Consolidated Financial Statements
ENEOS Holdings, Inc.
and Consolidated Subsidiaries
Year ended March 31, 2020
with Independent Auditor's Report
- 1 -
ENEOS Holdings, Inc.
and Consolidated Subsidiaries
Consolidated Statements of Financial Position
(Millions of Yen) | ||||
As of | As of | |||
Notes | March 31, 2020 | March 31, 2019 | ||
ASSETS | ||||
Current assets | ||||
Cash and cash equivalents | 8, 21 | 398,573 | 385,434 | |
Trade and other receivables | 9, 21 | 1,020,570 | 1,363,974 | |
Inventories | 10 | 1,181,688 | 1,590,207 | |
Other financial assets | 21 | 61,963 | 47,184 | |
Other current assets | 20 | 183,673 | 198,851 | |
2,846,467 | 3,585,650 | |||
Assets held for sale | 11, 15 | 32,094 | 1,737 | |
Total current assets | 2,878,561 | 3,587,387 | ||
Non-current assets | ||||
Property, plant and equipment | 11, 13, 14 | 3,724,861 | 3,381,642 | |
Goodwill | 12, 14 | 185,730 | 196,482 | |
Intangible assets | 12, 13, 14 | 345,371 | 345,800 | |
Investments accounted for using the equity method | 37 | 407,207 | 403,241 | |
Other financial assets | 21 | 343,342 | 422,597 | |
Other non-current assets | 19 | 8,802 | 7,662 | |
Deferred tax assets | 20 | 117,418 | 133,000 | |
Total non-current assets | 5,132,731 | 4,890,424 | ||
Total assets | 8,011,292 | 8,477,811 |
The accompanying notes are an integral part of these consolidated financial statements.
- 2 -
Consolidated statements of financial position (continued) | ||||
(Millions of Yen) | ||||
As of | As of | |||
Notes | March 31, 2020 | March 31, 2019 | ||
LIABILITIES | ||||
Current liabilities | ||||
Trade and other payables | 16, 21 | 1,343,909 | 1,852,441 | |
Bonds and borrowings | 17, 21, 31 | 914,781 | 644,288 | |
Income taxes payable | 18,275 | 28,016 | ||
Other financial liabilities | 21 | 30,647 | 18,867 | |
Lease liabilities | 13, 21, 31 | 70,595 | - | |
Provisions | 18 | 13,174 | 40,413 | |
Other current liabilities | 13, 16 | 320,446 | 348,301 | |
2,711,827 | 2,932,326 | |||
Liabilities directly related to assets held for sale | 15, 18 | 5,748 | - | |
Total current liabilities | 2,717,575 | 2,932,326 | ||
Non-current liabilities | ||||
Bonds and borrowings | 17, 21, 31 | 1,386,065 | 1,573,705 | |
Liabilities for retirement benefits | 19 | 272,124 | 274,206 | |
Other financial liabilities | 21 | 32,075 | 37,027 | |
Lease liabilities | 13, 21, 31 | 445,244 | - | |
Provisions | 18 | 165,994 | 152,269 | |
Other non-current liabilities | 13 | 51,873 | 105,518 | |
Deferred tax liabilities | 20 | 232,434 | 282,944 | |
Total non-current liabilities | 2,585,809 | 2,425,669 | ||
Total liabilities | 5,303,384 | 5,357,995 | ||
EQUITY | ||||
Equity attributable to owners of the parent | ||||
Common stock | 22 | 100,000 | 100,000 | |
Capital surplus | 22 | 1,138,884 | 1,222,193 | |
Retained earnings | 22 | 982,786 | 1,272,960 | |
Treasury stock | 22 | (6,003) | (29,698) | |
Other components of equity | 22 | 95,379 | 152,385 | |
Total equity attributable to owners of the parent | 2,311,046 | 2,717,840 | ||
Non-controlling interests | 396,862 | 401,976 | ||
Total equity | 2,707,908 | 3,119,816 | ||
Total liabilities and equity | 8,011,292 | 8,477,811 | ||
The accompanying notes are an integral part of these consolidated financial statements.
- 3 -
ENEOS Holdings, Inc.
and Consolidated Subsidiaries
Consolidated Statements of Profit or Loss
(Millions of Yen) | |||||
Year ended | Year ended | ||||
Notes | March 31, 2020 | March 31, 2019 | |||
Continuing operations | |||||
Revenue | 7, 24 | 10,011,774 | 11,129,630 | ||
Cost of sales | 25 | 9,245,604 | 9,909,694 | ||
Gross profit | 766,170 | 1,219,936 | |||
Selling, general and administrative expenses | 25 | 829,323 | 816,260 | ||
Share of profit of investments accounted for using the equity | 15,868 | 46,060 | |||
method | 7, 37 | ||||
Other operating income | 27 | 76,970 | 193,512 | ||
Other operating expenses | 27 | 142,746 | 106,165 | ||
Operating profit (loss) | 7 | (113,061) | 537,083 | ||
Finance income | 26 | 12,116 | 7,018 | ||
Finance costs | 26 | 34,819 | 35,484 | ||
Profit (loss) before tax | (135,764) | 508,617 | |||
Income tax expense | 28 | 36,971 | 151,466 | ||
Profit (loss) for the year | (172,735) | 357,151 | |||
Profit (loss) for the year attributable to: | |||||
Owners of the parent | (187,946) | 322,319 | |||
Non-controlling interests | 15,211 | 34,832 | |||
Profit (loss) for the year | (172,735) | 357,151 | |||
(Yen) | |||||
Profit (loss) per share attributable to owners of the parent | |||||
Basic earnings (loss) per share | 30 | (57.86) | 95.36 | ||
Diluted earnings (loss) per share | 30 | (57.86) | 95.32 |
The accompanying notes are an integral part of these consolidated financial statements.
- 4 -
ENEOS Holdings, Inc.
and Consolidated Subsidiaries
Consolidated Statements of Comprehensive Income
(Millions of Yen) | ||||
Year ended | Year ended | |||
Notes | March 31, 2020 | March 31, 2019 | ||
Profit (loss) for the year | (172,735) | 357,151 | ||
Other comprehensive income (loss) | 29 | |||
Items that will not be reclassified to profit or loss | ||||
Changes in fair value of financial assets measured at fair value | (61,247) | (28,460) | ||
through other comprehensive income (loss) | ||||
Remeasurement (losses) gains on defined benefit plans | (2,995) | (1,636) | ||
Share of other comprehensive income (loss) of investments | (1,186) | (687) | ||
accounted for using the equity method | 37 | |||
(65,428) | (30,783) | |||
Items that may be reclassified subsequently to profit or loss | ||||
Exchange differences on translation of foreign operations | (23,165) | 16,868 | ||
Changes in fair value of cash flow hedges | 7,347 | (6,801) | ||
Share of other comprehensive income (loss) of investments | (7,705) | (4,140) | ||
accounted for using the equity method | 37 | |||
(23,523) | 5,927 | |||
Other comprehensive income (loss) | (88,951) | (24,856) | ||
Total comprehensive income (loss) for the year | (261,686) | 332,295 | ||
Comprehensive income (loss) for the year attributable to: | ||||
Owners of the parent | (272,338) | 297,090 | ||
Non-controlling interests | 10,652 | 35,205 | ||
Total comprehensive income (loss) for the year | (261,686) | 332,295 | ||
The accompanying notes are an integral part of these consolidated financial statements.
- 5 -
ENEOS Holdings, Inc.
and Consolidated Subsidiaries
Consolidated Statements of Changes in Equity
Year ended March 31, 2020
(Millions of Yen) | ||||||||
Notes | Common | Capital | Retained | Treasury | ||||
stock | surplus | earnings | stock | |||||
At beginning of the year | 100,000 | 1,222,193 | 1,272,960 | (29,698) | ||||
Cumulative effect of | ||||||||
changes in accounting | 2 | - | - | (2,072) | - | |||
policies | ||||||||
Restated balance | 100,000 | 1,222,193 | 1,270,888 | (29,698) | ||||
Comprehensive income (loss) | ||||||||
Profit (loss) for the year | - | - | (187,946) | - | ||||
Other comprehensive | - | - | - | - | ||||
income (loss) | 29 | |||||||
Total comprehensive | - | - | (187,946) | - | ||||
income (loss) for the year | ||||||||
Transactions with owners | ||||||||
Contributions by and | ||||||||
distributions to owners | ||||||||
Purchase of treasury stock | 22 | - | - | - | (54,894) | |||
Disposal of treasury stock | 22 | - | 0 | - | 0 | |||
Cancellation of treasury | - | (78,728) | - | 78,728 | ||||
stock | 22 | |||||||
Cash dividends | 23 | - | - | (72,118) | - | |||
Share-based payment | - | 283 | - | 105 | ||||
transactions | 22, 32 | |||||||
Equity transactions with | ||||||||
non-controlling interests, | - | - | - | - | ||||
etc. | ||||||||
Other | ||||||||
Transfer from other | ||||||||
components of equity to | - | - | (28,038) | - | ||||
retained earnings | ||||||||
Transfer from other | ||||||||
components of equity to | - | - | - | - | ||||
non-financial assets, etc. | 21 | |||||||
Other changes | 22 | - | (4,864) | - | (244) | |||
Total transactions with | ||||||||
- | (83,309) | (100,156) | 23,695 | |||||
owners | ||||||||
At end of the year | ||||||||
100,000 | 1,138,884 | 982,786 | (6,003) | |||||
The accompanying notes are an integral part of these consolidated financial statements.
- 6 -
Consolidated statements of changes in equity (continued)
(Millions of Yen)
Notes
At beginning of the year
Cumulative effect of
changes in accounting2 policies
Restated balance
Comprehensive income (loss)
Other components of equity | ||||||||||||||
Changes in | ||||||||||||||
fair value of | ||||||||||||||
financial | ||||||||||||||
assets | ||||||||||||||
measured at | ||||||||||||||
fair value | Exchange | Remeasure- | ||||||||||||
through | differences | ment | ||||||||||||
other | Changes in | on | (losses) | Total equity | ||||||||||
comprehen- | fair value of | translation | gains on | attributable | Non- | |||||||||
sive income | cash flow | of foreign | defined | to owners of | controlling | |||||||||
(loss) | hedges | operations | benefit plans | Total | the parent | interests | Total equity | |||||||
111,486 | (8,877) | 49,776 | - | 152,385 | 2,717,840 | 401,976 | 3,119,816 | |||||||
- | - | - | - | - | (2,072) | (867) | (2,939) | |||||||
111,486 | (8,877) | 49,776 | - | 152,385 | 2,715,768 | 401,109 | 3,116,877 |
Profit (loss) for the year | - | - | - | - | - | (187,946) | 15,211 | (172,735) | ||||||||
Other comprehensive | 29 | (60,542) | 6,735 | (27,732) | (2,853) | (84,392) | (84,392) | (4,559) | (88,951) | |||||||
income (loss) | ||||||||||||||||
Total comprehensive income | (60,542) | 6,735 | (27,732) | (2,853) | (84,392) | (272,338) | 10,652 | (261,686) | ||||||||
(loss) for the year | ||||||||||||||||
Transactions with owners | ||||||||||||||||
Contributions by and | ||||||||||||||||
distributions to owners | ||||||||||||||||
Purchase of treasury stock | 22 | - | - | - | - | - | (54,894) | - | (54,894) | |||||||
Disposal of treasury stock | 22 | - | - | - | - | - | 0 | - | 0 | |||||||
Cancellation of treasury | - | - | - | - | - | - | - | - | ||||||||
stock | 22 | |||||||||||||||
Cash dividends | 23 | - | - | - | - | - | (72,118) | (17,825) | (89,943) | |||||||
Share-based payment | - | - | - | - | - | 388 | - | 388 | ||||||||
transactions | 22, 32 | |||||||||||||||
Equity transactions with | ||||||||||||||||
non-controlling interests, | - | - | - | - | - | - | (694) | (694) | ||||||||
etc. | ||||||||||||||||
Other | ||||||||||||||||
Transfer from other | ||||||||||||||||
components of equity to | 25,185 | - | - | 2,853 | 28,038 | - | - | - | ||||||||
retained earnings | ||||||||||||||||
Transfer from other | ||||||||||||||||
components of equity to | 21 | - | (652) | - | - | (652) | (652) | (805) | (1,457) | |||||||
non-financial assets, etc. | ||||||||||||||||
Other changes | 22 | - | - | - | - | - | (5,108) | 4,425 | (683) | |||||||
Total transactions with | ||||||||||||||||
25,185 | (652) | - | 2,853 | 27,386 | (132,384) | (14,899) | (147,283) | |||||||||
owners | ||||||||||||||||
At end of the year | ||||||||||||||||
76,129 | (2,794) | 22,044 | - | 95,379 | 2,311,046 | 396,862 | 2,707,908 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
- 7 -
Consolidated statements of changes in equity (continued)
Year ended March 31, 2019
(Millions of Yen) | ||||||||
Notes | Common | Capital | Retained | Treasury | ||||
stock | surplus | earnings | stock | |||||
At beginning of the year | 100,000 | 1,250,667 | 1,017,402 | (4,730) | ||||
Comprehensive income (loss) | ||||||||
Profit (loss) for the year | - | - | 322,319 | - | ||||
Other comprehensive | - | - | - | - | ||||
income (loss) | 29 | |||||||
Total comprehensive | ||||||||
- | - | 322,319 | - | |||||
income (loss) for the year | ||||||||
Transactions with owners | ||||||||
Contributions by and | ||||||||
distributions to owners | ||||||||
Purchase of treasury stock | 22 | - | - | - | (55,001) | |||
Disposal of treasury stock | 22 | - | 0 | - | 0 | |||
Cancellation of treasury | - | (30,000) | - | 30,000 | ||||
stock | 22 | |||||||
Cash dividends | 23 | - | - | (67,988) | - | |||
Share-based payment | - | 163 | - | 33 | ||||
transactions | 22, 32 | |||||||
Equity transactions with | ||||||||
non-controlling interests, | - | 188 | - | - | ||||
etc. | ||||||||
Other | ||||||||
Transfer from other | ||||||||
components of equity to | - | - | 1,227 | - | ||||
retained earnings | ||||||||
Transfer from other | ||||||||
components of equity to | - | - | - | - | ||||
non-financial assets, etc. | 21 | |||||||
Other changes | 22 | - | 1,175 | - | - | |||
Total transactions with | ||||||||
- | (28,474) | (66,761) | (24,968) | |||||
owners | ||||||||
At end of the year | 100,000 | 1,222,193 | 1,272,960 | (29,698) | ||||
The accompanying notes are an integral part of these consolidated financial statements.
- 8 -
Consolidated statements of changes in equity (continued)
Notes | |
At beginning of the year | |
Comprehensive income (loss) | |
Profit (loss) for the year | |
Other comprehensive | 29 |
income (loss) | |
Total comprehensive income | |
(loss) for the year | |
Transactions with owners | |
Contributions by and | |
distributions to owners | |
Purchase of treasury stock | 22 |
Disposal of treasury stock | 22 |
Cancellation of treasury | |
stock | 22 |
Cash dividends | 23 |
Share-based payment | |
transactions | 22, 32 |
Equity transactions with | |
non-controlling interests, | |
etc. | |
Other | |
Transfer from other | |
components of equity to | |
retained earnings | |
Transfer from other | |
components of equity to | 21 |
non-financial assets, etc. | |
Other changes | 22 |
Total transactions with | |
owners |
At end of the year
(Millions of Yen)
Other components of equity | ||||||||||||||
Changes in | ||||||||||||||
fair value of | ||||||||||||||
financial | ||||||||||||||
assets | ||||||||||||||
measured at | ||||||||||||||
fair value | Exchange | Remeasure- | ||||||||||||
through | differences | ment | ||||||||||||
other | Changes in | on | (losses) | Total equity | ||||||||||
comprehen- | fair value of | translation | gains on | attributable | Non- | |||||||||
sive income | cash flow | of foreign | defined | to owners of | controlling | |||||||||
(loss) | hedges | operations | benefit plans | Total | the parent | interests | Total equity | |||||||
143,296 | (6,125) | 39,031 | - | 176,202 | 2,539,541 | 380,434 | 2,919,975 | |||||||
- | - | - | - | - | 322,319 | 34,832 | 357,151 | |||||||
(29,023) | (5,456) | 10,810 | (1,560) | (25,229) | (25,229) | 373 | (24,856) | |||||||
(29,023) | (5,456) | 10,810 | (1,560) | (25,229) | 297,090 | 35,205 | 332,295 | |||||||
- | - | - | - | - | (55,001) | - | (55,001) | |||||||
- | - | - | - | - | 0 | - | 0 | |||||||
- | - | - | - | - | - | - | - | |||||||
- | - | - | - | - | (67,988) | (13,928) | (81,916) | |||||||
- | - | - | - | - | 196 | - | 196 | |||||||
- | - | (65) | - | (65) | 123 | 10,066 | 10,189 | |||||||
(2,787) | - | - | 1,560 | (1,227) | - | - | - | |||||||
- | 2,704 | - | - | 2,704 | 2,704 | 844 | 3,548 | |||||||
- | - | - | - | - | 1,175 | (10,645) | (9,470) | |||||||
(2,787) | 2,704 | (65) | 1,560 | 1,412 | (118,791) | (13,663) | (132,454) | |||||||
111,486 | (8,877) | 49,776 | - | 152,385 | 2,717,840 | 401,976 | 3,119,816 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
- 9 -
ENEOS Holdings, Inc.
and Consolidated Subsidiaries
Consolidated Statements of Cash Flows
(Millions of Yen) | ||||
Year ended | Year ended | |||
Notes | March 31, 2020 | March 31, 2019 | ||
Cash flows from operating activities | ||||
Profit (loss) before tax | (135,764) | 508,617 | ||
Depreciation, depletion and amortization | 326,549 | 248,308 | ||
Impairment losses | 14 | 113,211 | 42,247 | |
Increase (decrease) in liabilities for retirement benefits | (288) | (16,088) | ||
Increase (decrease) in provisions | (17,093) | 28,689 | ||
Interest income and dividends income | 26, 27 | (27,998) | (27,588) | |
Interest expenses | 26 | 32,821 | 32,865 | |
Share of loss (profit) of investments accounted for using the equity | (15,868) | (46,060) | ||
method | ||||
Loss (gain) on sale of fixed assets | (9,034) | (48,128) | ||
Loss (gain) on sale of investments in subsidiaries | - | (77,710) | ||
(Increase) decrease in trade and other receivables | 353,341 | 43,095 | ||
(Increase) decrease in inventories | 401,493 | (28,866) | ||
Increase (decrease) in trade and other payables | (448,396) | (106,590) | ||
Interest received | 5,386 | 6,651 | ||
Dividends received | 66,041 | 61,420 | ||
Interest paid | (31,730) | (31,068) | ||
Income taxes paid | (45,135) | (179,803) | ||
Other | (56,802) | (65,807) | ||
Net cash flows from (used in) operating activities | 510,734 | 344,184 | ||
Cash flows from investing activities | ||||
Purchase of investment securities | (39,105) | (8,155) | ||
Proceeds from sale of investment securities | 5,770 | 17,080 | ||
Purchase of oil and gas assets | (56,624) | (68,790) | ||
Purchase of property, plant and equipment (excluding oil and gas | (230,999) | (194,229) | ||
assets) | ||||
Proceeds from sale of property, plant and equipment (excluding oil | 18,075 | 50,747 | ||
and gas assets) | ||||
Purchase of intangible assets | (29,859) | (31,135) | ||
Decrease (increase) in short-term loans to associates and others, | (22,546) | 12,153 | ||
net | ||||
Loans to associates and others (long-term loans) | (5,107) | (1,271) | ||
Repayments of loans by associates and others (long-term loans) | 9,415 | 6,508 | ||
Payments for acquisition of subsidiaries resulting in change in | - | (46,485) | ||
scope of consolidation | ||||
Proceeds from sale of subsidiaries resulting in change in scope of | - | 85,196 | ||
consolidation | ||||
Other | (20,366) | (28,519) | ||
Net cash flows from (used in) investing activities | (371,346) | (206,900) | ||
- 10 -
Consolidated statements of cash flows (continued)
(Millions of Yen) | ||||
Year ended | Year ended | |||
Notes | March 31, 2020 | March 31, 2019 | ||
Cash flows from financing activities | ||||
Increase (decrease) in short-term borrowings, net | 31 | 94,511 | (67,250) | |
Increase (decrease) in commercial paper, net | 31 | 138,000 | 186,000 | |
Proceeds from long-term borrowings | 31 | 61,813 | 101,838 | |
Repayments of long-term borrowings | 31 | (179,409) | (215,868) | |
Proceeds from issuance of bonds | 31 | 1,080 | 800 | |
Repayments of lease liabilities | 13, 31 | (72,661) | - | |
Redemption of bonds | 31 | (20,000) | (70,000) | |
Purchase of treasury stock, net | (54,869) | (54,981) | ||
Capital contribution from non-controlling interests | 2 | 11,949 | ||
Cash dividends paid | 23 | (72,118) | (67,988) | |
Dividends paid to non-controlling interests | (17,402) | (13,417) | ||
Other | 1,245 | (7,745) | ||
Net cash flows from (used in) financing activities | (119,808) | (196,662) | ||
Net (decrease) increase in cash and cash equivalents | 19,580 | (59,378) | ||
Cash and cash equivalents at beginning of the year | 8 | 378,945 | 437,117 | |
Net foreign exchange differences of cash and cash equivalents | (5,210) | 1,206 | ||
Cash and cash equivalents included in assets held for sale | 15 | (13) | - | |
Cash and cash equivalents at end of the year | 8 | 393,302 | 378,945 | |
The accompanying notes are an integral part of these consolidated financial statements.
- 11 -
ENEOS Holdings, Inc.
and Consolidated Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2020
1. Reporting entity
ENEOS Holdings, Inc. (or, JXTG Holdings, Inc., as it was formerly known prior to the change in trade name effective as of June 25, 2020), or the Company, is a corporation domiciled in Tokyo, Japan. The consolidated financial statements comprise the financial statements of the Company and its subsidiaries, or ENEOS Group, as well as its interests in associates, joint operations and joint ventures. The principal operations and activities of ENEOS Group are described in Note 7 "Segment information".
The consolidated financial statements were authorized for issue by the Company's Representative Director and President, Ota Katsuyuki, on June 25, 2020.
2. Basis of preparation
Statement of compliance with IFRS
The consolidated financial statements of the Company have been prepared in accordance with IFRS. Because the Company meets the requirements for a "Specified Company under Designated International Accounting Standards" as set forth in Article 1-2 of the Ordinance on Terminology, Forms, and Preparation Methods of Consolidated Financial Statements, the Company has adopted the provisions of Article 93 of the same Ordinance.
Basis of measurement
The consolidated financial statements are prepared on a historical cost basis except for certain items, such as financial instruments measured at fair value, as described in Note 3 "Significant accounting policies".
Functional currency and presentation currency
The consolidated financial statements have been presented in Japanese yen, which is also the Company's functional currency, and amounts have been rounded to the nearest million yen, except where otherwise indicated.
Changes in accounting policies
IFRS 16 "Leases" (as lessee)
ENEOS Group has applied IFRS 16 "Leases" (issued January 2016) (hereinafter, referred to as "IFRS 16") starting from the year ended March 31, 2020 and adopted a method in which the cumulative effect of initially applying this standard is recognized as an adjustment to the beginning balance of retained earnings for the year ended March 31, 2020, which is permitted as a transitional measure. There is no material effect on the accounting treatment for leases as a lessor.
In transition to IFRS 16, the ENEOS Group has elected to apply the practical expedient provided in paragraph C3 of IFRS 16 to grandfather the assessment of whether a contract contains a lease under IAS 17 "Leases" (hereinafter, referred to as "IAS 17") and IFRIC 4 "Determining whether an Arrangement contains a Lease".
For leases previously classified as operating leases under IAS 17, right-of-use assets and lease liabilities were recognized on the date of initial application of IFRS 16, except for short-term leases and leases of low-value assets.
Lease liabilities are initially recognized at the present value of the lease payments outstanding as of the commencement date of the lease by discounting them at the interest rate implicit in the lease. However, unless the interest rate implicit in the lease is practicably readily determinable, the ENEOS Group uses its own incremental borrowing rates. The weighted average of such incremental borrowing rates applied to the lease liabilities recognized in the consolidated statement of financial position as of April 1, 2019 is 1.3%.
In recognizing right-of-use assets, the ENEOS Group chooses one of the following measurement methods, on a lease-by-lease basis.
- Recognizing its carrying amount as of the initial application date as if IFRS 16 had been applied since the commencement date of the lease, but discounted using the lessee's incremental borrowing rate at the date of initial application.
- Recognizing the measured amount of lease liabilities, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognized in the statement of financial position immediately before the date of initial application.
- 12 -
Costs incurred to fulfill restoration arising from the lease contract, if any, are included in the initial measurement of the right-of-use asset. Right-of-use assets are depreciated systematically over the lease term.
Lease payments are allocated to finance costs and the repayment portion of the outstanding lease liabilities in a way that the constant rate of interest is applied to the outstanding lease liability. Finance costs are presented separately from depreciation associated with the right-of-use assets in the consolidated statements of profit or loss.
Lease payments for short-term leases and leases of low-value assets are recognized as expenses on a straight-line basis over the lease term unless another systematic basis is more representative of the pattern of the lessee's benefit.
For leases as lessee previously classified as finance leases under IAS 17, the right-of-use assets and lease liabilities at the date of initial application were recorded at the carrying amounts of the leased assets and the lease obligations at the date immediately before the date of initial application.
The following is the reconciliation of future minimum lease payments of non-cancellable operating leases disclosed under IAS 17 as of March 31, 2019 and lease liabilities recognized in the consolidated statement of financial position as of the date of initial application.
(Millions of Yen) | |
Amount | |
(a) Future minimum lease payments of non-cancellable operating leases as of March 31, 2019 | 189,910 |
Discounted present value of (a) | 177,503 |
Finance lease obligations as of March 31, 2019 | 59,344 |
Effect of reassessment of lease term, etc. | 237,314 |
Lease liabilities as of April 1, 2019 | 474,161 |
The following is the reconciliation of leased assets recognized in the consolidated statement of financial position as of March 31, 2019 and right-of-use assets recognized in the consolidated statement of financial position as of the date of initial application.
(Millions of Yen) | |
Amount | |
Leased assets included in property, plant and equipment as of March 31, 2019 | 44,606 |
Asset retirement obligations related to the above leased assets as of March 31, 2019 | 7,492 |
Right-of-use assets recognized in property, plant and equipment as of April 1, 2019 | 407,817 |
Right-of-use assets included in property, plant and equipment as of April 1, 2019 | 459,915 |
Retained earnings decreased by 2,072 million yen at the date of initial application due to the effects of the above lease liabilities and right-of-use assets, as well as recognition of other receivables of 3,052 million yen, deferred tax assets of 1,234 million yen, provisions of 225 million yen, and non-controlling interests of (867) million yen.
The impact thereof on the consolidated statement of profit or loss for the year ended March 31, 2020 was immaterial.
3. Significant accounting policies
Basis of consolidation
(a) Subsidiaries
Subsidiaries are entities which are controlled by the Company. The Company controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity (current rights to give current ability to issue instructions on relevant operations).
The financial statements of subsidiaries are included in the Company's consolidated financial statements from the date on which control is obtained until the date on which control is lost. Additionally, the financial statements of subsidiaries are adjusted to conform to the accounting policies adopted by the Company, as necessary.
(b) Associates and joint arrangements
Associates are entities over which the Company has significant influence, but not control or joint control, over management decision- making in relation to their financial and operating policies. Significant influence is the power to participate in the financial and operating policy decisions of the entity.
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Joint control is a contractual arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each party. Joint operations are joint arrangements whereby the parties who have joint control of the arrangement have rights to the assets and obligations to the liabilities relating to the arrangement. Joint ventures are joint arrangements whereby the parties who have joint control of the arrangement have the rights to the net assets of the arrangement.
Investments in interests in associates and joint ventures are accounted for using the equity method. Under the equity method, investments in interests are initially recognized at cost, and the Company's share of operating results of associates and joint ventures is adjusted to conform to the Company's accounting policy and recognized as "Share of profit or loss of investments accounted for using the equity method" in the consolidated statements of profit or loss.
For investments in joint operations, the Company recognizes its assets including its share of any assets held jointly, its liabilities including its share of any liabilities incurred jointly, its revenue from the sale of its share of the output arising from and its share of the revenue from the sale of the output by the joint operation, and its expenses including its shares of any expenses incurred jointly.
Business combinations and goodwill
The Company applies the acquisition method to account for business combinations. Identifiable assets acquired, liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values as of the acquisition date. Acquisition-related costs are recognized as expenses as incurred. For each transaction, the Company determines whether to measure the non-controlling interest at fair value or at the non-controlling interest's proportionate share of the acquiree's identifiable net assets.
Goodwill is measured as the excess when the aggregate of the consideration transferred for the business combination, the amount of any non-controlling interest in the acquiree and the fair value of any equity interest in the acquiree previously held by the acquirer exceeds the net amount of identifiable assets and liabilities at the acquisition date.
When the net amount of identifiable assets and liabilities exceeds the aggregate amount due to a bargain purchase, the difference is directly recognized in the consolidated statements of profit or loss.
Goodwill is tested for impairment annually and whenever there is an indication of impairment. Goodwill is presented at cost less accumulated impairment losses. Any impairment losses on goodwill are recognized in the consolidated statements of profit or loss and are not reversed.
Goodwill relating to associates and joint ventures included in the carrying amount of the investments accounted for using equity method is not tested for impairment separately. The Company assesses whether there is any objective evidence that an investment in an associate or joint venture is impaired. If any objective evidence of impairment exists, the Company performs an impairment test by comparing the recoverable amount (the higher of value in use and the fair value less costs of disposal, or FVLCD) of the investment to its carrying amount. Any impairment losses recognized in prior periods are reversed to the extent that the recoverable amount of the investment subsequently increases only when there has been a change in the estimates used for determining the recoverable amount of the investment, since the last impairment losses were recorded.
For the purpose of impairment testing, goodwill is allocated to each of the cash-generating units, or CGUs, or groups of CGUs expected to benefit from synergies of the business combination.
Business combinations of entities under common control are accounted for based on the carrying amounts.
Foreign currency translation
(a) Functional currency and presentation currency
Each ENEOS Group entity determines its functional currency, which is the currency of the primary economic environment in which each entity operates and items included in the entity's financial statements are measured using its functional currency. The consolidated financial statements of the Company are presented in Japanese yen, which is the Company's functional currency.
(b) Foreign currency transactions and balances
Foreign currency transactions are translated into the functional currency of each entity in ENEOS Group using the exchange rates prevailing at the date of the transactions. At the end of the reporting period, monetary assets and liabilities denominated in foreign currencies are retranslated into the functional currency using the closing rate, and non-monetary assets and liabilities measured at fair value denominated in foreign currencies are translated into the functional currency using the exchange rate at the date when the fair value was measured. The exchange differences arising as a result are recognized in profit or loss as a general rule. However, exchange differences arising from equity instruments that are designated as financial assets measured at fair value through other comprehensive income and cash flow hedges are recognized in other comprehensive income. Non-monetary assets and liabilities measured at acquisition cost denominated in foreign currencies are translated based on the exchange rate on the date of the transactions.
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(c) Foreign operations
The assets and liabilities of foreign operations are translated into the Company's functional currency, using the closing rate. Income and expenses are translated into the Company's functional currency using the average rate during the reporting period unless there have been significant fluctuations in the exchange rate during the reporting period.
The exchange differences arising from translation of the financial statements of foreign operations are recognized as "Exchange differences on translation of foreign operations" in other comprehensive income. On disposal of an entire interest in a foreign operation, and on a partial disposal of an interest involving the loss of control or significant influence and others, the cumulative amount of the exchange differences is reclassified to profit or loss as part of gains or losses on disposal.
Cash and cash equivalents
Cash and cash equivalents in the consolidated financial statements consist of cash on hand, demand deposits, and short-term investments with a maturity of three months or less that are readily convertible to cash and subject to an insignificant risk of changes in value.
Financial instruments
(a) Financial assets
(i) Initial recognition and measurement
Financial assets are initially recognized on the contract date when the Company has become a party to the contractual provisions of the financial instruments. However, regular way purchases of financial assets are initially recognized on the trade date.
At the time of initial recognition, financial assets are classified as financial assets measured at amortized cost, financial assets measured at fair value through other comprehensive income, or financial assets measured at FVOCI, and financial assets measured at fair value through profit or loss, or financial assets measured at FVPL. At the time of initial recognition, financial assets measured at FVPL are measured at their fair values and other financial assets are measured at their fair values plus transaction costs directly attributable to the acquisition. Financial assets are classified and subsequently measured in accordance with the following conditions:
Financial assets measured at amortized cost
Financial assets are classified as financial assets measured at amortized cost when both of the following conditions are met:
- The financial asset is held within a business model whose objective is to hold the asset in order to collect the contractual cash flows; and
- The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on principal amounts outstanding.
After initial recognition, they are measured at amortized cost using the effective interest method and assessed for impairment.
Financial assets measured at FVOCI
Financial assets which do not meet the conditions for financial assets measured at amortized cost are measured at fair value. Equity instruments held for a purpose other than trading are individually evaluated at initial recognition to determine whether they are designated as financial assets measured at FVOCI.
Financial assets designated as financial assets measured at FVOCI are measured at fair value after initial recognition and subsequent changes are recognized in other comprehensive income.
Amounts recognized in other comprehensive income in respect of equity investments are not subsequently reclassified to profit or loss but may be reclassified within equity. ENEOS Group's policy is to reclassify such amounts to retained earnings when the financial assets are derecognized or when their fair values decline significantly. Dividends from those financial assets are recognized in profit or loss.
Financial assets measured at FVPL
Financial assets which do not meet the conditions for financial assets measured at amortized cost or financial assets measured at FVOCI are classified as financial assets measured at FVPL.
After initial recognition, they are measured at fair value and subsequent changes are recognized in profit or loss.
(ii) Derecognition
Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the contractual rights to receive cash flows from the financial asset are transferred and substantially all the risks and rewards of ownership of the financial asset are transferred.
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(iii) Impairment of financial assets
The Company assesses at the end of each reporting period whether the credit risk of the financial assets has significantly increased since initial recognition based on an external credit rating or past due status, among others.
If it is determined that the credit risk exposure of a financial asset has significantly increased since the initial recognition, a loss allowance is measured at an amount equal to the expected credit loss for the entire expected remaining life of the financial asset. If it is determined that the credit risk has not significantly increased since initial recognition, the loss allowance is measured at an amount equal to the expected credit loss that will occur within 12 months after the end of the reporting period. However, for trade receivables, the loss allowance is always measured at an amount equal to the entire expected credit loss based on the actual loss rate determined using historical experience of default corresponding to past due status adjusted as necessary for any changes in economic conditions.
Furthermore, when there is an evidence of credit impairment, such as a significant deterioration in the financial condition of the debtor or a breach of contract, including payment default or delinquency by the debtor, the effective interest rate method is applied to the amortized cost less the loss allowance calculated.
The amount of the expected credit loss is estimated at the weighted average present value of the difference between the total amount of the cash flows of financial assets to be paid according to the contract and the estimated future cash flows of financial assets to be received, discounted at the original effective interest rate and considering the probability of occurrence. Changes in the loss allowance are recognized in profit or loss.
(b) Financial liabilities
(i) Initial recognition and measurement
The financial liabilities are initially recognized on the contract date when the Company becomes a party to the contractual provisions of the financial instrument. At the time of initial recognition, financial liabilities are classified as financial liabilities measured at amortized cost, except for financial liabilities measured at fair value through profit or loss, or financial liabilities measured at FVPL. At the time of initial recognition, financial liabilities measured at FVPL are measured at their fair values and other financial liabilities are measured at their fair values less transaction costs directly attributable to the issuance.
Financial liabilities are classified and subsequently measured in the following categories:
Financial liabilities measured at amortized cost
After initial recognition, financial liabilities are measured at amortized cost using the effective interest method.
Financial liabilities measured at FVPL
After initial recognition, financial liabilities are measured at fair value and subsequent changes are recognized in profit or loss.
(ii) Derecognition
Financial liabilities are derecognized when contractual obligations are discharged, cancelled or expired.
(c) Derivatives and hedge accounting
In order to hedge foreign currency risk, interest rate risk and commodity price risk, the Company utilizes derivative transactions, such as foreign exchange forward contracts, interest rate swaps and commodity forward contracts. At the initiation of a transaction, the Company documents the relationship between the hedging instrument and the hedged item, along with the risk management objective and strategy for undertaking the hedge transaction. Additionally, at the inception of the hedge and on an ongoing basis, the Company assesses whether the derivative designated as a hedging instrument meets the criteria for hedge accounting in offsetting changes in fair values or cash flows of the hedged item.
Derivatives are initially recognized at fair value. For certain derivatives which do not meet the criteria for hedge accounting, subsequent changes in fair value are recognized in profit or loss. For derivatives which meet the criteria for hedge accounting, changes in the fair value are accounted for as follows:
(i) Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognized in profit or loss, together with any changes in the fair value of the hedged asset or liability corresponding to the hedged risk.
(ii) Cash flow hedges
Changes in fair value of derivatives that are designated and qualify as cash flow hedges are recognized in other comprehensive income. However, the ineffective portion of changes in the fair value of hedging derivatives is recognized in profit or loss.
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Amounts accumulated in other comprehensive income are reclassified to profit or loss in the period when the hedged item affects profit or loss. However, when the hedged forecast transaction subsequently results in the recognition of a non-financial asset or liability, the amounts accumulated in other comprehensive income are included in the measurement of the asset or liability.
Furthermore, hedge accounting is discontinued prospectively when fair value hedges or cash flow hedges no longer meet the criteria for hedge accounting, or when the hedging instrument expires or is sold, terminated or exercised.
Inventories
The cost of inventories comprises all costs of purchase, costs of conversion, and other costs incurred in bringing the inventories to their present location and condition.
Inventories are stated at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. Cost is primarily calculated based on the periodic average method.
Property, plant and equipment (excluding the exploration, evaluation and development costs of oil, gas and mineral resources)
For property, plant and equipment, the cost model is applied for measurement after initial recognition, and the amount is presented at cost less any accumulated depreciation and accumulated impairment losses.
The cost of property, plant and equipment comprises costs directly attributable to the acquisition of an item, costs of dismantling and removing the item and restoring the site on which it is located, and capitalized borrowing costs for long-term projects if recognition criteria are met.
Subsequent expenditures incurred after acquisition are accounted for either by including them in the asset's carrying amount or by recognizing them as a separate asset, as appropriate, only when it is probable that future economic benefits will flow to ENEOS Group and the amount can be measured reliably. Subsequent expenditures not included in cost are recognized in profit or loss as incurred.
Expenditures relating to major maintenance and repair include the cost of replacing an asset or part of an asset, inspection costs and overhaul (detailed inspection) costs. Major inspection costs which qualify for recognition as property, plant and equipment are capitalized and depreciated over the period until the next inspection.
Depreciation of property, plant and equipment other than land is calculated based on the depreciable amount, which is the cost of each part of an item of property, plant and equipment, less its residual value, over the estimated useful life of each item, mainly using the straight-line method.
The estimated useful lives of property, plant and equipment are summarized below:
Buildings, structures and oil tanks: 2-50 years
Machinery, equipment and vehicles: 2-20 years
The depreciation method, estimated useful lives and residual values of property, plant and equipment are reviewed at the end of each fiscal year.
Intangible assets
For intangible assets, the cost model is applied for measurement after initial recognition, and the amount is presented at cost less any accumulated amortization and accumulated impairment losses.
Intangible assets acquired separately are initially recognized at cost, and intangible assets acquired in business combinations are initially recognized at fair value as at the acquisition date. For internally generated intangible assets, except for development costs which qualify for capitalization, expenditures are recognized as expenses during the period in which they are incurred.
Amortization of intangible assets is calculated based on cost less residual value, mainly using the straight-line method over the estimated useful life. The estimated useful lives of major intangible assets are as follows:
Software: 5 years
Customer-related assets: 10-25 years
The amortization method, estimated useful lives and residual values of intangible assets are reviewed at the end of each fiscal year.
Leases
Lease liabilities and right-of-use assets are recognized in the consolidated statements of financial position for leases, except for short- term leases and leases of low-value assets.
Lease liabilities are initially recognized at the present value of the lease payments outstanding as of the commencement date of the lease by discounting them at the interest rate implicit in the lease. However, unless the interest rate implicit in the lease is practicably readily determinable at the time of recognition, the ENEOS Group uses its own incremental borrowing rates.
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Right-of-use assets are recognized in the amount calculated by adjusting the measured amount of lease liabilities with initial direct costs, advance lease payments, etc. and adding any estimated costs incurred to fulfill restoration obligations arising from the lease contract, and are depreciated systematically over the lease term. The right-of-use assets are included in "Property, plant and equipment" in the consolidated statements of financial position.
Lease payments are allocated to finance costs and the repayment portion of the outstanding lease liabilities in a way that produces a constant rate of interest on the outstanding lease liability. Finance costs are presented separately from depreciation associated with the right-of-use assets in the consolidated statements of profit or loss.
The Company determines if a contract is a lease, or if a contract includes a lease, based on the substance of the contract, including transactions that do not take the legal form of a lease.
Lease payments for short-term leases with a lease term of 12 months or less and leases of low-value assets are recognized as expenses on a straight-line basis over the lease term unless another systematic basis is more representative of the pattern of the lessee's benefit.
Impairment of non-financial assets
During each reporting period, the Company assesses whether there is any indication that an asset may be impaired. If any such indication exists, or in cases where an annual impairment test is required for intangible assets with indefinite useful lives, the recoverable amount of the asset is estimated. In case where the recoverable amount cannot be estimated, it is estimated at the level of the cash-generating unit, or CGU, to which the asset belongs.
The recoverable amount is determined as the higher of an asset or CGU's FVLCD and its value in use. In determining the FVLCD, an appropriate valuation model supported by available fair value indicators is used. The estimated future cash flows used for the assessment of value in use are discounted to the present value using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the asset.
If the carrying amount of an asset or CGU exceeds its recoverable amount, impairment losses are recognized for the excess and the carrying amount is reduced to the recoverable amount.
Assets other than goodwill are assessed to determine whether there is any indication that impairment losses recognized in prior periods may have decreased or may no longer exist. If any such indication exists, the recoverable amount of the asset or the CGU is estimated. In cases where the recoverable amount exceeds the carrying amount of the asset or the CGU, a reversal of impairment is recognized to the extent that the increased carrying amount does not exceed the carrying amount, net of depreciation or amortization, that would have been determined if no impairment losses had previously been recognized.
Exploration, evaluation and development costs of oil and gas resources
The Company accounts for oil and gas exploration and evaluation costs using the successful efforts method. Acquisition costs of concessions, all costs associated with exploration and evaluation wells are initially capitalized. The capitalized exploration and evaluation well costs will be expensed when the potential commercial quantities of hydrocarbons are not found. In addition, other exploration project costs incurred during the exploration stage, such as geological and geophysical costs and other than the exploration and evaluation wells, are expensed as incurred.
Development wells and related production equipment are recognized as assets. These capitalized costs are depreciated using the unit- of-production method based on proved and probable developed reserves, from the inception of production.
Exploration, evaluation and development costs of mineral resources
Expenditures for exploration and evaluation of mineral resources are recognized as expenses during the reporting period incurred. In each project, expenditures directly attributable to development activities that occur on and after the time that the project was determined to be economically viable, but before the start of production, are capitalized. Such assets related to mining activity are depreciated using the unit-of-production method at a rate-of-mining amount during the reporting period to the total of proven reserves and probable reserves. Expenditures that occur after the start of production, with the exception of expenditures relating to stripping activity and additional development, are accounted for as inventories.
Stripping expenditures
Expenditures for the removal of waste (stripping expenditures) arise in the development and production stage of surface mining projects. Stripping expenditures in the development stage are capitalized because the objective is to gain access to mineral resources. Stripping expenditures in the production stage include those related to the production of inventories and those related to improvement of access to future mineral resources. Therefore, the stripping expenditures related to the production of the inventories form part of the inventories and the stripping expenditures related to the improvement of access to future mineral resources are capitalized as deferred stripping expenditures by component when they meet certain criteria. Those deferred stripping expenditures capitalized are depreciated using the unit-of-production method using the corresponding reserves of the related components.
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Determination of estimate of oil, gas and mineral reserves
Oil, gas and mineral reserves, used for depreciation and the consideration of impairment as well as the estimation of the timing of payment period for restoration costs and purification costs to be incurred on the cessation of operations, are estimated based on information obtained from qualified professionals. Details of such estimation are described in Note 4 "Critical accounting estimates and judgments: Estimates of oil, gas and mineral reserves" below.
Non-current assets or disposal groups held for sale and discontinued operations
A non-current asset or disposal group is classified as held for sale when: its carrying amount is expected to be recovered principally through a sale transaction rather than through continuing use; management of ENEOS Group is committed to sell the asset; the sale is highly probable, will occur within one year; and the asset is available for immediate sale.
A non-current asset or disposal group held for sale is measured at the lower of the carrying amount and FVLCD and is not depreciated or amortized while it is classified as held for sale or while it is part of a disposal group classified as held for sale.
Non-current assets and disposal groups that have already been disposed of or that are classified as held for sale are recognized as discontinued operations when they meet any of the following: - Separate major line of business or geographical area of operations - Part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations - Subsidiary acquired exclusively with a view to resale
Employee benefits
Post-retirement benefits
ENEOS Group operates both defined benefit plans and defined contribution plans. The liability recognized in the consolidated statements of financial position in respect of defined benefit plans is the present value of the defined benefit obligation less the fair value of plan assets at the end of the reporting period. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The discount rate is determined by reference to market yields at the end of the reporting period on high-quality corporate bonds that have terms to maturity approximating to the terms of the related pension obligation.
For components of defined benefit costs, service costs and the net interest in the net defined benefit liability (asset) are recognized in profit or loss. Measurements, which include actuarial gains and losses arising from differences between estimates and actual experience, and changes in actuarial assumptions, are recognized in other comprehensive income in the period in which they arise. ENEOS Group reclassifies such amounts recognized in other components of equity to retained earnings immediately as they are not permitted to be reclassified to profit or loss but may be reclassified within equity. Past-service costs are recognized in profit or loss.
Costs related to defined contribution plans are recognized as expenses in the period in which the employees render the related service, and the contributions payable are recognized as liabilities.
Share-based payments
The Company has introduced a share-based remuneration plan for directors who are not audit and supervisory committee members (excluding outside directors and overseas residents) of the Company, directors (excluding overseas residents) of three core operating companies and executive officers who are not serving concurrently as directors (excluding overseas residents, hereinafter these directors and executive officers are collectively referred to as Directors, etc.) and therefore have adopted the BIP (Board Incentive Plan) Trust for equity-settled executive compensation. The compensation for received services is measured by using the fair value of the Company shares as of the grant date, and is considered as expenses during the right vesting period. The same amount thereof is considered as an increase in equity.
Provisions and contingent liabilities
A provision is recognized when the Company has a present legal or constructive obligation as a result of past events, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and reliable estimates can be made of the amount of the obligation.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligations using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligations. The increase in the provision due to the passage of time is recognized as interest expense.
Asset retirement obligations are recognized when the Company is obligated to dismantle and remove facilities or equipment and restore the site, and reliable estimates can be made of the amounts of its obligations.
Obligations that are probable at the end of the reporting period, but cannot be confirmed whether or not they are obligations as of the end of the reporting period or do not meet the recognition criteria of provisions are disclosed as contingent liabilities in the Note 33 "Contingencies".
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Treasury stock
When treasury stock is reacquired, the consideration paid including any directly attributable incremental costs, net of tax, is recognized as a deduction from equity. When treasury stock is sold, the consideration received is recognized as an increase in equity.
Revenue recognition
ENEOS Group recognizes revenue based on the following five steps, excluding interest and dividend income, etc. recognized in accordance with IFRS 9 "Financial Instruments".
Step 1: Identify the contracts with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation
ENEOS Group is engaged in the sales of petroleum products, petrochemicals, crude oil, natural gas, raw material ore including copper concentrate, non-ferrous metal products including electrolytic coppers, electronic materials, etc.
For these sales, because the legal ownership of the product, right of exclusive physical possession, the material risks and economic value associated with the ownership of the product is transferred and the right to receive consideration for the product from the customer is acquired mostly when control of the product is transferred to the customer, specifically, when the product is delivered to the customer, revenue is recognized at that time. Revenue is recognized based on the transaction price in the contract with the customer, and presented net of value-added taxes, returned goods, rebates and discounts. Taxes, such as value-added taxes or gas oil delivery taxes which are imposed at the point of sale and considered to have been collected as an agent on behalf of the governmental authority, are excluded from revenue and are presented on a net basis. Conversely, taxes, such as gasoline taxes, which are costs imposed during the process prior to sales and which are subsequently included in the sales price, are included in revenue. For transactions in which the consideration could fluctuate, revenue is recognized within a scope in which a significant reversal in the revenue recognized will not occur in the future using the single most likely amount in a range of possible consideration amounts.
Government grants
Government grants are recognized at fair value where there is reasonable assurance that the grant will be received and the attached conditions will be complied with. When government grants are related to expense items, they are recognized as income on a systematic basis over the period in which the related costs for which they are intended to compensate are recognized. With regard to grants relating to assets, the amount of the grants is deducted from the cost of the assets.
Income tax expense
Income tax expense comprises current taxes and deferred taxes.
These are recognized in profit or loss, except for the taxes which arise from business combinations or recognized in either other comprehensive income or directly in equity.
Current income taxes are calculated as expected taxes payables or receivables on the taxable income, using the tax rates enacted or substantially enacted by the end of the reporting period, adjusted by taxes payable or receivable in prior fiscal years.
Deferred taxes are recognized on temporary differences between the carrying amount of assets and liabilities at the end of the reporting period for accounting purposes and their tax bases. Deferred taxes are determined using tax rates that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred tax asset is realized or the deferred tax liability is settled.
Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences, to the extent that it is probable that future taxable income will be available against which they can be utilized. Deferred tax assets are not recognized if the temporary differences arise from the initial recognition of an asset or liability in a transaction other than business combination that affects neither accounting profit nor taxable income at the time of transaction. Deferred tax assets are reviewed at the end of the reporting period and reduced to the extent that it is no longer probable that the related tax benefits will be realized.
Deferred tax liabilities are recognized for all taxable temporary differences except the temporary differences arising from the initial recognition of an asset or liability in a transaction which is not a business combination and affects neither accounting profit nor taxable income at the time of transaction, and the taxable temporary differences arising from the initial recognition of goodwill.
Deferred tax assets and liabilities are presented as non-current assets and non-current liabilities, respectively.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis or to realize the assets and settle the liabilities simultaneously.
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In addition, for particular transactions recognizing the same amount of assets and liabilities from a single transaction, the Company recognizes deferred tax liabilities and deferred tax assets for the taxable temporary differences pertaining to recognized assets and the deductible temporary differences pertaining to recognized liabilities, respectively.
Fair value measurement
All assets or liabilities measured at fair value are categorized within the following fair value hierarchy, based on the observability of inputs used in fair value measurement:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2: Inputs other than quoted prices included within Level 1 that are observable either directly or indirectly
Level 3: Unobservable inputs
4. Critical accounting estimates and judgments
Preparation of the Company's consolidated financial statements requires management's estimates and judgments. These estimates and judgments are based on the best estimates of management in light of historical experience and various factors deemed to be reasonable at the end of the reporting period. Actual results may differ from those estimates and judgments.
In addition, as of March 31, 2020, the Company also recognizes the spread of COVID-19 and changes in the market conditions caused by trends of oil-producing countries as highly uncertain factors that should be taken into account in making estimates and judgments at the end of the reporting period. The spread of COVID-19 is an event having wide-ranging impacts on the economy and corporate activity. Although the long-term impact is difficult to calculate, the Company has made reasonable estimates and judgments in light of the situation at the end of the reporting period based on the assumption that the reduced demand for various products and other effects will remain for a certain period of time. In addition, any further increase in uncertainty in the future could mean the estimates may be reviewed at such time.
The key estimates and judgments that may have the most significant effect on the Company's consolidated financial statements are addressed below:
Estimates of oil, gas and mineral reserves
Assets related to oil, gas and mineral resources are depreciated using the unit of production method at a ratio of output during the reporting period to the total of proved and probable developed reserves. The estimates of those reserves require various assumptions including grade, commodity prices, foreign exchange rates, production costs and capital costs. These assumptions are based on the best estimates and judgments made by management; however, these assumptions may be affected by changes in uncertain future economic conditions. Where an adjustment is required, such an adjustment may have a material impact on the consolidated financial statements.
This item is related to Note 14 "Impairment of non-financial assets".
Valuation of inventories
Inventories are stated at the lower of cost and net realizable value. If net realizable value at the end of the reporting period has fallen below cost, inventories are measured at net realizable value, and the difference between such net realizable value and cost is recognized as cost of sales. If the net realizable value has significantly declined due to deterioration in the market environment, a loss will be incurred that may have a material impact on the consolidated financial statements.
This item is related to Note 10 "Inventories".
Impairment of non-financial assets
ENEOS Group tests property, plant and equipment, goodwill and intangible assets for impairment in accordance with the accounting policies in Note 3 "Significant accounting policies". When calculating the recoverable amount in the impairment test, the estimates of future cash flows and discount rate, etc. are set for the calculation. The future cash flows are based on the best estimates and judgments of management based on the business plan approved by management; however, future cash flows may be affected by changes in uncertain factors included in the future cash flows such as the sales volumes, commodity prices and foreign exchange rates. Where adjustments are required in these estimates and the recoverable amount, such adjustments may have a material impact on the consolidated financial statements.
This item is related to Note 14 "Impairment of non-financial assets".
Income taxes
ENEOS Group is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. ENEOS Group recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where
- 21 -
the final tax outcome of these matters is different from the amounts that were initially recorded, such differences may have a material impact on the consolidated financial statements.
Deferred tax assets are recognized to the extent that it is probable that future taxable income will be available against which deductible temporary differences, unused tax credits and unused tax loss carryforwards can be utilized. The timing and amount of future taxable income are estimated based on the business plan approved by management that includes assumptions such as sales volumes, commodity prices, and foreign exchange rates.
The timing and amount of taxable income may be affected by changes in uncertain future economic conditions, so where the actual timing and amounts differ from the estimates, the amount of available deferred tax assets may also change, which may have a material impact on the consolidated financial statements.
This item is related to Note 20 "Deferred tax" and Note 28 "Income taxes".
Employee benefits
ENEOS Group operates retirement benefit plans including defined benefit plans. The present value of retirement benefit obligations to these plans and the related service costs are calculated based on actuarial assumptions. These actuarial assumptions require estimates and judgments on a number of variables such as discount rates.
ENEOS Group obtains advice from external pension actuaries with respect to the appropriateness of these actuarial assumptions including these variables. The actuarial assumptions are determined based on the best estimates and judgments made by management; however, these assumptions may be affected by changes in uncertain future economic conditions, which may have a material impact on the consolidated financial statements.
This item is related to Note 19 "Employee benefits".
Provisions and contingent liabilities
ENEOS Group recognizes various provisions, including provisions for asset retirement obligations, in the consolidated statements of financial position. These provisions are recognized based on the best estimates of the expenditures required to settle the obligations, taking risks and uncertainty related to the obligations into account at the end of the reporting period.
Expenditures required to settle the obligations are calculated by taking possible results into account comprehensively; however, they may be affected by the occurrence of unexpected events or changes in conditions. Where the actual payments differ from the estimates, such differences may have a material impact on the consolidated financial statements in future periods.
With regard to contingent liabilities, any items that may have a material impact on business in the future are disclosed in light of all the available evidence at the end of the reporting period and by taking into account the probability of these contingencies and their impact on financial reporting.
This item is related to Note 18 "Provisions" and Note 33 "Contingencies".
Fair value measurement
ENEOS Group measures equity financial assets that do not have quoted prices in active markets at fair value, which are classified into financial assets at fair value through other comprehensive income, using appropriate valuation approaches.
For fair value measurement, ENEOS Group selects valuation methods and uses assumptions based on factors such as the market conditions at the end of the reporting period. These assumptions are based on the best estimates and judgments made by management; however, these assumptions may be affected by changes in uncertain future economic conditions. Where an adjustment is required, such adjustment may have a material impact on the consolidated financial statements.
The item is related to Note 21 "Financial instruments (4) Fair value of financial instruments".
Unconsolidated entity of which the Company holds a majority of the voting rights
The principal unconsolidated entity in which the Company holds a majority of the voting rights is as follows:
Osaka International Refining Company, Limited
ENEOS Group holds more than 50% of the voting rights of the entity. The Company has determined that it has joint control over the entity under the contractual agreements with other investors, and also has rights to its share of the net assets of Osaka International Refining Company, Limited. Therefore, the entity is classified as a joint venture.
Classification of joint arrangements
The principal joint arrangement over which the Company has joint control under the contractual agreements with other investors is as follows:
- 22 -
LS-Nikko Copper Inc.
The Company holds 49.9% of the voting rights of LS-Nikko Copper Inc. The Company has determined that it has joint control over the entity under the contractual agreements with other investors, and also has rights to its share of net assets of the entity. Therefore, the entity is classified as a joint venture.
5. Standards and interpretations that have been issued but not yet adopted by ENEOS Group
There are no new standards, interpretations and amendments that have been issued as of the date of approval of the consolidated financial statements that have been adopted early by the ENEOS Group and that have had a material impact on the consolidated financial statements.
6. Business combination
Year ended March 31, 2020
This information is omitted because there were no significant business combinations.
Year ended March 31, 2019
This information is omitted because there were no significant business combinations.
7. Segment information
Description of reportable segments
ENEOS Group's operating segments are components of ENEOS Group for which discrete financial information is available, and such information is regularly reviewed by the board of directors (the chief operating decision maker) in order to make decisions about the allocation of resources and assess its performance. ENEOS Group, which includes the Company as its holding company, is composed of segments determined by product and service based on three core operating companies. ENEOS Group considers "Energy", "Oil and Natural Gas Exploration and Production, or Oil and Natural Gas E&P" and "Metals" as its operating segments which are also reportable segments.
"Other" includes relatively less significant businesses.
The details of the major products and services or business activities of each reportable segment and "Other" are as follows:
Segments and | ||
other | Major products and services or business | |
Energy | Petroleum refining and marketing, lubricants, basic chemical products, specialty & performance chemical | |
products, gas, coal, electricity, and new energy | ||
Oil and | Oil and gas exploration, development and production | |
Natural Gas | ||
E&P | ||
Non-ferrous metal resources development and mining, copper, gold, silver, sulfuric acid, copper foils, materials | ||
Metals | for rolling and processing, thin film materials, non-ferrous metal recycling and industrial waste treatment, | |
transportation by ships of products including non-ferrous metal products, titanium, and electric wires | ||
Other | Asphalt paving, civil engineering work, construction work, land transportation, real estate leasing business, and | |
affairs common to ENEOS Group companies including fund procurement | ||
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Revenue, profit or loss, assets, liabilities and other items by reportable segment
Year ended March 31, 2020
(Millions of Yen) | ||||||||||||
Oil and | Total of | |||||||||||
Natural | Reportable | Eliminations | ||||||||||
Energy | Gas E&P | Metals | segments | Other | (*5) | Consolidated | ||||||
Revenue
Revenue from external customers
Inter-segment revenue or transfers (*2)
Total
Segment profit (loss) (*3) Finance income Finance costs
Profit (loss) before tax
Segment assets Segment liabilities Other items
Depreciation, depletion and amortization
Share of profit (loss) of investments accounted for using the equity method
Capital expenditures on property, plant and equipment, and intangible assets (*4)
8,414,259 | 133,364 | 1,002,104 | 9,549,727 | 462,047 | - | 10,011,774 | ||||||
5,185 | - | 2,309 | 7,494 | 45,305 | (52,799) | - | ||||||
8,419,444 | 133,364 | 1,004,413 | 9,557,221 | 507,352 | (52,799) | 10,011,774 | ||||||
(162,766) | (38,801) | 44,631 | (156,936) | 41,076 | 2,799 | (113,061) | ||||||
12,116 | ||||||||||||
34,819 | ||||||||||||
(135,764) | ||||||||||||
5,229,113 | 1,064,439 | 1,380,055 | 7,673,607 | 2,752,049 | (2,414,364) | 8,011,292 | ||||||
3,438,274 | 547,907 | 837,306 | 4,823,487 | 2,289,574 | (1,809,677) | 5,303,384 | ||||||
205,726 | 42,381 | 60,838 | 308,945 | 13,028 | 4,576 | 326,549 | ||||||
(23,928) | 4,911 | 31,455 | 12,438 | 3,430 | - | 15,868 | ||||||
249,053 | 86,931 | 73,898 | 409,882 | 18,028 | (5,115) | 422,795 |
(*1) The accounting policy for the reportable segments is the same as the accounting policy for preparing the consolidated financial statements.
(*2) In-houseinter-segment revenue or transfers are based on actual market prices.
(*3) Segment profit (loss) is stated as operating profit (loss) in the consolidated statements of profit or loss.
(*4) Capital expenditure includes acquisition of the right-of-use assets.
(*5) Eliminations are as follows:
- Segment profit (loss) eliminations of 2,799 million yen include 4,277 million yen of net corporate income and expenses of ENEOS Group unallocated to any reportable segment or "Other".
- Segment asset eliminations of (2,414,364) million yen mainly comprise the elimination of inter-segment receivables.
- Segment liability eliminations of (1,809,677) million yen mainly comprise the elimination of inter-segment payables.
- 24 -
Year ended March 31, 2019
Revenue
Revenue from external customers
Inter-segment revenue or transfers (*2)
Total
Segment profit (loss) (*3) Finance income Finance costs
Profit before tax
Segment assets Segment liabilities Other items
Depreciation, depletion and amortization
Share of profit (loss) of investments accounted for using the equity method
Capital expenditures on property, plant and equipment, and intangible assets (*4)
(Millions of Yen) | ||||||||||||
Oil and | Total of | |||||||||||
Natural | Reportable | Eliminations | ||||||||||
Energy | Gas E&P | Metals | segments | Other | (*5) | Consolidated | ||||||
9,475,637 | 149,243 | 1,039,312 | 10,664,192 | 465,438 | - | 11,129,630 | ||||||
5,657 | 6 | 2,529 | 8,192 | 62,198 | (70,390) | - | ||||||
9,481,294 | 149,249 | 1,041,841 | 10,672,384 | 527,636 | (70,390) | 11,129,630 | ||||||
375,395 | 37,829 | 68,246 | 481,470 | 42,446 | 13,167 | 537,083 | ||||||
7,018 | ||||||||||||
35,484 | ||||||||||||
508,617 | ||||||||||||
5,707,236 | 1,005,817 | 1,445,007 | 8,158,060 | 2,607,390 | (2,287,639) | 8,477,811 | ||||||
3,645,635 | 601,882 | 897,109 | 5,144,626 | 2,145,084 | (1,931,715) | 5,357,995 | ||||||
162,368 | 27,357 | 48,353 | 238,078 | 8,889 | 1,341 | 248,308 | ||||||
14,934 | (7,692) | 38,277 | 45,519 | 541 | - | 46,060 | ||||||
200,241 | 69,782 | 54,986 | 325,009 | 14,038 | (2,531) | 336,516 |
(*1) The accounting policy for the reportable segments is the same as the accounting policy for preparing the consolidated financial statements.
(*2) In-houseinter-segment revenue or transfers are based on actual market prices.
(*3) Segment profit (loss) is stated as operating profit (loss) in the consolidated statements of profit or loss.
(*4) Capital expenditure includes acquisition of new leased assets.
(*5) Eliminations are as follows:
- Segment profit (loss) eliminations of 13,167 million yen include 11,210 million yen of net corporate income and expenses of ENEOS Group unallocated to any reportable segment or "Other".
- Segment asset eliminations of (2,287,639) million yen mainly comprise the elimination of inter-segment receivables.
- Segment liability eliminations of (1,931,715) million yen mainly comprise the elimination of inter-segment payables.
Information on products and services
The categories of major products and services correspond to the reportable segment. For further details, refer to "Revenue, profit or loss, assets, liabilities and other items by reportable segment".
- 25 -
Information of revenue by category and geographic areas
Substantially all of ENEOS Group's revenue arises from the sale of goods.
Revenue from external customers by country or geographic area is as follows:
(Millions of Yen) | |||
Year ended | Year ended | ||
March 31, 2020 | March 31, 2019 | ||
Japan | 7,911,283 | 8,810,748 | |
China | 571,716 | 783,567 | |
Other | 1,528,775 | 1,535,315 | |
Total | 10,011,774 | 11,129,630 |
- Revenue is calculated based on the customers' locations, and is categorized into countries or regions. Non-current assets by geographic area are as follows:
(Millions of Yen) | |||
As of March 31, | As of March 31, | ||
2020 | 2019 | ||
Japan | 3,199,849 | 2,900,262 | |
Chile | 319,230 | 319,603 | |
Other | 744,993 | 710,955 | |
Total | 4,264,072 | 3,930,820 |
(*) Non-current assets exclude financial instruments, deferred tax assets and assets for retirement benefits.
Information on major customers
ENEOS Group does not have any external customer whose revenue exceeds 10% of ENEOS Group's total revenue. Accordingly, disclosure of information on major customers is omitted.
8. Cash and cash equivalents
The adjustment for cash and cash equivalents are as follows:
(Millions of Yen) | |||
As of March 31, | As of March 31, | ||
2020 | 2019 | ||
Cash and cash equivalents in the consolidated | 398,573 | 385,434 | |
statements of financial position | |||
Restricted deposits | (5,271) |
Cash and cash equivalents in the consolidated | 393,302 |
statements of cash flows | |
9. Trade and other receivables
The components of trade and other receivables are as follows:
(6,489)
378,945
(Millions of Yen)
As of March 31, | As of March 31, | ||
2020 | 2019 | ||
Accounts receivable - trade | 849,840 | 1,202,583 | |
Notes receivable - trade | 17,906 | 24,909 | |
Other | 153,975 | 137,753 | |
Less: loss allowance | (1,151) | (1,271) | |
Total | 1,020,570 | 1,363,974 |
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10. Inventories | |||
The components of inventories are as follows: | |||
(Millions of Yen) | |||
As of March 31, | As of March 31, | ||
2020 | 2019 | ||
Merchandise and finished goods | 550,715 | 643,211 | |
Work in process | 136,524 | 173,125 | |
Raw materials and supplies | 494,449 | 773,871 | |
Total | 1,181,688 | 1,590,207 |
The amounts of inventories recognized as an expense during the period are described in Note 25 "Expenses by nature". The write- down (reversal) of inventories for the years ended March 31, 2019 and March 31, 2020 was (617) million yen and 177,230 million yen, respectively.
11. Property, plant and equipment
Changes in acquisition cost, and accumulated depreciation and impairment losses of property, plant and equipment are as follows:
Year ended March 31, 2020
(Millions of Yen)
Acquisition cost
At beginning of the year
Adjustments due to changes in accounting standards
Adjusted balance at beginning of the year
Acquisitions
Acquisition through business combination
Disposals
Transfer from construction in Transfer to assets held for sale
Exchange differences Other
Buildings, | Machinery, | |||||||||
structures | equipment | Construction | Oil and gas | |||||||
and oil tanks | and vehicles | Land | in progress | assets | Other | |||||
2,332,576 | 3,323,618 | 1,460,237 | 127,045 | 1,302,531 | 232,527 | |||||
42,838 | 106,121 | 235,916 | - | 22,692 | 250 | |||||
2,375,414 | 3,429,739 | 1,696,153 | 127,045 | 1,325,223 | 232,777 | |||||
18,822 | 64,353 | 12,396 | 209,484 | 96,026 | 2,573 | |||||
- | - | - | - | - | - | |||||
(24,258) | (46,850) | (18,500) | (1,374) | (5,142) | (3,781) | |||||
69,902 | 104,583 | 11,940 | (193,355) | - | 6,930 | |||||
(14,834) | (84,687) | (3,133) | (134) | - | (1,225) | |||||
(9,449) | (7,156) | (225) | (252) | (52,234) | (2,226) | |||||
(7,145) | (1,446) | (3,007) | (1,446) | 5,834 | (1,521) |
Total
8,778,534
407,817
9,186,351
403,654
-
(99,905)
-
(104,013)
(71,542)
(8,731)
At end of the year | 2,408,452 | 3,458,536 | 1,695,624 | 139,968 | 1,369,707 | 233,527 |
- Acquisitions include increases in right-of-use assets. In addition, disposals include decreases in right-of-use assets from the cancellation of leases.
9,305,814
(Millions of Yen) | ||||||||||||||||
Accumulated depreciation and | Buildings, | Machinery, | ||||||||||||||
impairment losses | structures | equipment | Construction | Oil and gas | ||||||||||||
and oil tanks | and vehicles | Land | in progress | assets | Other | Total | ||||||||||
At beginning of the year | 1,606,269 | 2,681,409 | 154,927 | 2,590 | 785,593 | 166,104 | 5,396,892 | |||||||||
Depreciation | 71,836 | 155,954 | 18,840 | - | 41,749 | 9,441 | 297,820 | |||||||||
Impairment losses | 3,227 | 3,427 | 1,491 | 3,557 | 84,880 | 630 | 97,212 | |||||||||
Reversal of impairment losses | - | 10 | - | - | 35 | - | 45 | |||||||||
Disposals | (19,873) | (43,849) | (2,760) | (1,353) | (2,304) | (3,655) | (73,794) | |||||||||
Transfer to assets held for sale | (10,464) | (67,446) | - | - | - | (1,013) | (78,923) | |||||||||
Exchange differences | (5,151) | (3,351) | (47) | (14) | (42,162) | (1,450) | (52,175) | |||||||||
Other | (2,085) | (2,417) | - | (487) | (46) | (1,089) | (6,124) | |||||||||
At end of the year | 1,643,759 | 2,723,737 | 172,451 | 4,293 | 867,745 | 168,968 | 5,580,953 | |||||||||
- 27 - |
Year ended March 31, 2019 | |||||||||||||||
(Millions of Yen) | |||||||||||||||
Acquisition cost | Buildings, | Machinery, | |||||||||||||
structures | equipment | Construction | Oil and gas | ||||||||||||
and oil tanks | and vehicles | Land | in progress | assets | Other | Total | |||||||||
At beginning of the year | 2,252,326 | 3,248,857 | 1,479,090 | 148,497 | 1,182,841 | 225,940 | 8,537,551 | ||||||||
Acquisitions | 4,403 | 17,270 | 7 | 210,309 | 71,078 | 3,605 | 306,672 | ||||||||
Acquisition through business | 1,478 | 5,254 | 565 | 488 | - | 116 | 7,901 | ||||||||
combination | |||||||||||||||
Disposals | (35,295) | (75,617) | (18,632) | (2,308) | (20,517) | (4,841) | (157,210) | ||||||||
Transfer from construction in | 69,926 | 151,217 | 727 | (228,259) | - | 6,389 | - | ||||||||
progress | |||||||||||||||
Transfer to assets held for sale | - | - | - | - | - | - | - | ||||||||
Exchange differences | 17,879 | 6,579 | (14) | 137 | 50,915 | 4,258 | 79,754 | ||||||||
Other | 21,859 | (29,942) | (1,506) | (1,819) | 18,214 | (2,940) | 3,866 | ||||||||
At end of the year | 2,332,576 | 3,323,618 | 1,460,237 | 127,045 | 1,302,531 | 232,527 | 8,778,534 |
- Acquisitions include increases in right-of-use assets. In addition, disposals include decreases in right-of-use assets from the cancellation of leases.
(Millions of Yen) | |||||||||||||||
Accumulated depreciation and | Buildings, | Machinery, | |||||||||||||
impairment losses | structures | equipment | Construction | Oil and gas | |||||||||||
and oil tanks | and vehicles | Land | in progress | assets | Other | Total | |||||||||
At beginning of the year | 1,549,313 | 2,613,964 | 157,607 | 5,539 | 725,935 | 157,793 | 5,210,151 | ||||||||
Depreciation | 62,337 | 122,398 | - | - | 26,601 | 8,962 | 220,298 | ||||||||
Impairment losses | 13,351 | 10,430 | 3,205 | 247 | 13,414 | 275 | 40,922 | ||||||||
Reversal of impairment losses | (4) | - | - | - | (4,736) | - | (4,740) | ||||||||
Disposals | (29,880) | (71,338) | (6,090) | (2,219) | (20,117) | (4,518) | (134,162) | ||||||||
Transfer to assets held for sale | - | - | - | - | - | - | - | ||||||||
Exchange differences | 10,452 | 3,854 | 100 | 33 | 30,470 | 2,364 | 47,273 | ||||||||
Other | 700 | 2,101 | 105 | (1,010) | 14,026 | 1,228 | 17,150 | ||||||||
At end of the year | 1,606,269 | 2,681,409 | 154,927 | 2,590 | 785,593 | 166,104 | 5,396,892 |
The details of impairment losses are described in Note 14 "Impairment of non-financial assets". The details of assets held for sale are described in Note 15 "Non-current assets or disposal groups classified as held for sale".
The carrying amount of property, plant and equipment is as follows:
(Millions of Yen)
Carrying amount
As of March 31, 2020 As of March 31, 2019
Buildings, | Machinery, | |||||||||
structures | equipment | Construction | Oil and gas | |||||||
and oil tanks | and vehicles | Land | in progress | assets | Other | Total | ||||
764,693 | 734,799 | 1,523,173 | 135,675 | 501,962 | 64,559 | 3,724,861 | ||||
726,307 | 642,209 | 1,305,310 | 124,455 | 516,938 | 66,423 | 3,381,642 |
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12. Goodwill and intangible assets
Schedule of changes
Changes in acquisition cost, and accumulated amortization and impairment losses of goodwill and intangible assets are as follows:
Year ended March 31, 2020
(Millions of Yen) | ||||||||||||||||
Customer- | ||||||||||||||||
Acquisition cost | Goodwill | Software | related assets | Other | Total | |||||||||||
At beginning of the year | 202,301 | 204,227 | 286,153 | 139,305 | 831,986 | |||||||||||
Acquisitions | - | 26,676 | - | 2,464 | 29,140 | |||||||||||
Acquisition through | - | - | - | - | - | |||||||||||
business combination | ||||||||||||||||
Disposals | - | (10,823) | - | (246) | (11,069) | |||||||||||
Exchange differences | (730) | (31) | (225) | (434) | (1,420) | |||||||||||
Other | (1,334) | (485) | 946 | (1,450) | (2,323) | |||||||||||
At end of the year | 200,237 | 219,564 | 286,874 | 139,639 | 846,314 | |||||||||||
(Millions of Yen) | ||||||||||||||||
Accumulated amortization | Customer- | |||||||||||||||
and impairment losses | Goodwill | Software | related assets | Other | Total | |||||||||||
At beginning of the year | 5,819 | 147,851 | 22,699 | 113,335 | 289,704 | |||||||||||
Amortization | - | 12,231 | 11,951 | 4,547 | 28,729 | |||||||||||
Impairment losses | 8,655 | 129 | - | 353 | 9,137 | |||||||||||
Disposals | - | (10,503) | - | (32) | (10,535) | |||||||||||
Exchange differences | 33 | (23) | (8) | (232) | (230) | |||||||||||
Other | - | (1,419) | - | (173) | (1,592) | |||||||||||
At end of the year | 14,507 | 148,266 | 34,642 | 117,798 | 315,213 | |||||||||||
Year ended March 31, 2019 | ||||||||||||||||
(Millions of Yen) | ||||||||||||||||
Customer- | ||||||||||||||||
Acquisition cost | Goodwill | Software | related assets | Other | Total | |||||||||||
At beginning of the year | 183,035 | 179,894 | 279,669 | 135,075 | 777,673 | |||||||||||
Acquisitions | - | 29,375 | - | 3,308 | 32,683 | |||||||||||
Acquisition through | 20,955 | 7 | 6,530 | 2,604 | 30,096 | |||||||||||
business combination | ||||||||||||||||
Disposals | - | (3,690) | - | (1,101) | (4,791) | |||||||||||
Exchange differences | (310) | 25 | (46) | (221) | (552) | |||||||||||
Other | (1,379) | (1,384) | - | (360) | (3,123) | |||||||||||
At end of the year | 202,301 | 204,227 | 286,153 | 139,305 | 831,986 | |||||||||||
(Millions of Yen) | ||||||||||||||||
Accumulated amortization | Customer- | |||||||||||||||
and impairment losses | Goodwill | Software | related assets | Other | Total | |||||||||||
At beginning of the year | 5,819 | 139,181 | 11,187 | 109,866 | 266,053 | |||||||||||
Amortization | - | 11,798 | 11,521 | 4,691 | 28,010 | |||||||||||
Impairment losses | - | 1,268 | - | 13 | 1,281 | |||||||||||
Disposals | - | (3,480) | - | (1,098) | (4,578) | |||||||||||
Exchange differences | - | 15 | (9) | (274) | (268) | |||||||||||
Other | - | (931) | - | 137 | (794) | |||||||||||
At end of the year | 5,819 | 147,851 | 22,699 | 113,335 | 289,704 | |||||||||||
- 29 - |
Amortization of intangible assets is included in "Cost of sales" and "Selling, general and administrative expenses" in the consolidated statements of profit or loss.
The carrying amount of goodwill and intangible assets is as follows:
(Millions of Yen) | ||||||||||
Customer- | ||||||||||
Carrying amount | Goodwill | Software | related assets | Other | Total | |||||
As of March 31, 2020 | 185,730 | 71,298 | 252,232 | 21,841 | 531,101 | |||||
As of March 31, 2019 | 196,482 | 56,376 | 263,454 | 25,970 | 542,282 |
The carrying amount of goodwill of each segment is as follows:
(Millions of Yen) | |||
As of March 31, | As of March 31, | ||
2020 | 2019 | ||
Energy | 171,859 | 171,859 | |
Oil and natural gas E&P | - | - | |
Metals | 13,871 | 24,623 | |
Total | 185,730 | 196,482 |
Significant goodwill and intangible assets
Goodwill and intangible assets recognized in the consolidated statements of financial position mainly consist of goodwill and customer-related assets arising from the business integration between the Company and TonenGeneral Sekiyu K.K. on April 1, 2017. The customer-related assets are amortized on a straight-line basis, and the remaining amortization period is 22 years.
13. Leases
Year ended March 31, 2020
As a lessee, the ENEOS Group leases, among other things, fixed-term land for service stations, plants, and office sites (land), fixed- term vessels for the transportation of raw materials and commodities (machinery, equipment and vehicles) and offices (buildings and structures).
The components of profit or loss related to leases are as follows:
(Millions of Yen) | |
Year ended | |
March 31, 2020 | |
Depreciation associated with right-of-use assets | |
Buildings and structures | 8,089 |
Machinery, equipment and vehicles | 37,049 |
Land | 18,840 |
Oil and gas assets | 4,987 |
Other | 697 |
Total | 69,662 |
Interest expense on lease liabilities | 7,249 |
Expense for short-term leases | 3,823 |
Expense for leases of low-value assets | 459 |
Depreciation associated with right-of-use assets, expense for short-term leases and expense for leases of low-value assets are included in "Cost of sales," "Selling, general and administrative expenses" or "Other operating expenses" in the consolidated statements of profit or loss. Finance costs (interest expenses) include interest expense on lease liabilities.
- 30 -
The carrying amount of right-of-use assets is as follows:
(Millions of Yen) | |||
As of March 31, | As of April 1, | ||
2020 | 2019 | ||
Buildings and structures | 63,051 | 60,673 | |
Machinery, equipment and vehicles | 162,207 | 138,558 | |
Land | 223,925 | 235,916 | |
Oil and gas assets | 41,940 | 22,692 | |
Other | 1,622 | 2,076 | |
Total | 492,745 | 459,915 |
The increase in right-of-use assets in the year ended March 31, 2020 is as follows: Note that this does not include the adjustment at the beginning of the year due to the initial application of IFRS 16.
(Millions of Yen) | |
Year ended | |
March 31, 2020 | |
Buildings and structures | 16,773 |
Machinery, equipment and vehicles | 60,565 |
Land | 11,079 |
Oil and gas assets | 31,128 |
Other | 493 |
Total | 120,038 |
Total cash outflows related to leases for the year ended March 31, 2020 are 84,192 million yen.
A maturity analysis of the lease liabilities is included in Note 21 "Financial Instruments: Financial risk management".
Year ended March 31, 2019
ENEOS Group leases property, plant and equipment and intangible assets classified as finance leases. The carrying amount of leased assets where ENEOS Group is a lessee under finance leases is as follows:
(Millions of Yen) | |
As of March 31, | |
2019 | |
Buildings, structures and oil tanks | 10,343 |
Machinery, equipment and vehicles | 32,437 |
Other property, plant and equipment | 1,826 |
Intangible assets | 116 |
Total | 44,722 |
The components of finance lease obligations are as follows:
(Millions of Yen) | ||
As of March 31, | ||
2019 | ||
Gross finance lease obligations: | ||
Total minimum lease payments | ||
Within one year | 8,893 | |
After one year but not more than five | 26,953 | |
years | ||
More than five years | 43,291 | |
Less: amount representing interest charge | (19,793) | |
Present value of finance lease obligations | 59,344 |
- 31 -
The analysis of present value of finance lease obligations is as follows:
(Millions of Yen) | |
As of March 31, | |
2019 | |
Within one year | 6,974 |
After one year but not more than five years | 20,285 |
More than five years | 32,085 |
Total | 59,344 |
The analysis of future minimum lease payments by due date under ENEOS Group's non-cancellable operating leases is as follows:
(Millions of Yen) | |
As of March 31, | |
2019 | |
Within one year | 40,784 |
After one year but not more than five years | 91,330 |
More than five years | 57,796 |
Total | 189,910 |
The amount of minimum lease payments recognized as an expense under ENEOS Group's non-cancellable and cancellable operating leases is included in "Rental expenses" in Note 25 "Expenses by nature".
14. Impairment of non-financial assets
Impairment losses
The components of impairment losses by reportable segment and other are as follows:
(Millions of Yen) | |||
Year ended | Year ended | ||
March 31, 2020 | March 31, 2019 | ||
Energy | 10,269 | 28,195 | |
Oil and Natural Gas E&P | 89,302 | 13,414 | |
Metals | 11,093 | 611 | |
Other | 2,547 | 27 | |
Total | 113,211 | 42,247 |
Impairment losses are included in "Other operating expenses" in the consolidated statements of profit or loss. Impairment losses recorded by subsidiaries and affiliates accounted for using the equity method are not included.
Year ended March 31, 2020
In the Energy segment, impairment losses of 10,269 million yen relating to service stations and facilities, etc. were recognized.
In the Oil and Natural Gas E&P segment, impairment losses of 89,302 million yen were recognized in relation to assets of working interests in several oil and gas fields. In this segment, the recoverable amounts for all working interests were reviewed based on the value in use reflecting the future forecast of a decline in crude oil and natural gas prices in light of the market conditions for crude oil and gas prices at the end of the reporting period, rather than based on whether there were indications of impairment specific to the individual working interest. As a result, impairment losses were recorded mainly relating to working interests in oil and gas fields in the United Kingdom North Sea and Papua New Guinea. The total recoverable amount for assets that have suffered impairment losses, including the above, was 303,763 million yen. The value in use is calculated by discounting the estimated future cash flows based on the business plan approved by management, while the estimated future cash flows include various factors such as reserves, crude oil and gas prices, and the discount rate. The crude oil and gas prices are determined based on observable market price, trends in the past, and management's internal projection. The pre-tax discount rate used in each cash-generating unit is primarily 11.5% (compared with 12.0% in the previous fiscal year), which reflects the current market assessment of the time value of money and specific risks.
In the Metals segment, 11,093 million yen of impairment losses were recorded against items such as a portion of goodwill recognized at the time of past business combinations and on production facilities.
The entire ENEOS Group recognized a gain on reversal of impairment losses of 45 million yen, and this gain on reversal of impairment losses is included in "Other operating income" in the consolidated statements of profit or loss.
- 32 -
Year ended March 31, 2019
In the Energy segment, impairment losses of 28,195 million yen relating to assets including Muroran Plant, which had been proceeding with a change to business office, and other manufacturing and storage facilities were recognized.
In the Oil and Natural Gas E&P segment, due to a review of the long-term production plan and a reappraisal of assets held, impairment losses of 13,414 million yen were recognized in relation to oil and gas assets of working interests in several oil and gas fields.
In the Oil and Natural Gas E&P segment, a gain on reversal of impairment losses of 4,740 million yen in relation to oil and gas assets was recognized, and this gain on reversal of impairment losses is included in "Other operating income" in the consolidated statements of profit or loss.
Impairment testing on goodwill
Significant goodwill at ENEOS Group is 160,155 million yen due to the business integration with TonenGeneral Sekiyu K.K. on April 1, 2017. Impairment testing on goodwill is conducted once a year regardless of whether there are any indications of impairment, and impairment losses on goodwill are recognized if the recoverable amount of a group of CGUs is less than the carrying amount.
A group of CGUs is the minimum identifiable group of assets which generates cash flows mostly independent from other assets or groups of assets, and the group of CGUs for impairment testing on the above goodwill includes major companies in the Energy segment such as ENEOS Corporation which benefit from synergies of the business integration. The recoverable amount is based on value in use, and value in use is calculated by discounting cash flows of the group of CGUs in the period from the business plan assumed using the business plan approved by management and growth rate as a basis to their present value. The growth rate is 0.0% (compared with 0.2% in the previous fiscal year), which is decided upon comprehensively taking into account various factors including the medium- to long-term inflation rate in Japan and the medium- to long-term growth rate for the petroleum and petrochemical products market in Japan and Asia, while the discount rate is 3.0% (compared with 3.0% in the previous fiscal year), which is based on the weighted average cost of capital before tax.
Even if there are changes in the reasonable scope of major assumptions such as the growth rate and discount rate used in impairment testing, it has been deemed that the possibility of the occurrence of significant impairment losses is low because recoverable amount sufficiently exceeds the carrying amount of goodwill.
15. Non-current assets or disposal groups classified as held for sale
The investments accounted for using the equity method in the Metals segment have been classified as a disposal group held for sale as of March 31, 2019.
In the year ended March 31, 2020, assets of 14,749 million yen and liabilities of 15,957 million yen of JX Engineering Corporation, which was a subsidiary in the Other Business, were classified as a disposal group held for sale at the end of the first quarter after a fair value valuation was made for JX Engineering Corporation based on the signing of a business integration agreement with JX Engineering Corporation as the absorbed company and the external company Shinko Plantech Co., Ltd. as the surviving company (trade name changed to RAIZNEXT Corporation on July 1, 2019). Disposal was completed in accordance with the performance of the said agreement on July 1, 2019.
As of March 31, 2020, assets and liabilities of Hibi Kyodo Smelting Co., Ltd, and some assets and liabilities of Pan Pacific Copper Co., Ltd., or PPC, were classified as a disposal group held for sale, pursuant to a basic agreement, dated December 19, 2019, in relation to the rearrangement of the operational system for the joint venture for copper between JX Nippon Mining & Metals Corporation, which is a subsidiary in the Metals segment, PPC, and the external company Mitsui Mining & Smelting Co., Ltd., and a joint venture agreement in the copper smelting and refining business centered on PPC dated February 12, 2020. This disposal group contained primarily trade and other receivables, inventories, property, plant and equipment, and trade and other payables.
- 33 -
As of March 31, 2019 and March 31, 2020, the carrying amounts of assets and liabilities of disposal groups classified as held for sale are as follows:
(Millions of Yen) | |||||
As of March 31, | As of March 31, | ||||
2020 | 2019 | ||||
Assets: | |||||
Trade and other receivables | 2,915 | - | |||
Inventories | 1,742 | - | |||
Other current assets | 1,909 | - | |||
Property, plant and equipment - Buildings, structures and | 4,370 | - | |||
oil tanks | |||||
Property, plant and equipment - Machinery, equipment | 17,241 | - | |||
and vehicles | |||||
Property, plant and equipment - Land | 3,133 | - | |||
Investments accounted for using the equity method | - | 1,737 | |||
Other | 784 | - | |||
Total | 32,094 | 1,737 | |||
(Millions of Yen) | |||||
As of March 31, | As of March 31, | ||||
2020 | 2019 | ||||
Liabilities: | |||||
Trade and other payables | 4,051 | - | |||
Other non-current liabilities | 1,539 | - | |||
Other | 158 | - | |||
Total | 5,748 | - |
Trade and other receivables and Trade and other payables, which were classified as assets held for sale or liabilities directly related to assets held for sale, were measured at amortized cost.
Other components of equity in regard to assets classified as held for sale as of March 31, 2019 were (87) million yen. Note that this was not applicable as of March 31, 2020.
16. Trade and other payables, and Other current liabilities
Trade and other payables
The components of trade and other payables are as follows:
(Millions of Yen) | |||
As of March 31, | As of March 31, | ||
2020 | 2019 | ||
Accounts payable - trade | 489,602 | 771,389 | |
Notes payables - trade | 41,168 | 51,805 | |
Gasoline excise tax and gas oil delivery tax | 327,624 | 491,021 | |
payables | |||
Other payables | 420,962 | 468,017 | |
Accrued expenses | 64,553 | 70,209 | |
Total | 1,343,909 | 1,852,441 |
Other current liabilities
"Other current liabilities" includes customer deposits and provision for bonuses.
- 34 -
17. Bonds and borrowings
The components of bonds are as follows:
As of | As of |
Interest
(Millions of Yen)
Maturity
Company Name
JXTG Holdings, Inc.
(Note 5)
〃
〃
〃
〃
〃
〃
〃
〃
〃
〃
〃
〃
〃
〃
〃
〃
〃
Muroran Biomass
Hatsuden
(Note 6)
〃
〃
〃
〃
Bond name
3rd, unsecured
4th, unsecured
6th, unsecured
7th, unsecured
8th, unsecured 9th, unsecured
10th, unsecured
11th, unsecured
12th, unsecured 13th, unsecured 14th, unsecured
2nd, unsecured
3rd, unsecured
4th, unsecured
6th, unsecured
7th, unsecured 1st, unsecured 2nd, unsecured
1st
2nd
3rd
4th
5th
Date of issue
December 17,
2010
December 14,
2012
July 19, 2013
June 4, 2014
June 4, 2014
June 4, 2014
December 9,
2014
December 9,
2014
July 28, 2016
July 28, 2016
July 28, 2016
December 5,
2012
December 5,
2012
June 25, 2013
March 20, 2014
October 23, 2014
August 3, 2017
August 3, 2017
April 28, 2017
October 30, 2017
August 30, 2018
October 30, 2019
December 27,
2019
March 31, 2020 | March 31, 2019 | |
10,000 | 10,000 | |
(10,000) | (-) | |
30,000 | 30,000 | |
15,000 | 15,000 | |
- | 10,000 | |
(-) | (10,000) | |
10,000 | 10,000 | |
15,000 | 15,000 | |
10,000 | 10,000 | |
15,000 | 15,000 | |
10,000 | 10,000 | |
10,000 | 10,000 | |
10,000 | 10,000 | |
- | (*4)10,000 | |
(-) | (10,000) | |
(*4)10,000 | (*4)10,000 | |
(*4)10,000 | (*4)10,000 | |
(10,000) | (-) | |
(*4)15,000 | (*4)15,000 | |
(15,000) | (-) | |
(*4)10,000 | (*4)10,000 | |
10,000 | 10,000 | |
10,000 | 10,000 | |
100 | 100 | |
(100) | (-) | |
820 | 820 | |
(820) | (-) | |
800 | 800 | |
(800) | (-) | |
410 | - | |
670 | - | |
202,800 | 221,720 |
rate (%) (*2) Collateral
1.497 None
1.145 None
1.119 None
0.310 None
0.518 None
0.820 None
0.409 None
0.715 None
0.070 None
0.300 None
0.830 None
0.850 None
1.222 None
0.999 None
0.713 None
0.925 None
0.140 None
0.405 None
0.260 None
0.268 None
0.268 None
0.119 None
0.209 None
(*3)
December 17,
2020
December 14,
2022
July 19, 2023
June 4, 2019
June 4, 2021
June 4, 2024
December 9,
2021
December 9,
2024
July 28, 2021
July 28, 2026
July 28, 2036
December 5,
2019
December 5,
2022
June 25, 2020
March 19, 2021
October 23, 2024
August 3, 2022
August 3, 2027
April 28, 2020
October 30, 2020
March 31,
2021
October 29, 2021
March 31, 2022
Total
(36,720) | (20,000) | |
- | - | - |
(*1) Amounts in parentheses represent the current portion of bonds.
(*2) The interest rate represents the interest rate of the outstanding balance as of March 31, 2020.
(*3) The maturity represents the repayment term of the outstanding balance as of March 31, 2020.
(*4) Although these bonds were acquired from TonenGeneral Sekiyu K.K. at a fair value at the time of the business combination with TonenGeneral Sekiyu K.K. on April 1, 2017, this fair value is not incorporated in the table above.
(*5) The trade name was changed to ENEOS Holdings, Inc. on June 25, 2020.
(*6) The trade name was changed to ENEOS Biomass Power Muroran G.K. on April 1, 2020.
- 35 -
The components of borrowings are as follows: | |||
(Millions of Yen) | |||
As of March 31, | As of March 31, | Average interest rate | Maturity |
2020 | 2019 | (%) (*1) | (*2) |
Current liabilities | |||||||
Commercial paper | 324,000 | 186,000 | 0.00 | ||||
Short-term borrowings | 343,159 | 252,700 | 0.13 | ||||
Current portion of long-term | 210,902 | 185,588 | 1.63 | ||||
borrowings | |||||||
Subtotal | 878,061 | 624,288 | - | ||||
Non-current liabilities | |||||||
Long-term borrowings | 1,219,424 | 1,371,070 | 1.20 | 2021 - 2040 | |||
Subtotal | 1,219,424 | 1,371,070 | - | ||||
Total | 2,097,485 | 1,995,358 | - | ||||
(*1) The interest rate is calculated using the weighted average rate of the outstanding balance as of March 31, 2020.
(*2) The maturity represents the repayment term of the outstanding balance in non-current liabilities as of March 31, 2020.
ENEOS Group has entered into commitment line agreements with financial institutions to finance its working capital requirements effectively. For the year ended March 31, 2020, the balance of borrowings related to those agreements was zero.
The loan facility under the commitment line agreements is as follows:
(Millions of Yen) | |||
As of March 31, | As of March 31, | ||
2020 | 2019 | ||
Yen loan facility under commitment line | 450,000 | 450,000 | |
agreements | |||
-
-
-
Assets pledged as collateral and secured debts are as follows:
(Millions of Yen) | ||||
As of March 31, | As of March 31, | |||
2020 | 2019 | |||
Assets pledged as collateral | ||||
Cash and cash equivalents | 10,824 | 14,410 | ||
Buildings, structures and oil tanks | 189,858 | 151,820 | ||
Machinery, equipment and vehicles | 188,364 | 158,383 | ||
Land | 396,175 | 384,528 | ||
Other property, plant and equipment | 94,629 | 129,577 | ||
Other financial assets | 1,416 | 1,503 | ||
Other | 2,771 | 759 | ||
Total | 884,037 | 840,980 | ||
Secured debts | ||||
Other payables | 114,445 | 246,176 | ||
Long-term borrowings | 82,322 | 86,517 | ||
Other | 750 | 2,678 | ||
Total | 197,517 | 335,371 | ||
- 36 -
Debts corresponding to assets pledged as collateral also include transaction guarantees, borrowings and other payables of related companies as below:
(Millions of Yen)
Transaction guarantees
Borrowings and other payables of related companies
As of March 31, | As of March 31, | |
2020 | 2019 | |
729 | 739 | |
6,326 | 13,007 |
18. Provisions | ||||||||
Changes in provisions are as follows: | ||||||||
Year ended March 31, 2020 | ||||||||
(Millions of Yen) | ||||||||
Asset retirement | Other | Total | ||||||
obligations | ||||||||
At beginning of the year | 134,357 | 58,325 | 192,682 | |||||
Recognition | 1,996 | 10,189 | 12,185 | |||||
Adjustments due to the passage of time | 1,923 | - | 1,923 | |||||
Amounts utilized | (3,620) | (26,074) | (29,694) | |||||
Unused amounts reversed | - | (7,842) | (7,842) | |||||
Exchange differences | (2,085) | (462) | (2,547) | |||||
Other | 17,722 | (5,261) | 12,461 | |||||
At end of the year | 150,293 | 28,875 | 179,168 | |||||
Year ended March 31, 2019 | ||||||||
(Millions of Yen) | ||||||||
Asset retirement | Other | Total | ||||||
obligations | ||||||||
At beginning of the year | 135,964 | 28,993 | 164,957 | |||||
Recognition | 2,839 | 42,898 | 45,737 | |||||
Adjustments due to the passage of time | 2,361 | - | 2,361 | |||||
Amounts utilized | (2,420) | (10,475) | (12,895) | |||||
Unused amounts reversed | - | (3,531) | (3,531) | |||||
Exchange differences | 4,902 | 115 | 5,017 | |||||
Other | (9,289) | 325 | (8,964) | |||||
At end of the year | 134,357 | 58,325 | 192,682 |
Asset retirement obligations relate to the obligations to restore real estate under lease agreements for land used for service stations, and obligations to dismantle oil development facilities upon the termination of production. The estimated period up to settlement is primarily assumed to be 15 years for land for service stations and, for development facilities, the number of years of estimated mining or oil production. Discount rates in calculating asset retirement obligations are from (0.2)% to 3.1%. Other for asset retirement obligations consists of increase (decrease) due to change in estimates and decrease from the sale of related assets, etc. during the year ended March 31, 2019 and increase from a review of discount rate during the year ended March 31, 2020.
Other provisions include provisions for restructuring, environmental countermeasures, and disadvantageous contracts.
19. Employee benefits
Outline of retirement benefit plans
ENEOS Group's domestic subsidiaries have defined benefit plans which include a defined benefit corporate pension plan, a severance indemnity plan, and an internal pension plan, as well as defined contribution plans which include the defined contribution corporate pension plan. Defined benefit corporate pension plans are usually based on the point system. Employees may be paid special additional benefits on retirement.
- 37 -
Certain foreign subsidiaries also have defined benefit plans and defined contribution plans. Furthermore, certain subsidiaries have retirement benefit trusts.
Defined benefit plans
ENEOS Group has defined benefit pension plans, which define the amount of benefit that an employee will receive based on the evaluation of factors such as years of service of employees, performance, job grade and position.
(a) Risks related to defined benefit plans
ENEOS Group is exposed to various risks related to defined benefit plans. Major risks are as follows. ENEOS Group is not exposed to any significant concentration risks related to plan assets.
Plan asset volatility: | Investments in equity instruments are exposed to market price fluctuation risk. |
Change in interest rate on bonds: | Decrease in bond market yields will increase net defined benefit liability. |
(b) Amounts recognized in the consolidated statements of financial position
The present value of defined benefit obligations and fair value of plan assets are as follows:
(Millions of Yen) | |||
As of March 31, | As of March 31, | ||
2020 | 2019 | ||
Present value of defined benefit obligations | 566,043 | 589,643 | |
Fair value of plan assets | 294,611 | 316,203 | |
Net | 271,432 | 273,440 | |
The liabilities and assets for retirement benefits recognized in the consolidated statements of financial position are as follows:
Liabilities for retirement benefits Assets for retirement benefits (*)
Net of liabilities and assets recognized in the consolidated statements of financial position
(Millions of Yen) | ||
As of March 31, | As of March 31, | |
2020 | 2019 | |
272,124 | 274,206 | |
692 | 766 | |
271,432 | 273,440 |
(*) "Assets for retirement benefits" are included in "Other non-current assets" in the consolidated statements of financial position.
- 38 -
(c) Reconciliation of present value of defined benefit obligations and fair value of plan assets | ||||||||||||
A reconciliation of the present value of defined benefit obligations and the fair value of plan assets is as follows: | ||||||||||||
(Millions of Yen) | ||||||||||||
Year ended | Year ended | |||||||||||
March 31, 2020 | March 31, 2019 | |||||||||||
Changes in the present value of defined benefit obligations: | ||||||||||||
At beginning of the year | 589,643 | 617,187 | ||||||||||
Current service cost | 11,752 | 11,926 | ||||||||||
Interest expenses | 1,877 | 2,513 | ||||||||||
Remeasurements | ||||||||||||
- Actuarial difference arising from change in | 523 | (537) | ||||||||||
demographic assumptions | ||||||||||||
- Actuarial difference arising from change in | (1,783) | 5,487 | ||||||||||
financial assumptions | ||||||||||||
Assumption through business combination | - | 3,762 | ||||||||||
Benefit payments | (33,694) | (35,508) | ||||||||||
Other | (2,275) | (*) | (15,187) | |||||||||
At end of the year | 566,043 | 589,643 | ||||||||||
Changes in the fair value of plan assets: | ||||||||||||
At beginning of the year | 316,203 | 330,824 | ||||||||||
Interest income | 1,619 | 2,162 | ||||||||||
Remeasurements | (5,641) | 2,547 | ||||||||||
Employer contributions | 9,763 | 8,131 | ||||||||||
Benefit payments | (27,105) | (27,457) | ||||||||||
Other | (228) | (4) | ||||||||||
At end of the year | 294,611 | 316,203 | ||||||||||
Net of liabilities and assets recognized in the consolidated | ||||||||||||
271,432 | 273,440 | |||||||||||
statements of financial position | ||||||||||||
(*) Mainly due to past-service costs arising from a change of scheme. | ||||||||||||
(d) Components of plan assets | ||||||||||||
The components of plan assets are as follows: | ||||||||||||
As of March 31, 2020 | ||||||||||||
(Millions of Yen) | ||||||||||||
Quoted prices | Without quoted prices | Total | ||||||||||
in active markets | in an active market | |||||||||||
Equity investments (domestic) | 32,491 | - | 32,491 | |||||||||
Equity investments (foreign) | 45,636 | - | 45,636 | |||||||||
Bonds (domestic) | 78,991 | - | 78,991 | |||||||||
Bonds (foreign) | 45,769 | - | 45,769 | |||||||||
General account assets (life insurance company) | - | 15,259 | 15,259 | |||||||||
Other | 31,592 | 44,873 | 76,465 | |||||||||
Total plan assets | 234,479 | 60,132 | 294,611 | |||||||||
- 39 -
As of March 31, 2019
Equity investments (domestic) Equity investments (foreign) Bonds (domestic)
Bonds (foreign)
General account assets (life insurance company) Other
Total plan assets
(Millions of Yen) | ||||
Quoted prices | Without quoted prices | Total | ||
in active markets | in an active market | |||
35,419 | - | 35,419 | ||
53,752 | - | 53,752 | ||
71,385 | - | 71,385 | ||
46,855 | - | 46,855 | ||
- | 17,741 | 17,741 | ||
36,074 | 54,977 | 91,051 | ||
243,485 | 72,718 | 316,203 |
The Company has common stock included in the plan assets in the amount of 4,674 million yen and 3,439 million yen as of March 31, 2019 and March 31, 2020, respectively. "Other" mainly includes cash equivalents and real estate investment trust, etc.
(e) Actuarial assumptions
Major assumptions used for actuarial valuation are as follows:
As of March 31, | As of March 31, | ||
2020 | 2019 | ||
Discount rate | 0.4% | 0.4% |
(f) Sensitivity analysis
Changes in actuarial assumptions have the following effects on defined benefit obligations:
The sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice, changes in other assumptions may affect the sensitivity analysis.
Change in discount rate | As of March 31, 2020 | As of March 31, 2019 | ||
0.5% increase | Decrease of 30,234 million yen | Decrease of 32,824 million yen | ||
0.5% decrease | Increase of 34,531 million yen | Increase of 36,505 million yen |
(g) Information on future cash flows
The expected contributions to the defined benefit plans for the next annual reporting period are estimated at 8,350 million yen and 9,842 million yen as of March 31, 2019 and March 31, 2020, respectively. The weighted average duration of defined benefit obligations is 13 years and 12 years for the years ended March 31, 2019 and March 31, 2020, respectively.
Multi-employer plans
ENEOS Group participates in defined benefit corporate pension plans which are multi-employer plans. The contribution rate or cost share ratio for past service obligations of each employer is not determined, and contributions are made at a flat rate. Therefore, the required contributions are accounted for as retirement benefit expenses.
(a) Funded status of all multi-employer plans
The funded status of all multi-employer plans is based on the latest available information as follows: (Millions of Yen)
Total plan assets
Total actuarial liabilities for pension financing and minimum actuarial reserve
Net amount
ENEOS Group's proportion of the total contributions to the plan
As of March 31, | As of March 31, | |
2019 | 2018 | |
24,383 | 23,719 | |
21,145 | 20,707 | |
3,238 | 3,012 | |
3.12% | 3.02% |
- 40 -
(b) Expected contributions to multi-employer plans for the next annual reporting period
The expected contributions to multi-employer plans for the next annual reporting period are estimated at 35 million yen and 39 million yen as of March 31, 2019 and March 31, 2020, respectively.
(c) Responsibility of ENEOS Group related to multi-employer plans
ENEOS Group may be liable for additional contributions to the multi-employer plans in which ENEOS Group participates, due to wind up of a plan, withdrawal from a plan, or other events.
Defined contribution plans
Retirement benefit expenses for defined contribution plans are recognized as expenses in the period in which the employees render the related services, and contributions payable are recognized as liabilities.
Retirement benefit expenses for defined contribution plans are as follows:
(Millions of Yen) | |||
Year ended | Year ended | ||
March 31, 2020 | March 31, 2019 | ||
Retirement benefit expenses for defined contribution plans | 14,178 | 13,547 |
- 41 -
20. Deferred tax
Changes in deferred tax assets and liabilities
The components of changes in deferred tax assets and liabilities are analyzed as follows:
Year ended March 31, 2020 | |||||||||||
(Millions of Yen) | |||||||||||
Adjustments | Recognized | ||||||||||
for the | April 1, 2019 | Recognized | in other | Other | |||||||
April 1, | application | (after | in | comprehensi | changes | March 31, | |||||
2019 | of IFRS 16 | adjustments) | profit or loss | ve income | (*4) | 2020 | |||||
Deferred tax assets | |||||||||||
Property, plant and equipment | 96,681 | - | 96,681 | 22,772 | - | 441 | 119,894 | ||||
and intangible assets | |||||||||||
Liabilities for retirement benefits | 88,783 | - | 88,783 | (1,789) | 1,386 | (116) | 88,264 | ||||
Net operating loss carryforwards | 187,093 | - | 187,093 | (1,449) | - | (2,958) | 182,686 | ||||
(*1) | |||||||||||
Asset retirement obligations Lease liabilities
Other (*2)
Subtotal Deferred tax liabilities
Changes in fair value of financial assets measured at
FVOCI
Property, plant and equipment and intangible assets Undistributed earnings of foreign subsidiaries and others
Other (*3)
Subtotal
Net amount
18,606 | - | 18,606 | 3,069 | - | (371) | 21,304 | ||||||
5,736 | 114,636 | 120,372 | 517 | - | - | 120,889 | ||||||
73,868 | - | 73,868 | (3,695) | (3,258) | 1,507 | 68,422 | ||||||
470,767 | 114,636 | 585,403 | 19,425 | (1,872) | (1,497) | 601,459 | ||||||
47,463 | - | 47,463 | - | (18,834) | (2,073) | 26,556 | ||||||
479,823 | 113,402 | 593,225 | 6,974 | - | (1,259) | 598,940 | ||||||
31,520 | - | 31,520 | (6,543) | - | - | 24,977 | ||||||
61,905 | - | 61,905 | 1,493 | 88 | 2,516 | 66,002 | ||||||
620,711 | 113,402 | 734,113 | 1,924 | (18,746) | (816) | 716,475 | ||||||
(149,944) | 1,234 | (148,710) | 17,501 | 16,874 | (681) | (115,016) |
(*1) Mainly losses carried forward from core domestic subsidiary in the Energy segment and certain foreign subsidiaries in the Oil and Natural Gas E&P segment.
(*2) It is related to other payables and accrued expenses.
(*3) It is related to deferred gain on transfer and accounts receivable - other.
(*4) It is primarily foreign exchange differences.
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Year ended March 31, 2019
Deferred tax assets
Property, plant and equipment and intangible assets
Liabilities for retirement benefits Net operating loss carryforwards (*1)
Asset retirement obligations Lease liabilities
Other (*2)
Subtotal
Deferred tax liabilities Changes in fair value of financial assets measured at
FVOCI
Property, plant and equipment and intangible assets
(Millions of Yen) | ||||||||||
Acquisition and | ||||||||||
Recognized in | assumption | |||||||||
other | through | Other | ||||||||
Recognized in | comprehensive | business | changes | March 31, | ||||||
April 1, 2018 | profit or loss | income | combination | (*4) | 2019 | |||||
78,567 | 5,254 | - | - | 12,860 | 96,681 | |||||
90,212 | (1,588) | 767 | - | (608) | 88,783 | |||||
216,877 | (36,262) | - | 184 | 6,294 | 187,093 | |||||
21,259 | (3,594) | - | - | 941 | 18,606 | |||||
5,236 | 500 | - | - | - | 5,736 | |||||
51,197 | 26,577 | 2,552 | 636 | (7,094) | 73,868 | |||||
463,348 | (9,113) | 3,319 | 820 | 12,393 | 470,767 | |||||
80,403 | - | (14,006) | - | (18,934) | 47,463 | |||||
443,791 | 15,972 | - | 3,735 | 16,325 | 479,823 |
Undistributed earnings of | 28,517 | 1,671 | - | - | 1,332 | 31,520 | ||||||
foreign subsidiaries and others | ||||||||||||
Other (*3) | 22,357 | 28,263 | - | 487 | 10,798 | 61,905 | ||||||
Subtotal | 575,068 | 45,906 | (14,006) | 4,222 | 9,521 | 620,711 | ||||||
Net amount | (111,720) | (55,019) | 17,325 | (3,402) | 2,872 | (149,944) |
(*1) Mainly losses carried forward from core domestic subsidiary in the Energy segment and certain foreign subsidiaries in the Oil and Natural Gas E&P segment.
(*2) It is related to other payables and accrued expenses.
(*3) It is related to deferred gain on transfer and accounts receivable - other.
(*4) It is primarily foreign exchange differences.
Taxable entities that have suffered a loss in either the current or preceding period recognize deferred tax assets based on the recoverability considering the probability of the generation of future taxable income and the expiration dates of the related net operating loss carryforwards. Deferred tax assets recognized by these entities were 83,978 million yen and 93,404 million yen, as of March 31, 2019 and March 31, 2020, respectively.
Deductible temporary differences and net operating loss carryforwards for which no deferred tax assets are recognized
The following table shows the amount of deductible temporary differences and net operating loss carryforwards before tax impacts for which no deferred tax assets are recognized:
(Millions of Yen) | ||||
As of March 31, | As of March 31, | |||
2020 | 2019 | |||
Deductible temporary differences | 791,538 | 674,922 | ||
Net operating loss carryforwards | 944,856 | 858,449 | ||
Total | 1,736,394 | 1,533,371 |
- 43 -
Net operating loss carryforwards for which no deferred tax assets are recognized will expire as follows:
(Millions of Yen) | |||||
As of March 31, | As of March 31, | ||||
2020 | 2019 | ||||
Year ending March 31, : | |||||
2020 | - | 152 | |||
2021 | 3,756 | 8,801 | |||
2022 | 7,916 | 10,376 | |||
2023 | 8,668 | 7,512 | |||
2024 | 61,493 | 831,608 | |||
2025 and thereafter, or with no expiry date | 863,023 | ||||
Total | 944,856 | 858,449 |
Income tax receivables
Income tax receivables included in "Other current assets" in the consolidated statements of financial position as of March 31, 2019 and March 31, 2020 are 42,409 million yen and 30,215 million yen, respectively.
21. Financial instruments
Capital management
The Company seeks to develop and maintain an optimal capital structure in order to achieve medium- to long-term group strategies and maximize corporate value. The index the Company focuses on for capital management purposes is net debt equity ratio (net D/E ratio (*)). The target for this index is included in the medium- to long-term group strategies, and is reported to and monitored by management on a continuous basis.
-
Net D/E ratio = (interest-bearing debts - cash and cash equivalents) / total equity
Net D/E ratio as of March 31, 2019 and March 31, 2020 was 0.59 times and 0.70 times, respectively.
The Company is not subject to particular significant capital requirements (other than general rules such as the Companies Act of Japan).
Financial risk management
Although the Company is exposed to various risks including credit risk, liquidity risk and market risk (foreign exchange risk, interest rate risk, commodity price fluctuation risk and stock price fluctuation risk), these risks are managed as follows.
(a) Credit risk
The Company is exposed to credit risk, which is the risk of loss arising from the failure of counterparties to meet their obligations related to the financial assets held by the Company. To mitigate such risk, the Company sets the credit limit for each counterparty according to the credit management policy, regularly monitors the financial conditions of the counterparties, and properly manages due dates and balances of receivables due from each counterparty, in order to allow for early detection of receivables which may be uncollectible. Safeguard measures, such as the holding of collateral or the use of factoring companies, may be adopted as necessary.
Derivative transactions to mitigate fluctuation risk of commodity prices or foreign exchange rates, are generally entered into with highly creditworthy financial institutions, and accordingly the impact on credit risk is limited.
The receivables held by the Company are due from various counterparties across a broad range of industries and regions. Accordingly, the Company does not have significant concentration of credit risk related to particular counterparties nor excessive concentration of credit risk which requires special attention.
Guarantees and the carrying amount of financial assets less impairment in the consolidated financial statements represent the maximum credit risk exposure of the Company's financial assets, which do not take into account of the value of collateral held.
(i) Changes in the loss allowance
The Company measures the loss allowance for trade receivables at an amount equal to the expected credit loss for the entire expected remaining life of the financial asset based on the actual loss rate determined using the historical experience of default by past due status and adjusted for economic situations.
Further, the Company categorizes other receivables into general accounts receivables or delinquent receivables according to the credit management policy. Delinquent receivables are financial assets whose credit risks have significantly increased since the initial recognition based on such factors as an external credit rating downgrade or overdue status, or financial assets that are determined to be
- 44 -
impaired because of a significant deterioration in the financial condition of the debtor. General receivables are receivables other than delinquent receivables.
The loss allowance for general accounts receivables is measured at an amount equal to the expected credit loss that will occur within 12 months after the end of the reporting period, and the loss allowance for delinquent receivables is measured at an amount equal to the expected credit loss for the entire expected remaining life.
Changes in the loss allowance are as follows:
Year ended March 31, 2020
At beginning of the year
Recognition
Amounts utilized
Unused amounts reversed
Other
At end of the year
Year ended March 31, 2019
At beginning of the year
Recognition
Amounts utilized
Unused amounts reversed
Other
At end of the year
(Millions of Yen) | |||||
Items other than trade | |||||
Trade | receivables | receivables | |||
1,345 | 1,571 | ||||
110 | 34 | ||||
(42) | 187 | ||||
(161) | (250) | ||||
(154) | 139 | ||||
1,098 | 1,681 | ||||
(Millions of Yen) | |||||
Items other than trade | |||||
Trade | receivables | receivables | |||
1,492 | 1,827 | ||||
289 | 35 | ||||
(70) | (338) | ||||
(350) | - | ||||
(16) | 47 | ||||
1,345 | 1,571 | ||||
The loss allowance for "Items other than trade receivables" consists primarily of other receivables whose credit risk has not increased significantly since initial recognition.
The loss allowance is included in "Current assets" and "Non-current assets" in the consolidated statements of financial position.
(ii) Gross financial assets by credit quality
As of March 31, 2019 and March 31, 2020, the gross carrying amounts of trade receivables by aging of trade receivables ("Accounts receivable - trade" and "Notes receivable - trade") and the gross carrying amounts other than trade receivables by internal management classification are as follows:
Trade receivables ("Accounts receivable - trade" and "Notes receivable - trade")
(Millions of Yen) | ||||
As of March 31, | As of March 31, | |||
2020 | 2019 | |||
30 days or less past due (including before due) | 865,848 | 1,224,598 | ||
Over 30 days through 90 days past due | 927 | 1,722 | ||
Over 90 days past due | 971 | 1,172 | ||
Total | 867,746 | 1,227,492 |
- 45 -
Items other than trade receivables | ||||
(Millions of Yen) | ||||
As of March 31, | As of March 31, | |||
2020 | 2019 | |||
General accounts receivable | 270,623 | 261,367 | ||
Delinquent receivables | 317 | 2,387 | ||
Total | 270,940 | 263,754 |
(b) Liquidity risk
The Company raises funds necessary for its operation and capital investment through borrowing from financial institutions and issuing bonds or commercial paper, and accordingly is exposed to liquidity risk, which is the risk of failure to meet these obligations.
The Company borrows from financial institutions and issues bonds or commercial paper, if necessary, to secure minimum funds to its operating businesses, as well as maintaining commitment lines to be prepared for emergency situations such as unexpected funding needs or a significant decrease in market liquidity.
Further, the Company manages liquidity risk through developing financial plans based on the funding needs of each group entity, and comparing them to actual cash flows.
The amounts of the Company's non-derivative financial liabilities and derivative liabilities by remaining maturity are as follows: Note that the derivative financial liabilities in the table below do not include put options granted to non-controlling interests.
As of March 31, 2020
Non-derivative financial liabilities Trade and other payables Bonds and borrowings
Lease liabilities
Total
Derivative liabilities
Foreign exchange derivatives Interest rate swaps Commodity derivatives
Total
As of March 31, 2019
Non-derivative financial liabilities Trade and other payables Bonds and borrowings
Lease liabilities
Total
Derivative liabilities
Foreign exchange derivatives Interest rate swaps Commodity derivatives
Total
(Millions of Yen) | ||||||
Due after one year | ||||||
Due in one year or less | through five years | Due after five years | ||||
1,343,909 | - | - | ||||
914,781 | 730,691 | 655,374 | ||||
70,595 | 214,390 | 230,854 | ||||
2,329,285 | 945,081 | 886,228 | ||||
2,459 | 325 | - | ||||
367 | 4,651 | 4,474 | ||||
18,898 | - | - | ||||
21,724 | 4,976 | 4,474 | ||||
(Millions of Yen) | ||||||
Due after one year | ||||||
Due in one year or less | through five years | Due after five years | ||||
1,851,795 | 646 | - | ||||
644,288 | 811,757 | 761,948 | ||||
6,974 | 20,285 | 32,085 | ||||
2,503,057 | 832,688 | 794,033 | ||||
4,146 | 976 | - | ||||
376 | 4,609 | 7,428 | ||||
5,840 | - | - | ||||
10,362 | 5,585 | 7,428 | ||||
- 46 -
(c) Market risk
The Company uses derivative financial instruments including foreign exchange forward contracts, interest rate swaps, and commodity forwards, to hedge certain market risk exposures. ENEOS Group complies with the management policy which sets the authorization levels required to execute derivative transactions and establishes that derivative transactions are not entered into for speculative purposes.
(i) Foreign exchange risk
The Company operates globally and is exposed to foreign exchange risk related to foreign currency denominated receivables and payables arising from foreign currency transactions, such as purchases of certain raw materials and sales of certain products in foreign currencies. The Company's foreign exchange risk arises mainly from U.S. dollar fluctuation. The Company uses foreign exchange forward contracts and other instruments to hedge foreign exchange risk related to forward transactions or foreign currency denominated receivables and payables, taking account of the effect of future offset.
Major net foreign exchange risk exposure is as follows (amounts in brackets: payables):
As of March 31, 2020
Millions of Yen | Foreign currency in thousands | ||
U.S. dollar | (85,502) | (785,647) | |
As of March 31, 2019 | |||
Millions of Yen | Foreign currency in thousands | ||
U.S. dollar | (71,284) | (642,258) |
For foreign currency denominated financial instruments held at the end of the reporting period, the hypothetical impact on profit (loss) before tax in the consolidated statements of profit or loss for the years ended March 31, 2019 and March 31, 2020 would be 741 million yen and 929 million yen, assuming a 1% appreciation or depreciation in yen value while holding all other assumptions constant.
(ii) Interest rate risk
In the ordinary course of business, the Company makes interest payments on funds raised for operations and capital investment purposes, and is accordingly exposed to cash flow interest rate risk arising from market interest rate fluctuation related to variable interest borrowings. For the variable interest long-term borrowings, such as those for capital investment purposes, the Company enters into floating-to-fixed interest rate swaps with financial institutions in order to prevent any excessive increase in interest expense due to rising interest rates. The Company hedges interest rate risk through converting long-term borrowings from floating rates to fixed rates to ensure stable future cash flow.
For variable-interest-bearing debts not hedged by floating-to-fixed interest rate swaps, the hypothetical impact on profit (loss) before tax in the consolidated statements of profit or loss for the years ended March 31, 2019 and March 31, 2020 would be 5,373 million yen and 4,109 million yen, respectively, assuming a 1% increase or decrease in interest rates while holding all other assumptions constant.
(iii) Commodity price risk
In the ordinary course of business, the Company sells products such as petroleum and metal products and purchases raw materials such as crude oil and copper concentrates, and is accordingly exposed to commodity price fluctuation risk arising from fluctuation of sales and purchase prices. The Company hedges commodity price fluctuation risk through adjusting the quantity of sales and purchases, matching sales and purchase timing, and entering into derivative transactions, such as commodity forwards and swaps.
If commodity prices fluctuate 10% with the price at the end of the reporting period, the hypothetical impact on loss before tax in the consolidated statements of profit or loss arising from the commodity-related derivatives to which hedge accounting is not applied would be immaterial.
(iv) Stock price risk
The Company mainly holds equity investments in its business partners in order to facilitate business operations, and is accordingly exposed to stock price fluctuation risk. The Company regularly analyzes the market prices of those investments and the financial position of the issuers, and continuously reviews its ownership status considering relationships with the business partners.
In addition, the Company designates all of these investments as financial assets measured at fair value through other comprehensive income, and therefore, stock price fluctuations have no impact on profit (loss). The hypothetical impact (before tax) of 10% rise or fall
- 47 -
of the quoted stock prices in active markets at the end of the reporting period on "Changes in fair value of financial assets measured at fair value through other comprehensive income" in the consolidated statements of comprehensive income or loss for the years ended March 31, 2019 and March 31, 2020 would be 20,758 million yen and 14,656 million yen, respectively.
Classification of financial instruments
Financial assets
Financial assets measured at amortized cost Cash and cash equivalents
Trade and other receivables Other financial assets
Financial assets measured at FVPL Trade and other receivables Other financial assets (derivatives)
Financial assets measured at FVOCI
Other financial assets (equity investments) Total
Financial liabilities
(Millions of Yen) | |||||
As of March 31, | As of March 31, | ||||
2020 | 2019 | ||||
398,573 | 385,434 | ||||
1,020,400 | 1,362,361 | ||||
119,060 | 126,043 | ||||
170 | 1,613 | ||||
(*1) | 26,688 | (*1) | 6,629 | ||
259,557 | 337,109 | ||||
1,824,448 | 2,219,189 |
Financial liabilities measured at amortized cost | |||||
Trade and other payables | 1,343,909 | 1,852,441 | |||
Bonds and borrowings | 2,300,846 | 2,217,993 | |||
Lease liabilities | 515,839 | - | |||
Other financial liabilities | 9,668 | 9,271 | |||
Financial liabilities measured at FVPL | |||||
Other financial liabilities (derivatives) | 31,174 | 23,375 | |||
Other financial liabilities (preferred stock) | 10,830 | 11,860 | |||
Other | |||||
Other financial liabilities (derivatives) | (*2) | 11,050 | (*2) | 11,388 | |
Total | 4,223,316 | 4,126,328 |
(*1) Purchased call options toward non-controlling interests were 1,918 million yen and 1,195 million yen as of March 31, 2019 and March 31, 2020, respectively.
(*2) This is a written put option granted to non-controlling interests.
- 48 -
Financial assets measured at FVOCI
The Company designates the equity investments held with a view to broaden the revenue base through maintaining and enforcing relationships with business partners, as financial assets measured at FVOCI.
The fair values of major equity investments in active markets are as follows:
As of March 31, 2020
(Millions of Yen) | |
INPEX Corporation | 26,672 |
Nippon Shokubai Co., Ltd. | 10,539 |
East Japan Railway Company | 8,103 |
SK Innovation Co., Ltd. | 7,090 |
Mitsuuroko Group Holdings Co., Ltd. | 5,753 |
As of March 31, 2019 | |
(Millions of Yen) | |
INPEX Corporation | 46,242 |
SK Innovation Co., Ltd. | 16,072 |
Nippon Shokubai Co., Ltd. | 15,372 |
East Japan Railway Company | 10,585 |
Shinko Plantech Co., Ltd. | 7,198 |
Financial assets measured at FVOCI that do not have quoted prices in active markets primarily comprised investments related to resources such as LNG. As of March 31, 2019 and March 31, 2020, investments related to resources were 105,871 million yen and 84,519 million yen, respectively.
The financial assets measured at FVOCI which were disposed of during the years ended March 31, 2019 and March 31, 2020 are as follows:
(Millions of Yen) | ||||||||||
Year ended March 31, | Year ended March 31, | |||||||||
2020 | 2019 | |||||||||
Fair value as of the | Cumulative | Fair value as of the | Cumulative | |||||||
date of disposal | gains (loss) | Dividend income | date of disposal | gains (loss) | Dividend income | |||||
1,157 | (178) | 45 | 15,112 | 4,045 | 539 |
These assets were sold as the result of a review of the business relationships. Cumulative gains and cumulative losses, net of tax, transferred from other components of equity to retained earnings during the years ended March 31, 2019 and March 31, 2020 were 2,787 million yen and (25,185) million yen, respectively.
Fair value of financial instruments
(a) Carrying amounts and fair value of financial instruments measured at amortized cost
(Millions of Yen) | ||||||||||
As of March 31, | As of March 31, | |||||||||
2020 | 2019 | |||||||||
Carrying | Carrying | |||||||||
amount | Fair value | amount | Fair value | |||||||
Financial liabilities measured at | ||||||||||
amortized cost | ||||||||||
Bonds and borrowings | 2,300,846 | 2,311,205 | 2,217,993 | 2,238,777 |
- 49 -
Fair value is determined as follows:
Cash and cash equivalents, trade and other receivables, and trade and other payables
The fair value of these instruments approximates the carrying amount due to their short-term maturities.
Bonds and borrowings
The fair value of bonds and borrowings is determined by discounting future cash flow to their present value using the rate that would be applied to ENEOS Group's current borrowings of a similar nature. These are classified as Level 2 because the inputs are observable.
(b) Financial assets and financial liabilities measured at fair value
All assets or liabilities measured at fair value are categorized within the following fair value hierarchy, based on the observability of inputs used in fair value measurement:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2: Inputs other than quoted prices included within Level 1 that are observable either directly or indirectly
Level 3: Unobservable inputs
The following financial assets and liabilities of ENEOS Group are measured at fair value on a recurring basis:
As of March 31, 2020 | |||||||
(Millions of Yen) | |||||||
Level 1 | Level 2 | Level 3 | Total | ||||
Recurring fair value measurement | |||||||
Financial assets measured at FVPL | |||||||
Trade and other receivables | - | 170 | - | 170 | |||
Other financial assets (derivatives) | - | 25,493 | 1,195 | 26,688 | |||
Financial assets measured at FVOCI | |||||||
Other financial assets (equity investments) | 146,555 | - | 113,002 | 259,557 | |||
Financial liabilities measured at FVPL | |||||||
Other financial liabilities (derivatives) | - | 31,174 | - | 31,174 | |||
Other financial liabilities (preferred stock) | - | - | 10,830 | 10,830 | |||
Other | |||||||
Other financial liabilities (derivatives) | - | - | 11,050 | 11,050 | |||
As of March 31, 2019 | |||||||
(Millions of Yen) | |||||||
Level 1 | Level 2 | Level 3 | Total | ||||
Recurring fair value measurement | |||||||
Financial assets measured at FVPL | |||||||
Trade and other receivables | - | 1,613 | - | 1,613 | |||
Other financial assets (derivatives) | - | 4,711 | 1,918 | 6,629 | |||
Financial assets measured at FVOCI | |||||||
Other financial assets (equity investments) | 207,583 | - | 129,526 | 337,109 | |||
Financial liabilities measured at FVPL | |||||||
Other financial liabilities (derivatives) | - | 23,375 | - | 23,375 | |||
Other financial liabilities (preferred stock) | - | - | 11,860 | 11,860 | |||
Other | |||||||
Other financial liabilities (derivatives) | - | - | 11,388 | 11,388 |
The Company recognizes transfers into and transfers out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer. During the years ended March 31, 2019 and March 31, 2020, there were no significant transfers between Level 1 and Level 2.
- 50 -
Fair value is determined as follows:
Trade and other receivables
The fair value of trade and other receivables, which have embedded derivatives and are accounted for in combination, is determined based on the market price of copper on the LME for a certain period of time in the future, and are classified as Level 2.
Other financial assets (derivatives) and other financial liabilities (derivatives)
Within derivatives, the fair value of foreign exchange forward contracts is determined based on forward exchange quotation at the end of the reporting period. The fair value of interest rate swaps is determined by discounting future cash flows to their present value using the remaining period to maturity and the rate at the end of the reporting period. The fair value of commodity derivatives is determined based on publicly available indexes. All of these derivatives are classified as Level 2. The fair value of the purchased call options toward non-controlling interests and the written put options granted to non-controlling interests are calculated by discounting future cash flows or other valuation approaches, and constitutes Level 3.
Other financial assets (equity investments)
Fair value of listed equity investments is determined using unadjusted quoted prices and are classified as Level 1. The fair value of unlisted equity investments is determined using appropriate valuation approaches such as the discounted cash flow method and comparable companies approach. Unlisted equity investments are classified as Level 3, because one or more of the significant inputs are not based on observable market data.
Other financial liabilities (preferred stock)
The fair value of preferred stock is determined using the dividend discount method and is classified as Level 3.
(c) Financial instruments classified as Level 3
Changes in other financial assets (equity investments) classified as Level 3 are shown below:
At beginning of the year
Gains (losses) recognized in other comprehensive income
Purchases Sales Settlements Other changes
At end of the year
(Millions of Yen) | ||
Year ended March 31, | Year ended March 31, | |
2020 | 2019 | |
129,526 | 142,781 | |
(21,791) | (12,450) | |
5,743 | 440 | |
(143) | (1,676) | |
(34) | (602) | |
(299) | 1,033 | |
113,002 | 129,526 | |
Gains or losses recognized in other comprehensive income are included in "Changes in fair value of financial assets measured at fair value through other comprehensive income" in the consolidated statements of comprehensive income or loss.
Changes in other financial liabilities (preferred stock) classified as Level 3 during the reporting period are shown below:
At beginning of the year
Losses (gains) recognized in profit or loss
Purchases Other changes
At end of the year
(Millions of Yen) | |||
Year ended March 31, | Year ended March 31, | ||
2020 | 2019 | ||
11,860 | 10,284 | ||
(798) | 487 | ||
- | 628 | ||
(232) | 461 | ||
10,830 | 11,860 | ||
Gains or losses recognized in profit or loss are included in "Finance income or costs" in the consolidated statements of profit or loss.
In accordance with the Company's policy, the fair value of unlisted equity investments classified as Level 3 is measured by each group entity which directly holds the equity investments. The appropriateness of the fair value determination is verified on a continuous basis through the valuation policy and the valuation model developed, maintained and updated by the Company, and periodic monitoring of businesses of each unlisted company evaluated and their comparable listed companies.
- 51 -
The significant unobservable inputs used in the measurement of fair value of unlisted equity investments classified as Level 3 are the discount rate used in the discounted cash flow method and the assumptions used in the estimation of the future cash flows, such as commodity prices based on market price and foreign exchange rates which are assumed based on the year-end exchange rate. The discount rate applied by the Company is approximately 10%. Changes in the fair value are not expected to be significant, assuming a 0.5% increase/decrease in discount rate or a 10% increase/decrease in expected future prices at the end of the reporting period.
Derivative financial instruments and hedge accounting
The Company uses derivative financial instruments including foreign exchange forward contracts, interest rate swaps and commodity forward contracts, as cash flow hedges to hedge future cash flow fluctuation risk due to foreign exchange, interest rate and commodity price fluctuations.
The following table shows changes in other components of equity due to derivatives to which hedge accounting is applied:
(Millions of Yen) | ||||||||||||||||||
Year ended March 31, 2020 | ||||||||||||||||||
Adjustments to | ||||||||||||||||||
acquisition costs | ||||||||||||||||||
At beginning of | Changes during | Reclassified to | of non-financial | At end of the | ||||||||||||||
the year | the year | profit or loss | assets | year | ||||||||||||||
Currency-related | ||||||||||||||||||
Foreign exchange forward contracts | (107) | (84) | 33 | 214 | 56 | |||||||||||||
Interest-rate-related | ||||||||||||||||||
Interest rate swaps | (8,139) | 3 | 1,877 | - | (6,259) | |||||||||||||
Commodity-related | ||||||||||||||||||
Commodity swaps | 588 | (1,169) | 1,682 | (903) | 198 | |||||||||||||
Commodity forwards | (1,219) | (1,574) | 5,967 | 37 | 3,211 | |||||||||||||
Total | (8,877) | (2,824) | 9,559 | (652) | (2,794) | |||||||||||||
(Millions of Yen) | ||||||||||||||||||
Year ended March 31, 2019 | ||||||||||||||||||
Adjustments to | ||||||||||||||||||
acquisition costs | ||||||||||||||||||
At beginning of | Changes during | Reclassified to | of non-financial | At end of the | ||||||||||||||
the year | the year | profit or loss | assets | year | ||||||||||||||
Currency-related | ||||||||||||||||||
Foreign exchange forward contracts | 1,212 | (7,395) | 3,644 | 2,432 | (107) | |||||||||||||
Interest-rate-related | ||||||||||||||||||
Interest rate swaps | (7,366) | (2,959) | 2,186 | - | (8,139) | |||||||||||||
Commodity-related | ||||||||||||||||||
Commodity swaps | (1,801) | (918) | 3,037 | 270 | 588 | |||||||||||||
Commodity forwards | 1,830 | (3,730) | 679 | 2 | (1,219) | |||||||||||||
Total | (6,125) | (15,002) | 9,546 | 2,704 | (8,877) | |||||||||||||
The balances in the table above are for continuing hedges.
- 52 -
The fair value and nominal amount of derivatives to which hedge accounting is applied and not applied are as follows. Derivative financial instruments are included in "Other financial assets" or "Other financial liabilities" in the consolidated statements of financial position.
Derivatives to which hedge accounting is applied
(Millions of Yen)
As of March 31, 2020 | As of March 31, 2019 | |||||||||||
Nominal | Fair value | Nominal | Fair value | |||||||||
amount | Asset | Liability | amount | Asset | Liability | |||||||
Currency-related | ||||||||||||
Foreign exchange forward | 157,557 | 819 | 707 | 180,483 | 399 | 1,372 | ||||||
contracts | ||||||||||||
Interest-rate-related | ||||||||||||
Interest rate swaps | 309,220 | - | 9,512 | 370,877 | - | 12,413 | ||||||
Commodity-related | ||||||||||||
Commodity swaps | 110,020 | 12,887 | 13,435 | 172,086 | 3,990 | 3,250 | ||||||
Commodity forwards | 111,415 | 3,117 | 3,026 | 133,887 | 1,014 | 2,861 | ||||||
Total | 688,212 | 16,823 | 26,680 | 857,333 | 5,403 | 19,896 | ||||||
Derivatives to which hedge accounting is not applied
(Millions of Yen)
As of March 31, 2020 | As of March 31, 2019 | |||||||||||
Nominal | Fair value | Nominal | Fair value | |||||||||
amount | Asset | Liability | amount | Asset | Liability | |||||||
Currency-related | ||||||||||||
Foreign exchange forward | 356,492 | 1,477 | 2,260 | 474,472 | 200 | 3,257 | ||||||
contracts | ||||||||||||
Currency swaps | 5,606 | 63 | - | 9,428 | - | 773 | ||||||
Commodity-related | ||||||||||||
Commodity swaps | 43,528 | 5,478 | 582 | 37,122 | 57 | 366 | ||||||
Commodity forwards | - | - | - | 2,941 | 4 | 36 | ||||||
Total | ||||||||||||
405,626 | 7,018 | 2,842 | 523,963 | 261 | 4,432 | |||||||
Nominal amounts for commodity-related derivatives represent the product of contractual volumes and prices.
22. Equity and other equity items
Common stock
Changes in the number of shares authorized and issued are as follows:
(Thousands of Shares) | ||||||||||
Year ended March 31, | Year ended March 31, | |||||||||
2020 | 2019 | |||||||||
Number of | Number of | Number of | Number of | |||||||
shares | shares | shares | shares | |||||||
authorized | issued | authorized | issued | |||||||
At beginning of the year | 8,000,000 | 3,385,994 | 8,000,000 | 3,426,917 | ||||||
Increase (decrease) | - | (155,711) | - | (40,923) | ||||||
At end of the year | 8,000,000 | 3,230,283 | 8,000,000 | 3,385,994 |
(*1) All the shares issued by the Company are common stock with no par value.
(*2) Shares issued are fully paid-up.
(*3) Each share issued carries one voting right and dividend right.
(*4) The decrease in the number of shares issued for the year ended March 31, 2019 was from the cancellation of treasury stock implemented on November 7, 2018. The decrease in the year ended March 31, 2020 was from the cancellation of treasury stock implemented on July 9, 2019 and November 8, 2019.
- 53 -
Capital surplus and retained earnings
Capital surplus is composed of additional paid-in capital and other capital surplus. Retained earnings are composed of legal reserves and other retained earnings. The Companies Act of Japan provides that 10% of distributions of retained earnings shall be appropriated as additional paid-in capital or as legal reserves until the aggregate amount of the additional paid-in capital and the legal reserve equals 25% of common stock.
Written put options granted to non-controlling interests
ENEOS Group recognizes the fair value of the redemption amount of the written put options granted to non-controlling interests as financial liabilities and has discontinued to recognize non-controlling interests which are the subject of the put option, and includes the difference between them in capital surplus. Such amount included in capital surplus in the year ended March 31, 2020 was (4,164) million yen.
Treasury stock
The number of treasury stock and changes in the balance of treasury stock are as follows:
Year ended March 31, | Year ended March 31, | ||||||||
2020 | 2019 | ||||||||
Number of | Amount | Number of | Amount | ||||||
shares | (Millions | shares | (Millions | ||||||
(Thousands) | of Yen) | (Thousands) | of Yen) | ||||||
At beginning of the year | 56,899 | 29,698 | 10,614 | 4,730 | |||||
Increase (decrease), net | (44,079) | (23,695) | 46,285 | 24,968 | |||||
At end of the year | 12,820 | 6,003 | 56,899 | 29,698 |
(*1) The increase (decrease) in the number and amount of treasury stock in the years ended March 31, 2019 and March 31, 2020 is mainly from the acquisition of 24,963 million yen in treasury stock (46,289 thousand shares) in the year ended March 31, 2019 based on a resolution of the board of directors held on February 8, 2019.
(*2) The treasury stock acquired based on the resolutions of the board of directors' meetings below has all been canceled in the years ended March 31, 2019 and March 31, 2020.
- Acquisition of 30,000 million yen in treasury stock (55,711 thousand shares) in the years ended March 31, 2019 and March 31, 2020 based on a resolution of the board of directors held on February 8, 2019
- Acquisition of 48,917 million yen in treasury stock (100,000 thousand shares) in the year ended March 31, 2020 based on a resolution of the board of directors held on May 13, 2019
Other components of equity
(a) Changes in fair value of financial assets measured at FVOCI
Changes in fair value of financial assets measured at FVOCI are the valuation differences in fair value of financial assets measured at
FVOCI.
(b) Changes in fair value of cash flow hedges
The Company uses derivatives for hedging to minimize the risk of fluctuation in future cash flows. This is the effective portion of the change in fair value of derivative transactions designated as cash flow hedges.
(c) Exchange differences on translation of foreign operations
Exchange differences on translation of foreign operations are composed of foreign currency translation differences that occur to consolidated financial statements of foreign operations.
(d) Remeasurement gains (losses) on defined benefit plans
Remeasurement gains (losses) on defined benefit plans are the effect of differences between the actuarial assumptions at the beginning of the year and actual experience, and the effect of changes in actuarial assumptions related to defined benefit plans.
- 54 -
23. Dividends
Dividends with record dates in the year ended March 31, 2020 to be effective in the year ending March 31, 2021 are as follows:
Year ended March 31, 2020 | ||||||||||
Total dividends | Dividends per | |||||||||
Resolution | Share class | (Millions of Yen) | share (Yen) | Record date | Effective date | |||||
Ordinary general meeting | ||||||||||
of shareholders on June | Ordinary shares | (*)35,453 | 11.0 | March 31, 2020 | June 26, 2020 | |||||
25, 2020 |
- Total dividends include dividends of 16 million yen for shares held by the Board Incentive Plan Trust. Dividends paid during respective years are as follows:
Year ended March 31, 2020 | |||||||||||
Total dividends | Dividends per | ||||||||||
Resolutions | Share class | (Millions of Yen) | share (Yen) | Record date | Effective date | ||||||
Ordinary general meeting | March 31, | June 27, | |||||||||
of shareholders on June | Ordinary shares | (*1)36,673 | 11.0 | ||||||||
2019 | 2019 | ||||||||||
26, 2019 | |||||||||||
Board of directors' | September 30, | December 4, | |||||||||
meeting on November 8, | Ordinary shares | (*2)35,469 | 11.0 | ||||||||
2019 | 2019 | ||||||||||
2019 | |||||||||||
(*1) Total dividends include dividends of 13 million yen for shares held by the Board Incentive Plan Trust.
(*2) Total dividends include dividends of 11 million yen for shares held by the Board Incentive Plan Trust.
Year ended March 31, 2019 | |||||||||||
Total dividends | Dividends per | ||||||||||
Resolutions | Share class | (Millions of Yen) | share (Yen) | Record date | Effective date | ||||||
Ordinary general meeting | March 31, | June 28, | |||||||||
of shareholders on June | Ordinary shares | (*1)34,211 | 10.0 | ||||||||
2018 | 2018 | ||||||||||
27, 2018 | |||||||||||
Board of directors' | September 30, | December 4, | |||||||||
meeting on November 7, | Ordinary shares | (*2)33,802 | 10.0 | ||||||||
2018 | 2018 | ||||||||||
2018 | |||||||||||
(*1) Total dividends include dividends of 13 million yen for shares held by the Board Incentive Plan Trust.
(*2) Total dividends include dividends of 12 million yen for shares held by the Board Incentive Plan Trust.
- 55 -
24. Revenue
Breakdown of revenue
ENEOS Group operates an Energy Business, Oil and Natural Gas E&P Business, Metals Business, and Other Business, and the revenues recorded by these businesses are presented as revenue because these segments are subject to regular review by the Company's board of directors in order to make decisions about the allocation of resources and assess performance. In addition, revenue is broken down by regions based on customers' locations. The reconciliation of revenue disaggregated by geographical region and revenue for each reportable segment is as follows:
Year ended March 31, 2020 | |||||||||||
(Millions of Yen) | |||||||||||
Oil and | |||||||||||
Natural | |||||||||||
Region | Energy | Gas E&P | Metals | Other | Total | ||||||
Japan | 6,848,807 | 13,179 | 606,144 | 443,153 | 7,911,283 | ||||||
China | 435,766 | 23,985 | 111,909 | 56 | 571,716 | ||||||
Asia | Other parts | 514,666 | 54,899 | 214,900 | 3,678 | 788,143 | |||||
of Asia | |||||||||||
Other | 615,020 | 41,301 | 69,151 | 15,160 | 740,632 | ||||||
Total | 8,414,259 | 133,364 | 1,002,104 | 462,047 | 10,011,774 |
(*) Amounts after exclusion of internal transactions between group companies are presented.
Year ended March 31, 2019 | |||||||||||
(Millions of Yen) | |||||||||||
Oil and | |||||||||||
Natural | |||||||||||
Region | Energy | Gas E&P | Metals | Other | Total | ||||||
Japan | 7,679,207 | 15,697 | 669,107 | 446,737 | 8,810,748 | ||||||
China | 626,556 | 30,647 | 126,242 | 122 | 783,567 | ||||||
Asia | Other parts | 566,357 | 67,511 | 178,842 | 4,408 | 817,118 | |||||
of Asia | |||||||||||
Other | 603,517 | 35,388 | 65,121 | 14,171 | 718,197 | ||||||
Total | 9,475,637 | 149,243 | 1,039,312 | 465,438 | 11,129,630 |
(*) Amounts after exclusion of internal transactions between group companies are presented.
(a) Energy Business
The Energy Business is engaged in the sales of petroleum products (gasoline, kerosene, lubricants, etc.), petrochemicals, gas (LPG/LNG), coal, electricity, etc.
For these sales, because the legal ownership of the product, right of exclusive physical possession, and the material risks and economic value associated with the ownership of the product is transferred and the right to receive consideration for the product from the customer is acquired when control of the product is transferred to the customer, specifically, when the product is delivered to the customer, revenue is recognized at that time. In addition, because revenue is recognized based on the transaction price in the contract with the customer and the consideration for transactions is received within one year of the delivery of products, the transactions do not include any significant financing components. For transactions in which consideration could fluctuate, revenue is recognized within a scope in which a significant reversal in the revenue recognized will not occur in the future using the single most likely amount in a range of possible consideration amounts.
(b) Oil and Natural Gas Exploration and Production (E&P) Business
The Oil and Natural Gas Exploration and Production (E&P) Business is engaged in the sales of crude oil, natural gas, other mineral resources, etc.
For these sales, because the legal ownership of the product, right of exclusive physical possession, and the material risks and economic value associated with the ownership of the product is transferred and the right to receive consideration for the product from the customer is acquired when control of the product is transferred to the customer, specifically, when the product is delivered to the customer, revenue is recognized at that time. In addition, because revenue is recognized based on the transaction price in the contract with the customer and the consideration for transactions is received within one year of the delivery of products, the transactions do not include any significant financing components.
- 56 -
(c) Metals Business
The Metals Business is engaged in the sales of raw material ore including copper concentrate, non-ferrous metal products including electrolytic coppers, electronic materials, etc.
For these sales, because the legal ownership of the product, right of exclusive physical possession, and the material risks and economic value associated with the ownership of the product is transferred and the right to receive consideration for the product from the customer is acquired when control of the product is transferred to the customer, specifically, when the product is delivered to the customer, revenue is recognized at that time. In addition, because revenue is recognized based on the transaction price in the contract with the customer and the consideration for transactions is received within one year of the delivery of products, the transactions do not include any significant financing components.
Sales contracts for copper concentrate and for certain copper products generally include a provisional price at the time of shipment with the final price based on the monthly average market price of copper on the London Metal Exchange, or LME, over a certain number of months in the future. Such sales transactions are considered to be sales contracts with characteristics of commodity forwards where the pricing month is the delivery month and hence an embedded derivative with the copper or copper products as the host contract exists. Embedded derivatives, related to the price settlement mechanism after delivery, are not separated under IFRS 9 because their host is a financial asset. Therefore, revenue related to such sales is recognized after the fair value of the consideration received is estimated based on the market price at the time of shipment and is re-estimated at the end of the reporting period. The difference between the fair value at the time of shipment and at the end of the reporting period is recognized as an adjustment to revenue, and the billing amount of copper concentrate to be sold to smelters and factories for processing is the market value of the metal to be paid by the purchaser less processing costs (such as treatment charges and refining charges).
(d) Other Business
Revenue in Other Business is mainly related to the construction business.
In the construction business, because control of the asset is transferred to a customer in accordance with the progress of work for a construction work contract under which the performance obligation is satisfied over time, revenue is recognized in the corresponding construction period. When the outcome of construction can be estimated reliably, revenue is measured based on the proportion of contract costs incurred for work performed to date to the estimated total contract costs. For long-term construction work contract, a certain portion of the consideration is received in advance when the contract is entered into or during the construction period.
Receivables arising from contracts with customers, contract assets, and contract liabilities
The components of receivables arising from contracts with customers, contract assets, and contract liabilities are as follows.
Note that trade receivables are included in trade and other receivables, contract assets are included in other current assets, and contract liabilities are included in other current liabilities in the consolidated statements of financial position.
Trade receivables ("Accounts receivable - trade" and "Notes receivable - trade")
Contract assets Contract liabilities
(Millions of Yen) | ||||
As of March 31, | As of March 31, | As of April 1, | ||
2020 | 2019 | 2018 | ||
867,746 | 1,227,492 | 1,262,122 | ||
54,487 | 54,169 | 41,660 | ||
17,835 | 23,051 | 15,375 |
Contract assets are unclaimed receivables arising from construction work contracts, and they are transferred to receivables when the right to payment becomes unconditional. Contract liabilities are consideration received in advance of performance based on a contract, and they are transferred to revenue as the Company satisfies the performance obligations based on the contract (or at the time of performance).
The balance of contract liabilities at the beginning of the year ended March 31, 2020 was mostly recognized as revenue during the year ended March 31, 2020 and the amount carried forward was not material. In addition, the amount of revenue recognized from the performance obligations satisfied in previous periods in the year ended March 31, 2020 was not material.
Transaction price allocated to the remaining performance obligations
The total amount of the transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) as of March 31, 2020 is as follows:
(Millions of Yen) | ||
Construction contracts in the | As of March 31, | As of March 31, |
construction business | 2020 | 2019 |
Within one year | 124,317 | 100,006 |
Over one year, within two years | 45,630 | 61,200 |
Over two years | 72,158 | 29,385 |
Total | 242,105 | 190,591 |
- 57 - |
The Company categorizes the transaction price for contracts on which construction plans are not yet finalized as of March 31, 2020 according to the completion timing.
In contracts other than construction contracts, there may be long-term sales contracts with the transaction price based on market price at the time of sale. However, due to the possibility of significant reversals being conducted in the future on amounts estimated as of March 31, 2020, these are not presented. Although long-term contracts have been entered for some other products, the amount is not material.
Contract costs
The amount of assets recognized from the costs incurred to obtain or fulfil contracts with customers in the year ended March 31, 2020 was not material. In addition, contract costs are recognized as an expense when incurred if the amortization period is one year or less when applying a practical expedient.
25. Expenses by nature
The components of cost of sales, and selling, general and administrative expenses are as follows:
(Millions of Yen) | |||||
Year ended March 31, | Year ended March 31, | ||||
2020 | 2019 | ||||
Material and merchandise cost included in cost of sales | 7,300,406 | 8,062,136 | |||
Fuel expenses | 421,545 | 466,094 | |||
Employee costs | 295,764 | 299,688 | |||
Depreciation, depletion and amortization | 325,740 | 243,634 | |||
Freight | 255,436 | 208,660 | |||
Rental expenses | - | 132,649 | |||
Research and development expenses | 20,946 | 19,127 | |||
Other | 1,455,090 | 1,293,966 | |||
Total cost of sales, and | 10,074,927 | 10,725,954 | |||
selling, general and administrative expenses | |||||
- Rental expenses are included in Other from the year ended March 31, 2020, since the monetary importance has declined due to the application of IFRS 16.
- 58 -
26. Finance income and finance costs | |||||
The components of finance income and finance costs are as follows: | |||||
(Millions of Yen) | |||||
Year ended March 31, | Year ended March 31, | ||||
2020 | 2019 | ||||
Interest income | |||||
Financial assets measured at amortized cost | 6,559 | 6,147 | |||
Dividend income | |||||
Financial assets measured at FVOCI | 3 | 385 | |||
Derivative income | 1,445 | 486 | |||
Foreign currency exchange gain | 2,772 | - | |||
Other | 1,337 | - | |||
Total finance income | 12,116 | 7,018 | |||
Interest expenses | |||||
Financial liabilities measured at amortized cost | 32,821 | 32,865 | |||
Derivative expenses | 861 | 357 | |||
Foreign currency exchange loss | - | 1,801 | |||
Other | 1,137 | 461 | |||
Total finance costs | 34,819 | 35,484 |
27. Other operating income and expenses Other operating income
The components of other operating income are as follows:
(Millions of Yen) | |||
Year ended March 31, | Year ended March 31, | ||
2020 | 2019 | ||
Dividend income | 21,436 | 21,056 | |
Rental income | 9,008 | 8,417 | |
Gain on sale of fixed assets | 10,006 | (*1)48,128 | |
Gain on reversal of impairment losses | 45 | 4,740 | |
Foreign currency exchange gain | 7,174 | 1,264 | |
Other | 29,301 | (*2)109,907 | |
Total | 76,970 | 193,512 |
(*1) It is primarily a gain on sales of office buildings or office sites.
(*2) It is primarily a gain on sales of shares of subsidiaries (Irvine Scientific Sales Company, Inc. and IS Japan Co., Ltd.) of 77,710 million yen.
Other operating expenses
The components of other operating expenses are as follows:
(Millions of Yen) | |||
Year ended March 31, | Year ended March 31, | ||
2020 | 2019 | ||
Impairment losses | 113,211 | 42,247 | |
Loss on disposals of property, plant and equipment | 11,065 | 11,085 | |
Other | 18,470 | (*)52,833 | |
Total | 142,746 | 106,165 |
Impairment losses arose due to changes in business environments and ENEOS Group's restructuring plan, etc. Further information related to impairment losses is described in Note 14 "Impairment of non-financial assets".
- It is primarily reserves for restructuring, environmental countermeasures, and disadvantageous contracts.
- 59 -
28. Income taxes | |||
Income tax expense | |||
The components of income tax expense are as follows: | |||
(Millions of Yen) | |||
Year ended March 31, | Year ended March 31, | ||
2020 | 2019 | ||
Current tax expense | 54,472 | 96,447 | |
Deferred tax expense (benefit) | |||
Recognition and reversal of temporary differences | (105,170) | 30,819 | |
Changes in unrecognized deferred tax assets | 87,652 | 24,200 | |
Changes in tax rates | 17 | - | |
Total deferred tax income, net | (17,501) | 55,019 | |
Total income tax expense | 36,971 | 151,466 |
Reconciliation of the difference between the effective statutory tax rate and the actual tax rate
The reconciliation of the difference between the effective statutory tax rate and the actual tax rate of ENEOS Group is as follows:
Year ended March 31, | Year ended March 31, | |||
2020 | 2019 | |||
Effective statutory tax rate | 30.6% | 30.6% | ||
Entertainment and other permanently non-deductible expenses | (2.8) | 0.7 | ||
Dividend and other permanently non-taxable income | 3.9 | (1.3) | ||
Tax effect on companies accounted for using the equity method | 3.6 | (2.8) | ||
Changes in unrecognized deferred tax assets | (64.6) | 4.8 | ||
Tax rate difference of subsidiaries | (5.4) | 2.3 | ||
Other | 7.5 | (4.5) | ||
Actual tax rate | (27.2)% | 29.8% |
ENEOS Group is subject to mainly corporate tax, inhabitant tax and deductible business tax, which in the aggregate resulted in an applicable statutory effective tax rate of 30.6% for the years ended March 31, 2019 and March 31, 2020. Foreign subsidiaries are subject to income taxes of the countries in which they operate.
- 60 -
29. Other comprehensive income (loss)
Reclassification and tax effects related to other comprehensive income (loss) are as follows:
Changes in fair value of financial assets measured at
FVOCI
Incurred during the year Before tax
Tax effects
Changes in fair value of financial assets measured at FVOCI
Changes in fair value of cash flow hedges Incurred during the year Reclassification
Before tax Tax effects
Changes in fair value of cash flow hedges Exchange differences on translation of foreign operations
Incurred during the year Reclassification Before tax
Tax effects
Exchange differences on translation of foreign operations
Remeasurement gains (losses) on defined benefit plans
Incurred during the year Before tax
Tax effects
Remeasurement gains (losses) on defined benefit plans
(Millions of Yen) | ||
Year ended March 31, | Year ended March 31, | |
2020 | 2019 | |
(80,081) | (42,466) | |
(80,081) | (42,466) | |
18,834 | 14,006 | |
(61,247) | (28,460) | |
(8,182) | (21,366) | |
18,875 | 12,013 | |
10,693 | (9,353) | |
(3,346) | 2,552 | |
7,347 | (6,801) | |
(21,335) | 16,111 | |
(1,830) | 757 | |
(23,165) | 16,868 | |
- | - | |
(23,165) | 16,868 | |
(4,381) | (2,403) | |
(4,381) | (2,403) | |
1,386 | 767 | |
(2,995) | (1,636) |
Share of other comprehensive income (loss) of investments accounted for using the equity method
Incurred during the year Reclassification
Before tax Tax effects
Share of other comprehensive income (loss) of investments accounted for using the equity method
Total other comprehensive income (loss)
(8,977) | (5,762) | |
86 | 935 | |
(8,891) | (4,827) | |
- | - | |
(8,891) | (4,827) | |
(88,951) | (24,856) | |
- 61 -
30. Earnings per share
Basic and diluted earnings per share attributable to owners of the parent are calculated based on the following information.
Profit (loss) for the year attributable to owners of the parent (Millions of Yen)
Weighted average number of ordinary shares during the year (Thousands of Shares)
Dilutive impact: Share-based payments (*2) Earnings per share (Yen):
Basic earnings (loss) per share (Yen) Diluted earnings (loss) per share (Yen) (*2)
Year ended March 31, | Year ended March 31, | |
2020 | 2019 | |
(187,946) | 322,319 | |
3,248,100 | 3,380,083 | |
- | 1,211 | |
(57.86) | 95.36 | |
(57.86) | 95.32 |
(*1) The Company shares held by the Board Incentive Plan Trust are recognized as treasury stock, and thus the pertinent number of shares is excluded from the average number of shares of common stock during the fiscal year in calculating profit per share.
(*2) For the year ended March 31, 2020, the equivalent of 1,102 thousand shares of the Company shares held by the Board Incentive Plan Trust were excluded from the calculation of diluted loss per share due to anti-dilutive effects.
31. Cash flow information
Changes in liabilities related to financial activities
The changes in liabilities related to financial activities are as follows:
Year ended March 31, 2020
(Millions of Yen) | ||||||||||||||||||
Changes without cash flows | ||||||||||||||||||
Exchange | ||||||||||||||||||
Adjustments | differences on | |||||||||||||||||
for the | April 1, 2019 | translation of | ||||||||||||||||
application of | (after | Changes with | foreign | |||||||||||||||
April 1, 2019 | IFRS 16 | adjustments) | cash flows | operation | New leases | Other | March 31, 2020 | |||||||||||
Short-term | 252,700 | - | 252,700 | 94,511 | (209) | - | (3,843) | 343,159 | ||||||||||
borrowings | ||||||||||||||||||
Commercial paper | 186,000 | - | 186,000 | 138,000 | - | - | - | 324,000 | ||||||||||
Long-term | 1,556,658 | - | 1,556,658 | (117,596) | (8,863) | - | 127 | 1,430,326 | ||||||||||
borrowings | ||||||||||||||||||
Bonds | 222,635 | - | 222,635 | (18,920) | - | - | (354) | 203,361 | ||||||||||
Lease liabilities | 59,344 | 414,817 | 474,161 | (72,661) | (2,310) | 116,771 | (122) | 515,839 | ||||||||||
Total | 2,277,337 | 414,817 | 2,692,154 | 23,334 | (11,382) | 116,771 | (4,192) | 2,816,685 | ||||||||||
Year ended March 31, 2019
(Millions of Yen) | ||||||||||||||
Changes without cash flows | ||||||||||||||
Exchange | ||||||||||||||
Changes with | Assumption | differences on | ||||||||||||
through business | translation of | |||||||||||||
April 1, 2018 | cash flows | combination | foreign operation | New leases | Other | March 31, 2019 | ||||||||
Short-term | 316,645 | (67,250) | - | (447) | - | 3,752 | 252,700 | |||||||
borrowings | ||||||||||||||
Commercial paper | - | 186,000 | - | - | - | - | 186,000 | |||||||
Long-term | 1,651,011 | (114,030) | - | 20,517 | - | (840) | 1,556,658 | |||||||
borrowings | ||||||||||||||
Bonds | 292,275 | (69,200) | - | - | - | (440) | 222,635 | |||||||
Lease liabilities | 51,112 | (6,497) | - | (82) | 14,811 | - | 59,344 | |||||||
Total | 2,311,043 | (70,977) | - | 19,988 | 14,811 | 2,472 | 2,277,337 |
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32. Share-based remuneration
Details of share-based remuneration plans
The Company has introduced a share-based remuneration plan that grants the Company's shares to directors and executive officers (*) of the Company and three core operating companies in accordance with their duties and level of achievement of the performance targets.
A board incentive plan (BIP) has been adopted for this plan, under which directors, etc. are granted predetermined points in accordance with their duties and level of achievement of the performance targets, etc. during a set period every year. As a general rule, the Company's shares, etc. are distributed in accordance with these points after three years has elapsed since the granting of the points (one point corresponds to one share of the Company).
The compensation for received services is measured by using the fair value of the Company shares as of the grant date, and is expensed during the right vesting period. The same amount thereof is considered as an increase in equity. Expenses recognized related to the share-based remuneration plan were 163 million yen and 283 million yen during the years ended March 31, 2019 and March 31, 2020, respectively.
(*) Eligible persons for the Plan are as follows:
・Directors who are not audit and supervisory committee members (excluding outside directors and overseas residents) and executive officers (excluding overseas residents)
・Directors (excluding outside directors and overseas residents) and executive officers (excluding overseas residents) of ENEOS Corporation, JX Nippon Oil & Gas Exploration Corporation and JX Nippon Mining & Metals Corporation
(2) Overview of points | |||
Year ended March 31, | Year ended March 31, | ||
2020 | 2019 | ||
(Number of points) | (Number of points) | ||
At beginning of the year | 1,195,270 | 1,255,800 | |
Number of points granted (*1) | 460,000 | 0 | |
Number of points delivered | (194,963) | (60,530) | |
At end of the year | 1,460,307 | 1,195,270 | |
(yen) | (yen) | ||
Fair value of points granted (*2) | 542 | - | |
Weighted average share price on the | 515 | 713 | |
delivery date | |||
(*1) Under IFRS, the grant date is the date of agreement to a remuneration agreement based on shares by a company and another party. In addition, the number of points granted corresponds to the period of the performance of duties by Directors, etc. during the three fiscal years from 2017 to 2019.
(*2) For the fair value of the points granted, the stock price on the grant date is used because this fair value is similar to the stock price on the grant date.
33. Contingencies
ENEOS Group provides guarantees for indebtedness such as borrowings from financial institutions by companies other than the subsidiaries. ENEOS Group also provides guarantees for borrowings (housing loans) of employees.
The outstanding guarantees for indebtedness as of March 31, 2019 and March 31, 2020 are as follows:
(Millions of Yen) | ||||
As of March 31, | As of March 31, | |||
2020 | 2019 | |||
Associates and joint ventures | 13,007 | 18,708 | ||
Other companies and employees | 9,503 | 9,114 | ||
Total | 22,510 | 27,822 |
(*) Associates and joint ventures include jointly controlled companies.
- 63 -
34. Commitments
The amounts of purchase commitments for property, plant and equipment contracted for at the end of the reporting period but not yet recognized in the consolidated statements of financial position are as follows. Purchases also include contracts related to acquisition of new right-of-use assets.
(Millions of Yen) | ||||
As of March 31, | As of March 31, | |||
2020 | 2019 | |||
Purchase commitments for property, plant and equipment | 13,262 | 76,979 |
35. Related party transactions
The compensation paid to ENEOS Group's key management personnel is as follows:
(Millions of Yen) | |||
Year ended March 31, | Year ended March 31, | ||
2020 | 2019 | ||
Compensation and bonuses | 472 | 650 | |
Share-based payments | 77 | 25 | |
Total | 549 | 675 |
(*) Expenses recognized in each year are stated in the share-based remuneration amount.
- 64 -
36. Subsidiaries
Subsidiaries
The major subsidiaries of the Company as of March 31, 2020 are shown as follows:
JXTG Holdings, Inc.
Energy
Core Operating Company
JXTG Nippon Oil & Energy
Corporation
Refining of petroleum, and processing and marketing of petroleum products, as well as manufacturing and marketing of petrochemical products, etc.
JXTG Nippon Oil & Energy Corporation
Tonen Chemical Corporation
Kashima Oil Co., Ltd.
Wakayama Petroleum Refining Co., Ltd.
NUC Corporation
Kashima Aromatics Co., Ltd.
JX Nippon ANCI Corporation
*Osaka International Refining Company, Limited
Storage and transportation of crude oil and petroleum products JX Nippon Oil & Energy Kiire Terminal Corporation
JX Ocean Co., Ltd.
Nippon Global Tanker Co., Ltd.
*Showa Nittan Corp.
*Japan Oil Transportation Co., Ltd.
Manufacturing and marketing of petroleum products overseas JX Nippon Oil & Energy USA Inc.
JX Nippon Oil & Energy Asia Pte. Ltd.
Investments in and loans to coal mining and marketing companies JX Nippon Oil & Energy (Australia) Pty. Ltd.
Marketing of petroleum products, etc.
ENEOS FRONTIER COMPANY LIMITED
ENEOS WING Corporation
ENEOS GENERATIONS, Ltd
JX Retail Service Corporation
ENEOS Sun-Energy Corporation
J-Quest Co., Ltd.
Marketing of liquefied petroleum gas (LPG) products
ENEOS GLOBE Corporation
Japan Gas Energy Corporation
Generation and supply of electric power *Kawasaki Natural Gas Power Generation Co., Ltd.
Investments in LNG development companies
Nippon Oil Finance (Netherlands) B.V.
Marketing and leasing business of automobile-related supplies and goods
ENEOS TRADING COMPANY LIMITED
Oil and Natural Gas Exploration
and Production
Core Operating Company
JX Nippon Oil & Gas Exploration
Corporation
Exploration, development, and production of oil and natural gas JX Nippon Oil & Gas Exploration Corporation
Japan Vietnam Petroleum Co., Ltd.
JX Nippon Oil & Gas Exploration (Malaysia) Ltd.
JX Nippon Oil & Gas Exploration (Sarawak) Ltd.
Nippon Oil Exploration (Berau) Ltd.
Nippon Oil Exploration (Myanmar) Ltd.
JX Nippon Exploration and Production (U.K.) Ltd.
Merlin Petroleum Company
*Abu Dhabi Oil Co., Ltd.
*United Petroleum Development Co., Ltd.
Metals
Core Operating Company
JX Nippon Mining & Metals
Corporation
Manufacturing and marketing of non-ferrous metal products and electronic materials, as well as recycling of non-ferrous metals
JX Nippon Mining & Metals Corporation
JX Metals Trading Co., Ltd.
Manufacturing and marketing of non-ferrous metal products
PAN PACIFIC COPPER CO., LTD.
Hibi Kyodo Smelting Co., Ltd.
*LS-Nikko Copper Inc.
Development and exploration of non-ferrous metal resources, and investments in and loans to mines
SCM Minera Lumina Copper Chile
*Minera Los Pelambres
*JECO Corporation
*JECO 2 Ltd.
Manufacturing and marketing of electronic materials
JX Nippon Mining & Metals Philippines, Inc.
Nippon Mining & Metals (Suzhou) Co., Ltd.
JX Metals Precision Technology Co., Ltd.
JX Nippon Mining & Metals USA, Inc.
Manufacturing and marketing of electronic materials, and collection of non-ferrous metal raw materials for recycling
Nikko Metals Taiwan Co., Ltd.
Recycling of non-ferrous metals, and industrial waste treatment JX Nippon Environmental Services Co., Ltd.
Manufacturing and marketing of titanium
Toho Titanium Co., Ltd.
Manufacturing and marketing of electric wires, cables and electronic materials
*TATSUTA Electric Wire and Cable Co., Ltd.
Other
Roadwork, civil engineering work, and design and construction of petroleum-related equipment, etc.
NIPPO CORPORATION
Dai Nippon Construction Co., Ltd.
Land transportation *Maruwn Corporation
Sales and purchase, leasing, and management of real estate JX Nippon Real Estate Corporation
Undertaking of finance-related services
JX Nippon Finance Corporation
Undertaking of accounting services, and salaries and welfare-related services
JX Nippon Business Services Corporation
Researching, studying, evaluating, designing and planning, and consulting services
JX Nippon Research Institute, Ltd.
The companies with an asterisk (*) attached are affiliates accounted for by the equity method, jointly controlled businesses, or jointly controlled companies.
- 65 -
Subsidiaries with significant non-controlling interest
The condensed financial information, etc. of SCM Minera Lumina Copper Chile for which the Company has recognized a significant non-controlling interest are as follows. Note that the condensed financial information contains amounts before the elimination of transactions within the Group.
(a) Ownership ratio of non-controlling interest held | As of March 31, | As of March 31, | ||||||
2020 | 2019 | |||||||
Ownership ratio of non-controlling interest held (%) | 48.5% | 48.5% | ||||||
(b) Condensed financial information | ||||||||
1. Condensed statements of financial position | ||||||||
(Millions of Yen) | ||||||||
As of March 31, | As of March 31, | |||||||
2020 | 2019 | |||||||
Current assets | 29,567 | 33,172 | ||||||
Non-current assets | 328,242 | 328,977 | ||||||
Current liabilities | 99,709 | 91,697 | ||||||
Non-current liabilities | 332,565 | 327,991 | ||||||
Total equity | (74,465) | (57,539) | ||||||
Equity attributable to owners of parent | (38,349) | (29,633) | ||||||
Non-controlling interests | (36,116) | (27,906) |
2. Condensed statements of profit or loss and condensed statements of comprehensive income or loss. (Millions of Yen)
Year ended March 31,
2019
Net sales
Loss for the year
Other comprehensive income (loss)
Total comprehensive income (loss) for the year
Loss for the year attributable to owners of the parent
Loss for the year attributable to non-controlling interests
Total comprehensive income (loss) for the year attributable to owners of the parent
Total comprehensive income (loss) for the year attributable to non-controlling interests
84,03892,016
(18,043)(15,937)
1,117(1,787)
(16,926)(17,724)
(9,292)(8,208)
(8,751)(7,729)
(8,717)(9,128)
(8,209)(8,596)
No dividends were paid to non-controlling interests from SCM Minera Lumina Copper Chile in the years ended March 31, 2019 and March 31, 2020.
3. Condensed statement of cash flows
Net cash flows from operating activities Net cash flows used in investing activities Net cash flows used in financing activities
Net increase (decrease) in cash and cash equivalents
(Millions of Yen) | |||
Year ended March 31, | Year ended March 31, | ||
2020 | 2019 | ||
22,725 | 18,656 | ||
(11,948) | (17,105) | ||
(7,077) | (1,540) | ||
3,700 | 11 |
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37. Investments accounted for using the equity method
The components of the carrying amount of the investments accounted for using the equity method are as follows:
(Millions of Yen) | ||||
As of March 31, | As of March 31, | |||
2020 | 2019 | |||
Associates | 256,627 | 238,845 | ||
Joint ventures | 150,578 | 164,396 | ||
Total | 407,205 | 403,241 |
For investments accounted for using the equity method, a liability recognized after the interest is reduced to zero is included in "Other non-current liabilities".
The components of share of profit (loss) of investments accounted for using the equity method are as follows:
(Millions of Yen) | ||||
Year ended March 31, | Year ended March 31, | |||
2020 | 2019 | |||
Associates | 33,211 | 40,456 | ||
Joint ventures | (17,343) | 5,604 | ||
Total | 15,868 | 46,060 |
The components of share of other comprehensive income (loss) of investments accounted for using the equity method are as follows:
(Millions of Yen) | ||||
Year ended March 31, | Year ended March 31, | |||
2020 | 2019 | |||
Associates | (3,534) | 2,593 | ||
Joint ventures | (5,357) | (7,420) | ||
Total | (8,891) | (4,827) |
The components of total comprehensive income (loss) of investments accounted for using the equity method are as follows:
(Millions of Yen) | ||||
Year ended March 31, | Year ended March 31, | |||
2020 | 2019 | |||
Associates | 29,677 | 43,049 | ||
Joint ventures | (22,700) | (1,816) | ||
Total | 6,977 | 41,233 |
38. Subsequent events None
- 67 -
Independent Auditor's Report
The Board of Directors
ENEOS Holdings, Inc.
Opinion
We have audited the accompanying consolidated financial statements of ENEOS Holdings, Inc. and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at March 31, 2020, and the consolidated statements of profit or loss, comprehensive income, changes in equity, and cash flows for the year then ended, and notes to the consolidated financial statements.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at March 31, 2020, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs).
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of the audit of the consolidated financial statements as a whole, and in forming the auditor's opinion thereon, and we do not provide a separate opinion on these matters.
Impairment Loss in the Oil and Natural Gas E&P Segment
Description of Key Audit Matter | Auditor's Response | |||||||||
As described in Critical accounting estimates | We and component teams conducted the | |||||||||
and judgments in Note 4 and Impairment of | following audit procedures to verify the | |||||||||
non-financial assets in Note 14, the Company | impairment test: | |||||||||
recorded an impairment loss of 89,302 million | ・ We compared the assumptions regarding | |||||||||
yen in the oil and natural gas exploration and | ||||||||||
crude | oil | and | gas | prices, | and reserves | |||||
production segment. | ||||||||||
approved by the management with those | ||||||||||
In the current fiscal year, the Company | used in determining estimated future cash | |||||||||
identified indicators of impairment due to | flows. In addition, we discussed the | |||||||||
falling crude oil and natural gas prices, and | business plan with the management | |||||||||
when the Company conducted its impairment | including the effects of the spread of | |||||||||
test, the recoverable amount was measured by | COVID-19 and changes in the market | |||||||||
value in use. Value in use was calculated | conditions caused by trends of oil- | |||||||||
based on the estimated future cash flows | producing countries. Then we compared | |||||||||
based on the business plan and included | the business plan with past results and | |||||||||
significant assumptions such as crude oil and | available external data to assess the degree | |||||||||
gas prices, reserves and the discount rates. | of accuracy of the business plan. | |||||||||
These estimates involved uncertainties such | ・ We | examined | the | assessment | of | |||||
as the effects of the spread of COVID-19 and | ||||||||||
uncertainties | used | by the | Company | |||||||
changes in the market conditions caused by | ||||||||||
regarding | fluctuations | in | the | prices | of | |||||
trends of oil-producing countries, and required | ||||||||||
crude | oil | and | gas, | and | changes | in | ||||
significant judgment by management. | ||||||||||
reserves, considering that estimated future | ||||||||||
Therefore, we determined that the impairment | ||||||||||
cash flows are highly sensitive to future | ||||||||||
loss in the oil and natural gas exploration and | ||||||||||
changes in such assumptions. | ||||||||||
production segment was a key audit matter. | ||||||||||
・ With the support of our valuation | ||||||||||
specialists, we assessed the adequacy of | ||||||||||
the model used by the Company in | ||||||||||
calculating value in use and the discount | ||||||||||
rates as a significant assumption. | ||||||||||
Regarding the discount rates, we assessed | ||||||||||
reliability of the underlying data, and | ||||||||||
verified the calculation accuracy. | ||||||||||
We understood and assessed audit procedures | ||||||||||
and conclusions by the component teams, and | ||||||||||
discussed with the Company the assumptions | ||||||||||
for crude oil and gas prices and reserves used | ||||||||||
in the estimated future cash flows. | ||||||||||
Valuation of Deferred Tax Assets
Description of Key Audit Matter | Auditor's Response | |||||||||
As described in Critical accounting estimates | We and component teams mainly conducted | |||||||||
and judgments in Note 4 and Deferred tax in | the following audit procedures to verify the | |||||||||
Note 20, the Company recognized deferred | estimate of future taxable income: | |||||||||
tax assets of 601,459 million yen as of March | ・ We critically | examined | the | Company's | ||||||
31, 2020. | ||||||||||
cause analysis done in the current fiscal | ||||||||||
The core domestic subsidiary in the energy | year on the occurrence of significant tax | |||||||||
business and an overseas subsidiary in the oil | losses. | |||||||||
and gas | exploration | and | production | ・ We examined the balance of temporary | ||||||
business, which comprise the | majority of | |||||||||
differences | and | net | operating | loss | ||||||
deferred tax assets, have large amounts of net | ||||||||||
carryforwards | by | involving | tax | |||||||
operating loss carryforwards. In addition to | ||||||||||
specialists, | and | we | also | examined | ||||||
deductible | temporary differences, deferred | |||||||||
scheduling of the timing of their reversal. | ||||||||||
tax assets are recorded for net operating loss | ||||||||||
・ We compared the business plan, including | ||||||||||
carryforwards based on the judgment of the | ||||||||||
recoverability through future taxable income | its each component used in estimating | |||||||||
of the Company. | future taxable income, with the actual | |||||||||
The estimate of future taxable income was | results to assess whether the Company's | |||||||||
estimate | was | biased and the degree of | ||||||||
based on | the business | plan and included | ||||||||
accuracy of the business plan. | ||||||||||
significant assumptions such as sales | ||||||||||
・ We discussed with the management the | ||||||||||
volumes, commodity prices and foreign | ||||||||||
exchange rates. The recoverability of deferred | significant assumptions used in the | |||||||||
tax assets is primarily based on the estimate | business | plan | such | as | sales | |||||
of future taxable income by management. The | volumes, commodity prices and foreign | |||||||||
underlying | business | plan | involved | exchange rates including the effects of the | ||||||
uncertainties such as the effects of the spread | spread of COVID-19 and changes in the | |||||||||
of COVID-19 and changes in the market | market conditions caused by trends of oil- | |||||||||
conditions caused by trends of oil-producing | producing countries. Then we assessed the | |||||||||
countries, and was subject to significant | Company's estimate by comparing these | |||||||||
assumptions with management | judgement. | significant assumptions to industry trends | ||||||||
Therefore, we determined that valuation of | and available external data. | |||||||||
deferred tax assets was a key audit matter. | ・ We examined an assessment of estimation | |||||||||
uncertainties that are reflected as certain | ||||||||||
risks in the business plan. | ||||||||||
We understood and assessed audit procedures | ||||||||||
and conclusions by the component teams, and | ||||||||||
discussed with the Company the future | ||||||||||
business plan used in the estimated future | ||||||||||
taxable income. | ||||||||||
Responsibilities of Management, the Audit and Supervisory Committee for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group's ability to continue as a going concern and disclosing, as required by IFRSs, matters related to going concern.
The Audit and Supervisory Committee is responsible for overseeing the Group's financial reporting process.
Auditor's Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with auditing standards generally accepted in Japan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
- Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
- Consider internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances for our risk assessments, while the purpose of the audit of the consolidated financial statements is not expressing an opinion on the effectiveness of the Group's internal control.
- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
- Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.
- Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation in accordance with IFRSs.
- Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with the Audit and Supervisory Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Audit and Supervisory Committee with a statement that we have complied with the ethical requirements regarding independence that are relevant to our audit of the financial statements in Japan, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Audit and Supervisory Committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Interest Required to Be Disclosed by the Certified Public Accountants Act of Japan
Our firm and its designated engagement partners do not have any interest in the Group which is required to be disclosed pursuant to the provisions of the Certified Public Accountants Act of Japan.
Ernst & Young ShinNihon LLC
Tokyo, Japan
June 25, 2020
/s/ Yuichi Mochinaga Designated Engagement Partner Certified Public Accountant
/s/ Kazuhiko Umemura Designated Engagement Partner Certified Public Accountant
/s/ Kazuhiko Yamazaki Designated Engagement Partner Certified Public Accountant
/s/ Takamichi Komiyama Designated Engagement Partner Certified Public Accountant
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Eneos Holdings Inc. published this content on 14 December 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 14 December 2020 09:12:02 UTC