight is being shifted to airfreight, driving the strong results. The logistics Business was supported by strong demand. In the Bulk Shipping segment, recurring profit improved from a loss of 1.1 1,000,000,000 yen in the Q1 last year to a profit of 16,000,000,000 yen this year. In the car Carrier division shipping volumes increased as I will discuss in more detail later. There are still concerns in relation to the semiconductor chip shortage, but the impact on handling volumes was limited in the first quarter. In the dry bulk division, market levels trended at high levels. The Q1 BDI last year was only 766, a level significantly under 1,000, but this year it was 2,800, the market levels for each vessel type were extremely high. On the other hand, In the Energy division, during the Q1 last year, falling oil prices created unique demand for large Large tankers is floating storage, which pushed market levels greatly higher. But in the Q1 this year, The division was partially affected by the weak market. However, we only have a limited number of spot vessels that are subject to market volatility. In the Energy division, LNG Carriers and Off Shore business are based on medium to long term contracts, so the performance was steady. Moving on to Page 6, as a result of the factors I just explained, revenue in the first quarter exceeded 500,000,000,000 yen and we were able to achieve recurring profit and net income of more than 150,000,000,000 yen As you can see in the figures here, recurring profit increased by 1,000,000,000 yen from the 16,500,000,000 yen recorded in the Q1 last year. Please turn now to page 7. Shown here is a year on year comparison by segment. As stated, recurring profit on a consolidated basis was 1 100 and 53,600,000,000 yen Of this amount, the Liners segment accounted for 110,000,000,000 yen Air Cargo for 15,000,000,000 yen and Logistics for 11,500,000,000 yen Also bulk shipping returned to profitability from the loss recorded last year. Moving on to Page 8, Shown here is an analysis of the factors by business. Definitely, profit improved due to the improved market conditions in the liner segment, which includes 1 and the bulk shipping segment. As a result, we were able to achieve truly great results. This ends my overview of the Q1 results. Please turn to Page 9. Shown here is the forecast for this year. For the full year, we expect revenue of JPY1850 billion and recurring profit to net income of JPY 500,000,000,000 When announcing the financial results on May 10, we forecast recurring profit and net income to be 140,000,000,000 yen So the current forecast is an upward revision of 360,000,000,000 yen Based on these Expected results, we plan to issue a full year dividend of as a As for each segment, please turn first to Page 10. Compared to the forecast announced when reporting the full year results for fiscal 2020, The liner segment forecast has been revised up by 2.90 billion yen from 57,000,000,000 yen to 348 500,000,000 yen at Ocean Network Express in the container shipping division, given the recent Strong transportation demand and supply chain disruptions, it is still unclear when the supply and demand balance will normalize, But this year's forecast has been formulated on the premise that it will gradually normalize from the 3rd quarter. As I will explain further when presenting the financial results for Ocean Network Express, the company expects to achieve a profit of 6,000,000,000 yen after taxes in the first half. Regarding the full year forecast, Because one is still unable to formulate a rational forecast, the full year forecast For fiscal 2021 is yet to be finalized. However, based on the information we have received from Ocean Network test and the outlook formulated internally, as just mentioned, we at NYK have formulated a forecast for 1 based on the premise that the situation will gradually normalize from the Q3. Regarding air cargo, recurring It is forecast to be 41,000,000,000 yen an upward revision of 21,000,000,000 yen from the previous forecast. International passenger flights continue to be canceled and suspended, but we expect these flights to gradually return from the 4th quarter. Also, although the container shipping supply and demand balance will start to normalize and the shifting of ocean freight 2, airfreight will settle down. We are still forecasting a very high profit of 41,000,000,000 yen this year. Please turn now to Page 11 for the Logistics and Bulk Shipping Forecast. The Logistics segment is expected to achieve recurring The 34,000,000,000 yen and upward revision of 22,000,000,000 yen profit in the ocean freight, Airfreight and Logistics businesses all remain at high levels. Concerning ocean freight, we expect handling volumes We settled down from the second half, and we will continue flexible marketing based on the demand. In the air The freight business handling volumes have increased compared to the previous forecast and this will generate profit. In the logistics business, Efforts are being made to stabilize earnings through a review of the contracts and by cutting costs. As a result, the overall Logistics Full year profit was previously forecast to be 54,000,000,000 yen but it has been revised up by 26,000,000,000 yen to 80,000,000,000 yen Within the three divisions, there are concerns in the car division in relation to the insufficient production of semiconductor chips and spreading COVID infections and right now in Asia. However, shipping volumes are expected to increase compared to the previous forecast and the profit forecasts here incorporates that increase. In the dry The bulk division, the market assumptions for all vessels have been revised up from the previous forecast. Currently, the markets are trending at extremely high levels. And although they are expected to soften somewhat due to seasonal factors, Given that they will likely outperform regular years, it will have a positive impact on the performance of the business. In the Energy division, the ongoing weakness in the VLCC market is having some impact, but in our and offshore business. Moving on to Page 12, shown here is a summary of the points I have just explained to repeat myself, full year revenue is forecast to be JPY1850 billion, operating profit will be JPY 100 and 50,000,000,000 yen and recurring profit net income will be 500,000,000,000 yen last year's recurring profit of 215,300,000,000 yen and net income of 139,200,000,000 yen were record highs. And based on the current forecast, we are expect to set new record highs again this year. Please turn to Page 13. Shown here is the forecast for each segment and a comparison with last year. Recurring profit is forecast to be 500,000,000,000 yen and of this the liner segment which includes 1 will account for about 70% with a profit of almost €350,000,000,000 followed by air cargo with 41,000,000,000 Logistics with $34,000,000,000 and bulk shipping with $80,000,000,000 Overall, it is a huge improvement compared to the results last year. Looking at the quarterly performance in the bulk shipping segment, which was hit hard by the COVID-nineteen pandemic last year, A loss of 1,100,000,000 yen was recorded in the Q1 followed by a profit of 1,300,000,000 yen in the second quarter for an almost breakeven performance. This year, profit is forecast to be 48,500,000,000 yen in the first half and 31,500,000,000 in the second half for a full year recurring profit of 80,000,000,000 yen Moving on to Page 14, shown there is a comparison of the current forecast and previous full year forecast announced on May 10. Recurring profit has been revised up from 100 to JPY 40,000,000,000 to JPY 500,000,000,000 This is an increase of JPY 360,000,000,000 Of this amount, the liner segment and one account for about 2.90 billion yen air cargo and logistics have each been revised up by a little over 20,000,000,000 yen and bulk shipping has been revised up by 26,000,000,000 yen for a Total upward revision of 360,000,000,000 yen resulting in the current recurring profit forecast of 500,000,000,000 yen This is our forecast for the fiscal year ending March 2022. As stated at the opening today, based on this forecast, we plan to issue an interim dividend of yen 200 and a year end dividend of yen 500 for a full year dividend of to Jan. Starting from Page 15 is the appendix containing more information on the status of each segment. Without going into too much detail, I would like to explain the main points for each segment. Please turn 1st to Page 16 for an overview of the Air Cargo Transportation segment, which is NCA. Looking at yield located the second up from the bottom, it is forecast to be 131 in the first half and 122 in the second half for a full year average of 127. In the previous forecast, yield was expected to be in the mid-90s. So the tighter supply and demand relationship as a result of the shift of some ocean freight to airfreight, as as mentioned earlier, has pushed yield, which refers to the freight rates up to high levels. Please turn to Page 17. Shown here is an overview of the logistics segment, which is use in logistics. Air freight handling volumes are expected to increase. Air exports on a weight basis are forecast to be 199,000 tons in the first half and 183 1,000 tonnes from the previous forecast and will be one of the drivers of the business performance. Page 18 shows an overview of the dry bulk and tanker market trends in the bulk shipping segment. Looking at the figures for the first half, As stated earlier, the PDI index fell below 800 in the first half last year. In the Q1 this year, it was 2,800 And for the full year, it is forecast to be $2,405 given that it was previously forecast to be $15.63 Our markets are currently expected to remain very strong. The trends are similar for each vessel type and Following the extremely high market levels in the Q1 and the second quarter, the markets are expected to soften in the second half due to seasonal factors, but they will remain at high levels compared to regular years. On the other hand, VLCC rates exceeded $90,000 in the Q1 last year, but they fell to negative levels this year. This is a huge difference. Going forward, the market is not expected to improve much with rates forecast to be $5,000 in the 2nd quarter compared to the extremely low200 Level in the Q4 last year, the market is gradually improving, but it is expected to be weaker than last year. Please turn to Page 19 for an overview of the Car Carrier division. As can be seen here, shipping volumes in the first Half of the fiscal year ending March 2021 were much lower than the previous year due to the impact of the COVID-nineteen pandemic. Thereafter, volumes have recovered and they are forecast to be 2,210,000 cars in the second half of this year. This is generally unchanged from 2 years ago in fiscal 2019. Currently shipping volumes due to increase compared to the previous forecast. The remaining pages are the financial results for 1 And here too, I will only briefly explain the main points. Please turn to Page 3 of 1's financial results for a comparison of the In the analysis of the factors, freight rates account for nearly all of the improvement and these results have been achieved with freight rates greatly exceeding the forecast. Moving on to Page 4 of 1's presentation materials. As stated just now, the freight rate index on the North America and Europe trades in the Q1 last year were 110 and 106 respectively. This year they were 185 on the North America trade and more than 3 times higher on the Europe trade. This is higher than even the levels in the 4th quarter Within the current business environment, in regards to the COVID-nineteen impact and countermeasures at 1 as shown on Page 5. The same is true at NYK, but the seafarers are working extremely hard while providing strong support. We at NYK as well as one will strive to fulfill our responsibility to maintain the social infrastructure. Turning crew changes, they remain difficult to arrange and through various measures such as vessel deviations and changing the crew rotation schedule, We will fulfill our social mission of keeping the logistics lifelines open. The same is true with the effort being given by everyone working In the frontline operations in air cargo and logistics, I'm very grateful for their effort and we will continue to provide support. Please turn now to Page 6. Shown here is the full year forecast. And as stated earlier, the profit after is expected to be $6,000,000 or $6,000,000,000 in the first half. Regarding The full year forecast because the COVID-nineteen situation remains uncertain, one is unable to formulate a rational forecast. So it has yet to be finalized. Page 7 shows the actions being taken to increase competitiveness. These include improvements to the products, initiatives for digitalization and initiatives for becoming carbon free. These initiatives aim to achieve net zero emissions and as set forth in our ESG story, carbon is viewed to be a major issue for the maritime industry including 1. In addition, actions are being taken for ship management and support is being given to the seafarers for crew changes within the current travel restrictions. The last page shows the fleet