CEO Message

Oil & New ~Next Stage~ Toward the realization of enhanced enterprise value

Shigeru Yamada

Representative Director, Group CEO

Looking back on FY2023

Reflecting on my first year as CEO

A year has passed since we launched our new management team. Although we have achieved some of the things I envisioned before assuming the role of Group CEO, new challenges have also become apparent. Overall, I feel that FY2023 was a year in which we were able to make positive steps toward enhancing enterprise value.

The external environment continues to see heightened geopolitical risks due to various conflicts such as the situations in Ukraine, Israel, and Palestine, and the continued tension in the Taiwan Strait. For Japan, which relies on imports for almost 90% of its primary energy, the importance of energy security, including supply chain diversification, continues to increase.

Furthermore, recent years have seen frequent large-scale natural disasters such as earthquakes, and I feel that this past year has brought a renewed awareness of the importance of petroleum products, which are easy to transport, store, and use. While we are of course committed to reducing greenhouse gas (GHG) emissions, at the same time the year was also a reminder of our company’s mission to offer a stable supply of petroleum products.

Along with expanding New fields as “energy that shapes the future,” set forth in Vision 2030, we will undertake thorough efforts in Oil fields, which currently constitute “energy that sustains society.”

Progress on the Seventh Consolidated Medium-Term Management Plan

In terms of our Group’s business performance in the first year of the Seventh Consolidated Medium-Term Management Plan (hereafter, “the Seventh MTMP”), we were able to achieve a certain degree of success thanks to the concerted efforts of all employees, in addition to enjoying a relatively favorable business environment. Under the Seventh MTMP, which focuses on sustainably enhancing enterprise value, I feel we made a sound step forward. 

In particular, in Oil fields, it was a year in which we successfully strengthened our profitability, developed during the Sixth Consolidated Medium-Term Management Plan; despite a few unplanned stoppages at refineries, we were able to demonstrate our presence and strengths. However, New fields mainly entails slightly longer-term projects, and there are some aspects in which we have yet to realize concrete results. Still, it is necessary to continue challenging ourselves, without fear of failure. Going forward, I am committed to leading these efforts.

Initiatives in Oil fields

To secure profitability in Oil fields, we implemented initiatives to realize high uptime and high-efficiency operations at refineries. After all, the foundation of our profitability is safe, stable operations.

Our company is strengthening its Operational Management System (OMS)1, a company-wide management system that we have been using since 2016. The OMS does not produce results overnight, so we must continuously improve and test it. It has already been almost 10 years since we introduced the system, and I am confident that raising the safety awareness of each person working in the refineries and not overlooking even the slightest details will foster a commitment to safety that will eventually become ingrained in our corporate culture. Without faltering, we will continue our efforts to take our corporate culture of safety, which we have built until now, to an even higher level.

In addition, as part of our digital transformation (DX) initiatives launched in FY2023, we began operating an APM System2 and are undertaking an initiative to build digital twins3. We aim to reduce unplanned stoppages by consolidating data on refinery facilities and equipment in the APM System and predicting failures before they happen. In addition, we can create virtual versions of the refineries and combine them with AI simulations to further widen our efforts to reduce the risk of trouble.  


The energy industry is undergoing a period of transformation as it works toward net zero carbon emissions in 2050. To ensure a stable energy supply, which is our company’s mission, we will pursue safe and stable operations by integrating DX initiatives into our corporate culture of safety.


1 OMS: The Cosmo Oil Group’s refinery division has established a policy consisting of 23 requirements as critical items indispensable for achieving safe operations and stable supply. Based on this policy, the head office and refineries are strengthening their respective initiatives and cooperation through the OMS.


2 APM System: APM stands for Asset Performance Management. The system is taught the global standard for maintenance and equipment reliability work processes and can efficiently and effectively manage big data on maintenance as well as improve comprehensiveness, predictability, and manageability.


3 Digital twin: A digital representation of an actual refinery, from which necessary information about refinery facilities and equipment (operating data, repair history, equipment specifications, etc.) can be immediately accessed.

Initiatives in New fields

With an eye toward growth, we are expanding New fields by undertaking initiatives to establish a green electricity supply chain profit foundation and mass-produce Japan’s first locally-made SAF. 

Our green electricity supply chain consists of three business areas: renewable energy generation, supply-demand adjustment and storage, and green electricity sales. 

In renewable energy generation, our onshore wind power business began operations of Kamiyuchi Wind Farm (Hokkaido) and Oita Wind Farm (Oita Prefecture) in 2023 and is making steady progress. As for offshore wind power, although the business environment is becoming more challenging for reasons such as increasing competitors and rising costs, expectations for large-scale sources of green electricity are growing given the global trend toward decarbonization, and our company is preparing for future rounds of bidding after first ensuring sound profitability.

In terms of supply-demand adjustment and storage, in FY2023 we began validating our power storage business at the Research & Development Center and directly-managed service stations. In FY2024, we also plan to begin validation at our Yokkaichi Kasumi Power Plant. Based on the validation results, we will consider acquiring storage battery operation know-how and engaging in new electricity market transactions.

In terms of green electricity sales, more than 2,400 facilities have introduced Cosmo Denki (Electricity) Business Green as of the end of FY2023. The share of green electricity to total electricity sales has reached 50% and is steadily increasing. Going forward, we will continue to focus on growing green electricity sales.


Aiming to mass produce Japan’s first locally-made SAF, in May 2023 we began construction of a SAF production facility4 that uses waste cooking oil as feedstock at Cosmo Oil’s Sakai Refinery. Steady progress is being made toward completion and commencement of operations in FY2024. 

Regarding feedstock procurement, an important element in business development, we are working with a wide range of industries, including restaurant chains, department stores, airport management companies, and railroad operators, through SAFFAIRE SKY ENERGY LLC, a joint venture with JGC Holdings Corporation and Revo International Inc. 


4 New Energy and Industrial Technology Development Organization (NEDO)-subsidized project “Establishment of a supply chain model for SAF production from domestic waste cooking oil.”

Capital and business alliance with Iwatani Corporation

In April 2024, our company entered into a capital and business alliance with Iwatani Corporation (hereafter, “Iwatani”). 

Our company and Iwatani have enjoyed a friendly relationship in the trade of LPG and petroleum products for many years. In 2022, we concluded a basic agreement concerning possible collaboration in the hydrogen business. We have been considering collaboration in three areas: hydrogen stations, the engineering field, and supply chain construction.

This new capital and business alliance is based on our belief that deepening collaboration toward carbon neutrality by 2050 will lead to the creation of new synergies and, consequently, enhance enterprise value. Going forward, we will establish an alliance promotion committee, chaired by the representative directors of both companies, to accelerate initiatives to realize a decarbonized society, including collaboration in the hydrogen field, in addition to strengthening our relationship in existing business fields.


As for ongoing initiatives, in 2023 we established a joint venture for hydrogen station business, which opened its first station in April, 2024. We were also selected to operate two other hydrogen stations at sites owned by the Tokyo Metropolitan Government, and we plan to open our second and third hydrogen stations in 2025 and thereafter. We will continue to expand hydrogen stations business, which are expected to contribute to the reduction of CO2 emissions in the transportation sector.


In addition, in 2023 we established a joint venture for our hydrogen engineering business. As our refineries handle hydrogen produced in the petroleum refining process, our Group possesses engineering technologies and capabilities related to hydrogen facilities and equipment, and we aim to expand profits by matching Iwatani’s know-how in the hydrogen field with users’ needs.

Progress of our capital policy

As we aim to maximize enterprise value, I believe it is important to expand, in a well-balanced manner, our three-pronged capital policy set forth in the Seventh MTMP: namely, shareholder returns, capital efficiency, and financial health. In particular, I feel that it is vital to optimize capital efficiency and financial health by improving profitability so that there is no trade-off between the two.

In FY2023, as a result of implementing our three-pronged capital policy against a backdrop of solid business performance, particularly in the Petroleum Business, our main revenue driver, we were able to achieve the targets defined in the Seventh MTMP in all three areas: shareholder returns, capital efficiency, and financial health. 

For shareholder returns, we increased the dividend twice during the period, as well as raised the minimum dividend for the Seventh MTMP period in light of strong profit levels. Alongside dividends, we also achieved a single-year total payout ratio of 60% to shareholders in FY2023 by buying back our own shares.

In terms of capital efficiency, despite unplanned stoppages at refineries, ROE far exceeded our 10% target thanks to initiatives carried out since the Sixth MTMP period to strengthen our profitability.

Regarding financial health, we have achieved our net debt-to-equity ratio and net worth targets from the first year of the MTMP by improving profitability.

Management Foundation Transformation

Initiatives to drive human resource, digital, and green transformations

Under the Seventh MTMP, we are implementing human resource, digital, and green transformation initiatives to transform our management foundation, which supports our business strategies.

Our human resource transformation (HRX) efforts are centered around a “people strategy that motivates employees and harnesses their skills,” and we are undertaking initiatives to integrate management and human resource strategies to lead the company and its employees to growth. In FY2023, we made steady progress in this regard by achieving an engagement index of 60 points or higher, which we defined as a KPI, and making a human resource development investment of ¥130,000 per person. 

Additionally, the growth of each employee is equally as important as achieving our KPIs. I believe that it is difficult to sustainably enhance enterprise value if individual employees do not grow, even if the company’s performance improves.

For this reason, it is essential that employees have the autonomy and take the initiative to pursue self-driven growth. Therefore, by providing an environment that is easy to work in and enhancing the range of employee’ upskilling programs, we aim to create a virtuous cycle in which the working environment transforms employees’ mindset and behavior.

In the area of digital transformation (DX), we are working to establish infrastructure to promote data utilization and develop human resources with digital skills. We have set a KPI of developing 900 core digital personnel by FY2025, and I feel confident that we are on track to achieve this, as we exceeded one-third of our target in FY2023, the first year.

Aiming to enhance DX literacy through training, we have also established a system to gather not only top-down but also bottom-up potential ideas from the frontlines and realize them through DX events such as the CDO CUP5. One such example is the digital twin initiative at refineries, which I mentioned as an Oil fields initiative.


Finally, regarding green transformation (GX), our unwavering goal is to realize our roadmap to achieve net zero carbon emissions in 2050. In 2030, a major milestone, we plan to reduce GHG emissions by 30% compared to FY2013 levels. As of 2023, we are making steady progress toward achieving our plan, although the numbers may not look significant on paper. 

In terms of specific initiatives in FY2023, in addition to announcing our participation in the GX League, we began exploring ways to collaborate with electric power companies, shipping companies, and others to create a CCS6 value chain. We also began joint studies with multiple companies that have promising technologies to make effective use of captured CO2. In these ways, we are making steady progress on our initiatives aimed at reducing future CO2 emissions.


5 CDO CUP: An internal program and award system under which the Corporate DX Strategy Department provides support to increase the degree of DX projects implemented.

6 CCS (carbon dioxide capture and storage): Technology to capture CO2 from emitted gases and store it underground, etc.

A message to all our stakeholders

Strengthening corporate governance

The theme of our Seventh MTMP is enhancing enterprise value. In order to achieve this, it is important that the Board of Directors is able to determine the company’s major direction and fulfill its supervisory function over execution of business. I believe the outside perspective needed for the board as well as diversity in gender, skills, and experience must be considered in terms of the board’s ability to fulfill its role. In addition, as the business environment becomes increasingly complex, advisory functions are also required along with traditional monitoring functions.

Our company’s board has strengthened the transparency and diversity necessary for the sustainable enhancement of enterprise value, with independent outside directors accounting for half of all directors and one-third of directors being female. Additionally, I believe that new directors with extensive experience in corporate management will also strengthen the board’s advisory function. As outside directors have commented, the atmosphere of our company’s board makes it very easy to speak up, with the board engaging in free and open discussions. Moreover, we provide opportunities such as onsite tours and study sessions for outside directors where possible, and also value free discussions on such occasions. Thanks to these initiatives, we have received a variety of questions and opinions from outside directors during preliminary explanations of board meeting agendas, and I feel that the effectiveness of board meetings has improved.

Renewed determination to enhance enterprise value

Our company’s stock price has risen significantly over the past year, allowing our price book-value ratio (P/B ratio) to exceed 1.0 times for the first time in six years, since 2017.

P/B ratio is said to be ROE x P/E ratio (price-earnings ratio), and we see the improvement in profitability of the entire group and the implementation of our capital policy as the reason behind our high ROE. Meanwhile, we recognize that there is room to raise our P/E ratio a bit further. For our shareholders and investors, I feel we have not yet fully communicated the future potential of New fields. This is a pillar of future growth that will include some long-term projects. With this point in mind, I consider it necessary for me, as Group CEO, to proactively convey our message of growth in New Fields while we continue steady generation of results. Although we have been focusing on dialogue with capital markets, we will enhance our engagement with shareholders and investors, so they gain a better understanding of our initiatives in New fields.

Also, though our P/B ratio has exceeded 1.0 times, this is not the goal from the perspective of enhancing enterprise value; rather, we recognize that we have finally reached the starting point. To sustainably enhance enterprise value, it is necessary not only to achieve our financial management goals but also to have all stakeholders, including shareholders, investors, employees, business partners, financial institutions, government agencies, customers, and local residents, view the Cosmo Energy Group as a good group of companies. Considering this, I feel we have made a step forward in the first year of our MTMP, including from a financial perspective.

From FY2024 onwards, we will continue to make every effort to enhance our enterprise value by steadily advancing step-by-step toward achieving the Seventh MTMP and, beyond that, realizing Vision 2030. The energy industry is going through a period of major transformation, and I hope that you will join us as we go beyond a mere extension of the past and look forward to a new era of growth for the Cosmo Energy Group.