Idemitsu Kosan Co.,Ltd. Q1 FY2026 earnings call

• Overall Financial Results

  • Reported total sales of 1.843 trillion yen, a 417.3 billion yen year-over-year decrease, driven primarily by falling crude oil prices.
  • Reported operating profit plus equity method investment gains/losses as a 16.7 billion yen net loss, a 146.8 billion yen year-over-year decrease. Excluding inventory impacts, this figure is a 33.8 billion yen profit, a 48.3 billion yen year-over-year decrease.
  • Reported net income of 5.2 billion yen, an 89.8 billion yen year-over-year decrease. Excluding inventory impacts, net income is 40.3 billion yen, a 21.5 billion yen year-over-year decrease.

• Operational Progress

  • Multi-year investments in refinery equipment reliability, on-site operations management, and DX-enhanced maintenance management are delivering results, with refinery operational troubles decreasing year-over-year.
  • Volatile current market conditions have created favorable opportunities for the overseas trading business, which is steadily growing earnings.
  • Financial structure improvement is on track: the equity ratio improved to 38.3%, and R&I upgraded the company's bond rating to A+ in reflection of stronger finances and positive industry outlook.
  • The company has started commercial operation of its plastic chemical recycling oilification facility, contributing to plastic circularity efforts.

All segment results are stated as operating profit plus equity method investment gains/losses, excluding inventory impacts:

1. Fuel Oil Segment: 27.2 billion yen year-over-year decrease in profit. A negative 30 billion yen+ time-lag impact from falling crude prices drove most of the decline, partially offset by a 6.8 billion yen gain from strong naphtha and LPG byproduct margins. Higher expenses (including maintenance and affiliate costs) and lower export earnings from stagnant overseas markets further offset gains, leaving a net 13.7 billion yen negative impact.
2. Basic Chemicals Segment: Turned in a year-over-year profit decrease. Higher sales volumes from resolved prior-year production troubles were more than offset by significantly weakened product margins, driven by poor market conditions for paraxylene and mixed xylene.
3. High Performance Materials Segment: Net result varied by sub-segment. Lubricants posted a profit increase driven by strong overseas sales, while Agri-Life grew profit from the contribution of newly acquired Agro Kaneshō. Functional chemicals recorded a profit decrease due to margin pressure from expanded capacity in China.
4. Power and Renewable Energy Segment: Posted a year-over-year profit increase. Prior-year operational issues have been resolved, lower depreciation following biomass asset impairment boosted results, Solar Frontier improved its balance sheet via structural reform, and the North American gas-fired power business gained from favorable price factors.
5. Petroleum Development Segment: Recorded a 2 billion yen year-over-year profit decrease, driven by lower production volumes and falling crude oil prices.
6. Coal Segment: Recorded a 10.9 billion yen year-over-year profit decrease, driven entirely by falling global coal market prices.

• The full-year 2026 March fiscal year target for operating profit plus equity method investment gains/losses is maintained at 147 billion yen. The first quarter reached 22% of this full-year target; after accounting for the 30 billion yen negative time-lag impact from crude price declines tied to Trump tariffs, management judges that first-quarter progress is actually above the full-year target pace.
• The company reaffirmed its commitment to achieving a 10% ROE, and is continuing to implement additional targeted measures to build incremental earnings.

• Geopolitical risk: Rising tensions between Iran and Israel have increased crude oil market volatility, leading to sharp price swings in the first quarter of the fiscal year.
• Commodity market risk: Trump tariffs and OPEC+ production increases drove a sharp decline in crude oil prices at the start of the fiscal year, and coal prices have also fallen significantly year-over-year, creating downward pressure on segment earnings.
• Foreign exchange risk: Yen exchange rate volatility has increased, with sharp movement driven by U.S. recession concerns and dollar weakening expectations, followed by a shift to range-bound trading amid elevated geopolitical risk.
• Basic chemicals market risk: Structural oversupply for key products (mixed xylene, paraxylene) from new Chinese refining capacity, combined with demand weakness from U.S. tariff impacts, has driven significant margin deterioration for the segment.

The provided transcript does not include a question and answer section.