Supporting Material for 3Q Results 2018

Transcription

1 1 Supporting Material for 3Q Results From Jan/2018 to Sep/ th November 2018 Showa Shell Sekiyu K.K

2 Notes 2 This document contains forward-looking statements concerning the results of operations and businesses of Showa Shell Sekiyu K.K.. Forward-looking statements are statements of future expectations that are based on management s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements.

3 Jan-Jun 2018 Overview 3 Oil Business operating income (Excl. Inventory Valuation*) Jan-Sep 2017 Jan-Sep 2018 Billion Yen Energy Solutions Business operating income Financial Result Highlights Ordinary income, excluding the impact of inventory valuation, surged to 81 billion yen, a substantial year-on-year increase. The gain on inventory valuation was 26.5 billion yen. Operating income for the Oil Business, excluding the impact of inventory valuation, was 79.4 billion yen. The operating loss for the Energy Solutions Business improved substantially year on year. Others operating income Operating income (Excl. Inventory Valuation*) Ordinary income Ordinary income (Excl. Inventory Valuation*) Net income attributable to owners of the parent Net income attributable to owners of the parent (Excl. Inventory Valuation*) Net income attributable to owners of the parent per share, yen per share * Including the effect of Lower of cost or market value method for Oil Highlights (Oil) The margin on domestic fuels remained firm. Operating income increased by 41.0 billion yen reflecting the comparison with last fiscal year, during which the Yokkaichi Refinery underwent largescale regular maintenance in the second quarter. Utilization of group refineries exceeded both the previous year and the industry average. Highlights (Energy Solutions) (Solar Business) The loss reduced compared to last fiscal owing to the cost reduction, despite lagging behind the initial plan in some respects. (Power Business) Group power plants operated stably and efficiently, generating consistent profit. Sales in both the highvoltage and low-voltage markets expanded steadily.

4 Business Environment Crude Oil and Foreign Exchange 4 USD/bbl Dubai crude oil Exchange rate (USD) Crude oil CIF Japan (JCC) Yen/USD Yen/L Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Source: Trade Statistics of Japan

5 Margin Environment Oil Business (Jul-Sep) 5 20 /L Japanese refining margins 700 Asia Far East petrochemicals margins USD/ton Q 2Q 3Q 4Q 1Q 2Q 3Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q Gasoline Diesel oil Kerosene Mixed Xylene Propylene Benzene Domestic spot prices vs crude oil CIF Spot prices vs Dubai spot price The margins on domestic fuels were lower than in the previous quarter, which was a period of regular maintenance for the entire industry, but remained at high levels, underpinned by appropriate inventory levels for the different types of fuel. The margin on mixed xylene increased, supported by strong demand for para-xylene and regular maintenance at mixed xylene manufacturers. Demand for propylene remained strong, due in part to the supply side problems. Benzene demand was flat, supported by demand for derivative products despite the continuing high inventory level in China.

6 Highlights of Financial Results (Jan-Sep) 6 Crude oil price & exchange rate Highlights of financial results (million yen) Jan-Sep Jan-Sep Jan-Sep Jan-Sep Changes Dubai crude oil price (USD/bbl) Exchange Rate ( /USD) Changes vs Sales 1,447,977 1,876, , % Operating income 40, , , % Non-Operating income 4,085 2,553-1, % Ordinary income 44, , , % Inventory valuation* 7,264 26, , % Excl. Inventory Valuation* 37,411 81, , % Extraordinary income -12,394-4, ,034 - Net income attributable to owners of the parent 19,214 68, , % Excl. Inventory Valuation* 14,191 50, , % * Including the effect of Lower of cost or market value method for Oil

7 Information by Business Segment (Jan-Sep) 7 Sales (million yen) Operating income (million yen) Jan-Sep Jan-Sep Jan-Sep Jan-Sep Changes vs Oil Business 1,368,131 1,789, , % Energy Solutions Business 73,272 81, , % Others 6,573 6, % Total sales 1,447,977 1,876, , % Changes vs Oil Business 45, , , % Inventory valuation 7,264 26, , % Excl. Inventory Valuation 38,360 79, , % Energy Solutions Business -5,961-1, ,039 - Others 917 1, % Adjustment Total Operating Income 40, , , % Excl. Inventory Valuation 33,325 78, , % Oil Business: Manufacturing and sales of oil products, such as gasoline, naphtha, kerosene, diesel oil, fuel oil, lubricants, LPG, bitumen, and chemicals Energy Solutions Business: Manufacturing and sales of solar modules and electricity Others: Leasing and administration of properties, construction works, sale and lease of auto accessories, etc.

8 Earnings Performance (Jul-Sep) 8 Oil Business Energy Solutions Business Billion yen 50 Quarterly operating income Billion yen 6 Quarterly operating income Q 2Q 3Q 4Q 1Q 2Q 3Q -4 1Q 2Q 3Q 4Q 1Q 2Q 3Q Operating Income(Excl. Inventory valuation) Operating Income Operating income for the third quarter, excluding the impact from inventory valuation, was 24.6 billion yen. The Oil Business earned profit exceeding 20 billion yen for the fourth consecutive quarter. Supply capacity remained at an appropriate level for the industry as a whole. In addition to this, regular maintenance in early spring and firm demand for jet fuel in the Asia block kept margins at high levels, particularly for middle distillates. The price of crude oil rose compared to the previous quarter due to the sanctions imposed on Iran, among other factors, and a gain on inventory valuation was also posted in the third quarter The operating loss for the Energy Solutions Business improved by 1.5 billion yen year-on-year during the third quarter, reducing the loss to 0.1 billion yen. The size of the loss in the Solar Business shrank owing to the cost reduction. In the Power Business, stable and efficient operation of Group power plants and successful expansion of sales resulted in stable profit.

9 Ordinary Income 1-3Q 2018 vs 1-3Q (Unit: Billion Yen) Ordinary income *Stock Effect etc. *Stock Effect etc excluding inventory valuation Ordinary Income Ordinary Income 37.4 Ordinary Income excluding inventory valuation Oil Products Nonope. Petrochemicals Oil Business Refinery cost and M&A Solar Business Energy Solutions Business Power Business Others etc. 1-3Q Q 2018 Ordinary Income excluding inventory valuation Ordinary Income * Including the effect of Lower of cost or market value method for Oil

10 Oil Business Operational Performance (Jul-Sep) 10 Refinery utilization Domestic sales volume growth YonY 100 % % 120 (4 products total*) Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q Showa Shell Group refinery utilisation including planned SDM impact Japanese industry refinery utilisation including planned SDM impact Showa Shell Group refinery utilisation excluding planned SDM impact Showa Shell Industry * 4 products: Gasoline, Kerosene, Gas oil, A-type fuel oil Source of Industry: Petroleum Association of Japan Source of Industry: Statistics by METI Industry in 3Q2018 is based on flash report. Group refineries continued stable operation during the third quarter and the utilization rate exceeded both the previous year and the industry average. Gasoline, kerosene, diesel oil and the rest of the four main fuel types, which are relatively high-margin products, saw sales volume in Japan declined year-on-year due to the crude price hike among other factors. Export volume increased substantially year-on-year, which was impacted from the extensive maintenance performed on the Yokkaichi Refinery last year. Efforts to maximize production of petrochemical products continue and the Yokkaichi Refinery is operating Toluene Disproportionation Process (TDP) facilities at a high level.

11 Crude Oil Refined and Sales Volume (Jan-Sep) Crude oil refined & utilization rate Jan-Sep Jan-Sep Crude oil refined (thousand KL) 16,487 18, ,105 Refinery utilization rate 85.4% 96.3% % Sales volume by products (Thousand KL) Jan-Sep Jan-Sep Changes vs Gasoline 5,982 5, % 11 [Note] The volume of crude oil refined and utilization rate based on the Keihin(Toa Sekiyu), Yokkaichi, and Yamaguchi(Seibu Sekiyu) Refineries Jet Fuel 1,437 1, % Kerosene 1,717 1, % Diesel Oil 3,886 3, % Fuel Oil A 1,329 1, % Fuel Oil C % Chemicals*(thousand MT) % Others** 3,399 4, % Total Domestic sales 18,969 19, % Export 664 2, % Grand Total 19,633 21, % *Chemicals: Mixed Xylene, Benzene, Propylene **Others: Including products supplied to other companies based on business alliances and other contracts

12 Solar Business Operational Performance (Jul-Sep) 12 Quarterly panel shipment volume Panel allocation by region/usage MW 300 MW 1, Q 2Q 3Q 4Q Q-3Q 2018 Japan Overseas for BOT Solar panel shipment volume in the third quarter was nearly flat year-on-year while we continued to focus on sales in the domestic market. As the price competition became more intense, shipment volume for the first nine months was around 90% of the volume during the same period last year. We strive to increase our share in the domestic residential market not only by expanding sales of strategic products but also by proposing a new business model, among other steps. Despite the delay in some initiatives for the manufacturing cost reduction, the loss for the first three quarters shrank year-on-year.

13 Forecast of Fiscal Year Results for 2018 (Jan/2018 Mar/2019) 13 No change has been made to the forecast published on 9th Aug. A B C (Results) (Results) (Forecast) C-B million yen Jan 2017-Dec 2017 Jan 2017-Mar 2018 Jan 2018-Mar 2019 Net sales 2,045,936 2,647,741 3,200, ,258 Operating income 78, , , ,655 Inventory valuation 24,473 30,644 31, Excl.Inventory valuation 54,004 79, , ,299 - Oil Business 60,339 88, , ,749 - Energy Solutions Business -7,824-10,273 2, ,273 - Others and adjustment* 1,489 1, ,723 Ordinary income 92, , , ,293 Excl.Inventory valuation 68,500 95, , ,937 Net income attributable to owners of the parent 42,751 66, , ,821 *Forecast for Others and adjustment is included in the Oil Business.

14 Base Assumptions and Sensitivity Analysis 14 Base Assumptions (Full Year Averages) and Inventory Valuation Sensitivity in the Financial Forecast (from October 2018 to March 2019) (Results) (Forcast) Impact to inventory Unit Jan 2017-Dec 2017 Jan 2018-Mar 2019 valuation (billion yen) Dubai crude oil price (USD/bbl) USD/bbl 1.3 Exchange rate (Yen/USD) Yen/USD 1.0 -Oil Business- * The impact may change based on the timing of the crude oil price fluctuation and the inventory volume. * Sensitivity for Lower of Costs or Markets not included. The assumption for the price of crude oil from July onward is $75 per barrel. We project a gain of 31 billion yen on inventory valuation for the full year. Some refineries are scheduled to undergo regular maintenance during the fourth quarter, but utilization of group refineries excluding that impact will remain at a high level. Operating income for the Oil Business, excluding the impact of inventory valuation, is forecasted at 125 billion yen, owing to stable margins in Japan and growth in volume sales, mainly in exports and petrochemical products. -Energy Solutions Business- (Solar) Profit improvement from the third quarter onward will not meet expectations in the initial plan due to delays in some initiatives for the cost reduction, but it is expected to improve compared to last period. (Power). We are expecting an increase in revenue year-on-year owing to efforts to increase sales volume in both the highvoltage and low-voltage markets, stable operation of existing power plants, and the conversion of the majority of the electric power generation at the Toa Mizue Power Station to a retail operation from June 2018.

15 The Midterm Business Strategy Progress and Forecast 15 Oil Business Enhance resilience of import / export capacity Improve safety of the pier facilities at Yokkaichi refinery Expand petrochemical product business - - Increase production of basic petrochemical products (MX, etc.) - - Participate downstream in the petrochemical products chain Establish the competitive next-generation-ss Expand lubricants and bitumen business overseas Research and Examination Commence the business alliance with PIZZA HUT JAPAN Launch new service which enables digitalization at SS Enter overseas market with high-function bitumen Restore submarine crude oil pipeline for the Keihin Refinery Expand LNG business for low carbon society Energy Solutions Business (ES) Enter the overseas IPP business via renewable energy (ES) Exploring new business models for the energy-decentralized society (Solar) Improve cost competitiveness (Solar) Strengthen sales in the domestic residential market - Share target in the domestic residential market in 2021: 20% (Solar) Pursue differentiation - Introduce new ultra-lightweight panels to the market (Power) Enter gas thermal business overseas Consolidate production Restoration work Complete in 2018 Examination of projects Commence demonstration project of VPP utilizing refinery Launch SmaCIS Panel output increase of mainstay products (Currently W/panel) Material cost reduction Commence the alliance with TEPCO group Market research and study for mass production Reliability assessment of the prototype Launch fuel supply business for LNG heavy trucks Completion/Launch Plan Investment in TRENDE Inc. Investment in and alliance with ENECHANGE Ltd. Market launch Participate in Natural Gas-Fired Thermal Power Generation Project in Ohio

16 Reference material released on 16 th Oct Business Integration and Medium-term Business Strategy 16

17 Business Integration Objectives 17 Achieve industry-leading competitiveness by maximizing synergies Revamp the business portfolio and promote ESG initiatives Evolve into a resilient corporate entity and reinforce enterprise value

18 Business Integration Method 18 Share exchange in which Idemitsu Kosan will distribute its shares to shareholders of Showa Shell and acquire all of the issued shares of Showa Shell Share Exchange Ratio Ｉｄｅｍｉｔｓｕ Showa Shell * Integration of the organization and headquarters/ branch offices will be implemented after the share exchange

19 Officers of the New Integrated Company (Plan) 19 Chairman and Representative Director Vice Chairman and Representative Director, Executive Officer Representative Director and Chief Executive Officer Representative Director Director Director Director (part-time) Outside Director Outside Director Outside Director Outside Director Outside Director Positions and names of representative directors and directors of the New Integrated Company Takashi Tsukioka (currently, Chairman and Representative Director of Idemitsu Kosan Co., Ltd.) Tsuyoshi Kameoka (currently, Representative Director, President, Executive Officer, CEO of Showa Shell Sekiyu K.K.) Shunichi Kito (currently, Representative Director and Chief Executive Officer of Idemitsu Kosan Co., Ltd.) Tomonori Okada (currently, Representative Director, Vice President, Executive Officer of Showa Shell Sekiyu K.K.) Takashi Matsushita (currently, Executive Vice President and Representative Director of Idemitsu Kosan Co., Ltd.) Katsuaki Shindome (currently, Corporate Executive Officer of Showa Shell Sekiyu K.K.) Masakazu Idemitsu (Representative Director and President of Nissho Kosan K.K.) Kazunari Kubohara (lawyer) Takeo Kikkawa (currently, Outside Director of Idemitsu Kosan Co., Ltd.) Mackenzie Clugston (currently, Outside Director of Idemitsu Kosan Co., Ltd.) Norio Otsuka (currently, Outside Director of Showa Shell Sekiyu K.K.) Yuko Yasuda (currently, Outside Director of Showa Shell Sekiyu K.K.) The titles of Tomonori Okada, Takashi Matsushita, and Katsuaki Shindome as executive directors will be announced once they are determined. For more details on human affairs matters regarding the officers, including the statutory auditor, outside statutory auditor, and substitute statutory auditor of the New Integrated Company, please refer to today s press release, Announcement Regarding Execution of Share Exchange Agreement and Business Integration.

20 Business Integration Schedule 20 Signing of the share exchange agreement October 16,2018 Record date for the extraordinary general shareholders meetings November 1, 2018 (EGM) of both companies EGM of both companies December 18, 2018 (Plan) Business Integration date (Effective date of the share exchange) April 1, 2019 (Plan)

21 The New Integrated Company s Vision 21 We are an energy co-creation company that values diversity and inclusiveness, creates new values with customers and stakeholders, and seeks harmony with the environment and society. We will deliver various forms of energy and materials in a sustainable manner. We will expand and share our problem-solving capabilities with the world. We will grow stronger by anticipating change and responding flexibly

22 Basic Policy 22 Strengthen core businesses (Petroleum products, basic chemicals) and accelerate initiatives in growth markets and growing areas Achieve integration synergies of 60 billion (2021) Shareholder returns and steady growth investments Strengthen governance and ensure sustainability Create an environment where each employee can grow and achieve his/her full potential

23 Management Targets (FY ) 23 Net Income (Excluding inventory impact and one-time factors) FY2018 Plan Idemitsu / Showa Shell 124 billion / 62.5 billion FY2021 Plan Over 500 billion (3-year total) 200 billion(fy2021) Integration Synergies 30 billion (FY 2019) 60 billion (FY 2021) ROE * 13.8% / 21.5 % >10% (FY 2021) Net D/E 0.90 / (FY 2021) *ROE: Net income (excluding inventory impact) / Shareholders equity Shareholder Returns (3 years) Total return payout ratio 50%

24 Integration Synergies 24 The firm will achieve combined integration synergies totaling 60 billion in FY 2021 Section Major Initiatives Expected Impact Crude Oil Procurement Joint procurement of crude oil Joint allocation of crude oil tankers Reduction of ship chartering and new shipbuilding costs 1.5 Supply/ Demand, Overseas, Logistics, and Sales Manufacturing and Procurement Shared Integrate production planning system Interchange of finished and intermediate products at 7 refineries Mutual utilization of oil terminal and joint shipping Integrate imports/exports and expand overseas sales Optimize utilization of oil terminals and distribution Develop best practices for initiatives to improve refinery margins Reduce procurement costs through joint procurement Optimize adaptation to IMO s MARPOL treaty, response to reduced gasoline demand, etc. Reduce duplicate costs through organizational integration Optimize capital investments Mutual utilization of lubricants terminal Other (IT systems, BPR, etc.) Total

25 Cash Flow Allocation 25 Achieve stable earnings and provide high shareholder returns Focus investments in growth markets & fields and structural reforms Further strengthen the financial foundation Operating Cash Flows: 800 billion Net Income 500 billion Depreciation, etc. 300 billion Returns to Shareholders 250 billion Investments 500 billion *of which strategic investments: 300 billion Financial Foundation 50 billion

26 Shareholder Returns Policy 26 Shareholder Returns Policy With consideration for the return of profits to shareholders, which is an important responsibility of management, the New Integrated Company will steadily secure income by realizing the effects of integration and shareholder returns. FY Plan Aim to achieve cumulative net income of over 500 billion and return 50% or more to shareholders (over 10% of such returns planned to be provided via acquisition of treasury shares)

27 Investment Strategy 27 Total Investment (over 3 years) 500 billion Petroleum /Basic chemicals: 250 billion Revamping refineries Overseas locations Service station network Functional materials /Electricity and Renewable energy: 120 billion Overseas lubricant oil facilities Overseas performance chemicals/oled materials production facilities Securing power sources Promoting R&D (solid electrolytes) New businesses Resources: 130 billion Development of Vietnam gas fields Redevelopment of Snorre (North Sea) 27

28 Business Segment and Strategy 28 Petroleum /Basic Chemicals Enhance competitiveness from manufacturing to sales and develop refineries, wholesale, sales, and chemical operations overseas Functional Materials - lubricants, performance chemicals, electronic materials, agricultural biotechnology, solid electrolyte, and functional asphalt - Proactively develop technology-based businesses in growing areas and markets Power and Renewable Energy Develop renewable energy, LNG power, solar panel and distributed generation business, and promote next-generation energy management system Resources Commence natural gas development in Asia in addition to existing petroleum and coal development

29 Governance Structure 29 Proactively embrace CGC s approach (4 or more independent outside directors) Achieve transparency through increased monitoring of the board of directors Rapid corporate management through delegation to execution teams

30 Sustainability Strategy 30 Reduce GHG emission by business activities Incorporate external feedback Approach with macro perspective to value chain Create new businesses which can reduce CO 2 emission *Target figures will be determined during FY2019

31 Data Book 31

32 Highlights of Financial Results (Jul-Sep) 32 Crude oil price & exchange rate Highlights of financial results (million yen) Jul-Sep Jul-Sep Jul-Sep Jul-Sep Changes Dubai crude oil price (USD/bbl) Exchange Rate ( /USD) Changes vs Sales 500, , , % Operating income 17,228 31, , % Non-Operating income 124 1, % Ordinary income 17,352 32, , % Inventory valuation* 433 6, ,788 +1,336.5% Excl. Inventory Valuation* 16,919 25, , % Extraordinary income -10, ,919 - Net income attributable to owners of the parent 3,167 21, , % Excl. Inventory Valuation* 2,868 17, , % * Including the effect of Lower of cost or market value method for Oil

33 Information by Business Segment (Jul-Sep) 33 Sales (million yen) Operating income (million yen) Jul-Sep Jul-Sep Jul-Sep Jul-Sep Changes vs Oil Business 472, , , % Energy Solutions Business 25,414 30, , % Others 2,501 2, % Total sales 500, , , % Changes vs Oil Business 18,493 30, , % Inventory valuation 433 6, , % Excl. Inventory Valuation 18,060 24, , % Energy Solutions Business -1, ,585 - Others % Adjustment Total Operating Income 17,228 31, , % Excl. Inventory Valuation 16,795 24, , % Oil Business: Manufacturing and sales of oil products, such as gasoline, naphtha, kerosene, diesel oil, fuel oil, lubricants, LPG, bitumen, and chemicals Energy Solutions Business: Manufacturing and sales of solar modules and electricity Others: Leasing and administration of properties, construction works, sale and lease of auto accessories, etc.

34 Crude Oil Refined and Sales Volume (Jul-Sep) 34 Crude oil refined & utilization rate Jul-Sep Jul-Sep Changes Crude oil refined (thousand KL) 5,872 6, Refinery utilization rate 90.2% 97.7% + 7.5% Sales volume by products (Thousand KL) Jul-Sep Jul-Sep vs Gasoline 2,176 2, % [Note] The volume of crude oil refined and utilization rate based on the Keihin(Toa Sekiyu), Yokkaichi, and Yamaguchi(Seibu Sekiyu) Refineries Jet Fuel % Kerosene % Diesel Oil 1,355 1, % Fuel Oil A % Fuel Oil C % Chemicals*(thousand MT) % Others** 1,475 1, % Total Domestic sales 6,609 6, % Export % Grand Total 6,858 7, % *Chemicals: Mixed Xylene, Benzene, Propylene **Others: Including products supplied to other companies based on business alliances and other contracts

35 Quarterly Trend of Ordinary Income 35 Billion yen Ordinary Income(Excl.Inventory valuation) -8.8 Ordinary Income 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q

36 Quarterly Trend of Operating Income by Business Segment 36 Billion yen Oil Business operating income(excl.inventory valuation) Energy Solutions Business operating income Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q

37 Crude Oil Price (Platt s Dubai) 37 (USD/bbl) Average 41.4 USD/bbl 2017 Average 53.1 USD/bbl Average 70.1 USD/bbl

38 Exchange Rates (JPY/USD TTM) 38 (JPY/USD) Average JPY/USD Average JPY/USD Average JPY/USD

39 Domestic Market (1) : Regular Gasoline 39 Crude & Product price /L Spread /L Regular Gasoline (Domestic Spot Price) Crude CIF Spread (Domestic spot price-cif) CIF of October 2018 is provisional. 5 0

40 Domestic Market (2) : Diesel Oil 40 Crude & Product price /L Spread /L Diesel Oil (Domestic Spot Price) Crude CIF Spread (Domestic spot price-cif) CIF of October 2018 is provisional. 5 0

41 Domestic Market (3) : Kerosene 41 Crude & Product price /L Spread /L Kerosene (Domestic Spot Price) Crude CIF Spread (Domestic spot price-cif) CIF of October 2018 is provisional. 5 0

42 Global Market (1) : Gasoline Unleaded 42 $/bbl Spread $/ bbl Gasoline Unleaded (92RON Asian Spot Price) Platts Dubai Spread (Spot price Dubai)

43 Global Market (2) : Diesel Oil 43 $/bbl Spread $/ bbl Diesel Oil (Asian Spot Price) Platts Dubai Spread (Spot price Dubai)

44 Global Market (3) : Mixed Xylene 44 $/MT Spread $/ MT 1, , Mixed Xylene (Asian Spot Price) 1, Platts Dubai Spread (Spot price Dubai)

45 Showa Shell Sekiyu is a Shell licensee and uses Shell trade marks under licence. The views expressed in this release or statement are made by Showa Shell Sekiyu, and are not made on behalf of, nor do they necessarily reflect the views of, any company of the Shell Group of Companies. 45