Earnings Call: Q4 2025

May 14, 2025

Summary

FY 2024 adjusted ordinary profit hit a record ¥181.6bn, despite a ¥30.8bn inventory valuation drag. FY 2025 adjusted ordinary profit is forecast at ¥165bn, with higher capex and a ¥330/share dividend planned.

Good morning, everyone. Thank you very much for taking time out of your busy schedule today to participate in the financial results briefing for FY 2024. I will explain the highlights of financial results for FY 2024 and FY 2025 forecast, as well as initiatives to enhance enterprise value. Please turn to page 3 for FY 2024 financial results and FY 2025 forecast. First, about FY 2024 results. Ordinary profit was JPY 150.8 billion, and ordinary profit excluding the impact of inventory valuation was JPY 181.6 billion, due to the negative impact of inventory valuation of JPY 30.8 billion. Profit attributable to owners of parent was JPY 57.7 billion, and profit attributable to owners of parent excluding the impact of inventory valuation was JPY 79.2 billion. Next, about FY 2025 forecast. Ordinary profit is expected to be JPY 121 billion, and ordinary profit excluding the impact of inventory valuation is estimated to be JPY 165 billion. As for the major management indices for FY 2024, as shown in the table below, net worth on line 8 was JPY 584.8 billion, net worth ratio on line 9 was 27.1%, net D/E ratio on line 10 was 0.84, and ROE excluding the impact of inventory valuation on line 11 was 13.4%. Now I will explain initiatives to enhance enterprise value. First point is the progress of the seventh consolidated Medium Term Management Plan, or MTMP. Please turn to page 5 for a chart of the progress of each initiative of the MTMP. In FY 2024, we steadily implemented the initiatives, such as improving refinery operating rate, starting production increase at the Hail Oil Field, and starting SAF production, which is the first large-scale production in Japan. In addition, we flexibly adapted to changes in the business environment, such as restructuring the petrochemical business and withdrawing from the third round of bidding for an offshore wind power project. I will explain major initiatives in the oil business structural improvement in blue and the new field profit expansion in green later. Regarding transform management foundation in red, we worked on each initiative in MTMP as described here. Please turn to page 6 for the MTMP goals and FY 2024 results against them. As shown on this page, we have already achieved the goals for capital efficiency and profitability at the top, and the management foundation items of DX, HRX, and GX at the bottom. Please turn to page 8. From this page, I will explain our capital policy, market capitalization, and P/B ratio. The company positions the appropriate return of profits to shareholders as one of its most important management policies. The year-end dividend of FY 2024 will be JPY 180 per share, and the annual dividend for FY 2025 will be JPY 330 per share. This fiscal year is the final year of MTMP, and we will achieve a total payout ratio of 60% or more over the three-year period of MTMP, as we committed. For the shareholder returns in FY 2025, we will consider an appropriate method and timing. Please turn to page 9 for changes in financial health and capital efficiency. Based on solid earnings, net D/E ratio, an indicator of financial health, has remained below one, which is the target of MTMP. ROE, excluding the impact of inventory valuation, an indicator of capital efficiency, has been exceeding the MTMP target of 10%. Next, please turn to page 10. P/B ratio in this MTMP period has improved to almost 1.0, and we aim to further enhance our enterprise value. Please turn to page 12. From this page, I will explain major topics of each business field. To maximize refinery operating ratio, we are working to reduce unplanned shutdowns and shorten the maintenance period by DX. We are currently implementing predictive maintenance for maintenance activities by building a data integration platform and utilizing AI, and plan to expand it to operations in the near future. Through these measures to strengthen DX, we will further improve the safe and stable operations at refineries to enhance our competitiveness further. On page 13, I'll explain initiatives of SAF for expanding new business fields. In January 2025, we signed contracts with several airlines and started supplying SAF to them in FY 2025 to establish Japan's first domestically produced SAF supply chain. In addition, as a further step toward the future, our SAF-ATJ manufacturing project, using bioethanol as raw material, was selected for a publicly solicited project by the Ministry of Economy, Trade and Industry. Through the supply of SAF, we aim to provide a stable supply of low carbon fuels and further contribute to the decarbonization of the aviation industry. Please turn to page 14 for the green power supply chain for expanding new business fields. Renewable power generation is expanding its power generation capacity with the start of operation in Shin-Iwaya site in FY 2024. In the electricity storage business in the middle, we have started demonstration at the research and development center and gas stations in FY 2024. In FY 2025, we plan to start a demonstration at the Yokkaichi Kasumi Power Plant. In the green power sales business on the right, sales volume are growing through renewable electricity sales and corporate PPA. We will continue our efforts to increase earnings from the green power supply chain. Next, please turn to page 15 for restructuring of the petrochemical business. Maruzen Petrochemical, one of our group companies, has decided to consolidate the production capacity of its ethylene manufacturing equipment in Chiba area. This will strengthen the competitiveness of basic chemicals and reduce CO2 emissions by improving capacity utilization rates and reducing fixed costs. The second business restructuring was that we have withdrawn from unprofitable business by selling shares of HCP in South Korea, as the sluggish paraxylene market is expected to continue. Through such business restructuring at Maruzen Petrochemical and HCP, we have swiftly improved the profitability of the petrochemical business, which has been in a severe situation. Please turn to page 16 for the capital and business alliance with Iwatani Corporation. Iwatani Corporation has participated in the initiatives to build a domestically produced SAF supply chain in FY 2025. By utilizing Iwatani Corporation's extensive network, we are working to expand procurement of waste cooking oil as a raw material for SAF. In addition, we have started to explore the production and sale of green LPG, a by-product of SAF production, by SAFFAIRE SKY ENERGY LLC. Through the production and sale of green LPG, we'll provide a new value toward realization of a decarbonized society. Page 17 is also about the progress of initiatives with Iwatani Corporation. We are steadily expanding the business and promoting studies to create a new value in the business alliance for hydrogen. In the hydrogen station initiative on the left, we established Iwatani Cosmo Hydrogen Station LLC with Iwatani Corporation in February 2023 and opened the first hydrogen station in April 2024, followed by the second station opening in March 2025. With regard to building a hydrogen supply chain on the right, we have begun assessing hydrogen business utilizing assets of our Chiba refinery. The details of the project and the scale of production will be decided by the end of FY 2025, and we will further optimize the operation of the refinery by utilizing the hydrogen produced from the hydrogen manufacturing equipment. We will continue to pursue synergies by strengthening and accelerating our cooperative efforts while combining the management resources and know-how of both companies. This is the final year of the seventh MTMP. The entire company will work together to achieve each MTMP goal toward enhancing corporate value, which was set as a main theme of MTMP. That concludes my presentation. Thank you. Thank you. Next, Mr. Iwai, please. Now, I will explain the summary of the full-year results for FY 2024. Please turn to page 19. In the full-year results of FY 2024, consolidated ordinary profit excluding the impact of inventory valuation marked a record high of JPY 181.6 billion. With the impact of inventory valuation of minus JPY 30.8 billion, consolidated ordinary profit was JPY 150.8 billion. Net profit excluding the inventory impact was JPY 79.2 billion. Next, I will explain the results by segment. In the petroleum business, ordinary profit excluding the impact of inventory valuation was JPY 92.6 billion, up JPY 1.3 billion year-on-year due to solid domestic margins. In the petrochemical business, ordinary profit was minus JPY 5 billion, as market conditions remained sluggish, mainly for ethylene. In the Oil E&P business, ordinary profit was JPY 82.4 billion, up JPY 14.1 billion year-on-year due to the impact of yen depreciation. In the renewable energy business, ordinary profit was JPY 1.3 billion, down JPY 1.5 billion year-on-year, mainly due to deteriorated wind conditions. Page 20 provides an overview of consolidated income statements. Please refer to the table below. Operating profit on line 2 was JPY 128.2 billion, ordinary profit on line 4 was JPY 150.8 billion, and the profit attributable to owners of parent on line 8 was JPY 57.7 billion. Ordinary profit excluding the impact of inventory valuation on line 10 was JPY 181.6 billion, excluding the impact of minus JPY 30.8 billion on line 9. The full-year forecast for FY 2025 is as provided on the right. Page 21 shows a breakdown of consolidated ordinary profit by segment. I'll explain more details with the waterfall chart on page 22. Now, please refer to page 22. Let me explain the factors by segment behind the JPY 19.4 billion year-on-year increase in ordinary profit, excluding the impact of inventory valuation. First, factors for the JPY 1.3 billion increase in the petroleum business shown in yellow. Margins and sales volume increased by JPY 16.3 billion. Margins of four main products rose by JPY 18.6 billion with firm market conditions. Margins of other products was minus JPY 6.3 billion, volume of four main products was minus JPY 1.5 billion, and volume of other products was minus JPY 4.1 billion. Import purchase and export rose JPY 9.6 billion due to lower import and purchase costs resulting from lower overseas market prices. Let me explain the breakdown of the JPY 20.2 billion decrease in expenses and others verbally. Variable costs were minus JPY 8 billion, fixed costs were minus JPY 10.7 billion, and others were minus JPY 2.2 billion. The main factors for higher variable and fixed costs were increased costs due to inflation and the difference in the scale of turnarounds. The impact of refinery troubles compared to the previous fiscal year rose by JPY 5.2 billion. Next is about factors for the JPY 2.8 billion increase in the petrochemical business, shown in purple. Price decreased JPY 2.2 billion, mainly due to the impact of inventory at the beginning of the period and the impact of the turnaround of 3EP. Volume rose by JPY 1.9 billion, and expenses and others rose by JPY 3.1 billion. Next, the JPY 14.1 billion increase in the Oil E&P business, shown in red, was due to a JPY 3 billion increase in volume resulting from increased production at Hail, a JPY 4.7 billion increase in price, mainly due to the weaker yen, and a JPY 6.4 billion increase in expenses and others due to exchange gains. The JPY 1.5 billion decrease in the renewable energy business, shown in green, was mainly due to deteriorated wind conditions at Cosmo Eco Power. Page 23 shows an overview of consolidated cash flows and a balance sheet. First, in the consolidated cash flow statement, cash flow from operating activities on line 1 was plus JPY 137.1 billion, mainly due to recognition of net income, despite some one-time factors such as the impact of holidays on tax payments. Cash flow from investing activities on line 2 was minus JPY 145.7 billion due to capital expenditures and US dollar-time deposits. As a result, free cash flow on line 3 was minus JPY 8.6 billion. Cash flow from financing activities on line 4 was minus JPY 69 billion, mainly due to share buyback for shareholder returns. Next, I will explain the consolidated balance sheet. Total assets on line 1 decreased by JPY 56 billion from the end of the previous fiscal year to JPY 2,156.6 billion. Net worth on line 3 decreased by JPY 16.4 billion to JPY 584.8 billion. Net worth ratio on line 4 declined by 0.1 percentage points to 27.1%, and net D/E ratio on line 6 worsened by 0.01 points to 0.84. Next, on page 24, I'll explain consolidated capital expenditures. Capital expenditures in FY 2024 was JPY 93.9 billion, up JPY 11.5 billion from the previous fiscal year. Depreciation expenses increased JPY 1.9 billion to JPY 57.2 billion. That is all for the explanation of the FY 2024 financial results. From page 26, I'll explain the full year forecast for FY 2025. Consolidated ordinary profit, excluding the impact of inventory valuation, is expected to be JPY 165 billion, and profit attributable to owners of parent, excluding the impact of inventory valuation, is expected to be JPY 84 billion. By segment, in the petroleum business, ordinary profit excluding the impact of inventory valuation is expected to be JPY 99 billion due to solid domestic margins and improvement of refinery operating ratio in the previous fiscal year, while costs are expected to increase due to inflation. Next, in the petrochemical business, we expect ordinary profit of JPY 1 billion due to the elimination of the impact of turnaround and business restructuring, despite the continued weakness in the petrochemical market. In the oil E&P business, we expect ordinary profit will decrease by JPY 30.4 billion year-on-year to JPY 52 billion, affected by crude oil prices and exchange rates, despite the full year contribution of increased production at the Hail Oil Field. In the renewable energy business, ordinary profit is expected to be JPY 2 billion due to the start of operation of new onshore projects. Page 27 is a table summarizing what I have just explained. As stated on line 10, dividend per share for FY 2025 is planned to be JPY 330. Page 28 shows our assumptions, business sensitivities, and scheduled maintenance. As shown in the upper left table, we are assuming a Dubai crude oil price of $65 per barrel and an exchange rate of JPY 145 to the dollar for the April-March period. As shown in the table below, no refinery turnaround is planned for FY 2025. Please turn to page 29. I will explain the factors by segment for the JPY 16.6 billion year-on-year decline in ordinary profit, excluding the impact of inventory valuation. First, factors for the JPY 6.4 billion year-on-year increase in the petroleum business, shown in yellow. We estimate an increase of JPY 21.8 billion for margins and sales volume. This includes a JPY 7.8 billion increase for margin of four main products, a JPY 12.1 billion increase for margin of other products, a JPY 3.4 billion decrease for volume of four main products, a JPY 3.8 billion increase for volume of other products, and a JPY 1.5 billion increase for import, purchase, and export. A JPY 28.5 billion decrease in expenses and others includes JPY 1.9 billion in in-house fuel costs, minus JPY 2.7 billion in variable costs, minus JPY 21.8 billion in fixed costs, and minus JPY 5.9 billion in others. The main factors for increased variable and fixed costs are anticipated cost increase due to inflation and the impact of foreign exchange rates. We also expect an increase of JPY 13.1 billion due to the elimination of refinery troubles in the previous fiscal year. Next, for the JPY 6 billion increase in the petrochemical business, shown in purple. We expect price to increase by JPY 3.2 billion due to improved domestic unit prices and improved costs with no scheduled turnarounds. Volume is expected to increase JPY 1.6 billion due to an increased production volume of functional chemicals, such as resists. Expenses and others is expected to increase by JPY 1.2 billion due to decreased expenses resulting from business restructuring. For the decrease of JPY 30.4 billion in the oil E&P business, shown in red, price is expected to be minus JPY 22.5 billion, affected by crude oil prices and foreign exchange rates. Volume is expected to increase by JPY 13.4 billion due to increased production at the Hail Oil Field. Expenses and others is estimated to be minus JPY 21.3 billion, mainly due to a foreign exchange loss. The renewable energy business is expected to increase by JPY 0.7 billion, mainly due to the start of operations of new sites. Next, on page 30, I will explain the outlook for consolidated cash flows and financial indices. First, for consolidated cash flows, cash flow from operating activities on line one is expected to be plus JPY 187 billion. Cash flow from investing activities on line two is expected to be minus JPY 147 billion, and free cash flow on line three is expected to be plus JPY 40 billion. A significant year-on-year increase in cash flow from operating activities is mainly due to the impact of holidays on gasoline tax and other payments. As for financial indices, compared to the end of the previous fiscal year, we expect net worth will increase by JPY 22.2 billion to JPY 607 billion. Net worth ratio will be unchanged as 27.1%, and the net D/E ratio to be 0.80. Please turn to page 31. This is about our full year plan for consolidated capital expenditures in FY 2025. Capital expenditures for the full year are expected to be JPY 148.9 billion, up JPY 55 billion year-on-year. Depreciation expenses are expected to increase JPY 4.8 billion year-on-year to JPY 62 billion. This concludes my explanation of financial results for FY 2024 and the full year forecast for FY 2025. Thank you.