TOYOTA BOSHOKU CORPORATION FY2027 Q1 Earnings Report

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Executive Summary

The first quarter saw higher revenue but lower earnings, as cost increases outpaced revenue growth and the increased tax burden weighed on net income. Revenue was ¥5,280.8B (+10.1% YoY), Operating Income was ¥158.8B (-15.1%), Profit Before Tax was ¥176.7B (-6.5%), and quarterly Net Income attributable to owners of the parent was ¥87.6B (-18.9%). The primary drivers of revenue growth were expanded sales, mainly in North, Central and South America and Asia. The main factors behind the decline in earnings were the increase in the cost-of-sales ratio and the 13.4% increase in SG&A expenses, which exceeded the revenue growth rate, the European and African segment's shift into the red, and the increase in the effective tax rate (30.5%→43.0%).

Factors Affecting Performance

【Revenue】Revenue of ¥5,280.8B (+10.1% YoY) increased in all regions. The composition was Japan 41.3% (+5.7% YoY), North, Central and South America 29.6% (+16.3%), Asia 14.0% (+10.9%), China 9.5% (+8.9%), and Europe and Africa 5.7% (+13.1%), with growth in North, Central and South America and Asia driving the overall result.

【Profit and Loss】The gross margin was 9.8%, down 0.65pt from 10.4% a year earlier, while the SG&A ratio was 6.9%, up 0.2pt from 6.7% a year earlier, resulting in a 0.9pt decline in the Operating Income margin from 3.9% to 3.0%. Financial expenses declined sharply from ¥22.0B to ¥5.3B, partially offsetting the downward pressure on Profit Before Tax. However, the increase in the effective tax rate from 30.5% to 43.0% caused Net Income to decline more than Profit Before Tax (-6.5%) (attributable to owners of the parent: -18.9%; on a consolidated basis including non-controlling interests: -23.4%). No items corresponding to extraordinary gains or losses have been disclosed. In conclusion, the quarter recorded higher revenue but lower earnings.

Segment Analysis

By segment, the profitability gap widened. Asia was a core segment generating more than half of total company profits, with revenue of ¥737.5B (+10.9%), Operating Income of ¥91.3B (+0.7%), and a 12.4% margin, and was the only segment to achieve an increase in earnings. Japan recorded revenue of ¥2,178.1B (+5.7%) and Operating Income of ¥29.2B, representing a significant improvement from nearly zero (¥0.05B) a year earlier, with a profitable trend becoming established. Meanwhile, North, Central and South America posted substantial revenue growth to ¥1,560.5B (+16.3%), but Operating Income declined to ¥25.9B (-43.9%). China recorded revenue of ¥502.7B (+8.9%), while Operating Income fell to ¥20.6B (-50.4%), indicating deteriorating profitability despite revenue growth. Europe and Africa recorded revenue of ¥302.0B (+13.1%), but Operating Income was -¥7.7B, shifting into a loss from a profit of ¥8.6B in the previous year. The deterioration in the regional mix was one of the main factors behind the decline in the overall Operating Income margin.

Key Financial Indicators

【Profitability】The Operating Income margin was 3.0%, down 0.9pt from 3.9% a year earlier, while the Net Income margin, based on income attributable to owners of the parent, was 1.7%, down 0.6pt from 2.3% a year earlier. The decline in the gross margin (9.8%, -0.65pt YoY) and the increase in the SG&A ratio (6.9%, +0.2pt YoY) were factors behind the deterioration in profitability. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥478.1B, equivalent to approximately 5.5 times Net Income attributable to owners of the parent of ¥87.6B, indicating ample cash-generation capacity relative to earnings. 【Investment Efficiency】ROE was 1.9% for the quarter, not annualized; total asset turnover was 0.45 times on a quarterly basis; and financial leverage, calculated as total assets / equity, was 2.21 times. The decline in the Net Income margin is determining the level of ROE. 【Financial Soundness】The Equity Ratio was 42.0%, improving 1.0pt from 41.0% a year earlier. The current ratio was approximately 172% (current assets of ¥7,123.1B / current liabilities of ¥4,142.0B). Cash and deposits of ¥2,836.2B exceeded interest-bearing debt of ¥1,792.1B, resulting in a net cash position. The interest coverage ratio, calculated as EBIT / interest expense, was approximately 30 times, indicating substantial capacity to service interest payments.

Cash Flow Analysis

Operating Cash Flow (OCF) increased 20.3% YoY to ¥478.1B, as progress in collecting trade receivables (+¥251.7B) absorbed cash outflows from the increase in inventories (-¥58.2B) and the decrease in trade payables (-¥88.7B). Investing Cash Flow was -¥176.3B, including capital expenditures of ¥178.5B, up from ¥140.1B in the previous year. As a result, Free Cash Flow was ¥301.8B, a level sufficient to cover dividend payments of ¥76.8B and capital expenditures. Financing Cash Flow was -¥274.2B, primarily reflecting repayment of long-term borrowings of ¥100.0B, dividend payments (¥76.8B attributable to the parent company’s shareholders and ¥19.2B attributable to non-controlling interests), and expenditures associated with changes in non-controlling interests. Cash and cash equivalents ended nearly flat at ¥2,836.2B at period-end (+¥5.1B compared with the beginning of the period).

Earnings Quality

Comprehensive income was ¥147.8B, including ¥128.5B attributable to owners of the parent, exceeding Net Income attributable to owners of the parent of ¥87.6B. The primary factor was a foreign currency translation gain arising from foreign operations, as foreign currency translation adjustments shifted from -¥37.5B in the same period of the previous year to +¥65.5B in the current period. Meanwhile, changes in the fair value of equity instruments measured through other comprehensive income were negative at -¥21.2B. In the profit and loss statement, Financial expenses declined sharply from ¥22.0B in the previous year to ¥5.3B, supporting Profit Before Tax. However, the effective tax rate rose from 30.5% to 43.0%, putting pressure on Net Income. The fact that the decline in Net Income attributable to owners of the parent (-18.9%) exceeded the decline at the operating level (-15.1%) was attributable to the increased tax burden. The fact that OCF substantially exceeded Net Income indicates good earnings quality from an accrual perspective.

Earnings Forecast and Guidance

The full-year company forecasts are Revenue of ¥2,100.0B, Operating Income of ¥760.0B (+40.9% YoY), Net Income attributable to owners of the parent of ¥460.0B, EPS of ¥257.57, and DPS of ¥86. The Q1 progress rates were 25.1% for Revenue (¥528.1B / ¥2,100.0B), 20.9% for Operating Income (¥158.8B / ¥760.0B), and 19.0% for Net Income (¥87.6B / ¥460.0B). While Revenue was broadly tracking a uniform one-year progression, progress in Operating Income and Net Income was behind schedule. Achieving full-year Operating Income growth of +40.9% will require improved profitability in the European segment, control of SG&A expense growth, and normalization of the effective tax rate toward the second half of the year. Although the earnings forecast was revised during the quarter, the dividend forecast was not revised.

Shareholder Returns

Regarding dividends, ¥76.8B was paid during Q1 (the disclosed per-share amount is based on the actual dividend payment), and no share repurchase was conducted (¥0.0B on a cash flow basis). The Payout Ratio calculated from the full-year forecast DPS of ¥86 and forecast EPS of ¥257.57 is approximately 33.4%. Dividend payments of ¥76.8B represented approximately 3.9 times coverage by Free Cash Flow of ¥301.8B. Together with cash and deposits of ¥2,836.2B, the company has sufficient capacity to pay dividends. As no share repurchases were conducted, shareholder returns consisted solely of dividends, and the Total Return Ratio has not been calculated.

Risk Factors

1. Regional profitability disparities: Europe and Africa shifted into an Operating Loss of ¥7.7B, while North, Central and South America (-43.9%) and China (-50.4%) also recorded lower earnings. In contrast, Asia drove overall profits with a 12.4% margin, meaning that changes in the regional mix could have a significant impact on overall earnings.

2. Increase in the effective tax rate: The effective tax rate rose 12.5pt from 30.5% in the previous year to 43.0% in the current period, resulting in a larger decline in Net Income attributable to owners of the parent (-18.9%) than in Profit Before Tax (-6.5%). Tax-rate trends could become a factor affecting future fluctuations in Net Income.

3. Changes in working capital: Inventories increased by ¥69.9B (+7.4%) from the end of the previous fiscal year, while trade payables decreased by ¥88.7B (-4.0%). Depending on demand trends, the impact on inventory valuation and liquidity should be monitored.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Company's Operating Income margin and Net Income margin are both substantially below the industry median.

Growth and Capital Efficiency

The Revenue growth rate exceeds the industry median, indicating a relatively high pace of revenue growth.

※Source: Compiled by the Company

Key Points from the Financial Results

1. The Operating Income margin declined 0.9pt from 3.9% in the previous year to 3.0% in the current period. The key focus going forward is whether the trend of SG&A expense growth (+13.4%) exceeding revenue growth (+10.1%) will continue.

2. The Europe and Africa segment shifted from a profit in the previous year to a loss of -¥7.7B in the current period, warranting observation as a turning point in the regional earnings structure.

3. OCF was approximately 5.5 times Net Income attributable to owners of the parent, indicating good earnings quality. However, the effective tax rate rose from 30.5% to 43.0%, making tax burden trends a factor to watch as a source of Net Income volatility.

Theoretical Share Price (Reference Value)

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

Sensitivity: ¥2,766–¥2,930 for a ±1% change in the Cost of Equity, and ¥2,844–¥2,850 for a ±0.1 change in ω.

Notes:

• Net assets as of the quarter-end were used (there is a timing difference relative to the full-year forecast).

(Calculation model: Residual income model / Interest rate reference month: 2026-06 / This figure does not forecast 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 security. The 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 a professional as necessary.