ORION BREWERIES,LTD. FY2027 Q1 Earnings Report

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Executive Summary

Despite higher revenue, the Company reported lower earnings due to gross margin pressure, higher SG&A expenses, and the absence of special gains recorded in the previous year. Revenue increased to ¥71.9B (+2.0% year on year), while Operating Income declined by double digits to ¥9.5B (-11.4%), and Ordinary Income fell to ¥9.7B (-10.9%). Net Income decreased substantially to ¥6.5B (-56.1%). While the core Alcoholic Beverages and Soft Drinks Business drove revenue growth, a slowdown in the Tourism and Hotel Business and higher costs pressured earnings. The reversal of special gains, including gains on the sale of non-current assets, totaling ¥10.5B recorded in the previous year, was the primary cause of the substantial decline in Net Income.

Factors Affecting Performance

【Revenue】Revenue increased 2.0% year on year to ¥71.9B. By segment, the Alcoholic Beverages and Soft Drinks Business generated ¥60.3B (+5.0%), accounting for 83.8% of total Company revenue and driving growth, while the Tourism and Hotel Business slowed to ¥11.6B (-11.0%).

【Profit and Loss】Operating Income declined to ¥9.5B (-11.4%), while Ordinary Income decreased to ¥9.7B (-10.9%). The gross margin declined by approximately 1.6pt to 50.7% from 52.3% in the previous year, suggesting an impact from higher raw material, packaging material, and energy costs, as well as product mix effects. The SG&A ratio increased to 37.5% from 37.0% in the previous year, indicating that higher costs exceeded revenue growth and caused operating leverage to reverse. Non-operating income and expenses were neutral, as dividend income of ¥0.8B was almost offset by interest expense of ¥0.8B. Net Income declined substantially to ¥6.5B (-56.1%), primarily due to the absence of ¥10.5B in special gains recorded in the previous year; even on a profit-before-tax basis, the decline was -54.9%. In conclusion, the Company achieved higher revenue but lower earnings.

Segment Analysis

The Alcoholic Beverages and Soft Drinks Business generated Revenue of ¥60.3B (+5.0% year on year) and Operating Income of ¥9.2B (-10.8%), with a profit margin of 15.3%. It is the core business, accounting for 83.8% of total Company revenue and the majority of segment profit. The Tourism and Hotel Business generated Revenue of ¥11.6B (-11.0%) and Operating Income of ¥0.3B (-24.4%), with a profit margin of 2.9%, indicating continued low profitability. A significant margin disparity exists between the segments, and the slowdown in profitability in the Tourism and Hotel Business structurally dilutes the Company-wide profit margin.

Key Financial Indicators

【Profitability】The Operating Income margin declined by approximately 2.0pt to 13.3% from 15.3% in the previous year, while the Net Income margin contracted substantially to 9.1% from 21.1%. The gross margin was 50.7% (52.3% in the previous year), and the SG&A ratio was 37.5% (37.0% in the previous year), with higher costs being the primary cause of deteriorating profitability.【Cash Flow Quality】Non-operating income was limited at 1.6% of revenue, indicating that the recurring earnings structure depends on Operating Income.【Investment Efficiency】ROE was 3.7%, and the Equity Ratio was 41.1%.【Financial Soundness】Current assets of ¥139.6B versus current liabilities of ¥67.2B indicate ample liquidity. Long-term borrowings of ¥156.2B constitute the core of liabilities, although interest expense is almost offset by dividend income.

Cash Flow Analysis

Although detailed disclosure of the cash flow statement is unavailable, changes in the balance sheet provide insight into cash movements. Cash and deposits totaled ¥82.6B, down ¥22.5B from ¥105.1B in the previous year, suggesting that investments and capital policies, including the acquisition of treasury shares (¥4.9B) and an increase in construction in progress (+¥8.5B, +305%), used cash. Notes and accounts receivable increased to ¥29.0B from ¥24.9B in the previous year, while inventories also increased to ¥16.3B from ¥13.6B, indicating greater cash tied up in working capital. Dividend income of ¥0.8B and interest expense of ¥0.8B were of similar magnitude, resulting in limited impact from financial income and expenses on the financial position. The substantial increase in construction in progress, indicating progress in capital investment, should be noted as involving a short-term cash burden in addition to potential earnings contributions after the assets become operational.

Earnings Quality

Recurring earnings are centered on Operating Income of ¥9.5B. Non-operating income of ¥1.2B, comprising dividend income of ¥0.8B and interest income of ¥0.1B, was limited in scale at approximately 1.6% of revenue. The primary component of non-operating expenses of ¥1.0B was interest expense of ¥0.8B, which was almost offset by dividend income, resulting in a neutral financial income and expense structure. Special gains of ¥10.5B, including gains on the sale of non-current assets, recorded in the previous year almost disappeared, declining to ¥0.02B in the current period. Accordingly, the substantial decline in Net Income was largely attributable to the reversal of this one-time factor. The difference between Ordinary Income of ¥9.7B and Net Income of ¥6.5B was primarily attributable to income taxes of ¥3.1B. The effective tax rate was approximately 32.3%, a normal level, with no tax-related irregularities observed. The increase in accounts receivable and inventories indicates that working capital tied up in operations may have caused a certain delay in the conversion of earnings into cash from an accrual perspective.

Earnings Forecast and Guidance

Progress in Q1 against the Full-Year plan was 23.1% for Revenue (¥71.9B/¥311.2B), 21.9% for Operating Income (¥9.5B/¥43.5B), 23.1% for Ordinary Income (¥9.7B/¥41.9B), and 22.3% for Net Income (¥6.5B/¥29.3B). Progress is somewhat behind the standard quarterly pace of approximately 25%, likely reflecting the decline in gross margin and the slowdown in the Tourism and Hotel Business. No revisions had been made to the Full-Year earnings forecast or dividend forecast as of the current quarter.

Shareholder Returns

The Company’s publicly announced annual dividend forecast is ¥34 per share. The Payout Ratio against forecast EPS of ¥66.83 is approximately 50.9% (¥34/¥66.83), which can be considered a sustainable level. As the actual dividend in the previous year was ¥20, the forecast dividend of ¥34 is expected to represent an increase. Treasury shares increased by ¥4.9B from the end of the previous fiscal year, indicating that capital policy measures in addition to dividends are progressing. Liquidity indicators are favorable, with the current ratio equivalent to 207.8%, and no issues are evident regarding the Company’s short-term capacity to pay dividends.

Risk Factors

1. Pressure on profitability from rising costs: The gross margin declined by approximately 1.6pt year on year to 50.7%, affected by higher raw material, packaging material, and energy costs, as well as product mix changes. If similar cost pressures continue, profit margins may remain under pressure.

2. Slowdown in profitability in the Tourism and Hotel Business: Revenue in this business declined -11.0% year on year, Operating Income declined -24.4%, and the profit margin remained low at 2.9%, diluting the Company-wide profit margin. Changes in demand are directly reflected in segment performance.

3. Business concentration risk and working capital retention: In addition to the business concentration resulting from the Alcoholic Beverages and Soft Drinks Business accounting for 83.8% of revenue, accounts receivable and inventories have increased from the previous year, requiring monitoring from a capital-efficiency perspective.

Industry Benchmark (For Reference; Based on Company Research)

Industry Benchmark (food_beverage)

Profitability and Returns

Profitability is substantially above the industry median, positioning the Company favorably within the industry.

Growth and Capital Efficiency

The Revenue growth rate is below the industry median, placing the Company relatively low within the industry in terms of growth speed.

※Source: Company research

Key Points from the Earnings Results

1. Although the Company secured higher revenue, Operating Income declined due to a lower gross margin and higher SG&A expenses. Cost inflation and product mix changes were the primary causes, while pricing revisions and changes in the premium product ratio are structurally important factors that will determine future margin trends.

2. The substantial decline in Net Income (-56.1%) was largely attributable to the one-time reversal of special gains recorded in the previous year. The difference between this decline and the decrease in recurring earnings, measured by Ordinary Income (-10.9%), should be noted when assessing earnings quality.

3. The disparity in profit margins between the segments—15.3% for Alcoholic Beverages and Soft Drinks versus 2.9% for Tourism and Hotel—determines the Company-wide profitability structure. The earnings trend in the Tourism and Hotel Business will be a key point to monitor when assessing future changes in the Company-wide margin.

Theoretical Share Price (Reference Value)

Sensitivity: ¥491–¥519 for ±1% in the cost of equity, and ¥503–¥508 for ±0.1 in ω.

Notes:

• Net assets as of the end of the quarter are used (there is a timing difference from the Full-Year forecast).
• As net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this 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 automatically generated earnings analysis document produced 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 disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional advisor as necessary.

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