【K Line’s Own Businesses】
Q-1: As disclosed in the press release, regarding the maritime incident involving the Dry Bulk vessel DEVON BAY, which is owned by a local subsidiary of “K” Line, could you share any potential impacts going forward?
A-1: First of all, we would like to express our sincere apologies for the concern this incident has caused. Since the accident occurred on January 22, search and rescue operations were conducted over a ten-day period under the direction of the coast guards and other relevant authorities of China and the Philippines. Based on the authorities’ decision, the search and rescue efforts were concluded on the night of February 1, and we issued a press release regarding this matter on February 2.
The impact of this incident has not been factored into our current earnings forecast. At this stage, the situation remains as described, and investigations into the cause are still at an early phase. Accordingly, while we do not currently expect this incident to have a significant impact, no numerical impact has been reflected in the current earnings forecast.
Q-2: You explained the Energy Resource Transport segment by comparing it with the figures disclosed in November. Could you also explain the factors behind the 3.5 billion yen decrease in profit in Car Carrier Business.
A-2: With regard to the factors behind the downward revision, including seasonal and one-off factors, we have revised our assumptions to reflect a lower number of vehicles transported than initially anticipated. Broadly speaking, cargo movements in the Pacific region have remained firm with no major change, and volumes have increased slightly.
In contrast, in the Atlantic region, particularly on routes originating from the United States, U.S. sales data as of the end of December indicate that sales by European OEMs have declined since autumn, and this has had an impact on shipments. In addition, on some homebound routes from Europe, we are seeing signs of deferred purchasing in certain Asian markets, and we have revised cargo volumes accordingly.
On homebound routes and in cross-trade transportation excluding routes originating from or destined for Japan and the Far East, vessel deployment efficiency tends to be higher when outbound and inbound cargo volumes are well balanced; however, from an efficiency standpoint, we have experienced some negative impact. Furthermore, after factoring in a deterioration in vessel deployment and transport efficiency heading into the winter season, as well as higher operating costs including increased fuel expenses during winter, we are forecasting a profit decrease of 3.5 billion yen.
Q-3: Could you explain the current status of contract freight rates in the Car Carrier Business, and whether your previous view—namely that contract rates and multi‑year contracts remain largely unchanged—still holds as you look toward FY2026? You mentioned that margins have declined this fiscal year due to higher costs associated with newly delivered vessels. How are utilization rates and load factors trending? If these have weakened recently, could an improvement next fiscal year become a positive driver? We would also appreciate your comments on whether you expect to secure transportation contracts that would support such improvements.
A-3: As we have mentioned previously, more than half of the contract freight rates for the next fiscal year have already been fixed, and this situation remains unchanged. Looking ahead to the period from next fiscal year onward, we believe the key issue will be whether demand materializes in a steady manner. We are currently holding discussions with each of our customers regarding their outlook for FY2026; however, we expect the year to begin under uncertain conditions, and it is likely to be a year in which we will need to navigate a high degree of uncertainty.
Under such circumstances, initiatives to improve vessel operation efficiency will be particularly important. Specifically, based on customers’ cargo volumes and shipping plans, we aim to enhance efficiency by optimizing operations, including improving the balance between outbound and homebound voyages.
Q-4-1: In the Car Carrier Business, profits declined year on year in the third quarter, but when looking at the figures in reverse, it appears that profits are expected to increase in the fourth quarter year on year. Could you explain the background behind the third-quarter decline and the projected increase in the fourth quarter?
A-4-1: In the fourth quarter of the previous fiscal year, there were a considerable number of one-time factors. Due to customer-related circumstances, including revisions to shipment plans and temporary postponements of shipments. As a result, transport volumes decreased. When comparing fourth quarters, it appears as an increase in profit.
Q-4-2: Could you also explain the background behind the decline in profits in the third quarter? In addition, excluding temporary factors, what would be your outlook for the fourth quarter?
A-4-2: With respect to the fourth quarter of the previous fiscal year, we have a clear sense that cargo volumes declined more than initially anticipated.
As for the third quarter, as explained earlier, the main factors behind the year-on-year decline in profits were a decrease in cargo volumes compared with the same period last year and a deterioration in vessel operating efficiency. In addition, we believe that higher costs also contributed to the decline, including increased SG&A expenses as well as higher operating costs driven by rising fuel expenses, including the use of biofuels as part of our environmental initiatives.
【Containership Business】
Q-1: This question concerns the short-term outlook for the container shipping market. I understand from other companies’ briefings that fourth-quarter forecasts are built on the assumption that freight rates will rise in February and March following the Lunar New Year. Taking into account seasonality and current freight rate levels, could you share “K” Line’s view on this?
A-1: We do not believe the container shipping market can be viewed optimistically. As we approach the Lunar New Year on February 17, we expect freight rates to enter a correction or adjustment phase. Within that context, the key question is how well the industry as a whole can hold its ground and withstand downward pressure on rates. The impact of the Lunar New Year is a recurring, annual factor, and at ONE as well, we have factored in a certain degree of operational flexibility aligned with demand. These measures have proven effective, contributing to the stabilization of freight rates and even an uptick toward year-end. Because the Lunar New Year impact occurs every year, there are areas where shipping companies can take proactive action. We expect cargo volumes to increase gradually after the Lunar New Year, and by addressing those areas that are within our control, including through operational measures, we expect that freight rates will return to a recovery trend, even though a significant increase is not anticipated.
Q-2: Regarding ONE’s shareholder return policy from the next fiscal year onward, could you explain the views or requests that “K” Line intends to express as a shareholder? In particular, amid a challenging market environment, is there any possibility that ONE could continue paying a certain level of fixed dividends, similar to the three parent shareholders, even if earnings were to come under pressure, if you are able to comment?
A-2: With regard to ONE’s shareholder returns, our stance as a shareholder is reviewed each year based on ONE’s performance and business plan, while discussing with ONE the amount of funds available for dividends. Accordingly, we have not established any fixed policy at this stage, such as setting a specific payout ratio or guaranteeing a minimum level of dividends. The approach will be to review next fiscal year’s performance, evaluate investment plans and other factors, and then proceed with discussions based on those assessments.
【Capital Policy】
Q-1: Given that the business environment for next fiscal year remains uncertain, increasing the dividend to 120 yen per share at this stage may have involved some internal hesitation or debate. Could you share the nature of the discussions behind this decision?
A-1: For the current fiscal year, the dividend level is 120 yen per share, while for next fiscal year we had previously set it at 100 yen per share. Our basic policy has been to determine dividends based on our cash position, taking into account operating cash flow as well as cash outflows such as investment cash flow.
Now that we are already in February, and as we review our current cash position and outlook for next fiscal year’s performance, we recognize that the business environment remains uncertain. However, we believe that a 20 yen increase in the dividend can be implemented without any issues. In addition, we also concluded that it would be fully feasible to carry out additional shareholder returns of 50.0 billion yen or more, alongside the dividend increase. Based on this assessment, we decided to announce the dividend increase at this timing.
We also announced the following fiscal year’s dividend at this same timing in the previous two years. From the perspective of providing the market with a certain degree of predictability, we believe that this timing is appropriate.
Q-2: Regarding the planned 20 yen increase in the dividend for the next fiscal year, based on your earlier comments, it sounded as though the funding source might be coming from outside the 50.0 billion yen or more shareholder return framework or the management allocation. Could you please explain again, more specifically, the source of funding for this dividend increase?
A-2: Up to now, we have explained our cash allocation using somewhat rounded figures—for example, operating cash flow of approximately 1.5 trillion yen, investment cash flow of about 610.0 billion yen, and shareholder returns of 800.0 billion yen or more. In addition, in past shareholder return programs, we indicated share buybacks of ¥80.0 billion. However, there were cases where the cap on the number of shares was reached before the full amount could be executed, meaning that the repurchases ultimately fell short of the amount indicated. As a result, the total level of shareholder returns did not reach the figures presented.
As we approach the final year of our Medium-term Management Plan, we have conducted a detailed review and refinement of the various figures. I apologize for getting somewhat technical, but as a result, we confirmed that the difference between operating cash flow and investment cash flow amounted to roughly that level.
In other words, the source of funding ultimately comes from operating cash flow.
【Other】
Q-1: Looking ahead to next fiscal year, the financial results materials indicate that a considerable number of new vessels are scheduled for delivery. Should these deliveries be viewed as a potential driver of profit growth, or is there a possibility that near‑term cost burdens—such as depreciation—will come first? How should we think about the impact of these newbuildings?
A-1: Fundamentally, we approve vessel construction only after carefully assessing investment returns and adhering to our investment discipline, and the vessels scheduled for delivery next fiscal year fall under this approach. We also recognize that, for most of these newbuildings, there is already a reasonable level of visibility regarding contracts. While profitability naturally varies from vessel to vessel, our basic view is that the delivery of these vessels will have a positive impact on performance overall, broadly in line with the increase in fleet capacity.
Q-2: Regarding the resumption of transits through the Suez Canal, I get the impression that it may still be some time away. What is the current reaction from your customers?
A-2: As mentioned earlier, there are a variety of factors that still need to be carefully assessed, and therefore this is not something we can decide on lightly. Naturally, transiting the Suez Canal would shorten voyage days, and we are aware that there are expectations for a resumption from the perspectives of economic efficiency and shorter transit times. However, at this point, we do not believe that there are any concrete requests from customers to resume Suez Canal transits.
Q-3-1: We understand that insurance premiums for vessels transiting the Suez Canal remain at elevated levels. If transits were to resume, would insurance premiums be expected to decline at that point, or could they fall beforehand? Could you also comment on how quickly premiums might change and any contractual considerations?
A-3-1: With respect to insurance, as safety conditions have not yet been fully confirmed, there have been no announcements indicating any changes to premium rates at this time. While some European shipping companies have conducted actual transits through the Suez Canal, there have also been recent developments such as renewed attacks by the Houthi movement. As a result, we believe that sufficient safety has not yet been ensured. At one point, there were expectations that a resumption of transits might be in sight, but our understanding is that those expectations have since receded.
Q-3-2: This is an unprecedented situation and quite difficult to assess, but when operations are eventually resumed, do you expect insurance premiums to decline at that point, or only after shipping companies actually begin transiting the canal? Which do you think would occur first?
A-3-2: It is difficult to say definitively which would come first. However, there is no doubt that how insurance coverage and premiums are structured will be one of the key factors in determining whether and when we resume transits. From a safety perspective, it is not simply a matter of economic efficiency. For example, it would also be necessary to obtain the understanding and agreement of stakeholders such as seafarers’ unions.
Accordingly, this is not a situation where we can simply say, “We will resume transits from next month.” Any decision would need to be made in a very careful and well‑prepared manner. In addition, how insurance coverage would apply in the event of an incident, and the judgments made by insurance providers in that regard, would have a significant influence on our own decision‑making.
