【K Line’s Own Businesses】
Q-1: To what extent is the impact of the situation in the Middle East reflected in the profit plans for the “K” Line’s Own Businesses other than the Containership Business?
I also assume your estimates are based on the assumption that the blockade of the Strait of Hormuz will continue until the end of June and that transit will resume from July onward, but could you also tell me what kind of impact we might expect if the blockade were to be prolonged?
Given the current situation, I believe there are both positive and negative aspects, so please explain those as well.
A-1: Regarding how the impact of the situation in the Middle East has been factored into fiscal year 2026, at the monetary level reflecting the impact through June, I believe ordinary income has declined by 9.1 billion yen year on year, and I think it is fair to assume that approximately half of that decline is attributable to the blockade of the Strait of Hormuz.
We believe that the main vessel type affected will be car carriers, and that the impact on other vessel types will not be significant. Since your question specifically asked for excluding ONE, the information provided here excludes ONE.
It is quite difficult to predict the full impact if the blockade of the Strait of Hormuz continues beyond July. Since some of the effects observed in the first quarter were due to sudden disruptions, I personally believe it is unlikely that we will see exactly the same figures over the next three months.
On the other hand, when we face a situation such as a fundamental decline in demand or an economic downturn, different factors come into play, so I believe the key issue is how these factors will affect the situation—including other types of vessels. While we cannot provide specific figures at this time, we believe the crucial point will be how these multiple factors interact with one another.
Q-2: In the Dry Bulk segment, Capesize exposure has increased slightly to 22%, compared with the beginning of the previous period. Could you confirm whether this happened coincidentally or whether you are strategically increasing exposure.
A-2: Currently, Dry Bulk market conditions remain relatively strong for both Capesize and Panamax and smaller sizes.
While we have not done this extremely intentionally, we are responding by maintaining a somewhat higher exposure while monitoring market conditions. In any case, our policy is to maintain a balanced mix of long-term stable contracts, COA/spot contracts.
Q-3: I would like to hear your thoughts on the 7.2 billion yen decline in profits in the Car Carrier Business, as well as the current status of contract freight rates.
I assume that overall transport volume is expected to increase, but could you please clarify whether the cost increases resulting from imbalances—which you explained in the previous period—have been factored into the current period’s plan, or whether the rise in bunker expenses is the primary factor?
A-3: We expect the Car Carrier Business to see a profit decline of 7.2 billion yen in fiscal year 2026 compared to fiscal year 2025. As a major factors, more than half behind this, we would like you to understand that more than half of the decline is attributable to the impact of the blockade of the Strait of Hormuz.
In addition, these forecasts take into account increases in port charges, cargo-related expenses, SG&A expenses, and other costs associated with ongoing global inflation, as well as higher operating expenses from bunkering biofuels as an environmental-related costs.
At present, more than half of our contracts for fiscal year 2026 have been finalized. Although regular service to the Middle East is currently suspended, cargo movements remain very strong. In terms of the supply-demand balance, the situation where demand is high and supply is insufficient continues.
However, we believe that if the impact of the Strait of Hormuz persists over the long term, whether this affects production and sales demand will be a critical factor. In fiscal year 2026, we intend to continue managing our business operations while closely assessing demand trends.
【Containership Business】
Q-1: Regarding the Containership Business, while a loss is expected in the first half of fiscal year 2026 due to rising costs, a year-on-year increase in profit is projected for the second half. Is this based on the assumption that the situation in the Middle East will normalize?
More fundamentally, how do you view the supply-and-demand environment? While there appears to be pressure from increased supply, could you also explain whether it will be possible to achieve the increase in profit?
A-1: Regarding the outlook for supply-and-demand environment in fiscal year 2026, ONE expects the situation observed in the fourth quarter of fiscal year 2025 to continue, basically unchanged. This serves as our starting point.
Against this backdrop, the fiscal year 2025 was marked by significant fluctuations in cargo volume during the first half due to the impact of U.S. trade policies, making it a year of considerable change.
While there are concerns about the impact of a potential blockade of the Strait of Hormuz this year, we expect growth to be in line with supply and demand to a certain extent. Although we cannot be overly optimistic, this is our current view.
On the supply side, the impact of the Strait of Hormuz blockade is already emerging. As for the Suez Canal, we anticipate that transit will remain difficult throughout the year; therefore, we do not assume that there will be a sudden surge in oversupply. We expect the current situation to continue for a year, while peak seasons in the summer and winter—which were notably absent last year—will return.
As a result, ONE is expected to see a recovery in its performance in the second half.
Q-2-1: Regarding the assumption that ONE’s revenue will increase by 11% in the current fiscal year, what are the underlying assumptions when breaking this down into volume and unit price factors? If volume factors are having an impact, please also explain the background, including the current market share situation and market outlook.
A-2-1: In fiscal year 2025, in particular, on the Asia-North America routes, which are ONE’s core strength, there were changes stemming from U.S. trade policy, including shifts in cargo origins for shipments to the United States.
While including our reflections, ONE’s inability to fully adapt to these changes is one of the areas for reflection from fiscal year 2025. We hope you understand that, in the 2026 fiscal year, based on this reflection, implementing sales initiatives to restore our cargo volume to normal levels is contributing to increased revenue.
Q-2-2: Does that 11% increase mainly reflect a rise in volume?
A-2-2: That is the main point.
【Capital Policy】
Q-1: Although there has been no announcement at this time regarding the flexible additional shareholder returns totaling 50.0 billion yen or more, could you please explain the status of the considerations?
Regarding the capital optimization aimed at achieving an equity ratio of around 50%—including off-balance-sheet charter hire—there are likely various factors and considerations at play, such as whether this involves a reassessment of the scale of implementation or is driven by uncertainties like the situation in the Middle East. Could you please elaborate on this in a bit more detail?
A-1: I believe you are pointing out that, although a year has passed since we announced that we would provide 50.0 billion yen or more in additional shareholder returns as part of our total shareholder returns of 800.0 billion yen or more last year, this has not yet been implemented.
As you pointed out, one of the underlying factors is the rapidly changing management environment—from last year’s U.S. trade policies and developments at the USTR to the current situation in the Middle East and the conflict involving Iran.
As was explained earlier, it has not yet been decided how the 80.0 billion yen in management allocation will be used, or how much will be used for what.
We plan to determine the use of these two items during the term of the Medium-term Management Plan, and our fundamental premise is to make a decision regarding shareholder returns within the current fiscal year’s Medium-term Management Plan period. We intend to make these decisions at the appropriate time, while monitoring various factors that may affect management.
I apologize that a year has passed, but I would appreciate your understanding that we are still considering this matter.
Q-2: I think you mentioned earlier that you would like to proceed with the 80.0 billion yen management allocation within the current fiscal year.
In past discussions, there was mention that the 80.0 billion yen could either be allocated to growth investments or shareholder returns as part of the next Medium-term Management Plan, and that it might also extend across into the next Medium-term Management Plan period.
Could you please explain again how and when the 80.0 billion yen in management allocation will be used?
A-2: It seems my earlier explanation regarding the management allocation was insufficient. To summarize, I stated that we would not necessarily spend 80.0 billion yen during the current fiscal year, but rather that we would decide how to allocate 80.0 billion yen during the current fiscal year.
There are various options, including carrying over a portion of it into the next Medium-term Management Plan period for investment purposes, using part of it for shareholder returns within this fiscal year, or allocating it to shareholder returns in or after the next fiscal year. The intention is that we will determine those policies within this fiscal year.
【Review of the Current Medium-term Management Plan and Key Priority for the Next Medium-term Management Plan】
Q-1: It appears that the figure of “ROE of 15% or higher over the medium to long term,” as stated on Slide 17, was set considering a fairly long-term future period. What is your outlook for ROE during the period covered by the next Medium-term Management Plan?
As you work to improve capital efficiency and pursue profit growth, your ROE assumption for the current fiscal year’s plan is 5%. Therefore, please explain what specific measures are needed to reach 15%.
For example, I imagine you may have specific ideas such as ONE needing to achieve a certain level of performance, or certain initiatives being required within “K” Line’s own businesses. I would like to hear your views on this point.
A-1: As you pointed out, the next Medium-term Management Plan is still in the drafting stage, and no specific figures have been finalized yet. As mentioned on Slide 16, our ROE was 7% for fiscal year 2023 and 8% for fiscal year 2025.
While these are company-wide figures, the reality is that some businesses are already exceeding 10%. Taking these into account, even though there are some fluctuations, it is important to steadily build up profits one by one.
Furthermore, based on the operations and functional strategies outlined on Slide 17, we hope to build on this by providing added value.
Achieving ROE of 15% for the entire company including ONE, has been set as a new long-term target. At the current stage of consideration, our thinking is that by the latter half of the next Medium-term Management Plan period, we would like either to be steadily achieving this target or have established a clear path toward achieving it with some certainty.
As noted at the bottom of the slide, we plan to announce the next Medium-term Management Plan during fiscal year 2026. At that time, we intend to provide a more detailed explanation.
Q-2: As part of the direction for the next Medium-term Management Plan, you have indicated that the short-term goal is to pursue capital optimization and have provided a targeted equity ratio. I believe that share buy-backs would be an effective way to achieve this target as soon as possible; could you please confirm whether this understanding is correct?
In that case, please let me know if you have any thoughts on whether share buy-backs are the appropriate method of shareholder return, whether it would be better to increase dividend visibility, or which option—dividends or share buy-backs—we should choose.
A-2: We have clearly stated that we aim to achieve an equity ratio of 50%, and we consider this as the main focus. However, since achieving this within a single year will be difficult, our policy is to work toward this goal gradually over several years.
In that case, we believe it is necessary to give careful consideration to how the balance sheet will change depending on how we implement future investments.
While we have not yet established a clear policy regarding shareholder returns, this is an issue that requires careful consideration. We believe that the measures you mentioned—share buy-backs and dividends—each have their own benefits. We will determine our future policy while taking these effects into account.
At this point, we would appreciate your understanding that we are making decisions based on a multi-year timeframe rather than a single year, taking into overall consideration factors such as investment, returns, and various other elements.
Q-3: I hear that you have been exploring various options for an optimal capital structure with the goal of achieving an equity ratio of around 50%. Is it correct to understand that you have already concluded that 50% is the optimal level? Could you also explain what discussions led to this figure?
A-3: When it comes to determining what criteria are appropriate for explaining the optimal capital structure as a KPI, I do not believe that the equity ratio alone is necessarily sufficient.
As I explained earlier, I believe that the current equity ratio—which includes off-balance-sheet charter hire—of approximately 60%, is rather high as capital. I have long held this view and have made such explanations accordingly.
The slide states, “As an initial step, we aim to optimize our capital structure in the short term, targeting an equity ratio (including off-balance-sheet items) of around 50%,” but this 50% figure is merely a milestone. We have not necessarily decided at this point that an equity ratio of 50% is the ultimate goal for our optimal capital structure.
We believe that bringing the equity ratio to 50% will require going through various processes and taking a certain amount of time; however, we have included this statement here on the premise that we intend to implement measures to achieve this level as soon as possible.
We will continue to consider how to evaluate and explain the optimal capital structure using which KPIs, so that we can provide a more detailed explanation during the review of the next Medium-term Management Plan.
Q-4: You have also disclosed the progress of the ROIC for the “K” Line’s Own Businesses this time. However, it appears that the current plan has not yet reached the company-wide ROIC target of 6–7%. I would like to ask how you address this gap.
I assume that ROIC levels vary significantly by business segment. Could you please share your thoughts—within the scope you can comment—on what the key challenges are and what measures you believe are necessary for the next Medium-term Management Plan?
A-4: As you mentioned, we present the ROIC for the “K” Line’s Own Businesses as a whole, but internally, we manage each individual business separately. Some of these businesses are performing well above 6–7%, while others are struggling somewhat.
The key issues moving forward will be how to revitalize such struggling businesses and how to adjust their scale.
We believe there is still room for consideration regarding how to reflect ROIC in ROE within the next Medium-term Management Plan. We are currently in the process of finalizing how to handle our various business operations.
We also use the WACC (weighted average cost of capital) for each business in our business management. We intend to re-examine how we approach this and how we should proceed with business operations.
【Other】
Q-1: Regarding the situation in the Middle East, there are currently risks such as fuel shortages, and Fujairah has also come under attack. How do you view risk response across the entire shipping industry?
In terms of operations, could you tell me whether fuel supplies and supply chains are being managed without risks, and whether there are any concerns about this in the future?
A-1: There are indeed situations where fuel supply becomes tight or somewhat constrained in various locations. However, there has not been any case where arrangements have been delayed to the extent that we would need to suspend vessel operations. By accurately communicating the volumes we need and consulting with our suppliers, we have been able to secure the necessary fuel without major issues.
We believe we will be able to secure sufficient supplies going forward, so the truth is we do not have any major concerns.
Q-2: The current Middle East situation could bring about structural changes in the business environment. After assessing them, do you intend to reflect such changes in the assumptions of the next Medium-term Management Plan?
If these changes could become either business opportunities or have an impact on operations, they ought to be reflected accordingly.
A-2: Regarding your point, it is difficult to determine exactly what should be incorporated and to what extent. For example, some trade patterns involving energy may change. In that sense, tonne-mile demand could shift. At the same time, even with such changes, it is also possible that the presence and importance of fossil fuels, among other things, may take on a different form from what they have in the past.
We believe it is necessary to take such factors into account as much as possible and to allow for a certain degree of flexibility. On that basis, we intend to develop the plan while carefully considering these matters.
That said, we also need to avoid creating so many options that the overall direction becomes unclear. We will therefore establish a clear direction while considering how to incorporate an appropriate range of flexibility into the plan.
