”K” Line’s shareholders return and dividend from ONE

Q-1:Please explain why the year-end dividend forecast still remains at 300 yen per share.


A-1:We were able to expand our financial base, and resolve that management issue sooner than expected. As a result, instead of just focusing on the dividend policy, we are preparing a Medium-Term Management Plan that includes growth strategies. As part of this, we want to enhance not only dividends but also overall shareholder returns from the next fiscal year onward, thereby helping to improve our corporate value. At the same time, we recognize that we need to create a total package that will satisfy our stakeholders. Since we want to announce and explain the dividend policy together with the new Medium-Term Management Plan, we decided not to revise the dividend forecast at this time.



Q-2:According to the Financial Results Briefing Material page 7, the year-end dividend will be decided based on the full-year results. Does this mean it will depend on the dividend received from ONE? Could you comment on this?


A-2:Under Japan’s Companies Act, the maximum dividend amount is calculated according to the amount of retained earnings shown on the non-consolidated rather than the consolidated balance sheet. Therefore, no matter how much profit is made on a consolidated basis, it is difficult to increase dividends unless profit is returned on a non-consolidated basis. Since ONE, our major affiliated company, is jointly owned by us and two other Japanese shipping companies, its dividend policy is not entirely up to us. Therefore, we need to keep this in mind, and wait for ONE’s dividend to be finalized.



Q-3:Would you say that there are no particular issues or obstacles concerning the payment of an interim dividend by ONE to the parent companies?


A-3:ONE has no particular problems with its business activities, including the payment of dividends to the parent companies. ONE’s dividend policy will come with an announcement of financial results and will be based on definite facts, such as an actual resolution by the company’s board. Please note that our announcement must remain in accordance with decisions pertaining to the current situation for ONE.



Q-4: In the answer to A-1, you mentioned “sustained dividends starting from the next fiscal year.” Could you tell us whether the term “sustained” refers to the dividend payout ratio or the absolute dividend amount?


A-4:We were not indicating that dividends will be pad in a specific way. One of our responsibilities as a company is to pay dividends, whenever possible, in an ongoing and sustained way. Therefore, we were talking about dividends in a general sense.



【Next Mid-term Management Plan】

Q-1:One of the goals of your next Medium-Term Management Plan is to “improve corporate value.” What kind of specific corporate value are you aiming for and what will you try to implement?


A-1:For us, corporate value is a rather general term, and we have no special definition of corporate value. However, what we would like to say to analysts and shareholders is that creating future cash flow will be one of the financial factors necessary to improve our corporate value. This will be based on the ability to make a decent investment while maintaining a certain rate of return on invested capital. As far as this is concerned, we have drawn up a growth strategy that should enable us to generate cash flow in the future. We intend to enhance corporate value for our shareholders and stakeholders, which means more shareholder value as part of general corporate value. As for the overall corporate value we are seeking, various things are being discussed within the company. To answer your question, please refer to the financial definition we just mentioned.



【Forecasts for FY2021】

Q-1:In the second half of the fiscal year, you have implemented structural reforms ahead of schedule, namely elimination of unprofitable vessels and businesses, such as dry bulk and offshore support vessels. Would you say that the structural reforms indicated at the end of the second quarter have almost been completed? Do you have any plans for additional structural reforms in the fourth quarter? Could you comment on this?


A-1:All the structural reforms we had planned were completed during the current fiscal year. No more reforms are planned at this time.



【Containership Business】

Q-1:Could you share any insights you may have on the possible upside and downside scenarios for the containership market in the next fiscal year?


A-1:One key point will be the outcome of the long-term freight rate contracts for the next fiscal year currently under negotiation. The long-term contract ratio is about 65% on the North American routes and about 50% on the European routes. The determination of the freight rates of such long-term contacts will be key. They will likely affect the way short-term freight rates move to some extent. The supply chain disruptions will likely continue into the next fiscal year, at least until the end of 2022. So with this basic trend, the freight rates are unlikely to collapse. In terms of where long-term freight rates are headed, there are reports of rates returning to a more reasonable level, dragged down by the current short-term rates. In any case, this is something to keep an eye on.

 As for the downside scenario, supply chain disruptions are disappearing faster than expected. Of course, this is desirable in order to provide proper service to customers. However, conditions in the freight rate market could also decline as a result. Another key point will be political and economic trends, especially the trade friction between the Chinese and US governments. There are also other potentially negative factors, such as the direction of contract negotiations with the International Longshore & Warehouse Union (ILWU) in North America west coast terminals.



Q-2:You stated the fourth quarter outlook for ONE is not too conservative, but that seems to imply that the outlook is still somewhat conservative. If you agree, please tell us which aspects of the outlook you consider to be a bit conservative.


A-2:Regarding the forecast for ONE, Japanese companies rely on conservative accounting principles. The idea is to protect the interests of stakeholders by releasing reasonably conservative figures. Therefore, the current forecast for ONE is based on sound conservative principles. Rest assured that no aspect of the forecast is particularly conservative.



Q-3:According to industry publications and other sources, it seems the long-term contract freight rates for containerships for the next fiscal year have settled at a level relatively close to the spot freight rates. What is the situation for ONE?


A-3:The trend for ONE is mostly the same as the one generally reported. There are not many contract examples yet, but as far as those are concerned, you can see that the freight rates are set at a level close to the short-term rates.



Q-4:It seems the forecasted fourth-quarter profits for your containership business excluding ONE are less optimistic than usual. If there are any trend changes, such as early cancellation of charter contracts, please let us know.


A-4:Regarding negative factors in the outlook, we don’t think the numbers are significantly different from the usual year. However, there may be a foreign exchange impact.



Q-5:Is there any update on the progress of discussions for ONE’s medium-term plan and fleet development plan? Also, please let us know if the progress is meeting “K” Line expectations.


A-5:At ONE, it is called a business plan, and we are still making final adjustments so that it can be presented to everyone by the end of March. The core issue is the fleet development plan, and a containership business cannot continue unless its fleet is properly maintained. Please note that the final adjustments are being made to ensure continuous development of the fleet in a sustainable manner.