ITO EN,LTD. FY2027 Q1 Earnings Report

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Executive Summary

The first quarter of the fiscal year ending April 2027 delivered increases in both revenue and profit, with earnings showing a particularly clear improvement in profit margins due to the containment of SG&A expenses. Revenue was ¥135.18B (+3.3% YoY), Operating Income was ¥10.20B (+22.0%), Ordinary Income was ¥10.12B (+13.4%), and Net Income attributable to owners of the parent was ¥6.59B (+14.8%). The substantial increase in Operating Income, well above the revenue growth rate, was primarily attributable to the decline in the SG&A ratio to 29.6% from 30.7% in the same period of the previous year. Ordinary Income growth lagged Operating Income growth due to the reduction in foreign exchange gains recorded in the same period of the previous year.

Factors Affecting Earnings

【Revenue】Revenue was ¥135.18B, an increase of +3.3% YoY. The core Leaf and Beverage-Related Business generated ¥120.63B (+2.7%) and accounted for 89.3% of consolidated revenue, while the Food Service-Related Business posted ¥12.40B (+8.4%), demonstrating relatively stronger growth. Although the revenue growth rate itself was moderate compared with the same period of the previous year, both segments maintained revenue growth.

【Profit and Loss】Operating Income rose significantly by +22.0% YoY to ¥10.20B. While the gross margin was 37.2%, broadly unchanged from 37.1% in the same period of the previous year, SG&A expenses declined 0.3% YoY to ¥40.06B, resulting in a decline in the SG&A ratio to 29.6% from 30.7%, which was the primary driver of the increase in Operating Income. Ordinary Income was ¥10.12B, up +13.4% YoY, below the growth rate of Operating Income. This was because foreign exchange gains recorded in the same period of the previous year declined from ¥0.38B to ¥0.03B in the current period, resulting in net non-operating expenses of ¥0.08B. Extraordinary income and expenses resulted in net income of ¥0.09B, mainly due to gains on the sale of non-current assets of ¥0.15B, with a limited impact on Profit Before Tax. In conclusion, the Company achieved increases in both revenue and profit, with profit growth driven more by SG&A efficiency improvements than by top-line growth.

Segment Analysis

The Leaf and Beverage-Related Business generated revenue of ¥120.63B (+2.7% YoY) and Operating Income of ¥8.99B (+23.5%), with a profit margin of 7.5%. It is the core business, accounting for 89.3% of consolidated revenue and approximately 88% of disclosed segment profit. The Food Service-Related Business generated revenue of ¥12.40B (+8.4%) and Operating Income of ¥0.99B (+9.3%), maintaining a profit margin of 8.0% and profitability above that of the core business. Both segments achieved increases in revenue and profit; however, profit growth was higher in the Leaf and Beverage-Related Business, and the consolidated increase in Operating Income was largely supported by improved profitability in that business. This concentration of earnings sources means that fluctuations in the core business’s margins are likely to be directly reflected in consolidated performance.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 7.5% from 6.4% in the same period of the previous year, while the Net Income margin also rose to approximately 4.8% (Net Income of ¥6.59B ÷ Revenue of ¥135.18B = 4.9%) from 4.4% in the same period of the previous year. The gross margin was 37.2%, broadly unchanged from 37.1% in the same period of the previous year. 【Cash Quality】Non-operating income consisted of ¥0.07B in dividend income, ¥0.03B in foreign exchange gains, and other items. While recurring income was limited, extraordinary income was only ¥0.15B from gains on the sale of non-current assets, representing a small 1.5% of Profit Before Tax. 【Investment Efficiency】ROE (quarterly actual result, before annualization) was 3.7%, representing the actual cumulative quarterly result. The Equity Ratio was 49.1%, slightly below 51.4% in the same period of the previous year. 【Financial Soundness】Cash and deposits were ¥63.57B. Interest-bearing debt consisted of long-term borrowings of ¥45.92B, bonds of ¥10.00B, and short-term borrowings of ¥14.31B. Short-term borrowings increased substantially by +138.7% YoY, while long-term borrowings remained broadly unchanged.

Cash Flow Analysis

As this report does not include detailed cash flow statements, cash trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥63.57B, down from ¥75.19B in the same period of the previous year, suggesting that the expansion of working capital, primarily due to increases in accounts receivable of ¥13.88B and inventories of ¥6.23B, may have placed pressure on cash. At the same time, accounts payable also increased by ¥12.60B, indicating a parallel expansion on the procurement and payment side. Short-term borrowings surged +138.7% YoY (+¥8.32B) to ¥14.31B, suggesting that the increase in working capital was being funded with short-term financing. Current assets exceeded current liabilities by ¥144.26B, and no significant concerns are apparent regarding short-term liquidity.

Quality of Earnings

The gap between Ordinary Income and Operating Income was limited to ¥0.08B, with Operating Income of ¥10.20B versus Ordinary Income of ¥10.12B, indicating that core operating profit constituted nearly all of Ordinary Income. Non-operating income consisted of ¥0.07B in dividend income, ¥0.03B in foreign exchange gains, and other income totaling ¥0.43B, while expenses of ¥0.51B, primarily interest expenses of ¥0.29B, exceeded income, resulting in net expenses of ¥0.08B. Since foreign exchange gains of ¥0.38B were recorded in the same period of the previous year, the deterioration in non-operating income and expenses was primarily attributable to this reversal and can be viewed as a reduction in a temporary factor. Extraordinary income of ¥0.15B from gains on the sale of non-current assets represented only 1.5% of Profit Before Tax of ¥10.21B, limiting its contribution to Net Income. Comprehensive Income was ¥7.22B, exceeding Net Income attributable to owners of the parent of ¥6.56B, with increases in other comprehensive income, including foreign currency translation adjustments and valuation differences on securities, contributing to the result. The gap between Net Income and Comprehensive Income was not significant.

Earnings Forecast and Guidance

The full-year Company forecast calls for Revenue of ¥500.00B (+0.4% YoY), Operating Income of ¥20.00B (-7.8%), and Ordinary Income of ¥20.50B (-11.9%), with no revisions to either the earnings or dividend forecasts. As of Q1, progress rates were 27.0% for Revenue, 51.0% for Operating Income, and 57.4% for Net Income, substantially exceeding the standard quarterly progress rate of approximately 25%. The particularly high progress on the profit side was attributable to the SG&A containment effect in Q1, contrasting with the full-year forecast for a decline in profit from the previous fiscal year. Trends in raw material and logistics costs and promotional investments toward the second half of the fiscal year are expected to determine the level of confidence in achieving the full-year forecast.

Shareholder Returns

The full-year dividend forecast is ¥52.00 per share, with no revision from the most recent forecast. Based on forecast EPS of ¥95.44, the Payout Ratio is approximately 54.5%, remaining below 60%. Q1 EPS was ¥56.93 (¥49.60 in the same period of the previous year, +14.8%), reaching 59.6% of forecast full-year EPS, indicating that earnings progress is at a level supporting the dividend forecast. Retained earnings were substantial at ¥154.76B, securing a source of dividends. However, no specific amount has been disclosed regarding share repurchases, and the above 54.5% represents the Payout Ratio based solely on dividends.

Risk Factors

1. Business Concentration Risk: The Leaf and Beverage-Related Business accounts for 89.3% of consolidated revenue and approximately 88% of segment profit. Supply-demand conditions and trends in price pass-through in this business directly affect consolidated performance.

2. Inventory Efficiency Risk: Inventories were ¥63.20B, accounting for 17.1% of total assets and increasing +10.9% YoY. An increase in inventory levels could affect storage costs, inventory write-downs, and cash conversion efficiency.

3. Working Capital and Short-Term Funding Risk: Short-term borrowings increased +138.7% YoY to ¥14.31B, while accounts payable (+34.8%) and accounts receivable (+19.8%) also expanded. Although liquidity itself remains sound, as indicated by a current ratio of 223.0%, the degree of reliance on short-term financing associated with working capital expansion warrants monitoring.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Return

Profitability exceeds the industry median, positioning the Company at a relatively high level within the food and beverage industry.

Growth and Capital Efficiency

The Revenue growth rate is below the industry median, indicating a relatively moderate level of growth within the industry.

※Source: Compiled by the Company

Key Takeaways from the Results

1. The Operating Income margin improved to 7.5% from 6.4% in the same period of the previous year, and the Company achieved Operating Income growth of +22.0%, substantially exceeding revenue growth of +3.3%. The primary driver of the improvement was the decline in the SG&A ratio, with cost efficiency contributing more significantly than pricing or cost-of-sales factors.

2. The progress rate for Operating Income against the full-year forecast was 51.0%, while the progress rate for Net Income was 57.4%, substantially exceeding standard quarterly progress. At the same time, the full-year forecast itself assumes a decline in profit from the previous fiscal year. The relationship between the high progress in the first half and cost trends from the second half onward will be an important point to monitor when assessing full-year results.

3. The increase in inventories and sharp rise in short-term borrowings are facts related to working capital efficiency, separate from the improvement in profitability. Trends in inventory levels will provide useful information for understanding future cash flow trends.

Theoretical Share Price (Reference Value)

Sensitivity: ¥1,847–¥1,953 at ±1% for the cost of equity, and ¥1,890–¥1,904 at ±0.1 for ω.

Notes:

• Since Net Income progress against the full-year forecast is 57%, exceeding the standard 25%, forecast EPS has been adjusted upward within a range capped at +10% (because companies whose earnings progress is ahead of schedule tend to exceed forecasts. The adjustment may be excessive for businesses with strong seasonality).
• Since forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a timing gap relative to the full-year forecast).
• Since net assets include non-controlling interests, the theoretical value may be calculated at a slightly high level.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest rate reference month: 2026-07 / This is a mechanically calculated value based solely on publicly disclosed data; it 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 securities. 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 a professional adviser as necessary.

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