WARABEYA NICHIYO HOLDINGS (2918) FY2027 Q2 Earnings Report

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Executive Summary

In the first half of the fiscal year ending February 2027 (March–August 2026), the Company recorded higher revenue but lower profit, with operating income declining 25.0% due to deteriorating profitability in its core food-related business. Revenue was ¥120.85B (+1.0% YoY), operating income was ¥3.97B (down 25.0%), and ordinary income was ¥4.2B (down 19.7%). Interim net income attributable to owners of the parent was ¥2.64B (down 34.1%). The main factor was a 4.6% YoY increase in SG&A expenses, outpacing revenue growth. Gross profit also declined by ¥0.485B due to higher cost of sales. Operating Cash Flow (OCF) was ¥5.08B, approximately 1.9x net income attributable to owners of the parent, but decreased 41.2% from the prior year.

Factors Behind Earnings Changes

【Revenue】Revenue was ¥120.85B (+1.0% YoY), representing only modest growth. The Food-Related Business generated ¥108.64B (+1.0%), accounting for approximately 89.9% of revenue. The Ingredient-Related Business generated ¥5.89B (+1.9%), and the Logistics-Related Business generated ¥6.32B (+0.3%); all segments posted modest revenue growth.

【Earnings】Operating income was ¥3.97B (down 25.0% YoY), and the operating margin declined by approximately 1.1 percentage points to 3.3% from 4.4% a year earlier. Gross profit was ¥23.02B (gross margin of 19.0%, versus 19.6% a year earlier), a decrease of ¥0.485B. SG&A expenses increased by ¥0.835B to ¥19.05B from ¥18.21B a year earlier; together, these changes explain the ¥1.32B decline in operating income. Extraordinary losses included an impairment loss of ¥0.19B, up from ¥0.04B in the prior year. This was a temporary factor. Non-operating income was ¥0.7B and non-operating expenses were ¥0.47B, resulting in ordinary income exceeding operating income by ¥0.23B. Income before income taxes was ¥4.02B, income taxes were ¥1.27B, and net income attributable to owners of the parent was ¥2.64B. Overall, this was a higher-revenue, lower-profit period.

Segment Analysis

The Food-Related Business recorded operating income of ¥3.73B (down 24.7% YoY) and a 3.4% margin, making it the primary contributor to the consolidated earnings decline. As it accounts for approximately 84.5% of total segment income of ¥4.42B, its profitability has a significant impact on consolidated results. The Ingredient-Related Business’s operating income halved to ¥0.15B (down 49.1%), with a 2.5% margin. The Logistics-Related Business recorded operating income of ¥0.54B (down 0.7%) and an 8.5% margin—the highest among the three segments—maintaining its prior-year level. The adjustment for corporate expenses and other items was -¥0.45B, compared with -¥0.49B a year earlier.

As revenue growth remained modest, declining profitability in the Food-Related Business weighed on overall earnings.

Key Financial Indicators

【Profitability】The operating margin was 3.3% (4.4% a year earlier), gross margin was 19.0% (19.6% a year earlier), and SG&A ratio was 15.8% (15.2% a year earlier). Annualized ROE was 8.5%, and basic EPS was ¥151.96 (¥229.53 a year earlier, down 33.8%). Margin contraction was the primary factor, while total asset turnover was almost unchanged. 【Cash Flow Quality】OCF was ¥5.08B, approximately 1.9x net income attributable to owners of the parent. Meanwhile, EBITDA (operating income plus depreciation and amortization) was approximately ¥8B, leaving OCF at approximately 0.63x EBITDA. The increase in accounts receivable (a cash outflow of ¥4.06B) put pressure on working capital. 【Investment Efficiency】Capital expenditures were ¥4.82B, approximately 1.2x depreciation and amortization of ¥4.03B. Construction in progress increased from ¥2.53B to ¥4.11B, indicating that capital investment is progressing. Free cash flow after investment activities was -¥0.32B. 【Financial Soundness】The Equity Ratio was 49.2%, up from the prior year, with total assets of ¥131.54B and net assets of ¥64.72B. The current ratio was approximately 99.3%, with current liabilities of ¥35.99B slightly exceeding current assets of ¥35.76B. Current portion of long-term borrowings increased to ¥9.01B from ¥3.43B a year earlier, exceeding cash and deposits of ¥6.74B. Long-term borrowings decreased to ¥15.46B from ¥22.06B a year earlier.

<section name="CASH_FLOW_ANALYSIS"> OCF decreased 41.2% YoY to ¥5.08B, mainly due to deterioration in working capital. The subtotal of OCF before working capital changes was ¥5.75B, while the increase in accounts receivable resulted in a cash outflow of ¥4.06B. An increase in accounts payable of ¥1.78B and a decrease in inventories of ¥0.75B partly offset this outflow. Income taxes paid increased to ¥0.77B from ¥0.36B a year earlier. Investing Cash Flow was -¥5.39B, including capital expenditures of ¥4.82B. Free cash flow (OCF plus investing cash flow) was -¥0.32B. Financing Cash Flow was -¥3.46B, including dividend payments of ¥1.06B, repayment of long-term borrowings of ¥1.4B, and repayment of lease obligations of ¥1B. Cash and deposits decreased from ¥10.38B to ¥6.74B. Accounts receivable increased 21.3% from ¥19.24B to ¥23.34B, significantly outpacing revenue growth of +1.0%. Going forward, collection trends will influence OCF.

Cash Flow Analysis

OCF decreased 41.2% YoY to ¥5.08B, mainly due to deterioration in working capital. The subtotal of OCF before working capital changes was ¥5.75B, while the increase in accounts receivable resulted in a cash outflow of ¥4.06B. An increase in accounts payable of ¥1.78B and a decrease in inventories of ¥0.75B partly offset this outflow. Income taxes paid increased to ¥0.77B from ¥0.36B a year earlier. Investing Cash Flow was -¥5.39B, including capital expenditures of ¥4.82B. Free cash flow (OCF plus investing cash flow) was -¥0.32B. Financing Cash Flow was -¥3.46B, including dividend payments of ¥1.06B, repayment of long-term borrowings of ¥1.4B, and repayment of lease obligations of ¥1B. Cash and deposits decreased from ¥10.38B to ¥6.74B. Accounts receivable increased 21.3% from ¥19.24B to ¥23.34B, significantly outpacing revenue growth of +1.0%. Going forward, collection trends will influence OCF.

Earnings Quality

OCF was approximately 1.9x net income attributable to owners of the parent, indicating cash backing for earnings. However, note that this level includes a boost from depreciation and amortization of ¥4.03B. Ordinary income of ¥4.2B exceeded operating income by ¥0.23B; of non-operating income of ¥0.7B, dividends received accounted for ¥0.34B. Non-operating expenses were ¥0.47B, including interest expenses of ¥0.16B. Extraordinary losses included an impairment loss of ¥0.19B, a temporary factor. Comprehensive income was ¥3.44B, exceeding net income attributable to owners of the parent of ¥2.64B (comprehensive income attributable to owners of the parent was ¥3.23B). The difference was mainly due to a positive foreign currency translation adjustment of ¥0.69B. This is a valuation item and should be considered separately from the Company’s underlying earnings capacity. Consolidated net income was ¥2.74B, of which ¥0.1B was attributable to non-controlling interests.

Earnings Forecast and Guidance

The full-year forecast is revenue of ¥238B (+1.8% YoY), operating income of ¥6B (down 19.4%), ordinary income of ¥6.05B (down 18.4%), net income attributable to owners of the parent of ¥3.5B, and EPS of ¥201.34. First-half progress toward the full-year forecast was 50.8% for revenue, 66.2% for operating income, 69.5% for ordinary income, and 75.4% for net income. The progress rates for earnings items are substantially above the standard 50%. To achieve the full-year forecast, the second half would need operating income of ¥2.03B (an operating margin of approximately 1.7%) and net income of ¥0.86B. This would be significantly below the first-half operating margin of 3.3%, implying an assumption that second-half earnings will be lower than first-half earnings. The earnings forecast was revised during the current fiscal year.

Shareholder Returns

The interim dividend was ¥60 per share, unchanged from ¥60 in the prior-year period; the full-year forecast is ¥120, with no revision to the dividend forecast. The payout ratio based on the first-half interim dividend of ¥60 and first-half EPS of ¥151.96 is approximately 39.5%. The forecast payout ratio against full-year forecast EPS of ¥201.34 is approximately 59.6%. Dividend payments in the first half were ¥1.06B. Deducting capital expenditures of ¥4.82B and dividend payments of ¥1.06B from OCF of ¥5.08B results in approximately -¥0.8B. Cash and deposits of ¥6.74B provide funding for dividends in the near term, but trends in second-half OCF and capital expenditures will be key.

Risk Factors

1. Concentration in the Food-Related Business: Approximately 89.9% of revenue and 84.5% of segment income are generated by this business. Its operating income was down 24.7% YoY, and its margin was only 3.4%. The business is susceptible to cost increases and delays in passing costs on to customers.

2. Short-Term Liquidity: The current ratio is approximately 99.3%, and working capital is -¥0.24B. The current portion of long-term borrowings of ¥9.01B exceeds cash and deposits of ¥6.74B. Total borrowings (long-term plus the current portion) decreased only from ¥25.49B to ¥24.47B, indicating a shortening of debt maturities.

3. Working Capital and Financial Flexibility: Accounts receivable increased 21.3% YoY (+¥4.1B), while OCF declined 41.2% YoY. Capital expenditures and dividend payments totaled ¥5.9B, exceeding OCF by ¥0.8B. Delays in collecting accounts receivable could further reduce financial flexibility.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Both the operating margin and net margin are below the industry median, but remain above the lower bound of the IQR (interquartile range).

Growth and Capital Efficiency

Revenue growth is below the industry median and toward the lower end of the IQR.

※Source: Company compilation

Key Points to Watch in the Results

1. It is important to determine whether the decline in earnings despite revenue growth reflects a structural deterioration in profitability. Revenue increased 1.0%, while operating income declined 25.0%; gross margin fell by approximately 0.6 percentage points and operating margin by approximately 1.1 percentage points. SG&A expenses increased 4.6%, outpacing revenue growth, making the margin trend in the Food-Related Business a key focus.

2. Cash conversion of earnings and financial flexibility merit attention. OCF exceeded net income, while OCF was only approximately 0.63x EBITDA. Free cash flow was -¥0.32B, the current ratio was approximately 99.3%, and the current portion of borrowings increased to ¥9.01B. Collection of accounts receivable and progress on capital expenditures will determine future financial flexibility.

3. The full-year forecast assumes a decline in the second-half operating margin. The required second-half operating margin is approximately 1.7%, below the first-half margin of 3.3%. Second-half results will be a key point to monitor in light of first-half progress toward the forecast (66.2% for operating income).

Theoretical Share Value (Reference)

Sensitivity: ¥3,228 to ¥3,409 for cost of equity ±1%; ¥3,304 to ¥3,325 for ω ±0.1.

Notes:

• Net income progress against the full-year forecast (75%) is ahead of the standard (50%), so forecast EPS is adjusted upward within a cap of +10% (companies ahead of schedule tend to exceed their forecasts; the adjustment may be too large for strongly seasonal businesses).
• Forecast ROE is below the cost of equity, so the estimate falls below book value per share.
• Net assets are taken at the quarter end (there is a timing gap with the full-year forecast).
• Net assets include non-controlling interests, so the estimate may be somewhat high.

(Model: residual income model (Ohlson-type, explicit 5-year fade) / rate reference month: 2026-09 / a mechanical estimate from public data only; it is not a forecast of the market price or a recommendation of any investment action, and it 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 release data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own responsibility and, where appropriate, after consulting with a professional.

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