Thank you very much for waiting, and thank you very much for joining us today. We would now like to begin the briefing for NYK Line's financial results for second quarter fiscal 2023. I am Okada, the General Manager of the IR group. Thank you very much. First, I would like to introduce to you the speakers for this session. The Representative Director, President, and CEO, Takaya Soga. And CFO, Representative Director, and Executive Vice President, Akira Kono. And Managing Executive Officer, Chief Executive of Liner and Logistics Headquarters, Takuji Banno. First, President Soga will give you an overview of our Q2 results, and then we will have a questions and answers session. We will explain to you how to ask questions later. Today's presentation materials have been uploaded on our website for your information.
With your kind understanding, this session, inclusive of our Q&A, will be broadcast on demand. Thank you for your understanding. Let us begin. Over to you, Mr. Soga.
Good afternoon, everyone. I am Soga, President and CEO of the company. Thank you very much for taking time, despite your busy schedule, to attend this briefing today. Today, I will provide an overview of the financial results for the second quarter of fiscal year 2023, and explain the revisions to the full year earnings forecast for fiscal year 2023, followed by a brief explanation of the progress of the new medium-term management plan that has started this fiscal year. After that, we will have a question and answer session.
As the moderator said, the presentation materials are the ones for the second quarter financial results briefing, which was uploaded to our website at noon today. You can either download it or see it on the screen. First, I would like to give you an overview of the Q2 financial results. Please turn to the table on page six. As you can see in the blue column on the right, cumulative revenues for Q1 and Q2 combined were JPY 1,168.3 billion. Operating profit was JPY 98.7 billion. Recurring profit was JPY 159.2 billion, and net income was JPY 113.3 billion, all of which were lower than the same period last year.
The recurring profit decreased by JPY 606 billion from the same period of the previous year. The main reasons for which is, as shown in the far right column on page seven, titled Year on Year, JPY 590 billion decrease in the liner and logistics business. This was mainly due to JPY 520 billion reduction in profit from the liner trade segment, including O&E, and JPY 43.6 billion reduction in profit from air cargo transportation segment. In the container ship business of O&E, demand for cargo remained sluggish throughout the first half of the year, and market conditions did not recover.
In the air cargo transportation segment as well, freight rate levels were sluggish due to an increase in supply of space and a softened supply-demand balance as international passenger flights, which can also carry cargo, recovered. On the other hand, in the bulk shipping business, the first half of this fiscal year has been solid, with more than JPY 100 billion recurring profit, the same as last year. In the dry bulk carrier business, although cargo volumes were firm, recurring profit declined compared to the first half of last year, when market conditions were robust due to the impact of the economic slowdown in China, et cetera. However, the automotive and energy business supported the division as a whole. In the automotive business, demand for transportation remained strong, and the...
In the energy business, in addition to the strong LNG business, demand for long-distance transportation by VLGC also increased, contributing to market conditions improvement. What I have just explained is described on pages three-five of the presentation material, which I would like you to refer to. One thing I would like to add, although it is not explicitly stated in the material, is while the first half recurring income decreased by JPY 606 billion compared to the same period last year, it was about JPY 27 billion above the previous forecast made in early August. Next, I would like to explain the full year forecast for FY 2023. Please refer to page 12.
... The blue figures on the right side are for the full year. As a result of a review of the full year forecast for FY 2023, which we announced in early August, net income remains unchanged, but revenue, operating profit, and recurring profit have been revised up. For the full year, we now forecast a revenue of JPY 2,280 billion, up JPY 110 billion from the previous forecast. Operating profit of JPY 165 billion, up JPY 19 billion. Recurring profit of JPY 235 billion, up JPY 15 billion, and net income of JPY 220 billion, unchanged from the previous forecast. Please, turn to page 14 of the document.
Looking at the current full-year forecast of recurring profit by segment, the overall increase of JPY 15 billion from the previous forecast consists of an increase of JPY 23.5 billion in the bulk shipping business, a decrease of JPY 10 billion in the liner trade business, including O&E, and an increase of JPY 1 billion in air cargo transportation and logistics segments. So air cargo transportation and logistics segments combined. As for O&E's container ship business, we expect a moderate recovery in the cargo traffic towards the second half of this fiscal year, but a full-fledged recovery is still expected to take some time, as the pressure on the shipping supply capacity due to the introduction of the new vessels will continue in the second half. We may have to go one step further down from the last forecast.
On the other hand, the profit for the bulk shipping business is expected to increase by JPY 23.5 billion from the previous forecast. Out of this, in the dry bulk business, we do not expect any change from the previous forecast. But in the automotive business, the tight supply and demand for shipping space will continue in the second half, and strong demand for the transportation will continue for some time. And in the energy business, in addition to the strong LNG carriers, we also expect active cargo traffic demand of VLGC, especially the long-distance transportation, from North America. So all in all, we expect a positive growth of income.
If you can go back to page 12 of the document and look at the forecast for the current fiscal year from the perspective of the comparison with the previous year, the recurring profit will decrease by JPY 874.7 billion from last year's JPY 1,109.7 billion. But this was already factored in at the time of the initial forecast and is not a surprise. Rather, the recurring profit for this fiscal year has been increasing from JPY 200 billion in the initial forecast to JPY 220 billion in the August revision, and up to JPY 235 billion in the current revision.
In the new midterm management plan, starting from this fiscal year for the coming four years, which we announced back in March, we aim to achieve in the range of JPY 200 billion-JPY 300 billion. So we believe that the current forecast is a good start as the first year of the new midterm plan. Now, as for the dividend based on these four-year forecast, please refer to page nine. Since the net income forecast of JPY 220 billion remains unchanged from the previous forecast, the interim dividend of JPY 60 is now fixed, and the year-end dividend is planned to be JPY 70.
However, the year-end dividend of 70 JPY is calculated based on the total number of shares before the share buyback and will be finalized based on the change in the total number of shares at the end of the fiscal year due to the share buyback currently underway. The target annual dividend payout ratio of 30% will remain unchanged. So much on explanation of our four-year forecast for fiscal year 2023. Next, I'd like to briefly touch upon the progress of our newly launched medium-term management plan. Please refer to page 16 of the document. First, on the left-hand side, I would like to talk about our core strategies. In the air cargo transportation business, we have decided to transfer all shares of NCA to ANA Holdings, and we are in the process of final confirmation for the transfer on February 1st, 2024.
In the logistics business, centered on Yusen Logistics, several new investments, including M&A, are being considered, although there is nothing, nothing specific we can announce at this point in time yet. In the energy business as well, we have secured several new medium to long-term contracts for LNG carriers, and we are working to expand our fleet. In our efforts to achieve net zero emissions, we are expanding our fleet of environmentally friendly vessels, including LNG-fueled vessels, LPG-fueled vessels, and methanol-fueled vessels. We are also preparing for the launch of the world's first ammonia-fueled tugboat in Yokohama next year as a demonstration vessel. And we are working with related companies to develop an ammonia-fueled, medium-sized ammonia carrier to be in service in 2026.
... We have also recently completed a review of the NYK Group's decarbonization targets, as suggested in the midterm management plan, and have included details in the NYK Group ESG Story 2023, which was released separately today. We will provide a detailed explanation at a briefing scheduled later today in the evening. With regard to our financial strategy, we are currently implementing a share buyback program totaling JPY 200 billion, which is scheduled to be completed by the end of April 2024. In addition, we are in the process of issuing transition bonds and introducing ROIC, or ROIC, within the company as planned. Progress on the main financial indicators is shown on the next page, page 17. So the progress on the financial indicators will be shared with you on a regular basis going forward.
So much on the brief explanation of the progress made in the midterm management plan. Now I would like to conclude my presentation. Thank you very much.
So thank you very much. Now I'd like to move on to a Q&A session. So, any questions, please?
The first, the question. Can you hear me?
Yes, I can.
Thank you. I have two questions. July to September, or the first half results, vis-à-vis the company plan. The bulk shipping business was rather robust, but, automotive, dry bulk, and the bunker, if you could, share with us the split. And also, if you could, share with us the assumptions for the second half.
Given the rather good first half results, how things are likely to evolve in the second half, I would like to understand more in details. My second question is, so, the net profit forecast remains unchanged, but, are there any special factors like, special profit and loss and the like? So... Or, are there any, ups and downs anticipated at this point in time?
Thank you for your question. Your first question, July to September, the bulker shipping business was rather robust, and you are interested in knowing the split. And, in the second half, this business, bulk shipping business, is likely to decline, somewhat. And, how much is your question, I understood.
So July to September, the second quarter, automotive and dry bulk, as well as LNG vessels, compared with the original budget, all three exceeded the budget. To some extent, dry bulk, market conditions or market assumptions, we took a conservative view, but basically, all of the three businesses had the positive bulk growth. Having said that, however, automotive, as was pointed out in the past, our forecast for automotive business was rather pessimistic, and therefore, in comparison, the automotive business is likely to enjoy a rather huge upside. So that is July to September situation. Turning to the second half, dry bulk, which I touched upon, is unclear at this point. Of course, we have set some assumptions, but we would assume that it will decline somewhat.
With regards to the automotive business, in the second half, we are not assuming a decline and whether it will be at the same level as the first half, maybe not. So taking into account all those factors, compared with the first half, inclusive of July to September, the second half will be somewhat smaller, but how much smaller? It will not be so different from the assumption included in the original budget. In other words, it is within the expectation. So this is my response to your first question. Responding to your second question, the net income seems low, so only net income remains unchanged, and background of that will be explained by CFO, the Vice President Kono. Thank you for your question. So net income-
... from recurring profit minus tax, et cetera. And, carried over losses, there was, big amount, and therefore, effective tax rate was suppressed, to low level. But, it was, almost entirely used up in the first half, and therefore, inclusive of international taxation, the taxes, which were almost non-existent, is now added on top. So that is one impact. So I hope that we answered your question. Thank you.
So next question is from someone, with a hand up. If you can, unmute yourself and ask a question. Thank you very much.
I have, I have two questions or points of clarification on O&E. The first point is why you have announced, $80 million dividend. So O&E's first half results was the base for the payout ratio of 30% dividend, I believe.
But compared to the conventional 50% payout ratio, it has gone down. Of course, it was not your policy to have it at 50%, so that's fine, but the fact that the payout ratio has come down to 30%. So what was the background, and what was the process of coming to this conclusion? For the international vessels, the future container, the forecast, there is some consciousness, so there is a move to shrink the share buyback. And it just so happened that there was the same timing with the lowering of the payout ratio. So if you can elaborate on that. And my second point is also on the O&E, the progress of the revision of the investment plan, as well as the mid-term management plan.
Has there been any progress made, or what are you expecting going forward, as much as you can share with us? Those are my two points.
Thank you very much for those questions. So two questions on O&E. I'd like to ask, Mr. Banno, the Managing Executive Officer, to respond.
Thank you for those questions. The first point on dividend, as you pointed out, the payout ratio for the first half is 30%. We have resolved on that. So the specific ratio, so far it had been at 50%, but it's not that there was a specific rule set. But each time, between the shareholders, there's a discussion to decide, and this time it just happened so that it's at 30%.
As you had guessed, looking at the second half forecast for what we originally announced in August, there has been a downward revision to the August revision. For the rest of fiscal 2023 and fiscal 2024, as there's going to be a larger capacity, how would that impact the market? There is still uncertainty, so at this time, for the time being, we've decided to pay the dividend at 30% payout ratio. Moving on to your second question about the midterm. Rather than the midterm, and I think you know, O&E Singapore had a media conference for the first time in two years, and explained what we would like to do going forward. So both the capital policy, the funding, that part was somewhat missing from that explanation on that day.
So three shareholders, there is a discussion going on. So when it comes to investment, or rather, should I say cash allocation, where are we going to spend? And what's the plan for the business expansion with the investment? We need to have specific numbers. And now that five years have passed, so for O&E's future with the shareholders and operation company, we would like to align ourselves, and we'd like to spend as much time as possible to have a discussion around that. And honestly speaking, from other shareholders, well, it seems like there was a comment by the end of the calendar year, but, I, myself, would like to spend a good time.
I would like to make announcement at least by the end of the fiscal year, but by the end of December, it might be quite challenging for us to share with you anything. But when we do, we would like to share with you what we have in mind on the future of O&E, and we would like to share the plan with you. That's all from me. Thank you.
Thank you. Another point of clarification. So by the end of the fiscal year, in terms of the timeline, downward revision and tough freight rate for the Europe traffic. I think with those factors, it's taking time for you to reach a conclusion. Well, in two months or so, the freight rate has come down more than we had anticipated, and that restarted to the downward revision for the second half.
But the midterm is up to 2030 for seven or eight years. So rather than just a short term of one or two years, but beyond that, how can we expand this fleet, and what would be the investment, and how much leverage should we have? We are focusing on that discussion. So the latest, the market, is not necessarily the factor for aligning this discussion.
Thank you. I understand it very well. Thank you very much.
Thank you very much. Let us move on to the next question.
I have two questions. Yeah, you have just explained about the dividend, the payout, O&E. So you said that three parties will discuss this matter. My understanding may not be correct, but it will be no less than the parent company dividend payout ratio of 30%. Am I correct or not? And my second question is, inclusive of container ship, the Panama Canal restriction, I do not think it has a major impact, but has it been impacting operation or market conditions? If there are any, please share with us. Thank you.
Your first question about dividend from O&E, I would like Banno to respond.
The second one, with regards to the Panamanian, I will respond. So thank you for your question. Dividend? It's not that this triparty agreement stipulates the dividend policy, so we can discuss each time and make decisions. But each party needs to pay a dividend, and O&E, which is an equity-based subsidiary, and we understand that due amount of a dividend needs to be paid. Based upon that discussion, we came up with this decision. And it's not that that it must not go below 30%.
It may, in fact, go below 30%, but each company, how each company pays a dividend, we will discuss that matter from each shareholder's perspective. And your second question, a Panama Canal question, I would like to respond. If you say there are no impacts, there are some impacts, although it depends on the vessel type, how much impact is there. And, as I explained, VLGC, and it's from North America, the East Coast to the Gulf. And, if the Panama Canal, if it cannot go through the Panama Canal, it is a huge burden. And VLGC market in itself has become much tighter, and a freight rate increase is because of this.
But, the demand will not decrease because of this, and the demands remain robust. Take for example, automotive transportation from Asia to East Coast of North America or Latin America. It needs to go through Panama Canal. So there are some impacts, but the NYK automotive fleet is not impacted severely, at least not at this point. But, NYK Line, the vessel space has been large. I mean, the vessel space allocated to us has been large to begin with, so maybe we are in advantageous position.
But if this Panama issue becomes much more serious, from Pacific Ocean to Atlantic Ocean side, if the number of vessels is reduced significantly, then it may end up in a shuttle service going back and forth. And automobiles were transported to the East Coast, but it may have to be uploaded on the West Coast, and then abroad on the ground. Such a possibility is not zero, although at this point in time, we are not seeing big impact. I hope I answered your question. Thank you for your question.
I understood fully. I thank you very much.
Thank you. Let us move on to the next question. Thank you very much. Page 11. Well, can you hear me?
Yes, we can hear you.
On page 11, revision of the four-year forecast, the logistics, you made an upward revision, not necessarily that big. So if you can elaborate? I think, air cargo transportation is still rather sluggish, but on the other hand, I think logistics are offsetting that, and there is a slight upward revision. So for logistics, what are you working on, and what is contributing to this upward revision, if you can elaborate further? Thank you.
Thank you very much for that question. So I would like to respond to your question. So recently, in the new midterm management plan, we said that the logistics is one of our core businesses, and we do intend to grow this business as one of the core businesses. There are several significances or meanings to that.
One big part is that the container ship business using O&E, that we would like to grow, the volatility for that business is quite high. And the source of the demand is quite broad in the logistics. And the general logistics itself, compared to the container business, the volatility is quite limited for the general logistics. Therefore, by having logistics face the O&E, then we can sort of offset the impact. That's what we said in the midterm, and that remains unchanged. But this logistics business, in this logistics business, as it explains here, the air freight and ocean freight, the forwarding part of the business, that is, O&D, the container vessels, freight situation and the space situation, and for the air freight...
The actual supply capacity and the situation of the freight, those are the factors that could bring about a significant impact. So in terms of the volatility, O&E container, it's very close to that. On the other hand, contract logistics, what we call contract logistics, so the real core part of the logistics, the big network business, especially where it's impacted by the forwarding, that is very much limited, where it's impacted. So that part has a limited volatility, so that's why we would like to continue to expand that part of the business. That's our aspiration. Now, this time, only JPY 500 million, but, we did make an upward revision. But basically, in that sense, the logistics is quite steady in making a contribution to the profit.
So as a matter of fact, in Europe and in the United States, inflation, well, there is a financial impact, and, that would also have an impact on the logistics customers, clients as well. But realistically speaking, where we receive orders and we handle the logistics, it's quite steady. Both in U.S. and Europe, we see a robust business. So in terms of our outlook, we'd like to make sure for the entire year to generate revenue and profit. That concludes my response.
Thank you very much. I understand it very well. Thank you.
Thank you very much. Let us move on to the next question. Another person who has raised his hand, please ask a question.
I have been able to unmute myself. I have two additional questions. One, O&E, the freight rate strategy, what is the situation? Spot rate in the past two weeks in Shanghai, the spot rate has been rising, and how O&E is responding to that? As THE Alliance, what is the capacity schedule inclusive of the situation of the competitors? If you could share with us, please. My second question is on page 17, KPI, based upon a midterm plan and the latest results, the profit and share buybacks. Because of that, the ROE seems good, and a capital ratio has declined a little bit, but the operating cash flow, JPY 50 billion or JPY 60 billion up.
So, half, yeah, later, probably you will put together another plan, and then I can repeat that. But, when the difference of is the plan gets expanded. Do you feel it is necessary to make adjustment in a meticulous way, or in the longer term, like a one year or two years, are you planning to look at the accumulative situation? So my question is about the how you manage these plans.
Thank you for your question. Inclusive of O&E, particularly regarding O&E, the freight rate strategy, THE Alliance capacity plan included. So O&E, whether O&E has a strategy or not, is your question, I understood. So I would like to ask Mr. Banno to respond.
Your second question, these financial positions which are the targets stipulated in the midterm plan, and there are some variances and how we will respond to them. Regarding that question, I would like to ask our CFO, Kono, to answer. So the first question, over to you, Mr. Banno.
Thank you for your question. So, recently, September and October, we were expecting that the rate would be decided sooner, and we were hoping that it would not decline much. However, actually, it dropped more than we expected. In early October, the freight volume has been recovering.
But O&E, not only O&E, but other companies, towards year-end or January, up till the Chinese New Year, people are wanting to increase the numbers, so they are now trying to tighten the vessel supply. So THE Alliance, we have sort of suspended the services to China and North America, but the North America East Coast we are also suspending and reducing the overall services. At the same timing, on November 1, the price hike we announced at the same time. It's quite huge increase, $400 for North America and Europe, because prices in Europe dropped significantly, and therefore we decided to raise price in Europe significantly.
I, of course, haven't discussed with other companies, but, looking at the other companies' movement, probably, they are inclined towards European market, even more than us, and therefore, they seem to be raising prices for Europe. Rather than changing the routes, the European companies that have not, that did not suspend the services in the past are now suspending some of the services, and therefore, the rate is increasing as a result. But, market conditions are not recovering quickly, and therefore, to what extent the demands can recover as a result of a tightened supply, it's something we are carefully watching. But, in January and February, I think there is a possibility that the rate would drop once again.
So that is how we look at the situation in a short term. I hope I answered your question.
Thank you.
So I would like to respond to your second question, the financial position. Thank you for your question regarding financial positions. This year's plan at this point, the forecast, the recurring profit is recovering a little bit, and the net income remains the same. So it's basically in line with the expectations, but the investment, the cash flow, and NCA's share transfer involved money lending, and it'll be repaid about JPY 100 billion. So that is included in the number this time, which was not decided at the time of formulation of a medium-term plan.
So inclusive of that investment amount itself is somewhat bigger at this point. The reason for that is, one thing is weak yen, because the vessel service price is oftentimes dollar-denominated, and because of our weakened investment amount is becoming bigger, and also material cost increase is also impacting. And there are many other variable elements, the Forex and the like. So it is quite possible that the investment amount that will change in a single year basis, whether we will review the overall financial position. We have not decided anything yet at this point, but inclusive of the current situation, probably at this point, the midterm plan target for 2026, I think it's basically in line with the plan. If the situation changes dramatically, we may consider changing the numbers.
But, as is announced as part of a medium-term plan, a management allocation exists within that. We can make additional investment or the additional amount that can be absorbed. And, we have bought back JPY 200 billion of our own shares, and the DER and shareholders' equity ratio have not worsened, or rather have improved, and therefore, additional shareholder return is quite possible. And, it's not that we need to review financial position at this point in a single year basis. I hope I answered your question. Thank you.
Moving on to the next question. So are we okay? Is there anyone else with questions? Well, since there are no further questions, we are a bit early, but we would like to close this briefing.
So with this, we would like to close the briefing for the financial results for the second quarter financial fiscal year 2023. Thank you very much for attending the briefing today. Thank you very much.