| Metric | This Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue | ¥5730.3B | ¥5458.5B | +5.0% |
| Operating Income | ¥396.6B | ¥309.9B | +28.0% |
| Profit Before Tax | ¥503.4B | ¥382.6B | +31.6% |
| Net Income | ¥328.4B | ¥273.9B | +19.9% |
| ROE | 2.0% | 1.7% | - |
For the quarter ended March 2026 (Q1), Revenue was ¥5730.3B (YoY +¥271.8B +5.0%), Operating Income ¥396.6B (YoY +¥86.7B +28.0%), Ordinary Income/Profit Before Tax ¥503.4B (YoY +¥121.1B +31.6%), and Net Income attributable to owners of parent ¥270.8B (YoY +¥27.4B +11.3%), representing revenue and profit growth. Gross margin was 48.3% (up +1.8pt from 46.5% a year earlier), and operating margin improved to 6.9% (up +1.2pt from 5.7%), indicating a material improvement in profitability. The Pharmaceuticals segment (Operating Income +79.5%) and Health Science segment (Operating Income +88.2%) led performance, while Alcohol & Beverages also achieved double-digit profit growth. Collection of Accounts Receivable of ¥1435.8B drove Operating Cash Flow to ¥742.3B (YoY +624.7%), and Free Cash Flow was ¥486.3B. The company generated sufficient cash to cover dividends of ¥299.8B and share buybacks of ¥83.9B (total ¥383.7B).
[Revenue] Revenue was ¥5730.3B (YoY +5.0%), led by Pharmaceuticals (+13.1%) and Beverages (+7.2%). By segment, Pharmaceuticals ¥1183.9B (20.7% of sales) delivered double-digit growth driven by new drug sales; Beverages ¥1362.8B (23.8%) expanded through price revisions and higher volumes; Health Science ¥637.6B (11.1%) performed steadily domestically and internationally; Alcohol ¥2481.4B (43.3%) was down -0.3% but continues shifting toward higher-value products. Other businesses grew rapidly to ¥64.7B (+52.3%) but remain 1.1% of the mix. Although regional data were not disclosed, foreign exchange translation effects including overseas operations (+¥86.3B) contributed to revenue growth.
[Profitability] Cost of sales was ¥2961.3B (51.7% of revenue), yielding a gross margin of 48.3% (up +1.8pt from 46.5%), supported by easing raw material and energy costs and price/mix improvements. SG&A was ¥2269.2B (39.6% of revenue, improved -0.2pt from 39.8%), indicating expense control amid revenue growth. Operating Income was ¥396.6B (operating margin 6.9%), up +28.0% YoY. Other operating expenses of ¥119.5B (increased from ¥64.5B) included impairment losses of ¥48.9B as a one-off factor, while financial income ¥75.7B and equity-method investment gains ¥114.8B (from ¥86.9B, +32.1%) provided support. Ordinary Income was ¥503.4B (prior year ¥382.7B, +31.6%). After income taxes of ¥175.1B (effective tax rate 34.8%), Net Income was ¥328.4B (+19.9%), and Net Income attributable to owners of parent was ¥270.8B (+11.3%). The attributable amount to non-controlling interests increased to ¥57.6B from ¥30.5B, so growth in attributable net income lagged consolidated net income growth. In conclusion, revenue and profit rose and profitability improved significantly.
Alcohol Business: Revenue ¥2481.4B (YoY -0.3%), Operating Income ¥302.9B (YoY +12.3%, margin 12.2%). Declines in domestic beer volumes were offset by a shift to higher-value products, improving margins.
Beverages Business: Revenue ¥1362.8B (+7.2%), Operating Income ¥134.4B (+15.0%, margin 9.9%). Revenue and profit grew on price revision uptake and higher volumes, with margin improving +0.7pt from 9.2% a year earlier.
Pharmaceuticals Business: Revenue ¥1183.9B (+13.1%), Operating Income ¥171.6B (+79.5%, margin 14.5%). Growth in new drug sales and cost efficiency improved margin substantially (+5.4pt from 9.1%), making this the largest contributor to consolidated profit growth.
Health Science Business: Revenue ¥637.6B (+4.8%), Operating Income ¥60.3B (+88.2%, margin 9.5%). Profitability improvements at FANCL and Blackmores drove margin up +4.4pt from 5.1%.
Other Businesses: Revenue ¥64.7B (+52.3%), Operating Loss ¥-3.0B (widened from -¥1.5B). Adjustments were ¥-166.2B (prior year -¥149.5B), including holding company costs and group management expenses.
[Profitability] Operating margin 6.9% (up +1.2pt from 5.7%), Net margin 5.7% (up +0.7pt from 5.0%). ROE 2.0% (annualized) decomposes into Asset Turnover 0.17x × Net Margin 5.7% × Financial Leverage 2.10x; net margin improvement contributed, but low asset turnover constrains ROE. Gross margin 48.3% (up +1.8pt) reflects pricing power and cost management; SG&A ratio 39.6% (down -0.2pt) remains high due to ongoing growth investments.
[Cash Quality] Operating Cash Flow (OCF) was ¥742.3B, 2.26x Net Income ¥328.4B. The subtotal OCF was ¥749.6B and working capital change was nearly neutral; Accounts Receivable collection of ¥1435.8B far exceeded Inventory decrease of ¥90.9B and Accounts Payable decrease of ¥400.4B. The accrual ratio ((Net Income - OCF)/Total Assets) is -1.4%, indicating strong cash backing.
[Investment Efficiency] Total assets were ¥3.41兆円 (down -2.5% from ¥3.49兆円). Annualized asset turnover based on quarterly sales is 0.67x. Capital expenditures were ¥309.2B (5.4% of revenue), exceeding depreciation of ¥272.5B and reflecting growth investment beyond maintenance. Progress on disposal of Assets Held for Sale ¥963.5B could improve asset turnover.
[Financial Soundness] Equity Ratio 38.7% (up +1.9pt from 36.8%). Interest-bearing debt totaled ¥937.4B (short-term ¥114.9B + long-term ¥822.5B) against cash ¥1240.5B, yielding a net cash position of ¥303.1B. Interest coverage (EBIT ¥396.6B / interest expense ¥33.0B) is about 12.0x. Goodwill ¥5428.1B is 33.4% of shareholders’ equity ¥1625.8B; impairment risk requires ongoing monitoring.
Operating Cash Flow was ¥742.3B (prior year ¥102.4B, +624.7%). Starting from Profit Before Tax ¥503.4B, adjustments included Depreciation & Amortization ¥272.5B and equity-method investment gains ▲¥114.8B, with working capital movement contributing strongly positive. Accounts Receivable collection ¥1435.8B rose ¥694.8B from ¥741.0B a year earlier, reflecting seasonality and revised collection terms. Inventory decrease ¥90.9B (prior year ¥72.0B decrease) reflects continued inventory compression. Accounts Payable decrease ¥400.4B (prior year ¥412.1B decrease) was within normal payment cycle variations. Corporate tax payments were ¥132.7B (prior year ¥54.2B), reflecting higher tax payments. Investing Cash Flow was ▲¥256.1B, with capital expenditures ¥309.2B (down from ¥369.6B) partially offset by proceeds from sale of subsidiary shares ¥53.6B. Financing Cash Flow was ▲¥585.0B: while issuing commercial paper net +¥389.9B, the company repaid long-term borrowings ¥250.0B, paid dividends ¥299.8B, conducted share buybacks ¥83.9B, and increased deposit for treasury share cancellation ¥216.1B. Free Cash Flow ¥486.3B (OCF ¥742.3B - Investing CF ¥256.1B) was a significant improvement from Free Cash Flow ▲¥353.6B a year earlier, comfortably covering shareholder returns of ¥383.7B. Cash slightly decreased from ¥125.3B to ¥124.1B, but including foreign exchange impact ¥86.3B, the financial base remains stable.
Operating Income ¥396.6B is the core earnings driver. Net financial impact (Financial Income ¥75.7B and Financial Expenses ¥83.7B) was a net charge of ▲¥8.0B. Equity-method investment gains ¥114.8B are established as recurring income, contributing 22.8% to Ordinary Income ¥503.4B. Other operating expenses ¥119.5B included impairment losses ¥48.9B as a one-off, impacting Net Income ¥328.4B by approximately ¥36.0B after tax. Comprehensive income ¥764.1B exceeded Net Income ¥328.4B by ¥435.7B, mainly due to foreign currency translation adjustments from overseas operations ¥388.1B, equity-method associates’ OCI ¥51.6B, and cash flow hedges ¥5.3B — most of which are unrealized gains/losses. OCF ¥742.3B is 2.26x Net Income ¥328.4B, and accrual ratio is ▲1.4% ((Net Income - OCF)/Total Assets), indicating strong cash backing. The tax burden from Ordinary Income to Net Income was ¥175.1B (effective tax rate 34.8%), above statutory tax rate 30.6% due to temporary differences. Overall, earnings quality is high, supported by operating profitability and strong cash conversion, with limited impact from one-off items.
Full Year guidance: Revenue ¥2.48兆円 (YoY +5.8%), Net Income attributable to owners of parent ¥1560B (YoY +5.7%). Q1 progress rates were Revenue 23.1% and Net Income 17.4%, below the standard 25% quarterly run rate. Beverages and Alcohol are skewed toward the summer busy season, and Pharmaceuticals is expected to accelerate in H2 as new drug contributions increase. If Q1 operating margin of 6.9% is maintained for the full year, Operating Income would be approximately ¥1711B, and current progress appears conservative. Continued pricing strategy, stabilized raw material costs, and normalization of working capital are upside factors for H2 performance. Full-year guidance is unchanged.
Q1 dividend payments amounted to ¥299.8B and share buybacks ¥83.9B, totaling shareholder returns of ¥383.7B. Total Return Ratio vs. Free Cash Flow is 78.9%, within cash generation capacity. Full-year dividend forecast is ¥38 per share (up ¥1 from ¥37), implying a payout ratio of about 20% against expected Net Income attributable to owners of parent ¥1560B (based on shares outstanding 8.16 hundred million shares - treasury 0.09 hundred million shares = 8.07 hundred million shares). In Q1, treasury share cancellation of ¥2365.7B was executed, reducing treasury stock from ¥2510.0B to ¥228.2B, contributing to per-share value restoration and capital efficiency improvement. The combined policy of dividends plus buybacks balances stable dividends with opportunistic return of excess cash. With Cash & Deposits ¥1240.5B, OCF generation, and net cash position ¥303.1B, dividend sustainability is high.
Goodwill and intangible asset impairment risk: Goodwill ¥5428.1B (33.4% of equity) and intangible assets ¥6891.8B total ¥1.2320兆円, representing 36.1% of total assets, reflecting growth via M&A. These assets are sensitive to external deterioration or shortfalls vs. business plans; impairment sensitivity is high. An impairment loss of ¥48.9B was recorded in Q1. Including equity-method investments ¥2320.8B, high dependence on intangible/associate assets poses medium-term earnings stability challenges.
Working capital efficiency deterioration: Accounts Receivable ¥3901.4B (approx. 68 days of annualized sales) and Inventory ¥2976.4B (approx. 191 days) indicate large working capital tie-up. Q1 improvement via receivables collection was positive, but structurally long working capital cycles and low asset turnover 0.67x (annualized) constrain ROIC improvement. Inventory optimization and receivable turnover improvement are key to capital efficiency.
Elevated effective tax rate and external environment risks: Effective tax rate 34.8% (above statutory 30.6%) pressures Net Income. Tax regimes in overseas operations, transfer pricing, and recoverability of deferred tax assets affect tax burden. Foreign exchange volatility (translation gain ¥388.1B), raw material prices, interest rate trends, and regulatory changes (alcohol tax, drug pricing systems) could impact earnings and cash flow.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 6.9% | – | – |
| Net Margin | 5.7% | – | – |
Benchmark data are limited, making relative assessment difficult, but operating margin 6.9% and net margin 5.7% reflect pricing power and brand strength.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 5.0% | – | – |
Revenue growth 5.0% was driven by double-digit growth in Pharmaceuticals and Beverages, demonstrating benefits of a diversified portfolio.
※ Source: Company compilation
Structural improvement in profitability: Gross margin 48.3% (YoY +1.8pt) and operating margin 6.9% (YoY +1.2pt) reflect effective pricing and easing raw material costs. Sharp margin expansion in Pharmaceuticals (14.5%, +5.4pt) and Health Science (9.5%, +4.4pt), together with high-margin Alcohol (12.2%), strengthen the medium-term profitability base. SG&A ratio 39.6% remains high but growth investment is starting to translate into sales and profits.
Dramatic improvement in cash generation: OCF ¥742.3B (YoY +624.7%), OCF/Net Income 2.26x, and Accounts Receivable collection ¥1435.8B led working capital improvement. Free Cash Flow ¥486.3B comfortably covered dividends ¥299.8B and buybacks ¥83.9B (total ¥383.7B), expanding shareholder return capacity. Treasury share cancellation ¥2365.7B materially reduced treasury stock, supporting per-share value and capital efficiency. Progress on selling Assets Held for Sale ¥963.5B could be the next catalyst for asset efficiency and ROIC improvement.
Likelihood of achieving full-year targets: Q1 progress rates (Revenue 23%, Net Income 17%) are below standard but are within expectations given seasonality in Beverages & Alcohol and the Pharmaceuticals’ H2 weighting. If operating margin 6.9% is maintained, and with continued pricing, raw material stability, and working capital normalization, reaching full-year guidance is probable. Constraints include goodwill dependence (33.4%), effective tax rate (34.8%), and long working capital cycles (asset turnover 0.67x), which limit medium-term shareholder value enhancement. Focus areas should be impairment risk management, tax efficiency, and asset efficiency improvement.
This report was automatically generated by AI analyzing XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are compiled by the Company from public financial statements as reference information. Investment decisions are your responsibility; consult advisors as necessary.