ENEOS Holdings, Inc. (5020) Earnings Call Transcript & Summary

Hello, everyone. I am Tanaka from ENEOS Holdings. I would like to express my gratitude to our shareholders and investors for your continued support and valuable advice regarding the business activities of the ENEOS Group. Today, I will explain the revisions to the forecast of consolidated results for the fiscal year 2024, which was disclosed on March 28. Now please turn to Page 1. Operating profit for the full year of FY 2024 is expected to be JPY 25 billion, down JPY 395 billion from the November forecast. This is primarily due to a JPY 150 billion decrease due to the impact of inventory valuation resulting from the recent decline in oil prices. JPY 160 billion decrease due to an impairment loss on goodwill in the petroleum products business, mainly caused by rising interest rates and a JPY 90 billion decrease due to the reclassification of profit related to JX Advanced Metals or JXAM. Following the sale of shares in JXAM, its status has changed from a subsidiary to an equity method affiliate. As a result, the gain on sale of JXAM shares of JPY 175 billion and its operating profit of JPY 90 billion, amounting to a total of JPY 265 billion have been classified as discontinued operations under accounting standards. Excluding the onetime loss of JPY 160 billion due to the impairment loss on goodwill and the onetime gain of JPY 175 billion from the sale of JXAM shares, operating profit, excluding inventory valuation, is expected to be JPY 425 billion, up JPY 5 billion from JPY 420 billion announced in the November forecast. This includes a negative time lag of JPY 20 billion caused by declined oil prices. However, excluding this factor, the real margins of petroleum products remain firm. Please turn to Page 2. I'll explain 2 key changes since the November forecast, the gain on sale of JX AM shares and impairment of goodwill. First, please refer to the upper part of the page. We have sold 57.6% of shares in JXAM in connection with its listing. The financial impact of this transaction includes recording JPY 175 billion as an equivalent to operating profit, which is derived from the sale of 57.6% of shares and valuation gain on the shares we continue to own. The net D/E ratio is expected to improve by 0.20 points due to the cash inflow of JPY 440 billion from the sale proceeds as well as the derecognition of interest-bearing debt associated with the metals business. Now please refer to the bottom part of the page. After a conservative review of our future plans in light of changes in the external environment, including recent rise in interest rates, we now expect to record a total impairment loss on goodwill of JPY 160 billion, which was incurred in the business integration of JX Holdings and TonenGeneral Sekiyu. Although goodwill is not amortized under international accounting standards in terms of excess profitability, which is the source of goodwill value, the effects of the business integration have already been manifested through efforts to restructure the production framework, unify brand and enhance competitiveness. Please turn to Page 3. I will briefly explain the forecast for consolidated cash flows and the net D/E ratio. The cash flow forecast has improved from the May announcement, mainly due to proceeds from the sale of JXAM shares and free cash flow is expected to be JPY 530 billion. The net D/E ratio is expected to be around 0.40x as of the end of March 2025, mainly due to the earlier mentioned sale of JXAM shares and the impact of derecognizing interest-bearing debt of the Metals business. This concludes my explanation. On Page 4, we have listed the major factors contributing to increases and decreases from the November forecast by segment for your reference. Thank you.