To Our Shareholders and Investors
We express our heartfelt condolences to all those affected by the Great East Japan Earthquake. We sincerely hope that the afflicted areas can realize a quick recovery.
I am pleased to report on our financial results for FY2010 ended March 31, 2011 and forecasts for FY2011 ending March 31, 2012.
Review on FY2010 (ended March 31, 2011)
In the crude oil market, the price of Dubai crude oil, which stood at the $80 per barrel range at the beginning of the year, followed a steady uptrend and exceeded $100 per barrel at the end of the year, reflecting increasing demand in emerging economies such as China and India, an inflow of speculative money against the backdrop of further easing in U.S. monetary policy and heightened tensions in North Africa and the Middle East, with the average price for the whole year coming to around $84 per barrel, an increase of about $15 over the previous fiscal year.
As for the dollar/yen exchange rate, after starting the year in the ¥93 range, the yen steadily rose against the dollar and traded in the ¥83 range at the end of the year, reflecting the sluggish performance of the U.S. economy and the fiscal and financial turmoil in the euro zone.
Under these circumstances, AOC Holdings Inc. (AOCHD) posted consolidated net sales amounting to ¥571.1 billion decreased by 4.0% or ¥23.6 billion compared with the previous period. Upstream sales almost halved from a year earlier to ¥93.1 billion. On top of the impact of the stronger yen, this was mainly due to a huge drop in Khafji crude oil sales following the change in the contracted quantity under a long-term crude oil sale and purchase agreement with Kuwait. Downstream sales increased by ¥72.9 billion, over the previous year when a large-scale regular maintenance was carried out, to ¥477.9 billion thanks to a rise in sales volume and higher selling prices.
Consolidated operating profit increased by ¥9.3 billion over the previous fiscal year, to ¥4.3 billion. While upstream operations posted an operating loss of ¥3.0 billion, downstream operations posted an operating profit of ¥7.3 billion reflecting a substantial improvement in margins of petroleum products and a higher rate of operation at the Refinery. Consolidated operating profit excluding the effect of inventories turned around to ¥7.8 billion increased by ¥26.6 billion over the previous year. Consolidated ordinary profit amounted ¥1.5 billion due to factors such as foreign exchange losses in upstream operation. Eventually, AOCHD posted consolidated net profit amounting to ¥4.0 billion for the year ended March 31, 2011.
We recognize returning profits to our shareholders and investors as a key issue for management. While 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. In line with this policy, we have decided to resume dividend payments by paying ¥6 per share in year-end dividend for the year ended March 31, 2011, after having passed dividends in the previous fiscal year.
Consolidated business plan for FY2011
As for the business environment in the year ending March 31, 2012, while crude oil prices are expected to stay high, uncertainties for the future are likely to increase further, with destabilizing factors in the world economy, such as financial turmoil in the euro zone, the unstable Middle East situation and concerns over a possible collapse of bubbles in China, combining with the impact on the Japanese economy of the Great East Japan Earthquake.
Amid this environment, in upstream operations, the Group will seek to bring development projects already being undertaken onto a commercial basis as early as possible and strive for an early recovery of our earnings performance through increased production of equity crude oil, stable sales of Khafji crude oil and strengthening of the engineering and technical services business.
In downstream operations, we will maintain stable sales of petroleum products and seek to ensure continuous profit by making efficient use of existing facilities at the Sodegaura Refinery and flexibly responding to changing demand.
For the earnings forecast for the year ending March 31, 2012, we project net sales of ¥674.0 billion, an increase of 18.0% over the previous fiscal year, and an operating income of ¥7.4 billion, an increase of 69.6% year on year, and we plan to pay dividends of ¥10 per share for the year.
As the basis of these projections, we assume the Dubai crude oil price of $105 per barrel and the dollar/yen exchange rate of 83 yen to the dollar.
Recently, energy policy has been the subject of animated discussion globally. In Japan as well, the conventional energy policy may be up for review. In order to fulfill our mission of ensuring the "stable supply of energy" to Japan even in these fluid and uncertain times, we will strive to give full play to our capabilities and contribute to the realization of an affluent and safe society.
May 2011
Fumio Sekiya,
President and Representing Director
