【Returns for “K” Line Shareholders】
Q-1：Regarding shareholder returns, could you explain/share the background and any internal discussions that led to the decisions on the share buyback with a limit of 100.0 billion yen and the timing of the announcement? Also, please explain the policy for shareholder returns going forward, specifically whether you are considering returns in a way that basically does not have any significant variation each year over the next five years covered by the Medium-term Management Plan.
A-1：With regard to shareholder returns, we had indicated that we would provide additional returns of 100.0 billion yen or more this fiscal year under the current Medium-term Management Plan and that we would provide notification once the method had been determined, and we decided to increase the interim dividend and the year-end dividend as already announced on August 3. Based on this, we reached the decision to implement additional returns of 100.0 billion yen this time because it is preferable to implement through dynamic share buybacks considering the size and it is an appropriate measure for increasing corporate value based on the current Medium-term Management Plan.
For future shareholder returns, as announced in the Medium-term Management Plan, we would like to properly provide dividends and share buybacks as dynamic shareholder returns while always keeping in mind optimal capital structure based on cash inflows in operating cash flow each year and the investment options available for each business.
Q-2：You have announced that the framework for these share buybacks will be purchases during the period set on ToSTNET-3 and until the end of March. Could you explain your thinking on this?
Also, this will be a purchase of approximately 12.4% of all shares, but did you arrive at this figure after confirming the intentions of the selling side?
A-2：We will begin by implementing share buybacks on ToSTNET-3 and then purchase from the market if we don’t reach the maximum level there. We arrived at the figure of 12.41% as a result of calculating the maximum number of shares to be acquired based on the assumption of 100.0 billion yen in returns.
Q-3：You have stated that you will consider additional returns through year-end dividends after taking account of performance in the second half of the fiscal year. Does this mean you have the options of both dividends and share buybacks?
A-3：We have not begun considering any specifics on additional returns at the end of the fiscal year. We would like to consider a variety of options including the method based on factors such as performance in the second half, the Company’s operating cash flow and funding needs.
Q-4：I believe you intend to purchase and cancel around 12% of your shares if this share buyback goes as planned. For shareholder returns from next fiscal year, I think you originally set the basic dividend at 300 yen per share, but I think the dividend per share will increase if the total number of shares decreases by around 10% and the same total amount of dividends is paid. What is your thinking on the amount of dividends after the cancellation of shares?
A-4：As for our approach to dividends from next fiscal year after the cancellation of shares, we will consider in the second half before the year-end dividend what kind of policy on returns is appropriate, and we have not yet decided on the specific approach to take at this stage. We would like to indicate this including the amount once our view has come together.
Q-5-1：A point of interest is how much dividends can continue to be paid in a slight downturn of the market within the framework for shareholder returns of 400.0 to 500.0 billion yen indicated in the Medium-term Management Plan. It is now clear that you will cancel the shares after this buyback, so I get the impression it will be somewhat easier when considering the amount of dividends per share, but could you provide any comments on your commitment to 400.0 to 500.0 billion yen in shareholder returns with a view to the next four years or so, and the continuity of dividends and earnings per share after the cancellation of shares.
A-5-1：First of all, with regard to the 400.0 to 500.0 billion yen in shareholder returns announced in the Medium-term Management Plan, it will obviously be necessary to look at future performance trends in each business, but we do not believe it is necessary to change this at the present time. At this stage, we would like to proceed in line with the plan announced in the Medium-term Management Plan.
Furthermore, we would like to announce our approach to dividends per share after the cancellation of shares once it has been decided after organizing the Company’s thinking including future policy on returns and year-end dividends.
Q-5-2：Is there no change in the policy of cancelling shares once you have made the share buybacks?
A-5-2：We have not yet decided on the policy or amount for how much dividends or share buybacks to use for our policy on future returns, so I am unable to comment on hypotheticals at this stage. However, we will proceed by cancelling the shares we acquire this time.
【Containership Business】
Q-1-1：You have revised the earnings forecast for Containership Business downward by 14.0 billion yen in the full-year results plan. What is the reason for this?
A-1-1：In Containership Business, based on the latest results forecast for ONE, the exchange rate is assumed to be 130 yen in the second half, and it is assumed that the positive impact of the exchange rate included in the first half will be adjusted to a certain degree in the second half. This is a result of calculation for the results forecast for ONE, and there are no other reasons in particular.
Q-1-2：Does this mean that you have not changed your view of the market outlook for Containership Business as of the financial results for the first quarter other than foreign exchange adjustments?
A-1-2：Our view of the market outlook remains largely unchanged.
Q-2：In Containership Business, I get the impression that expenses other than bunker expenses also increased a fair amount in the second quarter. Looking at the results forecast for ONE, operating expenses are around 13.0 billion US dollars for the full year. What expenses are increasing at present? Also, as the market is expected to soften, are there any expenses you can reduce through cost saving?
A-2：Costs in Containership Business have increased in the area of variable expenses mainly in the second quarter. The impact of supply chain disruptions was large in the second quarter, and the basic structure is an increase in transportation expenses including inland transportation. ONE has been engaged in cost savings pursuing efficiency such as increasing the turnover of container boxes, but the disruptions themselves have had a significant impact.
We will continue to increase the efficiency of operations and make other efforts to reduce costs, but the unit prices of expenses are expected to rise due to inflation in the second half, and this results forecast also takes this point into account.
【K Line’s Own Business】
Q-1：Ordinary income of “K” Line’s own businesses is around 100.0 billion yen in the plan, but what is your view of the level of income of “K” Line’s own businesses in terms of basic earning power, excluding special factors such as the impact of the exchange rate and market conditions?
A-1：In section B-3 of the Financial Results Briefing Material, this is 76.5 billion yen after deducting 31.5 billion yen for the impact of the exchange rate, market conditions, cargo conditions and other factors from the forecast of 108.0 billion yen for this fiscal year. This is also compared with market conditions in FY2021, but this figure would also be a little lower if compare with market conditions for FY2019, which were slightly lower, for example. Under the current Medium-term Management Plan, the goal is to constantly earn ordinary income of 140.0 billion yen for the entire company by FY2026, and we aim for Containership Business and “K” Line’s own businesses to each earn half of this ordinary income. I think we have been able to approach this goal somewhat this time.
Q-2-1：You have stated that you will improve “K” Line’s own businesses by 27.7 billion yen for the full year due to the effect of business measures, but does this mean you basically think continuous effects will accumulate from next fiscal year onwards? This is also a total of 31.0 billion yen when combined with the effect of structural reforms. Do you think these will also accumulate from next fiscal year onwards?
A-2-1：The 3.3 billion yen accounted for by the effect of structural reforms in the total of 31.0 billion yen will basically continue to a certain degree from next fiscal year onwards by optimizing the fleet and disposing of high-cost vessels. The 27.7 billion yen resulting from the effect of business measures also reflects the results of renewal of some contracts. For example, these continue for a long time if based on medium- to long-term contracts such as LNG carriers, but the effects of multi-year contracts may rise or fall in some cases.
Q-2-2：Does renewal of contract terms mean that the effects of improvements may drop away due to a deterioration of contract terms depending on the business environment from next fiscal year onwards?
A-2-2：That is possible because there are some short-term contracts. We do not know if the direction will be up or down.
Q-3：In relation to the points of improvement in “K” Line’s own businesses in section B-3, are there any profits that you do not think will be permanent in Car Carrier Business or the Dry Bulk or Energy Resource Transport segment?
A-3：Part of the 31.0 billion yen in improvements in earnings of “K” Line’s own businesses may increase or decrease at the time of contract renewal for multi-year contracts with a short term.
