NISSHIN SEIFUN GROUP (2002) FY2026 Q3 Earnings Report

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Executive Summary

Although revenue increased slightly, higher SG&A expenses pressured operating income, while deterioration in extraordinary income and expenses, including impairment losses, significantly depressed net income, resulting in an increase in revenue but a decline in earnings. Revenue was ¥653.96B (+1.0% YoY), operating income was ¥37.50B (-5.0%), ordinary income was ¥41.29B (-1.5%), and net income attributable to owners of the parent was ¥22.93B (-24.9%). The operating margin declined to 5.7% from 6.1% in the same period of the previous year, while the gross margin also deteriorated slightly to 22.6%. The substantial decline in net income was primarily attributable to extraordinary losses of ¥11.66B, including impairment losses of ¥8.77B, exceeding extraordinary income of ¥8.48B. This reflects the combination of one-off factors with the decline in operating earnings.

Factors Affecting Performance

【Revenue】Revenue increased slightly to ¥653.96B (+1.0% YoY). By segment, Flour Milling generated ¥336.54B (51.5% of total), while Food generated ¥166.02B (25.4%). Flour Milling declined from ¥339.76B in the previous year, whereas Food increased from ¥156.04B, resulting in divergent performance among the segments. The “Other” category, which includes prepared meals and delicatessen products, also expanded and supplemented the overall revenue growth.

【Profit and Loss】Operating income was ¥37.50B (-5.0% YoY). SG&A expenses increased by ¥2.75B against a ¥6.51B increase in revenue, which was a factor behind the earnings decline. Segment profit was ¥21.69B for Flour Milling, down from ¥23.90B in the previous year, and ¥6.70B for Food, up from ¥5.66B. The deterioration in Flour Milling profitability weighed on overall earnings. Ordinary income was ¥41.29B (-1.5%), as non-operating income, including dividend income of ¥2.82B, partially offset the decline in operating income. At the net income level, although the gain on the sale of investment securities of ¥7.07B was a one-off factor, impairment losses of ¥8.77B—related to the closure of the Okayama and Sakaide Flour Milling plants and the India Yeast Business—accounted for the majority of extraordinary losses, reducing profit before tax to ¥38.11B. In conclusion, the Company recorded an increase in revenue but a decline in earnings.

Segment Analysis

The Flour Milling segment reported revenue of ¥336.54B (51.5% of total), operating income of ¥21.69B, and a margin of 6.4%. Segment profit declined from ¥23.90B in the same period of the previous year, apparently reflecting impairment losses of ¥1.56B associated with the closure of the Okayama and Sakaide plants. The Food segment reported revenue of ¥166.02B (25.4%), operating income of ¥6.70B, and a margin of 4.0%, increasing from ¥5.66B in the previous year, although it recorded impairment losses of ¥0.88B in the India Yeast Business. Despite both segments carrying impairment losses, core operating profits remained generally stable, suggesting that underlying earnings power excluding the impact of impairment losses remains resilient.

Key Financial Indicators

【Profitability】The operating margin declined to 5.7% from 6.1% in the same period of the previous year, while the gross margin also deteriorated slightly to 22.6%. The net margin was 3.5% based on net income attributable to owners of the parent, down significantly from 4.7% in the same period of the previous year. In addition to the cost of sales and SG&A expenses, deterioration in extraordinary income and expenses weighed on profitability.【Cash Quality】Gain on the sale of investment securities of ¥7.07B accounted for the majority of extraordinary income of ¥8.48B, while impairment losses of ¥8.77B were the primary component of extraordinary losses of ¥11.66B. Both should be evaluated separately from the sustainable earnings power of the core business as one-off factors.【Investment Efficiency】Annualized ROE was 6.0%, below the general capital-efficiency benchmark of 8%. The equity ratio was high at 62.2%, making recovery in profitability, rather than improvement in asset efficiency, the primary issue for improving capital efficiency.【Financial Soundness】With an equity ratio of 62.2%, interest-bearing debt—total long-term borrowings and bonds—of ¥31.41B, and cash and deposits of ¥85.51B, the financial foundation remains conservative and sound.

Cash Flow Analysis

As this report does not contain detailed data from the statement of cash flows, fund flows are analyzed based on changes in the balance sheet. Cash and deposits decreased to ¥85.51B from ¥93.97B in the same period of the previous year, while investment securities increased to ¥179.53B (+21.0% YoY). Accounts payable increased significantly to ¥84.59B (+30.4%), driving the expansion of current liabilities and indicating rising working-capital requirements associated with purchasing and procurement. Total assets expanded to ¥850.01B (+7.6% YoY), and net assets also increased to ¥528.53B (+5.2%). However, liabilities increased simultaneously, indicating changes in the funding composition accompanying asset expansion. Treasury stock increased to ¥8.65B from ¥1.47B in the previous year, potentially reflecting increased use of funds related to shareholder returns.

Quality of Earnings

The current period’s earnings structure was significantly affected by one-off factors, and earnings quality declined compared with the same period of the previous year. The primary component of extraordinary income of ¥8.48B was the gain on the sale of investment securities of ¥7.07B, while the primary component of extraordinary losses of ¥11.66B was impairment losses of ¥8.77B related to the closure of Flour Milling plants and the India Yeast Business. The net result was an extraordinary loss of ¥3.18B, which significantly pressured net income in addition to the decline at the operating level. Non-operating income was ¥7.18B, equivalent to only 1.1% of revenue, and was primarily composed of dividend income of ¥2.82B, indicating limited dependence on non-core income. Comprehensive income was ¥50.92B, substantially exceeding net income of ¥22.93B, due to improvements in valuation differences on securities of ¥14.43B and foreign currency translation adjustments of ¥12.10B. However, these resulted from changes in the valuation of held assets and should be distinguished from the core business’s cash-generating capacity.

Earnings Forecast and Guidance

The Q3 cumulative progress rates against the Company’s full-year forecasts were 75.2% for revenue, against a forecast of ¥870.00B; 79.8% for operating income, against a forecast of ¥47.00B; and 82.6% for ordinary income, against a forecast of ¥50.00B. All exceeded the standard progress rate of 75%. Net income, however, reached a progress rate of 76.4% against the full-year forecast of ¥30.00B, leaving less headroom than at the operating and ordinary income levels. The full-year plan assumes year-on-year increases in both operating income and ordinary income, but operating income was down year on year on a Q3 cumulative basis. Accordingly, improved profitability in Q4 is a prerequisite for achieving the plan.

Shareholder Returns

The Q2 dividend was ¥30.0 per share, and the full-year dividend forecast is ¥60.0. Based on forecast full-year net income of ¥30.00B and the average number of shares outstanding during the period, the forecast payout ratio is approximately 57.8%, keeping the dividend-only return level below the 60% threshold generally viewed as an indicator of sustainability. Meanwhile, the deduction for treasury stock increased to ¥8.65B from ¥1.47B in the same period of the previous year. Accordingly, it is necessary to assess the Total Return Ratio, including share repurchases and other measures, separately from the payout ratio. Net income attributable to owners of the parent declined 24.9% year on year, and future dividend capacity will depend on the extent to which core operating margins recover.

Risk Factors

1. Structural decline in profitability: The gross margin of 22.6% (22.7% in the same period of the previous year) and operating margin of 5.7% (6.1% in the same period of the previous year) both deteriorated slightly. SG&A expenses increased by +2.6% against revenue growth of +1.0%, making the absorption of fixed and selling expenses under low growth a key challenge.

2. Sharp increase in impairment losses: Impairment losses rose substantially to ¥8.77B from ¥0.07B in the same period of the previous year. The losses related to the closure of the Okayama and Sakaide Flour Milling plants and the India Yeast Business. The possibility of additional impairment losses associated with changes in future business outlooks should be monitored.

3. Earnings quality dependent on extraordinary income and expenses: Extraordinary income of ¥8.48B, primarily the gain on the sale of investment securities of ¥7.07B, and extraordinary losses of ¥11.66B, primarily impairment losses, had a significant impact on net income. It is therefore important to verify sustainable earnings power based on operating income and ordinary income.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Return

The operating margin exceeds the industry median, while the net margin is slightly below the industry median, partly due to the impact of extraordinary income and expenses.

Growth and Capital Efficiency

Revenue growth is below the industry median, and the Company’s growth pace is relatively modest within the Food and Beverage sector.

※Source: Compiled by the Company

Key Takeaways from the Earnings Results

1. Q3 cumulative revenue and earnings progress was generally on track against the full-year plan, with operating income progress of 79.8% and ordinary income progress of 82.6%. However, operating income itself declined 5.0% year on year, making improved profitability in Q4 necessary to achieve the full-year earnings growth plan.

2. The 24.9% decline in net income was primarily attributable to extraordinary income and expense factors, namely impairment losses of ¥8.77B and gains on the sale of investment securities of ¥7.07B. These factors should be evaluated together with the structural changes represented by the slight deterioration in the operating and gross margins.

3. The financial foundation is conservative and sound, with an equity ratio of 62.2% and low interest-bearing debt. The forecast payout ratio of approximately 57.8% remains within a sustainable range based on the current earnings level.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,636–¥1,729 at ±1% for the cost of equity, and ¥1,676–¥1,685 at ±0.1 for ω.

Notes:

• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the quarter-end are used; there is a timing gap relative to the full-year forecast.
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat above the appropriate level.

(Model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest Rate Reference Month: 2026-07 / Mechanically calculated value based solely on publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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