artience Co.,Ltd. FY2026 Q2 Earnings Report

Quick View

Executive Summary

The Company reported higher revenue and profits, with net income increasing significantly on the back of extraordinary income. Both an improvement in underlying earnings power and temporary factors contributed to the results. Revenue was ¥1,896.5B (+12.4% YoY), Operating Income was ¥125.7B (+34.1%), Ordinary Income was ¥146.3B (+69.4%), and Net Income was ¥139.9B (+150.6%). The increase in Operating Income was driven by higher revenue in the Packaging-related, Polymer and Coating-related businesses, as well as control of the SG&A expense ratio. The increase in Ordinary Income and Net Income was substantially boosted by a ¥51.0B gain on the sale of investment securities.

Factors Affecting Performance

【Revenue】Revenue was ¥1,896.5B, representing a +12.4% YoY increase. By segment, the Packaging-related business (27.4% of revenue, ¥520.4B, +18.1%), Printing and Information-related business (23.1%, ¥437.9B, +13.0%), and Polymer and Coating-related business (26.3%, ¥498.6B, +13.7%) led growth. The Colorants and Functional Materials-related business (22.5%, ¥427.4B, +3.3%) recorded a more moderate revenue growth rate than the other businesses.

【Profitability】Operating Income was ¥125.7B (+34.1%), and the Operating Income margin improved to 6.6% (up +1.0pt from 5.6% in the previous year). The SG&A expense ratio was controlled at a rate below the pace of revenue growth (15.6%), indicating progress in improving the profit structure in addition to the positive effect of higher revenue. Ordinary Income increased by +69.4% to ¥146.3B, exceeding the growth rate of Operating Income, supported by non-operating income, including dividend income of ¥7.4B, as well as lower foreign exchange losses and interest expenses. Net Income reached ¥139.9B (+150.6%), but this increase was significantly supported by extraordinary income of ¥51.0B, including a ¥50.7B gain on the sale of investment securities. The primary reason for the growth rate exceeding that of Ordinary Income was therefore a temporary factor. In conclusion, the results reflected higher revenue and profits, with tangible improvements in profitability at the Operating Income and Ordinary Income levels, while the growth in Net Income was highly dependent on temporary gains.

Segment Analysis

Among segment profits, the Polymer and Coating-related business was the largest profit contributor at ¥45.9B (+25.2% YoY, 9.2% margin), while the Packaging-related business recorded the highest profit growth rate at ¥36.0B (+44.7%, 6.9% margin). The Printing and Information-related business remained solid at ¥24.4B (+18.3%, 5.6% margin). The Colorants and Functional Materials-related business recorded the highest profit growth rate at ¥18.6B (+129.7%), and its profit margin also improved to 4.4%, although its absolute profit level remained low compared with the other businesses. Overall, profit margins improved across all segments in addition to higher revenue, suggesting that the effects of an improved business mix and cost management were broad-based.

Key Financial Indicators

【Profitability】The Operating Income margin improved to 6.6% (5.6% in the previous year), while the Net Income margin improved to 7.4% (3.3% in the previous year). The gross margin was 22.2%, suggesting progress in improving the balance between raw material costs and selling prices.【Cash Flow Quality】Operating Cash Flow (OCF) was limited to ¥45.1B, and OCF/Net Income was low at 0.32x compared with Net Income of ¥139.9B, indicating a delay in cash conversion of earnings. The primary factors were deterioration in working capital due to increases in trade receivables (-¥75.4B) and inventories (-¥53.4B).【Investment Efficiency】ROE was 4.8%. Although the improvement in the Net Income margin contributed, the improvement in asset efficiency was limited relative to total assets growth of +3.3% YoY. Research and development expenses were ¥24.4B (1.3% of revenue), a restrained level.【Financial Soundness】The Equity Ratio remained high at 61.2% (improved from 58.7% in the previous year), while total assets of ¥4,779.8B and net assets of ¥2,923.5B both increased from the previous year. Short-term borrowings were ¥186.97B (+30.4% YoY), reflecting increased working capital requirements.

Cash Flow Analysis

Operating Cash Flow was ¥45.1B, a significant decrease of -53.2% YoY. Investing Cash Flow was -¥8.3B and Financing Cash Flow was -¥60.8B, resulting in Free Cash Flow (OCF + Investing Cash Flow) of ¥36.9B. The decrease in OCF was primarily due to an increase in trade receivables associated with revenue expansion (-¥75.4B) and an increase in inventories (-¥53.4B); a decrease in trade payables (-¥31.9B) also constrained cash generation. Investing Cash Flow remained a relatively modest outflow because proceeds from the sale of investment securities (approximately ¥70.6B) offset capital expenditures of ¥74.6B. Financing Cash Flow reflected share repurchases of ¥20.6B, dividend payments of ¥23.7B, and a decrease in short-term borrowings, with funds directed toward shareholder returns and the reduction of interest-bearing debt. Although Free Cash Flow was secured, its composition depended on temporary proceeds from asset sales, while the cash-generating capacity of the core business, as represented by OCF, weakened due to the increase in working capital.

Quality of Earnings

Earnings at the Ordinary Income level comprised Operating Income as well as non-operating income, including dividend income of ¥7.4B and interest income, although these items were relatively small as a proportion of revenue. Meanwhile, extraordinary income of ¥51.0B, including a ¥50.7B gain on the sale of investment securities, accounted for approximately 26% of Profit Before Tax of ¥193.9B. The difference between Ordinary Income of ¥146.3B and Net Income of ¥139.9B included the effects of extraordinary income and losses (income of ¥51.0B and losses of ¥3.4B) and income taxes of ¥53.9B. The condition in which OCF was below Net Income (OCF/Net Income of 0.32x) reflected an increase in accruals due to higher trade receivables and inventories. The fact that part of the increase in Net Income depended on non-recurring gains from asset sales should be considered when evaluating earnings quality. Comprehensive Income was ¥196.8B, exceeding Net Income of ¥139.9B. The difference was primarily attributable to foreign currency translation adjustments of ¥57.4B, which had a positive impact on the valuation of overseas assets and overseas businesses.

Earnings Forecasts and Guidance

The first-half progress rates against the full-year forecasts of Revenue of ¥3,600B, Operating Income of ¥230.0B, and Ordinary Income of ¥225.0B were 53.0%, 54.7%, and 65.0%, respectively. All were progressing at a pace above the simple 50% benchmark. The particularly high progress rate for Ordinary Income was due to the temporary boost from the gain on the sale of investment securities recorded in the first half. Assuming this factor does not recur in the second half, the pace of progress may normalize. Neither the earnings forecast nor the dividend forecast was revised as of the current quarter.

Shareholder Returns

The interim dividend was ¥60 per share, and the full-year dividend forecast was ¥120 (indicating a direction of consecutive dividend increases from the previous year's dividend of ¥50). Based on Net Income of ¥139.9B (of which ¥137.3B was attributable to owners of the parent), the Payout Ratio remained relatively low based on total interim dividend payments of approximately ¥23.7B, suggesting limited concern regarding dividend sustainability. Share repurchases of ¥20.6B were conducted, and funds allocated to dividends and share repurchases could generally be covered by Free Cash Flow of ¥36.9B for the period. However, given the dependence of Free Cash Flow on proceeds from asset sales, the capacity for shareholder returns from the next fiscal year onward will depend on the extent of the recovery in OCF.

Risk Factors

1. Low cash conversion: Operating Cash Flow was ¥45.1B, only 0.32x Net Income of ¥139.9B, while increases in trade receivables (-¥75.4B) and inventories (-¥53.4B) constrained cash generation. If working capital does not normalize, the gap between profit growth and cash generation may persist.

2. Dependence of Net Income on temporary gains: Extraordinary income of ¥51.0B, including a ¥50.7B gain on the sale of investment securities, boosted Net Income. Excluding this factor, underlying earnings power remains at the level indicated by Ordinary Income of ¥146.3B. If gains of a similar scale do not recur, the profit growth rate from the second half onward may slow from the first-half level.

3. Increase in short-term borrowings: Short-term borrowings increased to ¥187.0B (+30.4% YoY), reflecting higher working capital requirements associated with revenue expansion. Compared with cash and deposits of ¥465.8B, there are no immediate liquidity concerns, but improving working capital efficiency, including the accumulation of trade receivables and inventories, will be a key monitoring point going forward.

Industry Benchmark (Reference; Company Analysis)

Profitability and Returns

The Operating Income margin was below the industry median, while the Net Income margin exceeded the industry median, with the contribution of extraordinary income reflected in the relatively high Net Income margin.

Growth and Capital Efficiency

The Revenue growth rate was slightly above the industry median, maintaining a relatively high rate of revenue growth within the manufacturing sector.

※Source: Company analysis

Key Takeaways from the Results

1. The Operating Income margin improved to 6.6% (5.6% in the previous year), confirming an improvement in the profit structure across the segments, particularly the Packaging-related and Polymer and Coating-related businesses. SG&A expenses were controlled at a pace exceeding the level commensurate with revenue growth, indicating the operation of operating leverage.

2. The significant increase in Net Income (+150.6%) was substantially driven by the temporary contribution of the ¥51.0B gain on the sale of investment securities. The difference from the Ordinary Income growth rate (+69.4%) was attributable to this temporary gain. When evaluating underlying earnings power, the growth at the Ordinary Income level should be referenced.

3. Cash conversion of earnings was delayed due to the increase in working capital, with OCF remaining at 0.32x Net Income. Progress in reducing trade receivables and inventories during the second half will be an important point in assessing full-year cash-generating capacity.

Theoretical Share Price (Reference Value)

This is a mechanically calculated reference range based solely on publicly disclosed data using a residual income model (Ohlson type, with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥5,740–¥6,077 at ±1% in the cost of equity capital, and ¥5,893–¥5,912 at ±0.1 in ω.

Notes:

• Because progress of Net Income against the full-year forecast (65%) exceeds the standard level (50%), forecast EPS has been adjusted upward within a maximum range of +10% (because companies progressing ahead of schedule tend to exceed their forecasts; the adjustment may be excessive for businesses with strong seasonality).
• Because forecast ROE is below the cost of equity capital, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual income model / Interest rate reference month: 2026-07 / This value does not forecast or guarantee future share prices)

---

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 disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting professionals as necessary.

---End of Report---