Cosmo Energy Holdings Co., Ltd. (5021) Earnings Call Transcript & Summary

Once again, good morning. Thank you very much for taking time out of your busy schedule to participate in the 2024 ESG briefing session. I will provide an overview of Vision 2030, sustainable management and our corporate governance initiatives. Please turn to Slide 3. I will explain our materiality Vision 2030 and the seventh medium-term management plan. In the seventh medium-term management plan, which concludes in fiscal 2025, we have established 3 themes for transforming our management foundation, HRX, DX and GX. These themes are closely aligned with materiality aimed at 2050. And by addressing materiality, we aim to realize the desired state of Vision 2030 while enhancing enterprise value. Please look at Slide 4. I will explain our sustainability governance. As part of the monitoring system for materiality, we have established a sustainability strategy meeting where ESG issues are discussed at the management level. In fiscal years 2023 and 2024, lively discussions were held on themes such as materiality reviews, governance, GX, biodiversity and human rights. Regarding information disclosure, we are also working to disclose reliable ESG data promptly, utilizing systems to prepare for future compliance with SSBJ. Please turn to Slide 6. I will explain the history of our corporate governance enhancements. Since the strategic alliance with IPIC in 2007, we have consistently strengthened governance through key milestones. In 2015, we transitioned to a holding company structure and adopted the Audit and Supervisory Committee model. In the 2022 Board of Directors reform, we reviewed the Board's purpose and authority, further strengthening its monitoring functions. Next, please turn to Slide 7. I will explain our initiatives in the area of nominations. In June 2024, 2 new independent outside directors were appointed, bringing the composition of the Board to 50% independent outside directors. When selecting these candidates, we considered factors such as the skills matrix and the need to enhance monitoring functions, focusing on individuals with extensive business management experience. To further improve the transparency and diversity of the Board, we aim to have a majority of independent outside directors in the future. Next, please turn to Slide 8. I will explain our initiatives in the area of compensation. Our compensation evaluation system has steadily evolved, introducing TSR criteria in 2018, incorporating ESG goals into evaluations in 2022. At the June 2024 shareholders' meeting, we reviewed the framework for executive compensation and simultaneously initiated a review of the compensation system. To ensure transparency and fairness and to establish a compensation system that contributes to enterprise value enhancement, we will continue to engage in discussions. Regarding the 3 transformation, specific discussions will be discussed through Ms. Takeda, the Senior Executive Officer; and Ms. Rzonca, the CDO. I will continue to work on the sustainable management going forward. That is all from me. Thank you. Ms. Takeda, please, who's the Vice President.

Good morning. I will be talking about GX and HRX engagements. Please turn to Slide 10. I will explain the road map toward achieving carbon net zero by 2050. Our group aims to contribute to realize a decarbonized society by reducing Scope 1 and Scope 2 emissions, including reduction contributions by 30% by 2030 and achieving carbon net zero by 2050 in Scope 3. Since 2013, we have undertaken measures such as closing Sakaide refinery to streamline production system, improving energy efficiency and enhancing operational efficiency to reduce emission intensity. We aim to maintain high refining utilization rates until 2030 to sustain a short position strategy due to reduced imports. We will revise the road map after assessing the next seventh basic energy plan and CO2 reduction targets mandated by GX-ETX. Next slide, please. Slide 11. I will explain initiatives in the oil sector for direct reductions. Our group has reduced emissions by 12% compared to fiscal 2013 levels. Scope 1 and 2 together, 2013, we would like to, in comparison, have negative 12%. We would like to reduce the retail as well as the regular maintenance. We would like to reduce that area as well. Going forward, second bullet point, the shutdown of ethylene production equipment, which is under consideration in the petrochemical business. This is to contribute to the CO2 emissions reductions. To meet 2030 targets, we are focused on reducing emissions through CCS as well as utilizing the negative emission system. Slide 12, please. I will explain the progress of our CCS initiatives value chain. October '24, we were awarded 2 contracts through JOGMEC's public offering project and have started FS/FEED studies, Chiba, Sakai refineries. We would be recovering CO2 emitted from those 2 sites. Study on value chain development and related technology verification to start business by FY 2030. Slide 13. I will explain our efforts to strengthen the green power supply chain as a reduction contribution measure. For net zero 2050, we will be utilizing the CO2 reductions by expanding the supply of renewable energy so that we can contribute to society. Fiscal '23, we achieved installed capacity of 295 megawatts for wind power facilities, contributing to a CO2 reduction of 280,000 tons. 2030, we want to go up to 1.3 million tons will be the target. Slide 14, please. First, I will explain SAF initiatives using waste cooking oil as a raw material in hydrogen. Regarding SAF, Sakai refinery by year-end, we are going to begin the construction. We would start to look at cutting over by the year-end of '24. Also November, we obtain supply chain overall production, ISCC CORSIA and ISCC EU certifications will be obtained. At a so large-scale domestic SAF supplier by 2025, we will be advancing our SAF business. I will next be talking about our Hydrogen business. Through a capital and business alliance with Iwatani Corporation, we are building hydrogen stations and a supply chain. Specifically, as you can see on the right-hand side, '23 February, Cosmo Oil Marketing and Iwatani Corporation established a limited liability company for hydrogen station business. And also, we also hydrogen station operator in Heiwajima this year. April next year in Ariake and Shinsuna, we will also be launching into this area. This was regarding GX. Next, I will be talking about HRX. Please turn to Slide 16. The challenges and the direction of HRX are put into this slide. Vision 2030, green energy, next-generation energy and oil business. These are the topics that we will be focusing and to advancing our management system. We want to have HR independent and people who can continue to create new value. These are the people that we want to use for the HRX. Please turn to Slide 17. This is the overall measures on this slide. We want to train and develop people who can be independent and diverse as well as improving performance and engagement to be upgraded. As I have written, the management people positions, we will be looking for and training them as well as women and career hires, we will engage moving forward. Please turn to Slide 18. In terms of the management talent development programs. As I mentioned, 2030, we spoke to you about the reform of the business. We want to have a future management personnel in order to respond to the industry's period of change. This is an important point for us. For Cosmo HR, we want people to be making sure that we have a continually produced management personnel. They have to have the capability to create vision through definition as well as having their necessary skills to be developed. So we will be training these people and putting them into these positions as well as mentoring them through the process so that they are able to motivate themselves and acquire the broader perspective. For this development of management talent, holdings and our 3 major company presidents as well as the HR development committee will be regularly monitoring the candidate selection and development progress, providing support for their growth. Slide 19, please. Number 2, in terms of the successor, I will be explaining for the business divisions. In addition to management personnel, efforts are also underway to train leaders to steer business divisions. We want them to have the specialty and expertise as well as be the leader in those specific business. As you can see, classification, they would be visibly shown how they can be prepared themselves, and we will put together a successor list and to engage in this process. Page 20, please. Number 3, promoting the advancement of women in the workforce is what I will be going through with you. In order to bring about change and innovation in all business area, we have to take diversity and inclusion as a key theme, taking the advancement of women in the workforce as high priority. Active training of women employees to expand the population of women employees, especially for leadership positions is where we focus. In addition, we have the explanation in the chart. New grad hires, we want to make it 50% or more in the hiring, which we have been doing for the last 3 years. Also, in terms of the career hire, also, we are doing promotion for women as well as capacity building, female leadership training as well as external training for leadership roles. Also for women, we are having in-house seminars for women employees by our own executives. Page 21. These are all the KPIs that you can refer to. So please look at it at your leisure. That's all from me. Thank you very much. Next, Ms. Rzonca, please.

Hello, everyone. I'm Rzonca, the CDO. I will now begin the explanation from the next slide. First, let me provide an overview of Cosmos DX. On the left side, you can see Cosmos DX Vision House, which is structured into 3 levels. At the bottom, we have Cosmos 5Cs, which are tools for each employees to use in fostering a mindset shift. In the middle, we have the company's DX strategy, which focuses on enhancing digital capabilities and promoting change management. By leveraging these 2 pillars, we ultimately aim to construct a next-generation business model as outlined in this vision house. How do we implement this vision house? It all starts with a DX survey for employees. As noted in the top right corner, this survey regularly monitors how all employees feel about DX. The results are utilized effectively for annual activities after regular monitoring. As for specific activities, you'll notice the loop at the bottom of the slide. This includes DX training, Cosmo data campus team and spaces for participation. Initiatives emerging from these activities are supported through the DX Hub, where we assist employees with their desired projects. Through the DX Forum, companies can share what forms of DX initiatives are being pursued with the aim of fostering DX promotion across the company by applying successful practices to other areas. Moving to the next slide. Here, we see the progress of DX KPIs. These key KPIs are supported by numerous underlying indicators, and we analyze how specific activities impact these numbers to ensure data-driven actions. So numbers are always tracked. Through DX events, forums and workshops, employees are encouraged to take ownership of initiatives that they are passionate about. At the DX Hub, we accept projects and track how much progress has been made, such as in terms of operational efficiency on the individual level. So these are the numbers we can even rate on an operational level. The next slide. This lists just a few of our DX initiatives. We've categorized these into 5 areas. For example, digital plants have shown significant benefits through digitalization. Various benefits have been reaped, Supply chain optimization and marketing, science promotion. These allow us to anticipate customer needs using data, supporting them proactively through data, so we can be one step ahead. We can continue to support our customers better. In addition, green energy and mobility also, we are doing analysis in each department. By providing enabling support from DX and IT teams at Holdings, employees are empowered to pursue next-generation business creation with digital tools. Under others, you'll find numerous back-office projects underway. This is also moving forward. This time, I'd like to focus on the digital plant section at the top. Next slide, please. We see a road map for advancing towards the Vision 2030 from the sixth medium-term management plan. This road map enables each employee to identify steps they can take individually. We've divided this initiative into 3 categories: On-site construction projects, operations and maintenance. Across these areas, digitalization and data utilization are progressing. Our current focus is on the central aspect, data democratization and orchestration. This is data orchestration. By consolidating data held by various departments into one system, we facilitate timely decision-making and improve business efficiency. The term digital twin appears here, but please note that digital data utilization is advancing across multiple areas, not only in this area. More specifically, next slide. This is the digital plant implementation. Right-hand side highlights improved operational efficiency, reduced risk of troubles, and work style reform for employees. These are significant contributions. However, there are numerous tasks to tackle along the way. For instance, AI simulation, integrated maintenance functions and improved maintenance efficiency allow remote operations to be supported by professionals even if they are off-site. So professionals can give them sideline support. Following the slide, we can demonstrate how data integration progresses, starting with CMMS. Priorities are set within each business area to consolidate data into digital plants and digital twin systems. Historical data is essential as our engineering documents like P&IDs blueprints. Integrating nonnumerical image data allows us to create a unified system showing where and how data is utilized. This is something similar to that of Google Maps. When you open Google Maps, it appears as a single application, but hundreds of APIs are running in the background, instantly providing you with the data you need. For instance, which restaurant you would like to go for lunch, whether that restaurant is open, how crowded they are and the surroundings and the menus. This is quite similar to what Google Maps does for you. We are doing this inside our refineries. This involves gathering image data, blueprint data and point cloud data by VR. Additionally, data from asset performance management, robots and drones are consolidated into a single accessible environment where employees can retrieve the information they need with ease of use. While I have explained this verbally, I believe visuals will make it much clearer. Therefore, I have prepared a short video clip. Thank you very much. That concludes my explanation. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]