Nippon Sheet Glass Company,Limited FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥420.75B
• Operating Income: ¥11.99B
• Net Income: ¥-3.36B
• EPS: ¥-55.29

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

FY2026 Q2 was mixed for Nippon Sheet Glass: resilient operations but bottom-line loss and weak cash generation under heavy leverage. Revenue was 4,207.53 (−0.4% YoY), while operating income improved to 119.95 (+17.3% YoY), evidencing cost control and price discipline despite soft demand. Gross profit was 919.24, implying a gross margin of 21.8%, consistent with value-over-volume initiatives and energy cost normalization versus the peak inflation period. Operating margin rose to 2.85%, up roughly 43 bps from an estimated ~2.42% a year ago (back-solved from YoY changes). However, profit before tax was only 4.01, and net income was −42.20, translating to a net margin of −1.0%. The effective tax rate was an extraordinary 937.9%, indicating one-off tax effects (e.g., valuation allowance movements or non-deductible items) that erased already thin pretax profit. Total comprehensive income was −105.78, suggesting significant OCI headwinds (likely FX translation losses and/or FVOCI investment marks). Equity-method income was 28.88 and exceeded pretax profit by a wide margin, underscoring heavy reliance on affiliates amid sizable non-operating burdens. Cash generation deteriorated: operating CF was −24.25 and free cash flow was −195.69, pressured by large capex of −228.61. Balance sheet risk remains elevated: equity ratio is 10.4% and D/E is 6.59x, leaving limited shock absorption. Intangibles (goodwill + other) total 1,361.31, exceeding total equity (1,343.59), implying negative tangible equity and higher refinancing sensitivity. Liquidity disclosure is limited (current liabilities not reported), constraining current ratio assessment, but cash and equivalents were 421.81 against sizable investing needs. Despite operating improvements and stable gross margin, non-operating costs, high tax burden, and negative OCI drove losses and equity erosion. Earnings quality is weak (OCF/NI 0.57x), and FCF is negative after capex, limiting dividend capacity. Forward-looking, stabilization in energy costs and continued pricing could support operating margin, but deleveraging, normalization of tax expense, and reduced non-operating drag are essential for sustainable ROE recovery.

Profitability Analysis

ROE (DuPont) = Net Profit Margin × Asset Turnover × Financial Leverage = (−1.0%) × 0.413 × 7.59 ≈ −3.1%. The dominant driver of ROE weakness is the negative net margin, despite improved operating margin. Operating income rose 17.3% YoY while revenue fell 0.4%, lifting operating margin by ~43 bps; however, non-operating items and an extraordinary tax charge flipped pretax profit to near-zero and net profit negative. Business-wise, this reflects resilient pricing and cost control at the operating level offset by interest/other non-operating expenses and tax valuation effects. The operating margin gain looks more sustainable (price/mix, cost normalization), while the extreme tax rate appears one-time in nature, though non-operating finance costs may persist given high leverage. Flag: with revenue slightly down, any SG&A inflation (not disclosed) could pressure margins; for now, operating leverage is positive but fragile given macro demand and energy cost variability.

Growth Assessment

Top-line was broadly flat (−0.4% YoY), indicating soft demand in architectural and automotive glass but no sharp deterioration. Profit growth at the operating level (+17.3% YoY) was driven by pricing/mix and cost controls rather than volume expansion. Equity-method income (28.88) contributed meaningfully versus thin pretax profit, but reliance on affiliates is risky and non-core to recurring parent operations. Reported ROIC is 4.5%, below the 5% warning threshold, signaling capital tied up in low-return assets. Near-term outlook hinges on continued price-cost spread maintenance and energy/input cost stability; demand recovery in auto production and construction could provide upside. However, high non-operating costs and potential FX volatility could cap earnings conversion. Without deleveraging or lower interest burden, improvements in operating profit may not flow to net profit.

Financial Health

Leverage is high: D/E 6.59x and equity ratio 10.4% warrant caution. Total assets are 10,198.69 vs equity 1,343.59, implying financial leverage of 7.59x. Intangibles (goodwill 853.92 + other intangibles 507.39 = 1,361.31) exceed equity, indicating negative tangible equity and reduced loss-absorption capacity. Current ratio is not calculable due to unreported current liabilities, limiting liquidity assessment; we cannot quantify maturity mismatch, though inventories are sizeable at 1,752.25, which may tie up working capital. Cash and equivalents were 421.81 against negative FCF and ongoing capex, pointing to potential refinancing dependence. No off-balance sheet obligations are disclosed here; lack of detail may understate contingent liabilities or guarantees.

Cash Flow Quality

OCF was −24.25 vs net income −42.20, yielding OCF/NI of 0.57x (below the >1.0x quality benchmark), signaling weak cash conversion in the period. Free cash flow was −195.69, driven by capex of −228.61, suggesting investment outlays outpaced internal cash generation. With operating losses and negative FCF, funding needs likely rely on cash balances and financing, not sustainable internally. Working capital detail is limited; inventories are high, but without AR/AP we cannot attribute OCF weakness to specific WC items or detect classic manipulation (e.g., stretching payables). To sustain dividends or debt service, OCF must turn positive and capex be prioritized or phased.

Dividend Sustainability

Dividend data are unreported; payout and DPS cannot be assessed numerically. Given negative net income and negative FCF (−195.69), internal coverage of dividends would be poor in this period. With D/E at 6.59x and equity ratio 10.4%, preserving liquidity and deleveraging likely take precedence over distributions. Unless profitability and cash flow normalize, a conservative dividend stance or suspension remains likely from a sustainability standpoint. Policy visibility is limited due to missing disclosures.

Risk Assessment

Business Risks:

• Energy and raw material price volatility affecting glass melting costs and margins
• Demand cyclicality in architectural construction and automotive production
• Pricing discipline and pass-through risk if macro weakens
• Operational execution on cost savings amid inflationary pressures

Financial Risks:

• High leverage (D/E 6.59x) and low equity ratio (10.4%) increasing refinancing and covenant risk
• Negative tangible equity due to high intangibles vs equity
• Negative OCF and FCF, implying potential reliance on external funding
• Extraordinary effective tax rate volatility impacting bottom line
• FX and OCI volatility affecting comprehensive income and net assets

Key Concerns:

• Bottom-line loss despite stronger operating profit due to non-operating and tax headwinds
• Equity-method income dominance vs slim pretax profit highlights core earnings fragility
• ROIC at 4.5% below threshold, suggesting subpar capital efficiency
• Limited liquidity visibility (current liabilities undisclosed) obscures near-term solvency assessment

Investment Implications

Key Takeaways:

• Operating margin improved to 2.85% despite flat revenue, evidencing better price-cost control
• Net loss (−42.20) driven by non-operating drag and extraordinary tax rate (937.9%)
• OCF (−24.25) and FCF (−195.69) highlight weak cash generation against heavy capex
• Leverage is high (D/E 6.59x); intangibles exceed equity, reducing balance sheet resilience
• Equity-method income (28.88) outsized relative to pretax profit (4.01), heightening earnings volatility
• ROIC at 4.5% indicates need for asset productivity improvements or portfolio optimization

Metrics to Watch:

• Operating margin and gross margin trajectory vs energy/input costs
• OCF and FCF recovery, especially working capital movements
• Net debt and interest expense; interest coverage when disclosed
• Tax rate normalization and deferred tax valuation impacts
• FX/OCI impacts on comprehensive income and equity
• Capex pacing and returns; asset disposals or portfolio pruning

Relative Positioning: Within global glass peers, NSG shows improving operating execution but remains more financially leveraged with weaker cash generation and lower ROIC, leaving it more sensitive to macro, energy, and financing conditions than better-capitalized competitors.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis