Financial Highlights for the Third Quarter of FY2006 (April 1, 2006 - December 31, 2006) February 6, 2007 Idemitsu Kosan Co.,Ltd.
Contents 1. Business Results for the Third Quarter of FY2006 2 (1) Outline (2) Business segment information 2. Forecast for FY2006 7 (1) Outline (2) Business segment information (3) Forecast for FY2006 ( Comparison with those published on November 14, 2006 ) 3. Topics 14 (1) Major activities for the 3rd QTR of FY2006 (2) Others 4. Reference Data 17
1. Business Results for the Third Quarter of FY2006 Note : the Third Quarter of FY2006 in this material refers to April 1, 2006 - December 31, 2006.
(1) Outline 1) Crude oil price and Foreign exchange rate 3rd QTR, FY2005 3rd QTR, FY2006 (Unit: $/bbl; Yen/$) Change Crude oil price (DB, FOB) 52.0 62.7 +10.7 Exchange rate (TTS) 113.1 117.2 +4.1 2) Summary of Consolidated Statement of Income * Figures in the table above are rounded off by ten million. * The valuation of inventory is based on the LIFO method. 3rd QTR, FY2005 3rd QTR, FY2006 (Unit: 100 million) Change Net sales 23,856 25,169 +1,313 Operating income 715 884 +170 (including equity earnings in affiliated companies) (750) (949) (+199) Non-operating income/expenses 11 15 +26 Ordinary income 704 900 +196 Extraordinary gains/losses 15 83 98 Net income for 3rd QTR 355 344 11 3
(2) Business segment information 1) Net sales (Unit: 100 million) 3rd QTR, FY2005 3rd QTR, FY2006 Change Petroleum Products 18,114 18,946 +832 Petrochemical Products 4,123 4,596 +473 Oil Exploration and Production 510 634 +124 Others 1,109 993 116 [ Causes for increase/decrease ] Total 23,856 25,169 +1,313 Petroleum Products: Petrochemical Products: Oil Exploration and Production: Others: Price factors: + 263.0 billion; spin-off of LPG business: 134.1billion Price factors Price factors Coal in Australia 4
(2) Business segment information 2) Operating income (Unit: 100 million) 3rd QTR, FY2005 3rd QTR, FY2006 Change Petroleum Products 107 230 +123 Petrochemical Products 258 323 +65 Oil Exploration and Production 274 303 +29 Others 75 29 46 Total 715 884 +170 5
(2) Business segment information 3)Analysis of causes for increase/decrease in operating income UNIT : 100 million time lag supply cost +57 cost reduction margin margin 38 +14 +7 70 +103 refinig cost production cost maintenance price factor volume factor 15 +44 46 +115 Petroleum products seg. Petrochemical products seg. Oil exploration & production seg. Other seg. 884 715 the 3rd QTR, FY2005 +123 +65 +29 46 The 3rd QTR, FY2006 6
2. Forecast for FY2006
(1) Outline 1) Crude oil price and Foreign exchange rate FY2005 FY2006 (Forecasted) (Unit: $/bbl; Yen/$) Change Crude oil price (DB, FOB) 53.5 60.0 +6.5 Exchange rate (TTS) 114.3 117.9 +3.6 * Assumptions for the Jan.-Mar. of FY2007 : Crude oil price: $52/bbl; Exchange rate: 120/$ 2) Summary of Consolidated Statement of Income (Unit: 100 million) FY2005 FY2006 (Forecasted) Change Net sales 33,274 33,100 174 Operating income 714 1,020 +306 (including equity earnings in affiliated companies) (764) (1,098) (+335) Non-operating income/expenses 6 20 +26 Ordinary income 708 1,040 +332 Extraordinary gains/losses 30 106 76 Net income for the year 274 380 +106 * The valuation of inventory is based on the LIFO method. 8
(2) Business segment information 1) Net sales (Unit: 100 million) FY2005 FY2006 (Projected) Change Petroleum Products 25,525 24,800 725 Petrochemical Products 5,507 6,050 +543 Oil Exploration and Production 714 840 +126 Others 1,527 1,410 117 Total 33,274 33,100 174 [ Causes for increase/decrease ] Petroleum Products: Petrochemical Products: Sales volume factors: 100.0 billion; price factor:+ 228.5 billion; spin-off of LPG business: 201.0 billion Sales volume factors: 6.3 billion; price factor: + 60.6 billion Oil Exploration and Production: Sales volume factors: 2.2 billion; price factors: + 14.8 billion Others: Coal in Australia 9
(2) Business segment information 2) Operating income (Unit: 100 million) FY2005 FY2006 (Forecasted) Change Petroleum Products 90 208 +298 Petrochemical Products 322 425 +103 Oil Exploration and Production 370 344 26 Others 114 43 71 Total 714 1,020 +306 10
(2) Business segment information 3) Analysis of causes for increase/decrease in operating income UNIT : 100 million time lag cost reduction margin supply cost +99 +19 +20 60 refinig cost margin maintenance volume factor +141 38 20 price factor +42 cost on disused mine 48 production cost 71 +220 Petroleum products seg. Petrochemical products seg. Oil exploration & production seg. Other Seg. 1020 714 +298 +103 26 71 FY2005 FY2006 11
(3) Forecast for FY2006 (Comparison with those published on November 14, 2006) 1) Crude oil price and foreign exchange rate, and the summary of the consolidated statement of income for FY2006 Forecasts, previously published (Unit: $/bbl; Yen/$: 100 million) Current forecast Change Dubai crude oil price 61.7 60.0 1.7 Exchange rate 117.2 117.9 +0.7 Net sales 33,900 33,100 800 Operating income 940 1,020 +80 Ordinary income 900 1,040 +140 Net income 300 380 +80 2) Operating income by business segment (Unit: 100 million) Forecasts, previously published Current forecast Change Petroleum products 211 208 3 Petrochemical products 273 425 +152 Oil exploration and development 393 344 49 Others 63 43 20 Total 940 1,020 +80 12
(4) Informatin of Stratigic segments Operating income (unit: 100 million) FY2004 FY2005 FY2006(forecast) FY2006 ( ) Core businesses 423 124 535 470 High value-added 134 163 178 220 businesses (ratio) (13.4%) (21.4%) (16.2%) (20.0%) Resource businesses 446 476 383 410 Total 1,003 764 1,098 1,100 Note : including Idemitsu s share in the net income of affiliates that are accounted for under the equity method ( ) Mid-term Management plan 13
3. Topics
(1) Major activities for the 3rd QTR of FY2006 November 2006 : Capital participation in Laffan Refinery Co., Ltd. of Qatar. December 2006 : Idemitsu acquires Nitto Denko s Pest-Control business. - Agribio Business expands into Crop Protection and Greening - Opened Japan s first hydrogen station with gas station attached in Ichihara shi, Chiba Prefecture. Agreement with Universal Display Corporation (UDC) in the United States on joint development of electro-luminescence (EL) materials. Development Plan for Vega South fields in Norwegian North Sea submitted to Norwegian Government. January 2007 : First procurement in Japan of Azeri Crude Oil produced in the Republic of Azerbaijan. Over 1,500,000 Idemitsu Mydo Plus Cards have been issued. February 2007 : Acquisition of interests in 2 mining blocks through public tender in Norwegian North Sea. 15
(2) Others Concerning the Situation following the Flood at Cigar Lake uranium mine in Canada 1) Restorative construction progress The operator(cameco Corporation) commenced restorative construction in November, 2006. At present, boring into the flooded area and cementing is in progress as the first stage of restorative construction, and water stoppage construction is scheduled to end during the period between April and June 2007. This will be followed by drainage, mine-shaft restorative construction and the recommencement of mine construction. 2) Future Schedule In accordance with Canadian Securities Reporting Regulations, the operator is scheduled to submit a technical report in second half of March 2007, and this report is expected to contain such information as the restorative construction schedule and investment expenditures estimates. 16
4. Reference Data
(1) Achievement of Mid - term Management Plan Major Financial Index FY2005 FY2006 (Targeted in management plan) (Unit: 100 million) FY2006 (Forecasted) Operating income (including equity 764 1,100 1,098 earnings in affiliated companies) (Operating income) (714) (1,060) (1,020) Ratio of return on investment (ROI) 5.5% 8.0% 7.9% Net Debt/Equity ratio (%) 2.3 1.5 1.4 Shareholders equity ratio 16.2% 23.0% 22.0% Assumptions FY2005 FY2006 (Targeted in management plan) (Unit: $/bbl; Yen/$) FY2006 (Forecasted) Crude oil price (DB, FOB) 53.5 40.0 60.0 Exchange rate (TTS) 114.3 110.0 117.9 18
(2) Sales 1) Sales volume for the 3rd QTR of FY2006 (Domestic sales volume of fuel oil, nonconsolidated) (Unit: Thousand KL, %) 3rd QTR, FY2005 3rd QTR, FY2006 Change Growth rate Gasoline 6,605 6,572 33 99.5 (Super-unleaded) 1,089 1,028 61 94.4 (Regular-unleaded) 5,516 5,544 +28 100.5 Naphtha 400 416 +16 104.0 Jet fuel 1,356 1,363 +7 100.5 Kerosene 2,288 2,131 157 93.1 Diesel oil 4,773 4,636 137 97.1 Fuel oil A 2,993 2,715 278 90.7 Fuel oil C 2,218 2,151 67 97.0 Sub Total 20,633 19,984 649 96.9 19
(2) Sales 2) Sales volumes of petrochemicals products and others for the 3rd QTR of FY2006 (Non-consolidated) (Unit: Thousand KL; Thousand ton: %) 3rd QTR, FY2005 3rd QTR, FY2006 Change Growth rate Petrochemical products 2,706 2,638 68 97.5 Fuel oil for exports 2,435 2,030 405 83.4 Lubricants 543 560 +16 103.0 Coals 4,174 3,443 730 82.5 Others 2,725 2,542 183 93.3 Sub Total 12,583 11,213 1,370 89.1 TOTAL 33,216 31,197 2,019 93.9 20
(2) Sales 3) Forecasts for sales volume for FY2006 (Domestic sales volume of fuel oil, nonconsolidated) (Unit: Thousand KL; %) FY2005 FY2006 (Forecasted) Change Growth rate Gasoline 8,647 8,624 23 99.7 (Super-unleaded) 1,411 1,355 56 96.0 (Regular-unleaded) 7,236 7,269 +33 100.5 Naphtha 500 541 +41 108.2 Jet fuel 1,802 1,771 31 98.3 Kerosene 4,020 3,661 359 91.1 Diesel oil 6,285 6,154 131 97.9 Fuel oil A 4,338 3,923 415 90.4 Fuel oil C 3,015 2,845 170 94.4 Sub Total 28,607 27,519 1,088 96.2 21
(2) Sales 4) Forecasts for sales volume of petrochemical products and others for FY2006 (Non-consolidated) (Unit: Thousand KL; Thousand ton; %) FY2005 FY2006 (Forecasted) Change Growth rate Petrochemical products 3,648 3,565 83 97.7 Fuel oil for exports 2,912 2,527 385 86.8 Lubricants 722 730 +7 101.0 Coals 5,816 5,284 532 90.1 Others 4,051 3,434 617 84.8 Sub Total 17,149 15,540 1,609 90.1 TOTAL 45,756 43,059 2,697 94.1 22
(2) Sales 106.0% 5) Growth rate of the domestic sales volumes of gasoline (Subjects: service stations with Idemitsu brand) 104.0% 104.0% 102.0% 101.7% 100.8% 101.2% 101.7% 100.1% 100.0% 98.0% 99.1% 98.8% 100.5% 101.5% 99.9% 99.0% 96.0% 94.0% FY2001 FY2002 FY2003 FY2004 FY2005 3rd QTR of FY2006 Year Demand for the 3rd QTR of FY2006 is based on the data in the Structural Survey of Energy Consumption. Final figures of the Ministry of Economy, Trade and Industry for April to November 2006, and data in the Preliminary Structural Survey of Energy Consumption for December 2006. Domestic demand Idemitsu 23
(2) Sales 6) Sales of lubricants (including those by overseas licensees) (Thousand KL) Historical sales volumes of lubricants 1,000 781 825 863 922 946 953 500 0 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 (forecasted) 24
($/B) 80.0 (3) Crude oil price 70.0 60.0 50.0 Dubai Brent 40.0 30.0 20.0 10.0 April 2001 April 2002 April 2003 April 2004 April 2005 April 2006 Dec.2006 25
(4) Market prices ( /KL) 90,000 1) Gasoline,Crude oil and Spread ( /KL) 40,000 80,000 70,000 Spread (right scale) Regular gasoline retail price (left scale) Crude oil price, customs value, CIF (left scale) 38,000 36,000 60,000 50,000 40,000 30,000 34,000 32,000 30,000 28,000 26,000 20,000 24,000 10,000 22,000 0 20,000 April 2001 April 2002 April 2003 April 2004 April 2005 April 2006 Dec.2006 Note: Gasoline prices are based on data of The Oil Information Center 26
($/t) 1,600 (4) Market prices 2) Paraxylene,Naphtha and Spreads ($/t) 1,000 1,400 1,200 1,000 Spread (right scale) Naphtha (left scale) Paraxylene (left scale) 900 800 700 600 800 500 600 400 200 400 300 200 100 0 0 April 2001 April 2002 April 2003 April 2004 April 2005 April 2006 Dec.2006 27
($/t) 1,600 1,400 1,200 1,000 (4) Market prices 3) Styrene monomer,benzene and Spreads Spread (right scale) Benzene (left scale) Styrene monomer (left scale) ($/t) 450 400 350 300 250 800 200 600 400 150 100 200 50 0 0 April 2001 April 2002 April 2003 April 2004 April 2005 April 2006 Dec.2006 28
(4) Market prices ($/t) 65.0 4) Coal price (Australian spot price) 60.0 55.0 50.0 45.0 40.0 35.0 30.0 25.0 20.0 April 2001 April 2002 April 2003 April 2004 April 2005 April 2006 Dec.2006 29
(1000 BD) 900 800 700 (5) Production 1) Refining capacity and Operating rate 830 830 Refining capacity Operating rate 91.9% 640 640 640 640 640 640 640 97% 92% 600 500 86.4% 88.1% 87% 400 83.7% 82% 300 80.1% 200 79.3% 77.2% 77% 100 0 74.1% 73.3% FY2001 FY2002 FY2003 FY2004 FY2005 72% Oct.-Dec.2005 Oct.-Dec.2006 April-sep.2005 April-sep.2006 30
(5) Production 2) Production of major petrochemical products and equipment operating ratio Production Ethylene Paraxylene Styrene monomer Ethylene (Unit: Thousand ton; %) Equipment operating ratio Paraxylene * Production of styrene monomer includes that produced by Idemitsu SM (Malaysia). Styrene monomer FY2003 1,002 466 859 90.7 90.4 103.6 FY2004 984 436 799 89.2 84.9 96.3 FY2005 1,063 508 836 96.4 98.7 100.8 (3rd QTR, FY2005) (795) (379) (617) (95.7) (97.8) (98.7) 3rd QTR, FY2006 726 352 604 87.4 90.8 96.7 31
(5) Production 3) Oil Exploration & Production and Growth rate (Thousand bbl per day) FY2004 FY2005 3rd QTR, FY2006 FY2006 (Forecasted) Production 40.4 31.7 27.3 27.8 (Growth rate on year-onyear basis) - (78.5%) - (87.7%) *Figures in the table above are on the portion of the Idemitsu Petroleum Norge s interests basis. 4) Coal production and Growth rate (Thousand ton) FY2004 FY2005 3rd QTR, FY2006 FY2006 (Forecasted) Ensham (85%) 6,859 7,142 4,825 6,615 Muswellbrook 1,473 1,048 948 1,291 Boggabri - - 106 497 Total production 8,332 8,190 5,879 8,403 (Growth rate on year-onyear basis) - (98.3%) - (102.6%) * Figures in the table above are on the portion of the Idemitsu Group s interests basis. 32
(6) Others 1) Total number of service stations with Idemitsu brand 6,500 6,000 5,896 5,500 5,624 5,508 5,358 5,249 5,134 5,000 4,500 4,000 3,500 3,000 End of FY2001 End of FY2002 End of FY2003 End of FY2004 End of FY2005 End of 3rd QTR, FY2006 33
(6) Others 2) Self-service stations with Idemitsu brand 600 617 12% 500 Number of self-service station (left scale) Ratio of self-service station (right scale) 488 12.0% 10% 400 400 9.3% 8% 322 7.5% 300 6% 215 5.8% 200 4% 3.8% 100 88 1.5% 2% 0 End of FY2001 End of FY2002 End of FY2003 End of FY2004 End of FY2005 End of 3rd QTR, FY2006 0% 34
(6) Others 3) Idemitsu s card members (Unit: Thousand cards) End of March 2005 End of September 2005 End of March 2006 End of December 2006 Mydo Plus Card 884 1,059 1,291 1,559 Idemitsu Card 960 914 886 852 Total 1,844 1,973 2,177 2,410 35
(6) Others 4) Improvement in financial structure (Part 1) Historical data of interest-bearing debt and net debt/equity ratio ( 100 million) (%) 18,000 17,271 20.0 16,000 14,000 15,419 14,384 13,117 Balance of interest-bearing debt (left scale) Net D/E ratio (right scale) 18.0 16.0 12,000 10,000 12,285 10,969 9,917 14.0 12.0 8,300 10.0 8,000 8.0 6,000 6.0 4,000 2,000 3.2 2.3 1.4 4.0 2.0 0 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 (Forecasted) 0.0 36
(6) Others 5) Improvement of financial structure (Part 2) ( 100 million) 6,000 Historical data of shareholders equity 22.0% 25% 5,000 Shareholders equity (left scale) Shareholders equity ratio (right scale) 20% 4,000 16.2% 3,000 11.4% 12.6% 13.6% 13.2% 15% 10% 2,000 5.2% 1,000 3.4% 5% - 801 1,198 2,830 2,961 3,103 2,943 3,687 5,057 0% FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 (Forecasted) * Data for FY2006 (Forecasted) are based on the new definition of net assets and shareholder s equity under the Corporations Act. 37
(6) Others 6) Breakdown of extraordinary gains/losses (Unit: 100 million) (Unit: 100 million) Extraordinary gains Extraordinary losses 3rd QTR FY2005 3rd QTR, FY2006 Change FY2005 FY2006 Change Gain on sale of fixed assets 7 7 0 Gain on sale of fixed assets 15 49 +34 Gain on sale of investment Gain on sale of investment securities 67 0 67 securities 67 0 67 Gain on transfer of businesses 48 0 48 Gain on transfer of businesses 48 2 46 Others 3 6 +5 Others 4 11 +7 Total 124 13 111 Total 135 62 73 Impairment loss on fixed assets 65 47 19 Loss on sale and disposal of fixed assets 53 62 +9 Loss on sales and disposal of fixed assets 23 40 +17 Impairment loss on fixed assets 77 87 +10 Loss on sale of affiliates stocks 0 0 0 Loss on sale of affiliates stocks 4 0 4 Others 20 10 10 Others 30 18 11 Total 108 96 12 Total 164 167 +3 Total extraordinary gains/losses 15 83 99 Total extraordinary gains/losses 30 106 76 Extraordinary gains Extraordinary losses 38
Classification of Business Segments Relation between business segments and strategic categories Business segments Petroleum Products Petrochemical Products Oil Exploration & Production Others Strategic Categories Core Businesses High Value-Added Businesses Resource Businesses Fuel products LPG Crude oil shipping Lubricants Basic chemicals Performance chemicals Engineering plastics Plastics processed products Oil exploration & production Insurance sales Service station - relatrd products Credit cards Electronic materials Agricultural biotechnology Engineering Coal Uranium Geothermal energy 39
Cautionary warnings about forecasts Of information about forecasts for the Company s operating results, management strategy and management policy contained in this document, any information which is not a historical fact is prepared according to decisions made by the top management of the Company based on information available as of the publication of the document. Actual business environments contain potential risk factors and uncertainties including economic situations, crude oil prices, trends in petrochemical products, markets conditions, currency exchange rates and interest rates. Consequently, actual operating results of the Company may substantially differ from forecasts due to changes in important factors mentioned above.
End Idemitsu Kosan Co.,Ltd.