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

Thank you very much for taking time out of your busy schedule today to participate in the financial results briefing for the third quarter of fiscal year 2024. I will now explain the highlights of financial results for Q3 of FY '24 as well as our initiatives to enhance the enterprise value. Now please turn to Page 3. I will explain the financial results for the third quarter of FY '24, its full year forecast and shareholder returns for FY '24. First, about the Q3 results. Ordinary profit, excluding the impact of inventory valuation on line 4, was JPY 116.7 billion due to a solid environment of actual margin in the Petroleum business. Net profit, excluding the impact of inventory valuation on line 5, was JPY 56.7 billion. Both items marked record-high profits for Q3. Regarding the full year forecast for FY '24, ordinary profit is expected to be in line with the full year forecast due to the impact of inventory valuation. Ordinary profit, excluding the impact of inventory valuation, is expected to slightly exceed the forecast driven by solid performance in the Petroleum business and the Oil Exploration and Production business. Based on such strong business performance, we will provide additional shareholder returns this time. I will explain more details on the following pages. Net worth as of the end of FY '24 is forecasted at JPY 630 billion, and this does not include the impact of the additional shareholder returns to be explained later. Please turn to Page 5. We position the appropriate return of profits to shareholders as one of our most important management policies, and we are working to achieve a total payout ratio of 60% or more early over the 3-year period of the Medium-Term Management Plan. As mentioned earlier, we will increase the annual dividend by JPY 30 to JPY 330 based on the solid earnings situation in FY '24. In addition, we plan to implement a share buyback of common stock up to JPY 18 billion. With these measures, the total payout ratio for FY '24 is expected to be 61%, achieving the target total payout ratio of 60% in a single fiscal year. The company continues to implement share buybacks. The share buyback will lead to increase in value per share, and we intend to reflect this appropriately in dividends. Next, please turn to Page 6. We believe that the annual dividend of JPY 330 is sustainable in light of our current earnings power. So we have decided to raise the minimum dividend as well from JPY 300 to JPY 330 during the Medium-Term Management Plan period. As shown in the table on the lower right, based on solid earnings, we are strengthening financial health, maintaining high capital efficiency and enhancing shareholder returns as we increase dividends for 4 consecutive years to realize three-pronged capital policy. Now please turn to Page 8. On Page 8 and 9, I will focus on expand new fields to drive growth among the various measures of the 7th Consolidated Medium-Term Management Plan. First, Page 8 is about next-generation energy. The construction of SAF production facility was completed in December 2024, and it is scheduled to start supplying SAF to several airlines from FY '25. With that, we have accomplished creating Japan's first locally made SAF supply chain. In addition, as shown on the right, we are preparing for the opening of our second hydrogen station in Ariake in March 2025, which is also making steady progress. Next, please turn to Page 9. This page is about the progress of the green power initiative. For power generation projects, Shin-Mutsu-Ogawara and Shin-Iwaya, both onshore wind power sites, are scheduled to start operations by the end of FY '24. For sales initiatives, Cosmo Denki Business Green has started supplying 100% renewable energy-derived electricity to all Sakai City schools and water supply and sewage facilities. And Cosmo Denki Business Green installation has expanded to more than 3,500 facilities. We will continue to make steady progress in our initiatives to establish a revenue base for the green electricity supply chain. Please turn to Page 11 for securing profitability in the oil business field. At the Hail Oil field, which began production in 2017, its production had been partially restricted since FY '19 due to a drop in reservoir pressure. However, we have successfully restored the reservoir pressure by water injection, which started in FY '21. The production restriction has already been lifted to start full-scale production at the end of December 2024, and we plan to continue increasing its production. We will take on the challenge of expanding the new business fields as we secure solid earnings in the oil business fields to realize our capital policy and maximize the enterprise value. This concludes my presentation. Next, I will explain the financial results for the third quarter of FY 2024. Please refer to Page 13. In Q3 of FY '24, consolidated ordinary profit, excluding the impact of inventory valuation, was JPY 116.7 billion and consolidated ordinary profit was JPY 97.5 billion due to the impact of inventory valuation of minus JPY 19.2 billion. Net profit, excluding the inventory impact, was JPY 56.7 billion. Next, I'll explain the results by segment. In the Petroleum business, ordinary profit excluding the impact of inventory valuation was JPY 59.3 billion, up JPY 7.8 billion year-on-year due to solid domestic margins. In the Petrochemical business, ordinary profit was minus JPY 4.9 billion, down JPY 1.2 billion year-on-year mainly due to sluggish market condition for ethylene. In the Oil E&P business, ordinary profit was JPY 52.8 billion, up JPY 3.5 billion year-on-year mainly due to the impact of yen depreciation. In the Renewable Energy business, ordinary profit was minus JPY 0.0 billion, down JPY 1.4 billion year-on-year due to the deteriorated wind conditions. Continuing on Page 14, I will talk about the consolidated income statement. Net sales on line 1 was JPY 2,038.4 billion, up JPY 25.4 billion year-on-year. Operating profit on line 2 was JPY 88.1 billion. Ordinary profit on line 4 was JPY 97.5 billion, and profit attributable to owners of parent on line 8 was JPY 43.3 billion to record a decreased profit in each item affected by negative inventory valuation. The impact of inventory valuation was minus JPY 19.2 billion. Ordinary profit, excluding the impact of inventory valuation, was JPY 116.7 billion, up JPY 11.7 billion year-on-year. Page 15 is for the breakdown of ordinary profit, excluding the impact of inventory valuation by segment. I will elaborate more on this on Page 16. Now please refer to Page 16. Let me explain the factors by segment behind the JPY 11.7 billion year-on-year increase in ordinary profit, excluding the impact of inventory valuation. First, the factors for the JPY 7.8 billion increase in the Petroleum business shown in yellow. Margins and sales volume increased JPY 13.7 billion. And for this item, margin of 4 main products was up JPY 10.3 billion due to strong domestic margins. Margin of other than 4 main products was down JPY 3.2 billion. Volume of 4 main products was up JPY 0.1 billion. Volume of other than 4 main products was down JPY 5.9 billion. And import purchase and export was up JPY 12.4 billion, affected by the overseas product market conditions. Expenses and others was minus JPY 12.3 billion. This includes variable cost of minus JPY 6.4 billion, fixed costs of minus JPY 7.4 billion and others of JPY 1.6 billion. The increase in variable and fixed costs is mainly due to higher costs associated with inflation and impact of turnaround. The impact of troubles was plus JPY 6.4 billion. Next is about factors for the JPY 1.2 billion decrease in the Petrochemical business shown in purple. Price was minus JPY 2.6 billion due to the deteriorated petrochemical market conditions. Volume was up JPY 1.4 billion. Next, the JPY 3.5 billion increase in the Oil E&P business shown in red is due to a JPY 10.8 billion increase in price mainly affected by yen depreciation. Expenses and others was minus JPY 7.3 billion mainly due to a reduction in foreign exchange gains. The JPY 1.4 billion decrease in the Renewable Energy business shown in green is mainly due to the deteriorated wind conditions at Cosmo Eco Power. Next, Page 17 is a summary of the consolidated balance sheet. Total assets on line 1 increased JPY 74.8 billion from the end of the previous fiscal year to JPY 2,287.4 billion. Net worth on line 3 decreased JPY 14.3 billion from the end of the previous fiscal year to JPY 586.9 billion. Net worth ratio on line 4 decreased by 1.5 percentage points from the end of the previous fiscal year to 25.7%. Next, on Page 18, I'll explain consolidated capital expenditures. Capital expenditures of Q3 was up JPY 15.3 billion year-on-year to JPY 69.1 billion. This is mainly due to turnaround. Depreciation expenses increased by JPY 1.2 billion to JPY 42.4 billion. That is all for the explanation of the financial results for the third quarter of FY 2024. Thank you.