ENEOS Holdings, Inc. (5020) Q3 FY2026 Earnings Call Transcript & Summary

I am Soichiro Tanaka. I would like to express our sincere gratitude to our shareholders and investors for your continued support and valuable advice regarding the business activities of the ENEOS Group. Let me now explain the FY 2025 Q3 financial results according to the materials. Please turn to Page 3. Let me start with the highlights. For the first 9 months of fiscal 2025, our operating profit was JPY 270.8 billion, a JPY 31.7 billion decrease year-on-year, mainly due to a deterioration in inventory valuation effects following the decline in oil prices. Excluding inventory valuation, operating profit increased JPY 4.1 billion year-on-year. The negative factors such as lower profit in oil and natural gas E&P driven by falling resource prices and the equity reduction of JX Advanced Metals were more than offset by positives, including higher petroleum products margins in the petroleum products business and gains from the sale of the Maritime Transportation business. For the full year outlook, considering potential risks in resource prices and exchange rates in Q4, we have decided to maintain the forecast announced in November. Please turn to Page 5 for our progress under the fourth medium-term management plan. This page summarizes our initiatives to strengthen our base and materials businesses. As you can see on the left, our refinery utilization rate has continued to improve, reflecting the effects of our ongoing measures to reduce refinery issues. Building on these efforts, we will further raise utilization by investing in appropriate repair costs and leveraging AI and DX. On the right, as announced in our recent press release, we have decided to increase production capacity at the Yokkaichi plant for S-SBR, a high-performance rubber used in fuel-efficient tires. By prioritizing investments in high-growth areas, we pursue growth that exceeds the market growth rate and further business expansion. Please turn to Page 7 for the business environment. Dubai crude oil price began at $76 per barrel in April. Prices temporarily rose amid heightened tensions in the Middle East, but later declined on against the backdrop of U.S. policy trends. As a result, the average for the first 9 months came to $67, down $12 year-on-year. The exchange rate began at JPY 150 per U.S. dollar, strengthened into the low JPY 140s on U.S. monetary policy trends and later weakened again. As a result, the average exchange rate for the first 9 months was JPY 149 for yen stronger year-on-year. Please turn to Page 8. The petroleum products margin index fluctuated with crude oil prices and exchange rates but remained broadly in line with last year's level. In contrast, the paraxylene margin index deteriorated year-on-year, reflecting high run rates of paraxylene units across Asia and weaker market conditions in downstream products. Pages 10 and 11 provide the overall results and operating profit by segment. I will walk you through the details from Page 12 onward. Please turn to Page 12. Operating profit, excluding inventory valuation for petroleum products business increased by JPY 81.1 billion year-on-year to JPY 239.3 billion. This reflects a JPY 31.9 billion improvement in margins and expenses, primarily from stronger petroleum products margins and JPY 76.6 billion in onetime gains from the sale of the Maritime Transportation business. In oil and natural gas E&P business, operating profit decreased by JPY 27.0 billion year-on-year to JPY 45.7 billion due to lower resource prices and the stronger yen. Please turn to Page 13. In High Performance Materials business, operating profit rose by JPY 0.5 billion year-on-year to JPY 14.3 billion. While lower butadiene market price and inflation-related cost increases were headwinds, these were offset by an increase in sales volume of high-performance rubber for fuel-efficient tires. In electricity business, operating profit increased by JPY 2.6 billion year-on-year to JPY 23.2 billion, supported by the full operation of the Goi thermal power plant, which began phased operation last year and by higher sales volumes. Please turn to Page 14. In Renewable Energy business, operating profit was JPY 0.5 billion, roughly unchanged year-on-year. Although upfront spending on projects under development and impairment losses associated with tighter regulations weighed on results, these were offset by new power plant start-ups and a reversal from last year's unfavorable weather. In Other segment, operating profit was JPY 68.4 billion, a JPY 53.2 billion decrease year-on-year. While JX Advanced Metals benefited from higher copper prices and increased sales of semiconductor and ICT materials, overall results declined primarily due to the equity reduction of JX Advanced Metals. Moving to Page 15 for cash flows and the balance sheet. On the left, operating cash inflow for the first 9 months totaled JPY 393.9 billion, mainly reflecting JPY 391.4 billion in operating profit, excluding inventory valuation and JPY 243.8 billion in depreciation and amortization. Excluding the impact of holidays, operating cash inflow was JPY 291.6 billion. Investing cash outflow was JPY 173.5 billion, primarily due to JPY 219.2 billion in capital investment. As a result, free cash flow, excluding holiday impacts, was an inflow of JPY 118.1 billion. After dividend payment and other items, net cash inflow was JPY 102.0 billion. On the right, as of December 31, 2025, net interest-bearing debt, including lease liabilities, stood at JPY 1.831 trillion, and the net D/E ratio was 0.48. This concludes my presentation. Pages 16 onwards are for your reference, such as an assumptions and sensitivities. Please refer to them later as needed. Thank you for your attendance.