Nippon Yusen Kabushiki Kaisha (9101) Earnings Call Transcript & Summary

So time to begin. We would like to start our presentation about our new medium-term management plan. Sail Green, Drive transformations 2026, a passion for Planetary Wellbeing. I'm Shimomura, Head of IR, I'll be serving as moderator today. Before starting, we'd like to tell you a video about our medium-term plan. It's about 30 seconds. After that, the numbers will be showing up. [Presentation]

I'd like to introduce the presenters. Mr. Nagasawa, President, Representative Director and CEO, to your right. Senior Executive Officer, CFO, Mr. Soga, Ms. Soga, nice to meet you, to your left, [Mr. Banno], Executive Officer. These are the 3 speakers please be seated back I'd explain today's agenda. So it's a hybrid meeting some in-person some virtual. Mr. Nagasawa will deliver opening remark, and then Mr. Soga will give the presentation, which is scheduled for 30 minutes. After that, we will have a Q&A session. After Q&A at this event, we'll have time to take photographs. And finally, we plan to end the session at 1700 hours. Nagasawa, our President, will speak.

Good afternoon. I'm Nagasawa, President of this company. And thank you for coming to last night of the new medium term management plan. Sales grew drive transformation 2026 and passion for Planetary Wellbeing. We're very grateful that you are here. And I'm sure some of you are listening online, but I want to thank you for your support to our group's business. Now making this announcement, I would like to say a few words briefly. Currently, we have this growth medium-term management plan that will end this month. And the business environment changed dramatically during this time. And from what we've seen and from outside, there have been voices that we need to revise the medium-term plan. But because the changes were so dramatic, we wanted it carefully examine the situation of the business and put together a new medium term business management plan. So last year to prepare, we establish a task force of young executive officers thinking about the -- what we need to be in 2050, and then back [indiscernible] sometime and discussing what we're going to do and the management committee has refined that into the near medium term management plan. And we have outside directors and outside auditors joining in the debate in putting together this plan. And the contents will be expand later by Mr. Soga, who will be the new CEO. And the point is the ESG management that we have been doing, we're going to promote that further and also the cash that has been accumulated and the cash that will be accumulated in the next 4 years, how to allocate that? And what are we going to invest in? That is going to be easy, and we're going to focus on current business and also understand new business. And in terms of return to our shareholders in terms of capital policy. This time, we have reviewed that, and in terms of that direction, I think we are able to show a clear direction. This past Tuesday, we have acquired all the shares of an [indiscernible] we have sold it to new ANA Holdings. And so concerning this company well, we were able to show the direction and we are happy that we're able to present this time with that announcement of the sale of Nippon Cargo Airlines as well. So now we'll have Mr. Soga who will present the new who will be the next CFO from April.

Good afternoon. I'm Soga, CFO. Thank you very much for joining us today. I'd like to start by explaining our new medium term management plan MTMP, which is available on the website or on the screen for you to see. Today, I will follow this agenda in my presentation. This MTMP consists of a management strategy to ensure that our group is a business group that contributes to society while achieving sustainable growth and a new financial strategy to promote management with an awareness of improving capital efficiency. Before I explain the framework at the MTMP, the business and function strategies and the financial strategy in that order, I would like to explain how we have developed this medium-term management plan, MTMP. As Mr. Nagasawa mentioned, maybe what I'm going to say have some overlapping remarks. Society today is at I mentioned turning point in history, and many things are happening around the world that are completely different from the business environment we had previously assumed. Unless increasing uncertainty, we need to anticipate the megatrends in society over the long term up to the year 2050 and predict what the business environment to run in a company will be like, and what challenges we will face that and then backcast from there to determine what strategies we should have now and what we should do over the next 4 years. That is the question we post on ourselves. In other words, this MTMP sets out a major strategy for the group to continue to grow sustainably with society on the long road to 2050 and as well as actual guidelines for what we should do over the next 4 years based on this strategy. I will now begin with the outline of the MTMP. First of all, in putting together this MTMP, we have formulated a new vision of what we should aim and aspire to be by 2030 able to be a business growth that contributes to society being in demand by society and achieving sustainable growth. And that vision is we could be on the scope of a comprehensive global logistics enterprise to cooperate value required for the future by advancing our core business and growing new ones. This specially includes 3 elements of [indiscernible] and co-creation. The message is that while the company's starting point is its founding business of shipping, it will go beyond that. And with both core and new business realized advancement and growth through challenge and co-creation, which has been the culture of our company since its foundation. Originally, we set out branding value to life as our purpose and social mission and advocate it values that all group employees should have in common integrity, innovation and intensity. To these, we have added the new vision of what we should aspire to be we organize them as mission, vision and value. This MTMP can be set to indicate specific management strategies and action guidelines for realized in vision, which is the image that we should aim for. This slide shows the backcasting mentioned at the beginning, where we have analyzed megatrends in 4 areas, population, globalization, technology and environment in order to forecast throughout in 2050 and the business environment in which we will operate. This is a summary of the megatrend analysis, and we have extracted the implications for our business from the perspective of 4 megatrends. Briefly, the first is that demand for general consumer goods will continue to increase as the population grows and demand for container shipping and logistics will grow continuously in the long term, but it is also necessary to consider responses to sporadic geopolitical risks. Second, technological developments and advancements and the environmental responses, changes, manufacturing methods and what products are transported and how they are transported and taxation on GHG emissions will be strengthened we will be fully prepared for changing trade patterns and the decarbonization of fleet and transport equipment. Thirdly, technological advances and decarbonization trends will cause major changes in the economic value chain and revenue streams. And this is where new revenue opportunities for the company will arise. Based on this analysis of mega trends, we have developed this backcasted medium-term plan titled Sail Green Drive Transformations 2026, a passion for planetory well-being. It expresses the world to put ESG management at the core. And in particular, the passion for decarbonization activities to protect the global environment and the will to powerfully drive change. This slide shows the direction that each of our business should aim for, based on opportunities and risks in each business. I will not go into details here. But based on this assumed direction, we have set the target for our management strategy for each business unit as shown in the next slide. First, we will strengthen the Liner and logistics business that is expand the scale of our containership business, [indiscernible] and strengthen us logistics as the core of our network. Furthermore, in the bulk shipping business, we will strive to differentiate ourselves by demonstrating our environmental superiority and, at the same time, respond to the demands of society by ensuring a stable supply of materials and existing energy sources. In addition, we will work on new businesses that contribute not only to the decarbonization of our sales but also that of society in various industries and develop these into new revenue basis. These are the targets of business growth that we have set. Based on these business growth targets, here is a graphical representation of this overall management strategy. The key strategy for the 2 pillars existing core business and new growth in business are expressed as AX, Ambidexterity and BX, business transformation. The key strategy aims to advance existing core businesses as [indiscernible] or deepen the existing core businesses as well as advance and grow new growth businesses. So to evolve and grow the new growth businesses. Supporting this key strategy are the functional strategies of CX, corporate transformation, talent organization and group management transformation, DX, digital transformation and EX, energy transformation. These 5 transformations are defined as ABCDEX and is the framework for this medium-term management plan. I will now briefly explain our key strategy, AX and Ambidextrous management. The full quadrant diagram on the slide starts with the knowledge and core competence of our core business. There's the market customers access going to the upper right and the technologies services access is going to be lower right. In between, we show 3 directions of business creation in new fields. The first is to develop new markets and customers with our existing technologies and services. The second is to sell new technologies and services to our existing markets and customers. And the third is to develop new markets and customers with new technologies and services. We will work on our growth strategy of creating new businesses and advancing our core businesses with our Ambidextrous management to increase the value of the entire group's businesses. These challenges will be firmly supported by CX, corporate transmission, retired organization and group management transformation shown on the left. In terms of advancing our core business, in our liner and logistics business, until now, we have been focusing on getting the really established containership operations on track. But going forward, we will position the Containership business as 1 of the core businesses and through the all in one framework, we will strive to expand the scale of this business. Priority will be placed on ONE a growing and surviving in the fierce international competition, and we will support the growth in investments of ONE as a shareholder, and we will continue to dispatch talent to the company. The logistics business of [Nippon] Logistics is also a core business of utmost importance to the group. We will firmly capture the ever-growing lower demand for logistics and strengthen it as the group's growth engine. We are also considering aggressive use of M&A. Our air freight business will follow the policy that we announced on March 7. So on October 1, around that time and Holdings. We will acquire the NCA and the negotiations are ongoing in the current -- in this medium-term management plan. We will not be mentioning the air freight business. So please, I ask for understanding on that. Next, in terms of advancing the bulk shipping business, we will support our customers' transitions toward decarbonization and continue to fulfill our responsibility to provide a stable supply of existing energy as a transportation infrastructure business that responds to the needs of society. On the other hand, we are aware of the risk that demand for transportation of iron ore, coal and petroleum in developed countries, including Japan, will peak out, and we will optimize our fleet portfolio for multiple angles and continue to make necessary investments while balancing the risk of creating stranded assets. In the cruise ship business, the new LNG field cruise ship is scheduled to enter service in 2025, and we will promote the penetration of our brand concept as a luxury to strengthen the bank power of the group as a whole. in Creating new businesses, we intend to evolve our core competence as a shipping company by changing and advancing the conventional view of cargo as a business object ocean as the business domain and ship as the business asset. In addition to creating a system to safely transport hydrogen CO2, ammonia and other new energies as cargo by ship, by taking part in the value chain of these new energies not just the ship, we would like to evolve from shipping of goods to service creation. In addition, in order to deepen our focus from C4 transport to the C4 work, we will also participate in the offshore wind power value chain. We will also enter into advanced vessel design using simulation technology and autonomous operation management technology such as online ships to change our perspective from ships as a means to ships as an objective. And instead of just ordering vessels, we will contribute to the revitalization of the maritime industry together with Japanese shipyards and marine equipment manufacturers. The individual measures described in detail in the boxes for each of the 4 quadrants are explained in more detail on Pages 36 to 38 of this document. So please refer to those pages. Next, I'd like to explain the functional strategies, CX, DX and EX that support this and Ambidextrous management. The first topic is the talent and organizational transformation under CX. As shown in this slide, we will promote recruiting, developing and any change in diverse talent to play an active role in realizing ambidextrous management, while at the same time, strengthening the HR corporate function that support them so that each of the 35,000 group employees can utilize their abilities in the group's various challenges. In addition, we will promote the aforementioned mission, vision and value and foster an inclusive corporate culture that makes decisions based on diverse prospectives. We consider the transformation of group management to be another important CX measure. We will increase the vision sharing and engagement across the group and prepare a platform to fully commit to potentials of group companies. The further evolution of governance is another important CX. In January this year, the company announced its transition to a company with an audit committee. The aim is to speed up decision-making by delegating the authority to make important business decisions to the executive directors and to strengthen the function of the Board of Directors by focusing on deliberations and matters that will enhance corporate value, such as medium- to long-term management strategy and sustainability. At the same time, the monitoring function of the Board of Directors will be strengthened by appointing a director who is also a member of the Audit Committee. The formal transition will take place after approval of the General Meeting of Shareholders to be held in June. Next, digital transformation, DX, We have already started to develop the infrastructure such as digital talent development, data use, core system update and ID security updates. What we would like to promote in particular in the future is the right-hand side of the slide, the flow of generating resources through rationalization and linking them to new business and to foster a culture that generate new businesses through the group's internal incubation program. From here, I will explain about EX, energy transformation. Decarbonization is a great challenge for both society and a company but we will systematically accelerate various initiatives to ensure that we achieved net 0 emissions in 2050. It's a group that contributes to society and experienced sustainable growth. As a Scope 1 GHG reduction strategy for 2030 on the way to 2050, net 0. We reduce GHG emissions by focusing on the 4 reduction levels on the right-hand side of the slide, hardware and fuel conversion, optimal operations, energy saving technology implementation and use of biofuels. This things we can do on our own, but areas that we will co-create together with shipyards, marine equipment manufacturers, fuel suppliers and many others. Internally, we will establish an ESG strategy headquarters in April. This headquarters will play a central role in controlling these 4 reduction levers and strengthening the system to reduce GHG emissions in cooperation with internal and external parties. We are also planning to fully introduce the internal carbon pricing ICP system and investment decisions. In terms of decarbonization of international vessels, we aim to reduce GHG emissions by 30% or more by 2030 by promoting the introduction of new LNG fuel vessels as part of fuel conversion and by making maximum use of technologies that contribute to GHG reduction in terms of operations. The fuel convention will be further enhanced through the full-scale introduction and expansion of the number of 0 emission vessels, mainly new ammonia fueled vessels to accelerate the reduction of GHG emissions. For ship types that are not easy to decarbonize, we aim to achieve net 0 emissions by 2050 through the use of biofuels and utilization of carbon offsets. The planned investment in the vessel decarbonization is in the order of JPY 450 billion by 2030. The breakdown is JPY 430 billion for new construction, including fuel conversion to LNG fuel vessels and another JPY 10 billion each for optimal operation and implementation of the latest energy-saving technologies. Out of the JPY 430 billion for hardware, the premium for fuel conversion is expected to be JPY 80 billion, and the number of low carbon and decarbonized vessels scheduled for construction between 2023 and 2030 and is currently expected to be 45. Vessel fuel conversion scenario is shown on the slide. We will be up to 2030, we will promote the introduction of new LNG fuel vessels in each vessel type to take the lead in reducing GHG emissions from around 2030 onwards. The main scenario is to convert to low ammonia fuel vessels with accelerated introduction from around 2035. For vessel types where conversion to gas approvals such as LNG and ammonia is difficult, the introduction of biofuels and methanol fuels were accelerated. Lastly, I'd like to explain our financial policy, including our capital policy. First, regarding our investment plan. During the full year period of this medium-term management plan, from fiscal 2023 to '26, we plan to invest a total of JPY 1.2 trillion. Our main investments will include JPY 560 billion to advance our core businesses, including food expansion of LNG carriers that contribute to the decarbonization of society, JPY 460 billion of reship level, which will contribute to low carbon and decarbonization through fuel conversion and M&A in the logistics sector and JPY 100 billion for new businesses such as offshore wind power, participation in the hydrogen and ammonia value chains and space-related businesses. Next, I will explain our shareholder return policy. During this medium-term management plan, we intend to offer shareholder returns with capital efficiency improvements in mind. First, we will acquire JPY 200 million worth of treasury stocks in 2 years from fiscal 2023 to '24. Second, as for our dividend policy, we will increase the target payout ratio from 25% to 30%. In addition, we will set a minimum dividend of JPY 100 per share and strive to realize stable dividends even at times of downward business volatility. In the case of upward business volatility, then 30%, of course, will be applied. And if capital accumulates even further, then based on consideration of investment opportunities and business environment, we will dynamically offer additional returns, thus expanding our TSR. We will explain more specific details of shareholder returns at the time of each fiscal year's earnings announcement. As a supplementary rule, we have considered not just dividend payout ratio, but other dividend policies, including the use of DOE. But given the volatile nature of our business, especially ocean freight, we have decided that the simple form of dividend payout ratio and minimum dividend is most beneficial. So there is no upper limit, but there is the floor. And that system, we felt is simplest and is the most beneficial to both shareholders and the company. So we be able to take this approach. Based on these considerations, our full year cash allocation plan is, as shown, it's designed to achieve both increased capital efficiency and investment for growth while maintaining our current credit rating. So on the left-hand side, you see the cash in. In addition to the operating cash flow generated during the medium-term plan, we will effectively utilize stock or free cash flow, which has been significantly positive over the past 2 years. Cash outside on the right summarizes our business investment policy and shareholder return policy for the next 4 years, which I've explained to you. A portion of the cash out, you see lower right in the circle, that is earmarked as management allocation, which will be strategically allocated by assessing investment opportunities and the business environment, thus ensuring a certain degree of flexibility in its utilization. In our financial strategy for the medium-term management plan, we have considered the ideal capital structure and shareholders' equity. The ONE business is a long-term growth business, but a highly volatile business, so we will allocate 100% equity to its assets and ensure an ample risk buffer for assets other than ONE, in light of capital efficiency enhancement, we believe it is appropriate to allocate 40% to 50% of shareholders' equity. Now the shareholders' equity figure is presented in a different way than in the past. Being a shipping company, we have charter fee liabilities. And under the current Japanese accounting standards such charter fee liabilities can be off balance sheet, and that is how we have treated this. On the other hand, recent accounting standard revisions and the IFRS standard adopted around the world, treats charter fee liabilities as lease. Japanese standards -- accounting standards may follow suite and we changed. So here, well, we -- previously, we were treating it off balance, but on this document, we are treating it on balance sheet. So here, you see the item on the lower right, that's low both charter fee liabilities. On this basis, we believe that equity ratio or shareholders' equity ratio of 40% to 50% is appropriate for assets other than ONE. Based on these 2 capital structure concepts, we believe that the total of these 2 should be the ideal capital structure and shareholders' equity ratio for the company and the consolidated entity, the figure on the left shows that. Based on these ideas, we have set the financial indicators on the left-hand side of the slide as our management targets for 2030. The major point is that we will make full use of work from fiscal 2023. With that, we aim to enhance the intrinsic business profitability and further expand corporate value we aim to achieve growth of 6.5% or more and profit of JPY 200 billion to JPY 300 billion and ROE of 8% to 10%. In addition, we have identified 3 nonfinancial indicators. They are safety, decarbonization and D&I. We are now rigorously studying the possibility of creating additional KPIs in these low financial indicators. In particular, toward enhancing human capital, we intend to analyze the results of the engagement survey conducted for the first time in the second half of last year to identify items that are appropriate for future target setting, convert them to KPIs and take concrete measures. Finally, the financial plan outlook. In fiscal 2026, the final year of the medium-term plan, we expect recurring profit at JPY 270 billion level. The shareholders' equity ratio is expected to be 49% after on balancing of charter fee liabilities. Work expected to be 6.5% and ROE, 10.2%. These forecasts are based on our policy on the cargo airline business that we announced on March 7. As a supplementary note, the recurring profit figures given here and the financial targets of JPY 200 billion, JPY 300 billion current profit are quite small compared to the JPY 1 trillion figures for the last 2 fiscal years, and we see like a significant decrease in profit. However, our recognition is that in the past 2 years, we had the COVID induced global logistics network disruption, extremely unique circumstances under which we had truly special results that deviated significantly from the trend. As shown in the graph on Page 43, if you exclude 2021 and 2022, which were under special circumstances, based on the trend of performance before that, our financial plan indicates a steady growth curve towards 2026 and 2030, so we hope that you understand that point. This concludes my explanation. Thank you very much. Questions?

Which business unit are you going to position as a growth driver going forward? As I see it, Linear trade seems to have the focal point of focus. So including that, what would be your growth driver going forward?

Allow me to answer. As you rightly said, the priority area that we are going to focus on that is to say we have existing core businesses naturally, container shipping and logistics. As far as container shipping is concerned volatility is an issue, but it's sure to go going forward. So for us, we will not leave this area. We will maintain our presence and keep our status in this area logistics. Likewise, as far as population grows, the demand for logistics will increase as well. But unlike container shipping, for logistics, we can do risk hedging and operate with lower volatility. Therefore, where these are the 2 pillars. One has high volatility with high growth. Another is high growth with low volatility. Those are the 2 areas we are going to put highest priority. Now about the bulk shipping. Going forward, I feel that the demand will increase for liquefied natural gas, LNG and LPG carriers as well. And then beyond that ammonia vessels and CO2 vessels. But at this moment, LNG and LPG vessels, these are the things we are going to make huge investments to grow going forward.

Several questions. Page 42, appendix. So about international accounting standards, you mentioned a little bit. So you're not pointing to this IFRS, but even with the Japanese standard, it's going to be put on balance sheet. So you're going to do this. I'm going to do this when you go on to the international standard. And you said JPY 700 billion, JPY 800 billion in terms of the charter fees. And I think you had 418 ships. And of them, how much would account for the charter fee liabilities? And what is the time and other liabilities, please tell me what that is?

Thank you for the question. About the accounting standards, you let me respond and IFRS charter fee, please Mr. [indiscernible] will respond. About the accounting standard, as you say, international accounting standards, IFRS, there's also the U.S. accounting standard. And also, in Japanese accounting standard, part of it is being reviewed right now. So for us, the charter fee liabilities and whether that will be off balance sheet or on balance sheet will have the biggest impact. Japanese accounting standards said it could be off balance. But based on the current review, the direction is -- and it's relatively clear that it will be made on balance sheet, not immediately, but that's as we know, 2027 or thereabouts, it will be treated on balance sheet. So in any case, regardless of which accounting standard you use, it's going to be put on the balance sheet. So we need to prepare for when the Japanese and with change. And also IFRS, we're considering whether we can introduce this. And so we are making those considerations at this time. So that's the response about the accounting standards. The latter part of the question is the other part, the other liabilities.

This chart itself just shows that the charter fee liabilities were put in different place. And the other part shows the balance sheet. So other than shareholders' equity and other than the interest-bearing debt charter fee liabilities, everything else is just pertained to that others all kinds of things put in there.

Sorry for a detailed question but what is the term duration for the charter fee liabilities like more than 1 year should be off balance sheet or whatever.

I think for what's been calculated if it's longer or it's 8 years. Then there's the 8-year worth of the liabilities. But if it's shorter, it would be general for that. I think 1 year, you would not include -- you don't take that kind of approach. How it will be treated in the accounting standard, we will see. So we just know I mean, the accounting standard itself hasn't changed. So you cannot do a detailed calculation. So we -- on our image, we set some conditions and remained calculation how much charter fee liabilities that we have. So 1 on a short run included. So the short term spot is not included and spot has various lengths as well. It's not less than 1 year. I mean some less than 1 year are also included. That's all.

I have a question to the question -- 3 questions. You are talking about logistics M&A. According to MTMP, you're talking about M&A. And what's the background of the sales of NCA? Last question with the announcement of the MTMP, your stock price declined a bit. What's your view on this?

About the M&A management allocation for JPY 140 billion, of course, we need to see how many possible targets of M&As will emerge. If the good deals, management resources can be used for logistics M&A. And if you cannot find good targets or candidates, we'll do something else. What we wanted to say through the MTMP is that we were willing to grow logistics. Quite recently we acquired American company to increase the warehouse capacity by 50%. That's how we are willing to grow the logistics business. Now about the NCA, on the 7th of March, we came to a basic agreement towards the end of June, we will like to finalize it -- about this background, since 1978 for 45 years, we were involved in the operation of NCA. Sometimes through a joint venture and certain times as a 100% owner. The size has been the issue. Right now, we have 7 in charter vessel and for own independent operation. A certain news report says, we are studying the possibility. Well, it seems that the timing to introduce new aircraft is increasing. But we were not quite sure how it will work out as a business. And then NCA, as a company, and the executives of the NCA, when we consider these, this is ANA Holding is a huge company with more than 300 aircraft and NCA can be utilized there. And for cargo transport, NCA is excellent. So within ANA Holding, it can emphasize its presence. That's why we came to the decision of the sale. With ANA Holdings, we are going to work out the details. But throughout the negotiations, ANA Holding showed a very sincere attitude, and we will continue to discuss with them so that the NCA as a company and NCA employees can work -- continue to work comfortably under ANA holding. Now by the stock price, we were quite shocked. Why is it the case that the stock price went down? As Mr. Soga explained for us we are shipping industry, but -- and we showed the minimum dividend level, JPY 100, and then purchasing of the treasury stock by JPY 200 billion and payout ratio we raised from 25% to 30%. So all good news, we thought. But why is it the case that the stock price declined? So I was discussing this with Mr. Soga before this was unexpected. That was -- that came as a shock to me.

One question. Page 29 about the shareholder return about the client treasury stock. And based on past comments. As the several years rate capital and you want to optimize capital structure, I think, that is the in. If that's the case in the early part of this medium-term plan, this could happen quickly, but you said from '23 to '24, so there's a range in terms of where we do this. What's the reason for that? And the JPY 200 billion, how did you come up with this number? I'd like to ask those questions, please?

JPY 200 billion, that figure itself. We think we were thinking about the future or in the next 4 years, how much cash flow we will generate. And what is the capital structure that we should aim for or capital efficiency that we should aim for. And also dividend to the shareholders, how much we would assume for that. All of that was taken into consideration in terms of capital structure, the first thing we decided that we should do is to do the JPY 200 billion. The amount is based on consideration of those several factors after the revisions amongst ourselves, we decided on that number. About the timing. As of now, we're saying fiscal '23 to '24, so over 2 years is what we said. But going forward, we want to do this quickly. We will think whether we will do it over 2 years or do it in one time. But at least within these 2 years, we plan to do this is that we are saying, maybe it could be JPY 100 billion each year. I do not exclude that and doing this as early as possible is another option. So that's my answer to your question.

I have 1 question to ask. About the financial planning, the target of profit on Page 33 of the handouts. Outside ONE for fiscal 2026 JPY 150 billion for recurring profit and then for '24 JPY 160 billion from 20 -- that translates to JPY 10 billion of profit growth from 2026 to 2030. Up until 2026, you're going to invest JPY 1.2 trillion involved with ROIC of 6.5% or more, then still, you are assuming this much profit growth of this size, which seems too small for me. If you could elucidate me on this, I would appreciate it?

In the business units other than ONE, and there's only an increase of JPY 100 billion of recurring profit, JPY 10 billion, sorry. Then logistics and automotive carriers, energy-related business, that is the automotive transportation in the bulk shipping. It seems that the glass is so full, so to speak. That's how we came up with the estimates. Actually, from 2026, let's say, at 2029, logistics will increase a lot. And then towards 2030, it will slow down. Automotive, transport and energy from 2027. Profit will grow. So you may feel somewhat uncomfortable. But from our perspective now, this is our estimate. We have core businesses and new businesses going forward. We have to recover from the existing business starting from 2029 and 2030 that we have to do, I mean, recovery. So these are the numbers. We cannot get from these factors. Well, I don't know whether I answered your question or not, but this is what I have to say.

Thank you. So until 2026. There are things you can recover, then 2029, 2030, within this 10 year vision, in the latter half, there are certain things you are going to recover. Is that, is my image correct?

Yes. But the recovery itself will take more years -- a lot more years, it's just starting of the recovery period.

I'd like to ask 1 question. Lets talk about the cash allocation. Now we look at operating cash flow, if you were not able to earn as much as you expect, then the JPY 300 billion treasury stock purchase, are you going to do it by borrowing money? Or if you have lower operating cash flow than projection, then treasury stock purchase, maybe less than JPY 200 billion. What's your policy there?

Thank you for the question. Well, current projection, we're looking at '23, '24, what kind of projections we have for those 2 years, we have not publicized them yet. In May, when we announced our earnings, we will show the prospects, and we're currently tabulating. And based on that, the '23, '24 treasury stock purchased JPY 200 million. We are planning to do it no matter what. I mean if there is really big unexpected event, unless that happens, we will do this. That's my response to you. Thank you very much.

Simply, I have 2 questions. First, ONE about the profit plan, the assumptions -- what are the assumptions of this profit, is it 2026, when things get normalized? That's my first question. My second question towards the ONE's asset, you share with us how much shareholders equity are going to help. And ONE has the deposit equal to shareholder security and then NYK doesn't have to have an extra shareholders' equity. If the cash position of ONE is too high, you can return it back to the shareholders, in my view. So what is your take on this? That's my second question.

First, [indiscernible] Executive Officer, can you answer?

ONE is a profit and loss plan. This is our own simulation. I have not come to the agreement with the shareholders, 3 shareholders. This is based on the long-term plan. We have not announced a very solid midterm plan. This is just a simulation that we did. But the current market, as you know, the level is declining during the COVID. And I'm sure this will improve not quite shortly, but it will improve going forward. This is -- we feel that this is an extraordinary level. And steadily, this will increase, and that's why we came up with this number. About the second question, already ONE has the asset accumulated cash. It seems that NYK doesn't have to accumulate the shareholders' equity on NYK part, you said. How do we balance assets and equity for ONE? Well, we are in the midst of discussion with shareholders. Essentially, we need to increase the size of magnitude well, it's not an agreement, a finalized agreement. This is how we feel. But ONE -- but toward ONE, we need to make certain investment going forward. And the cash accumulated is equal to assets. But on a long-term basis, it's going to be diverted to investment container business at ONE. As Mr. Soga said, it has a high level of liability. So our internal calculation is that shareholder equity should be 100% to counter the asset. That's why we came up with this level of shareholder security. Thank you.

And if I may add, ONE itself at this moment for the investment plan, there has been some ambiguity, but we sometimes discuss with ONE about the investment plan. Most likely, in the first half of this year, they will announce the investment plan they have accumulated cash and they will make clear how they are going to use this. When the time comes, we can announce that to you.

One question. Page 30. So operating cash flow JPY 820 billion including dividend from companies with equity method, maybe you cannot disclose dividends from ONE, how much do you assume, can you give us a rough figure? If that's difficult to say. So dividend policy from ONE, when is it going to be determined or set?

I would ask Mr. [indiscernible], Executive Officer, to respond.

ONE dividends, of course, an amount has been reflected here. But we would like to refrain from giving you figures amongst the 3 shareholders. There was a previous question to which I responded, and I explained how much cash should ONE hold, how much should we put into investment that kind of discussion is ongoing steadily, but we have not come to a final conclusion. So I can't answer that question how much.

We received some answers in the chat box. The payout ratio you said is at 30% limit. What is the reason. Have you studied -- reviewed to make it even higher? Second question, what is the reason for introducing the minimum dividend? And why is it JPY 100? Are you going to study a possibility to be increasing the minimum dividend at higher than JPY 100?

Thank you, but the payout ratio at 30% have been not studied the possibility of making higher earlier, as I said earlier, JPY 200 billion of purchasing treasury stock and 30% payout ratio. We have stock and the prediction of the cash flow going forward. I mean, considering all these, and we try to improve the capital efficiency and what are the investment opportunities what are the contents of investment, we need to examine all these, and we have to consider ratings. We put so much emphasis on rating. So including all these into consideration, we came to the conclusion of JPY 200 billion of purchase of treasury stocks and the payout ratio at 30%. We thought these levels would be valid and justified. In the next 4 -- during the 4 years of MTMP, we are not going to change these levels. The reason why we decided on the JPY 100 minimum dividend even if the volatility goes downward, we want to have the guarantee, well probably, I shouldn't use the word guarantee, but we need to give a certain stable level of dividend, let's say, the stock price, current stock price today, there was a dip but looking at the stock price, what would be the rate of return, a little bit of 3% over. That's the level that the dividend is being supported and that can give a sense of comfort to shareholders. Now what about the upside business environment is improving. And if the performance is better than we expect in next year or 2026, and then 30% will be leveraged. That is to say there's a possibility that there is an upside to the dividend. If the capital increases more than we expected, even further, there will be an additional return to the shareholders. So without the necessity to change the payout ratio at 30% during the period, we can provide the additional shareholder returns.

Page 23, GHG reduction. Science-based target degree. Can you talk about the possibility of that 30%. 2030 i think it would be difficult get that, what do you think about that?

SBT, this year, we are planning to reapply. So based on 1.5 degrees C scenario, we're going to reapply on that basis. For that, we -- what we're going to do, we are making a very steady in detail. So as you pointed out, with just a 30% achievement in 2030 with just 30% reduction, we not achieve the 1.5 degrees scenario we will be far from that target. We understand that. And on this page, as is written here on my explanation, I know I have explained this clearly, 27% and minus 30% for international vessels 30% -- and upwards is what it says. So we will do this, but we will aim for even higher by 2030. That's our stance that is shown here. So we have the ESG strategy headquarters, which is the driver for this effort. And so they will control the levers of reductions. And also in terms of investment for decarbonization, we will be making there. And the return from that in terms of CO2 emission reduction becoming higher. There is a good possibility that we will have that return of increasing emission reductions. So if you add all of that, it's minus 30% from minus 30%. So that means that we will be investing and we want to increase that reduction further. And we want to come closer to the STT 1.5 degrees C towards '23, we're going to make our best efforts.

I have 2 questions. One is ONE says future growth. And of course, you are going to support ONE's growth but financial support, funding support, is it one of the options you have? Another is about NCA, the President talked about the expanding the scale. The first plan -- the initial plan was about 20 aircraft in fiscal 2016. What was the reason the NCA could not expand in scale?

First about ONE allow me to answer. According to the investment fund, as I said, and there is a discussion going on within ONE, 3 shareholders, whether they can contribute capital additionally or not, we do not know yet. As we look at the present situation, with the high level of cash ONE, basically, it's so difficult to assume additional funding from the parent company. But depending on the plan they have in the future, there's a possibility that we are going to provide more cash. We would not exclude that possibility. Have I answered your question?

Yes.

And about the NCA, as you may know if we have to start the -- if this aircraft type changes, the production process should start allover again like. Like 777, you have to train from the start and you get the certified engineers and mechanics as well. The production system has to be rebuilt from scratch for a new type of aircraft. So for the continuation business, we were thinking about 20 aircraft back in 2016, but it was a difficult situation back then. And this time from Jumbo to 777, we have to change that's the timing you are faced with. With this size, can we rebuild the production system all over again. At the same time, ANA Holding has -- wants to increase the capacity, production capacity. So it seems that both parties' interests have matched, which resulted in the basic agreement at this time.

First question about the investment to decarbonization is going to make such investments. So beneficiary and for users, how are you going to ask the customers to share burden as beneficiaries? And about the economic security, you mentioned that in the first part of your talk. So what's your image? And what are you intending to do? And NCA, they will leave the group, but what will be the relationship between USA and NCA in terms of operations?

To respond to your first question, I will go to that one. Compared with regular ships, it will be a more expensive ship the decarbonized ships that will cost more and the cost burden should we ask customers to pay. So we would like that to happen in terms of higher charter fees. But in actuality this cost something that should be bought by society as a whole to protect the environment to protect the earth society as a whole is what we think should happen. So we the shippers and the clients will also share some burden. We're always talking about this. We're asking so could you take this amount of burden and also enjoy the benefits talking with the shippers and others. So CO2, there's going to be carbon tax in the future, and Nagasawa is always saying, CO2 is become going to become a cost and the CO2 emissions. If you have ships where you can have lower CO2, that would be a great benefit for our customers and that we are talking with our customers from that perspective. Now customers also -- they have this Scope 1 and Scope 2 emissions and taking various measures to lower emissions from Scope 1 and 2. And in terms of cost burden, it's not an environment that they will immediately be willing to take on that burden and that's what we feel from the negotiations. So we need to be frank with each other and talk how we move forward. We're connected in each value chain supply chain. So hard to share that with support of the government agencies, I think we would like to continue this kind of discussions in various ways. So some European shippers consignments, they want to pay a premium. And so slowly, we are trying to explain is starting to be accepted. It takes time, but we will like to move forward with that stance. The second question about the economic security. So talking about geopolitical risk is the Russia Ukraine issue. And sharing LNG, we were involved. So specific responses we have to take, and we accumulated the knowledge and experience around that. And so these kinds of geopolitical risks, they are starting to emerge in some other areas or it might happen in the future. So for that, we'd like to use our knowledge and experiment that we accumulated. And we need to sort out what we need to decide and how we should prepare. So what how to respond when something happens like changing the route. So we include about that. We would like to make the necessary preparations. Third question was NCA. Concerning NCA, as we said, Nippon Logistics and ourselves within the medium-term management plan. We place it as a major pillar as a growth strategy. So for the current NCA, the biggest client is [indiscernible] logistics share compared with [indiscernible] is relatively similar, but [NCA] logistics are becoming stronger. And so at NCA and the ANA Holdings, we want them to become a major customer. So that will be the air freight business position of Nippon.

The next will be the final question.

Thank you for waiting. Mr. Soga talked about lower volatility business area. For example, offshore wind high generation can be one or hydrogen value chain is another. Is it the case? For new business and the core business, what's the proportion for each in percentage time, percentage turn going forward? But the LNG investment of JPY 300 billion, which is quite high. If you could elaborate more on this? I would appreciate it. Finally, in implementing this MTMP, Mr. Soga, well, you please share with us your passion about implementing this MTMP Mr. Soga.

Asked a question to which I gave an answer. And what I said was that within the core business, the priority area that we focus on, container business logistics and LNG carriers and LPG carriers. Naturally, with a 2-pillar strategy. How can we explore new businesses and the contents of the new business, just like Mr. [indiscernible] said, for example, that includes offshore wind power generation or energy-related businesses. So what's the percentage for each. In terms of the size of the business, if I may say, but last for the 4 years, the core business accounts for so much, let's say, 60-40, 80-20, I cannot say that at this moment. We saw seats, and we are proceeding with this. But whether these can grow to become bigger as a full-fledged business will be revealed after 2027. So at this point in time, it is too early. It's still settling. But in terms of the size of the investment, and it will take time to recover this in the form of the return, but a certain level of investments are being to be done about JPY 100 billion or so for the new businesses. And total is JPY 1.2 trillion of investments. So for new business investment is about 10%, a little bit more than 10%. That's how we start. However, it is not restricted there. If there are more seats, we would like to invest more. Now LNG carriers at JPY 300 billion. This is the core business. The demand for LNG was quite truly felt by Russian-Ukraine conflict, in terms of decarbonization, LNG fuel vessels is increasing in number. Southeast Asia and the emerging economies, there are shift from coal-fired power generation to LNG fired power generation. So globally, the demand for LNG is likely to remain high various reports, talk about this. So the demand for the LNG carrier will likely to continue. So it should be one of the stable business, and we will give a prioritized investment into this sector. Finally, in implementing MTMP, what is the level of my passion? Thank you for your question. You ask this question. That means so much to me. I feel honored to be asked. But today, our stock price declined a lot, and I have to apologize in terms of financial plan, this is the first time in the history of NYK that we introduced such detail the MTMP. This proves that not only we ourselves, but our stakeholders are serious in expanding this business and investors, including the will of the investors, together with them, we would -- we are committed to expand the business. As a reflection of such passion, we came up capital policies and financial policy. We discussed so much and that culminated in the form of this MTMP the numbers, the profit, well, it used to be JPY 1 trillion, now it's JPY 200 billion, JPY 300 billion, you may say so. But 5 years ago, we announced a target of recurring profit we announced at that time was JPY 80 billion to JPY 100 billion and then 5 years, hence, we are talking about JPY 200 billion to JPY 300 billion. So compared to 5 years ago, it's double or triple the level. We have been solidifying the foundation, and we are ready to move forward. So based on this MTMP, we know what we should do. So we will implement this fair and square after 4 years, when we look back on this MTMP, I would like to share my conviction that we have done a good job. I would like to ask for your continued support. Thank you.

Thank you for giving us so much questions. And thank you for staying for a long time. For additional questions, please send it to IR department and we will respond. So thank you for staying with us till the end. We're sorry that we went over time. With that, we would like to conclude this presentation of the medium term management plan. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]