Cosmo Energy Holdings Co Ltd
TSE:5021
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Cosmo Energy Holdings Co Ltd
Earnings Call Analysis
Q1-2025 Analysis
Cosmo Energy Holdings Co Ltd
In the first quarter of fiscal 2024, the company experienced a remarkable increase in profit, surpassing initial forecasts. Excluding the impact of inventory valuation, ordinary profit reached JPY 44.4 billion, reflecting a year-on-year growth of JPY 17.3 billion. However, an extraordinary loss of JPY 5.3 billion was recorded due to a strategic decision to withdraw from a public bid for an offshore wind power project. Despite these setbacks, the profit attributable to owners of the parent, excluding the impact of inventory valuation, rose to JPY 18.6 billion.
To enhance profitability in the oil sector, the company is implementing advanced digital solutions. Notably, the scope of the Asset Performance Management (APM) system has been expanded at the Sakai Refinery, and a digital twin has been launched at the Yokkaichi Refinery. These initiatives aim to maximize refinery utilization and are expected to be fully rolled out across all refineries by the end of FY 2025, bolstering the competitiveness of the company’s operations.
The company’s onshore wind power generation projects at Shin-Mutsu-Ogawara and Shin-Iwaya are advancing as planned, with operational capacities expected to reach 340,000 kilowatts by FY 2024. Additionally, the company has secured a 20-year agreement to supply renewable energy to Amazon from the Shin-Mutsu-Ogawara wind farm, and a basic agreement with JR West to promote virtual Power Purchase Agreements (PPAs). These efforts reinforce the company’s commitment to expanding its footprint in the green electricity supply chain.
There is steady progress in the construction efforts to start producing Sustainable Aviation Fuel (SAF) by the end of FY 2024. To ensure an ample supply of raw materials, the company initiated a demonstration project to collect used cooking oil from three affiliated service stations. This initiative will be expanded to other service stations in Tokyo, starting in September.
The consolidated financial results for the first quarter of FY 2024 are notable. Net sales increased by JPY 46.5 billion year-on-year, reaching JPY 655.1 billion. Operating profit surged by JPY 37.9 billion, totaling JPY 45 billion, while ordinary profit rose by JPY 43.1 billion, amounting to JPY 53.1 billion. Consequently, the net profit attributable to the owners of the parent company saw a significant rise, increasing by JPY 23.3 billion to JPY 24.7 billion.
In the petroleum business, profits climbed by JPY 12.3 billion year-on-year, driven by improved margins. Conversely, the petrochemical business experienced a loss of JPY 1.2 billion due to a sluggish market for ethylene. The oil exploration and production (E&P) segment saw a profit rise of JPY 2.8 billion, partly due to the yen depreciation. However, the renewable energy sector’s profit was flat year-on-year, impacted by unfavorable wind conditions.
For FY 2024, the company altered its method of calculating quarterly income taxes to derive taxes from a simplified calculation method based on corporate and residential tax rates. This change has resulted in a reduction of the reported income tax amount by JPY 8.8 billion, positively impacting the net profit.
Capital expenditures for the period rose by JPY 6.7 billion to JPY 19.5 billion, while depreciation expenses remained stable at JPY 13.9 billion. The company’s total assets grew by JPY 41.1 billion, reaching JPY 2.254 trillion, with a net worth increase of JPY 10.1 billion. The net debt to equity ratio improved to 0.74x, enhancing the company’s financial stability.
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I'm Tomoki Iwai. Thank you for joining us today. I'll explain the financial results for the first quarter of fiscal 2024 following the handout.
Now please turn to Page 3 for highlights. In the first quarter of FY 2024, profit exceeded the forecast announced in May. Ordinary profit, excluding the impact of inventory valuation was JPY 44.4 billion, and profit attributable to owners of parent, excluding the impact of inventory valuation was JPY 18.6 billion, a significant increase year-on-year. However, in extraordinary income or losses, we posted a loss of JPY 5.3 billion due to the decision not to participate in a public bidding for offshore wind power project under development. We are preparing for the round 3 bidding, but we have decided to review the business considering the recent sharply accelerated inflation and changes in interest rates.
As a result, all the costs incurred for feasible study have been recorded as extraordinary loss this time. And the forecast for FY 2024 will remain unchanged at this time, although we are making steady progress in exceeding the earnings forecast.
Now please turn to Page 5. I will explain the progress in FY 2024 initiatives for measures in the medium-term management plan. To secure profitability in the oil-related business, will strengthen the OMS or operations management system to maximize refinery utilization introduce APM or asset performance management system and build Digital Twins at refineries.
In the first quarter under review, we have expanded the scope of APM at the Sakai Refinery and launched a digital twin at Yokkaichi Refinery APM and Digital Twins are planned to be introduced to all refineries by the end of FY 2025 and will promote DX measures to further strengthen the competitiveness of our refineries.
Next, please turn to Page 6 for the progress of the wind power generation business in the new field. Regarding onshore wind power generation, Shin-Mutsu-Ogawara site and Shin-Iwaya site, which are scheduled to start operations in FY 2024 are making steady progress. And after the start of operations at these sites, the capacity of onshore wind power generation facilities in operation is expected to be 340,000 kilowatt.
Please turn to Page 7. On this page, I will explain the progress in sales growth in the green electricity supply chain, the SAF mass production project and the capital and business alliance with Iwatani Corporation. In our efforts to increase sales in the green electricity supply chain, we have recently signed an agreement to supply renewable energy generated at the Shin-Mutsu-Ogawara wind farm to Amazon for 20 years under the corporate PPA.
We have also signed a basic agreement with [ JR West ] to promote virtual PPA. We intend to continue to actively promote corporate PPAs because they embody environmental value and enable stable long-term transactions with customers by negotiation.
As for SAF, construction work is making good progress to start production by the end of FY 2024. In order to secure more raw material sources, we started a demonstration to collect used cooking oil at 3 affiliated service stations and will gradually expand this initiative to other service stations in Tokyo from September onwards.
Utilizing the knowledge gained from the demonstration, for the collaboration with Iwatani Corporation, we have established committees for each of the 4 business areas of hydrogen, existing businesses, new businesses and R&D to discuss creating specific projects. We aim to materialize projects to be announced by the end of 2024. That is all for the progress of the medium-term management plan.
Now I will explain the overview of the first quarter results. Please turn to Page 9. This is a review of the financial results for the first quarter of FY 2024. As I said, consolidated ordinary profit excluding the impact of inventory valuation was JPY 44.4 billion, up JPY 17.3 billion year-on-year. Since inventory valuation was JPY 8.7 billion, so consolidated ordinary profit was JPY 53.1 billion, up JPY 43.1 billion year-on-year. Profit attributable to owners of parent, excluding the impact of inventory valuation increased JPY 5.2 billion year-on-year to JPY 18.6 billion.
Next, I will explain by segment. In the petroleum business, profit increased by JPY 12.3 billion year-on-year to JPY 24.9 billion due to improved margins. The petrochemical business recorded a loss of JPY 1.2 billion as market conditions remained sluggish, particularly for ethylene. In the oil E&P business, profit increased by JPY 2.8 billion year-on-year to JPY 16.6 billion, mainly due to the yen depreciation. The renewable energy business decreased profit year-on-year to JPY 0 due to deteriorated wind conditions.
Next, please turn to Page 10 for the overview of consolidated income statement. Net sales on line 1 were JPY 655.1 billion, up JPY 46.5 billion year-on-year. Operating profit on line 2 was JPY 45 billion, up JPY 37.9 billion year-on-year. Ordinary profit on line 4 was JPY 53.1 billion, up JPY 43.1 billion year-on-year. Profit attributable to owners of parent on line 8 was JPY 24.7 billion, up JPY 23.3 billion year-on-year. As indicated by the asterisk 1 in the footnote, we have changed the method of calculating quarterly income taxes in this fiscal year. Until FY 2023, we calculated income taxes by multiplying profit before tax by accounting amount of tax burden. But in this FY 2024, we changed the calculation of income taxes to multiplying income, which is obtained by the simplified calculation method by the corporate income tax rate and the residential tax rate.
Since we received large dividend from subsidiaries in the first quarter, the tax on those dividends had been posted with a distortion until last year, although both methods are legitimate and have no problem in accounting rules, we have changed the calculation method in this fiscal year. The impact of this change is indicated in the table at the bottom as items 6, 7 and 8.
Income taxes announced in the previous fiscal year on line 6 was JPY 20.4 billion, and this amount is JPY 11.6 billion under the new calculation method, with a difference of JPY 8.8 billion. Excluding profit attributable to noncontrolling interests, the change is JPY 8.6 billion in profit. And line 8 of the upper table is calculated with income taxes obtained by the new method used in this first quarter.
Going back to the upper table, impact of inventory valuation on line 9 was JPY 8.7 billion. And ordinary profit, excluding the impact of inventory valuation on line 10 was JPY 44.4 billion, up JPY 17.3 billion year-on-year.
Next, please turn to Page 11. This page shows ordinary profit, excluding the impact of inventory valuation by segment. The details will be explained on the next page.
Page 12 describes the year-on-year changes of ordinary profit excluding the impact of inventory valuation. In this year-on-year comparison, the yellow box indicates the petroleum business, it posted JPY 12.3 billion increase, which includes an increase of JPY 18.9 billion in margins and sales volume with an improvement of JPY 18.8 billion in the margin of 4 main products. This is JPY 5 improvement per liter with JPY 2.5 each for the time lag and actual margin.
The margin other than 4 main products increased by JPY 5 billion with JPY 3.3 billion for C fuel oil and JPY 2.7 billion for jet fuel. Volume was a decrease of JPY 2.9 billion, of which about JPY 2.6 billion was for oil types other than 4 main products, mainly FCC gas.
Import, purchase and export decreased JPY 2 billion, and this is because its volume increased due to the turnaround at one of the lines in Chiba refinery in the first quarter of FY 2024. Expenses and others decreased JPY 6.6 billion, which includes minus JPY 900 million for in-house fuel cost, minus JPY 1.5 billion for variable costs and minus JPY 2.3 billion for fixed costs. Those costs have increased affected by wage hikes and inflation. The petrochemical business posted an increase of JPY 1.2 billion year-on-year. Price increased JPY 2.3 billion due to the difference in timing of purchase and sales affected by raw material price hikes in the first quarter. We recognize that the market recovery is slow as expected.
Expenses and others decreased JPY 1.3 billion. This is due to consolidation, accounting and increased expenses. The oil E&P business increased JPY 2.1 billion year-on-year. Price increased by JPY 1.3 billion due to the yen depreciation. Volume was minus JPY 3 billion and this was due to ship assignment, which would be solved in the second quarter. Expenses and others increased JPY 4.5 billion, and this is mostly due to foreign exchange gains of JPY 4.7 billion from the yen depreciation.
Please turn to Page 13 for the financial status. Total assets were JPY 2.254 trillion, an increase of JPY 41.1 billion from the end of the previous fiscal year, net worth increased JPY 10.1 billion from the end of the previous fiscal year to JPY 611.3 billion, and net worth ratio was 27.1%. Net interest-bearing debt was JPY 449.5 billion, and the net debt to equity ratio on line 6 was 0.74x, an improvement of 0.09 points from the end of the previous fiscal year.
Lastly, please turn to Page 14 for the overview of capital expenditures and depreciation. Capital expenditures were JPY 19.5 billion, up JPY 6.7 billion year-on-year. The breakdown is provided on the right. Depreciation expenses were JPY 13.9 billion, remained almost unchanged from the previous fiscal year. This concludes my brief explanation. Thank you.