SAPPORO BREWERIES (2501) FY2025 FY Earnings Report

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Executive Summary

For the fiscal year ended December 2025, operating income recovered sharply due to the rebound from the substantial impairment loss recorded in the previous year and improvements in the cost ratio, making the sustainability of earnings growth the key focus. Revenue was ¥5068.6B (-1.1% year on year), operating income was ¥244.4B (+332.9%), profit before tax, equivalent to ordinary income, was ¥227.0B (+214.6%), and net income attributable to owners of the parent was ¥195.0B (+152.8%). The primary drivers of earnings growth were the improvement in the gross profit margin from 31.1% to 33.0% and the ¥131.1B decrease in other operating expenses, resulting from the reduction in impairment losses from ¥133.6B in the previous year to ¥20.1B in the current period. The decline in revenue was mainly attributable to weak performance in the Food & Beverage Business, while higher revenue and earnings in the Alcoholic Beverages Business offset this weakness and lifted consolidated profit.

Factors Affecting Performance

【Revenue】Consolidated revenue was ¥5068.6B, representing a year-on-year decline of -1.1%. The Alcoholic Beverages Business secured revenue growth of +1.5% year on year at ¥4002.4B, accounting for 79.0% of total revenue, while the Food & Beverage Business declined sharply by -9.6% to ¥1066.1B, accounting for 21.0%. Performance diverged between the businesses, and rebuilding demand, pricing, and cost structures in the Food & Beverage Business remains a challenge for consolidated growth.

【Profit and Loss】Operating income was ¥244.4B (+332.9% year on year), while the operating margin improved by 370bp from 1.1% in the previous year to 4.8%. Operating income in the Alcoholic Beverages Business improved substantially to ¥303.2B (+315.4%, 7.6% margin), while the Food & Beverage Business deteriorated to ¥18.9B (-63.8%, 1.8% margin). Company-wide earnings growth was also supported by the rebound effect from the reduction in impairment losses recognized in the previous year, from ¥133.6B to ¥20.1B in the current period; thus, structural profitability improvements and temporary factors are intertwined. Net income was ¥195.0B (+152.8%), comprising ¥150.9B in profit from continuing operations and ¥44.4B in profit from discontinued operations, classified in connection with the restructuring of the real estate business. Accordingly, 22.8% of net income originated from discontinued operations. Overall, the company delivered lower revenue but higher earnings.

Segment Analysis

The Alcoholic Beverages Business generated revenue of ¥4002.4B (+1.5% year on year), operating income of ¥303.2B (+315.4%), and an operating margin of 7.6%, making it the core business and accounting for 94.1% of segment operating income. The Food & Beverage Business recorded revenue of ¥1066.1B (-9.6%), operating income of ¥18.9B (-63.8%), and an operating margin that declined to 1.8%. The margin gap between the two businesses widened to 580pt. While improved profitability in the Alcoholic Beverages Business is driving company-wide earnings, declining profitability in the Food & Beverage Business represents a portfolio challenge.

Key Financial Indicators

【Profitability】ROE was 9.4%, the operating margin was 4.8% (1.1% in the previous year), and the net profit margin was 3.9% (1.5% in the previous year). All improved from the previous year, although the operating margin remained below 5%. The gross margin improved by 190pt to 33.0% (31.1% in the previous year), while the SG&A ratio was 28.0% (27.8% in the previous year), remaining broadly flat. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥445.9B, 2.3 times net income of ¥195.4B, demonstrating cash generation in excess of accounting earnings. 【Investment Efficiency】Capital expenditures of ¥119.4B were only 0.52 times depreciation and amortization expense of ¥227.7B, remaining below the level required for asset replacement. Free cash flow was substantial at ¥416.2B, indicating significant financial flexibility after investment. 【Financial Soundness】The equity ratio was 33.5%, improving by 400pt from 29.5% in the previous year, while bonds and borrowings decreased by ¥346.3B year on year to a combined ¥1705.9B. Interest coverage based on operating income was approximately 5.9 times, indicating an improving financial position.

Cash Flow Analysis

Operating Cash Flow was ¥445.9B (+23.5% year on year), or 2.3 times net income of ¥195.4B, indicating low reliance on accrual-based earnings and sound cash generation. Even after deducting income taxes paid of ¥128.7B, interest paid of ¥34.2B, and lease payments of ¥38.8B from subtotal operating cash flow of ¥598.4B, OCF remained robust. In terms of working capital, the decrease in trade receivables contributed to cash inflows, while increases in inventories and decreases in trade payables were sources of cash outflows. Investing Cash Flow resulted in an outflow of only ¥29.7B, as proceeds from the sale and redemption of investment securities offset capital expenditures of ¥119.4B. Free cash flow was substantial at ¥416.2B. In Financing Cash Flow, ¥422.7B was primarily allocated to reducing interest-bearing debt and paying dividends of ¥40.5B, including repayment of long-term borrowings of ¥155.1B and redemption of bonds of ¥200.0B. Overall, the year was characterized by deleveraging supported by strong operating cash flow.

Earnings Quality

The improvement in operating income for the current period was driven substantially by the increase in gross profit and the ¥131.1B year-on-year decrease in other operating expenses. This decrease included the reduction in impairment losses from ¥133.6B recognized in the previous year to ¥20.1B in the current period, meaning that part of the earnings growth reflects a nonrecurring rebound effect. Financial expenses of ¥41.3B exceeded financial income of ¥23.8B, resulting in net financial expenses of ¥17.5B that reduced profit before tax. Of net income of ¥195.4B, ¥150.9B originated from continuing operations and ¥44.4B originated from discontinued operations, classified in connection with the restructuring of the real estate business. These two components must be distinguished when assessing the quality of net income for the current period. At the same time, OCF was 2.3 times net income, indicating solid cash support for earnings.

Earnings Forecast and Guidance

The company forecasts revenue of ¥5050.0B (-0.4% versus FY2025) and operating income of ¥60.0B (-75.4%) for the fiscal year ending December 2026. Since the sharp recovery in operating income in FY2025 included a temporary factor—the rebound from the impairment losses recorded in the previous year—the FY2026 forecast appears to assume a decline toward a more normalized level. Meanwhile, forecast net income is ¥2960.4B and forecast EPS is ¥759.28, both substantially exceeding the forecast operating income, suggesting that one-off effects from asset and business transactions associated with the restructuring of the real estate business are incorporated. It is necessary to distinguish recurring earnings power based on operating income from special factors arising from the business restructuring.

Shareholder Returns

The dividend for FY2025 was ¥90.00 per share at fiscal year-end (¥0 interim dividend), resulting in a payout ratio of 36.0% based on net income attributable to owners of the parent of ¥195.4B. Share repurchases were limited to ¥0.6B, with shareholder returns centered on dividends. Supported by strong cash generation of OCF of ¥445.9B and free cash flow of ¥416.2B, the financial backing for the dividend is secure. From the fiscal year ending December 2026, the company plans to transition to two dividends per year, an interim dividend and a year-end dividend. The dividend forecast for that period is ¥40.00 per share after a stock split (one share split into five shares), equivalent to ¥200 before taking the split into account.

Risk Factors

1. Deterioration in the profitability of the Food & Beverage Business: Revenue declined -9.6% year on year, operating income declined -63.8%, and the operating margin fell to 1.8%. Recovery in volumes and passing higher raw material and logistics costs through to prices are key challenges.

2. Widening profitability gap between business segments: The operating margin is 7.6% in the Alcoholic Beverages Business versus 1.8% in the Food & Beverage Business, a difference of 580pt. The company has a high reliance on the Alcoholic Beverages Business, which accounts for 79.0% of revenue.

3. Changes in liquidity and capital structure associated with the restructuring of the real estate business: Assets held for sale of ¥1685.8B and related liabilities of ¥291.3B have been recorded, and the progress of transactions involving the introduction of external capital may affect the financial structure.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (food_beverage)

Profitability and Returns

ROE exceeds the industry median, while the operating margin and net profit margin are below the industry medians, indicating room to improve the quality of profitability.

Growth and Capital Efficiency

The revenue growth rate is substantially below the industry median, highlighting the company’s notable lack of top-line growth within the industry.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The recovery in the operating margin to 4.8% includes the rebound from the previous year’s large-scale impairment loss. It is necessary to distinguish the substantive improvement in the profitability of the Alcoholic Beverages Business (7.6% margin) from temporary factors.

2. The operating margin of the Food & Beverage Business declined to 1.8%, widening the profitability gap with the Alcoholic Beverages Business. The portfolio balance between segments is a structural point of observation that will influence future consolidated profitability.

3. The recognition of ¥1685.8B in assets held for sale associated with the introduction of external capital into the real estate business will affect the future capital structure and comparability of earnings. The fact that forecast net income for FY2026 substantially exceeds forecast operating income also appears to reflect this special factor.

Theoretical Share Price (For Reference)

Sensitivity: ¥436–¥462 at ±1% for the cost of equity, and ¥445–¥451 at ±0.1 for ω.

Notes:

• Normalized EPS calculated from ordinary income and other figures is used to exclude the impact of temporary profit and loss items (the company’s forecast EPS is ¥759.3).
• As forecast ROE is below the cost of equity, the theoretical value is below book value per share.

(Calculation model: Residual Income Model (Ohlson-type, explicit five-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from 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 the future share price.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release 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 discretion and responsibility, after consulting professionals as necessary.

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