Nippon Yusen KK

TSE:9101

Earnings Call Transcript 2023-Q3

[Shuichiro Shimomura, executive]

Thank you for waiting. Thank you very much for joining us today for this briefing session for financial results announcement for Q3 FY 2022 for NYK Line, Nippon Yusen Kaisha Line. My name is Shimomura. I serve as facilitator for this meeting. Thank you.

First, I'd like to introduce the participants: Representative director, Senior Managing Executive Officer, Harada.

[Hiroki Harada, executive]

I'm Harada, Nice to see you all.

[Shuichiro Shimomura, executive]

Director, Senior Management Executive Officer, CFO, Soga.

[Takaya Soga, executive]

I am Soga. Nice to see you.

[Shuichiro Shimomura, executive]

So Mr. Soga, CFO is going to explain about the Q3 results of FY 2022, followed by F&A session. I'd like to explain how you can ask questions later on. And Mr. Harada is going to make a few remarks at the end of the meeting, and we are scheduled to finish at 2 O'clock and the materials available on the homepage. So please refer to them.

In today's meeting, including Q&A, will be available on demand basis. Mr. Soga, please start.

[Takaya Soga, executive]

Hello, everyone. I am Soga, CFO of NYK Line. Thank you very much for joining us today despite your tight schedule.

Today, using the materials at your hand or materials on the screen, I'd like to explain first about Q3 2022 results overview. And then full year forecast and its revision for the fiscal year 2022.

After the presentation, we will move on to Q&A. Before presenting materials for 2022 will be -- the final picture. I would like to present that first. In November, we talked about the second half forecast as well and we said that the performance and results in the first half will be the peak and in the second half, especially for container shipping normalization, logistics confusion will be improved.

So for the second half of the year, the results will go on a downtrend -- downside trend. That's what we said. And the third quarter results and the forecast for the fourth quarter, based on that information, in short, compared to November forecast, the final picture will be more or less the same as that November forecast.

Depending on segments and also there are some differences between third quarter and the fourth quarter between different business segments. But in the third quarter, it was actually better than our expectation. And in the fourth quarter forecast compared to our forecast -- it will be rather on the downside. And on a full year basis, slightly, we have revised the forecast -- revised down the forecast, but more or less in line with our expectation. That is our view.

Now please refer to the materials at hand or the materials on the screen. Q3 overview results. Please look at Page 6, and it's table. On the right-hand side, in the blue column, as shown in Q1, Q2 and Q3 cumulative numbers. Revenue, JPY 2,050.1 billion; operating profit, JPY 249.4 billion; recurring profit, JPY 1,005.9 billion; net income, JPY 920.3 billion.

Each item exceeded the same period last year, hitting the record high profit. That said, as I mentioned earlier, we are on the trending down, namely recurring profit, which was increasing from the first quarter of 2021. But this time, in Q3 2022 it's now changed to trending down and in the background is the slowdown of earnings of our equity method of company or ONE.

And on that point, on Page 7, I'd like to give you more details when I talk about each business segment results in terms of recurring profit. First, Liner Trade. On the right-hand side, the blue column, the lower line in each segment box is recurring profit.

Recurring revenue is JPY 728.8 billion or up JPY 224.3 billion. The major reason is the good business or ONE Container Shipping business, our equity method company. But for Q3 alone compared to Q1 and Q2, profit level is much lower. Still the JPY 161.7 billion of recurring profit was booked.

In location of consumption, mainly in Europe and America, consumer goods have been built up. And combined with inflation, transportation demand decreased. The port congestion improved increasing container vessel transportation space. And since this summer, the spot freight is on the downside trend -- downward trend.

And the cap movement itself is slowing down. ONE could maintain a high freight level through the first half of the year, managing good results in Q3.

Next, Air Cargo. Recurring profit is JPY 56.4 billion, exactly the same number as the same period of last year. Partial shift of ocean trade to airfreight is weakening. And the robust cargo demand typical for Q3 was not observed this year, and the handling volume decreased year-on-year. However, semiconductor related to firm transportation demand and multiyear long-term contracts supported the Q3 to book JPY 12.3 billion.

Next, Logistics business. Recurring profit, JPY 50.2 billion were up JPY 4.5 billion year-on-year. In the forwarding section, in airfreight business, as I mentioned, for Air Cargo business, usually we see Q3 was not materialized this year. And the cargo movement was not strong, handling volume as well as profit level decreased.

In the Ocean Freight business, handling volume itself underperformed, the same period last year, but the declining procurement price of container vessels supported the solid profit level because the spread between our procurement price and the other price that our customers paid was quite good.

Contract Logistics business in Europe and America, personnel cost, utility cost rose markedly leading to price revision and the business progressed very steadily.

Next, Bulk Shipping business. Recurring profit, JPY 174.4 billion, or up JPY 80.5 billion year-on-year.

For automotive transportation, chip shortage and the pandemic reduced car production. But in the third quarter, the situation has improved. Better vessel deployment and substitute cargo also helped increasing transportation volume year-on-year, resulting in good performance.

Drybulk business for all vessel sizes, markets did not grow since the first -- the second quarter underperforming the same period of last year. But in the first quarter, we acquired a small mid-sized bulk carrier transportation contracts which helps to produce good results.

Energy business. For VLCC, with the firmness in VLCC and VLGC business, we were able to enjoy a very strong improvement in market conditions and also backed by stable and long-term contracts, LNG and ocean businesses both performed very well.

In summary, overall, from the second quarter of fiscal year, we achieved a peak and then we -- the business had turned to a downtrend from the third quarter onwards. And this was mainly due to the flattening of the container vessel market. And also for the Bulk Shipping business, the bulker's market sluggishness was covered up by the favorable automotive transportation business.

So that was the summary. What I just mentioned are illustrated on Pages 4 to 5 of the presentation. So please refer to them when you have time.

Now for the cumulative period from the first to the third quarter, we achieved a record high profits. In addition to the cargo movements, 1 of the major factors behind this was the weaker yen. So if you can look at Page 8 of the presentation. As you can see, the recurring profit increased by JPY 307.6 billion compared to the same period of last fiscal year, out of which JPY 130 billion or so was affected by the weaker yen according to analysis. So that was about the financial results for the first 3 quarters of fiscal 2022.

Now moving on to the full year forecast of fiscal 2022. And I would like you to see Page 12 of the presentation. If you can look at the blue numbers on the right-hand side of the table. For the full year forecast of fiscal 2022, we have conducted a review on the forecast with the last time based on the prevailing market conditions.

As a consequence for revenue, recurring profit and net profit overall, we -- for each of these items compared to the last forecast announced in November, we made a slight downward revision. The full year revenue was reduced by JPY 100 billion compared to the last forecast announced in November, and now we are forecasting JPY 2.600 trillion.

Operating profit was down by JPY 220 billion -- an increase of JPY 20 billion compared to the last forecast at JPY 290 billion. Recurring profit is down by JPY 30 billion compared to last forecast at JPY 1.80 trillion. Net profit was decreased by JPY 30 billion compared to last forecast at JPY 1 trillion. This is our new forecast. However, out of the JPY 30 billion reduction in recurring profit, approximately JPY 23 billion is due to the changes in the foreign exchange assumptions.

In the last forecast, for both the third quarter and fourth quarters, we were assuming for JPY 143 to the dollar in our foreign exchange assumption. However, this time around, for the fourth quarter, we are assuming for JPY 130 to the dollar, and this calculation is reflected in the new forecast.

For the recurring profit of the fourth quarter, as I just mentioned earlier, after hitting the peak in the second quarter this year from the third quarter, we have entered a downtrend in the fourth quarter, this will come down further to JPY 74.1 billion, according to our projection.

Now to give you a breakdown by segment, and if you can open Page 14, you see the changes from the last forecast on the far right columns for each of the segments.

ONE and other Liner Trade as well as the Air Cargo Transport business are recording a remarkable decrease. For Liner and Logistics business altogether, there was a reduction of JPY 55 billion to JPY 885 billion is the new forecast of recurring profits.

On the other hand, for the Bulk Shipping business, we have increased the forecast by JPY 25 billion to JPY 205 billion in recurring profit from this business. In the Bulk Shipping businesses, profit growth is driven mainly by the continuous favorable conditions of the automotive transport business.

Now next page, you see the changes in recurring profit in fiscal '22 in a graph. As you can see from here, for the Liner & Logistics business, the supply chain is now coming back to normal conditions. However, the inventory level is priming up at the place of consumption. Inflation has also resulted in a decrease of demand and the spot rate of container vessels has come down.

And for the Air Cargo business usually in the third quarter, we see a peak season and the cargo movement remained sluggish this year. And those were the major factors behind the decrease of recurring profit. As you can see from the graph, I think it's self-explanatory that first quarter, second quarter those were the peaks or peak of the business. And now after that, those periods, we are now seeing a downtrend as we move towards the normalization.

For the Bulk Shipping business, the drybulk market suffered a decline, but this was offset by the favorable automotive transportation business. So the drybulk decline was covered up by this. And also with the mid- to long-term contract supporting the firmness of the energy transports, we managed to minimize the decline, which we believe is quite a good number for us.

All that I just mentioned are summarized on Pages 9 to 11 of the presentation. So please look at these numbers for each segment when you have time.

Now finally, I would like to talk about the dividend forecast. And if you could go back to Page 9 of the presentation, you see the bottom section of the paper.

As I just mentioned, in our full year forecast, we are expecting a slight downward revision compared to the last forecast for our net profit. However, for the year-end dividend, we will maintain the dividend forecast at JPY 160 per 1 share, unchanged from the last presentation. When this is converted into pre-stock level, it's just not that you have to triple this, but this represents -- this is equal to JPY 480 of dividends per 1 share.

And if you combine with interim dividend of JPY 1,050 per 1 share, at the pre-stock split level for the full year, this is equal to JPY 1,530 per 1 share, which represents a dividend payout ratio of 25.9%. As you know, the stock split was conducted with the record date of September 30 last year and the effective date October 1. So we conducted a 3-for-1 stock split for our common shares.

With this, that was about the overview of the first 3 quarter results for fiscal 2022. And also, I have announced a revised full year forecast. Also, as you may have learned from our homepage description, the new medium-term management plan starting from fiscal 2023 will be announced on March 10.

Our future growth strategies as well as our new capital policies will be presented in this new medium-term management plan. And so please look forward to them. That's all for myself. Thank you very much.

[Shuichiro Shimomura, executive]

That's the end of the presentation. Now we move on to Q&A session. So the Container Shipping is on the down trend. If this trend continues and contributing to the decreased profit next year where your balance sheet is very strong right now the payout ratio of 25% could be raised. And in other words, to keep higher the payout ratio going forward?

[Takaya Soga, executive]

This is Soga answering your question. Thank you for a good question. As to dividend ratio, dividend payout ratio and shareholders' return policy. That is a very big part of our capital policy. As I mentioned at the end of my presentation, on March 10, we are going to announce a new midterm management plan.

And actually, that part will be a very big chunk of that plan. So as of today, I cannot go into detail -- but we are now exploring something different.

[Shuichiro Shimomura, executive]

Next question as to ONE and its balance sheet, whether they have quite a big figure of net cash. What is the actual size of the net cash? Mr. Harada, please.

[Hiroki Harada, executive]

This is Harada. This quarter, in the color of Magenta, they have accumulated the profit on a cumulative basis of the 3 quarters. They announced the cumulative number. And especially for the past 2.5 years, it was strong. Excluding dividend, the rest is accumulated in the capital -- as capital. And of course, investment will start. So the part of that cash will be used for investments. So in terms of its balance sheet, it is more than sound, including dividend. That's what they have achieved.

That said, we have been considering their business, adequate business in the window of 10 years to think about the dividend, the policy for shareholders. For 2023-2024 about 29% capacity will be provided by newly built vessels compared to existing vessels. So there will be some changes in the other tracking tasks for the company.

So the shareholder companies, parent companies are discussing how to deal with that potential situation for ONE.

[Shuichiro Shimomura, executive]

Thank you very much for the question. Now we would like to move on to the next question.

[Unknown Analyst]

I have 2 questions. One is about the container business profit outlook. According to other company's presentation, even with the current spot rates, they shall be able to achieve profits and avoid any losses. Do you agree with that view? Especially if the current rate of spot rates continue as is, with the new contracts coming renewal in May, I think the situation will become very difficult. And will you still be able to achieve profits at that level? So that's the thing that I'm not really sure about. So can you comment on that point?

Second is about the air -- cargo and also air transportation and also our logistics. We have seen a steep deceleration from the third quarter and fourth quarter. So what's your forecast about the speed of rate adjustments in the future and the outlook for the future? Which quarter will hit -- will be the bottom quarter if you have any forecast on that, please comment on them.

[Shuichiro Shimomura, executive]

Thank you very much for the questions, and that will be explained by Harada san.

[Hiroki Harada, executive]

Thank you very much for the questions. Regarding my first question, I was anticipating this question. The container businesses profit and loss outlook, of course, other companies made a presentation in which they talked about that if the current rate is maintained, they shall be able to maintain profitability. And you were asking our opinions and also for the renewal from May, the service contract for North America will be up for renewal.

So regarding our view, regarding the freight outlook. Of course, I'm not in a capacity to talk about the other companies' comments regarding the freight outlook. But in our view, if the current spot rates were used for all of the opportunities, it will just be breakeven. So we believe it's going to be very tough if the current spot rate is maintained.

So for that reason, if the spot rate declines -- we haven't seen any decline from the current level. So I think because the timing of the freight return is slow. So the North America transport is slightly moving. But the current spot rate is a very tough situation from -- when you look at it from the breakeven point.

So again, from this reason, the spot rate has come down, but it is now leveling off, and we are not seeing any further decline at this moment. That's one reason. But on the other hand, towards the renewal in May each company right now, before and after that, the cargo volume is now reducing. So therefore, the service submission is now conducted. They are skipping the services, but still the volume is not coming back. So the volume shortage is the major reason behind this.

And of course, North America inventory problem is still there and all stores in Europe and other regions the war is there. And of course, the general economic conditions are also another factor. So depending on the timing, I think the situation will change and towards the May period, the renewal, the spot rate at which level the annual rate will be determined will have an impact on the forecast, and we'll be able to see that when that becomes -- when we have visibility on that. But if the current rate continues, that will be the case.

But of course, in the fourth quarter, the reason why we are expecting our profitability is because we have the annual contract, and that's making a great contribution to our profits right now. And actually, therefore the annual rates are maintained, observed with a higher probability. And -- as a consequence, the long-term contracts compared to the short term have been coming down in terms of total proportion. The short-term contracts are now increasing in proportion. However, the long-term contract has been observed more than anticipated. So that is making a good contribution. And therefore, what happens to this level going forward will have a significant impact on the PL for 2023. So we are keeping a close eye on this trend.

And the second question regarding the Air freight and also Logistics business. In the fourth quarter, again, the profit level is likely to plunge or reduce significantly. And where are we likely to hit the bottom? I think that was the question from you?

For Air Cargo and also for Logistics, for both of them, the program right now is the shortage of cargo, and that is the biggest -- single digit problem, especially when it comes to Air Cargo, in November, December, or the delivery from Japan has seen a bottom, and we have already had the track numbers for November and December.

But compared to 2019 pre-COVID level, this is the lowest monthly number, of course, it depends slightly and differently from the destination for North America, Asia and other in the region. The November number was the lowest over the last several years. So the volume is small. And of course, because of container results, there has been a reduction. So in our forecast, in our projection in terms of air freight, despite this limited volume, the air freight has been maintained at a certain level, which is something noteworthy, I believe. So in that regard, of course, that's partly because we have secured long-term contracts. But of course, the business per se, the dedicated cargo freights, the view of how to secure the space might have changed. But of course, we have to keep a close eye before making a decision.

But anyway, despite the low quantity level, the freight has been maintained fairly well. The deterioration of the PL performance is dependent on the volume, I think. So there's nothing we can do right now for the fourth quarter. But likewise, the same applies to logistics. The AFF will also be affected by, but also for the ocean OSF, as it was explained by the CFO, there's a timing difference issue here. Because we have a contract in place with customers, and there are the freight determined by the contract, but actually, the space per sale per se from the carrier, because the spot rate is coming down and as a result of the renew.

So there is a spread of the prices. Before the contract expire -- until the contract expiry, the customers, that kind of spread will continue to happen because of the timing difference. And that is going to have impact on the OFS business. But this will diminish and go away in the future. But right now, this is still remaining as we speak today.

So the yield from this business or -- and when are we going to hit the bottom from this business. For the Ocean freight, I think it seems that we won't likely come down further from the breakeven point any longer. But of course, for the forwarder, when the customer prices are decided the timing difference spread will become smaller. So I think we are going to see a further deterioration on that part.

But as far as the air freight is concerned, as we talked about the yield, what is going to happen from now onwards will have to be seen. But I think it seems that we are doing well despite those conditions. If the volume comes down further, the cargo volume comes down further, like the belly prices for the passenger claims that could also have another impact on us.

So I don't think that we will have another bottom, but we have to keep a close eye on the future trends.

[Unknown Analyst]

That's all for myself.

[Unknown Analyst]

Regarding your first answer, ONE -- in order for them to secure annual contract from North America to generate profits the spot rates have to increase further. Is that the right interpretation? Or it would impact your explanation?

[Hiroki Harada, executive]

Yes, we said that. But another point is that throughout the pandemic -- as a result of the pandemic, the value of the space were very much appreciated. So the contracts that we enter into will be 1 year and the U.S. economy given the piling up of inventories, how would that -- the U.S. economy come back is another issue that we have to keep an eye on.

Of course, the U.S. economy is very strong, and I think we are not going to foresee a real deep recession. So the purchases will continue to continue. So towards the end of the year, there might be a shortage of spaces, and there is a potential -- we won't roll out the possibility of swap freight prices surging. So how to secure the supply of spaces and how to secure the right prices for that is something that we have to work on.

[Unknown Analyst]

I have 2 questions. First about container? And the second question is about air freight. The first question is container spot rate. Long-term contract and the level of freight and how to think about it? Historically, there's volume discount. Basically, the freight that had some discount in the long-term contract, but the demand is weak. Is it really possible to set the freight for the long-term contract higher than the spot?

And the second question, the yield and the Air Cargo, air freight the profit level and the freight level might be coming down. Since going forward, when the volume situation does not change much what will be the perspective of the freight? Would it go down? Or would it be maintained? These 2 questions.

[Hiroki Harada, executive]

First, the containership long-term contract and the freight level. In the past, whether there's a promise of the volume to some extent. And so compared to the spot rate, there will be some discount. There have been discount, you're right. It depends on the certain spot level that could be the expectation on the part of the customers. But against the spot freight and the fluctuations of spot in the future, whether the customer would go for a discount or even willing to pay out premium to get the space in May -- in April and in May when the renewal comes, it is still invisible. It seems that the customers are watching closely.

We can see mood about the spot freight. So based on that sentiment, there will be either a discount or premium. In the negotiations if the customers think that there should be premium, actually, there are such customers. So it's not necessary discount that will happen. It depends on negotiations, what kind of sentiment for the future, and that will determine the rates for the long-term contracts.

In any case, the situation is very tough to breakeven. So on a long-term basis, we supply the space on a very long term, that will make the situation for us even tougher. So -- at this moment, it is invisible how the rates will be determined for the long-term contracts.

Next question, MCA, the margin of the cargo and the volume is not likely to recover very soon. So how are we looking at it? Well, as I mentioned earlier, the volume movement and the other freight in that relationship compared to the pre-COVID, the volume is weak, but yield is maintained. And of course, we need to watch closely, but it is doing rather well. So the value space is being appreciated.

As to Japan, the more than 2 years contracts exist, from Japan, the space from Japan is sold off. Part of it is already sold off. So we can get the freight as the predetermined -- and the renewal of freight from Asia through Narita to North America. It's already happening. But compared to the current spot rates, this premium on the rates with customers.

So especially the passenger flights, the belly space is not dictating the freight determination overall, but we are going to watch closely.

[Shuichiro Shimomura, executive]

Now we'd like to move on to our next questionnaire.

[Unknown Analyst]

Hello, can you hear me?

[Takaya Soga, executive]

Yes, we hear you very well.

[Unknown Analyst]

I have 3 questions. First of all, in relation to your previous answer, the annual contract renewal for Europe and also the early bird for North America. Is there anything that you can add as an explanation and supplement your explanation? I would like to hear that.

Second is about the container spot rate. It's close to breakeven, so you're saying that it's close to bottom according to your explanation. I understand that. But from here, with new vessels being completed, and the demand recovery alone may still be very tough on you in terms of your supply and demand situation. So if you're able to absorb the new vessels completion and still sustain the freight from plunging further, I think you have to work very hard on that. Otherwise, I don't think it's going to -- you will be able to achieve that ambition. Is that correct? So that's my second question.

My third question is about Logistics. When you look at the fourth quarter projections JPY 4.8 billion in profit. So how to see this profit level? From an outsider's point of view, the forward profit is almost mapping and only contractor logistics profit is the only component here. Is that correct? If that is correct, I think therefore there is profit that's almost breakeven. Maybe breakeven with forwarders not really usually. So I think I'm sure you're happy securing some spread, but other burdens are higher. So maybe can you give some more color to that? That's something that I would like to hear.

[Shuichiro Shimomura, executive]

Okay. Harada san, please?

[Hiroki Harada, executive]

Thank you very much for the question. So I would like to answer to those 3 questions. I'll try to be concise. First of all, regarding the early bird results for North America and Europe, of course, early bird is usually contracted on a calendar year basis, and the results are already available.

Initially, the spot rates have come down, but still the spot and in the middle between the spot rates and also the previous year's level, it was decided. That was a trend that we have seen. But it turns out that it is drag mostly heavily by the spot rate, spot rates, in many cases, with the early bird.

Of course, that's still within the range of our earlier assumptions. Then -- but a certain amount of volume has been -- is maintained. So therefore, because we're choosing this, it doesn't mean that we are losing money. It's not we are generating losses because of securing these contracts. So in general, those rates were determined in line with our range of assumptions, right?

So the issue of breakeven, spot rates today is breakeven level. And as I said earlier, with the new vessels being delivered in 2023 and 29% of the vessels start the new vessels becoming available and then the recovery of demand alone will not solve all the problems because there might be a concern of oversupply.

Of course, certainly, in terms of supply and demand, the supply will increase there. But in the case of Container business, compared to the capital of the better expenses, the fixed cost that's related to the service, and that's quite excessive. That's quite a large burden. So -- in essence, there's an -- there's a vessel and if all the vessels have been deployed and if the -- if everybody is playing on that with all the vessels have been operated, I think that is going to be a help for all the players.

So if the demand is not really recovering to the fullest, then even if the vessel is there, we are not going to operate the vessel. That is the prevailing view in the market. So by doing so, we can save the fixed cost for operations and the freight will not suffer a decline. So it's up to each company's decisions and the alliances decision. But of course, the availability of vessels and if the demand does not recover fully it doesn't mean that the freight will just free fall and plunge. That's our current assumption.

But of course, it has to be determined by each company, and we have to keep an keep an eye and see what happens. But of course, then as a result of this, those global players -- there's only 7 companies who can be claim that 7 companies. And these 7 companies are different in sizes and the cost competitiveness of each company is not really significantly different.

And the breakeven point are not likely to be significantly different among the 7 companies. Given that situation, those vessels that is going to transport air even because the vessels are complete, not all of them -- not all of the players are going to operate all of them. That's my personal view.

And finally, regarding the logistics business, for the fourth quarter of logistics Y&K in particular, compared to the first 3 quarters, the reason why the fourth quarter number is like this is because of the G&A factor, the Y&K business segment. We also have our G&A. And the bonuses and the G&A expenses increases generally in the fourth quarter because those are allocated for the first quarter.

So therefore, the general and admin expenses in the fourth quarter is higher compared to the other 3 quarters. And because of the business performance, it looks as though the fourth quarter profit is lower, but it's not that certain segment is running on losses. That's not the case.

So of course, the contract logistics is a very stable business, relatively speaking. So the -- when the cargo volume is not really changing that significantly. So on a relative basis compared to other quarters, the performance is really comparable to other quarters.

However, as I said earlier, the group employees SG&A expenses taken here. So compared to other quarters, the profit level look appears to be smaller compared to other quarters. But for other businesses, like SG&A, it's not that this business is expected to generate losses.

As of the number for the quarter in the fourth quarter, as I said, because of the reasons there are some seasonality factors here, especially because of the fourth quarter, the seasonalities are there, and that's the reason why we are projecting this number.

[Unknown Analyst]

I have 2 questions. First, Bulk Shipping profit. On Page 7, on a quarterly basis, the structure there. Drybulk, Automotive and Tanker, second quarter, third quarter, absolute amount are not so different. But the breakdown is different, I understand.

So specifically for Automotive Transportation and how much will drybulk -- and that's what I'd like to know. And in the fourth quarter, what will be the impact on automotive, tanker, and drybulk? And what is your plan for each of these segments in the Bulk Shipping business.

My second question is about the financial results. But you have announced the other different changes than Mr. Soga, CFO is going to be the new president. Is there anything that you can share with us at this moment as to the organizational things or the HR things that you can share with us?

[Shuichiro Shimomura, executive]

Mr. Soga, please.

[Takaya Soga, executive]

Your first question, the Bulk Shipping, the recurring profits and its breakdown. As you mentioned, for this fiscal year, second quarter and the third quarter, absolute figures of recurring, the profits are almost the same in the first quarter, a bit better than the second quarter, third quarter. But all-in-all, on the same level. But of course, the breakdown is different.

For each section and its numbers, we do not disclose them. So we cannot talk about figures themselves. But in the first quarter, JPY 64.1 billion, that's the recurring profit. And the main driver there was drybulk. And the market in the first quarter was quite good.

And before that, in the previous fiscal year fourth quarter, from there, usually in winter because of the seasonality, the Bulk Shipping is not so robust, but FY 2021 fourth quarter, actually, the results were quite good. In the first quarter, also drybulk had a very good performance. And in the second -- in the third quarter, dry bulk market aggravated. So the dry bulk numbers reduced, while automotive transportation numbers rose.

So the overall numbers were about the same between the quarters, but the breakdown is different automotive transportation replacing dry bulk in the level of contribution. It's not that the dry bulk is running in the red that it is producing good numbers. And in the fourth quarter forecast if you look at Page 13, we have a lot to think in forecast, JPY 30.6 billion, (sic) [ JPY 31.6 billion ] JPY 55 billion for the third quarter, so they're down by about JPY 2.5 billion.

Here, drybulk market, what expected to go up more especially in September and always, we thought that it would go into recovery phase, but the economy in China and if zero-COVID the policy, the sentiment aggravated. So there was no such growth. It was actually coming down. That's the dry bulk market. And for the fourth quarter, the forecast is based on that situation.

So as I mentioned earlier, from the first quarter, dry bulk started to come down gradually, it's not operating in direct, but the downward trend through the fourth quarter. As to automotive transportation from the second quarter and onwards, it is growing in its third quarter the covering the reduction in the dry bulk so that's the overall dry bulk shipping number is maintained.

And in the fourth quarter, automotive transportation that will do well, but not as much as JPY 55 billion that level. That's our forecast for Bulk shipping business. But going forward, FY 2023, probably that China internal policies, for example, for the estate, the government policy change our estate companies will be supported -- are now being supported already by the Chinese government.

So the sentiment is expected to improve greatly in China. So from April or from May, in any case, from the early part of the year, we will see recovery and improvement. That's what we expect in compiling the budget for the next fiscal year.

Your second question about management structure. As you see from -- are we going to be going to succeed, Mr. Nagasawa, as President of NYK. What I can talk about right now is as follows. So on the March 10, we are going to announce the new mid-term management plan. And for the coming 4 years and then 8 years up until 2030, we are going to look ahead to 2030, and then compile our management strategies. And as I mentioned earlier, new capital policy will be in place. So based on that new plan, that we are going to have very specific action programs. And without any hesitation, we are going to execute those plans.

Another point about the organization, ESG -- first year of ESG that was 2021. It was by Mr. Nagasawa. So 2022 is the second year, and the next year is the third year. So to promote ESG management in the enlightenment of our employees has already been completed, more or less. So from the next year on, we are going to go into the next phase. So we are going to the announce the specific action of the programs as much as possible in the midterm plan.

And to execute all that, we have 7 headquarters or divisions. And from April 1st, we are going to a new one, which is named ESG strategy division. So ESG management -- implementation of ESG management that will be led by this new region, starting on April 1st. I cannot talk about in a very comprehensive manner, but that I just want to touch up on these 2 key points. Thank you.

[Unknown Analyst]

Supplementary question. The supply and demand for automotive transportation and carriers. What is your thought on that?

[Hiroki Harada, executive]

Actually, my biggest concern since last year, is specific trade from Japan to America and will be the changes, especially up until before summer last year, because of interest rates rising in the North America, there was a high -- the probability to start recession toward the end of last year, the pressuring down the production of sales in automobiles.

So we should not the increase the space we thought. But according to more recent comments by analysts or automobile manufacturers in the U.S. the retail balance sheet of the individuals are improved. So they buy cars, even with some rising interest rates, the things like cars are continuing to be purchased. They will continue to buy cars according to some analysis. In the current U.S. economy, it's not probably a recession. It would make some good soft landing. If that's the case, the will to purchase cars and the capability of buying cars will be maintained. So in North America, in particular, the transportation and the demand will not go down probably during 2023. And so that will be a driving force and in the Southeast Asia area or to Europe in market, we will not see the bad situations. Actually, there might be some improvements.

[Shuichiro Shimomura, executive]

Thank you very much for the question. So we are running out of time, and we are approaching the schedule time to finish this meeting. If there is no further objections, we would like to finish the Q&A session at this juncture.

So as we have informed you earlier, I would like to have Mr. Harada sans comment to finish this meeting.

[Hiroki Harada, executive]

Once again, I'm the Logistics Head of the business. My name is Harada. Once again, very nice to meet you. 2018 Ocean Network Express was inaugurated in over since for the 5 years. Whenever I had this -- I always attended the IR presentations and talked about the NMO businesses.

Ocean Network Express when it was established, we recorded a teasing problem because of many issues happen one after another, and we caused you a lot of concerns. However, after the third year onwards, because of the pandemic, the situation in the world changed dramatically and especially the supply-demand situation was impacted significantly by COVID. As a consequence, we have seen unprecedented numbers on a continuous basis amid the situation in order to explain the L&L business in the most easy-to-understand way we -- I have tried to make explanations during the IR session.

But I'm sure that my efforts were not sufficient to some extent in some cases, I would like to extend my apologies here. The L&L business -- and also the L&L business in this trend of normalization, unfortunately, we are seeing a certain -- there might be a certain occasions that we see a setback in the future. However, ONE, YLK, MCA, all the businesses, after all because the population is growing around the world and as long as the economy is growing, these businesses will definitely continue to grow.

Therefore, including these 3 companies I hope that you will continue support to these 3 companies and overall to the NYK Line business. Thank you very much for all your support over the last 5 years. So just we would like to finish the financial presentation for the first 3 quarters of fiscal 2022. Thank you very much. And there's a stairway, please, we will call for it -- we appreciate your cooperation. Thank you very much once again for your participation today.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]