Idemitsu Kosan Co.,Ltd. Q3 FY2026 earnings call

New Business Development & Strategic Projects

• Solid electrolyte for all-solid-state lithium-ion batteries: Final investment approval granted and construction started on a large-scale pilot production facility, with an annual production capacity of several hundred tons. Idemitsu is collaborating with Toyota Motor Corporation to target commercialization of electric vehicles equipped with all-solid-state batteries between 2027 and 2028.
  • Idemitsu's sulfide-based solid electrolyte has high flexibility and adhesiveness, resists cracking during repeated charge-discharge cycles, and is highly suited for automotive applications. It uses byproduct sulfur from petroleum refining processes as a raw material, and leverages Idemitsu's long-standing R&D and technical expertise to establish proprietary mass production technology.
• Plastic recycling: A chemical recycling (oil conversion) facility and pre-processing facility for end-of-life plastic recycling has been completed, with an annual processing capacity of 20,000 tons. Commercial operation is targeted to start in April 2026.

M&A & Industry Consolidation

• Fuji Oil: Completed the acquisition of Fuji Oil as a consolidated subsidiary via tender offer on November 5, with the goal of speeding up decision-making and building a long-term optimal production system through integrated operations between the Idemitsu group and Fuji Oil. Confirmed annual synergy effects are currently estimated at 3 billion yen to 4 billion yen, and Idemitsu will pursue additional synergies through further optimization of group-wide production and supply chains, mutual utilization of infrastructure, and operational integration. This acquisition is the primary driver of the large increase in total assets on the end-of-term balance sheet.
• Chiba Region Ethylene Production Optimization: Reached a final agreement with Mitsui Chemicals to consolidate ethylene production to one of Mitsui Chemicals' existing facilities in the Chiba region. Including this consolidation and other already announced industry-wide facility shutdowns, Japan's total ethylene production capacity is expected to be reduced to approximately 70% of current levels, and to just over 60% of current levels in eastern Japan.
• Polyolefin Business Integration: Announced a plan to integrate the polyolefin business with Mitsui Chemicals and Sumitomo Chemical.

Joint Venture Update: Nison Refinery & Petrochemical (NSRP)

• No major changes to the operating outlook since the November update. A turn to operating profit is now in sight at the operating level, but a full-year net loss remains unavoidable. Negotiations between sponsors are ongoing to finalize interest rate reduction measures (including conversion to simple interest) for the sponsor loan, which accounts for approximately 60% of NSRP's interest burden, by the end of the current fiscal year. If implemented, these measures will significantly reduce the projected net loss. Additional improvement measures including diversified crude oil procurement, power supply from external grids, and sales of in-house power generation fuel are being implemented to target net profit by around 2030. While continued net losses are projected through 2030, provisions have already been fully recorded, so there will be no impact on consolidated earnings through that period.

All performance figures below are on an actual basis excluding inventory valuation gains/losses:

• Fuel Oil Segment: Profit of 90 billion yen, a 19.7 billion yen decrease year-over-year. The year saw large-scale regular maintenance at 3 refineries, which created a total negative impact of 34.6 billion yen; the Aichi facility was shut down for approximately 2 months in Q3 alone, which heavily impacted results. A further 10.4 billion yen negative impact came from time lag effects driven by falling crude oil prices. Domestic fuel oil margins remain strong, with no further scheduled maintenance planned for Q4.
• Basic Chemicals Segment: Profit decreased by 6.4 billion yen year-over-year due to weak product market conditions. Para-xylene saw slight supply-demand improvement and market recovery in Q3 following improved operating rates for its downstream polyester product; mixed xylene demand and supply-demand also improved alongside better PX margins. However, styrene monomer and benzene continued to face oversupply due to weak final product demand in China driven by recession and U.S. tariff impacts.
• High Performance Materials Segment: Profit increased by 6.3 billion yen year-over-year. Growth came from strong overseas sales driving higher lubricant profits, plus incremental profit contribution from Agro Kaneshou, which joined the Idemitsu group last fiscal year.
• Power & Renewable Energy Segment: Profit increased by 6.7 billion yen year-over-year. Key drivers included the resolution of prior-year power generation equipment issues at Toa Oil, higher selling prices for overseas gas-fired power generation, and improved profitability at Solar Frontier driven by progressing structural reform.
• Resources Segment: Profit decreased by 33.4 billion yen year-over-year. The main causes were falling coal market prices and reduced production volume due to bad weather.

• Full-year 2025 fiscal year earnings guidance and shareholder return policy are maintained unchanged from the November 2025 public announcement. The company expects to meet the full-year target despite slower Q3 progress.
• Q3 cumulative progress against the full-year target is 67% for operating profit plus equity method investment gains, and 73% for net profit. The lower-than-proportional progress was fully incorporated into the original full-year forecast, as it stems from scheduled regular maintenance at the Aichi facility that reduced Q3 production volume. All regular maintenance has now been completed, production volume is expected to recover in Q4, and domestic fuel oil margins remain strong, so the full-year target is still on track to be achieved.
• NSRP is expected to achieve final net profitability by around 2030, after continuing to record net losses from the current period through 2030.
• The solid electrolyte pilot facility is on track to support commercialization of all-solid-state battery EVs between 2027 and 2028, in line with the existing development timeline.
• The completed plastic chemical recycling facility is expected to start commercial operation in April 2026, matching the previously announced schedule.

• Geopolitical risk: Escalating tensions in the Middle East (Israel-Iran region) creates upward price pressure for crude oil, while OPEC+ production policy changes can drive significant crude oil price volatility that impacts inventory valuation and earnings.
• Macroeconomic and trade risk: Recessionary trends and U.S. tariff policies have weakened final product demand for basic chemicals in China, leading to persistent oversupply and weak profitability in the basic chemicals segment.
• Commodity price risk: Falling coal market prices drove significant profit decline in the resources segment, while crude oil price declines create negative inventory and time lag impacts on overall earnings.
• Exchange rate volatility: Large swings in the USD/JPY exchange rate driven by domestic policy shifts and global trade concerns create uncertainty for import and export earnings.
• NSRP operational and financial risk: NSRP is expected to continue recording net losses through 2030, though provisions have already been taken to offset this impact on consolidated earnings.

The provided transcript does not include a question and answer section, so no exchanges are available to summarize.