【Returns for “K” Line Shareholders】
Q-1-1: With regard to shareholder returns, you updated your cash flow forecast and added to investment and returns based on this. Will you continue this allocation in the future? If more than the planned cash-in-flow is accumulated, will you keep the formula of allocating half to shareholder returns? You have also stated that the basic dividend will be raised to 120 yen and that you plan additional returns, but I would like to confirm whether the minimum dividend during the period of the Medium-Term Management Plan is still 120 yen per share, or whether you will consider raising it further according to the condition of cash flow.
A-1-1: We basically make necessary growth investments and also flexibly / responsively provide additional returns based on a comprehensive decision on investment opportunities and performance trends, but we have not particularly determined the allocation ratio. Furthermore, the basic dividend is currently set at 120 yen assuming earning capacity, but it will be revised as necessary looking at future performance and progress of the Medium-Term Management Plan.
Q-1-2: Page 17 of the Financial Highlights Brief Report for Fiscal Year 2022 states the additional returns of 110.0 billion yen or more. Is this the source of the additional dividend of 80 yen per share and the additional shareholder returns of 50.0 billion yen in fiscal 2023?
A-1-2: Up to the basic dividend of 120 yen per share in FY2023 and the additional dividend of 80 yen are excluded from the scope of the additional returns of 110.0 billion yen or more. These additional returns of 110.0 billion yen or more will be implemented during the period of the Medium-Term Management Plan based on future performance trends and progress in the business environment, but at least 50.0 billion yen of this is scheduled for this fiscal year.
Q-1-3: What is the source of funds for the additional dividend of 80 yen per share, and what was the approach used to determine this?
A-1-3: Including basic dividend, this was basically made to be 200 yen per share based on cash flow.
Q-2: Will the additional returns of at least 110.0 billion yen specifically be dividends or a share buy-back? I would like to confirm what kind of approach you have for the method at the present time.
A-2: The method of the additional returns of 110.0 billion yen or more will be determined by deciding what form will contribute to enhancement of corporate value the most based on various opinions of the market and stakeholders, and share price trends. At present, nothing in particular has been determined.
Q-3-1: With regard to the “or more” in the minimum total shareholder returns of 500.0 billion yen or more in the Medium-Term Management Plan, I believe this will be determined while monitoring the condition of cash flow, but I would like to confirm the timeline of whether the timing of the decision will be in each fiscal year or FY2026, which is the final year of the Medium-Term Management Plan.
A-3-1: How it will be determined will be decided with optimization of capital efficiency in mind based on performance trends, cash flow trends and progress in the business environment each year. We will not wait for the final year of the Medium-Term Management Plan to decide everything; we will make revisions properly each fiscal year.
Q-3-2: If revisions are made each fiscal year, does this mean you have internal cash flow plans for each fiscal year, which are not disclosed, and decisions are made in light of these?
A-3-2: As you have pointed out, the Company will determine future responses by considering business plans, cash flow plans for each year, the impact associated with market fluctuations and other factors.
Q-4-1: What is the approach to the target equity ratio when making shareholder returns? Assuming the figures for the fiscal year ended March 31, 2023, what is your approach to future financing and cost of capital? It appears that the total return ratio will exceed 80% this fiscal year and I don’t think equity will increase much, but I think it will be necessary to control the ratio or absolute amount of equity to ensure the cost of capital does not rise in the future. Please explain these and other points.
A-4-1: I think the ideal equity ratio in shareholder returns is eventually connected to the question of whether there are specific numbers in the form of the optimal capital structure presented by the Company. With regard to the approach to the optimal capital structure, I think it is very important to balance optimization of capital efficiency, competitive financing and the financial soundness enabling this. It has not been finalized at this time, but as the business environment remains uncertain going forward, we will continue to study the optimal design of capital. To do so, we will keep in mind the soundness of the financial structure that enables adequate and competitive financing to cover business risks, as well as capital efficiency for maintaining ratings and achieving ROE of 10% or higher. At present, we are continuing to consider optimal capital while proceeding with shareholder returns in the form of optimal allocation of cash flow. We will make investments required for growth and enhancement of corporate value based on cash flow. Accordingly, our policy is to provide flexible / responsive shareholder returns including share buy-backs.
Q-4-2: If you were to announce the optimal capital structure, when would this be?
A-4-2: I cannot discuss the clear timing at the present time, but we will continue to consider it.
【K Line’s Own Businesses】
Q-1-1: In the FY2023 plan, it does not appear that profit in Car Carrier Business in the Product Logistics segment excluding Containership Business will increase much year on year, but it will increase substantially when looking at the assumed number of vehicles transported. I would like to confirm what assumptions were made in the preparation of the FY2023 plan for the Car Carrier Business.
A-1-1: As you have pointed out, it is assumed that the number of vehicles transported in fiscal 2023 will increase compared to fiscal 2022. It takes into account factors such as the alleviation of the shortage of semiconductors and parts. We have not disclosed the individual earnings of Car Carrier Business, but the earnings reflect the increase in the number of vehicles transported and restoration of freight rates from the previous fiscal year to the current fiscal year. Therefore, they adequately reflect the earnings anticipated in fiscal 2023.
Q-1-2: The plan shows that the profit of the Product Logistics segment excluding Containership Business will not increase much. Is this because there are other negative factors?
A-1-2: Due to market conditions for Logistics Business settling as supply chains are normalized in the same manner as Containerships, and the impact of a partial decline in market conditions for small and medium size bulk carriers in short-sea shipping for the Short Sea and Coastal Business, profit is expected to decrease compared to the previous fiscal year for each of these. Meanwhile, profit is expected to increase for Car Carrier Business.
Q-2: Are there elements requiring a change in fleet composition for the transportation of reduced iron, such as trends in vessel size and designation of fuel compared to the transportation of conventional iron ore?
A-2: Ordinary iron ore and iron and steel materials are transported using Capesize bulk carriers, but reduced iron is currently transported using small bulk carriers of 50,000 tons or less. As transportation of cargo is somewhat sensitive, we do not envisage increasing the size of vessels at once. “K” Line already transported reduced iron from Qatar to the Far East using a 50,000-ton sized vessel in mid-April, and great care is being given to ensure safe navigation.
【Containership Business】
Q-1-1: Based on your earlier explanation of your view of Containership Business, I understood that the demand environment is expected to recover from the second half of the fiscal year. I believe it may be difficult to comment due to issues with antimonopoly laws, but could you provide an image of what kind of freight rates you anticipate in the future?
A-1-1: With regard to the market environment for Containerships, spot rates bottomed out in March and have been increasing since April. Contracts for long-term freight rates are also being signed under these conditions. Based on recent conditions, it is our view that spot rates will rise as supply and demand recover from summer.
Q-1-2: Has the proportion of contracts for long-term freight rates compared to the total remained largely unchanged?
A-1-2: It has not changed significantly.
Q-2: I believe the last time dividends were received from ONE in around November 2022. Have you not received any since then? Please explain if there has been any progress in the dividend policy of ONE.
A-2: I think there will be further discussion in the future about dividends from ONE. Although it has not been publicly announced, we recently prepared performance trends for this fiscal year and will determine future capital policy and dividends based on this through discussion among the three shareholder companies and ONE.
Q-3: With regard to Containership Business, you mentioned that there will be slow steaming resulting from environmental regulations and scrapping will progress to a certain degree on the industry due to the decline in market conditions, but what kind of response is ONE anticipated to make? Will slow steaming and scrapping be required as the same environmental responses as the industry, or does ONE have an advantage, resulting in the damage being relatively small?
A-3: Please refer to page 7 of the ONE materials. ONE will agilely respond in the form of slow steaming or blank sailing in line with market trends as it has done in the past. Also, as you are aware, ONE currently does not own its own vessels, and it charters vessels from shareholders including “K” Line, and other shipowners. The timing of scrapping will be aligned with these charter contracts, and the policies on subsequent arrangements for vessels, including scrapping, will be determined individually.
