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Edited Transcript of 5019.T earnings conference call or presentation 14-Feb-20 9:00am GMT

Q3 2020 Idemitsu Kosan Co Ltd Earnings Presentation

Tokyo Mar 7, 2020 (Thomson StreetEvents) -- Edited Transcript of Idemitsu Kosan Co Ltd earnings conference call or presentation Friday, February 14, 2020 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Toshiaki Sagishima

Idemitsu Kosan Co.,Ltd. - Managing Executive Officer of Accounting & Finance

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Presentation

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Toshiaki Sagishima, Idemitsu Kosan Co.,Ltd. - Managing Executive Officer of Accounting & Finance [1]

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My name is Sagishima of Idemitsu Kosan. I would like to provide an overview of our financial results for the third quarter of fiscal year 2019, which were announced today.

Please turn to Page 4. I would like to highlight 2 key topics in the third quarter.

The first is the operating status of Nghi Son Refinery in Vietnam. All operations were suspended for the testing and repair of initial defects since late October of last year. Such construction work was completed in mid-December. The refinery is currently operating at full capacity. The second concerns our ESG initiatives. We believe that responding to climate change to achieve harmony with the environment and society is equivalent to our business strategy. Today, we declared our support for the TCFD proposal. Going forward, we will engage in response measures to climate change pursuant to the TCFD framework and make appropriate information disclosures.

We also announced the Idemitsu integration report and Idemitsu sustainability report on our website for the first time as an integrated entity. We will appreciate your comments and opinions on these reports.

Now I would like to move on to our financial results for the third quarter. First, please note that figures for fiscal year 2018 are estimated figures for 100% consolidation of Showa Shell Sekiyu and Idemitsu Kosan. Segment information is shown as totals of operating income and equity income.

Please turn to Page 9. This page provides a summary of our financial results.

Net sales decreased by JPY 633 billion to JPY 4.56 trillion due to a decrease in crude oil prices. Operating income plus equity income decreased by JPY 117.6 billion to JPY 87.5 billion. As there was a negative inventory impact of JPY 9.3 billion, operating income plus equity income, excluding inventory impact, decreased by JPY 88.6 billion to JPY 96.7 billion. The segment breakdown will be provided in a later slide.

The JPY 17.2 billion gain on step acquisition of Showa Shell shares was the main component of extraordinary income. We also reported extraordinary losses of JPY 1.7 billion as a result of the fire to our oil in December. As a result, net income decreased by JPY 52.3 billion year-on-year to JPY 64.9 billion.

Please refer to Page 10 for a summary of income from each segment.

Page 11 shows major factors affecting income change by the step chart. First, income from petroleum business decreased by JPY 41.4 billion. Refining margins, sales volume and crude oil premium led to a JPY 14.5 billion decrease, of which refining margins improved by JPY 0.3 per liter on a year-on-year basis for total positive impact of JPY 8.9 billion. Next, integration synergies, equity income and other factors led to a JPY 26.9 billion decrease. Integration synergies led to a year-on-year increase of JPY 17 billion. Equity income decreased by JPY 29.9 billion mainly due to significant losses at NSRP.

Moving on to the basic chemicals segment. Product margins, et cetera led to a JPY 21.4 billion decrease mainly due to the JPY 19.7 billion decrease from reduced margin of SM and PX. Regarding functional materials business, weaker polycarbonate margins resulted in decreased profit. Next is the power and renewable energy segment. Energy solution business reported an JPY 11.2 billion increase by cost reduction. On the other hand, the power business reported a JPY 3.3 billion decrease due to goodwill amortization resulting from the integration. E&P business saw a JPY 17.7 billion decrease by production volume fall of [star] oil fields. Finally, the coal segment reported a JPY 14.7 billion decrease mainly due to weaker coal price.

Page 13 refers to shareholder returns.

Our policy from fiscal years 2019 to 2021 include total payout ratio of over 50%, a minimum dividend of JPY 160 per share and the provision of at least 10% of shareholder returns in the form of share buyback. The share buyback commenced last November was completed on January 24, 2020. About 4 million shares were repurchased, which was the equivalent of 1.34% of total shares outstanding. We plan to retire all repurchased shares.

Finally, balance sheet is shown on Page 21.

Total assets as of December 31, 2019, decreased by JPY 24.3 billion, relative to the beginning of the fiscal year, to JPY 4.12 trillion. Net assets decreased by JPY 12.7 billion to JPY 1.29 trillion, with net income being more than offset by dividend payments, among other items. Interest-bearing debt increased due to a change in lease accounting standards, an increase in integration costs and an increase in working capital. The net debt-equity ratio also increased as a result.

That concludes my presentation. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]