ENEOS : Q＆A （110KB） （110KB）

About this update from Eneos Holdings, Inc.

＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿＿ ENEOS Holdings (5020, Tokyo) - Analyst Briefing Q&A for FY2025 Q2 (Jul.-Sep.) ￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣ Date and time: Wednesday, November 12, 2025 (16:00-17:00) Number of attendees : 117 Main questions: Please find below ￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣￣ - This document contains forward-looking statements. A cautionary statement appears in the endnote. - Q1. Refinery utilization rates appear to be improving, and the export market is favorable. Could you elaborate on the potential for profit improvement due to higher utilization? A1. The Kawasaki Refinery is currently undergoing periodic repairs but is expected to restart soon. If the restart proceeds as planned, processing volume will increase significantly. Therefore, if the current export margin environment persists, we anticipate a substantial improvement in profitability. If the current UCL remains in the 3% range, improvement is expected in the second half. However, the extent of recovery will be key, as the impact of unplanned shutdowns in the first half was significant. The first half saw a negative impact of over 20 billion yen compared to the plan due to these troubles. However, issues decreased from August onward, and as of October, the impact is below the planned level. Therefore, we believe there is potential for a certain level of profit improvement in the second half and subsequent fiscal years. Furthermore, the export market conditions are currently better than anticipated, and refinery operational performance is stable. Consequently, we recognize that if the recovery in operations coincides with favorable market conditions, there is potential for results to exceed the plan. Q2. Regarding the fund allocation within the Allocation Management framework, the policy appears to be geared toward allocation to strategic investments and additional returns. Is the current focus primarily on evaluating M&A deals? Also, while candidate deals are indicated to be in the hundreds of billions of yen range, given the strict gate reviews, is there room to decide on additional shareholder returns on a single-year basis? Based on the review status over the past six months, could you share the perspective as the CEO on the future use of these funds? A2. Regarding organic investments, projects in the 100 to 200 billion yen range may emerge, but the number is limited, with only one or two expected. The remainder are being considered primarily through M&A, and we are currently scrutinizing multiple candidate deals. Regarding shareholder returns, while we announced an increased dividend this time, it has not yet reached a total payout ratio of 50% or more. Therefore, we need to consider additional shareholder returns at some point. Additionally, we are simulating capital allocation to achieve a 10% ROE by FY2027, with cross-border projects, particularly in the oil, chemical, and gas sectors, also under consideration. We have no intention of downplaying shareholder returns, but we aim to actively pursue investments where value-enhancing opportunities exist. Q3. Could you explain the background behind this dividend increase decision? Is it driven by an improvement in underlying profitability? Or is it part of a stronger focus on dividends relative to the target of a total payout ratio exceeding 50%? A3. This dividend increase was decided against the backdrop of rising underlying profits. We reached this decision based on the steady improvement in our earnings power, including the actual profit growth in the Petroleum Products business (excluding temporary negative impacts due to time-lag) and the sales volume growth in the Electricity business. Going forward, we intend to gradually raise the dividend level in line with the expansion of underlying profits. Q4. Regarding performance in the Petroleum Products segment, please explain the breakdown of +45.5 billion yen YoY in H1 and +50.0 billion yen in the full-year forecast for the impact of margin, expense, etc. and -23.0 billion yen in the full-year forecast for volume impact. Also, is it accurate to understand that the -23.0 billion yen volume impact is primarily influenced by the -20.0 billion yen impact from operational disruptions? (See page 19 and 26 of the presentation materials.) A4. The breakdown of the +45.5 billion yen for the impact of margin, expense, etc. for the first half is as follows: +40.0 billion yen from petroleum products margins excluding time-lag effects, and export margin of just under +10.0 billion yen. On the other hand, the chemical market was sluggish, resulting in a negative impact of several billion yen. However, this was largely offset by positive factors such as improved fuel efficiency due to the decline in crude oil prices. The breakdown of the full-year forecast of +50 billion yen for the impact of margin, expense, etc. is as follows: +200 billion yen from petroleum products margins excluding time-lag effects, and export margin of +170 billion yen. On the other hand, negative impacts such as worsening loss rates due to refinery troubles amounted to several billion yen, but this was offset by positive effects from affiliated companies (LPG-related) procuring at lower prices from the U.S. Regarding the breakdown of the volume impact of -23 billion yen in the full-year forecast, this includes an impact of -15 billion yen primarily due to reduced exports caused by refinery troubles. The remainder is a negative impact of several billion yen due to reduced domestic oil demand and the thorough implementation of profitable sales. Q5. October's operating rate was reported at 82%, which is above plan, while the target is understood to be 90%. Describing the current level as "better than planned" may give the impression that the upper limit is in the low 80% range. On the other hand, from a profitable sales perspective, there may be cases where reducing the operating rate is unavoidable. Which do you prioritize: improving the operating rate or optimizing profitable sales? A5. Cases where exports become unprofitable are extremely rare. The balance between atmospheric distillation units and secondary units varies by refinery, and the crude oil cracking ratio changes depending on conditions. Therefore, it cannot be said categorically that 85% is bad compared to the 90% target. Optimization is critical and is carried out with consideration not only of domestic demand but also of overseas market conditions. Specifically, gasoline is more profitable when sold domestically than exported. On the other hand, there are multiple patterns for the handling of diesel fuel, such as diversion to jet fuel or kerosene, and its allocation also changes. Currently, given favorable overseas market conditions, we are maximizing utilization rather than curtailing it. However, depending on the type of crude oil, even when secondary units are operating at maximum capacity, the primary atmospheric distillation units may not be able to run at maximum. Legacy JX and TG facilities were designed with additional capacity in crude distillation units, since mainly light crude was processed in the past. Furthermore, the operating rates of secondary units vary; some facilities run their fluid catalytic cracking (FCC) units at maximum capacity, while others do not. Therefore, the overall optimization status cannot be judged based solely on the operating rate of the atmospheric distillation unit. Unit operation is reviewed monthly, but when unit shutdowns occur, as in the first half of the year, the proportion of final products decreases and intermediate products accumulate, making the fundamental discussion difficult. Considering these various factors comprehensively, we aim to pursue more precise optimization going forward. Q6. Over the past six months, three company reorganizations have been carried out, primarily involving sales companies. We understand that fundamental reductions and restructuring will take time. Could you share the current progress and how the effects of these reorganizations are reflected in volumes and earnings? A6. Regarding the sales company reorganizations, we are thoroughly implementing PMI to drive synergy. Reviews are conducted under the leadership of ENEOS Holdings, and at this stage, benefits in the range of several billion yen are expected, although we are still in the early phase. Looking ahead, restructuring for several dozen companies is under consideration, including integration, divestment, and closure, as well as strengthening internal controls and management systems. ENEOS Holdings will continue to conduct direct reviews and promote restructuring plans encompassing cost reduction, margin improvement, and headcount reduction. While details are not yet finalized, steady progress is being made. Q7. For dividends in FY2026 and FY2027, will increases continue in line with growth in underlying profits? What indicators or benchmarks are used to determine dividend increases? A 7. While the dividend levels for FY2026 and FY2027 are not yet finalized, our basic policy is to consider dividend increases based on the expansion of underlying profits and the overall business environment. We are also mindful of comparisons with the dividend on equity ratio (DOE) and other companies, and this has been discussed repeatedly by the Executive Council and the Board of Directors. The balance between dividends and share buybacks will be determined flexibly each year, considering investment opportunities and optimal capital allocation. Q8. The full-year operating profit forecast of 32 billion yen for the Electricity business was not anticipated in the fourth Medium-Term Management Plan. Can this be considered a sustainable level? Does this represent an upside versus the plan, and is there room for further growth beyond 32 billion yen? In addition, what level of synergy is expected from integrated operations of ENEOS Power and ENEOS Renewable Energy during the medium-term plan period? (See page 27 of the presentation materials.) A8. The increase in the Electricity business earnings is primarily attributable to higher-than-expected operation at the Goi Thermal Power Plant. However, regulatory changes in FY2026-FY2027 are expected to reduce some earnings, so 32 billion yen cannot be regarded as a permanent level. Synergy effects from integrated operations of ENEOS Power and ENEOS Renewable Energy have not yet been confirmed, and there is insufficient certainty to raise medium-term management plan targets. That said, integration of corporate functions and streamlining of sales operations are expected to deliver cost-saving benefits. Q9. Based on the newly announced full-year outlook, what is your outlook for next fiscal year's operating profit? A9. For FY2026, a major factor will be the elimination of the approximately 40 billion yen negative impact caused by the time-lag occurring this fiscal year. Furthermore, the operational losses incurred in the first half are currently improving, and if this trend continues smoothly, a reversal effect can be expected. Additionally, the original plan anticipated a gradual improvement in the operating rate from FY2025 to FY2027, and the corresponding positive impact from this is also expected to be added. Regarding petroleum product margins, they are currently higher than the medium-term management plan targets. Maintaining this level could potentially become an upside factor relative to the plan. Q10. The Group restructuring initiatives are highly valuable, and continued progress updates would contribute positively to public relations. A10. We are currently conducting a review of budgets, including those of subsidiaries, for the next fiscal year . Expenses based on past practices are being reassessed, and decisions will be made using the benefit-cost ratio (BCR) as a key criterion. Such initiatives have been ongoing in the manufacturing division; for example, heat exchanger cleaning is only carried out when the cost-benefit ratio promises several times the return, based on a comparison of costs and improvements in energy efficiency. Applying this approach across all businesses aims to maximize cost reduction effects. While specific figures cannot be provided at this stage, we expect to have a clear overall picture by May of next year. Q11. Regarding the investment in the U.S. biofuel business, is it included in the 15.8 billion yen strategic investment breakdown? In addition, should it be understood that projects selected under the Allocation Management framework are expected to deliver higher returns than additional shareholder returns? Could you also share the rationale behind the decision to proceed with this investment, given that it cleared higher hurdles compared to regular capital investments? A11. The investment of 7.4 billion yen in the U.S. biofuel business is included within the 15.8 billion yen strategic investment total. This was not for research and development purposes but as a project expected to deliver solid returns. The project is already in the demonstration phase, and we believe the timing of the investment was appropriate. At the end of last fiscal year, Gate 0 and Gate 1 projects existed, but at that time, we were not in a position to allocate funds as strategic investments, so they were excluded from the 1.56 trillion yen framework for business maintenance and strategic investment (already allocated). We are also reviewing larger-scale projects in oil, chemicals, and gas. While rising share prices have reduced incentives for share buybacks, we continue to balance investments and shareholder returns with the goal of achieving ROE of 10%. This document contains forward-looking statements. Actual results may differ materially from these statements due to various factors. Such factors include: Changes in macroeconomic conditions or the competitive environment in the energy, resources, and materials industries Amendments to laws or strengthened regulations Risks such as litigation among others, but are not limited to these.

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