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Message from CEO

FY2020 was a year when we simulated the transition to a fossil-fuel-free society for the future

On the other hand, COVID-19 had a significant impact on the operating environment for the entire oil industry. With travel restricted worldwide, demand for petroleum was sluggish, and the sales volume of jet fuel for aircraft, in particular, temporarily declined to 30% of the year-ago level. However, the overall sales volume exceeded the year-ago level in the Group thanks to the full commencement of the supply of 3 million kiloliters of petroleum products a year to Kygnus Sekiyu. There was also the effect of increasing profits due to the positive time lag associated with a sharp rise in crude oil prices in FY2020. With respect to jet fuel, demand for which sharply declined, its impact on the Group was also relatively light by industry standards because the Group has a large share of jet fuel for airfreight. Looking at the performance of each business, profits increased significantly from the previous year in the Petroleum Business, but decreased in the Petrochemical Business and the Oil E&P Business due to the sluggish petrochemical market conditions and a fall in crude oil prices, respectively. Profits also declined in the Renewable Energy Business due to the generation of upfront costs associated with a full-scale entry into the offshore wind power generation business.

In FY2020, ordinary profit excluding the impact of inventory valuation increased ¥8.1 billion year on year, to ¥76.6 billion, and profit attributable to owners of parent rose ¥114.1 billion year on year, to ¥85.9 billion, marking a record high.

In FY2021, however, we think that it is unlikely that we will see a full return to the pre-COVID environment, given that the impact of COVID-19 will still continue. Because international travel remains constrained, demand for jet fuel is expected to remain sluggish. On the other hand, improved crude oil prices are expected to contribute to profits in the Oil E&P Business. As a result of the above, we expect that ordinary profit excluding the impact of inventory valuation will increase ¥3.4 billion year on year, to ¥80.0 billion and that profit attributable to owners of parent will decrease ¥45.9 billion year on year, to ¥40.0 billion in FY2021.

In the medium to long term, it is certain that the transition to a decarbonized society will accelerate, and we face a challenge in how to deal with falling demand for fossil fuel. Previously, the oil industry had little experience with extreme changes in demand, so that even a year-on-year change of 2% attracted tremendous interest. However, changes in demand due to the impact of COVID-19 were unprecedented in scale because demand for jet fuel and gasoline fell around 60% and 10%, respectively, on national average. Viewed another way, we think that we were able to simulate a fall in demand for fossil fuel, which we may face in the future. We can now use this to consider management scenarios in the medium to long term.

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