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Review of Operations:
Petroleum Business

Oil Exploration and Production Business Petroleum Business
Petrochemical Business
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FY2014 RESULTS

(Billions of yen)
  Results Year-on-Year Change
Net sales \2,997.0 Down \466.7
Operating income (loss) \(80.0) Down \62.1
Ordinary income (loss) \(93.5) Down \68.2
Impact of inventory valuation (loss) \(115.5) Down \131.6
Ordinary Income (Excluding impact of inventory valuation) \22.0 Up \63.4

FY2015 PROJECTION (Announced in May 2015)

(Billions of yen)
  Projections Year-on-Year Change
Net sales \2,537.0 Down \460.0
Operating income \29.0 Up \109.0
Ordinary income \19.0 Up \112.5
Impact of inventory valuation \0 Up \115.5

FY2014 PERFORMANCE

Despite a year-on-year increase in jet fuel, overall demand for petroleum products in Japan declined from the previous fiscal year in FY2014. This downturn was mainly due to lower demand for gasoline, kerosene, and heavy fuel oil A due to the consumption tax hike, fuel efficiency improvements, a mild winter, and the shift to alternative fuels, combined with a fall in demand for heavy fuel oil C due to lower capacity utilization at thermal power plants.

In light of these market conditions, the Cosmo Oil Group's domestic sales volume decreased 8.0% in FY2014. However, exports, including bonded products sales, increased by 2.0%. As a result, overall sales volume was down 5.8%.

In the Petroleum Business, net sales decreased on account of lower crude oil prices and a decline in product sales volume. Moreover, profits declined owing to a sharp increase in the cost of sales that resulted from the valuation of inventory following the fall in crude oil prices. As a result, net sales totaled \2,997.0 billion, down \466.7 billion year on year, and the Petroleum Business segment posted an ordinary loss of \93.5 billion, down \68.2 billion. Excluding the impact of inventory valuation caused by the fall in crude oil prices, the Petroleum Business posted ordinary income of \22.0 billion, an improvement of \63.4 billion year on year, a major improvement in its underlying earnings potential.



Cosmo Oil’s Total Sales Volume and Estimates (Announced In May 2015)

(Thousand kiloliters)
  FY2014 FY2013 Change FY2015 Estimate
(% change from FY2014)
Domestic sales 21,739 23,640 -8.0% -4.0%
 Gasoline 5,722 6,053 -5.5% -1.6%
 Kerosene 1,941 2,261 -14.1% -4.7%
 Diesel fuel 4,150 4,399 -5.6% -3.0%
 Heavy fuel oil A 1,555 1,847 -15.8% -7.5%
 Naphtha 6,240 6,556 -4.8% -0.9%
 Jet fuel 468 486 -3.5% +3.4%
 Heavy fuel oil C 1,663 2,038 -18.4% -24.1%
Export (Including bonded products sales) 4,273 4,189 +2.0% +2.2%
 Jet fuel, Kerosene, Diesel fuel 3,203 3,104 +3.2% +4.5%
 Others 1,070 1,085 -1.4% -5.0%
Total selling volume 35,723 37,932 -5.8% -3.2%

OUTLOOK FOR FY2015




In FY2015, Cosmo Oil expects domestic sales volume to decline 4.0% on account of weaker demand in Japan. We forecast a 2.2% increase in exports overall, with bonded products sales of jet fuel, kerosene and diesel fuel expected to rise 4.5%. Accordingly, Cosmo Oil projects overall sales volume will decrease 3.2%.

In this business environment, Cosmo Oil aims to reduce refining costs and secure an appropriate margin through the formation of a right-sized market for petroleum products. In the retail business, we are stepping up efforts in automobile-related markets, from sales of vehicles to insurance, centered on the car leasing business for consumers.

In the LP gas business, Gyxis Corporation was established in April 2015 as a top-class domestic LG gas import and wholesale company through a comprehensive agreement reached with Showa Shell Sekiyu K.K., Sumitomo Corporation, and TonenGeneral Sekiyu K.K.

For FY2015, Cosmo Oil forecasts net sales of \2,537.0 billion, down \460.0 billion year on year, in the Petroleum Business, and ordinary income of \19.0 billion, an improvement of \112.5 billion from the previous fiscal year, reflecting the absence of inventory valuation.


Review of Operations:
Petroleum Business
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