Cosmo Energy Holdings Co Ltd

TSE:5021

Earnings Call Transcript 2023-Q1

[Takayuki Uematsu, executive]

Good afternoon. This is Uematsu speaking. Thank you for joining us today. I will now start my presentation based on the handout. Page 3, please. Highlights of Q1 FY 2022 results. As summarized in the first point of the highlights, we are off to a good start in the first quarter for fiscal year 2022. Please see the table below for specific numbers.

Line 1, ordinary profit of JPY 121.5 billion is an increase of JPY 71.9 billion from the same period of the previous year. Impact of inventory valuation is JPY 72.8 billion. So Line 3. Ordinary profit, excluding the impact of inventory valuation, is JPY 48.7 billion, up JPY 18.5 billion year-on-year. And Line 4. Profit attributable to owners of parent is JPY 77.6 billion, an increase of JPY 49.7 billion year-on-year. Lines 5 and 6 show the impact of Dubai crude oil price and FX rates. The Dubai price is $108 per barrel, up $41 year-on-year. And Line 6, the yen-dollar rate is JPY 130, representing a weaker yen of JPY 20 per dollar.

Going back to the upper panel, Full year outlook is explained there. With crude oil prices and other market conditions being uncertain, the company has decided to maintain the full year guidance unchanged. Next, please move to Page 5, describing progress on wind power generation projects. During FY 2021, we had obtained F-I-T, FIT certification of 150,000 kilowatts for Shimamaki, Aizuwakamatsu and Enshu. And for FY 2022 we will continue to expand the scale to achieve more than 1.5 million kilowatts by 2030, of which 900,000 kilowatts is from onshore and 600,000 kilowatts is from offshore power generation. As for onshore power generation, the table at the top shows those projects, which are under construction or under development. Next, please turn to Page 6, which shows trends in electricity sales volumes. The first bullet point says that during the April to June period, electricity sales volume is down year-over-year. This is purely due to unfavorable wind conditions. For the second half of FY 2022, offshore projects in Akita port and Noshiro port and onshore projects in Kamiyuchi and Oita are scheduled to commence operations, which should boost the full year volume beyond the previous year level. Next, moving to Page 7. Let me talk about initiatives for the expansion of Clean Energy, which corresponds to the new part of the oil and new policy. We are accelerating energy -- clean energy initiatives, including expansion of the wind power generation business to increase exposure to new businesses. The slide shows some of these examples. The first one is the development of next-generation energy, specifically SAF for sustainable aviation fuel. As was already announced in the press release, our supply target for SAF is 300,000 kilo per year by 2030, with raw materials of disposed cooking oil as well as ethanol, which is shown in the third bullet point. So with these 2 as raw materials, we are planning to supply 300,000 kilo per year. For ethanol, we have commenced a joint study with the Mitsui & Co to attain stable supply. The second initiative is the promotion of hydrogen and ammonia. The slide shows the types of arrangements with respective partners, including basic agreements. First, with Abu Dhabi National Oil Company, we have a purchase agreement for blue ammonia. Well, with Masdar, we have signed an MOU on the consideration of collaboration in the field of decarbonization. With Iwatani, we have concluded a basic agreement on the consideration of collaboration of the hydrogen business. In the area of petrochemical, we have commenced a validation project to promote the commercialization of ammonia fuel used for naphtha cracker facilities. As part of a clean energy offering, we have Cosmo Zero Carbon Solutions, which are packaged offerings for local governments and local companies related to green electricity or electric vehicles. So far, we have received reasonably positive responses from them, both from local governments and the companies. Next is Page 9, details of Q1 financial results with highlights of each segment. I will give you more details later by talking to the variance analysis slide. So let me skip this page. Page 10, please. For a summary of the consolidated income statement. The P&L information was already shared with you at the beginning of my presentation. So please just check the actual figures here. Line 11 shows the Q1 Dubai crude oil price at $108 per barrel, up $41 year-on-year. And on line 12 shows the yen-dollar exchange rate at JPY 130 per dollar, yen weakening of JPY 20 per dollar as mentioned earlier. As for oil E&P, the consolidation period is from January to March, so please refer to Line 13 and 14.

Lines 15 and 16 show CDU operating ratios. We had an almost full capacity operation last year. But this time, due to some trouble at the refineries, the utilization is down slightly. Nevertheless, it has trended at high levels.

Next, Page 11, please. It shows an outline of consolidated ordinary profit by business segment. I will skip this page and discuss the details on the variance analysis slide.

Page 12. This is the variance analysis of consolidated ordinary profit excluding the impact of inventory valuation between Q1 this year and Q1 last year. The leftmost column of JPY 30.2 billion is ordinary profit, excluding the impact of inventory valuation for Q1 FY 2021. To you're right, next one is the Petroleum business, shown in green, it is up JPY 11.1 billion year-on-year from JPY 17.2 billion to JPY 28.3 billion.

As for the breakdown, margins and sales volumes is positive JPY 28 billion, and expenses and others are negative JPY 16.9 billion. If we break down further margins is positive JPY 34 billion, of which JPY 25.2 billion is from the full product and JPY 8.8 billion is from other products, most of which are jet fuels, and the C heavy oil. On the other hand, sales volumes is negative JPY 4.8 billion, of which full products is almost flat and other products is negative JPY 4.8 billion. The remaining JPY 1.2 billion is due to the balance of imports and purchases as well as exports. As for the breakdown of expenses and others is negative JPY 16.9 billion. In-house fuel cost is negative JPY 4.6 billion. Expenses and others is negative JPY 12.3 billion, which are mainly due to energy cost increases, such as electricity, LNG and others whose unit prices rose. And repair costs and the provisions for shutdown maintenance, including costs for interim repair performed during the Q1. Next, to the right is the petrochemical business in yellow. The results are as shown in the box above. Prices are positive JPY 2 billion. Despite the deterioration in olefin market prices, thanks to the improvement of methyl ethyl ketone market price, the price factor was positive. Volumes are negative JPY 3.6 billion due to reduced levels of operations to avoid the impact of olefin prices mentioned earlier leading to lower export volumes. Expenses and others is positive JPY 2.3 billion, mainly due to higher earnings of subsidiaries. Next is Oil E&P, whose positive results are mainly driven by the price factor. Renewable energy is negative JPY 0.4 billion. mainly due to labor costs and development costs for wind power generation, as explained previously. It was also due to unfavorable wind conditions during the first quarter. Those are the reasons for the modest result. Next, Page 13, please. For the outline of the consolidated balance sheet. Line 3, net worth is JPY 514 billion. Although the share buyback program was implemented, we were able to add JPY 57.8 billion since the end of March 2022. Net worth ratio is down slightly due to the rising oil price as well as the yen's depreciation, causing total assets to increase compared to net assets. For the same reason, we need more working capital and net interest bearing ratio -- bearing debt ratio increased by JPY 64.7 billion. Page 14, please. for highlights of consolidated capital expenditures. There is not anything I can add on this page. But during Q1, interim maintenance was performed in our petroleum business. And also on Line 4, as for the renewable energy business, there is an increase due to the development of Kamiyuchi and other new sites, as mentioned earlier.

With this, I would like to conclude my brief explanation. Thank you very much.