NISSHIN SEIFUN GROUP (2002) FY2027 Q1 Earnings Report

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Executive Summary

In FY2027 Q1, the Company recorded higher revenue but lower Operating Income, Ordinary Income, and Net Income, resulting in a mixed performance of revenue growth and earnings declines. Revenue was ¥2,176.8B (+1.1% YoY), Operating Income was ¥112.0B (△0.9%), Ordinary Income was ¥125.2B (△3.2%), and Net Income was ¥97.9B (△18.1%). The primary drivers of revenue growth were price revisions and volume increases in the core Flour Milling Business; however, the 7.2% increase in SG&A expenses exceeded revenue growth, preventing an increase in operating earnings. The particularly large decline in Net Income was attributable to the reversal of the reduction in gains on sales of investment securities, which decreased from ¥46.7B in the previous year to ¥18.6B in the current period. The impact of non-recurring factors was therefore greater than that of deterioration in the core business.

Factors Affecting Performance

【Revenue】Revenue was ¥2,176.8B, representing a 1.1% increase YoY. By segment, the Flour Milling Business led consolidated growth with revenue of ¥1,168.3B (+6.5%), while the Food Business was essentially flat at ¥551.6B (△0.1%), and the Other category declined to ¥136.4B (△18.4%). The category including prepared foods and delicatessen products declined to approximately ¥392.5B (△3.4%), restraining growth across the overall portfolio.

【Profitability】Gross profit was ¥500.2B, with a gross margin of 23.0%, improving from 22.0% in the previous year as the cost ratio declined. However, SG&A expenses increased to ¥388.2B (+7.2%), exceeding the pace of revenue growth, and Operating Income declined slightly to ¥112.0B (△0.9%). Although non-operating income and expenses, including dividend income and interest income, provided support, Ordinary Income remained at ¥125.2B (△3.2%). The decline in Net Income to ¥97.9B (△18.1%) was primarily attributable to the temporary factor of special gains, namely gains on sales of investment securities, declining from ¥46.7B in the previous year to ¥18.6B. The Flour Milling and Food Businesses are both showing revenue growth and earnings growth, but declines in revenue and earnings in the prepared foods, delicatessen, and Other Businesses offset these gains, resulting in overall revenue growth but lower earnings.

Segment Analysis

The Flour Milling Business recorded revenue of ¥1,168.3B (+6.5%) and Operating Income of ¥71.3B (+6.8%), achieving both revenue and earnings growth. Its profit margin of 6.1% makes it a core earnings pillar exceeding the consolidated level. The Food Business was nearly flat in revenue at ¥551.6B (△0.1%), while Operating Income increased 23.5% to ¥22.9B, improving its profit margin to 4.1% as profitability enhancement progressed. The Other category, which includes engineering, mesh cloth, cargo handling and storage, among others, recorded revenue of ¥136.4B (△18.4%) and Operating Income of ¥9.6B (△34.1%), posting declines in both revenue and earnings and thereby exerting downward pressure on consolidated earnings growth.

Key Financial Indicators

【Profitability】The Operating Income margin was 5.1%, down approximately 0.1pt from 5.2% in the same period of the previous year, while the Net Income margin was 4.5% based on Net Income of ¥97.9B. The gross margin improved to 23.0% from 22.0% in the previous year, but the SG&A expense ratio rose to 17.8% from 16.8%, offsetting the positive effect of the improved gross margin. 【Cash Flow Quality】Accounts receivable were ¥1,102.9B and inventories were ¥1,240.2B; both declined YoY, indicating limited pressure for working capital expansion. However, inventory levels remain relatively high compared with the scale of revenue. 【Investment Efficiency】Annualized ROE was 7.3%, achieved under a conservative capital structure with an Equity Ratio of 63.8%. Accordingly, improving profitability, rather than financial leverage, remains the key challenge for increasing ROE. 【Financial Soundness】The Equity Ratio was 63.8%, while interest-bearing debt was limited to ¥110.0B in long-term borrowings and ¥200.0B in bonds. With cash and deposits of ¥849.5B, the financial foundation remains sound.

Cash Flow Analysis

As the cash flow statement has not been disclosed, cash trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥849.5B, a decrease of ¥128.4B from ¥897.9B in the same period of the previous year. Meanwhile, accounts receivable were ¥1,102.9B (△¥28.0B YoY), inventories were ¥1,240.2B (△¥40.7B), and accounts payable were ¥686.4B (△¥33.5B), all of which declined, indicating limited working capital pressure. One factor contributing to the decline in cash was the acquisition of treasury stock, with the balance increasing by ¥23.4B YoY, suggesting that cash outflows associated with shareholder returns may have affected the cash balance. Interest-bearing debt remained restrained at ¥200.0B in bonds and ¥110.0B in long-term borrowings, and the financial structure continues to be conservative.

Earnings Quality

The quality of earnings in the current period needs to be assessed based on changes in the composition of recurring operating results and non-recurring special gains and losses. Non-operating income of ¥27.9B included dividend income of ¥14.5B and interest income of ¥3.6B, both of which are relatively stable sources of income. In contrast, special gains of ¥18.6B consisted entirely of gains on sales of investment securities, a non-recurring item that declined substantially from ¥46.7B in the same period of the previous year. The decline in Net Income of 18.1%, substantially exceeding the 0.9% decline in Operating Income, was primarily attributable to the decrease in these gains on sales. Core earnings power itself remains relatively stable. Comprehensive income was ¥82.7B, below Net Income of ¥97.9B, primarily because valuation differences on securities amounted to negative ¥41.5B. Foreign currency translation adjustments were positive ¥23.1B, supporting Comprehensive Income. The difference between Net Income and Comprehensive Income was attributable to market factors, namely fluctuations in the fair value of other securities, and does not indicate deterioration in recurring earnings power.

Earnings Forecast and Guidance

The full-year Company plan calls for revenue of ¥8,700.0B (+0.6% YoY), Operating Income of ¥460.0B (△1.5%), and Ordinary Income of ¥490.0B (△4.7%); no forecast revisions were made during the quarter. Q1 progress rates were 25.0% for revenue, 24.3% for Operating Income, and 25.5% for Ordinary Income, generally in line with the standard Q1 progress rate of 25%. The progress rate for Net Income attributable to owners of the parent was somewhat low at 22.8%, but this was due to the reversal of the relatively large gains on sales of investment securities recorded in the same period of the previous year and does not immediately indicate a downward revision to the full-year plan.

Shareholder Returns

The full-year dividend forecast is ¥65 per share, with no revision to the dividend forecast during the quarter. Based on the full-year forecast EPS of ¥146.59, the forecast Payout Ratio, calculated on a dividends-only basis, is 44.3%, within the generally sustainable range of below 60%. The treasury stock balance increased by ¥23.4B, from negative ¥25.7B in the same period of the previous year to negative ¥49.1B, indicating progress in capital policy through share repurchases. When evaluating the combined scale of dividends and share repurchases, it is necessary to distinguish the Total Return Ratio separately from the Payout Ratio. Net assets of ¥5,358.1B and cash and deposits of ¥849.5B provide financial capacity to support the current dividend level for the time being.

Risk Factors

1. Raw Material and Foreign Exchange Cost Pass-Through Risk: Although the gross margin improved to 23.0% from the previous year, it remains relatively low compared with general levels in the food and beverage industry. The ability to pass through fluctuations in the costs of raw materials such as wheat, foreign exchange, and logistics will determine future profit margins.

2. Risk of Deterioration in the Profitability of the Prepared Foods and Delicatessen Businesses: Revenue in the category including prepared foods and delicatessen products declined YoY, while Operating Income in the Other category also fell significantly by 34.1%. These businesses have high sensitivity to changes in demand for food service and prepared foods, as well as labor and logistics costs.

3. Risk of Dependence on Non-Recurring Income: The decline in Net Income was primarily attributable to the reduction in gains on sales of investment securities (¥46.7B→¥18.6B), while investment securities of ¥1,823.2B accounted for 21.7% of total assets. Fluctuations in valuation differences and gains on sales may continue to cause volatility in Net Income and Comprehensive Income.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (food_beverage)

Profitability and Return

The Operating Income margin is around the industry median, while the Net Income margin is above the industry median.

Growth and Capital Efficiency

The revenue growth rate is substantially below the industry median and ranks among the lower growth rates within the industry.

※Source: Compiled by the Company

Key Takeaways from the Results

1. The Flour Milling Business led consolidated performance, with external revenue increasing 7.0% YoY and segment profit increasing 6.8%. The Food Business also achieved a 23.5% increase in segment profit, highlighting continued progress in profitability improvement.

2. While the gross margin improved by approximately 1pt, the SG&A expense ratio increased by approximately 1pt, resulting in a slight decline in the Operating Income margin. The increase in SG&A expenses offset the benefits of cost improvements, making the future trend in this relationship a key focus.

3. The substantial 18.1% decline in Net Income was primarily attributable not to deterioration in the core business but to the non-recurring reduction in gains on sales of investment securities. Progress rates for full-year Operating Income and Ordinary Income remain generally in line with the plan.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,800–¥1,905 at ±1% for the cost of equity, and ¥1,849–¥1,853 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 difference from the full-year forecast.
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated using only 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 report 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 a professional as necessary.

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