To Our Shareholders and Investors
I am pleased to report on our financial results for FY2009 ended March 31, 2010, forecasts for FY2010 ending March 31, 2011 and the outline of our Medium-Term Business Plan.
Review on FY2009 (ended March 31, 2010)
The price of Dubai crude oil, which was $47/bbl level at the beginning of the period, continued to rise moderately during the period and reached $78/bbl level at the end of the period. The average price of Dubai crude oil for this period was around $70/bbl which is $12/bbl lower compared with the previous period. In the foreign exchange market, the Japanese yen to the U.S. dollar started at ¥98/US$ at the beginning of the period. The Japanese yen kept on appreciating against the U.S. dollar afterward and recorded ¥84/US$ in November. The average exchange rate for the period was ¥93/US$, a ¥8 appreciation against the U.S. dollar.
With regard to the domestic demand for petroleum products, although the Japanese economy was on a track toward recovery, it was on a downward trend due to development of energy conservation measures and further shift to alternative energy sources. The demand for petrochemical products showed weak tone once in a while, but it remained strong in general thanks to economic upturn in China and other Asian countries.
Under these circumstances, AOC Holdings Inc. (AOCHD) posted consolidated net sales amounting to ¥594.7 billion decreased by 35.9% or ¥332.4 billion compared with the previous period. Upstream sales declined ¥99.1 billion to ¥189.8 billion due to the decreases in sales volume and crude oil prices as well as the impact of the appreciation of the yen against the U.S. dollar. Downstream sales declined ¥233.3 billion to ¥404.9 billion due to the decrease in sales volume caused by scheduled shut-down maintenance at Sodegaura Refinery and the fall of selling prices of refined products.
Upstream operations posted an operating loss of ¥3.1 billion, and downstream operations posted an operating loss of ¥1.8 billion. Consolidated operating loss was recorded ¥4.9 billion in spite of improving ¥30.0 billion compared with the previous period. Consolidated operating loss excluding the effect of inventories would be posted ¥21.9 billion.
As a result of adding non-operating income of ¥1.2 billion and subtracting non-operating expenses of ¥3.5 billion to the operating loss of ¥4.9 billion, consolidated ordinary loss was recorded ¥7.2 billion in spite of improving ¥29.1 billion compared with the previous period.
Special loss of ¥0.7 billion such as loss on disposal of noncurrent assets was recorded, and income tax deferred of ¥7.9 billion was posted, since deferred tax assets mainly concerning the utilization of carry forward taxable loss were partially reduced by conservative reexamination of the taxable income in future. Eventually, AOCHD posted consolidated net loss amounting to ¥16.1 billion for the year ended March 31, 2010.
We recognize returning profits to our shareholders and investors as a key issue for management. Whilst ensuring internal reserves are built up adequately to facilitate medium- and long-term business development, our basic policy is to strive for the maintenance of stable dividends, after taking into account operating results and our funding balance.
However, in light of the fact that we have recorded consolidated net loss for two consecutive periods and after careful consideration of the current financial position of the AOCHD group, we regrettably decided to not make our annual dividend payment for FY2009.
Consolidated business plan for FY2010
As the assumptions of consolidated business plan for FY2010, Dubai crude oil price and exchange rate are set $75/Bbl and ¥90/$ respectively.
For the Upstream sector, net sales estimated 101.0 billon yen by decreasing 88.8 billon yen compared with the previous period mainly due to the decrease in sales volume of Khafji crude oil, despite the rise of crude oil price. Operating income estimated negative 2.0 billon yen by improving 1.1 billion yen compared to FY2009 mainly due to the increase of production volume of equity crude oil and the rise of crude oil price.
For the Downstream sector, net sales estimated 456.0 billon yen by increasing 51.0 billon yen compared with the previous period mainly due to the stable operations of Sodegaura refinery. Operating income estimated 4.6 billon yen by improving 6.4 billion yen compared with the previous period mainly due to the net effects of i) construction of the flexible production system by increasing capacities of heavy oil treatment and export facilities, ii) the recovery of the refined products and chemical products market, iii) worsening the effect of inventory valuation decreased by 17.2 billon yen compared with the previous period.
As a result, AOCHD Group's consolidated net sales estimated amounted 557.0 billion yen, an operating income amounted to 2.6 billion yen, an ordinary income amounted to 0.9 billion yen and a net income amounted to 1.8 billion yen.
Taking our continuous and severe business environment into consideration, dividends for FY2010 are not yet determined at this moment.
On Medium-Term Business Plan for Period from FY2010 to FY2012
We revised the Medium-Term Business Plan for FY2009-FY2011 announced last year because the business environment surrounding the AOCHD Group has been significantly changed at an unexpectedly rapid pace. However, this revised plan inherited the basic policy and principles of the previous plan.
In upstream operations undertaken by Arabian Oil Company, Ltd. (AOC), with a primary goal to revitalize its business and restructure a profit base, AOC will make utmost efforts to reinforce the management base for further growth by fully utilizing the human resources with technical skills and experience of operational control developed through overseas oil operations as an operator.
With respect to oil exploration and development business, AOC will endeavor to commercialize ongoing and currently planned projects steadily and make additional investment as necessary, positioning the Middle East, including Egypt, and Norway as core areas of operations.
Aiming to secure new source of earnings by effective use of accumulated skills and knowledge, AOC will designate engineering and technical research business as another pillar of business, and make earnest efforts to acquire orders related to this new business area in overseas markets centering on the Middle East, and accordingly to maximize the Company's income.
In downstream operations of Fuji Oil Company, Ltd. (FOC), a series of major investment projects for sophisticating the Sodegaura Refinery has been completed with following measures: strengthening capacity of heavy oil treatment through enhancement of Eureka Thermal Cracking Unit, construction of a new hydrogen production unit and other measures undertaken, expansion of export facilities, and installation of a new integrated control room. Now that FOC is equipped with systems capable to meet changes in business environment flexibly and quickly, it utilizes the advanced facilities to improve its profitability to maximum extent and at every possible opportunity.
FOC continues to improve systems for safe operation, environment preservation and quality control of products, promotes greenhouse effect gas reduction through energy saving, and establishes a stable and efficient supply system of petroleum products.
In this Medium-Term Business Plan, the AOCHD group is expecting to make an operating profit in each fiscal year as follows: 2.6 billion yen for FY2010, 10 billion yen for FY2011, and 11.5 billion yen for FY2012.
The AOCHD group is determined to secure profit of around 10 billion yen constantly so as to establish a structure that allows for stable and continuous dividend payments. For this, the group will strive to restore profitability in upstream operations by starting production of equity crude oil and stabilize profitability in downstream operations.
In closing, We would like to ask for the continued support of our shareholders and investors for the future. With your kind understanding and continuous support, we can restore the group to stable growth and continue to increase our corporate value for a future to come.
May 2010
Fumio Sekiya,
President and Representing Director
