Q2 2026 Nippon Express Holdings Inc Earnings Call
Speaker #1: 2650, so that would be 223 something days. At the center of the table is the President, Representative Director, and President and Chief Executive Officer of Nippon Express Holdings.
Speaker #1: Mr. Horikiri. Horikiri's right-hand side is Mr. Otsuki, Senior Managing Executive Officer responsible for the corporate strategy division. Next on the left-hand side is Mr. Otsuji, Senior Managing Executive Officer responsible for the global business division.
Speaker #1: Serving as the Secretary is Mr. Akaishi, Director and Managing Executive Officer responsible for the corporate planning department, and Mr. Nakamura, General Manager through 3 well, assigned to the Financial Planning Department.
Speaker #1: I'll be serving as moderator. My name is Sumori of the IR Promotion Office, Corporate Planning Department. Thank you, Nibas, for your kind attention. First, President Horikiri will, for approximately 20 minutes, provide an explanation on behalf of the company regarding the financial results overview and initiatives to enhance corporate value.
Speaker #1: Thereafter, we will have a question-and-answer session. The meeting is scheduled to conclude at 6:00 p.m. The materials to be used today consist of 2 documents: the financial results presentation materials and the summary of financial results.
Speaker #1: They are available on our company's website, and we invite you to make use of them. Please be advised that today's briefing is being conducted in the form of a live broadcast in Japanese and English via simultaneous interpretation.
Speaker #1: We appreciate your understanding. Without further ado, Mr. Horikiri, our President, will now provide an explanation regarding the financial results for the second quarter of the fiscal year ending December 2026.
Speaker #1: President Horikiri, please. This is Horikiri. Thank you very much for taking the time out of your busy schedule to attend our financial results briefing today.
Speaker #1: We would also like to express our sincere gratitude for your continued patronage. Now, I would like to explain the overview of the financial results for the second quarter of the fiscal year ending December 2026, as well as the full-year earnings forecast and related matters.
Speaker #1: First, with regard to the overview of the financial results, please refer to page 5 of the materials. The consolidated financial results for the cumulative second quarter of the fiscal year ending December 2026 were as stated in the materials.
Speaker #1: The depreciation of yen against the euro and other foreign exchange effects increased revenue by approximately 50 billion yen. However, amid uncertainty in the external environment, including the situation in the Middle East, air forwarding handled volume increased year on year in the first half, driven by robust logistics demand related to the semiconductors, AI, and cross-border e-commerce.
Speaker #1: In addition, maritime forwarding—ocean forwarding—remained firm on routes from Asia to Europe and North America, as well as within Asia. Intra-Asia and revenue also increased on a real real basis.
Speaker #1: Owing in part to an increase in handled volume. With respect to profits, in addition to the increase in handled volume in forwarding, unit gross profit rose due to demand for air charter services and other factors, and together with the effects of cost reductions, each profit item at the consolidated operating profit level and below increased.
Speaker #1: Next, as compared with the figures announced on May 13, revenue: business profit and operating income all exceeded expectations. In addition, interim profits slightly exceeded expectations.
Speaker #1: Although there was a downside in financial income and expenses due to the factors including a decrease in dividends received, the result was generally in line with the anticipated level.
Speaker #1: For the current period, land sales amounted to 4.3 billion yen and a gains on sales totaled 2.5 billion yen. Although gains on sales decreased by 1.2 billion yen year on year, the company has now obtained visibility on its plan to dispose of low-yield real estate this year and expects to catch up going forward within this year.
Speaker #1: Please refer to page 6 of the materials. With respect to the performance of each segment, logistics Japan exceeded expectations, primarily due to the solid performance of the forwarding business and cost reductions.
Speaker #1: Moreover, although Europe fell below projections, overseas operations exceeded projections, due in part to solid performance in South Asia and Oceania resulting from factors including an increase in the volume of air forwarding handled.
Speaker #1: Meanwhile, it appears that the peak season for ocean transport has brought forward, due to the impact of uncertain tariff policies and other factors, giving rise to concerns over a decline in demand at an early stage of the second half of the fiscal year.
Speaker #1: In addition, the abolition of the debt minimus system in Europe is expected to result in a decrease in cross-border e-commerce cargo and we understand that it will be necessary to take such impacts into consideration in the second half of the fiscal year.
Speaker #1: In addition, construction of heavy-lift cargo also exceeded projections, primarily due to the acceleration of construction work. And while logistics support recorded a decline in revenue owing to such factors as a decrease in petroleum sales volume, the upward variance in profit was attributable to a temporary expansion in petroleum sales margins caused by the time lag between procurement and sales, and we anticipate a corresponding reactionary decline in the second half of the fiscal year.
Speaker #1: Please refer to page 9. With respect to performance trends, we present a quarter-on-quarter comparison of consolidated results. Although revenue increased due to such factors as growth in the air forwarding, the 15.2 billion increase in business profit includes approximately 8 billion attributable to the rebound from the lump sum recognition in the first quarter of expenses such as fixed assets, tax, excluding this effect, the increase in profit would be approximately 7 billion yen.
Speaker #1: The primary factor for this is attributable to the logistics segment. Next, I will explain the status of each business segment within logistics. Please refer to page 11.
Speaker #1: With respect to the Japan segment, in international air forwarding, cargo movements within Asia remained firm Intra-Asia remained firm and in addition to the balance control procurement and sales unit prices, spot demand was also present, resulting in an increase in gross profits per unit.
Speaker #1: Resulting in increased profits both quarter-on-quarter and year-on-year. In ocean forwarding, cargo movements within Asia Intra-Asia remained firm and in addition to an increase in gross profit from the NVO business, primarily due to an increase in overseas relocations, profits increased both quarter-on-quarter and year-on-year.
Speaker #1: Additionally, in logistics, while there was no significant change in domestic logistics demand, the quarter-on-quarter decline in profit was attributable to a rebound decrease following the peak moving season and increase in personnel expenses.
Speaker #1: Among other factors, however, due to cost reduction effects, profit increased year-on-year. As a result, for the logistics Japan segment, excluding the impact of one-time expense, recognition for items such as fixed asset tax we had anticipated on approximately 4 billion yen quarter-on-quarter decrease in profit due to seasonal fluctuations and increased personnel expenses.
Speaker #1: However, with cost reductions as the principal driver, the segment achieved a profit level nearly equivalent to that of the first quarter. Next, with respect to international operations, in international air forwarding, in addition to steady cargo movements related to semiconductors and AI, gross profit per unit also increased due to charter handling and other factors, resulting in increased profits both quarter-on-quarter and year-on-year.
Speaker #1: In ocean forwarding as well, intra-regional Asia remained firm, handling volume increased and gross profit per unit improved, resulting in increased profits quarter-on-quarter. However, due to increases in operating costs and other factors, profits were at the same level as the previous year.
Speaker #1: With respect to logistics, handling volume increased in the Americas, including apparel-related business, and in East Asia, newly commenced operations that had shown low profitability in the previous fiscal year also improved, resulting in increased profits both quarter-on-quarter and year-on-year.
Speaker #1: Furthermore, cargo partner company achieved an increase in profit both quarter-on-quarter and year-on-year owing not only to the effects of structural reforms but also to an increase in air freight handling from Asia to Europe, primarily related to e-commerce.
Speaker #1: As a result, the international logistics segment recorded an increase in profit of 5 billion yen quarter-on-quarter, exceeding projections by 1.7 billion yen. Next, please turn to page 17.
Speaker #1: We will now explain the status of initiatives under the management plan. First, with respect to the business growth strategy, handling results in the key industries exceeded the previous year's levels.
Speaker #1: With the exception of healthcare, which was affected by reactionary decline in United States following the completion of a large-scale refrigerated transport project. As account management deepened in the lifestyle segment and in the semiconductor segment through the acquisition of new air freight forwarding business and the full-scale commencement of logistics operations in Asia, including Japan, revenue expanded.
Speaker #1: Please refer to page 18. Next, from a business perspective, according to IATA's report, international air cargo transport volume in cumulative terms for the period from January to June increased by 5.2% year-on-year.
Speaker #1: However, there is also information indicating that there was hardly any rush demand ahead of the changes to Europe's de minimis system. In addition, amid firm cargo demand and persistently elevated fuel unit costs, air freight rates have also been on an upward trend.
Speaker #1: Under these circumstances, our handled volume increased by 8.4% year-on-year, representing growth that outpaced the market. With respect to ocean freight, cargo movements on the major trade lanes increased by 6.9% year-on-year on a cumulative basis for the period from January through May, for which information has been disclosed.
Speaker #1: In addition, freight rates have remained elevated due to the impact of the situation in the Middle East. Under these circumstances, although the continued BCO shift has been observed, our handled volume increased by 3.4%.
Speaker #1: Next, with regard to revenue from warehousing delivery and related services, revenue increased by 7.9% year-on-year, which we understand to reflect the effectiveness of the measures and investments that we have pursued to date.
Speaker #1: Please refer to page 19. Next, with regard to rebuilding businesses in Japan, we aim to improve the business profit ratio through those three initiatives described here.
Speaker #1: Due to the effect of the rate revisions cost reductions initiative to improve business performance and others, business profit increased. And the business profit ratio was 4.3%.
Speaker #1: 1.2 percentage improvement year-on-year. Please turn to page 21. With respect to the four-year consolidated forecast, in light of the first half results, we decided to revise upward revenue and each category of profit from business profit and downward.
Speaker #1: On the other hand, with respect to the second half, in addition to the circumstances in the first half, we anticipate the impact of the abolition of Europe's de minimis regime as explained earlier, as well as early conclusion of peak season demand for ocean forwarding and accordingly we revise downward revenue and business profit forecast.
Speaker #1: Furthermore, as the closing date for metro supply chain has not yet been determined, it has not been included in the current earnings forecast. In addition, because the figures for gains on sale of the profit low profit real estate and one-time expenses associated with the structural reforms in Americas and other regions which had not been incorporated at the time of the Q1 financial results have now become generally ascertainable.
Speaker #1: They have been included in the current earnings forecast as a result our e for this year is expected to be 8.5%. Please turn to page 22.
Speaker #1: As for the operating income forecast, we currently project gains on the sale of low profit real estate of 42.8 billion yen one-time cost associated with structural reforms in the US and others, 4.2 billion yen.
Speaker #1: And acquisition-related costs for metro supply chain of 3.2 billion yen. In addition, we expect an impact of 10.4 billion yen from such factors as the disposal of sites built under the former seismic standards and equity method investment gains and losses, as a result operating income is expected to be 120 billion yen.
Speaker #1: Please turn to page 23. A comparison of the revisions to the earnings forecast by segment is shown here. Among these, Europe has been showing a recovery in performance; however, Germany and the Netherlands and other certain countries continue to perform weakly, in addition because the impact of the abolition of the de minimis regime is expected we are revising the business profit downward.
Speaker #1: However, under such circumstances, we will further advance cost control through structural reforms. Please turn to page 27. Next, regarding shareholder returns for the fiscal year ending December 2026, there has been no change to the dividend forecast.
Speaker #1: And the interim dividend and the year-end dividend are each set at 50 m per share for the total of 100 m per share, resulting in the dividend payout ratio of 34.5%.
Speaker #1: The total payout ratio including the acquisition of the treasury shares with upper limit of 50 billion yen is 105.5%. The cumulative total payout ratio over a three-year period commencing in fiscal 2024 is expected to be 176.7%.
Speaker #1: We will explain our approach to the future shareholder returns later. As mentioned, those are the overview of Q2 financial results. And others. We will now address our initiatives aimed at enhancing corporate value.
Speaker #1: In this regard, company has advanced the chair force through three approaches, shifting to high highly profitable businesses and asset replacement, optimizing the capital structure and appropriately utilizing financial leverage and reducing the cost of shareholders' equity.
Speaker #1: In the current fiscal year, we expect to achieve the planned broadly. We have been considering measures to further strengthen our initiatives. In order to enhance the capital efficiency and realize further improvements in the share price and corporate value, as well as expansion of the equity spread, we believe it is necessary to expand the scale of and accelerate our initiatives aimed at enhancing corporate value.
Speaker #1: And therefore, resolved this as a substance, therefore as a update volume two of the initiatives aimed at enhancing corporate value. Let me explain the overview.
Speaker #1: Page 29. As part of our initiatives to enhance corporate value, we intend to improve the ROE by expanding the sale of low profit real estate and investment properties and allocating the proceeds to the acquisition of treasury shares and to management allocation that contributes to improving the capital efficiency in agile manner.
Speaker #1: Thereby strengthening our overall framework of measures to be implemented. First, with regard to the sale of real estate, we would increase the planned amount of 150 billion yen or more to the target amount of 500 billion yen.
Speaker #1: We currently project aggregate sales of about 167 billion yen over the cumulative three-year period. Through this fiscal year, and we will continue to promote the sale of business.
Speaker #1: Use real estate with low profitability. In addition, with respect to investment properties, such as the land rentals that do not generate synergies with the core business that and those are planned to be sold in their entirety, during the current management plan period.
Speaker #1: As such, sales will be pursued with the target sales amount of about 330 billion yen for 27 and 28. The after-tax cash inflow resulting from this increase in the sales amount is currently estimated to be about 210 billion yen.
Speaker #1: 110 billion yen, which is about one-half of this, will be allocated to additional treasury share acquisition. And the remaining 100 billion will be allocated to management allocation.
Speaker #1: As a result, with respect to the acquisition of the treasury stock, we have planned to planned a cumulative total of 110 billion yen over the three-year period, including this year's 50 billion yen, however, we have now incorporated 110 billion yen as the planned amount for 27, 28, and accordingly decided to increase the cumulative five-year planned amount to 220 billion yen.
Speaker #1: Further, with regard to the newly established management allocation, we intend through the rolling review of the current management plan to consider the optimum allocation among such options as growth and productivity enhancement investments, shareholder returns, and debt repayment, all of which contribute to the enhancement of corporate value.
Speaker #1: In addition, with respect to M&A investment, we would make no change to the investment allocation; however, going forward, we intend to consider implementation of the clarifying investment discipline applicable to M&A and we would explain this discipline later.
Speaker #1: Please turn to page 30. This is the cash allocation reflecting the enhancement measures implemented. Compared with the plan as of February 26, shown on the left, the portions marked in red on the right indicate the changes.
Speaker #1: Please refer to page 31. Next, I would explain the shareholder return policy and future M&A investment criteria in relation to strengthening of the initiatives aimed at enhancing corporate value.
Speaker #1: First, with respect to the shareholder return policy, there will be no change to the policy for the current management plan period, namely a dividend payout ratio of 40% or more and cumulative total return ratio of 55% or more.
Speaker #1: On the other hand, with respect to cash inflows from additional real estate sales, as we intend to proceed with the acquisition of the treasury shares, we would like to calculate the annual dividend amount based on the profits excluding the gains on sale of investment properties, included in net income for the period.
Speaker #1: Accordingly, the dividend payout ratio for the current fiscal year calculated on this standard is estimated to be 56.5%. Next, let me explain the criteria for M&A investments.
Speaker #1: Through the acquisition of the Metro Supply Chain, the company has gained visibility toward achieving the revenue target of 3 trillion yen. In regards to the improving the profitability and ROE, as the highest management priority.
Speaker #1: Against this backdrop, with respect to future M&A during the term of the current management plan, our policy is to shift its focus from growth investments aimed at expanding scale to investments that strengthen functions and improve profitability.
Speaker #1: And therefore, it has we have established the following ROIC criterion for investment projects, the aim shall be to achieve the ROIC of 10% as early as reasonably possible.
Speaker #1: We define the multiple criterion as investing in transactions where EV per EBITDA multiple including synergies does not exceed our own multiple. And based on these two criteria, we intend to clarify our investment conditions and pursue M&A that enhances the capital efficiency.
Speaker #1: So that's the content of the update volume two on the initiatives aimed at enhancing corporate value. We believe that in order to achieve the genuine enhancement of the corporate value, it is most important to strengthen our business strategy as the other way of alongside our financial strategy as a starting point, namely to enhance our earning power.
Speaker #1: We are currently conducting a rolling review of our management plan, and we will accelerate the strategies to measure under the current management plan toward the realization of our long-term vision.
Speaker #1: Page 32, this is the concept while maintaining the framework of the current management plan, we intend to advance the transformation and accelerate our strategies and measures from two perspectives, strengthening our earning power and transforming into solution-oriented enterprise.
Speaker #1: First, because the sale of the investment properties will result in the decrease of approximately 10 billion yen in profits generated from the real estate business, it would be necessary to adopt the strategy to offset that decrease and further expand profits.
Speaker #1: Second, the key point will be transformation from the asset business to solution business. Through rescheduling of human capital, the utilization of AI, and promotion of sustainable solutions, among other things, we intend to achieve the further expansion and acceleration of end-to-end solutions.
Speaker #1: We intend to utilize the management allocation to advance three initiatives and are currently commencing our review while launching projects and others measures. We will report on the progress as appropriate.
Speaker #1: However, by next February, we intend to finalize the rolling update of the management plan as a new undertaking. So far, I explained the outline of the financial results for Q2 of the fiscal year ending December 26.