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

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.]