Yushiro (5013) FY2026 Q3 Earnings Report

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Executive Summary

The key feature of this quarter’s results is that, despite lower revenue and operating income, net income was boosted by gains on the sale of investment securities. The pressure from lower revenue in the core business was absorbed to a certain extent by the resilience of the operating margin. Revenue was ¥388.1B (-7.5% YoY), Operating Income was ¥38.3B (-5.7%), and Ordinary Income was ¥48.5B (-3.3%). Meanwhile, Net Income attributable to owners of the parent increased substantially to ¥45.2B (+18.8% YoY), largely due to the contribution of ¥1.35B in extraordinary income, including ¥1.33B in gains on the sale of investment securities; this does not reflect the earning power of the core business. The primary reason for the decline in revenue was the apparent decrease in regional revenue resulting from the exclusion of two Chinese subsidiaries from the scope of consolidation, with the entities becoming equity-method affiliates.

Factors Affecting Performance

【Revenue】Revenue was ¥388.1B, down 7.5% YoY. By segment, the Americas generated ¥168.5B (43.4% of total, -1.7% YoY), Japan generated ¥159.6B (41.1% of total, +1.2% YoY), and Southeast Asia / India generated ¥55.5B (14.3% of total, +3.5% YoY), all of which were generally firm. China generated ¥14.9B (3.8% of total), a substantial decrease from ¥47.3B in the previous year. The primary reason for the decline in China was the exclusion of two local companies from the scope of consolidation and their conversion into equity-method affiliates. Accordingly, the decline in revenue was an apparent decrease caused by a change in the scope of consolidation rather than deterioration in the underlying business.

【Profitability】Operating Income was ¥38.3B (-5.7% YoY), with the decline in profit remaining below the 7.5% decrease in revenue, indicating a certain degree of cost absorption capacity. The operating margin was 9.9%, representing only a slight contraction from the previous year. Ordinary Income remained firm at ¥48.5B, supported by ¥1.18B in non-operating income, including ¥0.17B in dividend income and ¥0.62B in equity-method investment gain. Meanwhile, Net Income increased substantially due to ¥1.35B in extraordinary income, including ¥1.33B in gains on the sale of investment securities, and Profit Before Tax expanded to ¥6.20B (+21.7% YoY). By region, the Americas accounted for 66.6% of segment profit, indicating a high degree of regional dependence. Overall, the structure is one of lower revenue and lower profit in the core business, accompanied by higher final profit due to temporary factors.

Segment Analysis

The Americas generated segment profit of ¥2.79B (+1.1% YoY), with a margin of 16.5%, the highest among all segments, and served as the core source of profit. Japan recorded revenue of ¥159.6B (+1.2% YoY) but profit of ¥0.62B (-19.9% YoY), with a margin of 3.9%, the lowest among the four segments, suggesting increased costs or deteriorating profitability. Southeast Asia / India achieved higher revenue and profit, with revenue of ¥55.5B (+3.5% YoY) and profit of ¥0.70B (+23.2% YoY), and was the only region to show an improvement in its margin to 12.6%. Both revenue and profit in China declined substantially from the previous year due to the impact of the exclusion from the scope of consolidation. For an assessment of the underlying business, attention should be paid to equity-method investment gain (¥0.62B, including the portion related to China).

Key Financial Indicators

【Profitability】The operating margin was 9.9%, the net profit margin was 11.6%, and ROE was 9.8% (DuPont decomposition: net profit margin of 11.6% × total asset turnover of 0.601x × financial leverage of 1.40x). Since the net profit margin includes gains on the sale of investment securities, it may exceed the sustainable earning power of the core business.【Cash Flow Quality】Individual disclosures of Operating CF, Investing CF, and Financing CF are not available, but accounts receivable DSO was 61 days on an annualized basis, slightly exceeding the general manufacturing benchmark of 60 days. Net Income of ¥4.52B includes ¥1.33B in gains on the sale of investment securities, and the divergence between accounting profit and cash-generation capacity requires attention.【Capital Efficiency】The capital structure is conservative, with financial leverage of 1.40x and a debt-to-equity ratio of 0.40x; the impact of financial leverage in boosting ROE is limited.【Financial Soundness】The Equity Ratio was 71.6%, the current ratio was 217.2%, and the quick ratio was 198.6%, indicating sound short-term payment capacity. Meanwhile, the majority (approximately 99%) of interest-bearing debt of ¥5.82B consists of short-term borrowings, requiring attention to refinancing risk. Interest coverage is high, and the company’s ability to service interest payments itself remains robust.

Cash Flow Analysis

Since individual figures from the statement of cash flows have not been disclosed, the funding position is assessed based on balance sheet trends. Cash and deposits were ¥11.63B, down from ¥12.38B in the previous year, while short-term borrowings increased from ¥4.89B in the previous year to ¥5.77B, suggesting that the company increased its procurement of short-term funds. Investment securities had accumulated to ¥7.46B, and a portion was sold during the period, generating a gain on sale of ¥1.33B. A considerable portion of Net Income of ¥4.52B resulted from this gain on sale, and it must be distinguished from cash generation through operating activities. Accounts receivable DSO was somewhat high at 61 days, and an increase in working capital may affect the timing of cash conversion. Cash and deposits were approximately 2.0x short-term borrowings, limiting concerns regarding short-term liquidity.

Earnings Quality

Net Income for the current period of ¥4.52B increased substantially by +18.8% YoY, but the primary driver was ¥1.35B in extraordinary income, including ¥1.33B in gains on the sale of investment securities. This should be distinguished from an improvement in sustainable earning power. Ordinary Income was ¥4.85B (-3.3% YoY) and Operating Income was ¥3.83B (-5.7% YoY), indicating that the core business actually contracted, while a clear gap exists compared with Profit Before Tax of ¥6.20B (+21.7% YoY). Non-operating income of ¥1.18B was equivalent to 3.1% of revenue and included dividend income of ¥0.17B and equity-method investment gain of ¥0.62B; however, this level is not sufficient to sustainably replace profit from the core business. Comprehensive income was ¥5.06B, and the difference from Net Income of ¥4.52B was mainly attributable to foreign currency translation adjustments of -¥0.89B and valuation differences on available-for-sale securities of +¥1.28B. The negative impact of foreign exchange movements on comprehensive income warrants attention.

Earnings Forecasts and Guidance

Progress against the full-year forecast was 75.8% for revenue, 83.2% for Operating Income, 85.0% for Ordinary Income, and 92.2% for Net Income. Progress in Operating Income and Ordinary Income exceeded the standard 75% level, but the high progress rate for Net Income includes the impact of gains on the sale of investment securities. Accordingly, progress in recurring earnings should be assessed based on the levels of Operating Income and Ordinary Income. To achieve the full-year forecast, the company needs revenue of ¥12.39B and Operating Income of ¥0.77B in Q4. These amounts are below the quarterly averages for the first three quarters, suggesting that the full-year forecast may have been set conservatively.

Shareholder Returns

The Q2 dividend was ¥30 per share, and the full-year dividend forecast is ¥98 (assuming a year-end dividend of ¥68). Dividing this dividend forecast by the full-year Net Income forecast of ¥4.90B results in an estimated Payout Ratio of approximately 27.8%, below the general sustainability benchmark of 60%. This Payout Ratio covers dividends only; share buybacks are not indicated in the available data, and therefore no assessment of the Total Return Ratio is provided. Given the financial base of cash and deposits of ¥11.63B, the financial burden of the dividend is considered low.

Risk Factors

1. Short-term refinancing risk: Approximately 99% of the ¥5.82B in interest-bearing debt consists of short-term borrowings. Although cash and deposits provide 2.0x coverage at ¥11.63B, refinancing costs may rise depending on changes in the interest-rate environment and financing conditions.

2. Change in the scope of consolidation for the China business: The exclusion of two local companies from the scope of consolidation and their conversion into equity-method affiliates has caused revenue and profit in the China segment to decline substantially from the previous year, making year-on-year comparisons of regional performance less reflective of the underlying business.

3. Earnings quality dependent on extraordinary income: The increase in Net Income was driven by ¥1.33B in gains on the sale of investment securities, while Operating Income and Ordinary Income from the core business actually declined. If gains of a similar temporary scale cannot be expected in subsequent periods, Net Income may decline sharply on a reactionary basis.

Industry Benchmark (Reference; Compiled by the Company)

Key Takeaways from the Financial Results

1. An operating margin of 9.9%, current ratio of 217.2%, and Equity Ratio of 71.6% indicate relative stability in terms of both profitability and financial soundness. However, both revenue and Operating Income fell below the previous year, and no structural improvement has been confirmed in the growth potential or profit recovery capacity of the core business.

2. The increase in Net Income was heavily dependent on gains on the sale of investment securities. The financial results indicate a qualitative difference between the full-year progress rate of 85.0% based on Ordinary Income and the 92.2% progress rate based on Net Income.

3. While the Americas account for approximately 66.6% of segment profit, Japan experienced higher revenue but lower profit. Changes in regional profitability balance should be monitored as a factor that may influence the company’s future earnings structure.

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

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AI Financial Analysis

Executive Summary

FY2026 Q3 performance was operationally resilient despite a sales decline, but reported net-income growth was principally driven by a large gain on investment-security sales rather than core earnings acceleration. Nine-month revenue declined 7.5% year on year to ¥38.81bn. Operating income declined by a more modest 5.7% to ¥3.83bn. The smaller decline in operating income than sales indicates that gross-margin improvement offset part of the volume and consolidation-related revenue pressure. Gross profit was nearly flat at ¥13.13bn, versus ¥13.15bn in the prior-year period. Gross margin expanded by approximately 251bp to 33.8% from 31.3%. Operating margin improved by approximately 19bp to 9.9% from 9.7%, notwithstanding SG&A expense growth of 1.2% to ¥9.30bn. Ordinary income fell only 3.3% to ¥4.85bn, supported by non-operating income of ¥1.18bn, including ¥0.62bn of equity-method income. Profit attributable to owners of parent rose 18.8% to ¥4.52bn. However, pre-tax profit included a ¥1.33bn gain on sales of investment securities, representing 29.4% of attributable net income and materially lifting the headline result. The effective tax rate was 25.9%, and the tax burden of 0.729 was within a normal range. The Americas was the core earnings contributor, generating segment profit of ¥2.79bn, or roughly two-thirds of aggregate segment profit before corporate and acquisition-amortization adjustments. China was the principal drag on reported sales, as two Chinese subsidiaries were deconsolidated and became equity-method affiliates, leaving only one quarter of one entity's results consolidated. Financial capacity remains strong, with a 217.2% current ratio, 0.40x debt-to-equity ratio, and cash covering short-term borrowings by 2.02x. The main balance-sheet issue is not leverage quantum but debt maturity concentration: 99.0% of interest-bearing debt is short term. Q3 progress is ahead of the full-year plan for profitability, with operating income already at 83.2% and attributable profit at 92.2% of guidance, versus a standard 75% nine-month run rate. The full-year sales forecast is more challenging, as reported Q3 revenue progress is 75.8%, close to the standard pace but against a forecast for a 7.8% full-year decline. The key forward implication is that the company needs to preserve gross-margin gains and Americas profitability while converting elevated reported earnings into recurring earnings after the security-sale gain fades.

Profitability Analysis

The supplied annualized DuPont framework produces ROE of 13.0%, composed of an 11.6% net profit margin, 0.801x asset turnover, and 1.40x financial leverage. This places return on equity in the good 10-15% range, with the result driven more by profitability than by aggressive leverage. Financial leverage is conservative and stable in character given total equity of ¥46.23bn against total assets of ¥64.58bn. The most important year-on-year operating change was gross-margin expansion: gross margin rose to 33.8% from approximately 31.3%, a gain of 251bp. This improvement allowed operating margin to rise to 9.9% from approximately 9.7%, despite revenue declining 7.5%. SG&A expenses increased 1.2% while revenue declined, indicating unfavorable fixed-cost absorption and limiting the conversion of gross-profit improvement into operating-profit growth. Operating income of ¥3.83bn therefore remained 5.7% below the prior-year level. The annualized asset turnover of 0.801x reflects a moderate level of capital efficiency for a specialty chemical and manufacturing group, with 18.7% of assets in PPE and 11.5% in investment securities. The five-factor analysis shows an EBIT margin of 9.9%, a normal 0.729 tax burden, and an interest burden above 1.0x because income below operating profit exceeded financing costs. Interest coverage of 73.60x confirms that interest expense of ¥0.52bn is not a constraint on profitability. Non-operating income was ¥1.18bn, equal to 30.9% of operating income; equity-method earnings contributed ¥0.62bn, while dividend and interest income contributed ¥0.34bn combined. In addition, the ¥1.33bn extraordinary gain on investment-security sales raised profit before tax to ¥6.20bn, well above ordinary income of ¥4.85bn. Consequently, the 11.6% net margin and 13.0% annualized ROE overstate the recurring return profile. Excluding the pre-tax securities-sale gain before tax effects, attributable earnings would be materially lower, making margin durability dependent on ongoing gross-margin discipline and segment operating performance.

Growth Assessment

Reported revenue fell to ¥38.81bn, but the decline was heavily concentrated in China, where external sales decreased 68.6% year on year to ¥1.49bn following the shift of two subsidiaries from consolidation to equity-method accounting. This accounting perimeter change means consolidated regional sales trends should not be read as a like-for-like demand decline in China. Japan external revenue increased 1.2% to ¥14.93bn, while Japan segment profit declined 19.9% to ¥0.62bn; its segment margin fell to 3.9% from 4.8%. Americas revenue declined 1.7% to ¥16.85bn, but segment profit increased 1.1% to ¥2.79bn and margin improved to 16.5% from 16.1%. The Americas is the core business by segment-profit contribution and remains the principal source of group operating earnings. Southeast Asia/India revenue increased 3.5% to ¥5.54bn, while segment profit rose 23.2% to ¥0.70bn; margin expanded to 12.7% from 10.6%. China segment profit fell 78.0% to ¥0.08bn, consistent with the deconsolidation effect. Metalworking-fluid-related revenue was ¥37.24bn, down 7.8%, while Cleanliness-related revenue was stable at ¥1.57bn. The full-year revenue forecast is ¥51.20bn, and Q3 cumulative progress is 75.8%, broadly in line with the standard 75% run rate. Operating-income progress is 83.2% against the ¥4.60bn full-year forecast, 8.2 percentage points above the standard Q3 pace. Ordinary-income progress is 85.0% against the ¥5.70bn forecast, 10.0 percentage points above the standard pace. Attributable-profit progress is 92.2% against the ¥4.90bn forecast, 17.2 percentage points above the standard pace, although this is significantly supported by the securities-sale gain. The FY forecast implies a Q4 operating-income contribution of ¥0.77bn and attributable profit of ¥0.38bn, so the operating target appears achievable if current margins hold, whereas the net-income target already embeds substantial non-recurring support.

Financial Health

Liquidity is strong, with current assets of ¥28.89bn against current liabilities of ¥13.30bn, producing working capital of ¥15.59bn and a 217.2% current ratio. The 198.6% quick ratio indicates that liquidity is supported primarily by cash and receivables rather than inventory. Cash and deposits totaled ¥11.63bn, equivalent to 2.02x short-term loans of ¥5.77bn. Total interest-bearing debt was ¥5.82bn, while debt-to-equity was a conservative 0.40x and debt-to-capital was 11.2%. Total liabilities represented only 28.4% of total assets, while the capital adequacy ratio improved to 71.3% from 68.5%. Interest coverage of 73.60x further supports a low solvency risk assessment. There is no current-ratio or debt-to-equity warning under the stated thresholds. The material refinancing-risk alert is nevertheless valid: 99.0% of debt is short term, as short-term loans of ¥5.77bn vastly exceed long-term loans of ¥0.06bn. The maturity mismatch is mitigated by cash exceeding short-term debt by ¥5.86bn and by the substantial working-capital surplus, but the company remains dependent on continued access to short-term funding facilities. Long-term loans declined ¥0.55bn, or 90.7% year on year, while short-term loans increased ¥0.84bn, indicating a pronounced shift in debt maturity composition. Investment securities increased ¥1.88bn, or 33.6%, to ¥7.46bn, increasing exposure to market valuations and creating a larger pool of assets that may generate future gains or losses. Deferred tax liabilities increased to ¥3.09bn from ¥2.55bn, consistent with higher unrealized gains and/or valuation effects in the investment portfolio. Asset-retirement obligations were only ¥0.11bn, immaterial relative to total liabilities for a chemical manufacturer. Goodwill of ¥1.49bn was 3.2% of equity and 2.3% of assets, keeping M&A-related balance-sheet impairment exposure low. Intangible assets were 8.0% of total assets, a balanced level that does not create an excessive amortization or valuation concentration risk.

Notable B/S Changes

Treasury stock: increased in absolute carrying value by ¥10.56bn to negative ¥1.65bn (179.3% change) - indicates material capital-return activity or treasury-share transactions; assess alongside dividends using total return rather than dividend payout alone. Long-term loans: decreased by ¥0.55bn to ¥0.06bn (-90.7%) - debt maturity is now overwhelmingly short term, reinforcing the 99.0% short-term debt ratio and refinancing-risk alert. Investment securities: increased by ¥1.88bn to ¥7.46bn (+33.6%) - portfolio exposure has become more material at 11.5% of total assets; valuation movements and realized gains can affect earnings and equity. Construction in progress: increased by ¥1.20bn to ¥1.29bn from ¥0.09bn - indicates a substantially larger manufacturing investment pipeline, requiring monitoring of project execution and future asset utilization. Property, plant and equipment: increased by ¥1.33bn to ¥12.05bn (+8.1% of total assets from 17.6% to 18.7%) - reflects a somewhat more capital-intensive asset base and raises the importance of returns on new investment. Finished goods: decreased by ¥0.58bn to ¥2.47bn (-19.0%) - lower finished-goods holdings reduce inventory carrying exposure and may support working-capital efficiency. Accounts receivable: decreased by ¥1.23bn to ¥8.70bn (-12.4%) - the absolute balance improved, although annualized DSO remains elevated at 61 days. Retained earnings: increased by ¥3.13bn to ¥32.91bn (+10.5%) - supports capital strength and the capacity to maintain the planned dividend.

Cash Flow Quality

Reported earnings quality is reduced by the composition of profit before tax rather than by operating-margin weakness. Profit before tax of ¥6.20bn exceeded ordinary income of ¥4.85bn by ¥1.35bn, almost entirely reflecting extraordinary income of ¥1.35bn. The principal item was a ¥1.33bn gain on sales of investment securities. This gain represented 21.8% of profit before tax and 29.4% of profit attributable to owners of parent, exceeding the 20% one-time-item warning threshold. Therefore, the 18.8% growth in attributable earnings does not represent comparable recurring growth. Ordinary income declined 3.3% and operating income declined 5.7%, which better represent the underlying earnings direction. Equity-method earnings of ¥0.62bn represented 12.9% of ordinary income and are an additional income source whose performance can vary with affiliate results. The reduction in finished goods to ¥2.47bn from ¥3.05bn, alongside lower receivables, is directionally supportive of working-capital release, although collection efficiency requires close monitoring. Receivable days are 61 days on an annualized basis, marginally above the 60-day warning threshold. The root cause of this quality alert is that cash collection is slower than the stated manufacturing benchmark, tying up more capital in customer balances. The impact is a potential delay in cash conversion and greater sensitivity to customer credit conditions, even though trade receivables declined 12.4% year on year to ¥8.70bn. Accounts payable were essentially flat at ¥4.95bn, so supplier financing has not increased to offset collection risk. The company should demonstrate that receivable days normalize while preserving the improved gross margin.

Dividend Sustainability

The full-year dividend forecast is ¥98 per share, compared with Q2 DPS of ¥30 per share, implying a ¥68 per share year-end payment if the forecast is maintained. Against forecast EPS of ¥370.37, the projected dividend payout ratio is approximately 26.5%. This is comfortably below the 60% sustainability benchmark and leaves a substantial earnings retention buffer. The Q2 DPS of ¥30 represented a calculated 9.2% payout ratio against nine-month net income, reflecting that the larger portion of the planned annual dividend is expected at year end. The balance sheet provides additional support for shareholder distributions, with ¥11.63bn of cash and deposits, a 217.2% current ratio, and low debt-to-equity of 0.40x. Retained earnings rose ¥3.13bn year on year to ¥32.91bn. Treasury stock increased in absolute carrying value from ¥0.59bn to ¥1.65bn, consistent with capital-return activity or other treasury-share transactions; this should be assessed as total return rather than dividend payout when treated as repurchases. Dividend sustainability is supported by the conservative forecast payout ratio, but the quality of earnings funding distributions is less strong than the headline net-income growth suggests because of the ¥1.33bn investment-security gain. Maintaining the ¥98 DPS should therefore depend primarily on recurring operating and ordinary income rather than additional investment-realization gains.

Risk Assessment

Business risks include China reporting exposure: China external revenue declined 68.6% to ¥1.49bn and segment profit declined 78.0% to ¥0.08bn, principally because two subsidiaries became equity-method affiliates. This changes the reported revenue base and reduces direct visibility into the operating performance of those businesses., Regional earnings concentration: the Americas generated ¥2.79bn of segment profit, about two-thirds of total segment profit before adjustments. A deterioration in North or South American industrial production, automotive demand, customer volumes, or pricing would have a disproportionate impact on group earnings., Japan margin pressure: Japan revenue rose 1.2%, but segment profit fell 19.9% and margin compressed by about 97bp to 3.9%, indicating pressure from cost, pricing, mix, or utilization., Specialty chemical and metalworking-fluid demand is exposed to manufacturing cycles, particularly automotive and industrial production, as well as input-cost inflation and customer pricing negotiations., Receivable-collection risk: annualized DSO of 61 days exceeds the 60-day alert threshold. Slower collections can weaken working-capital efficiency and increase customer-credit exposure..

Financial risks include Refinancing risk: 99.0% of interest-bearing debt is short term. The root cause is ¥5.77bn of short-term loans versus only ¥0.06bn of long-term loans. Cash coverage of 2.02x and low leverage mitigate the immediate risk, but funding remains exposed to bank-facility renewal and short-term interest-rate conditions., Investment-security valuation risk: investment securities increased 33.6% to ¥7.46bn, or 11.5% of assets. The current period's ¥1.33bn sale gain demonstrates that reported earnings can be influenced by portfolio realizations and market conditions., Foreign-currency and overseas-investment risk: the group operates across the Americas, China, and Southeast Asia/India, while foreign-currency translation adjustments remain material within equity. Period earnings included a small ¥0.08bn FX loss..

Key concerns include Headline attributable-profit growth of 18.8% was not fully recurring: the ¥1.33bn gain on sale of investment securities equaled 29.4% of attributable profit., SG&A increased 1.2% despite a 7.5% sales decline, creating a negative operating-leverage dynamic that could limit earnings if gross-margin improvement reverses., The refinancing-risk alert is currently contained by liquidity but should be monitored because the short-term debt ratio is far above the 40% alert threshold., The high-receivable-days alert is modest in magnitude but relevant for a manufacturing group, particularly if industrial demand softens or customer credit terms lengthen..

Investment Implications

Key takeaways include Core operating profitability improved at the gross-margin level, with gross margin up 251bp to 33.8% and operating margin up 19bp to 9.9%., Americas remains the earnings engine, with segment profit of ¥2.79bn and a 16.5% segment margin., Reported net income substantially benefited from a ¥1.33bn investment-security sale gain; ordinary and operating income trends provide a more representative measure of recurring performance., The balance sheet is conservatively capitalized, but debt is almost entirely short term., FY operating-income progress is ahead of the standard Q3 pace, while reported attributable-profit progress is further ahead because of non-recurring gains..

Metrics to watch include Americas segment revenue, segment margin, and industrial-demand trends, Japan segment-margin recovery from 3.9%, China equity-method income and the economic performance of former consolidated subsidiaries, Annualized receivable days, currently 61 days, Short-term loan balances, refinancing terms, and cash-to-short-term-debt coverage, Recurring ordinary income excluding investment-security gains, Investment-security balance and realized/unrealized valuation effects, Achievement of FY2026 operating-income guidance of ¥4.60bn and dividend forecast of ¥98 per share.

Regarding relative positioning, The company combines a good annualized ROE of 13.0%, strong liquidity, low structural leverage, and a healthy 9.9% operating margin. Its relative financial position is stronger than a highly leveraged industrial manufacturer, but earnings comparability is weaker this period because investment-security realizations and changes in the China consolidation perimeter materially affect reported profit and sales.