Message from the CFO on Financial StrategyInvestor Relations
My Commitment to Enhancing Corporate Value as CFO
Personnel from JERA Americas' Finance and Accounting Department
Review of FY2022 and Progress on Management Targets
In April 2019, we set a target of 200 billion yen in consolidated net profit by FY2025 (excluding time lag), and in May 2022, we also established new management targets for profitability, capital efficiency, growth potential, and financial health with the aim of achieving disciplined growth and maximizing corporate value. While our progress toward these targets is on track overall, we will continue to pursue a range of initiatives and make every effort to meet these targets.
Consolidated Net Profit
In FY2022, gains emerged despite setbacks from the fire incident at the Freeport LNG terminal affecting LNG spot procurement and from recognizing estimated liabilities. The gains can be attributed to the expansion of JERA Global Markets' (JERAGM) transactions primarily in Europe amidst the unstable fuel market situation stemming from the Russia-Ukraine situation, securing a consolidated net profit of 200.3 billion yen (excluding time lag).
We view the profit boost from JERAGM as a temporary gain. Though we anticipate such transient gains to diminish starting FY2023, we remain committed to reaching our FY2025 target of a consolidated net profit of 200 billion yen.
In line with the business plan we unveiled in April 2019, which called for the creation of synergies exceeding 100 billion yen annually within five years (by FY2025) following the integration of our existing thermal power generation and other businesses, we were able to generate 120 billion yen in synergies as of FY2022, one year ahead of our initial target. Four years have passed since the completion of the asset and business integration of our shareholder companies. We have now completed the post-merger integration (PMI) and have transitioned to the phase of implementing the management targets declared in 2022.
Balance Sheet Management
Our total assets have reached a high level due to the impact of the market value of unsettled balances in transactions, which, in the context of JERAGM's fuel quantity adjustments, are recorded as derivative receivables and payables. Continued monitoring is warranted because subsequent changes in resource prices may cause the amount to fluctuate widely.
Interest-Bearing Liabilities and Net Assets
In FY2022, due to the effects of surging resource prices and the increased demand for operational capital resulting from spot procurement to ensure a stable electricity supply, we had to secure a large amount of financing to be used until our operating cash flow recovers. Besides primarily focusing on short-term loans and issuing corporate bonds, we also pursued diversified financing methods such as issuing transition loans and foreign currency-denominated corporate bonds. As a result, we believe we were able to enhance our future fundraising base and diversify our procurement markets.
On the other hand, while we had set a target of reducing net DER to 1.0 or less by 2025, interest-bearing debt increased to 3.5 trillion yen by the end of September 2022, causing the net DER to deteriorate to 1.66. Given the instability in the fuel market and the anticipated risk of prolongation, we issued hybrid corporate bonds worth 96.5 billion yen in December 2022 and secured a perpetual subordinated loan of 200 billion yen in March 2023 to improve our net DER. Subsequently, with conditions improving in the fuel market and operating cash flow on a recovery trajectory, our net DER improved to 1.01 as of March 31, 2023. Additionally, our ROIC, which represents capital efficiency, stood at 4.4% for FY2022, approaching our target for FY2025.
Personnel working in corporate finance to secure and diversify funding
New Management Targets
|200.3 billion yen
|200 billion yen
|574 billion yen
|500 billion yen
|369.4 billion yen
|Cumulative total for FY2022–2025:
approx. 1,400 billion yen
|Net debt-to-equity ratio
|1.0x or lower
|Net debt-to-EBITDA ratio*
|4.5 years or less
- *Excluding time lags after fuel cost adjustments
In FY2022, the cash flow situation changed significantly between the first and second half of the year. In the first half of FY2022, operating cash flow deteriorated significantly due to an increase in the loss from the time lag caused by soaring resource prices and other factors, resulting in a negative free cash flow of approximately 900 billion yen. In the second half of FY2022, operating cash flow improved to about 450 billion yen for the full year due to better fuel market conditions, resulting in a final positive free cash flow of about 80 billion yen.
At the time of our strategy and target announcement in May 2022, we planned to actively allocate about 1.4 trillion yen to CAPEX over a total of four years from FY2022 to FY2025, with a cash flow of 1.6 trillion yen, primarily from operating cash flow. Most recently, we have been actively pursuing initiatives aimed at growth as well as decarbonization, including the acquisition of Parkwind, a leading offshore wind power generation company in Belgium, and the decision to invest in GPI, a renewable energy power generation company in Japan. We have a history of basing investments on the premise of maintaining a sound financial base, and we believe that the effective functioning of our financial strategy targets played a role in these investments. At present, we believe that both operating cash flow and CAPEX are generally in line with the plan announced in May 2022.
Toward the Realization of Medium- and Long-Term Strategies
The progress we are making toward reaching our targets is generally on track, though we must stay alert to changes in the business environment. We will announce our next growth targets when we are more certain of achieving them, but in line with our medium-to-long-term strategy, we intend to continuously invest for growth post-2025, mainly in the areas of renewable energy, hydrogen, and ammonia. Given the expected demand for capital to ensure robust growth, we will steadily increase our profitability and create a cycle that leads from investment to growth and then to further investment. We will continue to review our financial strategy for FY2025 and beyond, and as CFO, I will do everything I can to facilitate the steady strengthening of our financial base to support growth investments, aiming to further enhance corporate value.