from jan/2018 to mar/2018 · kerosene, in particular, was boosted by strong demand that resulted...

Supporting Material for 1Q Results 2018

- From Jan/2018 to Mar/2018 -

9th May 2018

Showa Shell Sekiyu K.K

1

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.

Jan-Mar 2018 Overview

Jan-Mar2017

Jan-Mar2018

Billion YenOil Business operating income(Excl. Inventory Valuation*)

16.9 27.9

Energy Solutions Business operating income -3.0 -2.4

Others operating income 0.2 0.2

Operating income(Excl. Inventory Valuation*)

14.1 25.6

Ordinary income 24.1 32.7

Ordinary income(Excl. Inventory Valuation*)

15.6 26.5

Net income attributable to owners of the parent 14.0 23.4

Net income attributable to owners of the parent(Excl. Inventory Valuation*)

8.2 19.1

Net income attributable to owners of the parent per share, yen per share

37.4 62.2

* Including the effect of Lower of cost or market value method for Oil

Financial Result Highlights Ordinary income excluding adjustments for inventory valuation

was 26.5 billion yen, an increase over the same period last fiscal year. Inventory valuation provided a positive impact of 6.1 billion yen.

Oil Business operating income, excluding the impact of inventory valuation, was 27.9 billion. The operating loss in the Energy Solution Business was smaller than the loss recorded in the same period last fiscal year.

Highlights (Oil) Domestic fuel margins continued to remain strong. The margin on

kerosene, in particular, was boosted by strong demand that resulted from colder weather.

Domestic sales volume for the four main fuels, such as gasoline and diesel oil, was slightly less than last fiscal year, when the impact of supply to the other refineries under the business partnerships in the Yokkaichi area is excluded.

Utilization of group refineries exceeded both the previous year and the industry average.

(Solar Business) Progress was made on reducing costs, but sales volume declined due to the slippage of some shipments. The magnitude of the red ink improved slightly from the same period last year.

(Power Business) Group power plants continued to operate stably and efficiently, generating consistent profit. Sales in both the high-voltage and low-voltage markets expanded steadily.

Highlights (Energy Solutions)

3

4Business Environment – Crude Oil and Foreign Exchange

Dubai crude oil Exchange rate (USD) Crude oil CIF Japan (JCC)Yen/USDUSD/bbl Yen/L

Source: Trade Statistics of Japan

53.0 49.7 50.4

59.3

64.0

0

10

20

30

40

50

60

70

80

1 2 3 4 5 6 7 8 9 101112 1 2 3

2Q2017

3Q2017

4Q2017

1Q2018

1Q2017

113.6

111.1 111.0

113.0 108.2

90

95

100

105

110

115

120

125

1 2 3 4 5 6 7 8 9 101112 1 2 3

2Q2017

3Q2017

4Q2017

1Q2018

1Q2017

39.637.3

34.6

41.4

45.8

0

5

10

15

20

25

30

35

40

45

50

55

60

1 2 3 4 5 6 7 8 9 101112 1 2 3

1Q2018

1Q2017

2Q2017

3Q2017

4Q2017

0

2

4

6

8

10

12

14

16

18

20

1Q2017

2Q2017

3Q2017

4Q2017

1Q2018

¥/L

Gasoline Diesel oil Kerosene

5Margin Environment – Oil Business (Jan-Mar)

The margins on domestic fuels in the January through March period improved over the same period last year for all three fuel types. Despite a slight year on year decline in gasoline, which was due in part to it being the off-season for demand, middle distillates produced strong results and demand for kerosene was particularly strong.

The margins on petrochemicals were roughly on par with the same period last year. The margin on mixed xylene, a key product of the company, was supported by market prices for para xylene with the strong demand. The margins on propylene and benzene were also steady.

※ Domestic spot prices minus crude oil CIF ※ Spot prices minus Dubai spot price

Asia Far East petrochemicals margins Japanese refining margins

0

100

200

300

400

500

600

700

1Q2017

2Q2017

3Q2017

4Q2017

1Q2018

USD/ton

Mixed Xylene Propylene Benzene

6Highlights of Financial Results (Jan-Mar)

Highlights of financial results 2017 2018

Jan-Mar Jan-Mar

Sales 503,116 601,804 + 98,688 +19.6%

Operating income 22,643 31,866 + 9,223 +40.7%

Non-Operating income 1,516 866 - 649 -42.9%

Ordinary income 24,159 32,733 + 8,573 +35.5%

　※Inventory valuation* 8,466 6,170 - 2,295 -27.1%

　※Excl. Inventory Valuation* 15,692 26,562 + 10,869 +69.3%

Extraordinary income -1,067 2,062 + 3,130 -

Net income attributable to owners of the parent 14,094 23,426 + 9,332 +66.2%

　※Excl. Inventory Valuation* 8,240 19,160 + 10,920 +132.5%

Changes vs. 2017 (million yen)

2017 2018Jan-Mar Jan-Mar

Dubai crude oil price （USD/bbl） 53.0 64.0 + 11.0

Exchange Rate （¥/USD） 113.6 108.2 - 5.4

Changes

Crude oil price & exchange rate


7Information by Business Segment (Jan-Mar)


Oil Business 25,447 34,081 + 8,633 +33.9%

※Inventory valuation 8,466 6,170 - 2,295 -27.1%

※Excl. Inventory Valuation 16,981 27,911 + 10,929 +64.4%

Energy Solutions Business -3,089 -2,448 + 640 -

Others 284 239 - 45 -16.0%

Adjustment 0 -5 - 5 -

Total Operating Income 22,643 31,866 + 9,223 +40.7%

※Excl. Inventory Valuation 14,176 25,696 + 11,519 +81.3%


Sales

Operating income


Oil Business 478,872 578,574 + 99,701 +20.8%

Energy Solutions Business 22,296 21,266 - 1,029 -4.6%

Others 1,947 1,964 + 17 +0.9%

Total sales 503,116 601,804 + 98,688 +19.6%


・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.

-20

-10

0

10

20

30

40

1Q2017

2Q2017

3Q2017

4Q2017

1Q2018

Billion yen

Operating Income(Excl. Inventory valuation) Operating Income

-6

-4

-2

0

2

4

6

1Q2017

2Q2017

3Q2017

4Q2017

1Q2018

Billion yen

8Earnings Performance (Jan-Mar)

Oil Business Energy Solutions Business

Quarterly operating income Quarterly operating income

Operating income during 1Q excluding the impact of inventory valuation, was 27.9 billion yen, securing operating income exceeding the 20-billion-yen-level for the Oil Business for the second consecutive quarter.

Supply capacity for the industry as a whole is at an appropriate level, and this combined with the firm demand for kerosene due to the cooler weather, boosted margins.

Although crude oil prices have fallen from the level at the beginning of the year, they have risen compared to the same period last year, and a gain on inventory valuation was recognized during 1Q.

The operating loss for the Energy Solutions Business for 1Q was larger than in the fourth quarter of last year, but this marked an improvement over the same period last year.

Despite progress on reducing costs in the Solar Business, sales volume declined due to slippage of shipments for some projects and only minor improvement in the magnitude of the loss over last year was seen.

In the Power Business, Group power plants continued to operate stably and efficiently. We also expanded our sales steadily and these two factors generated a healthy, stable profit.

(Unit: Billion Yen)

1Q 2017 1Q 2018

9Ordinary Income 1Q 2017 vs 1Q 2018


24.1

+8.5

15.6

Inventory valuation*

+7.2

Ordinary Income Excl.

InventoryValuation

Oil Products

Refinery cost and

M&A Subsidiaries

Solar Business Power

Business

Others etc.

Non-ope. Excl.

InventoryValuation

Ordinary IncomePetro-

chemicals

+2.0

*Excl. Inventory valuation+10.8

+1.2 ▲0.0

26.532.7

▲0.6

Ordinary income +8.5

+0.3+0.7 ▲0.0 +6.2

Inventory valuation*

Oil BusinessEnergy

SolutionsBusiness

10Oil Business Operational Performance (Jan-Mar)

Refinery utilization remained stable for the Group as a whole during 1Q, exceeding both the previous year and the industry average.

Total domestic sales volume for the four main fuels that are relatively higher value-added, such as gasoline, kerosene, and diesel oil, was slightly less than last fiscal year, when the impact from business partnerships in the Yokkaichi area is excluded.

Export volume increased over the first quarter of last fiscal year, during which regular maintenance was scheduled during the second quarter. We are continuing efforts to maximize production of chemical products and the Yokkaichi Refinery is operating Toluene Disproportionation Process (TDP) facilities at a high level.

Source of Industry: Petroleum Association of Japan * 4 products: Gasoline, Kerosene, Gas oil, A-type fuel oil

Source of Industry: Statistics by METIIndustry in 1Q2018 is based on flash report.

70

80

90

100

1Q2016

2Q2016

3Q2016

4Q2016

1Q2017

2Q2017

3Q2017

4Q2017

1Q2018

%

Showa Shell Group refinery utilisation including planned SDM impactJapanese industry refinery utilisation including planned SDM impactShowa Shell Group refinery utilisation excluding planned SDM impact

0

20

40

60

80

100

120

1Q2016

2Q2016

3Q2016

4Q2016

1Q2017

2Q2017

3Q2017

4Q2017

1Q2018

%

Showa Shell Industry

Refinery utilization Domestic sales volume growth YonY(4 products total*)

11Crude Oil Refined and Sales Volume (Jan-Mar)

Crude oil refined & utilization rate2017 2018

Jan-Mar Jan-Mar

Crude oil refined (thousand KL) 5,989 6,177 + 188

Refinery utilization rate 94.1% 97.0% + 2.9%

Changes


Gasoline 1,968 2,019 + 2.6%

Jet Fuel 476 583 + 22.5%

Kerosines 1,159 1,161 + 0.2%

Diesel Oil 1,312 1,409 + 7.4%

Fuel Oil A 594 598 + 0.6%

Fuel Oil C 266 346 + 29.8%

Chemicals*(thousand MT) 282 298 + 5.7%

Others 579 628 + 8.4%

Total Domestic sales 6,637 7,041 + 6.1%

Export 387 571 + 47.7%

Grand Total 7,024 7,612 + 8.4%

vs. 2017　　(Thousand KL)

*Chemicals: Mixed Xylene, Benzene, Propylene

Sales volume by products

[Note]The numbers of crude oil refined and utilization rate based on the Keihin(Toa Sekiyu), Yokkaichi, and Yamaguchi(Seibu Sekiyu) Refineries

0

200

400

600

800

1,000

2016 2017 1Q2018

Japan Overseas for BOT

MW

0

100

200

300

1Q 2Q 3Q 4Q

2016 2017 2018

MW

12Solar Business Operational Performance (Jan-Mar)

Panel allocation by region/usage Quarterly panel shipment volume

Panel shipment volume for 1Q decreased on a year on year basis and compared to last quarter. Despite our continuous effort in focusing on the domestic market, our sales volume declined slightly in the domestic market due to the slippage of some projects.

We also began selling “SmaCIS (S-type)” higher-output solar modules that apply the SmaCIS concept in January 2018. Orders for the strategic product for the domestic residential market are steady, and we intend to put even greater effort into initiatives aimed at expanding our share of the residential market.

We finished consolidating production from the Tohoku and Miyazaki Plants at the Kunitomi Plant as a part of the restructuring of the production aimed at improving cost competitiveness. We will strive to generate benefits from further cost reductions through multifunctionality and plant consolidation.

Despite the progress made in reducing costs, including production costs, the unit sales price has continued to fall. In addition to this, the slippage of shipments resulted in a slight profit improvement only.

13Forecast of Fiscal Year Results for 2018 (Jan/2018 – Mar/2019)

*Forecast for “Others and adjustment” is included in the Oil Business.

A B C(Results) (Results) (Forecast)

Jan 2017-Dec 2017 Jan 2017-Mar 2018 Jan 2018-Mar 2019

Net sales 2,045,936 2,647,741 2,600,000 - 47,741

Operating income 78,477 110,344 98,000 - 12,344

　　※Inventory valuation 24,473 30,644 9,000 - 21,644

　　※Excl.Inventory valuation 54,004 79,700 89,000 + 9,299

- Oil Business 60,339 88,250 83,000 - 5,250

- Energy Solutions Business -7,824 -10,273 6,000 + 16,273

- Others and adjustment* 1,489 1,723 - - 1,723

Ordinary income 92,973 125,706 98,000 - 27,706

　　※Excl.Inventory valuation 68,500 95,062 89,000 - 6,062

Net income attributable to owners of the parent 42,751 66,178 66,000 - 178

million yenC-B

• A change in the accounting period (fiscal year-end) was approved at the 106th Annual General Meeting of Shareholders. The fiscal year-end for the company is therefore changing from December 31 to March 31 from fiscal year ending March 31, 2019.

• Fiscal year ending March 31, 2019 will consequently be 15 months long, from January 1, 2018 to March 31, 2019.

※ There has been no change in the financial forecast announced on February 14 for the period from January to December 2018. A financial forecast for the period from January 2019 to March 2019 was added.

14Base Assumptions and Sensitivity Analysis

Base Assumptions (Full Year Averages) and Inventory Valuation Sensitivity in the Financial Forecast (for April 2018 to March 2019)

* The impact would change based on the timing of the crude oil price fluctuation and the inventory volume.

* Sensitivity for Lower of Costs or Markets not included.

(Results) (Forcast) Impact to inventoryJan 2017-Dec 2017 Jan 2018-Mar 2019 valuation (billion yen)

Dubai crude oil price （USD/bbl） 53.1 60.0 1 USD/bbl 1.1

Exchange rate （Yen/USD） 112.2 110.0 1 Yen/USD 0.7

Unit

－Oil Business－

We expect steady domestic demand to keep sales volume level with the same period last year. Although we expect margins to remain steady, the positive time lag that was beneficial in fiscal year ended December 31, 2017 to disappear based on the assumption of an oil price of USD60 per barrel through fiscal year ending March 31, 2019.

While we have regular maintenance planned at some of our refineries, we do expect the impact on operations to be minor compared to 2017. We therefore project an increase in product exports and in chemicals sales volume.

－Energy Solutions Business－

(Solar) We will continue to focus on sales in the domestic market. We expect to achieve growth in profit by improving structural cost competitiveness through such means as consolidating plants.

(Power) We expect improvement in profitability over last year. This will be achieved by working to expand sales volume while maintaining stable power plant operation and continuing to optimize the sales portfolio.

15

Data Book

16Breakdown on Forecast of Fiscal Year Results for 2018 (Jan/2018 – Mar/2019)

A B C Dmillion yen (Results) (Results) (Forcast) (Forcast) C-A D-B

Jan 2017-Dec 2017 Jan 2018-Mar 2018 Jan 2018-Dec 2018 Jan 2019-Mar 2019

Net sales 2,045,936 601,804 2,100,000 500,000 + 54,063 - 101,804

Operating income 78,477 31,866 77,000 21,000 - 1,477 - 10,866

　　※Inventory valuation 24,473 6,170 9,000 0 - 15,473 - 6,170

　　※Excl.Inventory valuation 54,004 25,696 68,000 21,000 + 13,995 - 4,696

- Oil Business 60,339 27,911 64,000 19,000 + 3,660 - 8,911

- Energy Solutions Business -7,824 -2,448 4,000 2,000 + 11,824 + 4,448

- Others and adjustment* 1,489 233 - - - 1,489 - 233

Ordinary income 92,973 32,733 77,000 21,000 - 15,973 - 11,733

　　※Excl.Inventory valuation 68,500 26,562 68,000 21,000 - 500 - 5,562

Net income attributable to owners of the parent 42,751 23,426 51,000 15,000 + 8,248 - 8,426

*Forecast for “Others and adjustment” is included in the Oil Business.

Billion yen

17Quarterly Trend of Ordinary Income

-8.8

22.0

11.3

23.2 24.1

3.1

17.3

48.2

32.7

9.2 7.4

7.8 12.1

15.6

4.7

16.9

31.0 26.5

-20

-10

0

10

20

30

40

50

60

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q

2016 2017 2018

Ordinary Income

Ordinary Income(Excl.Inventory valuation)

18Quarterly Trend of Operating Income by Business Segment

Billion yen

9.9 11.8

10.0 10.8

16.9

3.3

18.0

21.9

27.9

-0.4

-2.9 -2.1 -3.6 -3.0

-1.1 -1.7 -1.8 -2.4

-10

-5

0

5

10

15

20

25

30

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q

2016 2017 2018

Oil Business operating income(Excl.Inventory valuation)

Energy Solutions Business operating income

19Crude Oil Price (Platt’s Dubai)

(USD/bbl)

30.6

43.2 43.248.2

53.049.7

50.4

59.3

64.0

20

30

40

50

60

70

80

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3

2016 Average41.4 USD/bbl



20

(JPY/USD)

Exchange Rates (JPY/USD TTM)

115.4

108.0

102.4

109.4

113.6

111.1111.0

113.0

108.2

90

100

110

120

130

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3

2018 Average108.2 JPY/USD



9.1

13.5 11.6

13.1

11.0 12.4

15.7 15.9 14.1

16.4

0

5

10

15

20

25

30

35

40

0

20

40

60

80

1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4

Regular Gasoline (Domestic Spot Price)

21

※CIF of April, 2018 is provisional.

Domestic Market (1) : Regular Gasoline

Crude & Product price ¥/L Spread ¥/L

2016 2017 2018

Crude CIF

Spread (Domestic spot price-CIF)

10.5

10.1 8.8

12.2

10.4 11.2 13.8

15.0 14.6

17.3

0

5

10

15

20

25

30

35

40

0

20

40

60

80

1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4

22Domestic Market (2) : Diesel Oil


Diesel Oil (Domestic Spot Price)Crude CIF


2016 2017 2018


9.5

9.4 7.5

15.2

11.9 10.3

13.8

17.3 18.2 18.0

0

5

10

15

20

25

30

35

40

0

20

40

60

80

1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4

23Domestic Market (3) : Kerosene


Kerosene (Domestic Spot Price)

Crude CIF


2016 2017 2018


15.6

11.5

9.0

12.0 12.3

11.5

13.3 11.9 11.1

10.2

0

10

20

30

40

0

20

40

60

80

100

1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4

24Global Market (1) : Gasoline Unleaded

$/bbl Spread $/ bbl

Gasoline Unleaded(92RON Asian Spot Price)

Platts Dubai

Spread (Spot price – Dubai)

2016 2017 2018

9.6 10.5 11.0 12.0 11.8

11.4

13.9 13.0

15.5 16.0

0

10

20

30

40

0

20

40

60

80

100

1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4

25Global Market (2) : Diesel Oil

$/bbl Spread $/ bbl

Diesel Oil (Asian Spot Price)


Platts Dubai

2016 2017 2018

379 360 341 316

310 291 285 257 301

269

0

500

1,000

1,500

0

300

600

900

1,200

1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4

26Global Market (3) : Mixed Xylene

$/MT Spread $/ MT

Mixed Xylene (Asian Spot Price)


Platts Dubai

2016 2017 2018

27Topics – Alliance with Idemitsu Kosan

Section Activities

Purchase of crude oil / Shipping

Optimization of crude oil purchase (crude oil exchange)

Optimization of crude oil tanker allocation (mutual lending of cargo space and reduction in demurrage charges)

Lending of reserve stocks

Mutual lending of bunkers

Procurement Joint procurement (Joint procurement at refineries, etc)

Supply / Demand

Exchange of finished products (mutual lending during regular maintenance at refineries)Exchange of semi-products and residue for optimal production (improvement in refinery utilization)

Initiation of test run of the system for the optimization of production planning

Distribution Efficiency improvement in logistics network (mutual use of depots, reduction in transfer mileage)

Sales Reduction in the number of the aviation fuel supply lorries

Overseas Conclusion of a partnership agreement on trading oil products

The harmonization of organizations / The integration of employees

Workshops for employees at each level (for a cumulative total of 1,800 employees)Partial integration of offices (crude oil and product supply, procurement, and HSSEdivisions)

28

1. Cross-organizational team set up for SDGs (25 participants from each division)2. Confirmation of relationship between corporate business activities and SDGs.

※Confirm the relationship of the corporate business activities in each division with social issues by cross-referencing them with the 17 SDGs (and assigning ratings of positive/negative, strong/weak, etc.).

3. Multidimensional review.※ The team members on the cross-organizational SDG team will verify the relationship between our corporate business activities and social issues from various perspectives.

4. Specify the content of initiatives to strengthen current systems and add new ones.

5. Assign a numerical order of priority to company initiatives (specify key areas).

6. Strengthen initiatives in each division and implement countermeasures.

(Completion)

(Plan)

Topics – ESG (Initiatives for Sustainability: SDGs)

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.

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from jan/2018 to mar/2018 · kerosene, in particular, was boosted by strong demand that resulted...

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