In the second quarter of fiscal year 2023, the company reported a decrease in revenues, operating profit, recurring profit, and net income compared to the same period last year. This was primarily attributed to reduced profitability in the liner and logistics business, specifically in the liner trade and air cargo transportation segments. On the other hand, the bulk shipping business, backed by the automotive and energy sectors, showed strong performance.
Key takeaways from the earnings call:
- The company revised its full-year earnings forecast upwards, projecting higher revenue, operating profit, and recurring profit. The net income forecast remains unchanged.
- A new medium-term management plan was unveiled, which includes strategies such as transferring shares of NCA to ANA Holdings, expanding environmentally friendly vessel fleets, and issuing transition bonds.
- The company is implementing a share buyback program and is committed to achieving net zero emissions.
- The dividend payout ratio has been set at 30%.
- The company expects the automotive business in the second half to be somewhat smaller than the first half but within expectations.
- The Panama Canal restriction has had some impact on operations and the market, particularly in the VLGC market.
- The company made an upward revision to their full-year forecast for logistics, citing its stability compared to the container ship business.
- The company addressed questions about ONE's freight rate strategy, stating that the rates have been lower than expected in recent weeks.
- The company suspended services to China and North America, including the East Coast, starting on November 1st, and announced a price hike of $400 for North America and Europe due to significant price drops in Europe.
Despite the challenges, the company expressed its desire to expand its logistics business and anticipates it making a steady contribution towards profit. The company aims to generate revenue and profit for the entire year, despite inflation and financial impacts in Europe and the US. In terms of financial position, the company stated that the forecasted recurring profit is recovering and net income remains the same. They mentioned the impact of a weak yen, increased material costs, and variable elements like Forex. The company also mentioned the possibility of additional investments and shareholder returns. The briefing concluded with no further questions.
InvestingPro Insights
In light of the recent earnings call, InvestingPro's real-time data and tips provide an insightful perspective on the company's financial health and future prospects.
InvestingPro Data shows a market cap of 11.76B USD, a P/E ratio of 4.45, and a revenue of 16183.8M USD as of Q2 2024. Despite a slight decrease in revenue growth, the company's valuation indicates a strong free cash flow yield.
Two key InvestingPro Tips to consider are that management has been aggressively buying back shares, and the company has consecutively raised its dividend for the past three years. These actions reflect the management's confidence in the company's future performance and commitment to providing shareholder value.
For more insights and tips, consider exploring the InvestingPro platform, which offers numerous additional tips to help investors make informed decisions.
Full transcript - NPNYY Q2 2023:
Takaya Soga: Good afternoon everyone. I am Soga, President and CEO of the company. Thank you very much for taking time despite your busy schedule that you attend this briefing today. Today I will provide an overview of the financial results for the second quarter of fiscal year 2023, and explained 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 either ones for the second quarter of financial results a briefing, which was uploaded at your website at noon today. You can either download it or I 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 6. As you can see in the blue column on the right, cumulative revenues for Q1 and Q2 combined award, JPY1 trillion JPY168.3 billion operating profit was JPY98.7 billion, recurring profit was JPY159.2 billion and net income was JPY113.3 billion, all of which were lower than the same period last year. The recurring profit decreased by JPY606 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, title, the year-on-year JPY590 billion, a decrease in the liner and logistics of business. This was mainly due to JPY520 billion reduction in profit from the liner trade segment, including ONE, and JPY43.6 billion reduction in profit from air cargo transportation segment. In the container ship business of ONE, demand for cargo remained sluggish throughout the first half of the year, and market conditions did not recover. In the air cargo, our transportation segment as well freight rate levels were sluggish due to an increase in supply of space and softened supply demand balance as international passenger flight, which can also carry cargo recovered. On the other hand, in the bulk of shipping business, the first half of this fiscal year has been solid with more than JPY100 billion recurring profit, the same as last year. In the dry bulk criteria 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 to 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 JPY606 billion, compared to the same period last year. It was about JPY27 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 the revenue of JPY2,280 billion up JPY110 billion from the previous forecast. Operating profit of JPY165 billion up, JPY19 billion recurring profit of JPY235 billion up JPY15 billion, and net income of JPY220 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 JPY15 billion from the previous forecast consists of an increase of JPY23.5 billion in the bulk shipping business, a decrease of JPY10 billion in the liner trade business, including O&E and an increase of JPY1 billion in air cargo transportation and logistics segments. So, air cargo, transportation, and logistics segments combined.
Unidentified Company Representative: As for O&E's continued 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 JPY23.5 billion from the previous forecast. Out of this, in the dry bulk business, we did 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 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 the positive growth of income. If we can go back to page 12 of the document, and look at the forecast from for the current fiscal year, from the perspective of the comparison with the previous year, the recurrent profit will decrease by JPY874.7 billion from last year's, JPY1 trillion JPY109.7 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 JPY200 billion in the initial forecast to JPY220 billion in the August revision and up to JPY235 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 JPY200 billion to JPY300 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 forecasts, please refer to page nine. Since the net income forecast of JPY220 billion yen remains unchanged from the previous forecast, the interim dividend of JPY60 is now fixed and the year-end dividend is planned to be JPY70. However, the year-end dividend of JPY70 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 over four-year four guess for fiscal year 2023. Next, I would like to briefly touch upon the progress of a 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 New Zealand logistics, several new investments including M&A are being considered, although there is 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 field vessels, LPG field vessels, and methanol field vessels. We are also preparing for the launch of the world's fast ammonia field tug boat in Yokohama next year as a demonstration vessel, and we're working with related companies to develop an ammonia field 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'll provide a detailed explanation and a briefing scheduled later today in the evening. With regard to our financial strategy, we are currently implementing a share buyback program totaling JPY200 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 at as plant. 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 would like to move on to a Q&A session. So, any questions, please?
Q - Unidentified Analyst: The first a question, can you hear me?
Takaya Soga: Yes, I can.
Unidentified Analyst: Thank you. I have two questions. July to September or the first half results vis-a-vis the company plan. The bulk shipping business was rather robust, but automotive dry bulk and the bunk, 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 the first half are results, how things are likely to evolve in the second half? I would like to understand the more in details. My second question is, so, the net profit forecast remains unchanged? But are there any special factors like special profit on loss and the like – or are there any ups and downs anticipated at this point in time?
Hiroki Harada: Your first question, July to September, the bulk 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 as 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 original budget, all three exceeded the budget to some extent dry bulk market conditions or market assumptions. We took a conservative review, but basically, all of the three businesses had the positive 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 by 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 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 the smaller, but how much the 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, on the net income remains unchanged and background of that will be explained by CFO, the Vice President, Takaya.
Takaya Soga: 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.
Operator: So next question is from someone with the hand up, if you can unmute yourself and ask a question.
Unidentified Analyst: Thank you very much. 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 convention of 50% payout ratio, it has got 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? What was the process of coming to this conclusion for the international vessels? That the future container, the forecast there's some consciousness. So, there is a move to shrink the share buyback, and it's just some 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 midterm management plan. Has there been any progress made? Or what are you expecting when going forward? As much as you can share with us, those are my two points.
Hiroki Harada: 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.
Takuji Banno: Thank you for those questions. The first point on dividend, as you pointed out, the payout ratio for the first half is 30% that 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 growth set, but each time between the shareholders, there's a discussion this decide and this time which has happened so that it's at 30%. And as you had guessed looking at the second half forecast. Well, what we originally announced in August there has been a downward revision to the August revision. And for the rest of the fiscal ‘23 and the fiscal ‘24, as there's going to be a larger capacity. How would that impact the market that there is still uncertainty. So, at this time, for the time being, we've decided to pay the dividend at 30% pay ratio. Moving on to your second question about the midterm, rather than the midterm and I think, you know, or in Singapore had a media conference for the first time in two years and explained what we would like to do going forward, and so called the capital policy. The funding that part was somewhat missing from that explanation on that day. So, three shareholders is there's 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 a 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 would like to spend as much time as possible to have a discussion around that. And honestly, speaking from other shareholders who 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 for me. Thank you.
Hiroki Harada: Thank you. Another point of clarification. So, by the end of the fiscal year, in terms of the timeline, downward revision, and freight right late for the Europe traffic, I think with those factories, it's taking time for you to reach a conclusion. Or in two months or so, the freight rate has come down more than we had anticipated, and that we started to the downward revision for the second half. But the midterm is up to 2030 or 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 we have? We're focusing on that discussion. So, the latest market is not necessary the factor for allowing this discussion.
Unidentified Analyst: Thank you. I understand it very well. Thank you very much.
Unidentified Company Representative: Thank you very much. Let us move on to the next question.
Unidentified Analyst: I have two questions. You have just explained about the dividend, a payout O&E. So, you said that the three parties will discuss this matter. My understanding may not be correct, but it will be a no less than the appearing company dividend, the payout, the ratio of 30% on my correct or not. And my second question is inclusive by container ship, the Panama kennel 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.
Takaya Soga: Your first question about dividend from ONE, I would like bono to respond. And the second one with regards to the Panamanian, I will respond. So, thank you for your question. Dividend, it's not that this three party’s agreement that stipulates the dividend a policy, so we can discuss each time on make decisions, but each party needs to pay a dividend. And ONE, which is equity-based subsidiary we understand that due amount of a dividend that needs to be paid based upon that discussion that we came up with this decision. And it's not that it must not go below at 30%. It may in fact go below a 30%, but each company pay a dividend we will discuss that a matter from each shareholder's perspective. And your second question, Panamanian kennel 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 the BLGC and it's from North America the East Coast to the Gulf. And if the Panama, if it cannot go through the Panama. It is a huge burden and we VLGC market in itself has become much tighter. And 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 Panamanian kennel. So, there are some impacts. But the NYK automotive fleet is not impacted the civilian, at least not at this point. But the NYK lines 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 that zero, although at this point in time we are not seeing a big impact. I hope I answered your question. Thank you for your question.
Operator: Thank you. Let us move on to the next question.
Unidentified Analyst: Thank you very much. Page 11. Well, can you hear me?
Hiroki Harada: Yes, we can hear you.
Unidentified Analyst: On page 11, revision of the full-year forecast, the logistics. So, you made an upward revision, not necessarily that big. So, if you can elaborate, I think, the air cargo transportation is still rather sluggish, but on the other hand, I think logistics are offsetting that and there is a slight upper revision. So, for logistics, what are you working on, and what is contributing to this upward revision? If you can elaborate further. Thank you.
Hiroki Harada: 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 freight and ocean freight, the forwarding part of the business, that is O&E, the container vessels, freight situation, and the space situation. And for the air freight, the actual supply capacity and 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 porting, 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 500 million yen, 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 or there is a financial impact. And that would also have 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 US and Europe. We see a robust business. So, in terms of outlook, we'd like to make sure for the entire year to generate revenue and profit. That concludes my response.
Unidentified Analyst: Thank you very much. I understand it very well. Thank you.
Unidentified Company Representative: Thank you very much. Let us move on to the next question. So, another person who has raised his hand, please ask a question.
Unidentified Analyst: So, I have been able to unmute myself. I have two additional questions. One, ONE, 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 ONE is responding to that as 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 the capital ratio has declined a little bit, but the operating cash flow, JPY50 billion or a JPY60 billion yen up. So, a half year later, probably I will, I put together another plan, and then I can repeat that. But when the difference with the plan get expanded, do you feel it is necessary to make adjustment in a meticulous way or in a longer term, like a one year or two years? Are you planning to look at the accumulative situation? So, my question is about how you manage these plans.
Hiroki Harada: Thank you for your question. Inclusive of ONE, particularly regarding ONE, the freight rate strategy, GE alliance capacity, plan included. So, ONE, whether ONE has a strategy or not, is your question. I understood. So, I would like to ask Mr. Bando 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 a CFO Akira Kono to answer. So, the first question over to you, Mr. Bando.
Takuji Banno: Thank you for your question. So, recently September and October, we were expecting that the rate would be decided sooner, and that we were hoping that it would not decline much. However, actually it a drop the more than we expected in early October. The freight volume has been recovering, but us ONE, not only the ONE, but other companies, at first, they are 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, GE Alliance we have sort of suspended the services to our 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 the first -- the price hike we announced at the same time, it's quite huge increase of $400 for North America and Europe because prices in Europe dropped significantly. And therefore, we decided to raise a price in Europe significantly. Of course, haven't discussed with other companies, but looking at the other company's 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 route. The European companies 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 that 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. But once again, so that is how we look at the situation in the short term. I hope I answered your question.
Unidentified Analyst: Thank you. So, I would like to respond to your second question. The financial position.
Unidentified Company Representative: Thank you for your question. Regarding financial positions, this year's a plan at this point. The forecast, the recurring profit is recovering a little bit, and the net the income remains the same. So, it's basically in line of with the expectations. But investment, the cash flow the MCA's share transfer involved money lending and it'll be repaid about the JPY100 billion. So that is included in the number this time which was not decided at the time of formulation of 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 a weekend investment amount is becoming bigger. And also, material cost increase is also impacting. And there are many other variable elements 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 Nippon. 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 a boat back JPY200 billion of 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.
Operator: Moving on to the next question. 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 to this briefing. So, with this, we would like to close a briefing for the financial results for the second quarter of financial fiscal year 2023. Thank you very much for attending the briefing today. Thank you very much.
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