Nippon Yusen KK (NYK line) Stock

Thank you for your patience. Thank you for taking part today despite your busy schedule. We will now begin the NYK Line financial results briefing for the first quarter of FY '26. My name is Yanase, Head of the IR Group, and I will be serving as your moderator. Thank you very much for having me. I'd like to introduce speakers today. We have Mr. Takuji Banno, Senior Managing Executive Officer and CFO; Mr. Tomotaka Aso, Managing Executive Officer and Chief Executive of the Liner and Logistics Headquarters.

We will have Mr. Banno provide an overview of our financial results for the first quarter of FY '26, followed by a Q&A session. I will give you a notice to you on how to ask questions later. Today's presentation materials are available on our website. Please note that we plan to make an on-demand recording of this briefing, including Q&A session, available later. Thank you very much for your understanding.

And now let's begin the presentation. Mr. Banno, floor is yours.

Thank you for joining us at the financial briefing today. I will be reading the presentation based on this material. And once again, thank you for your kind attention. We revised our financial results in a timely disclosure last week regarding the content I'm about to present as well as the information released earlier today. The actual figures have not changed at all from those figures we presented already, and we appreciate your understanding for that. Please take a look at the table of content.

As usual, we will cover the first quarter financial results and the revision to our full year earnings forecast. In addition, since we announced a TOB for the NS United shares last Friday, I'd like to take a few minutes to briefly walk you through that particular topic as well. The presentation material include an ONE slide at the end. Now then, let's dive right in. The figures for the first quarter financial results are detailed starting on Slide 3. Please could you take a look at the accompanying items later.

And now take a look at the table on Slide 6, please. The key point, the company as a whole, ordinary profit was JPY 71.2 billion. Profit attributable to owners of the parent was JPY 67.1 billion, resulting in increased capital and higher profit. Compared to the same period last year, Trump administration's tariff took effect in April. And by that, we struggled quite a bit in April and May. On the other hand, there was a trend towards front-loading that led to a rapid surge in freight rates in June, particularly for containers.

We were able to catch up for a significant portion of the shortfall in June, and our first quarter results for last year stood at JPY 55.9 billion over the 3-month period. This time, we exceeded that figure by an additional JPY 15.2 billion, ending up with an ordinary profit of JPY 71.2 billion. Moving on, here are the figures for each segment. Please take a look at the numbers. Broadly speaking, the 3 divisions, Liner Trade, Logistics, and Automotive observed increased revenue, but decreased profit.

On the other hand, Dry Bulk and Energy observed significant increases in both revenue and profit. To provide some additional context regarding the Energy segment, we actually reported an ordinary profit of JPY 16.4 billion for the first quarter at this time last year. The figure in this presentation is JPY 12 billion. The reason for this decrease is that we acquired NYK Energy Ocean, and PPA was not included in last year's figures since the acquisition had not yet taken place, whereas this year's figure reflect the figures following the acquisition.

Consequently, last year's figures have been restated, making them appear lower. If I may, I'd like to briefly explain the consistency between the contents presented in May at the start of the fiscal year and what I'm about to explain now. You may also recall that during this briefing in May, when we announced our full-year forecast of JPY 185 billion, we explained that just under JPY 20 billion have been factored in as the effect of The Strait of Hormuz.

I explained in May that most of these figures were due to rising bunker prices for each vessel as well as the likelihood that automobile vessels would be unable to transport vehicles to the Middle East, which in turn would negatively impact the automotive segment. Now regarding how this actually played out, let me please start by saying that as for the Automotive segment, we were ultimately able to transport 1.11 million units in the first quarter.

This is roughly the same level as last year and the year before. So looking at the results alone, the reality is that we were able to maintain steady exports to the Middle East. However, looking solely at the financial results, while the goods were transported, there were instances where the route or port of discharge changed in various places. In addition, port congestion disrupted operation in various ways.

Furthermore, there was a severe shortage of vessels. And in order to make up for this shortfall, we significantly accelerated vessel rotations that resulted in poor fuel efficiency and higher fuel consumption. Because costs rose significantly, even though goods were being shipped to the Middle East, when looking solely at the results, the Automotive segment ended up at a level nearly identical to the budget.

We had prepared already that we assumed no shipments to the Middle East. On the fuel front, however, our company had announced in May that we expected the bunker price for the first half of the year to be $806. However, when we reviewed our financial statements, the actual bunker price we used turned out to be more than $150 cheaper. The reason for this is conspicuous in the Dry Bulk segment that we apply an accounting treatment where fuel held for temporary sale is consumed on a first-in, first-out basis.

The fuel burn in April and May had already been purchased in February and other months. So we were burning fuel that we had purchased when prices were lower. By around June, we were burning fuel at a rate roughly in line with the market condition. And for the period leading up to that point, our accounting treatment reflected the use of cheaper fuel. In reality, fuel costs did not rise as much as anticipated.

Therefore, to focus solely on the result of JPY 120 billion figure I mentioned, the Automotive segment, which is a part of this total, came in slightly below expectations as anticipated. On the other hand, the fuel segment showed almost no such downward deviation. That covers the figures for the first quarter. Next, I'd like to provide a brief explanation by segment following these presentation materials. For ONE, at the time of initial forecast, we projected a loss of JPY 50 million on their 100% basis.

This is for the first half of the fiscal year, combining the first and second quarters. We had projected a loss of JPY 350 million for the second half and a full-year loss of JPY 300 million. But in reality, we achieved a profit of JPY 31 million in the first quarter, that is in just 3 months. Originally, the first-half deficit was projected to consist of a fairly large loss in the first quarter and a slight return to profitability in the second quarter, resulting in a combined deficit of nearly JPY 50 million.

Looking solely at the results, we already posted a profit starting in the first quarter. Fuel prices have naturally risen, and we were burning more expensive fuel and we introduced an emergency fuel surcharge in March, and we were able to collect them effectively. Furthermore, North America was quite conspicuous that cargo movement was also quite active in Europe. Given that vessel capacity remained tight throughout April, May, and June, we introduced peak season surcharges at an early stage.

Although market conditions were already strong to begin with, freight rates surged, which contributed significantly to the upward revision. Now moving on to logistics. We had originally projected a JPY 2 billion loss for the first half of the fiscal year. Looking solely at the results, we already posted a JPY 2.4 billion loss in the first quarter, which feels as if we have already used up the entire half-year loss in just 3 months. This is partly due to changes in how we allocate internal expenses.

In terms of underlying performance, though, the results were largely in line with our original projections. The integration of the financial results for Golden Group, this is an acquisition we closed last December. It has been proceeding smoothly since April, and there have been no significant deviations from our projections. PMI is also on the right trajectory, and there have been absolutely no major surprises in that regard.

So I hope you understand that things are progressing as planned. Regarding Dry Bulk, as I mentioned earlier, we have observed a significant upside. The budget for the first half of the year was JPY 7 billion, and the revenue for the first quarter alone just 3 months has already reached JPY 19.4 billion, representing a substantial increase. Market conditions have been extremely strong, particularly for capesize bulk carriers with rates hovering above $40,000.

This trend is not limited to capesize bulk carriers. But as I mentioned earlier, we had originally factored in a significant portion of the surge in fuel prices, especially for the dry bulk segment, but the actual fuel costs turned out to be lower than expected. So, this is also contributing to exceeding guidance significantly.

And for the Energy segment, we had projected a surplus of JPY 25 billion for the first half alone, but we already achieved JPY 23.9 billion in the first quarter, essentially generating nearly the entire first half profit in just 3 months. Here as well, the VLGC market has skyrocketed and is much higher than we anticipated. In the case of VLGCs, we are observing rates of $40,000 or $400,000 even.

But since our tanker fleet has limited exposure to these spot markets, we have not been able to fully benefit from all of this. That being said, even with that limited exposure, we were able to exceed guidance significantly in our earnings. To summarize, for the first quarter, we significantly exceeded our initial budget. Roughly half of that upside came from the Container segment, while the Automotive and Logistics segment performed largely as expected.

And the remaining upside came from Dry Bulk and Energy. And please consider half of the gains from Dry Bulk and Energy to be attributable to the fuel-cost benefits that I have already elaborated. That concludes my overall assessment of the first quarter financial results. Thank you very much. Moving forward, I will now walk you through to our full-year earnings forecast.

First, please take a look at Slide 9. As a prerequisite, our initial budget was based on the assumption that the situation in the Strait of Hormuz would continue through June. This revised projection assumes that the situation will be extended by another 3 months, lasting until September. In other words, while condition may not normalize immediately by September, we have based our calculations on the provisional assumption that the Strait of Hormuz will at least be open.

Regarding the Suez Canal and the Red Sea, we have maintained our original assumption that our vessels will not enter those waterways until the end of fiscal year, that is, March. Based on this assumption, we recalculated the figures, and the results are, as you can see here. We have revised upward our forecast for revenue, ordinary profit, and profit attributable to owners of parent. Regarding shareholders return, in light of this, we had originally stated that we set an annual dividend of JPY 200.

However, we will now increase the dividend to a total of annual dividend of JPY 240, consisting of an annual dividend of JPY 40, an interim dividend of JPY 20 and a year-end dividend of JPY 20. Following this, on Slide 9 through 10 and beyond, we provide various explanations. Please turn to Slide 14. As explained earlier, this slide compares the figures announced in May with our current forecast. I'd like to briefly walk you through to this slide.

Overall, we had originally projected ordinary profit of JPY 185 billion annually, but we are revising this upward by JPY 65 billion to JPY 250 billion. This is exactly what we announced last week. Breaking it down of the JPY 65 billion, just over half, JPY 34 billion comes from Liner Trade. Liner Trade was originally projected to post a loss in the first quarter, but it significantly exceeded expectations, so the results have improved.

In fact, for Liner Trade, there is sometimes an inevitable slight delay in recognizing freight revenue for accounting purposes. In fact, the current very strong market conditions are typically reflected in the second quarter results. While the company as a whole posted a profit of JPY 31 million in the first quarter, the second quarter is expected to yield significantly higher figures.

On the other hand, as shown on Slide 14, regarding the second half of the fiscal year, which displays figures in JPY 100 million for our company, we had originally forecast a profit of JPY 35 billion for the second half. And however, we have revised this forecast to JPY 21 billion, representing a downward revision of JPY 14 billion. Mr. Aso, Managing Executive Officer, may provide a more detailed explanation of this later.

For the first half, we did not necessarily conclude that we were seeing front-loading like last year -- that is, that the peak season has shifted earlier than the usual August. However, given that cargo movement was exceptionally brisk in the first and second quarters, we do not think that cargo movement in the third and the fourth quarters may decline slightly compared to our original assumptions.

Furthermore, regarding fuel, we had originally assumed that once the Strait of Hormuz reopened in June, bunker prices would gradually decline starting in July. However, if current trend continues, bunker prices will likely not begin to decline until October or later. Consequently, we have included downwardly revised figures for the second half of the year. Regarding logistics, this is largely the same as the previous explanation, as our outlook for the full year has not changed significantly from what we presented in May.

The figures for this period are again close to 0. Air Cargo Transportation is performing quite well, but we experienced a one-time dip in other areas. Golden is performing as expected. The PMI is also progressing smoothly. So, there have been no changes here either. As for the Automotive segment, we slightly revised downward our projections for the first and second quarters due to the impact of the Strait of Hormuz, but we expect to make up for that in the second half of the year.

Looking at the full-year, the results are JPY 3 billion below the figures we represented in May, but this is largely in line with our expectations. As for Dry Bulk, we significantly exceeded expectations in the first quarter. Since market conditions remain strong in the second quarter, we anticipate that we will generate a reasonable amount of profit. Our market outlook for the second half and beyond is included in the appendix at the end of this deck.

As you can see there, we have revised our forecast upward. While market conditions themselves are improving, fuel costs remain high, which will have a particularly significant impact in the second half. Therefore, for the second half, we are maintaining our previous forecast of JPY 7 billion for after profit and loss. Regarding the Energy sector, we made significant profit in the first quarter due to fuel price effects and our tanker operations.

While this trend will continue into the second quarter, our projection indicates that the situation will deteriorate slightly once the Strait of Hormuz reopens. This is because there is possibility that LNG carriers could be halted, particularly in the second half around July, August, and September. And since this will be reflected in the income statement starting in October or later, our forecast is quite conservative.

Consequently, we have issued a downward revision for the Energy segment in the second half. That concludes my explanation for the assumptions underlining our full-year earnings forecast. I will wrap up my explanation on the income topic for now. As I mentioned at the top, I'd like now to talk about NS United Kaiun Kaisha, Limited, which we announced last Friday. From here on, I will refer to the company as NSU.

We have announced a TOB for NSU and the materials we released contain very detailed information on various aspects of the deal. So I encourage those of you with time to review them. There are about 4 slides of material today, so I'd like to give you a brief explanation. First, Slide 16. There are 3 items listed here regarding the rationale for this transaction. Since this section is quite detailed, I will not be reading it aloud today. I believe you will get the gist of it if you read through it.

First and foremost, I'd like to draw your attention to the fact that NSU is a Dry Bulk shipping company that is firmly managed as an independent entity. By partnering with them, we can achieve various synergies, and it is with strong belief that we have reached at this point. Specifically, regarding the benefits for our company, while our Dry Bulk business generates stable revenue, it is also significantly influenced by market conditions.

For this reason, we operate our business while maintaining a balance. We also wish to further increase our stable revenue, and incorporating NSU's business will help us achieve this. That is the first benefit. What we are most looking forward to is the domestic shipping business. Given that our company is not particularly strong in this area, the opportunity to collaborate on the stable revenue stream is a key point in the significance of this transaction.

Next is Slide 17. This slide lists the facts, so please read through it. The total acquisition cost is JPY 156.8 billion, which is just under JPY 160 billion. Regarding the future schedule, it will likely take 3 to 4 months to obtain regulatory clearance under the Antimonopoly Act and other relevant laws, after which we will launch the TOB. At this point in time, we plan to proceed at a pace that will allow for closing around April of next year.

Next slide, Slide 18, please. I'd like you to take a look at this material a bit further. This overlaps with Slide 16, but here, we have listed the synergies from this transaction as currently anticipated by NYK Line. We have only announced the TOB so far. Certainly, we have completed due diligence on NSU's financials and business operations, but we have not yet reached, nor should we be at the point where we can discuss how we will generate synergies for both parties moving forward.

That is why we are stating this information on our own initiative, but I believe the most significant benefit is after all, the ability to achieve economies of scale. We already have a relatively large fleet, particularly of capesize bulk carriers. But by combining it with NSU's fleet, we could become a company with a fleet that ranks quite high even on a global scale. By doing so, we believe we can leverage our strength in various areas such as vessel deployment and securing.

There are various other points mentioned on this deck, but I'd like to highlight one more item. The fourth point mentioned on this slide is human capital. And indeed, human capital will be the most important factor going forward. There are valuable staff members who have developed their capabilities within NSU, for example, those who normally work on board vessels, as well as shore-based staff members.

And we expect that having the individual work alongside people with a slightly different background than ours will create various synergies and positive effects. There is also mention of decarbonization in particular, and we are approaching this deal with a strong desire to work on it together as well. Next up is Slide 19. This is the final slide of the explanation from my end. In the past, in our midterm management plans and first and third quarter financial briefings, we respectfully omitted explanations of these financial metrics.

This time, however, as demonstrated on the left-hand side of the slide, we have made this information public following the announcement of the merger with NSU. Accordingly, we have briefly outlined on the left-hand side of the slide, what changes this will bring. As you might expect, investment cash flow will increase, interest-bearing debt will also increase accordingly. As for the rest, we would like you to take a look at that following the strong performance in this first quarter, various figures have improved significantly.

On the right-hand side, this is the cash allocation, which we always cover in our explanation of the mid-term management plan. I'd like to provide an update on this as well. The investment in NSU is just under JPY 160 billion to be exact, JPY 158.4 billion. Since some of the other planned investment projects have been slightly postponed, investment cash flow will increase by JPY 150 billion. In addition, since we have increased our dividend, that will add about JPY 10 billion.

As for operating cash flow, due to strong performance and an upward revision, this will also increase by JPY 40 billion. However, after profit and loss, it will decrease by JPY 110 billion. Coincidentally, the figure of JPY 110 billion was included in the management allocation line item in May. So mathematically, this will effectively be reduced to 0 at this point. It's not that we originally included the JPY 110 billion figure with any ulterior motive.

This is simply how the numbers work out at this moment. If business performance changes again in the future, these figures will also change. And if there is any exceeding of expectation happens, we will consider separately how to utilize any new management allocation plan that arrived at that time. That concludes my explanation. Thank you so very much for your kind attention. We will now move onto the Q&A session.

I have 3 questions. First, regarding containers. As briefly mentioned in your explanation about whether there were any last-minute orders, how does NYK Line analyze the background behind such strong performance and the rise in freight rates during the April-June period? Setting aside any assumptions, what I'd like to confirm is the actual facts of the situation, please?

And my second question concerns Dry Bulk. The upward revision this time is very significant compared to previous projections. In particular, since the increase occurred only in the first half, I'd like to confirm whether this was due to market conditions, exchange rates, or a significant rise in cargo handling volume, specifically, whether these factors caused this outcome solely in the first half? That's my second question, please.

And my third question concerns the Energy segment. Here as well, looking at the market assumptions, particularly for the second quarter and beyond, it does not seem realistic given current market conditions. Taking that into account, I'd like to confirm what kind of sensitivity this would have on profits if this were to be the situation for April through June. That's the 3 questions that I'd like to ask. Thank you for your question.

Regarding your question about ONE, Mr. Aso will take that question. Thank you very much.

Thank you for your question. This is Aso speaking. This is about ONE on the container business, whether we have a last-minute search across the entire business and also about the upward trend and our significant improvement in our financial results. First, regarding cargo handling volume, the European and South American routes were quite strong around April and May, and the trend was exceeding last year's level.

We've already factored this in to some extent, the figures started off slightly exceeding those expectations. On the other hand, North America was not quite as strong in April and May. We had anticipated or rather expected that the numbers for the first quarter would not rise significantly. However, from late May through June, cargo handling volume in North America increased considerably, rising significantly more than ONE had anticipated in the first place.

At the same time, freight costs in Europe and South America started off relatively strong from the beginning. While in North America, although they were largely in line with expectation in April and May, they were significantly in June. As for last-minute rash, we definitely believe it did occur. On July 24, the Trump tariff took effect, raising the rate from 10% to 12.5%, an increase of about 2.5 percentage points.

Customers wanted their shipments to arrive in North America before that. Since tariffs are applied upon arrival, I believe there are customers who wanted their shipments to arrive in North America before that, the tariffs took effect. Furthermore, as is generally said, the later in the year gets, the more so-called benefits kick in retrospectively. So some customers likely wanted to ship earlier rather than in the second quarter. Others concerned that consumption might decline in the second half of the year due to various factors like inflation, they preferred to ship in the first half.

However, looking at the current situation, we had anticipated that the rates might finally start to decline once July began, partly due to the impact of Trump tariffs. As you know, however, the strong momentum from the second quarter has continued well into July, and rates remained high across all routes until around mid-July. And since then, rates for Europe have declined slightly. And while the trend has been gradual, freight rates have been falling little by little to the present, though the decline has been extremely gradual.

As for North America, rates initially dropped once around mid-July. And I believe that GRI effective August 1 played a role. Freight costs have since risen again. And due to the rate adjustment implemented by various carriers, in fact, the fact that rates were raised has led to speculation that demand remains strong. As for ONE's second quarter, the situation has been quite strong, but we anticipate that demand will begin to decline starting in the third quarter, that is, from September onwards.

The key focus, of course, is how long the relatively strong demand we are observing now will continue even as we enter the month of August. There are currently mixed views on this, and some naturally believe that demand has already peaked out. That being said, looking at current trends, we cannot say that for certain, and we are closely monitoring shipment trends for each commodity. For example, products such as toys, clothing, and consumer electronics, which typically peak in the fall season, have not seen much front-loading, and we are now seeing an upward trend.

In short, they are following a pattern similar to a typical year. So it's entirely possible that these commodities will reach their peak in the near future. It is quite difficult for us to predict. And while housing constructions are not performing well, I have heard that home renovations are quite popular in the United States right now. So demand for building materials is reportedly on the rise. And various factors are incorporated and our assumption is that prices will peak in the second quarter and then decline.

But our current view is that the extent of that decline might not be as severe as expected. Regarding bunker fuel, Mr. Banno mentioned that earlier in his presentation, bunker prices did not rise as much as expected in the first quarter, which has improved our profit and loss situation accordingly. However, we expect bunker prices to remain relatively high from the second quarter onwards and then decline relatively gradually from the third quarter onwards.

Therefore, depending on our bunker price trend, the outlook for the third quarter and beyond may change. This concludes my remarks. Thank you very much.

Thank you very much. To your second question, on Dry Bulk, I'd like to take that question from my end. I believe your question is why the second half of the fiscal year is expected to be so much worse compared to the first half.

We have revised our market outlook this time regarding the first and second halves of the year, which we had previously focused, we took a broad look at all the vessel types from Capesize bulk carriers to Handysize carriers. While the impact on Handysize carriers is not as significant, we expect the rate to rise by roughly $3,000 in both the first and second half.

Overall, we should be able to benefit from this trend. That being said, regarding the question of why rates aren't rising as much in the second half, as I explained earlier regarding fuel, the fuel we have in stock prior to the current period was cheaper than the actual bunker price, and we benefited from the difference in the first quarter. Going forward, as bunker price gradually declines, the opposite will occur, essentially because we effectively front-loaded some of the benefits in the first quarter by using cheaper fuel.

Our accounting will now require us to consume fuel at a higher price than the actual market rate. And that impact of this is quite significant. We are operating under the assumption that the benefits we front-loaded in the first quarter will gradually emerge in the third and fourth quarters, thereby offsetting the rise in market prices. And as for energy, you are absolutely correct.

Currently, our projections, particularly for VL suggests that while the first half may remain at around $400,000, and it is now the second half will likely drop to around $150,000. For VLGCs as well, the projection is $130,000 for the first half and $50,000 for the second half. So I think that we do have my doubts as to whether rates will actually fall that low.

Actually, these tanker contracts are originally set up to be index-linked based on the assumption that cargo is transported from Middle East, although there aren't that many such contracts. However, in reality, ships aren't even entering the Middle East at all right now. And in some cases, they are sailing in completely different regions. Yet there are contracts stipulating that freight rates should be calculated based on those indices, so we are proceeding accordingly.

Going forward, when the time draws near for us to review these contracts upon renewal, we will look into using indices more closely so that we can reflect actual conditions or consider using other indices. While index-linked contracts are fine for us, I think it's possible we will negotiate to link the other contracts to different indices. So regarding the VLCC figures of $400,000, I mentioned earlier, we have no actual transactions, but the number itself has remained consistently high.

We are not basing our calculations for the second half of the year on that figure. Instead, we have used a more realistic estimate factoring in that rates will likely decline to some extent once the Strait of Hormuz reopens. Although we have only included rough estimate at this point, we have entered figures of around $150,000 for the VLCCs and $50,000 for VLGCS. Therefore, even if conditions remain as they are today, we do not believe that the strong performance we saw in the first quarter will continue indefinitely.

I'd also like to ask a follow-up question to my third question. Since routes through the Bab-el-Mandeb Strait and other passages are currently blocked, resulting in longer distances, detours, and transshipments going on, is your company able to charge customers those additional costs extra, assuming you're not using the Middle East or the Far East for freight rates? Is that possible?

Thank you for your question again.

Compared to Dry Bulk contracts, many of our tanker contracts are structured entirely along the lines of the idea of like we are lending you the vessel, so please feel free to use it as you see fit, meaning we are perfectly fine with however the client chooses to utilize it. And in reality, even if we are told to head off to, we will not sail through the Bab-el-Mandeb Strait, anyway. However, if we receive instructions to go to a specific location because the client wants to conduct a ship-to-ship operation, we will, of course, comply and carry out operation accordingly.

But that being said, contractually speaking, even if we go to a location that we do not normally visit, we may be able to charge for special costs such as those incurred by physically handling various materials during a technical ship-to-ship operation, but we do not bill in a way that increases the net freight rate.

In short, as I understand it, this concept of surcharges such as asking customers to pay extra because bunker prices have risen, as it's done in other parties is virtually nonexistent in tanker business. There are no upward adjustment based on these factors.

I have 2 questions here. First, I'd like to confirm your assessment of the future supply and demand outlook for the car carrier business. Given that automotive cargo from China has been quite strong since the beginning of the year, I believe the volume of spot-chartered vessels has been on a steady upward trend.

What is your assessment regarding the possibility that the medium- to long-term contract within your automotive vessel business might be revised upward, maybe or whether you are beginning to see any positive signs in this regard? I'd like to know that as my first question, please. And my second question concerns the JPY 900 billion forecast for investment cash flow in the current fiscal year.

I'd like to confirm your assessment of whether you will actually be able to utilize this entire amount during the current fiscal year. Even considering the operating cash flow and interest-bearing debt projection you have disclosed, I believe investing JPY 900 billion is a significant undertaking. And so I'd like to confirm the nuance here, such as whether there are any major asset liquidations not factored into that plan or whether this plan itself presents a fairly ambitious target.

Yes. Thank you very much for your question. I will take that question for you. First, regarding the automotive sector, as you are aware, export of Chinese vehicles have been increasing significantly. So, the market is extremely tight overall. It is true that the market has reached a point where if we are to charter available vessels, we would have to pay extraordinary amounts such as $70,000, and that is an order of magnitude higher than usual.

On the other hand, a significant portion of our automotive vessels are either our own vessels or long-term chartered vessels. For example, we rarely enter into new short-term charter agreements for 1 or 2 years. And in fact, although market conditions have remained extremely high for roughly the past 2 years, we have almost never brought in vessels from outside sources. In that sense, it does not directly lead to increased cost. So that's the situation.

And as for freight rate agreement with our customers, we do not decide them on a spot-by-spot basis. Rather, we negotiate freight costs annually from a medium- to long-term perspective and revise them accordingly. So the question is, when the external environment or market condition change significantly, will those changes be directly and progressively reflected in the freight cost of our long-term contract? That is your question.

It certainly gets some impact, of course, costs are rising and the CPI rising worldwide, including labor costs and other factors, we naturally reflect those increases. But regarding the argument that since chartering ships from outside sources has become so expensive, you should raise freight rates accordingly. For this type of mindset, we do not actually incur those costs. So, I do not believe we will reflect such factors in freight rate increases.

That being said, we are expanding our services in various ways, and we are, of course, making our own efforts to adjust freight rates accordingly. So, it's not as if there are absolutely no increases in freight costs, but you can safely assume that we will almost certainly not raise cost or rate in direct response to market conditions.

Next, regarding investment cash flows, JPY 900 billion is certainly an ambitious target. It may sound boastful coming from us, but it's a number we've never seen before. And the first, regarding the question, can you really do this much? Do investment projects of that scale actually exist? That is your question. At this point in time, we have laid out the project what we believe we can undertake.

Of course, it's possible that some of these deals may ultimately fall through, resulting in those investments being canceled, but we have included those possibilities in our estimate of how much we expect to spend. This isn't something that we will continue indefinitely, and it's not limited us to this NSU TOB, but it just so happened that last year, the investment cash flow of FY '25 actually ended up being lower than anticipated.

However, because some projects span from March into April, and a significant portion of those figures is actually reflected in the FY '26. And if you look at the FY '26 stand-alone, the figures appear very high and substantial. But in reality, some of these expenses were originally intended for FY '25, and they have been carried over to this year.

And furthermore, I believe the underlying concern behind your question is along the lines of, Is it really okay that you might not generate that much cash? That is probably your question. Of course, we have no comment regarding the sale of assets. But since the COVID-19 pandemic, we have significantly strengthened our balance sheet and substantially reduced our interest-bearing debt. That trend bottomed out around FY '25, and we are now seeing a reversal where debt is beginning to increase.

To some extent, we also believe we need to adopt a management approach that utilizes leverage a little bit more. While we have no intention of increasing debt indiscriminately, we recognize that we have sufficient financial strength to manage even if we increase debt slightly. And if I go a little bit extreme, even if we have this JPY 900 billion refinancing entirely through that, we believe that as of the end of this fiscal year, our balance sheet would still fall well within the fairway we have defined. I hope that concludes my explanation well enough to you.

I'd like to ask you some questions, please. I'd like to confirm 2 points regarding the TOB. First, regarding the background behind announcing this TOB this go around. I would appreciate it if you could just explain to the extent possible, the reasons that led you to this conclusion, please.

And second question, you earlier mentioned that consultation with the -- or maybe with the approval from the relevant regulatory authorities are required, which will take some time. But may I ask if you're assuming this is merely a matter of formal procedures? Or is there any of the specific issues that gave you any concerning items or points?

Thank you very much for your question. Regarding your first question, your question about why we chose this timing, we did not arbitrarily select this particular moment to make this announcement. We have been conducting negotiations with parties in various forms, and it was at this point that we were finally able to reach various agreements. So, we made the announcement at this point in time.

As a result, though this is subject to subsequent clearance that we expect to close the deal around April of next year. We are not saying we aim specifically for this date in particular, Rather, we are starting and stating that this is the schedule that naturally emerges as we proceed. And one more item, I believe the intent of your question was in what form had the discussion been conducted. If you read materials, we posted on our website, and they contain a great deal of details, in very small letters, but you will find the answers there.

Originally, as an 18% shareholders, we had a business relationship with NSU. However, as an 18% shareholder, we were essentially unable to consult with them on the business matters at all. Moreover, in some business areas, we are direct competitors vis-a-vis each other. Since they are profoundly a wonderful company and given that our Dry Bulk operations are conducted in relatively similar ways in some respects, we have long held the hope that we could work together.

I am not sure if my way of saying the time was ripe is entirely appropriate here. But last fall, we took the initiative to approach Nippon Steel Corporation, the current largest shareholder with a proposal along the lines of, is this kind of possibility feasible? We have asked them. And the situation we find ourselves in today is the result of the various discussions we have had step-by-step since then. So, that is the first point I'd like to make about this timing of this particular transaction.

And for your second point regarding the regulatory clearances. As you may recall, upon the transaction of NCA, we were the selling side. The negotiations were conducted by ANA Holdings, but we experienced a situation where it took much longer than we had anticipated. Therefore, we are by no means absolutely certain that this will go smoothly or that it can definitely be completed in coming 3 or 4 months.

That being said, however, based on the information we have at this time, the number of countries that we need to obtain clearance from is limited. And given that the current overall market condition for Dry Bulk business, particularly in the global market, we believe at this point that the merger of these 2 companies is unlikely to cause any major problems or disruptions. Of course, we cannot predict what will happen in the future. That's where we stand today.

And I hope that I answered to you correctly and sufficiently. That concludes my remarks.

I have an additional question, and I'd like to piggyback a little bit on the question earlier on the TOB. I imagine there are various considerations regarding this clearance, such as antitrust laws and competition laws. Just to confirm, is my understanding correct that the issues in Brazil and Australia related to pricing power?

Also, regarding the Capesize bulk carriers, I imagine the scale will be large, but I'm trying to wrap my head around what the approximate scale it will be. The document says top class, but I'd like to get a better sense of that, if possible.

Thank you for your question. I'd like to answer your second question first. And as noted at the very top of the Slide 18, please, NS United Shipping Group operates 211 vessels, the NYK Group operates 414 vessels. We described this part as being among the world's top-class fleet, and the figures do include vessels of various sizes.

The greatest impact comes from the Capesize bulk carrier segment. If we consider only this segment, the 2 companies combined would rank second in the industry. We'd like you to understand that the merger has an impact of that magnitude. And as for your first question, since it is based on so-called standard competition law framework, while price setting power is, of course, a major concern, we understand that the relevant authorities will likely examine whether specific cargo owners in various countries will suffer any harm as a result of the merger of these 2 companies. As you correctly pointed out, so that's the status. And as for which countries are involved, I cannot name any countries, but we understand that the process is proceeding sequentially, though it may not have started yet. I hope that I answered to you correctly, and this concludes my response to you. Thank you very much. I hope it makes sense to you.

I'd like to ask you one question, please. In my recognition that on April 30, you acquired a stake in the LNG business company, MidOcean Energy from Mitsubishi Corporation.

I'd appreciate if you could share any insights regarding the strategic significance on this move and its impact on financial performance, please.

Thank you very much for your question. Indeed, this might be a little bit confusing for you. This company was originally established by Mitsubishi Corporation as a shareholder of a firm called MidOcean. They operate as an investment fund. Mitsubishi Corporation had already invested in that firm, and the company was created by Mitsubishi Corporation for investment purposes.

We acquired a majority stake of that company called Diamond Gas MidOcean Limited, also known as DGMO, and that is the nature of the transaction. The original company, MidOcean specializes in identifying and investing in high-return LNG upstream projects. And for NYK Line, the shipping business has, of course, always been our core business. That being said, we also hope to participate in LNG-related business in various ways.

For example, we are expanding into the bunkering vessel business to supply LNG to vessels that burn LNG as fuel, and that is known as LNG oil of gas. Like the LNG carriers we operate, including our many of the PCCs, Pure Car Carriers in a slightly different direction, we are also moving into the upstream sector as well. And since our core business is always shipping, we do not directly invest in upstream projects.

Instead, we are partnering with Mitsubishi Corporation to make investments with the aim of standardizing the profit generated from our LNG-related business. So that's the whole point of this. Does that explain things clearly? I hope it does.

Yes, it certainly does.

As we hit the time, we would like to conclude the Q&A session. Thank you very much for your insightful questions. This concludes our financial results briefing for the first quarter of FY 2026. Thank you so very much indeed for joining us today. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Thank you for waiting. Thank you for taking the time to join us today. We will now begin the FY 2025 Financial Results Briefing for Nippon Priority Company Limited. My name is Yanase, and I am the Head of the IR Group, and I will be your moderator today. Thank you for your time. First, I would like to introduce today's speakers.

I am Soga, Representative Director, President and CEO.

I am Mie, executive Officer, CA4. Thank you for your time.

I am Aso, Executive Officer, General Manager of Liner & Logistics Headquarters.

Today, I will now explain the outline of the FY 2025 financial results. After that, we will have a Q&A session. I will explain how to ask questions later. The materials for today's briefing are posted on our website, so please take a look. We also plan to provide an on-demand video stream of this briefing, including the Q&A session. Thank you for your understanding.

Now let me begin the explanation. Soga, please?

I am President of Nippon Priority. Thank you very much for taking the time to join us today despite your busy schedules. Today, I will first touch on the key points of the 2025 financial results and 2026 earnings forecast, as well as the progress of the broadcast before explaining the financial results summary and earnings forecast. I would also like to provide a more detailed explanation of the progress of the broadcast focusing on the quantitative aspects. After that, [ Mr. Asami, ] who is in charge of the broadcast will explain the key points of the brush up of the Broadcast ONE 2030, which we have been reviewing together with ONE. The materials for the explanation will be displayed on the screen you are looking at, but if you have downloaded them from the website, please have them ready.

First, let me explain the key points of today's explanation. Please look at Page 4 regarding the results for fiscal 2025. Despite the impact of the tax reduction policy and the financial pressures caused by the situation in the Middle East, we were able to achieve operating income of JPY 211.1 billion in net income for the period of JPY 211.7 billion, supported by stable profits from the Automotive and Technology businesses.

As a result, based on the policy of achieving a dividend success rate of 40%, we plan to increase the year-end dividend by JPY 5 per share and to raise it to JPY 230 per share in conjunction with the 140th anniversary commemorative dividend of JPY 25. The assumptions for the performance forecast for fiscal 2014 are that the current Middle East route will continue during the first half of the fiscal year and taking into account the increase in fuel costs, we expect a reported profit of JPY 185 billion and a current profit of JPY 195 billion.

Although it is assumed that the Middle East route will return to normal during the second half of the fiscal year, a temporary decline in profits is expected during the first half of the fiscal year when the Hormuz [ wind chain ] continues in the automobile business and regular race business, and the increase in temporary expenses due to large-scale acquisitions in the logistics business will slightly lower the performance of the physical division. However, we are confident that growth investments that involve such temporary expense burdens will contribute significantly to profits in the future.

I would like to touch on the key points of the progress of the relay. There are 3 points. Investments are progressing smoothly and have increased from the initial plan of JPY 1.2 trillion over 4 years to the current JPY 1.6 trillion. In addition, regarding the management allocation that was lost due to the unexpected increase in operating cash flow, in addition to the increase in shareholder returns, such as an additional JPY 280 billion in treasury stock buybacks and an additional JPY 160 billion in ordinary dividends compared to the initial plan, we are focusing on additional investments of JPY 420 billion. The latest outlook for management allocation for which allocation has not yet been determined is JPY 110 billion.

Regarding ROIC and ROE figures, based on the forecast for fiscal 2026, the average for the 4-year interim period from fiscal 2023 is expected to be 8.1% and ROE 9.9%, which is the level that we expect to achieve the initial targets for these 4 years.

Now I will explain in more detail the outline of the full year financial results for fiscal 2025. Please refer to Page 9 of the materials. In a nutshell, fiscal 2025 started with a tax issue that covered many active risks, but the financial figures for the full year were not significantly affected and both ordinary income and net income for the period were able to land at levels exceeding JPY 200 billion.

The impact of the U.S., Israeli attack on Iran that occurred at the end of February this year was limited to the final month of the fiscal year, March, and was also limited to Persia, so it did not have much of an impact on this full year financial statement. The blue column in the center of the table on the screen shows the results for fiscal 2025. Sales were JPY 2,423.6 billion, down JPY 165 billion from the previous year. Total profit was JPY 211.1 billion, up JPY 279.7 billion from the previous year. Current net income was JPY 211.7 billion, up JPY 265.9 billion from the previous year. So at each stage, the previous year's expenses were higher than the original income.

However, as shown in the column on the far right, compared to the full year forecast announced in February this year, sales were up JPY 33.6 billion. Ordinary income was up JPY 16 billion and current net income was up [ JPY 16. ] Of the JPY 279.7 billion in ordinary active duty expenses from the previous year, approximately 90% were in the Logistics division, including ONE, but the limited active duty expenses in other divisions, namely the Automotive, Dry Bulk, Energy division, which is dedicated to nonconforming products, contributed significantly to the company's overall posted profit and current quasi profit exceeding JPY 200 billion. As I mentioned last year, I believe this is a sign that these divisions are steadily strengthening their profitability.

Please take a look at Page 10 of the materials. The blue section in the center shows the results by division for fiscal [ 2013. ] Regarding the reported profit and loss of the logistics business, which consists of scheduled operations, air transport and logistics, scheduled operations accounted for JPY 224.5 billion in the previous year's expenses and JPY 49.7 billion in active duty expenses. Air Transport only includes the first commercial aircraft before the transfer of Nippon Cargo Airlines, AN AHoldings business. So when compared to the previous year's expenses for the full year, it decreased by JPY 18.9 billion to JPY 2.1 billion.

Logistics decreased by JPY 11 billion in expenses from the previous year to JPY 10.2 billion. In addition to the increase in the supply of ships due to the progress of the central line, freight rates were unstable due to factors such as the tax reduction policy and the situation in the Middle East and fell below the previous year's level. Incidentally, the profit from one's investment in the company was JPY 19 billion.

In Logistics, only the cargo, air cargo handling business exceeded the previous year's profit level, while the handling volume itself remains steady in the venue cargo handling business, but profitability declined due to the impact of environmental fluctuations.

In the Logistics business, the level fell as a result of a decrease in the handling volume of some major customers due to the uncertainty of economic underinvestment caused by the tax reduction policy. The operating profit and loss of the Automobile business was JPY 97.9 billion, [ up ] from JPY 15.4 billion in the previous year. The operating profit and loss of the dry bulk business was JPY 9.5 billion, down JPY 8.5 billion from the previous year. The operating profit and loss of the energy business was JPY 54.4 billion, up JPY 8.2 billion from the previous year.

In the Automobile business, the number of vehicles transported remained at the same level as the previous year, but the profit level was slightly lower than the previous year due to the increase in income sources caused by the appreciation of the yen in the previous year and the increase in costs due to inflation.

In the Dry Bulk business, operating income for each type of vessel increased year-on-year, but profit levels fell below the previous year due to the impact of the strong yen and lower profits from small bulk carriers.

In the Energy business, steady profits were supported by medium- to long-term contracts in the LNG carrier division and operating income exceeded the previous year due to increased cargo demand in key areas and the impact of the situation in the Middle East in the VLCC division.

In the VLGC division, trade patterns changed due to the tax reduction policy and the financial pressures in the Middle East, resulting in an increase in long distance vessels and a tightening of ship procurement, leading to operating income exceeding the previous year. Furthermore, in the offshore business, profits increased year-on-year due to the recognition of a onetime profit from the start of operation of a new FPSO.

Please go back and look at Slide 6. As I have said before, overall operating income was JPY 279.7 billion in the previous year and JPY 211.1 billion in the current period. In addition, special taxes and other items resulted in a net income of JPY 211.7 billion for the current period.

Based on these results, we plan to change the year-end dividend from the full-scale forecast to JPY 115 per share, an increase of JPY 5. Combined with the dividend of JPY 115 per share that has already been paid out, the repayment will be JPY 230 per share. The additional stock purchases paid out last year totaling JPY 150 billion were completed on April 30 of this year, and all of them are scheduled to be amortized as of May 29, the end of this month.

Please see Page 11 of the slide. As shown in the table on the left, most of the ordinary expenses of JPY 279.7 billion from the previous year are due to fluctuations in operating volume and the majority of that is due to expenses on regular lines, including ONE. So far, this has been an overview of the financial results for fiscal 2025.

Next, I would like to explain the full year performance forecast for fiscal 2026. Please see Page 12 of the materials. The performance forecast for fiscal 2026 is that sales will increase by JPY 181.3 billion from the previous year to [ JPY 2.605 trillion. ] Operating income will be JPY 185 billion, [ up ] from JPY 26.1 billion from the previous year. Net income for the current period is expected to be JPY 195 billion, [ up ] from JPY 16.7 billion from the previous year. Based on this, the dividend forecast is based on the basic policy from the previous fiscal year of a dividend success rate of 40% and an adjusted dividend of JPY 200. And for the time being, we plan to pay an interim dividend of JPY 100 and a year-end dividend of JPY 100 for a total annual dividend of JPY 200.

In addition, regarding the acquisition of treasury shares, we will consider investment opportunities in the business environment, as we have done in the past, while monitoring future performance trends.

Now regarding the assumptions for formulating this fiscal year's earnings forecast, first, regarding the Middle East. The Strait of Hormuz will remain closed during the first half of the fiscal year. Regarding the Suez Canal, the access to the Suez Canal route is expected to continue until the end of this fiscal year.

When we announced the earnings forecast for fiscal 2025 in May last year, we consider that formulating figures based on certain assumptions would be misleading as the perspectives on the impact of the tax reduction policy differ completely from ship to ship, and there were too many variables to consider as assumptions. Therefore, we announced the earnings forecast without tax impact, and at the same time, we announced the estimated range of possible tax reduction impact risks for each business. In this regard, speaking of this time, the assumptions we are considering are simpler than last year, and we believe that they can be summarized in 2 points: how long the Hormuz sea blockade will last and how much fuel prices will increase as a result.

With this premise in mind, please take a look at Slide 16. I will now explain the full year earnings forecast for each business segment. The blue column on the right shows the earnings forecast for fiscal 2026. First, regarding regular operations, we expect operating profit to be JPY 49 billion, down from JPY 700 million in the previous year. Regarding container lines, as I mentioned earlier, we assume that the use of the scale-based route due to the detour of the Suez will continue throughout the year. But considering the increase in fuel costs due to the Middle East oil shortage and the period when the [ bell shower ] system services will be suspended, we expect the profit level to decline slightly from the previous year.

Next, regarding Logistics, we expect operating profit to be JPY 0 billion, down JPY 10.2 billion from the previous year. In the forwarding division, we expect the volume of cargo handled to increase for both port cargo and air cargo. But in the Logistics business, we expect the profit level to decrease year-on-year due to temporary expenses, including depreciation expenses associated with a large-scale acquisition and sale project implemented last year. I will explain this matter in more detail later.

Next, for the motor vehicle line, we expect ordinary income of JPY 84 billion, [ up ] from JPY 13.9 billion in the previous year. During the first half of the fiscal year, we expect a slight decrease in demand and an increase in expenses for [indiscernible] due to the assumption that the Strait of Hormuz will be closed. For the Dry Bulk Cargo line, we expect ordinary income of JPY 14 billion, up from JPY 4.5 billion in the previous year. We expect the economy to remain stable in all areas due to the lack of demand, and we expect the profit level to increase year-on-year.

For the Energy line, we expect ordinary income of JPY 48 billion, [ up ] from JPY 6.4 billion in the previous year. Regarding the main business, we expect VLCC and VLGC to exceed the previous year's level due to the impact of the situation in the Middle East. The LNG line will continue to enjoy stable revenue from medium- to long-term contracts as well as stable operating performance.

In the solar business, although each FPSO is operating smoothly, the profit level is expected to be lower than last year's as the onetime profit from the start of operation of a new FPSO that was recorded last year will not be reported in this fiscal year.

Next, please turn to Slide 17. Regarding the factor analysis of the JPY 26.1 billion decrease in ordinary income in the previous fiscal year, this is due to the yen's depreciation of approximately JPY 5 from the previous year's results to JPY 155 per dollar for the full year. This is the increase in revenue. The decrease in revenue was based on the assumption that fuel oil prices will increase by an average of $202 per mercury compared to the previous year's results. This part is the basis, but these are the notable factors in ordinary income and loss.

This concludes our explanation of the financial results forecast for fiscal 2026. Next, I will briefly explain the progress of the current medium-term management plan, focusing on the stable aspects. Please turn to Page 19 of the materials. This shows the trend in financial figures for profit. The forecast for fiscal 2026 is shown in blue in the second column from the right. One of the goals is to achieve an appropriate capital adequacy ratio of around 50%, including debt, which is expected to be achieved by the end of fiscal 2026. On the other hand, if the figures of the previous forecast for business performance are used for 2026, ROIC and ROE for the short term of 2026 are expected to fall short of the target values.

However, as I mentioned at the beginning, if we look at the current 4-year period from fiscal 2023 to fiscal 2026, ROIC will be 8.1% and ROE will be 9.9%, so we expect to achieve the target levels for these 4 years.

Next, please take a look at Page 20 of the document regarding the progress of the investment plan. The 4-year chart shown in the upper half is from the time of the initial forecast and the total investment amount for the 4-year period was set at JPY 1.2 trillion, with the allocation amounts for each field determined as shown. The table below shows the progress to date and the latest plan at this point in time. We currently plan to increase the total investment amount to JPY 1 trillion. The increase will be made in light of the current and future business relationships, including the expansion of LNG for which demand is increasing and the enhancement of major alternative fuels, including LNG for Automobile lines and Dry Bulk lines.

Next, please take a look at Page 21 of the materials. This is an update on cash allocation and management allocation. We have been implementing cash allocation while considering the balance between investment and returns, the operating cash flow increasing compared to the initial plan and increasing share buybacks, ordinary dividends and investments. I will explain this in a more understandable way on the next page.

Please take a look at Page 22 of the materials. Compared to the initial plan, operating cash flow exceeded the initial plan by JPY 830 billion. When combined with the initially planned management allocation of JPY 140 billion, the total management allocation over the 4 years will be JPY 970 billion. In addition, we are returning an additional JPY 440 billion to shareholders through additional share buybacks and additional dividends. Furthermore, as mentioned earlier, we have allocated JPY 420 billion as additional investment cash flow. Well, a total of JPY 860 billion was allocated to this JPY 970 billion portion of the cash flow.

Accordingly, the remaining management allocation for fiscal [ 2014 ] or, rather, the remaining amount is currently estimated to be JPY 110 billion. How this JPY 110 billion will be allocated has not yet been determined, but we plan to carefully consider it while closely monitoring future business and investment conditions.

Next, on Page 23 of the document, we have summarized the trend in shareholder returns. Regarding share buybacks, we have implemented a total of JPY 480 billion, JPY 280 billion higher than originally planned from fiscal 2023 onwards. All of this has been amortized and the number of shares issued has also decreased from the initial 510 million shares to approximately 400 million shares. Well, basically, it decreased by 20%. And as a result, we have been saying a lot about increasing EPS by about 25% in value per share, and we have achieved this.

In addition, starting from fiscal 2025, we will increase the dividend payout ratio by 40% in the dividend per share to JPY 200, and including the expected dividend for fiscal 2026, the total dividend amount will be JPY 390 billion, an increase of JPY 160 billion over the 4 years from the initial plan.

This concludes my explanation. So please take a look at Page 24 of the materials. As I mentioned earlier in my explanation of the financial results forecast for fiscal 2026, there will be onetime expenses associated with a large-scale acquisition in the logistics sector. For your reference, I would like to explain the current situation and EBITDA outlook for the European health care logistics business of the Walden Group, which we acquired in December last year.

After completing the acquisition in December last year, we promptly began PMI or post-merger integration, and the PMI is currently progressing smoothly as originally expected. As explained at the bottom of the slide, we have positioned this PMI period as a concentrated period of approximately 1.5 years and will proceed with organizational restructuring and integrated management of existing priority logistics businesses in Europe to realize synergy effects.

Although temporary expenses and related depreciation expenses will be incurred in the process due to organizational restructuring, et cetera, we plan to gradually expand EBITDA through synergy effects in addition to the growth of the acquired business itself.

The healthcare logistics business has very high operational requirements required by customers and require special equipment, so the barriers to entry are very high and the market is expected to expand. We will continue to strengthen this business as one of our priority areas.

This concludes my explanation. Thank you very much.

Next, as [indiscernible], General Manager of L&L, Liner and Logistics business unit, will explain the progress of the refinement of ONE's medium-term management plan, ONE 2030, which was announced in 2024. Now please, Aso.

Yes. It's Aso. As I mentioned earlier, the first medium-term management plan is ONE 2030. Two years have passed since formulation, so we have reviewed the indicators we are aiming for. I would like to take this opportunity to explain the progress of the plan so far. Please turn to Slide 32.

Yes. First, regarding the progress of n 2030 so far, the progress of the main items, such as investment and finance is shown in the table you are looking at. I will only touch on the important points. But regarding the profit plan at the top, there is no change from the initial plan of $3.8 billion for fiscal 2030, and we aim to increase net income to this amount in the final year. We are maintaining this plan.

Next, regarding the scale of investment. In this regard, the total for the 7 years up to fiscal 2030, starting in fiscal 2024 is [ $35 billion. ] This is the initial plan, but the total amount itself will not be purchased. However, regarding this, we have already decided to invest $12 billion in what is called the container line business, such as ships and container boxes. In addition, regarding the player business, [indiscernible], container line terminals, we have already decided to invest $3 billion in what we call M&A for business expansion.

Yes, then regarding the investment in the middle section, the ratio of debt to equity required for the funds is as follows. Regarding this, in line with our initial policy, we have been raising funds for the past 2 years with a debt-to-equity ratio of 6:4 for the total investment amount. So far, the total amount of projects that have already been decided is 6:4, so we are progressing as planned.

Next, regarding the equity ratio, which is 2 levels below, we will continue to discuss the appropriate level with the shareholders' office while looking at the business outlook and changes in the external environment.

Now let's move on to Page 33. Yes, this slide shows the P&L and key balance sheet indicators for the past 3 years. Well, let me say that the capital structure or rather the appropriateness of it is a better word, and we have had this as one of our proposals as a challenge for the past few years. As you can see, while interest-bearing debt has been increasing, the equity ratio at the bottom has been trending downward from 65% to 56%. So I think you can understand that each indicator is changing due to the use of wallet leverage.

Next, I will explain our perception of the external environment. Yes, this is Page 34. Regarding the first point, the global situation, I may not need to explain it, but the general policies of each country since last year, and in particular, the situation in the Middle East which has been strengthening the financial situation in recent months have continued to make it difficult to predict the balance of payments and receipts.

Then regarding the second point, the congestion of public funds. In recent years, congestion-related delays have been occurring increasingly frequently, particularly in Asia and Europe, and this has been a major headache for operators. The third point is global demand for container line transport. Although this is cyclical and subject to fluctuations, we believe that it will continue to grow in the medium to long term. The number of vessels is expected to increase through fiscal 2028, but a considerable number of older container lines are still in operation and have not been scrapped. Those aged 20 or older alone account for nearly 20% of the total, and we believe that these vessels will be replaced in line with the balance of supply and demand.

Next, on Page 35, there are 6 items. When we first came up with a plan, we put it up in this form as a prominent secret chart 2 years ago. Now we've reviewed the past 2 years, and there are 2 changes that have occurred, so I'll explain them. The first is the content of the investment. The box in the upper right says the investment scale is $35 billion, but the total amount is not stated. On the other hand, the content of the investment targets. I haven't provided a rough translation here, but compared to the original plan, we plan to increase the proportion of used lines in addition to core lines. In addition, we are also planning to expand the allocation of investment in Terminal A, which will enable us to build a competitive terminal and improve the operational stability and other service factors by acquiring terminal rights.

Another point is the basic policy for dividend success, 40% is listed in the lower right corner, but the original was 30%. We have revised this from 30% to 40%, taking into account recent performance, financial indicators and the balance with investment plans.

Finally, on Page 36, this is the balance sheet. The balance sheet, well, the numbers for fiscal years 2023 and 2025, and the numbers on the far right are not included, but this is an image of what kind of capital structure we would like to have as we head towards fiscal year 2030. The investment plan and financing policy that I have explained so far will be implemented through appropriate financial leverage, and as you can see, the contents of the balance sheet will change in the form you see now with assets and liabilities, and on the right side, the liabilities section. That is the direction we are currently considering.

Yes. That concludes my explanation regarding 2030. Thank you very much.

Thank you very much. That concludes my explanation. Next, we will move on to Q&A. Please go ahead.

I have 2 questions. First, regarding the idea of share buybacks on Page 12, the background of this budget is the management allocation framework that was explained earlier, and we are considering how to use it or not this fiscal year. Is this a good idea? Also, regarding the management allocation framework that was mentioned earlier, cash flow, operating cash flow and planning cooperation are also included. But regarding financial cash flow, there was also talk last time that there was room but had not yet been used. So I would like to hear your comments on the balance with that.

The second question is about the impact of the situation in the Middle East on ordinary income, which was explained as having a negative impact. So I would like to know to what extent this is numerically factored.

And also, this [ chart, ] well, it's going up and the energy is rising so, well, it's currently assumed that it will end in the first term. So let me confirm what we can consider if it continues for a long time.

Now regarding the first question about the acquisition of treasury stock. Well, it's related to the management allocation of JPY 110 billion, but I would like to ask the CFO to answer this.

Yes. As stated on Page 12, regarding treasury stock. Well, nothing has been decided at this point. But it is written here that it will be done in the future. So what is the [ atom ] there?

As you said, it is management allocation. As for this management allocation itself, as of now, in fiscal [ 2014 ] if we look at the balance of operating cash flow and investment cash flow generated, it will probably be around JPY 110 billion. However, it is just written down, and we do not know how it will actually change when we actually do it. We are considering deciding how to use it for shareholder returns or treasury stock while monitoring the situation.

In terms of financial cash flow, of course, we will leverage investments to some extent and proceed with fundraising. We are currently in the process of doing so, but we do not currently anticipate raising funds from outside sources to buy back our own shares. Yes, that concludes my comments on [ self-study ]. Yes.

Regarding your second question, which concerns the Middle East, the current blockade of the Strait of Hormuz has had a direct impact on shipping, including container lines in express lines. Of course, the crude oil price, VLGC and VLCCs are also affected. But as for VLCCs themselves, the supply source is currently working hard, including the government to respond.

In other places besides the Strait of Hormuz, there is work being done in shipping and in that sense, the thinking itself is increasing. So far, we do not see a major financial impact on VLCCs. Rather, we see it as a positive financial outcome. In fact, the two areas that will be directly affected are the Automotive line in the Container line.

I will ask Mr. Aso to answer the question about the container line later. But in terms of the automobile line, if automobiles cannot deliver cargo beyond the Strait of Hormuz, simply by looking at it that way, the volume will decrease, which will have a negative effect on personnel income. As of now, we expect this situation to continue until June 1. So based on simple calculations, we are expecting this to be a negative factor.

On the other hand, our customers, including those in nearby areas are constantly asking us to bring their cargo to the Gulf region as soon as possible. And it seems that their desire to do so has not decreased at all. So although ships cannot enter the area, we are currently working on developing alternative logistics routes to deliver vehicles to the area. We have not yet been able to quantify this aspect in our earnings forecast, but we believe that there will be both a decline and a recovery due to it.

First, let's talk about the automobile lines. Now let's ask [Aso] to answer about the container lines.

Yes. Well, regarding the container line, our company is well floating, and we have already announced that we will suspend services to the Middle East until June during the first commercial period. As a result, there are two impacts on our income and expenses. First, since the services are suspended the profits that would normally be obtained from the Middle East route will disappear for the time being. Then another big factor is the increase in fuel prices. These have been rising significantly since March.

Regarding fuel oil and the annual fuel surcharge, we had originally included it as a first step. But when it increases this rapidly, we usually calculate the user charge based on the average of the past few months. So if there's a time lag, we will not be able to keep up. As for the first trial period, the suspension of the Middle East service and the rapid increase in annual fuel prices have not yet recovered, so they are having a significant impact as active factors.

On the other hand, let me clarify that from the first period, the increase in the annual oil surcharges included, and this has the effect of fixing the balance of payments. Also, although it may be a bit extreme, I would like to assume that normal Middle East services will return from July. In reality, I don't think things will change that suddenly, but I am assuming that the Middle East will return from July.

When you consider both the losses in the first trial period and the increase in the annual oil surcharge from the second period onwards, when everything increases rapidly like this, it is difficult to recover and recover everything. Therefore, I consider this to be a factor related to the first trial period. That concludes my explanation. Yes. That's how it will work out.

But I'd like to ask the CFO to explain how much it is actually expected to cost.

Yes. The materials don't say how much of an impact it will have, but we heard an explanation this morning. In terms of fuel, some of it can be recovered through BAF, but not all of it can be recovered. So that's a relatively large impact.

On the other hand, in other areas such as automobiles and dry bulk, fuel prices have gone up. And while some of it can be recovered through BAFs, the current level of supply is moving significantly towards a weaker yen, especially due to the Hormuz issue. We've factored that weaker yen effect and the effects of the governor's actions into our calculations.

Well, specifically, how much is the total, including support, a figure of a little less than JPY 20 billion-- less than JPY 20 billion has been factored into the current budget estimate as a factor worsening the purpose.

Okay. I have a supplementary question about containers. Looking at the current freight rates, they seem to be rising quite a bit and peak season surcharges are also being added. On what basis should we understand that this plan is generating profits?

Yes, thank you. As you said, the current situation is, as you said, and in particular, the so-called spot rate has been rising steadily. The Shanghai Composite Container Index has risen to nearly $2,000 and a certain amount of this has been factored into the income and expenditure. Then peak season surcharge and then the emergency fuel surcharge. The section manager here also announced the application of this in March, and we have factored in a certain amount of it. But even with that in, we still won't be able to fully recover all of the increased costs. So please consider the points you just mentioned is already factored in. That's all.

Yes. It's also in. Let me ask you two questions. Let me explain. First, regarding the dry bulk business, the outlook is slightly improving and although the plan calls for increased profits, I wonder if there will be any changes in operations.

The second point is regarding the logistics business. This term, the plan calls for a deterioration in profits due to depreciation and other factors. How should we view the level of profits going forward? For example, the previous terms profit was JPY 10 billion. Will it return to that level relatively quickly? Or will it take some time? Please let me know your general idea. That's all.

Now I would like to talk a little bit about the first topic, dry bulk. As I mentioned in the premise section, we expect that each of the vessels will be in good shape for 2026. However, in FY [ 2013 ] there were some areas where things did not go well. And in terms of the exposure, there were actually some ships that we're unable to use effectively. Even taking into account the view that things will improve, we believe that there are some types of vessels for which we will adjust the exposure to an appropriate level. For example, for Panamax and Handycab vessels, we are taking measures to strengthen the exposure pipes and reduce the number of vessels.

On the other hand, for areas such as the Cape where there is a shortage of vessels, we are considering increasing the exposure and other detailed, operational assumptions in this budget.

Then regarding the second question you asked about the future scale of the Logistics business, I will ask the person in charge to answer.

Yes. Thank you. Let me answer your question. First, regarding this fiscal year, [ FY 2014 ] the operating profit for the full year was set at JPY 0 billion, which is considered a break. As I explained earlier, the projects we implemented last year and not only that, but the projects we implemented last year were particularly large. As a result, we incurred amortization costs related to M&A and reorganization costs. Excluding these costs, we had budgeted for a profit level, it was roughly the same as [ FY 2013. ] In fact, in terms of volume, both air cargo and cargo are doing relatively well. In particular, air cargo, especially [ Emas ] and other cargo is maintaining this momentum.

In addition, contract logistics, while there are various fluctuations is generally at the same level as last year. However, the current situation in the Middle East has become increasingly critical and is prolonged. If this continues for a long time, including after July and if it becomes apparent that inflation and other factors are suppressing the economy in each country, there is a possibility that things may change. This is a cause for concern.

Now regarding the acquisition of Walden's Healthcare Logistics business, I showed you a graph on Page 24 in terms of the growth of existing businesses and synergies. At this point in time, we expect that the health care business acquired from the Walden Group alone will start to turn a profit around fiscal 2028. This will contribute to the income and expenditure of the priority Logistics segment. That's all. Thank you.

In that case, regarding the Logistics business, Walden will also be on board next fiscal year. So it will probably be a while before we return to JPY 10 billion.

Yes, regarding JPY 10 billion figure.

Well, I think it's JPY 10 billion. So I think that alone should explain it. But in that sense, what about Walden's profits in the first place? And what about the profits from organic growth on the original priority path? How should we think about these things? Could you please explain the inflows in fiscal years 2020 and 2026 in more detail? That's the first question.

The second question is on Page 19, you have provided the cash flow figures and the investment cash flow in fiscal year 2025 was not as expected. So I think that's why it's sliding in fiscal year 2026. Is that the right way to look at it? Also, the investment cash for fiscal year 2026 was JPY 760 billion in cash outflow. This level, which we'll be discussing in the next broadcast is a bit high. And will this level continue? If you have an idea of the investment cash flow from fiscal year 2027 onwards, please let me know.

Yes, let me ask you about your first question regarding the overall logistics. I understand that what is currently being considered as the picture, but we are scheduled to hold another logistics briefing in July, right? Yes, we have not yet announced it, but we are considering holding a logistics business briefing hosted by the IR group, so we hope to provide more detailed explanations there. We plan to provide further information there.

And as Mr. [ Meshiko ] pointed out, Walden is Walden. But we are also expecting questions to come up about the company's original approach to organic growth and growth strategy. We will be holding a briefing in early July, where we will be able to answer these questions in detail.

However, before that, if there is anything Mr. Aso can answer now, please let us know.

Yes, that is correct. Well, regarding the details of Walden's profits, I'm sorry that I can't show you the final figures other than EBITDA today. But what I can say is that we closed this deal in December of last year. And since then, we've been examining the details or [ D-day ]. But so far, there haven't been any major surprises or anything that would be considered bad compared to before we decided to acquire.

Then, rather, as the President explained earlier, the PMI is progressing smoothly. Well, about half a year has passed and things are progressing pretty much as expected. So we believe that future profits will emerge in the form I showed you earlier, thanks to the restructuring of the organization and other factors.

Yes, as for organic, especially in IFF or forwarding, we have strong priority routes, especially in Asia, so we will firmly capture the growth in logistics volume here. In addition, we have implemented M&A in the past in the United States, the United Kingdom and Continental Europe, such as in the e-commerce and healthcare businesses, and we are expecting growth in volume in these areas as well, depending on the economic situation in each country. I would like to explain this in more detail of the business briefing. That's all.

Yes. Excuse me, but is that correct for the first point? Excuse me, when I hear about Walden's profits and organic growth, I wonder why the profits are so good. I don't think they will be completely eaten up by the cost of the reorganization. So are you taking a conservative view? Is that correct?

The teacher also said that we are being conservative, but unfortunately, there are areas other than Walden that are being affected by demand more than we thought, especially in the forwarding area. Considering these aspects, I think we are taking a somewhat optimistic view. However, as Mr. Aso mentioned earlier, various types of investments are not limited to Walden. For example, there are several large-scale child care facilities and other projects that are planned to generate profits. So including these, we are considering what to do. However, there are some temporary expenses that will inevitably occur and we will endure them for 1 or 2 years. I would like to explain this to you later.

Yes, I understand. Yes. The second point is that, as you can see, the investment cash flow figures are a bit uneven, and you may think that they are unusual figures. However, that is not the case at all. I will ask the CFO to answer this question.

Yes. As you pointed out, if you look at the slide on Page 19, you will see that the previous transportation plan, which we announced in February was to spend JPY 670 billion in fiscal 2025. But that figure has decreased by JPY 300 billion in 3 months. As you might imagine, some investment projects were delayed for March to early July and were postponed to fiscal 2026.

On the other hand, there were special factors in fiscal 2025. Our investment cash flow is a combination of outflow and inflow. This is not a simple breakdown, but rather a net figure.

However, there were various inflows such as the inflow from the closing of NCA. As a result, the apparent figures appear somewhat smaller. However, this does not mean that we will continue to exceed JPY 700 billion from 2026 onwards. This is a special case. And although it has increased slightly, it is unlikely to reach this level. However, we will decide how much we can afford based on the balance of operating cash flow, and we are currently preparing a report on this matter. We are currently considering how much we can allocate to growth investments, and we will show you the details later. However, we feel that maintaining the JPY 700 billion level for many years to come would be excessive. That concludes our statement.

Okay. Thank you. I apologize. Some of you have still gathered. But as time is up, we would like to end the meeting here. If there are still any remaining participants, please contact the IR group, and we will respond. Thank you very much. This concludes the FY 2025 financial results briefing. Thank you very much for joining us today. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Thank you very much for joining us today. We would like to start the announcement meeting of financial results for the third quarter FY 2025 of NYK Line. I'm Okada, the Head of IR Group. I serve as MC today. Let me introduce today's presenters. Akira Kono, Representative Director, Executive Vice President, Executive Officer; Takuji Banno, Chief Executive of Liner & Logistics Headquarters.

Today, Mr. Kono is going to present to you the outline of financial results of third quarter FY 2025, followed by Q&A. Let me explain about how to ask questions later. And as usual, today's materials are also available on our homepage. And this announcement meeting is to be delivered on demand, including Q&A session. Thank you for your understanding.

Without further ado, Mr. Kono, please.

[Interpreted] This is Kono, CFO. Thank you very much for taking the time to attend our FY 2025 third quarter financial results briefing. Today, I will first provide an overview of our third quarter financial results and FY 2025 full year earnings forecast, followed by Q&A session.

The materials for this presentation will be projected on the screen you see here. But if you have downloaded them from our website, please have them ready. First, I will provide an overview of FY 2025 third quarter financial results. Please turn to the table on Page 6 of the materials.

The second from the right blue column shows our cumulative results of the first 3 quarters of FY 2025. Revenue was JPY 1,812 billion, down JPY 164.8 billion year-on-year. Recurring profit was JPY 165 billion, a decrease of JPY 271.3 billion year-on-year. Net income attributable to owners of parent was JPY 146.9 billion, a decrease of JPY 248.5 billion year-on-year.

Factors contributing to this decline include the removal of Nippon Cargo Airlines NCA from our consolidated subsidiaries in the Air Cargo business and declining market conditions in our Liner Trade Business. Looking at quarterly trends, the average exchange rate was JPY 148.52 to the dollar, which is JPY 3.75 appreciation of the yen compared to the same period last year.

And bunker oil prices averaged USD 553.11 per metric ton were down USD 71.64 per metric ton. In addition to these external factors, fluctuations in market conditions and handling volume weighed on profits.

Next, I will explain the results by segment. Please refer to the table on Page 7. The blue column second from the right shows third quarter results. First, let's look at the recurring profit and loss for the Liner & Logistics business, which consists of Liner Trade, Air Cargo and Logistics. Liner Trade posted a recurring profit of JPY 38.5 billion, down JPY 211.7 billion year-on-year.

While there was improvement in the market conditions in the first quarter of the year, partly due to tariff policies in various countries, market conditions declined since the second quarter due to increased shipment capacity resulting from the completion of new vessels. Air Cargo posted a profit of JPY 2.1 billion, down JPY 16.9 billion year-on-year.

However, due to the exclusion of Nippon Cargo Airlines from the consolidation as of August 1, 2025, the results of fiscal year '25 are effectively only for the first quarter. Logistics posted a profit of JPY 9.7 billion, down JPY 10.9 billion year-on-year. While air freight volume decreased year-on-year, profits improved due to lower purchasing prices in the first half of the year.

Ocean freight profits declined year-on-year due to lower freight rates and rising costs due to inflation. In Contract Logistics business, profits fell year-on-year due to a decrease in cargo volume at the major customers caused by tariff policies.

Next, recurring profit of Automotive Transportation decreased by JPY 13.8 billion year-on-year to JPY 77.8 billion. While the number of vehicles transported remained at the same level as last year, profits fell year-on-year due to rising costs, including cargo handling expenses caused by the stronger yen and inflation.

In the Dry Bulk business, market conditions for all vessel types improved year-on-year, but the stronger yen and declining profitability of small bulkers and box-shaped vessels resulted in recurring profit of JPY 2.2 billion, down by JPY 19.6 billion year-on-year.

Finally, recurring profit of Energy business increased by JPY 9.8 billion year-on-year to JPY 42.2 billion. Market conditions for VLCC and other vessels improved due to the easing of OPEC+ production cuts and increased cargo demand in the Atlantic and LNG remained strong, supported by long-term contracts.

And in the first half, the offshore business booked a one-off profit associated with the start of new FPSO operation. Regarding NYK Energy Ocean, which became a consolidated subsidiary in April, the allocation of the acquisition cost was carried out in the third quarter, resulting in an impact from increased depreciation and amortization of assets such as vessels and other intangible assets.

Please turn to Page 3 of the deck. Again, overall recurring profit decreased by JPY 271.3 billion year-on-year to JPY 165 billion. After adjusting for extraordinary gain and loss and taxes, net income decreased by JPY 248.5 billion to JPY 146.9 billion. In the FY '25 share buyback program, which began on May 9th last year, the cumulative number of shares purchased back as of January 31st is 23,486,800 shares, totaling about JPY 120.3 billion.

Now please turn to Page 8 of the material. As explained earlier and as shown in the left table, that year-on-year JPY 271.3 billion decrease of recurring profit is due to market effects and volume decline, namely that of Liner Trade and the exclusion of Air Cargo Transportation segment, NCA from the consolidation. That was the explanation for the results up to the third quarter of FY 2025. Now I'd like to explain the forecast for the full year of FY 2025. Please turn to Page 9. As for the full year forecast, compared to the previous forecast announced after the second quarter on November 6, we revised the revenues upward by JPY 40 billion to JPY 2.39 trillion and the recurring profit upward by JPY 5 billion to JPY 195 billion.

The net income remains unchanged at JPY 210 billion. I will explain the segment details later, but Page 12 shows the profit and loss at each stage along with assumed exchange rates and bunker oil prices. As sensitivity factors for the remaining 3 months of the fourth quarter, a JPY 1 depreciation of the yen is expected to increase profit by about JPY 430 million and a JPY 10 per metric ton decrease in bunker prices is expected to increase profit by about JPY 190 million.

The dividend forecast based on this remains unchanged. On top of the JPY 110 interim dividend already paid, the year-end ordinary dividend of JPY 85 and the commemorative dividend for our 140th anniversary of JPY 25, thereby the total of JPY 110 will be paid.

So the scheduled annual dividend amount is JPY 225 per share. Now the annual ordinary dividend of JPY 200 is based on the targeted consolidated payout ratio of 40%. As mentioned earlier, the share repurchase is being implemented from May 9th, 2025 to April 30th, 2026, with the maximum amount set at JPY 150 billion. The annual dividend forecast is based on the number of outstanding shares, excluding those acquired up to January 31st.

Next, I'd like to explain the full year forecast for each segment, comparing them with the previous forecasts. Please refer to Page 14. The blue column in the center shows the revised full year forecast figures for FY 2025.

First, for Liner Trade segment, we forecast recurring profit of JPY 46 billion, revising upward by JPY 1 billion from the previous forecast. Recently, due to increase in shipping capacity following the delivery of new vessels, cargo movement slowed in the third quarter, mainly on the Asia and North America Westbound route, which led to short-term freight declining year-on-year. However, as we anticipate a gradual recovery in the fourth quarter, the overall revenue for the second half is expected to be in line with the previous forecast. Next, the Logistics segment. The airfreight business is expected to remain steady, but reflecting the impact of declining ocean freight rates and the tariff impact on the cargo volume of the contract logistics business.

We revised down the recurring profit forecast by JPY 4 billion from the previous forecast to [ JPY 8 billion]. For Automotive segment, due to steady cargo movement and the postponement of additional port fees in the United States, which had been factored into our previous forecast, we revised up the recurring profit by JPY 10 billion to JPY 98 billion.

Please note that the forecast for Liner Trade & Automotive are on the assumption that the Cape of Good Hope route would continually be used due to the situation in the Red Sea. Next, for the Dry Bulk business, while market conditions are likely to exceed our previous projections, because the profitability of small-sized bulkers is falling below our expectations, the full year recurring profit forecast remains unchanged at JPY 5 billion. Moreover, the Energy segment's recurring profit is also unchanged from the previous forecast at JPY 48 billion for the full year. Medium- to long-term contract vessels are operating steadily, so the business is expected to remain firm.

Going one page back, please also refer to Page 13 for our year-over-year comparison table. Furthermore, on our website, you can find the slides presented today as well as the appendix, which contains reference materials such as projected key figures for each segment.

So please check them out as well. That is all from me. Thank you for your attention. Thank you very much. Now we move onto Q&A session.

[Operator Instructions] [Interpreted] I have 2 questions. Result [indiscernible] JPY 215 billion of recurring profit and the progress you are making, Movianto the acquisition or the Suez situation has been changing. How are you evaluating your progress to achieve JPY 250 billion, JPY 15 billion?

And second question is about the downward revision of logistics for the 4Q is in the red and Movianto acquisition is done and you have accumulated maybe some more expenses. I mean my question is, could you please give the breakdown of the downward revision of the logistics business?

[Interpreted] Thank you for the question. So other than ONE, what is the progress? That's the first question. All in all, we are making good progress. But when it comes to Dry Bulk, the impacted slightly by the markets. The previous time we met, we explained about it as well. There are various factors involved, not only short-term developments, for example, the war in Ukraine, the shipments from Ukraine are changing, status is changing.

And as to bulk shipping, mainly, the front haul or backhaul, that's how we call it. In other words, through some combination, we tried to increase the volume, the balance leg that should be shorter as much as possible. And there, we are seeing some impacts. So this year, we are seeing some strong adjustment phase, especially the small bulkers and bulk shipping, their numbers actuals are slightly below our expectation. But from the next year and on, it will be corrected.

There will be some correction to some extent, we think that the numbers will be more in line with our expectation. And as to other investment, including logistics and also other long-term contracts, energy vessels, things are progressing smoothly.

As to -- related to logistics later, Mr. Banno will make some more comments as well. As to Movianto, of course, it involved some M&A cost, but rather than that, the market effects impact are greater. So some comments from Mr. Banno.

[Interpreted] Thank you for the question. First, read the number in the fourth quarter, you said, exactly you are right. Actually, in November, when we made an announcement, a JPY 5.3 billion black number for the second half.

But already in that, the assumption for the fourth quarter is in the red because of seasonality. Usually, numbers are not so good in the fourth quarter and the third quarter, black number. That was our assumption. But it turned out that the third quarter is not as good as we expected.

As to market, the air freight that is, to some extent, stable with some profits, but when it comes to ocean freight and the contract logistics. Contract logistics should be stable, partly because of U.S. tariff issue after the Christmas season, our customers are more hesitant for imports.

So we revised it downward as well. As to M&A acquisitions and of course, it came with cost for this year. But at the point of announcement in November, such costs had already been factored in and not so much increase since then. So compared to November, it's not increased so much. So that's not the reason for the JPY 4 billion downward revision. It is the ocean freight and contract logistics were less than our expectation. That was the reason.

[Operator Instructions] [Interpreted] Please I'd like to ask a question. Thank you for the explanation before that. And I'd like to ask about automotive, 2 things. So first is regarding the progress of the performances this year, year-to-date and especially the revision of the forecast, the upward revision.

And I think the port fee part is the difference. And also, if you look at third quarter alone on year-on-year, it's going to be the decline of profit. So I'd like to confirm what the background there more.

And the second is regarding automotive current market conditions. What do you think about that? Can you also comment on that? Because as a whole global market, the shipping volume has been strong in the past few months. And in January, the auto volume has already been seen the bottom seems overall. So what do you see about that? And what are the likelihood of the revision of your contracts for freight in the coming months?

Are there any positive factors that you can count on?

[Interpreted] Thank you for the question. So regarding the first question about the progress this year, especially for the second half of the year, there was a port fee. But other than port fees, I think you're asking what was the impacting factors. So originally, the port fee impact in the second half was expected to be -- well, actually, in January, sorry, in November, when we announced, we expected about JPY 7 billion after the second quarter.

So the improvement of JPY 10 billion is that there was a port fee postponed, and it's not just that. Partially, there is also the increase in the volume of cargo too. So compared against the last projection, there is increase by about 40,000 units. So that is leading to the upside in our profit. That's how you can think about the situation.

And as for the current market conditions and the outlook for the next fiscal year. So for that part, there are still a lot of uncertainties. But as for the current situation, we do not see much of a big change. That's not what we feel. For the U.S. and such, especially the area where we are mainly carrying for those car OEMs, the demand is not likely to change so much for the time being.

On the other hand, in the long run, there is going to be new delivery of vessels. And from the next fiscal year and on, the Suez Canal situation is unknown. For -- according to our assumption, we think for the time being, we still need to pass through the Cape of Good Hope.

But how that would affect us in the next fiscal year is still uncertain for the moment. Still yet, big concerns are not really visible for us at the moment. That is my answer to your question. Did I answer it?

[Operator Instructions] [Interpreted] I have 2 questions. First, Automotive Transportation on a full year basis, about JPY 15 billion minus year-on-year. That is the estimate that you have. What is the breakdown of this negative JPY 15 billion? Is it because of volume or the freight or the deficiency or FX, either by numbers or just an image? Could you please put some color on that number? And how are you looking at the car carrier for the next year?

And second question, so you do not have a slide about cash flow, and you have 1 year to go -- 1 more year to go in the current midterm plan. Any plan to review cash flow allocation? If necessary, I think you will make an announcement in May. So my question is whether the cash flow allocation will change or not. If yes, any change for the payout ratio of 30% any potential change on that as well?

[Interpreted] Thank you for the questions. Year-on-year basis, minus JPY 15 billion in profit of automotive transportation. Setting aside specific numbers, factor-wise, first, cost is increasing slightly, especially because of inflation, about 200 days and the tariff impact, it's not 0. Sometimes we need to deviate the usual trade and this is the date to -- for new tariff.

So the customers wanted us to move our vessels earlier than schedule, although we faced that situation in the first half and also additional the port fees. Partly, it is already being collected. Those impacts have been factored in this time. And this is related to earlier questions, namely the third quarter of last year, performance was quite good.

Year-on-year basis included, it was good. That means this year, numbers are not weak. But some impact coming from cargo volume. So those factors played out for minus JPY 15 billion year-on-year basis.

So as to the numbers for next year and onwards, as to the cargo movements, as I mentioned earlier, we do not think that we will see material changes, but there are other factors, for example, geopolitical factor, the Suez Canal-related issue, also tariff policies. Those are the things which are difficult to predict. So as we compile our budget for the next fiscal year, we are going to review these issues more closely so that we can show our plan in May. And that is for automotive transportation, are you satisfied with my answer?

So for the next year, the multiyear contract freight will be reviewed and probably freight average will go down significantly. It's not going to be a factor. For the car carrier, it is based on long-term contracts. So some fluctuations in freight will not be the material as is the case for container ships. So of course, it is yet to be seen, but we do not expect to see the significant decline.

And as to your second question, one more year to go in the midterm plan and what about cash allocation? Any change? So management allocation, management directed allocation, I think, is the basis for your question. It's JPY 200 billion at the end of the second quarter, we presented this number. And at this moment, we have not changed that figure. As we have been explaining about it, we don't know whether we were going to use that number for the midterm plan.

So it looks like that we have JPY 200 billion as managed allocation, but we are increasing investments, and we are making additional the shareholder return with additional -- I mean the JPY 150 billion, the share buyback and so on.

So cash flow coming from operation is expanding. And as a result, we have the buffer, if you like, of JPY 200 billion. So going forward, because of geopolitical issues or the different countries, economic policies, there are certain -- there are some uncertainties out there and watching them closely, we would like to make agile judgments.

So it's not that we are going to use the figure completely next year or we are going to use it for investment or shareholders' return, nothing has been decided yet. Have I answered your question?

[Interpreted] That's clear. If management allocation framework is to be used for shareholder return, how are you going to do that? A share buyback or the additional payout? I think there are different ways to do that. And of course, it is yet to be decided, but any particular access that you have in your thinking?

[Interpreted] At this moment, we do not have any particular thought on that. But one thing that I can tell you is that when it comes to share buyback, it is partly shareholders' return, but also it is to improve our capital efficiency. That is another target or objective of share buyback.

So in order to -- while maintaining our rating and expanding investment, increasing leverage, thus improving the capital efficiency. So the adequate capital ratio, it is nearing the target in the current midterm plan. So the future operating cash flow and the forecast will be part of the picture for us to make a judgment.

As to payout ratio, now we have raised it from 30% to 40%. To raise it further, well, we know that it is one of the issues that we need to work on, but we have not decided anything whether we are going to do it right away.

[Operator Instructions] [Interpreted] My first question is regarding energy business. The third quarter and fourth quarter profit seems to be compared against the previous year's level, it's lower. So I'm wondering why that happened? Why are you thinking that it's going to drop like this? Please explain the background to this drop in profit year-on-year.

And the second question is regarding the Dry Bulk business. In the next fiscal year, you might improve the profitability by balancing better, it seems. But what level of profitability can you go back to? Are we going back to 1 year ago level? But still yet, the Dry Bulk profitability has been low to begin with. So are you accepting it as it is as CFO or management at this timing for this business?

And finally, about HR, changes to the HR, you're changing the organization for next fiscal year. And Kono-san what would your role be in the next fiscal year? And [indiscernible]is likely to be the CFO, not CFO. So if you can give us a little color there, that would be appreciated.

[Interpreted] Okay. Thank you for the question. So regarding energy business, third quarter profit, that's going down. So earlier in the explanation, I mentioned that's because NYK Energy Ocean, this company has been set up and has been consolidated into us in April in 2025. That's relevant.

So previously, it was ENEOS Ocean's subsidiary. ENEOS subsidiary, ENEOS Ocean, they have been shipping oil, but non-oil tanker businesses were carried over to us as NEO. And as for the acquisition price, that was including the goodwill and some fixed assets such as vessels. So we were supposed to use for depreciation. So that will become fixed assets in other words.

So the acquisition cost allocation was conducted in the third quarter. So for this depreciation part, amortization part, that was not included in the first half. So -- and all were booked in the third quarter. Therefore, there seems to be a big decline. But other than that, it's been very healthy and steady as a business. So that was about the energy business. Was that clear? Was it okay?

So in the next fiscal -- I mean, in the fourth quarter, the impact will be gone. Right. We're just going back to the usual status.

[Interpreted] So as for NYK Energy Ocean, will this contribute to the profit next year or not?

[Interpreted] There is some goodwill and amortization, which is still big. So that would be a bit of a burden at the beginning years. But -- throughout the next midterm plan period, this business would surely contribute to our overall profits.

And about the Dry Bulk business level. So this fiscal year, I mean, so far, we have had double-digit billion yen as target profit in the past. And we have generated great profit in the past, especially when the times were good. But this fiscal year, compared against that level, the profit level is much lower. Maybe it seems like a shortcoming.

So as for the specific numbers, I cannot really mention at the moment, but at least double-digit or higher profit would have to be generated. As for this, the non-regular ships are going to be affected by the market conditions.

So trying to minimize that is something we're -- and also when the market conditions are good, we'd like to enjoy that benefit much more in our operations. And we have been pursuing that from before. And as regards to that, there are no changes, no obstacles that we see.

And as regards to the mid- and long-term contracts, they are underway steadily. So from that part, in the next year and on, as we were achieving in the previous year as well as the year before last, we'd like to achieve better profit in the next fiscal year.

And as for your final question regarding the human resources matter, I myself has served as CFO for 3 years, and I truly appreciate your kind support to everyone here. But continually, I would be a representative Director of the company and also as GCIO, Group CIO, Chief Information Officer, that is.

So I would be looking over DX digital transformation matters. And in the previous DX activities, the DX was the base, and we were thinking about pursuing further business development. But on top of it, now we are hoping to make DX as the foundation to accelerate the speed of that management or to improve the KPIs properly. By grasping that earlier and on and disclosing that early on as well. That would be very important. So that's a part of the challenges that we are acknowledging.

And in the context, last year, we replaced our mainframe system, and that's SAPs. So S/4HANA, it's open cloud system, that's the new one. So previously, most of the Japanese companies were customizing those mainframe systems to adapt to their own operating process and we're using in the private cloud environment, we decided to go into global standard earlier than the others.

So we have now this system in place. And we'd like to make sure that within the group, it will be cascaded well enough so that we can generate the good results out of this new system because that's one another challenge of DX for us.

So previously from finance, accounting and I've been in charge of all those departments previously. So that's why I will be looking over DX from April. So as for the successor, Mr. Banno, previously, he was in the business planning, and it will be my successor.

I have no issues, no worries at all that he's taking over. So that was all from me. Did I answer your question? Thank you for the questions.

[Interpreted] It seems that there is no more questions. So it's a bit early in the scheduled time, but we would like to finish our Q&A session. Thank you very much for your questions. And with that, we would like to complete the third quarter FY 2025 financial results announcement. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

It's time to start FY '25 Second Quarter Results Briefing by Nippon Yusen Kaisha. Thank you very much for joining us. My name is Okada, Head of IR Group. I serve as MC. Thank you.

Let me first introduce today's presenters. Soga, President, Representative Director, President and Chief Executive Officer; Kono, Executive Vice President, Executive Officer, CFO; and Banno, Chief Executive of Liner and Logistics Headquarters. Today, first, Soga is going to walk you through the outline of the second quarter results of FY 2025, followed by Q&A. I'm going to explain about how to ask questions later immediately before the Q&A session.

As usual, today's presentation is going to be distributed on demand, including the Q&A portion. Thank you for your understanding. So without further ado, we will start the presentation. Mr. Soga, please.

My name is Soga, President of Nippon Yusen. Thank you very much for joining us today for this results briefing. And thank you very much for your support and advices. And we are reflecting those advices in our business activities. Thank you very much for that.

First, I'm going to cover the following. Following this agenda, and we are going to talk about most recent business environment and our group's mid- to long-term initiatives. And I will also touch upon the first half results and FY 2025 full year forecast. And lastly, Progress on the midterm management plan will be covered. We have attached ONE's results, which are the same materials used by the 2 other shareholders. So in this presentation, we will not touch upon it.

Please look at Page 4. First, the most recent business environment and the group's mid- to long-term initiative. Business environment remains very uncertain with various external changes. On short term, our business might be impacted, but all the same, we are working steadily on mid- to long-term growth. The business environment, such as the economy and the impact coming from the tariff policy and the impact of port fees in the U.S. and China, we have revised FY '25 full year forecast. Annual dividend has been reduced by JPY 10 from the previous forecast to JPY 225 per share. I will give you more details later.

What warrants continuous attention includes the possibility of Suez Canal reopening and the future trend of GHG emissions control of international shipping industry. With respect to the group's mid- to long-term growth initiatives, as we touched upon at the first quarter result briefing in August, we are continuing our growth investment, including our biggest M&A in logistics business. On the short run, M&A-related expenses might occur, but we are strengthening steadily our future earning power. Also, several LNG carriers are expected to be delivered next fiscal year, contributing to stable profits. We continue to invest with the goal of increasing the number of LNG vessels for which we are involved to 130 by FY 2028.

Now I will explain the results for the first half of the fiscal year ending March 2026. Please refer to the profit and loss table on Page 9. The second column from the right shows first half results and the rightmost column shows year-on-year changes. As you can see, both revenue and profit of all line items decreased year-on-year. The main reason for the large year-on-year decline in recurring profit and net income is the significant year-on-year decline in the performance of ONE, which is included in nonoperating income as equity method investment earnings.

Equity method investment income from ONE was JPY 163.1 billion in the first half of the previous fiscal year and JPY 20.3 billion in the first half of the current fiscal year. Now regarding our actual results, revenue was JPY 1,182.1 billion, down JPY 134.7 billion year-on-year. Recurring profit was JPY 126.8 billion, down JPY 162.4 billion year-on-year. Net income was JPY 102.2 billion, down JPY 163.6 billion year-on-year.

Next, regarding the impact of exchange rate fluctuations on profits, the 6 months average exchange rate for the first half of FY '25 was JPY 146.18. In the first of FY 2024, it was JPY 153.8. The yen's appreciation of JPY 7.71 is estimated to have had negative impact of about JPY 8.7 billion in recurring profit.

Next, please turn to Page 10 for recurring profit results by segment. In this table, as with the previous table, the second from the right blue column shows results for the first half of FY '25 and the rightmost column shows the changes compared to the same period last year. Here, for each segment, the top row shows revenue and the bottom row shows recurring profit. Now let's look at the recurring profit in the bottom row of the second from the right blue column. First, for Liner Trade business, recurring profit for the first half of FY '25 was JPY 34.8 billion, down JPY 141.8 billion year-on-year. Regarding this, with respect to ONE's container shipping business, in the first quarter, due to the impact of U.S.-China tariff policies, container market temporarily rose, but subsequently fell as shipping capacity increased due to the delivery of new vessels. As a result, freight rates throughout the first half of the year were lower than the same period last year. In the Air Cargo business, as to Nippon Cargo Airlines, share exchanges with ANA Holdings was completed on August 1, 2025. As a result, NCA's performance from the second quarter onward is not included.

Next, regarding the Logistics business, recurring profit was JPY 6.7 billion, a decrease of JPY 5.6 billion year-on-year. In the Air Freight business, while handling volume was lower than the same period last year, profit increased year-on-year due to lower purchasing prices. In the ocean freight business, handling volume increased year-on-year, but profit decreased year-on-year due to factors such as lower freight rates and rising cost inflation. In the contract logistics business, due to the uncertain economic outlook caused by tariff policies and other factors, major customer transaction volumes decreased, resulting in a lower profit level compared to the same period last year.

Next, in the Automotive Transportation business, recurring profit was JPY 50.1 billion, down JPY 11.4 billion year-on-year. Transport demand remained strong and the number of vehicles transported remained flattish year-on-year. However, due to a decrease in revenue caused by the stronger yen combined with rising costs such as cargo handling expenses due to inflation, profit levels were lower than the same period last year. In the dry bulk business, recurring profit was minus JPY 2.1 billion, down JPY 10.6 billion year-on-year. Market conditions for all vessel types improved in the second quarter, but declined year-on-year throughout the first half. Furthermore, the yen's appreciation compared to the same period last year had an impact.

In the Energy business, recurring profit was JPY 39.7 billion, up JPY 17.8 billion year-on-year. In the VLCC business, market conditions showed instability in the first quarter due to the situation in the Middle East, but then improved compared to the same period last year due to increased cargo demand and other factors. In the VLGC business, tariff policies and other factors caused changes in trade patterns, tightening supply and demand and resulting in improvement of market conditions compared to the same period last year. LNG carriers performed steadily, supported by medium- to long-term contracts. The offshore business recorded a onetime profit due to the start of operation of a new FPSO.

So this concludes the explanation of the results. Next, let me move on to the full year forecast for full year 2025. Please turn to Slide 15. So this table shows our profit forecast. The third blue column from the right represents the full year forecast for full year fiscal 2025. The next column to the right shows the year-on-year change from the previous fiscal year, fiscal 2024. And the far right column shows the change from the previous forecast. As for the FX assumptions, in the previous forecast, we assumed JPY 145 for the second quarter and JPY 140 for the second half. But as you can see, the exchange rates noted just below this table, the first quarter result was JPY 145.32, and the second quarter came to JPY 147.04.

For the second half, we now assume JPY 147, which is about JPY 7 weaker than the previous forecast. As a result, we are assuming a full year average exchange rate of JPY 146.59. In addition, regarding the impact of tariffs and port fees, we've made no changes to the tariff assumptions from those used at the time of the first quarter results. As to the impact of port fees in this forecast, we have assumed JPY 7 billion in the Automotive segment, which is included in the forecast.

Now let's take a look at figures. Revenue is projected at JPY 2.35 trillion. And as you can see in the far right column, there is no change from the previous forecast. Recurring profit is now JPY 190 billion, down JPY 50 billion from the previous forecast. Net income is JPY 210 billion, down JPY 30 billion from the previous forecast.

Please go to the Slide 17. Next, I will explain the recurring profit forecast by segment. In this table as well, the upper figures for each segment represent revenue and the lower figures represent recurring profit. The fourth blue column from the right shows the current full year forecast and the far right column indicates the change from the previous forecast.

Looking at recurring profit by segment. First, the Liner trade segment. We project recurring profit of JPY 45 billion, down JPY 25 billion from the previous forecast. About the container shipping business, ONE, due to the impact of tariff policies and an increase in vessel supply from new ship deliveries, short-term freight rates have declined. And now we expect freight rate levels from the third quarter onwards to be lower than previously assumed. We assume that rerouting via the -- Cape of Good Hope will continue throughout the fiscal year. As to the full year outlook for ONE, net profit is projected at around $300 million, and we have reflected our 38% equity share in our full year forecast.

Next, for the Logistics segment, we project recurring profit of JPY 12 billion, which is down JPY 5 billion from the previous forecast. In the air and ocean freight businesses, -- particularly in ocean freight, freight rates have fallen below previous assumptions and with rising costs such as personnel expenses, profit levels are expected to fall below the previous forecast. In the Logistics business, due to the impact of tariff policies and other factors, handling volumes from major customers have decreased and profit levels are expected to fall below the previous forecast.

Next, the Automotive segment. We project recurring profit of JPY 88 billion, which is down JPY 12 billion from the previous forecast. As mentioned earlier, the forecast figure for the Automotive segment includes an assumed impact of JPY 7 billion from port fees.

Dry Bulk segment. We project recurring profit of JPY 5 billion is down JPY 5 billion from the previous forecast. This is mainly due to vessel expenses rising ahead of the market during the upturn in the second quarter, combined with lower-than-expected profitability from spot cargoes.

Energy segment, we project recurring profit of JPY 48 billion with no change from the previous forecast. Both the VLCC and VLGC markets are expected to maintain the strong levels seen in the second quarter, and we now anticipate results to exceed the previous assumptions. The LNG carrier business is expected to remain firm, supported by stable earnings from mid- to long-term contracts.

Based on these forecasts, let me now explain our dividend forecast. Please go to Slide 12. Now regarding dividend forecast, our policy is to target a consolidated payout ratio of around 40%, determining profit distribution based on a comprehensive assessment of business performance and outlook. At present, uncertainty remains regarding tariff policies in various countries, their impact on the global economy and future cargo movement trends.

Given this business environment, at this point, we plan to keep the interim dividend unchanged from the previous forecast at JPY 115 per share, while the year-end dividend will be revised downward by JPY 10 to JPY 110 per share, in line with the revision to the full year earnings forecast. The breakdown of the year-end dividend of JPY 110 consists of an ordinary dividend of JPY 85 and our 140th anniversary commemorative dividend of JPY 25 with the appreciation to the shareholders to support us for many years. So bringing the annual dividend for fiscal 2025 to JPY 225 per share.

Also, please turn to Slide 6 for details on our share repurchases. So we are implementing a program with a total acquisition limit of JPY 150 billion running from May 9, 2025 to April 30, 2026. And as of the end of October 2025, we have completed repurchasing 15.479 million shares. In principle, the shares repurchased are scheduled to be canceled.

Please go to the Slide 18. The following pages from 19 through 22 contain materials related to the progress of our midterm management plan. So now please go to Slide 19. This slide shows the trends in profit and financial indicators. The 2 columns on the right for fiscal 2026 and fiscal 2030 show the revised figures that were presented at the time of full year results announcement in May. In addition, the second column from the left shows the actual results for the first half of FY '25, while the third column from the right shows the revised full year forecast for FY '25.

Please go to Slide 20. Regarding our investment policy for investment that will lead to stable shareholder returns in the future, the total investment amount through FY 2026 is expected to reach approximately JPY 1.4 trillion revised up in May. As of the end of September, investment project already approved amount to approximately JPY 1.2 trillion.

Please go to the Slide 21. Regarding cash allocation, we have updated the figures to reflect the current situation of various cash flows.

On Slide 22. This page covers our policy on shareholder returns. The column on the far left shows the policy at the time the midterm plan was announced, while the column on the far right reflects the latest forecast for FY '25. From the top, in May, we raised our target payout ratio to 40%. And just below that, we increased the minimum annual dividend per share by JPY 100 to be at JPY 200 per year. And we expect the annual dividend per share to be JPY 225 as explained earlier. And as for the total dividend amount compared with the JPY 230 billion plan over 4 years under the policy in the original midterm plan, we now expect to pay a total of around JPY 3,000 billion over just 3 years.

Furthermore, the one below, regarding share buybacks, although the original plan called for around JPY 200 billion over 4 years, we've already decided on a total of JPY 480 billion just over 3 years. As a result, as noted at the bottom of the slide, the total shareholder return ratio stands at 116% and EPS earnings per share is JPY 495. So the net income is expected to decline compared to FY '23, EPS is projected to increase. This is the result of us steadily buying back our shares even more than we originally planned. And we are doing this to make our capital more efficient.

So this concludes my explanation today. Thank you very much for your attention.

Thank you for the presentation. Now we move on to Q&A session.

Let me explain about how to ask questions.

First question, thank you for the detailed presentation. I have 2 or 3 questions. First, the impact of tariffs, no change from the first quarter, you said. In the first quarter, the JPY 22.4 billion or JPY 24 billion, the loss cut. Maybe you do not have actuals for the first 6 months, maybe qualitative basis. Could you please talk about your progress? My first question.

And the second question, automobile vessel, it was revised down this time. It seems that it's because of the inflation of cost, including the port fees. But without it, the short-term freight did not have any impact. Am I right to understand that way? And the third question is about logistics. The ocean freight, freight rates went down more than expected. What about the air freight, the procurement prices and other elements? Could you please answer those 3 questions?

Thank you for the questions. Starting with tariff impact, our CFO, Kono, will explain. As to automotive vessel, myself and then logistics, especially air freight, Banno is going to explain. Kono-san, please.

Tariff impact, as you pointed out, in the first half or I should say, at the end of first quarter, about JPY 24 billion was the impact. That was the estimate. As to the liner trade, a little bit less than JPY 20 billion. And other part, JPY 4 billion to JPY 5 billion. That's the breakdown as of the end of the first quarter, that was our forecast as of the end of the first quarter.

As you pointed out, which part is impacted by tariffs and which part is by the market or any other economic conditions, it's so hard to find the borders among those elements. So assuming that there will be tariff impact, we look at the second quarter. So based on that, as to liner trade, the freight decline was more than we had expected and the demand supply loosened up. And there was an impact coming from that. So we have revised it down. And partly, that was because of the tariffs, but it's difficult to say -- to talk about in a clear-cut manner. Other than that, markets or logistics included, back then, we do not assume any big impact or element.

So looking at the current market conditions, business environment, I think those elements are all included. That said, as our President said earlier, as to port fees for automotive carriers, there's a very explicit number shown, so we can make calculation. So given our track record of using the ports, and there's a portion that we can avoid using those ports or we can transfer the cost to the customers. So based on that, we used JPY 7 billion as our estimate. But last week, there was an agreement between U.S. and China. So between the 2 countries, the adoption of the port fees will be delayed for 1 year. Other than that, the shipping vessels, the treatment of shipping other companies, those ports is yet to be determined. So this -- the port and port fee factor is -- remains included in our estimates. And if there's no change, there is a bigger possibility that we will have some upside.

Second question about automotive carrier. In the previous forecast, we assumed JPY 100 billion recurring profit. Now it was down to JPY 88 billion, so JPY 12 billion revised down. And as you said, this JPY 12 billion is not by tariff impact. And also the cargo movements is not decreasing and the freight is not decreasing. The JPY 7 billion out of JPY 12 billion is, as Mr. Kono said, the port fees, the result of our reasonable calculation on our side, that is JPY 7 billion. So the remaining JPY 5 billion is cost increase, for example, fuel, biofuel bio-LNG is in a test phase and the prices there are higher than our expectation. So that is driving up the cost. So market freights are not the factors to impact. And your third question about logistics business, air freight business, Banno-san, please.

Thank you for the question. Let me start with ocean freight. Last year, from spring to summer, the trade from the Cape of Hope -- Good hope, Cape of Good Hope. So we could book big profit for ocean freight last year. But this year, the freight went up significantly and then came down significantly because of tariffs and other factors, but the movements are smaller than last years. So in a year-on-year basis, the profit is smaller.

For air freight, U.S.-China element is one thing. And also from China to U.S. e-commerce, the volume is almost gone this year. So as a whole industry of air freight space is not -- remain unused. So the purchasing -- the price is coming down significantly. So as a forwarding company, we could buy the cheaper and sell the higher. So the profit is getting better.

Thank you for you question. Now turning to the next person.

I have 2 questions. First is the profit level for the logistics business. So you have revised down about JPY 12 billion. So that is due to the increased expense. And also the contribution can be also considered, which can actually bring out certain recovery in profit. And next year, with the PMI expenses, maybe that will put in pressure on your profit level next year. On the other hand, depending on the environment, it could change. What is your view on your profit level?

Second question, regarding energy business, for the full year, there is no revision made. But for the second half, you made a downward revision. So that's -- so because -- is it the time shift any delay in expenses or any additional cost expected? So what is your view on the energy business? So those are the questions, one for logistics, one for the energy.

Thank you very much for your question. First question, the logistics profit level for next year onward. So we'll have Mr. Banno to answer the question. Second question about the energy business, first half and second half differences. It will be answered by the CFO, Kono.

Okay. Mr. Banno, please. Thank you.

Regarding logistics business this year, we have revised downward. So air and ocean freight were explained earlier. By combining them together, we are not really seeing major change. Contract logistics, there was a confusion in May, June timing and due to the drop in the ocean freight amount coming from China. So that actually brought up a huge reduction in profit level than expected. And once again, we have reviewed the profit level, and we made a downward revision. And the major impact was the expenses related to the acquisition, and that is already seen in the fiscal year -- in this fiscal year, and that is also part of the downward revision.

We have not closed the deal yet. So when are we going to include this acquired business as part of the group, it's not decided yet. But the official contribution of the business performance is going to be in the next fiscal year, fiscal '26. So beyond that, as you mentioned, the PMI-related expenses are going to be incurred additionally, and also, we will have to have amortization of goodwill starting at the same time. And those will be coming next year since acquisition amount was quite large because of the size of the business that we acquired was quite huge. So the expected expense impact can be also large and to put pressure on our profits.

could finish after integration within a year, but I think it's going to go a little beyond that, and we will have the expenses being incurred. And then we will start to see a much bigger contribution coming from this acquired business and the profit level from the third year onward.

Thank you for your question. Energy business that gap between the first and second half. So it was nothing coming from market situation changes. It's more like a cost opposing timing, recording timing. NYK Energy Ocean was now consolidated in April as a subsidiary. So the depreciation cost, of course, we have an amortization of the goodwill. But part of the spending should be also booked as depreciation. And however, there was a minor change in the amount after talking to the accountant. So we tend to have a less figure than expected. And then we will have more spending to be booked in the second half than expected. That is one of the factors. And as a result, there's no change. For the full year, we saw some changes in the difference between first and second half. I hope this answers your question.

Thank you for the questions. And moving on to the next question.

I have 2 questions. First, dry bulk and about revising down -- revising down. So am I right to understand that it is negative spread of spot trade? I think there's something like that happened in the past. It's difficult to control these things. Could you please talk about some details about it? Second question, next fiscal year, the last year of the current midterm management plan, JPY 270 billion of recurring profit, ROE, 8.1%, that is the current expectation. To achieve these numbers, what is the probability of achieving those numbers? How are you committed to achieving those numbers? As the recurring profit I think it depends on the environment. But as to ROE, by selling assets, for example, or share repurchases, I think there are ways to come close to the ROE. Are you feeling very enthusiastic about this, the 8.1% ROE target?

Thank you for the question. So as to the dry bulk result of the forecast revising -- being revised down, Kono-san will explain. And second question, as to numerical targets of the last year of the MTMP, I'm going to answer that question.

Thank you for the question. Dry bulk, especially bulk shipping trade and spot basis, as we have been explaining on different occasions, there are contracts and assets, namely the vessels that we own, the contracts and those assets are matched as much as possible. And for long-term contracts, we use the adequate vessels for that for the short -- the contracts, we have something like COA in those cases, we use the short-term vessels so that the exposure-wise, there will be matching between the contracts and the vessels. So for those -- by getting those spot cargo, we can ensure some of the profits.

COA, it is linked to market, but -- for example, front hold and backhold based on this concept, for example, from Brazil, iron ore trade to get it in the ballast basis, it will be costly. So use the backhold concept, namely we transport something else in between by improving the efficiency of the other transportation.

Such trade patterns have been changing slightly. So for example, the factors behind it as follows: In Ukraine, the Ukrainian issue, which is the exporter of iron ore to Asia or China, for example. Because of this the war with Russia, the situation is changing. And in Europe, for example, in the Pacific area, from Australia, the coal was transported to Europe.

But in Europe, they are decarbonizing. So the coal cargo is decreasing. So this year, such trend is emerging more clearly. So we are coming into the adjustment phase. That is the first half of this year. Now the deployment of vessels, we are adjusting the deployment so that in the second half, we can get more profitable the way of the deployment of vessels. We are now working on such setting up and second half and the next fiscal year, the situation is expected to be more normalized. That is the background.

As to the second question, Soga is going to answer your question.

So FY 2026, the fourth year of the midterm plan last year. So we have JPY 270 billion target for the recurring profit and ROE, 8.1% target. In this midterm plan, a big focus has been on capital ratio, how to improve it, how to optimize it. And for that, we need to have more earnings power and also growth investment and the shareholder return. These 3 pillars are very important for us. So in that context, we are committed to this 8.1%. But there's an impact on recurring profit. For example, comparing '24 and '25, ONEs equity method, the earnings has changed dramatically, and that was a big impact. As I have been saying on different occasions, bulk or dry bulk, energy, automotive, logistics, namely other than ONE businesses should be stronger. That's what we have been working on.

And looking at the results of 2024 in these 4 areas, JPY 200 billion is the target that we are likely to achieve. But based on the current forecast, it will be JPY 160 billion instead of JPY 200 billion. So 20% of the decrease in the number. We need to reflect upon that as to how to reinforce those businesses, and we will remain focused on them. As a result, the ROE of 8.1% will be realized, and we will work for that. But just for the sake of the number, we don't intend to sell assets or share buyback. Before thinking about it, we will think about how to reinforce those 4 areas that I talked about. For example, automotive carrier, there was just a one-off element. So rather dry bulk business, as Mr. Kono talked about. How flexible we can be for these businesses operation. So we would like to focus on reinforcing those 4 business areas. And as a result, the ROE 8.1% is to be achieved. That is our result. Have I answered your question?

Yes.

Thank you for you question. Now we want to move on to the next question.

Thank you very much for your explanation today. I have 2 questions today. First is about dividend. So now you're setting at JPY 225 billion. Can you give us a rationale for this number? So compared to the planned net income, actually the decrease in dividend was less. So is there any message behind this number? And second question is about the management allocation of JPY 200 billion. What are you using this for? Any update on the expected usage? You are talking about solidifying those 4 business categories. So I guess, maybe this could be the area where you invest in, but can you elaborate more on this usage of the capital?

Thank you very much for your question. In response to the first question about dividend policy, let me answer this question first. Management allocation of JPY 200 billion, the usage for this fund will be answered by CFO, Kono. So regarding the first question of JPY 225 dividend. So actually, when we decided the minimum amount of JPY 200 at the beginning of the year, so based on the net income of JPY 210 billion, we calculated the annual dividend is going to be actually calculated as JPY 200 with 40% payout ratio. And we have that as a basis. So for the interim dividend of JPY 150, if this is maintained for the full year impact -- for full year, if we were to maintain the 40% payout ratio, the second -- the year-end dividend is going to be JPY 85 and which will be a total of JPY 195 -- sorry, JPY 200 for the year. And so this is what we are thinking.

And I also mentioned about the commemorative dividend. Aside from the ordinary dividend, I don't know whether the dividend payout was the appropriate way or not, but for 140 years, we were able to continue our business. So the shareholders who is one of the very important stakeholders for the company, we discussed a lot how we can appreciate -- show our appreciation to those shareholders. And additional dividend or special dividend was considered to be the best option, so we can reach out to -- return back to all the shareholders. So at the time of 100th anniversary or 120th anniversary, we actually took the same concept to pay out the commemorative dividend. And we also checked the amount spent at the time, also the ratio that we have spent, and we decided to give out JPY 25 as special dividend this time.

So this JPY 200 was the calculated dividend, then by adding JPY 25 billion, and we decided to go with JPY 225 for the year. So this JPY 200 number is exactly based on 40% payout ratio. So including the additional dividend to be JPY 225 in total, the payout ratio is going to be 45%. So we are not trying to narrowed the gap from against the JPY 235. But instead, we were trying to show the appreciation back to the shareholder, and that came out to be the number of JPY 225. So it was going to be a milder downside, but that's how we came up with this number.

And regarding the second question on the management allocation, this will be answered by Vice President, Kono.

Thank you for your question. Regarding management allocation, as explained by the President and also shown on the presentation, we have said JPY 200 billion that is maintained. So profit was slightly revised downward. But looking at operating cash flow, there is no major change on the operating cash flow because all in, actually, profit was captured by the equity method. And that will not actually lead to a decline in operating cash flow directly this year.

Including dividend, it's possible that we may see a change in our operating cash flow.

It could go more, it could go less. So we also want to consider this can be a kind of buffer. So for the usage of this fund, as explained in the past, our intention is to spend in our growth investment and return to shareholders and capital policies, including shareholder return and to accomplish the most optimal capital efficiency, the debt-to-equity ratio and shareholders' equity ratio, all these are factored in, in a comprehensive manner. And if there are any investment opportunities, we will spend into those investments.

If not, of course, there will be some opportunities. But for the time being, we may decide to spend into the shareholder return. For the time being, it's also another possibility. Right now, we are now starting to discuss the details for the next midterm plan where we also will experience some investment opportunities. And within the management executive members, we will have more discussions to decide how to use these funds. So basically, it's in line with what we have announced in the past as a policy. I hope this answers your question.

Thank you for the questions. Moving on to next question.

First question about ONE. At the beginning of the year, without tariff impact, JPY 1.1 billion of net income was expected. But in a normalized way, you have the same thinking about the level of profit that you can achieve for the freight from the November -- October, mid-October, it has been coming down. And as to second question, the Suez, the canal, the routing and the reopening of the Suez, do you think that it is more likely that the trade through the Suez canal will be reopened? And when it happens, what kind of changes you are going to go through? And when is extended or delayed, what will happen?

Thank you for the question. So first, ONE and the future freight, Banno is going to answer your question.

Thank you for the question. Yes, you are right. At the beginning of the year, 1.085 billion was the number that we publicized. That is the normal level of our earning power. And as whether we think that way, in the peak season towards Christmas, usually, it goes up and then it comes down again, such a big flow will change such trade as long as such trade continues, -- and with the healthy competition among the shipping companies and the freight coming down, then we are going to use our own judgment to make adjustments. As long as we can do that, we -- this level of profit should be insured. But this year, in May and June, it was chaotic situation and not only just us, but our customers as well.

So there was a change in also the China-U.S. tariff problem. And the inventory is decreasing. There was a rumor about it. But in the very chaotic situation, we struggled probably it might continue into the next fiscal year. But the numbers that we developed in the original budget, I think that we can achieve them. I'm sorry, for FY 2026, we have not had any specific numbers. So please understand that we are just talking in general terms.

Second question, Soga answering your question.

About Suez canal, we are monitoring how many vessels are going through actually the canal. In many of the cases, there's not much change there. More than 50% of the vessels are not going through the Suez Canal. And we know who are actually using Suez Canal. For example, some Chinese automobile vessels or the container ships or the tankers owned by Greece, those are the vessels which are still using Suez Canal. So container ships or the automotive ships.

In terms of competition, at this moment, we are not getting any pressure from the customers saying that you should go through Suez Canal because it's more beneficial. Well, that is not happening yet. And what about safetiness to go through the canal? As you know, Israel is still attacking Gaza. So the things in that region are not settling down yet. So it's very uncertain what will happen in the future. So it is my -- it is our judgment that we are not in the environment where we can safely use Suez Canal yet.

As to IMO, the GFI regulation about environment, as you know, it has been postponed by 1 year to have a resolution on that. So GFI regulation, we wanted to take aggressive stance to GFI. So to be honest with you, we -- it is very regrettable. And as you know, those global rules such as GFI are in place. And when that happens, the GHG-related cost or the cost of value, we can use the common measurement, the tool -- and so we have been making lots of investments in those areas earlier than others. And so we thought that to comply with those rules will give us another competitive edge. But now this the resolution on GFI has been postponed. So globally, beyond the industry or sector, it seems that the understanding of GHG and its value cost level is coming down. But that said, we will not postpone or halt our decarbonization effort.

As you know, there are various technological advancements, developments or the commercial flow, but all of these things take a lot of time. So we need a certain period for trial and error. So rather than stopping what we have been doing on the longer run, eyeing the decarbonized society, we need to continue what we have been doing. So our policy remains unchanged. In 1 year time, if there's an opportunity -- actually, we hope that there will be an opportunity to vote for the GFI collaborating with the Japanese government. And in order to get endorsement, we would like to make efforts to get sufficient endorsement and support. Thank you.

As to Suez Canal, if that trade is reopened, accumulated scraps will be removed. Do you have any image what will happen once the reopening happens?

As you said, in '23 and '24, scrap volume was so small, but not only container ships, there are old ships are increasing. So once the reopening of the canal happens and if there is oversupply, then there will be more vessels to be scrapped. But then what will happen? There are not many yards globally to scrap vessels and the capacity is limited. So the question is how we can make adjustments, and that will be the next issue to work on. Thank you.

Thank you for your question. There's no additional questions. So we want to close the Q&A session for now. Thank you for your questions. And I think we're also about the ending time now. So we want to wrap up the financial results briefing meeting for the second quarter of fiscal 2025. Thank you very much for your cooperation.

Hi, everybody. I'm Okada, General Manager of IR Group, and I'll be the host for today's webinar. Thanks for joining us, and we truly appreciate your time and interest. Today's webinar is all about next-generation marine fuel, business opportunities arising from this transition and NYK strategy in this transition. We hope you will find the session informative. First, I'd like to introduce our speaker, Mr. Rokuroda, General Manager of Next-Generation Fuel Business Group. This group is leading and exploring the creation of various business opportunities arising from the transition to next-generation marine fuel. Rokuroda-san is the Head of this group.

Before we get started, I would like to briefly go over some housekeeping matters. After the presentation, we will proceed with a Q&A session. Please note that the questions will only be accepted via the web chat. So you are welcome to submit your questions even during the presentation using this chat system. Also, please be aware that today falls within the quiet period before the second quarter earnings. So we will not be able to answer to any questions related to our financial results.

Okay. Then let's begin the presentation. I will turn it over to Mr. Rokuroda. Rokuroda-san, over to you.

Thank you very much, Okada-san. Good morning or afternoon to everybody. My name is Takahiro Rokuroda, General Manager at NYK Line Handling Next-generation Fuel Business Development. And today, I am so glad that I am able to explain our activities we have been doing, and we are committed to continue to do in relation to the new fuels. So first of all, let me explain, share a bit about the directions of the international shipping from the context of decarbonization.

I understand, and I guess many of yourselves already know that IMO has a net zero goals by 2050, which has been agreed during the MEPC 80, which took place 2 years ago, July 2023. And this goal is still unchanged even after the recent MEPC 83, which took the postponement of the adoption of the new regulations. And prior to that, April this year, it was really that midterm GHG reduction measures to seriously consider for adopting, which again was not a bit adopted this time, but probably 1 year later. And in which the 2 key pillars are most important elements when it comes to the decarbonization of the shipping industry.

And 1 is the GHG and fuel intensity regulations, which we call GFI regulations, which basically is a measure pricing and counter emission systems. And 2, IMO net zero funding, which is a sort of rewarding program. And I am going to explain a bit later about what has happened during MEPC 83. And besides IMO, which is indicated on the right-hand side, we already have or we are expecting to have new regulations to govern GHG emissions, not only shipping but also various industries, which is indicated in EU ETS, CBAM and Fuel EU Maritime. So now the regulators is running ahead to govern again the GHG emissions and probably new rules may come up, and we also hope the international regulations to be set up to further accelerate the decarbonization activities. And MEPC 83. Unfortunately, it has been postponed for 1 year. But our recognition is a temporary delay, but the direction remains unchanged, totally unchanged.

So the -- again, the adoption has been postponed, but the momentum to combat GHG will continue. And international shipping industry will require GHG regulations at the level in order to accelerate and realize decarbonization because international shipping is a borderless industry, and its emission is not attributed to any specific countries and regions. So it will make a very good sense that a globally consistent regulatory framework is set. It is indispensable for every single player in this industry to combat GHGs rather than going regionally fragmented.

And supposing -- assuming the new IMO rules to be implemented in the future, there will probably be multiple pathways to achieve the net zero emissions to cope with -- comply with the IMO goal, which includes fuel-saving technologies. So NYK as many other shipping companies are working on to save the fuels by introducing new technologies such as wind propulsions and energy-saving devices and NYK and others again, have been working really hard to enhance the efficiency of the daily operations of their fleet, utilizing DX and digital tools. But fundamentally speaking, it is essential to convert the fuels from today's conventional ones to something with low-carbon or carbon-free.

So there will be multiple pathways and fuel conversion is going to be very important. And what kind of fuels it is going to be? There will be multiple options can. As indicated, LNG, it's fossil fuel, but still relatively lower GHGs than conventional fuel oils. Methanol, hydrogen and ammonia were also supposed to play important roles in further combating the GHG emissions out of the ships. But in the case of NYK, we are working on all possible options, but with a little particular focus on ammonia. The reason behind is a lot. And first of all, the difference and the characteristics of the molecule itself. Ammonia does not contain carbon. So it's nonhydrocarbon fuels. So it doesn't emit CO2 when burned, combusted. And boiling point is relatively higher in comparison with LNG, which means relatively easier to handle as a fuel and at the same time as a cargo.

The drawback are there. Ammonia is toxic and corrosive. So safety is essential. Safety comes fast. We are not able to make any compromise in terms of safety. And ammonia has relatively lower energy density in comparison with fuel oils, LNG, which means we will need larger fuel tanks when we're going to adopt ammonia for marine fuels, which may potentially affect the economies of transport, which also we will need to carefully take into considerations. But still, again, we believe ammonia is going to be -- play an important role to reduce GHG emissions, as you can see at the bottom.

This is a tank-to-wake basis GHG emissions from the tank to combustion and power output. Ammonia has very, very low GHG emission. It doesn't contain carbon, but it will require pilot fuel to ignite and assist the combustion because it has flame retardants. So for the use of the pilot fuel, as of today, which is basically fuel oils in the future, probably we'll be able to replace it with something with derived from the bio or some synthetic. But as of today, we do have some small amount of GHG emissions from ammonia, but still it is very low.

As long as tank to wake is concerned, the question is to which extent we're able to ensure low carbon footprint during the production, storage and transport process to the tanks. And we also consider ammonia as one of the most affordable fuel in the future. This is a graph indicating the price cost of the fuel. And blue ammonia is ammonia derived from the natural gas with CCS. And e-ammonia is quite often said as a green ammonia based upon electrolysis to get the hydrogen and synthetize with nitrogen. As of this stage, there's no blue or green ammonia commercially produced.

So this is sort of a hypothetic numbers, but still as the time goes by, we highly expect that prices will go down, especially in the case of green e-ammonia. And blue, natural gas-derived molecules is set to be very cost competitive at the beginning. So when we consider to adopt ammonia for marine fuels, it will probably make some sense to start from the blue ammonia and then rough to adapt green ammonia, which is also supposed to be lower GHG emitting. And ammonia is also scalable, especially in production and consequently can become more available.

As of today, the main purpose of the use of ammonia is for fertilizers. But today, power sector is working really hard, especially in the case of Japan to drive the demand for ammonia for burning in the steam and coal power plant. And the shipping industry is also working really hard to adopt ammonia for propulsion fuels. And in some areas in the world, people are now working on to realize use of hydrogen and ammonia is supposed to play an important role as a hydrogen carrier.

If we're able to aggregate all those demands, so across the various sectors, industry sectors, it will realize economics -- economies of scale in terms of the supply chain which I expect to further accelerate or enhance the availability. Why I suppose the scalability can be expected in the case of ammonia is the feedstock. The feedstock for ammonia -- producing ammonia is basically hydrogen and nitrogen which, again, basically is unlimitedly available on this Earth, whereas in the case of methanol or some other synthetic fuels, quite often CO2, lean CO2 is supposed to be a key component.

And ironically, it is not that available. So we're able to most probably enjoy the economies of scale in case various industry can join force to aggregate the demand and also stimulate the productions. Plus we also have existing supply chain of ammonia for transportation of fuels and storage and so on production, so on, everything. So we can start from the existing supply chain and gradually grow at scale. That is another advantages of ammonia.

And as of today, the total production of ammonia in the world, this is basically the gray ammonia is around 200 million tonnes per annum. And 95% of them are for fertilizers today. And among the 200 million, 10%, which is around 20 million tonnes per annum are seaborne transport. So we are now transporting ammonia with our ships. And on top of this, we expect new purpose of use will join, which is again, power and marine fuels. And we expect that total demand and also production scale by 2050 is reaching 600 million tonnes out of -- 400 million, out of it is for the new demand.

And in the case of marine fuel, as of today, we consume around 200 million tonnes of conventional fuel oils. And according to the prediction by IEA, International Energy Associations, 44% of them are supposed to be converted into ammonia, which mathematically will be around 260 million tonnes. So it's a substantial amount of potential demand. And I believe you were able to imagine this is going to be a new market and business opportunities for everybody, including production, trading and storage and shipping. But there are, of course, difficulties because the new purpose of the use of ammonia is new, and there's no new markets yet for the clean, low carbon, carbon-free ammonia yet.

So we'll need some support from the public sectors by encouragement with some economic measures. So we have various countries and regions who are supporting the adoptions of ammonia and also the new fuels. In the case of South Korea, unfortunately, the CHPS has been canceled just recently, but I understand IRA is still in a strong force. The Japanese CFD is in progress of the selections and H2 Global is working really hard to analyzing the successful bidder during their double auctions.

And IMO, again, unfortunately, the MEPC 83 was postponed to adopt the new GFI regulations, but we strongly believe it will be enforced in the future. Even though it might take a little longer than originally expected, we will definitely need, as I mentioned, as an international shipping have a uniform regulatory framework to govern GHG out of the ships. And we have no clear pictures yet. If this existing ideas of the GFI regulations will be adopted in the next year, this type of structures such as setting based on compliance targets and based on contributions in the case of going and emitting more GHG than these.

So all these are the reasons why NYK deems ammonia to be more promising. And will play as a mainstream fuel for the decarbonization measures. And based upon this, we also drew strategies. The fuel conversion is essential, as I mentioned. And what we can do as of this today is stay with [Technical Difficulty] -- thank you, I'm sorry for the inconvenience. So our fuel conversion road map. As of today, we use conventional fuel oils and now accelerating the use of biodiesel. This is an immediate actions we can take and the business opportunities for us is to work on the upstream. And LNG is also set to be less GHG meeting fuels than conventional fuel oils.

So we are now also expanding the use adoption of LNG, which we kicked off around a decade ago, as well as establishing bunkering businesses. So we believe it is going to be a long-term source of conventional fuel oils. So we will need to work further on both upstream, mainstream, downstream to develop the businesses. This will probably drive -- continue to drive new business opportunities for us. And methanol ammonia or some other possible low carbon, carbon-free fuels is something we also need to work on with a relatively longer perspective. Especially ammonia, which I mentioned, we are spending a lot of efforts. It is going to be 2026, when we're going to deliver the first ammonia-powered deep-sea ship. And thereafter gradually increase the fleet and expand its adoption to different type of ships as well as developing ammonia bunkering systems, in line with the evolution of the new clean fuel ammonia supply chain.

So I mentioned up, mid and downstream. So our approach is basically value chain, covering everything. And actually, this is a journey we have already done in LNG. We have investment into the gas field. We do have around hundreds of LNG carrier, and we do have LNG bunkering businesses in Europe and Japan. So up, mid and downstream, we do business in all aspects. So it's a source of a replication for us in the case of new fuels, including ammonia.

So it's not necessarily 100% new journey for us. But what is going to be different in the case of ammonia from LNG is that clean fuel ammonia, there is no market yet. So we will need to establish that, but we're not able to do it alone. So we will need to join forces across the industry players. So long story short, we do upstream, we do midstream, we do downstream. And the value chain is expected to pick up globally, but Japan is playing a key role from the power sector. the CFD program is going to greatly support the power sector to introduce low-carbon ammonia and create new supply chains. So new supply chain will be triggered by the power sector, but there's no reason for us, shipping industry to leverage that. So beyond power, we as shipping industry is further expand the supply chain, which consequently lead to more business opportunity in terms of shipping and bunkering.

And the shipping, the midstream, the seaborne transport, as I mentioned, the scale is around 20 million tonnes per annum. But by 2050, we analyze, it's going to be around 160 million tonne per annum. And our target is to secure around 10% of the market share with this. And we will need sufficient fleet to accommodate all this market share. So we want to be one of the largest ammonia carriers in the world, targeting a widespread adoption of ammonia both in the power sector and shipping sector as well as existing demands.

On downstream, the bunkering. LNG bunkering is something we have already deeply experienced. There has been a lot of lessons learned out of that. The most important element is to drive both demand and supply concurrently. It's a very big lesson for us. So in the case of ammonia or even some of the new fuels, we'll definitely need to pay attention to both establishing demand and supply. So in a sense, NYK has a shipping company ship operator and owner, uniquely positioned to realize bunkering businesses. We do have sufficient capability to drive the demand. We also have a lot of expertise of handling the molecule itself, which will definitely benefit the bunkering operations.

And in the case of ammonia, it has potential. But nobody knows as of this stage to how to use it or how we're able to ensure safety. So back in 2021, we kicked off a development projects to build 2 different ammonia-powered chips. One is a tugboat, small tugboat. And the other is deep-sea ship, a medium-sized gas carrier, AFMGC. And we formed a consortium, and we spent a lot of efforts in technical and operational developments. And tugboat has already been delivered successfully last year -- August last year. And we confirmed it's a cofiring, it's a blending of ammonia and pilot fuel, which as of today is fuel oils. But on a caloric basis, we used more than 90% of ammonia from various engine power load from 25% to 100%.

And we do recognize some greenhouse gas emitted, and in consideration of that, our GHG reduction rate from tank to wake is again beyond 90%. I believe this is a great achievement. And there has been a lot of lessons learned from both technical, operational and again, safety management point of view, all of which are now incorporated in the development of this deep-sea ship MGC, medium-sized gas carrier, which is supposed to be scheduled to be delivered November next year. The main engine and diesel power generation engine, both ammonia fueled have already been developed.

And not only making a technical development, we also need to expand our track records so that everybody can recognize NYK as a frontrunner and pioneer in the field of ammonia. We did have a lot of achievements. I'm not touching everything upon in details. But basically, how to optimally or efficiently, safely use ammonia, consume ammonia for fuels. How we are able to ensure safety, how we are able to commercialize all those activities or the track records we've been doing. So -- this is a conversion of fuel oil MGC, but we supported JERA who is driving the utilization of ammonia from the power sector and carried out a trial combustion in their power plant, and we transported ammonia for them. And ship-to-ship operation is another activities we did -- recently did in Celta, Spain. We carried out around 20,000 -- 23,000 tons of ship-to-ship transfer of ammonia. So our -- the black ship is our ship. And orange ship is our partner's ship, transferred ship -- the ammonia offshore.

So in the case, we have some limitation that put specification, this type of operation will be required. And as the scale of the trade grows, we expect this type of operation will be more needed. Just a brief videos.

[Presentation]

So this is the ship operations. And we also are an explanation of the new businesses or new values out of our activities. And this is a trial, but the tugboat, which today uses very clean actually, ammonia, which is -- the sources is waste plastic and dissolve it and get hydrogen and formulate ammonia. On the other side, we have CO2, but it is recycled food, beverages. So it's a sort of a circular type of ammonia.

So we worked to create a environmental value out of the combustion of the clean ammonia. And we successfully registered a credit. So as we continue to drive the demand for ammonia and adoption of ammonia, this is another area of interest where we will continue to work on. The tugboat which is, again, using ammonia for fuels.

[Presentation]

Thank you for watching. And ammonia-powered MGC, we're going to deliver next November -- November next year. We have already contracted with one of the leader in ammonia trading Yara based in Oslo, Norway to charter this ship out. So we are like-minded partners to jointly drive the low-carbon clean ammonia for both industries and fuels. And while we are working seriously on carrying out the technical development, and at the same time, expanding our track record, we also want everybody to understand the benefit of using ammonia for fuels for the ships. So now we are also spending a lot of efforts for advocacy and rule-making activities.

NYK is a private company, but we do this because we want a new market to be picked up. So we want to enhance the understanding, especially both from the safety point of view because many player -- industry players, including shipowners, ammonia producers, shipbuilders, regulators, port terminals and everybody has concerns about that. We want to provide them with sufficient understanding and confidence that ammonia works safely as a fuel for the ships. And at the same time, we will need standardization, especially from the viewpoint of safety management, what is a safe ammonia-powered vessel. So we've been working really hard with the class societies and regulators to jointly establish the rules.

All these efforts will definitely lead to the establishment of the new markets and consequently, new business opportunities for NYK. And we are -- we recognize ourselves as 1 of the front runner, first mover. So we -- our ambition is to be the party who knows most about the safety standards, regulations and so on and obtain the reputations and also the trust from our customers. That way, we want to be the first mover and get the pole position in this segment.

But still, there are a variety of challenges in front of us. Supply chains are yet to be established in terms of the clean fuel ammonia. We will need the shipyards to be capable of building ammonia-powered ships with sufficient capacity. We need the ammonia-powered ships and at the same time, ammonia fuels to be cost-effective. It cannot be widespread used unless it goes very affordable. And last but not least, we need the rules, both to govern and supposed to encourage the adoption of ammonia and new fuels. That is the reason why we need internationally consistent regulatory framework, and we count very much upon IMO.

So NYK, again, as a single company, we're not able to do everything all alone. In order to build up a new market, we always need collaborations, not only with the governing regulators, but also the NGOs and POs and also class society and academias as well. We have a lot of collaborations. This is just a tip of iceberg, but we have a -- we are a founding member of the Mærsk Mc-Kinney Møller Center in Copenhagen. We are one of the Board members of CFAA, Clean Fuel Ammonia Associations. Again, we are one of the Board member of Global Center for Maritime Decarbonization in Singapore. And last year, we signed a memorandum of understanding with Maritime Port Authority of Singapore, Singaporean government to jointly work for decarbonization and DX as well.

So the partnership is another strategy that we will need -- definitely need to take. We will definitely need to continue to take. So there are a lot of journeys in front of us. But our recognition is unchanged again. The decarbonization is unchanged target, and there will be a lot of business opportunities in front of us. Thank you very much.

Thank you very much, Rokuroda san for this very comprehensive presentation. So then let's move on to the Q&A session. [Operator Instructions]

And I noticed that we already received a few questions. So let me read the very first question. The first question is a very straightforward question. When does this fuel transition business contribute to NYK's profit and how much?

Thank you for the question. Very important. We don't do it for volunteer. But the specific timing cannot be stated at this moment, but it's anticipated that a certain amount of profit will be generated before 2030, irrespective of the movement of IMO.

Okay. So I'll move on to the next question. The next question is about MEPC 83. What will be NYK's next action in response to the result of last week MEPC 83?

Yes, it's truly disappointing that the adoption has been postponed for a year. But the direction of the decarbonization, as I mentioned, in the maritime sector is unchanged. So -- and I also understand the discussion among IMO is underway, continuing towards the establishment of the rules. So we will steadily continue and carry out and advance our value chain approach, of course, carefully monitoring how the new rules to be formulated. So we will definitely -- our direction is unchanged, but carefully monitor and go flexible depending on the situations.

Thank you. Okay. Then let's go to the next question. The next question is what are the main safety policies, critical points in the development of ammonia fuel vessels?

Yes. In developing ammonia-powered ships, safety comes first. Nothing come -- we are not able to make any compromise. And in order to ensure safety, they are basically 3 pillars. Reduce the probability of contact risk with ammonia, especially for the crew members. And two, but still, leakage may take place out of the engines and so on. So we will need to prepare for the potential leakage. And the ship might -- in the worst case, ship may leaking ammonia gases, and at the same time, blackout take place, which we call double out, prepare for the double folds. So these are the 3 pillars and are very basic principle in developing ammonia-powered ships.

We do a lot of elaboration into the ships based upon all these 3. First of all, we need to ensure the resilience of the ship and engine as a hardware not allow any leakage. But still leakage may take place. So we do, let's say, compartmentalizing each segment, such as engine room, maintenance room, and accommodation rooms and so on. And still that is not enough. So in the case of blackouts, that the leaking gas may diffuse into various series. So we elaborated the ventilation routing as well.

And at the same time, we established a remote controlling systems of the engine itself as well as sensoring systems, so in order to detect leakage as quickly as possible.

Thank you for the questions. Let me read the next question. The next question is, I understand that NYK is focusing on ammonia. But what are the other alternative fuels that you are putting effort into?

Thank you. Yes. So we are working on multiple candidate next-generation fuels. Let's say, methanol, biodiesel, biomethane so on. So our activity is not a simple procurement. We go beyond that to explore business opportunities. And basically, what we will do and we're working on today, is to basically move into upstream. But at the same time, pursue midstream, meaning transportation, ocean transportation opportunities. And if it materializes, and at the same time, if we are able to drive further demand, we also look into the downstream, which is bunkering businesses. So basically all the same as ammonia.

Okay. Well, the next question. The next question is what do you see as the most critical next step in making ammonia as a mainstream in mining fuel?

Yes. I think it's, again, an essential question. So I mentioned why ammonia, especially because it has a scalability production. The price may go down, and we're able to aggregate the demand to have further large-scale supply chain to set up. And that is the advantage of ammonia over the rest of the candidates. But again, we would need to prove to the world that it works safely and efficiently to drive further understanding. This is 1 of the keys that ammonia will need to overcome in order to be the mainstream fuels. And at the same time, economies are still challenges. So we definitely need the new IMO level regulations to encourage the use of new fuels, including ammonia.

Thank you very much, Rokuroda-san. So the next question is about the challenges facing in ammonia. Is there any gaps or challenges that you found when comparing to the initial expectations in the development of ammonia tax, medium gas carrier and in the creation of value chain business?

Yes. To be honest, from technical and operational development phase, majority of the findings are within our expectation range when we kicked off the development. So that is the reason why we have more assurance than before, more confident than ever that ammonia really works for the marine fuels. One of the, let's say, gaps or new findings we gained, was actually ammonia works really good as a fuel for the ships. The engine response turned out to be very good -- very, very good. As I said, it's a little technical element. So -- but probably not -- might not be that relevant to the participants today. But it has difficulties in ignitions. It has flame retardants, burn slow. But that disadvantage can become advantage because we are able to compress all these ammonias without worrying about the engine knocking.

So we are able to obtain sufficient amount of energy output out of ammonia. That is a new finding. But last but not least, it's not necessarily a gap, but we also recognized that as of this stage, it is a little costly to have ammonia-powered ships, engines very new. The ship design is new. So it was a very expensive development activities. So we also recognized importance to further expand the fleet and push all those prices down.

[Operator Instructions] Okay. Then let's move to the next question. The next question is regarding ammonia fuel ships. Are there any changes in the interest from potential customers and other shipping companies is the question?

Yes. Despite the recent unfortunate outcome of MEPC 83, we recognize the interest in ammonia, both from the shipping industry and also our customers are getting stronger. It's growing. One is because there are some support progress by this public sector, as I mentioned, especially in the case of CFD, IRA or H2 Global. Logically speaking, they are driving hydrogen or hydrogen derivatives. So it is ideal for them to consider low carbon intense transportation mode. So the interest into ammonia-powered transport mode is now attracting many, many players today.

Okay. And I think the next question will be the last question for the moment. The next question is what are the major impacts by the Trump administration in terms of fuel transition?

It's a little difficult question for me to answer because it covers a wide range of industries, not only ammonia or just the marine fuels. But in the short term, there remains a lot of uncertainties, so we don't know what he will say -- start to say next. So we will need to stay cautious. But in the long run, I believe the direction itself, especially the direction of decarbonization will remain totally unchanged.

The next question is about -- the question is, how would you view the potential of importance for the Japanese government stepping up to help the industry to build or develop ammonia fuel or fuel alternative vessels? Do you see any change after the MEPC 83 is the questions.

After the MEPC 83, we haven't communicated with the government yet. But again, I don't find any significant change and the position of the government itself. They are strongly supporting the decarbonization and adoption of the new fuels and relevant technical developments in the maritime sector.

Thank you very much. We still have a few minutes, and we still accept any questions. Do you -- has somebody has more questions? Well, it seems not. So -- so now we will conclude this webinar. Again, thank you very much for your participating -- participation and your contribution. After the session, you have a survey screen, and we would greatly appreciate if you could take a moment to provide your feedback.

Again, thank you very much for joining today's webinar. I hope it was very useful and see you in our next seminar. Thank you very much.