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

I am Narita. Thank you very much for taking time out of your busy schedule to join our financial results briefing. Today, the Director in charge of Accounting will begin by explaining the details of the financial results announced today. Then I will explain our approach to enhancing corporate value going forward. In today's timely disclosure, we announced the implementation of share buyback. The company will acquire JPY 55 billion of treasury stock as authorized in the latest resolution and cancel all treasury stock to be repurchased. Including those already announced, the total amount of share buybacks in fiscal year 2026 will be JPY 67 billion. The JPY 100 billion share buyback plan for the medium-term management plan will be implemented during this fiscal year. We believe that what we need to do now is to rework our business strategy and capital policy to improve our corporate value for the future and explain it to the stock market more than ever. I will share my thoughts later. First, Mr. Watanabe, the Director in charge of Accounting, will explain the details of the financial results. Then I would like to explain the overview of the financial results for the fiscal year ended March 31, 2026.

On Page 1, the key point is that we ended the year with a decrease in sales and profit. In the Food and Beverages in Japan, sales and profit decreased due to lower sales performance. In the Food and Beverages overseas, sales and profit increased on a local currency basis due to the expansion of sales results, but profit decreased due to the impact of foreign exchange rates. These are major points in this area. Page 2 shows major management indicators. The table includes the amount of increase or decrease in net sales at each stage of profits. Basically, the yen appreciated throughout the year. The amounts in blue indicate the impact of the exchange rate on net sales and profits at each stage, respectively. These are major management indicators. Next is the statement of income. I would like to explain net sales throughout operating profit in the segment explanation later. The main feature is a decrease of JPY 3.8 billion in interest income, but this decrease was due to lower interest rates overseas and the inflow of foreign funds into Japan. In addition, in terms of extraordinary income and losses, there is a gain on sale of investment securities of JPY 8.9 billion, which is from the sale of cross shareholdings. As a result, profit attributable to owners of parent was JPY 44.2 billion, a decrease of JPY 1.3 billion year-over-year. Page 4 shows the balance sheet and main financial indicators. Total assets are JPY 912.5 billion, an increase of JPY 48.2 billion. As I mentioned earlier, the yen was generally strong throughout the year, but it was weak at the end of the fiscal year. These items shown here are calculated based on the current rate. So out of an increase of JPY 48.2 billion in total assets, approximately JPY 17 billion was due to the impact of the exchange rates. These are major financial indicators. Next, Page 5 is a breakdown of total assets or liabilities. The main change was a JPY 37.5 billion decrease in cash and deposits. This decrease was mainly due to the use of funds repatriated from overseas subsidiaries in the form of dividends for investment-related activities. The increase in property, plant and equipment of about JPY 56 billion was due to investments in the new Chiba plant and in the United States. Investment securities also increased by JPY 12.3 billion. As you know, their value has risen in line with the upward trend of the Nikkei 225, although we have been selling off some of the securities. There were no significant movement in liabilities. These are the breakdown of the balance sheet. Next is the results by segment. The Food and Beverages in Japan were decreased by JPY 13.3 billion year-over-year. As we have reported in each of our financial statements, the same trend has continued from Q1 to Q4 of the fiscal year. Higher prices due to inflation led to a decline in the number of bottles sold for our mainstay product, Yakult 1000, which is positioned at a higher price point. Yakult 1000 is priced at JPY 130, while Yakult JPY 400 is priced at JPY 80. While a shift from Yakult 1000 to Yakult 400 could have provided some support, in reality, the number of bottles sold declined for both products. As a result, total sales volume decreased by 7.7% year-on-year. Next is about the Americas. In the Americas itself, although the number of bottles sold was down 0.4% year-over-year, the number has been basically increasing with each passing quarter, and the number of bottles sold in the Americas has been recovering. In the Americas, the impact of foreign exchange rate fluctuations was about JPY 4 billion. Next is Asia and Oceania. The number of bottles sold was up 2.7%. In China, which has the highest volume, the number was 106.1% of the previous year for the entire year, indicating that the number of bottles sold is on the road to recovery. Although sales increased by JPY 1.4 billion, the exchange rate had a negative impact of approximately JPY 3.4 billion. These are the key points in the domestic and overseas sales. Next, Page 8 shows an increase or decrease in operating profit by segment. In total, the decrease in operating profit itself was mainly due to a decrease in the Food and Beverages in Japan. Regarding the Food and Beverages in Japan, as I mentioned earlier at the beginning of this presentation, the decrease in the number of bottles of our mainstay products has had a major impact. Although we have reduced selling expenses by more than JPY 1 billion, we have not been able to compensate for this. In addition, cost of raw materials and purchases increased by approximately JPY 600 million. Next, in the Americas, operating profit decreased by JPY 1.9 billion. In the Americas, we had a negative impact of JPY 0.9 billion from foreign exchange rates, and we lost about JPY 1.1 billion due to the impact of raw materials over the past year. Also, labor costs have been rising worldwide, and the increase in labor costs was about JPY 1 billion. In the Americas, Mexico is still in the midst of an economic recession following the Trump administration. In Asia and Oceania, operating profit increased by JPY 1.8 billion. There has been a 2.7% increase in terms of the number of bottles sold, which has led to an increase in gross profit. In addition, cost reductions resulting from the closure of the Shanghai plant last year also generated a JPY 1.8 billion increase. These are the key points of operating profit. Next, Page 11 shows the number of bottles sold. As you can see on Page 11, in Asia and Oceania, the number was 102.7% of the previous year's volume. In Indonesia, the number was 99.9% of the previous year's volume, but the number has been recovering and was 103% of the previous year in the second half. In China, Guangzhou Yakult and Yakult China combined reached about 106% of last year's sales. In the Americas, Yakult USA was at 105% and Mexico was at 97.8% due to the weak economy. Those are the regions that saw changes in the number of bottles sold. As you can see in the table on Page 13, basically, the yen was relatively strong throughout the year. As described in the right column on Page 13, which shows the impact on items from sales to profit attributable to owners of parent by segment. The profit and loss statement for the year ended with the strong yen. These are the results of the fiscal year ended March 2026. Page 14 is the forecast for the next fiscal year. And overall, we expect an increase in sales and a decrease in operating profit. The Food and Beverages in Japan are expected to remain unchanged year-over-year, but profit is expected to decline due to higher raw material prices. Regarding the Food and Beverages overseas, despite higher raw material prices and increased expenses, we expect an increase in both sales and profit due to a higher number of bottles sold and the effect of the yen's depreciation in exchange rates. Next, Page 15 shows sales in each stage of profit for the next fiscal year. Since the yen is expected to significantly depreciate in the next fiscal year, more than half of the difference is due to the impact of foreign exchange rates. Net sales is expected to increase by about JPY 40 billion, and operating profit is expected to decrease by JPY 1.1 billion. As you know, there will be price increases in raw materials and packaging materials and the impact of these price increases on raw materials and packaging materials is approximately JPY 6.3 billion, which are factored into our consolidated operating profit. It is difficult to say to what extent this will have an impact, but I think it is necessary to review the current estimates on a quarter-by-quarter basis. Basically, we have factored in an unexpected JPY 6.3 billion cost increase, without which we would have been able to announce an increase in both sales and profit. But since this has been factored in, the difference between sales and operating profit may appear inconsistent. Please turn to Page 16. We are calculating our forecast for the next fiscal year based on the average rate from January to March of this year. As you can see, the trend is toward yen depreciation in all items from net sales to profit at each stage and the amount of the impact is quite large in net sales and each profit. The impact is Japan JPY 22.1 billion in net sales, JPY 3.5 billion in operating profit, JPY 4.3 billion in ordinary profit and JPY 2.5 billion in profit attributable to owners of parent. We are expecting a sharp trend toward a weaker yen now. Next is the forecast by segment. On Page 17, in the Food and Beverages in Japan, the number of bottles sold is expected to remain roughly flat and net sales are therefore expected to be in line with the previous year. In the Americas, sales is expected to increase by JPY 20.3 billion, of which JPY 11.7 billion is due to the impact of foreign exchange rates. The rate of change is up 22.4%, which seems quite large. But excluding the impact of exchange rates, the increased rate is a little more than 9%. In Asia and Oceania, the increase amount is JPY 17.6 billion, but JPY 9.3 billion out of that amount is due to foreign exchange effects. Excluding the effect of foreign exchange rates, the growth rate, which is now 13%, will become a little more than 6%; excluding foreign exchange effects, the total overseas sales growth is about 7.7%. We are also projecting a total impact of JPY 6.3 billion in operating profit due to higher raw material prices, consisting of JPY 3.7 billion in Japan and JPY 2.6 billion overseas. The forecast for the next fiscal year has been significantly affected by raw material prices. Also, labor costs have been rising worldwide, and we have been impacted by that as well. These are the forecast for net sales and operating profit for the next fiscal year. In addition, on Pages 21 and 22, we have listed the changes in management index, which we hope you will take a look at later. That is all for my explanation. Thank you. Next, President Narita will explain our approach to enhancing corporate value going forward.

I will now explain our approach to enhancing corporate value. Based on its founding philosophy of Shirota-ism, the company has worked to create social value by contributing to the health of people around the world. Under the corporate slogan of, in order for people to be healthy, everything around them must also be healthy. We have also endeavored to create economic value through sustainable business activities while fulfilling our social responsibilities. In order to continue to create value in the future, it is important to enhance corporate value. Specifically, the key points are to achieve both sustainable business growth and enhanced capital efficiency on the basis of an appropriate governance structure and accumulate the results. However, in terms of sustainable business growth, the current operating profit margin is on a downward trend. In particular, the food and beverages in Japan has been stagnant, and the company needs to execute strategies to regrow the business. Regarding the improvement of capital efficiency, ROE is below 8%, and we recognize the urgent need for management to be more conscious of the cost of capital than ever before. In light of these issues, I would like to explain our policy for the current fiscal year. First, with regard to our business strategy, we have positioned the current fiscal year as a year of transition to regrowth. I will now talk about our overseas business for this fiscal year. Overall, the number of bottles sold overseas for the previous fiscal year increased year-over-year. In China, Indonesia, Brazil and Mexico, the rollout of flavor products progressed, boosting results in each country. Please note that we are not shifting our focus to flavor variations. Our aim is to attract customers' interest and encourage them to pick up our products and our stance of promoting the Lactobacillus casei strain Shirota remains unchanged. By major country, the U.S. and Vietnam continued to perform well. The recovery trend continued in China, and there were signs of bottoming out in Indonesia. On the other hand, there was a slight standstill in Mexico. However, overall, overseas sales were generally favorable. This steady trend has not changed in the current fiscal year. Preliminary number of bottles sold in Q1 that was disclosed today shows a 2.8% increase year-over-year, marking the seventh consecutive quarter of year-over-year growth. As in the previous fiscal year, sales measures have been implemented in a timely manner through the development of flavor products, vigorous sales activities and price revisions. As for flavor products, we launched Muscat Grape flavor in Hong Kong in January, Peach flavor in Vietnam in April and Mango flavor in China. In addition, the company continues to engage in multifaceted and aggressive sales activities. Increased activity and exposure increases Yakult's fan base and presence. Such a virtuous cycle has been created. At the same time, we revised prices from time to time based on inflationary conditions in each country. In the current fiscal year, we have already revised prices in Brazil, Mexico and Indonesia. The overseas business has passed through a bottoming out phase and is now in the process of moving back into a growth phase. Next, I will talk about the business in Japan. In Japan, the number of bottles sold has continued to decline since a reaction to the boom in the Yakult 1000 series was combined with sluggish consumption. In order to break this stagnation, we need to promote both the product policy to enhance the value of our products and a channel strategy to strengthen and expand points of contact with our customers. We have long been engaged in research on intestinal bacteria. Focusing on the immunomodulatory function of Lacticaseibacillus paracasei strain Shirota, the existing product will be renewed Yakult 400 Immunity and Gut Health as a food product with a functional claim that indicates maintenance of immune function and improvement of the intestinal environment. This will go on sale on June 1. We plan to expand the labeling of this Lacticaseibacillus paracasei strain Shirota immunity related functionality to other products in the future. Another pillar of our intestinal bacteria is B. breve strain Yakult. B. breve strain Yakult contained in the Mil-Mil series has been increased from the current 12 billion to 20 billion per bottle and will be relaunched on June 1. In addition, the suggested retail price will be revised from JPY 100 to JPY 110 without tax to reflect the continuous increase in raw material prices. For other products, we will comprehensively consider various responses, including price revisions based on market conditions and trends in raw material prices. With respect to channel strategy, we will provide an optimal channel mix that matches the lifestyle of our customers. As for the home delivery channel, which is a unique feature of Yakult's business, the strength of this channel is that Yakult Ladies meet directly with customers, provide products and services and build relationships of trust. Yakult DX further enhances this in-person strength with the power of digital. We will introduce Yakult DX to 1/3 of all Yakult Ladies by the end of the fiscal year. This will further strengthen our points of contact with customers. On the other hand, the distribution channel is the point of contact with customers that Yakult Ladies cannot meet face-to-face. Through a wide range of sales channels such as mass merchandisers, schools, hospitals, nursing care facilities and business establishments, we will provide products that support the health of our customers. In addition, we will aggressively pursue measures in the e-commerce channel to increase customer convenience and maximize points of contact. Regarding capital policy, we aim to achieve ROE of 8% this fiscal year and 10% in fiscal year 2030. To this end, the JPY 100 billion share buyback plan for the period of the medium-term management plan will be implemented during this fiscal year. As announced today, the company will acquire treasury stock worth JPY 55 billion as authorized in the latest resolution and will cancel all shares repurchased. Including those already announced, the total amount of share buybacks in fiscal year 2026 will be JPY 67 billion. In addition, as announced in the medium-term management plan, we will accelerate the reduction of the consolidated net asset ratio of policy shareholdings toward the target of 5%. In fiscal year 2026, we will work on these business strategies and capital policies to enhance corporate value. From the next fiscal year onwards, we will take more medium- to long-term perspective and implement specific measures to enhance corporate value. Currently, while we are proceeding with the medium-term management plan ending in fiscal year 2030, we have been affected by various changes in the business environment, such as sluggish consumption and soaring raw material prices. We are truly at the crossroads of how to chart our next growth strategy. In addition, in order to enhance the cost of capital conscious management required of listed companies, the company will consider capital policies, including share repurchases and the nature of corporate governance. The Corporate Value Enhancement Committee will be established as a meeting body to consider specific initiatives to resolve these issues related to business strategy, capital policy and corporate governance. This committee will formulate a highly effective plan from a more multifaceted perspective by adding a variety of outside opinions to the knowledge it has accumulated in its business activities to date in order to achieve drastic reform. The result of the study will be announced in the Q2 earnings announcement in November. It will take some time, but we will work steadily to meet the expectations of our stakeholders who support our company. We look forward to your continued guidance and encouragement. [Statements in English on this transcript were spoken by an interpreter present on the live call.]