Yakult Honsha Co.,Ltd. (2267) Earnings Call Transcript

I am Okada from the Finance and Accounting Department, and I will now present our company's consolidated financial results for Q1 of fiscal year 2026. I will base my explanation on the document titled Executive Summary of Consolidated Financial Results for Q1 ended June 30, 2026, which is available in the IR Library section of our website under Financial Report. For detailed figures, please refer to the financial report and the supplementary materials posted at the same time. First, let's look at Page 1, general outline of consolidated financial results. On a consolidated basis, revenue increased while operating profit decreased. Next, here are the highlights by segment. In the Food and Beverages in Japan, sales of dairy products declined due to factors such as a decrease in the number of bottles sold, resulting in lower revenue and profits. Revenue and profits increased for the Food and Beverages overseas due to an increase in the number of bottles sold, particularly in Asia and Oceania, as well as the positive impact of the weaker yen. Next, on Page 2 is the summary of consolidated income and expenses. Net sales increased by JPY 3.8 billion year-over-year to JPY 120.4 billion. Operating profit decreased by JPY 800 million to JPY 10 billion. Ordinary profit decreased by JPY 1.5 billion to JPY 15.6 billion, and profit attributable to owners of parent increased by JPY 1.9 billion to JPY 13.5 billion. In addition, as shown in blue, the impact of foreign exchange rate fluctuations was positive in each case due to the weakening of the yen. Also, the basic earnings per share figure includes the effect of the share buyback. We will discuss this share buyback later in the balance sheet section. Also, on the right side of this slide, you'll find the forecast figures announced for H1. In terms of progress against those figures, while net sales are slightly below plan, profits at each stage are generally on track. Next, let's look at Page 3, the consolidated statement of income. I will explain the details from net sales to operating profit by segment later. But on a consolidated basis, raw material costs were broadly unchanged year-on-year in Q1. While raw material prices rose domestically, overseas prices fell during Q1 from January to March, as this was before the situation in the Middle East deteriorated. SG&A expenses increased by JPY 3.8 billion from the previous fiscal year. However, this figure includes JPY 3 billion in foreign exchange effects. Next, here is an overview of nonoperating income and expenses, as well as extraordinary income and expenses. In nonoperating income, interest income amounted to JPY 1.7 billion, a decrease of JPY 1 billion from the previous fiscal year. This was primarily due to a decline in cash and deposit balances at overseas subsidiaries. In addition, foreign exchange gains totaled JPY 2.3 billion, an increase of JPY 1.1 billion from the previous fiscal year. These gains were primarily attributable to the depreciation of the yen at our Japanese head office. In addition, a gain of JPY 5.2 billion from the sale of investment securities was recorded as extraordinary income. This resulted from the sale of a portion of the strategic equity holdings by the head office. No other significant nonoperating special items occurred. Next, on Page 4 is the consolidated financial position. Total assets increased by JPY 6.3 billion compared to the end of the previous fiscal year to JPY 918.9 billion, while net assets decreased by JPY 2.4 billion to JPY 651.8 billion. As with the income statement, the weak yen had an impact on foreign currency translation, resulting in a positive effect of approximately JPY 10 billion on total assets. Next, on Page 5 is the consolidated balance sheet. On the asset side, cash and deposits decreased by JPY 14.4 billion to JPY 217 billion. On the other hand, total shareholders' equity also decreased by JPY 10 billion. The main factors contributing to these decreases include the share buyback of JPY 12 billion since April and dividend payments, among other items. In addition, property, plant and equipment increased by a total of JPY 20.3 billion, primarily due to capital expenditures, such as the construction of new plants at Yakult U.S.A. and the Chiba Yakult Plant. In addition, although this does not affect the change in total net assets, we retired the approximately 5.53 million shares acquired between February and June at the end of June. Regarding the details of this matter as well as the share buyback, please refer to Page 9 of the financial report. You will find a note there concerning significant changes in the amount of shareholders' equity. Next, let's move on to Pages 6 and 7. These tables show a year-on-year comparison of sales by segment. Page 6 presents the data in tabular form, and Page 7 displays it as a graph. As you can see, partly due to the weak yen, overall revenue increased by JPY 3.8 billion. Now I'll explain this by segment. First, Food and Beverages in Japan. Total dairy product sales volume decreased by approximately 8% overall due to factors such as a decline in the number of existing customers. As for the Yakult 1000 series, although it has been 1 year since we launched the version with reduced sweetness, sales declined due to both a drop in new customer acquisition compared to the previous year and a decrease in the retention rate of new customers. As a result, revenue fell by JPY 4.2 billion to JPY 55.3 billion. Although we were unable to meet our sales targets for both Yakult 1000 and Y1000 in Q1, we intend to recover sales volume through steady efforts starting in Q2 and beyond. Next, Food and Beverages overseas. In the Americas region, although sales volume declined in Mexico, revenue increased by JPY 4 billion to JPY 25.7 billion, driven by price increases in Mexico and Brazil as well as a positive foreign exchange impact of JPY 3.6 billion. Next is the Asia and Oceania region. In terms of the number of bottles sold, Vietnam continued to post double-digit growth with a 10% increase, while China, Guangzhou and Indonesia also saw year-on-year growth. As a result, total number of bottles sold across Asia and Oceania rose by 5.9%. Combined with the impact of the weaker yen, revenue increased by JPY 4.2 billion from the previous year to JPY 33.6 billion. The number of bottles sold in Europe also increased by 1.6% from the previous year. And aided by the weak yen, revenue rose by JPY 400 million from the previous year to JPY 3.6 billion. Regarding overseas operations, the number of bottles sold figures for April through June, which represents the Q2 results, are included in a separate document, specifically on Page 7 of the supplementary materials for financial statements, where preliminary cumulative figures for the 6-month period are presented by business unit. Looking at the figures for April through June on a net basis, many businesses are showing a recovery and growth compared to the previous year, similar to what we saw in Q1. We hope to achieve further recovery and growth starting in July. Finally, there are other businesses. Other businesses include cosmetics and the baseball team, among others. Overall, revenue from other businesses remained roughly on par with the previous year at JPY 5.5 billion. That concludes the breakdown of sales by segment. Next, we'll move on to Pages 8 and 9. These slides show a year-on-year comparison of operating profit by segment. Page 8 contains the tabular data, and Page 9 presents that data in graph form. As you can see, consolidated operating profit decreased by JPY 800 million. Now I'll explain this by segment. First, let's look at Food and Beverages in Japan. In addition to a decline in gross profit due to lower sales, factors such as the increased burden of higher raw material costs had an impact, resulting in a profit of JPY 5.6 billion, a decrease of JPY 3.1 billion. Next, Food and Beverages overseas. In the Americas region, increased gross profit resulting from price hikes and the positive impact of the weaker yen offset higher expenses, leading to a JPY 500 million increase in profit to JPY 6.9 billion. Meanwhile, in the Asia and Oceania region, profit rose by JPY 1.8 billion to JPY 3.1 billion, driven by an increase in gross profit resulting from higher sales volume and a reduction in costs following the closure of the Guangzhou Plant #1. Including Europe, total overseas profits rose by JPY 2.2 billion to JPY 9.8 billion. Finally, there are other businesses. Thanks to cost reductions in each business segment, the Others segment as a whole saw a JPY 200 million increase in profit. That concludes the breakdown of operating profit by segment. Next, Page 10 presents a pie chart showing the breakdown of net sales by segment. Compared to the previous period, the share of revenue from overseas regions, which saw growth, increased, while the share from the Food and Beverages in Japan decreased. Next, on Page 11 is a list of actual average number of bottles sold of dairy products broken down by country and business location. The consolidated total was 27.99 million units, representing 99.5% year-over-year. By region, the majority of business locations in Asia and Oceania and Europe reported figures exceeding 100% compared to the previous fiscal year. In addition, at our major business locations with sales exceeding 1 million units, many have outperformed the previous year. Next, Page 12 presents a pie chart showing the composition of operating profit by segment. Asia and Oceania and the Americas have increased their shares of the total even more so than their shares of net sales. Next, on Page 13, we have summarized the impact of foreign exchange rates on consolidated income for the current period. The graph on the left compares the average rate for the previous period from January through March 2025 with the average rate for the current period from January through March 2026. This shows the rate of fluctuation with the currency rates of the previous period set at JPY 100. The yen has depreciated across all major business locations with particularly significant depreciation more than double digits, observed in Mexico, Brazil and Europe. Please refer to the table on the right for details on the impact on each segment. That concludes the overview of the consolidated financial results for Q1 of fiscal year 2026. Finally, I would like to add a few remarks regarding the forecast for the current fiscal year. At this time, we have made no changes to our earnings forecast for the interim and full year periods of the current fiscal year. As previously explained, regarding progress against our announced targets for Q1, net sales fell slightly short of the plan. However, profit at each level generally tracked in line with the plan. As we announced today, we plan to adjust the prices of 12 dairy products in the domestic market starting this October, and we naturally expect that these price increases will result in additional profits. However, at the same time, uncertainty regarding the situation in the Middle East is mounting, making it difficult to predict the impact on future sales and profits. At this point, while there is certainly reason to expect results that exceed our previously announced forecasts, given that we are only 3 months into the period, we wish to carefully assess domestic and international consumer trends as well as the actual performance of each of our business units. Therefore, we have decided to maintain our forecast at this time. After conducting a thorough review at the end of Q2, we plan to revise our forecast, if necessary, when we announce our Q2 financial results in November. That concludes the presentation on the Q1 financial results and earnings forecasts. [Statements in English on this transcript were spoken by an interpreter present on the live call.]