SAPPORO BREWERIES LIMITED FY2026 Q2 Earnings Report

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Executive Summary

This quarter produced a non-recurring earnings profile: continuing operations shifted to an operating loss, while net income surged due to a one-time gain from discontinued operations (the sale of a subsidiary). Revenue was essentially flat at ¥2359.4B (¥2353.1B in the same period last year, +0.3% YoY). Operating income was ¥-58.8B (¥52.0B in the same period last year, -213.1% YoY), resulting in a shift to an operating loss. Net income attributable to owners of the parent surged to ¥2954.6B (¥17.5B in the same period last year, +16754.4% YoY), primarily due to a ¥3003.7B gain on the sale of discontinued operations, and therefore does not reflect the underlying strength of the core business.

Factors Affecting Earnings

【Revenue】Revenue was ¥2359.4B, essentially flat at +0.3% YoY. Gross profit was ¥761.8B, with a gross margin of 32.3%, maintaining the level recorded in the previous year (equivalent to a gross margin of 31.9%). No significant growth was observed in terms of volume or product mix, and the top line was effectively stagnant.

【Profit and Loss】In addition to SG&A expenses of ¥694.1B (SG&A ratio of 29.4%), other operating expenses surged from ¥18.2B to ¥181.7B, including ¥9.9B in impairment losses. As a result, operating income deteriorated significantly to ¥-58.8B (operating margin of -2.5%) from +2.2% in the previous year. The loss before tax was ¥-46.8B; however, financial income of ¥30.2B exceeded financial expenses of ¥18.2B and partially offset the loss. Net income of ¥2954.6B resulted from the ¥3003.7B gain on the sale of discontinued operations and must be evaluated separately from the earnings power of continuing operations. In conclusion, although revenue increased slightly, profitability from the core business deteriorated, representing an effective decline in earnings and a shift to an operating loss.

Key Financial Indicators

【Profitability】The operating margin deteriorated to -2.5% from +2.2% in the previous year, while the gross margin remained broadly unchanged at 32.3%. The net profit margin was an apparently extremely high 125.2%, but this was a temporary figure resulting from the gain on the sale of discontinued operations and does not indicate the earnings power of continuing operations. ROE was high at 57.5%, but similarly does not reflect underlying performance because of the effect of the gain on sale.【Cash Flow Quality】Operating Cash Flow (OCF) was limited to ¥34.1B, and its ratio to net income of ¥2954.6B was extremely low at 0.01x, indicating limited cash backing for earnings. Free Cash Flow (FCF) was strongly positive at ¥1170.2B, but this was primarily attributable to non-recurring investment cash inflows, including proceeds from the sale of a subsidiary.【Investment Efficiency】Capital expenditures were ¥74.0B. Investment spending was large relative to OCF, and investment during the quarter was primarily supported by the deployment and recovery of proceeds from the sale of assets.【Financial Soundness】The equity ratio improved by +25.4pt to 58.9% from 33.5% in the previous year. Interest-bearing debt (short-term ¥285.0B and long-term ¥861.4B) was reduced YoY, strengthening the financial base.

Cash Flow Analysis

OCF was ¥34.1B, contracting by -67.4% YoY. From the subtotal of ¥88.6B before changes in working capital, funds were absorbed by an increase in inventories (-¥7.4B), a decrease in trade payables (-¥28.3B), and corporate income tax payments (-¥44.4B). Investing Cash Flow resulted in a substantial cash inflow of ¥1136.0B, primarily due to temporary factors, including ¥183.3B in proceeds from the sale of a subsidiary, while capital expenditures remained at a level typical of prior years at -¥74.0B. Financing Cash Flow was -¥625.2B, reflecting dividend payments (-¥70.0B) and continued debt reduction. FCF was ample at ¥1170.2B, but most of it consisted of one-time cash inflows associated with the sale of discontinued operations, and the standalone cash-generation capacity of continuing operations remains limited. Cash and cash equivalents accumulated to ¥770.8B, providing increased liquidity for the foreseeable future.

Earnings Quality

The majority of the quarter’s net income of ¥2954.6B consisted of a one-time gain of ¥3003.7B from discontinued operations (the sale of a subsidiary), which must be evaluated separately from recurring earnings power. On a continuing-operations basis, the company recorded operating income of ¥-58.8B and a loss before tax of ¥-46.8B, remaining in a loss-making position; the loss was only somewhat reduced because financial income of ¥30.2B exceeded financial expenses of ¥18.2B. OCF of ¥34.1B was extremely small relative to net income, indicating a substantial accrual component and a low quality of earnings for the period. Total comprehensive income was ¥3009.7B, close to net income of ¥2954.6B, with no significant divergence caused by other comprehensive income, such as foreign currency translation adjustments or pension remeasurements. Overall, the high net income for the period does not indicate an improvement in sustainable earnings power and must be understood as the effect of a one-time asset sale.

Earnings Forecast and Guidance

Progress toward the full-year earnings forecast was 46.7% for revenue, with first-half revenue of ¥2359.4B against the full-year forecast of ¥5050.0B. This is generally a sound level considering the seasonal weighting toward the second half. Operating income, however, was ¥-58.8B in the first half against a full-year forecast of ¥60.0B (-75.4% YoY), implying a significant recovery in the second half. Net income reached ¥2954.6B in the first half, representing 99.8% progress against the full-year forecast of ¥2960.4B. However, this was due to the one-time recognition of the gain on the sale of discontinued operations, and underlying growth is expected to be limited in the second half as this factor falls away. Against forecast EPS of ¥759.28, first-half actual EPS was ¥757.77, nearly reaching the full-year forecast, creating a structure in which full-year results depend on first-half profit.

Shareholder Returns

The first-half dividend was ¥20 per share, while the full-year dividend forecast is ¥40, with no revision to the dividend forecast during the quarter. Based on net income of ¥2954.6B, the first-half payout ratio appears extremely low at approximately 2.7%; however, this is attributable to the surge in net income from the gain on the sale of discontinued operations, and its usefulness as a reference is limited. Share repurchases were effectively zero during the quarter, and dividends remain the main form of shareholder returns. Dividend payments of ¥70.0B were amply covered by FCF of ¥1170.2B, but monitoring is necessary when assessing this as a sustainable source of shareholder returns, given that most FCF was temporary and attributable to asset sales. In addition, a 5-for-1 stock split is scheduled to take effect on January 1, 2026.

Risk Factors

1. Deterioration in the profitability of continuing operations: The operating margin deteriorated to -2.5% from +2.2% in the previous year, while other operating expenses surged from ¥18.2B to ¥181.7B, including ¥9.9B in impairment losses. If the cost structure does not improve in the second half, uncertainty will remain regarding the achievement of the full-year operating income forecast of ¥60.0B.

2. Limited cash backing for earnings: OCF was limited to ¥34.1B, and its ratio to net income of ¥2954.6B was extremely low at 0.01x. The high net income for the period resulted from the gain on the sale of discontinued operations and must be evaluated separately from sustainable cash-generation capacity.

3. Dependence on one-time gains and reversal risk: The majority of net income (¥3003.7B) consisted of a one-time gain from the sale of discontinued operations, and this factor will fall away from the second half onward. If the recovery in the underlying strength of continuing operations is delayed, the full-year earnings structure may differ substantially from that of the first half.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (Food and Beverage Sector)

Profitability and Returns

Although industry comparative data for operating margins is limited, the negative level indicates a decline in the profitability of the core business.

Growth and Capital Efficiency

Revenue growth remained low, and additional data is required to determine the company’s position within the industry.

Source: Compiled by the Company

Key Takeaways from the Earnings

1. The financial structure was significantly strengthened through the sale of discontinued operations. The equity ratio improved by +25.4pt from 33.5% to 58.9%, and interest-bearing debt was reduced YoY. However, this improvement must be understood in light of its origin in the one-time event of an asset sale.

2. Continuing operations shifted to an operating loss (operating margin of -2.5%), while OCF/net income, an indicator of earnings quality, remained low at 0.01x. The apparently high net income and ROE resulted from the gain on the sale of discontinued operations, making a recovery in the core business during the second half the key structural focus for achieving the full-year operating income forecast.

3. Progress toward the full-year net income forecast reached 99.8%, but this was attributable to a one-time factor in the first half, whose effect will fall away in the second half. Going forward, inventory and receivables efficiency (improvements in DSO and DIO) and the level of operating expenses will be key indicators for assessing the recovery in the profitability of continuing operations.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson-type model with an explicit five-year fade period). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥989–¥1,047 for a ±1% change in the cost of equity, and ¥1,008–¥1,024 for a ±0.1 change in ω.

Notes:

• To exclude the impact of one-time gains and losses, normalized EPS calculated from ordinary income and other items is used (the company’s forecast EPS is ¥759.3).
• Because progress in net income toward the full-year forecast (100%) exceeds the standard level (50%), forecast EPS is adjusted upward within a range capped at +10% (because companies ahead of schedule tend to exceed forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Because 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 relative to the full-year forecast).

(Calculation model: Residual income model / Interest rate reference month: 2026-07 / This value does not forecast 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 summary data. It does not recommend investment in any specific issue. Industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

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