【K Line’s Own Businesses】
Q-1-1: In Car Carrier Business, the number of vehicles transported decreased in the second quarter compared to the first quarter, and the number of vehicles transported decreased further year on year. What is the background to this? I think these should normally increase, but are there any factors specific to the company? Was there any impact on profit associated with this?
A-1-1: The transport results for the second quarter have decreased since the first quarter, but the main point is outbound voyages. The number of vehicles on outbound voyages increased from the first quarter to the second quarter. Recently, the ship turnover rate has dropped slightly due to the impact of longer port stays of vessels caused by port congestion, but we have been able to increase loads of outbound voyages even under these conditions, and have captured highly profitable cargo, so this is the main part. Otherwise, although homebound voyages and voyages between countries other than Japan were affected, this was basically a change in the number of vehicles carried due to vessel deployment patterns rather than a drop in the number of vehicles transported. Profitability continued to be solid in the first and second quarters, so this decrease in the number of vehicles had almost no impact.
Q-1-2: On outbound voyages as well, the number of vehicles transported decreased compared to the second quarter of last year. I believe transport volume tends to be highest in summer, but is this because of the impact of a variety of constraints and congestion?
A-1-2: The second quarter contains the summer holidays, so car shipments slow down slightly, on the European side and also in Japan, for example. I do not think there is necessarily a trend of increasing in the second quarter. However, as I mentioned earlier, the ship turnover rate has fallen due to longer port stays of vessels and such, and growth in the number of vehicles has been limited to this level for that reason.
Q-2-1: I assume that the results for the first half and the full year have been revised upward for Car Carrier Business, but the number of vehicles transported has been lowered. I believe this is a factor contributing to a downward revision. On the other hand, the exchange rate assumption has been revised for a weaker yen, which I think is a factor contributing to an upward revision. Other shipping companies have had profit of car carriers fall slightly short of target or made downward revisions. What factors caused “K” Line to make an upward revision?
A-2-1: As seen in the forecast numbers of vehicles transported for the third and fourth quarters, we have heard strong requests for shipments from customers based on the assumption that the reduction in production caused by semiconductor and parts shortages has almost been resolved. To respond to this situation, we have made changes, including changing the actual deployment. At the same time, we have also been able to capture comparatively highly profitable cargo, including high and heavy cargo. Therefore, I think we will be able to close out this fiscal year with an upward revision to earnings. As mentioned in the earlier question, the number of vehicles transported decreased somewhat in the second quarter, but it is our view that the number will be steady in the third and fourth quarters. With regard to this point, I do not know how other companies are actually deploying vessels, but I think we will be able to steadily conduct business.
Q-2-2: Does the fact that you revised profit upward despite lowering the assumed number of vehicles transported mean that the cargo mix has improved? Also, please confirm whether you have been able to negotiate price increases more than other companies.
A-2-2: The greatest point in the factors contributing to an upward revision is that the cargo mix is moving toward optimization as you pointed out. At present, it is forecast that there will still be a shortage of space toward next fiscal year and there are customers attempting to secure transportation capability. In this respect, the improvement of the transportation mix and some restoration of freight rates have progressed, so these have had an impact. Furthermore, it also includes the impact of foreign exchange, and this has been taken into account in the upward revision.
Q-3: You have revised operating income upward by 3.0 billion yen. By division, how much has the forecast gone up or down?
A-3: Please understand that this is Product Logistics in “K” Line’s own businesses. We have not disclosed which business division, but I would like you to understand that growth in profit of one division in “K” Line’s own businesses within the Product Logistics segment has contributed to growth of operating income overall.
【Growth Strategy, Optimal Capital Structure, etc.】
Q-1-1: You will make an upward revision to the plan for “K” Line’s own businesses in the growth strategy. Does it mean that the ordinary income target of 140.0 billion yen is somewhat clear on the whole, and in what way will the revision be made? I would appreciate it if you could explain to the extent you know and the extent you can say. I would like to hear as much as possible about a current update, including ROE and investment, on what has accumulated more than planned over the past year, and also what will be taken into account going forward.
A-1-1: One reason for revising the growth strategy was the thoughts we had when the first year of the Medium-term Management Plan ended and we entered the second year. At that time, our feeling was that we could do a little more in the area of continuous growth, that we could expand this area, and that we could make more contracts in a variety of ways. We felt that there was room for a little more improvement in the continuous growth area, and we decided to review things overall once more.
Another is that, we are considering a variety of things across the board as needed without ruling out non-continuous methods, and have just started efforts to make a comprehensive review based on a variety of these options for how we can strengthen our own businesses, including businesses driving growth.
Q-1-2: Is this something for which you will reach a conclusion immediately in around half a year? Do you intend to gradually update this in the form of making announcements as they can be released?
A-1-2: The Medium-term Management Plan has entered its second year and next year will be the halfway mark, so this means that we will update it including looking back on what we have done. We believe we can make considerable progress in the next six months, so we would like to make an announcement on our new business strategy and numerical targets to the extent possible for the next six months when we announce the full-year financial results next year.
Q-2-1: Optimal capital structure is constantly mentioned in your materials, but could this be understood a little more quantitatively? Other shipping companies provide the equity ratio including off-balance-sheet lease obligations. Will “K” Line aim to do this as well? If so, could you provide a somewhat more quantitative follow-up of how much off-balance-sheet lease obligations you have at the end of the first half, and what kind of optimal capital structure you will aim for including this?
A-2-1: I think the equity ratio including off-balance-sheet items was calculated to be in the 50s as a percentage last time, and this has not changed significantly.
I think there are various methods for determining the optimal capital structure such as the approach of using a fixed quantitative method or a method using a certain range. I think we have been able to organize much of our approach based on management by business in “K” Line’s own businesses. Once the figures have come together for the business plan and capital policy for ONE that we are currently working on, I think we will have a clearer idea of our approach. We would like to continue to consider how to represent this in future based on these factors.
Q-2-2: Does this mean you basically intend to include off-balance-sheet leases for the optimal capital structure?
A-2-2: We believe that for long-term liabilities, an approach basically including off-balance-sheet items will ultimately enable an appropriate evaluation. Competing European shipping companies are using IFRS and the companies use the same measure, so we are basically looking in that direction.
【Containership Business】
Q-1: I think it is assumed that there will probably be a gradual recovery in freight rates from the second half for containerships. I believe you have stated that you will raise freight rates while using blank sailing in these conditions, but I would like to know the timing of future increases in freight rates. When will you raise freight rates in the short term? Also, I think you have made substantial increases to prices since this April. Could you tell me what kind of reaction you got from customers?
A-1: The timing of freight rate increases was actually on November 1 for each route, and this was not only by ONE, but also other shipping companies. Only a few days have passed since then, and we have not obtained detailed information on the effects or the reactions of customers. It is hard to predict when the next price increase will be made, but February 10 next year is Chinese New Year, and in general, around one month before Chinese New Year is a period of active demand and cargo movements.
