Earnings Call: Q2 2027

Oct 29, 2026

Summary

H1 operating profit and net profit reached records, while negative operating cash flow reflected taxes and working capital. FY profit guidance stayed at ¥430bn, with buffers for potential write-downs and softer second-half spreads.

Thank you very much for your precious time out of your busy schedule to join us today. First, I will provide an overview of our first half financial results, then our CFO, Mr. Iwamoto, will walk you through the details. Please move to the next slide. Let me begin with our performance for the first half of this fiscal year. Driven by the depreciation of the Japanese yen and rising market prices for resources and memory products, operating profit reached JPY 371.2 billion, up JPY 110.1 billion year-on-year. Net profit after tax came to JPY 262 billion, up JPY 75.1 billion year-on-year. As for operating cash flow, it came to negative JPY 2.9 billion, primarily due to an increase in working capital associated with higher sales. Investment cash flow amounted to JPY 114.1 billion, down from the same period last year, partly because we made a substantial investment in Radius during the first half of the previous fiscal year. As for NET DER, we carried out JPY 663.6 billion in share repurchases, as shown on the table on the right. This partly explained why the ratio now stands at 0.68. Turning to our full-year forecast, the first half was very strong, but in the second half, we expect resource and memory prices to moderate, spreads to narrow, and changes in the interest rate to create uncertainty over profitability. We, therefore, reviewed the full-year forecast for each division and allowed for a certain buffer. As a result, we have kept our profit forecast unchanged at JPY 430 billion. Going forward, we will accelerate earnings growth toward our medium-term targets. Now, our Executive Vice President and CFO, Iwamoto, will explain the details. Good evening, everyone. This is Iwamoto. Thank you very much for joining us today. Let me begin with our balance sheet. Regarding foreign exchange rates, as indicated in the upper right, we experienced some modest yen appreciation. Despite the expansion of our business, total assets did not increase significantly. They rose by approximately JPY 110.6 billion to JPY 8 trillion and 634.2 billion. Inventories increased by JPY 271.1 billion to JPY 1 trillion and 913.6 billion, primarily reflecting higher memory-related inventories. Inventories related to memory products alone increased by approximately JPY 180 billion. Our shareholders' equity stood at JPY 2.67 trillion. Net interest-bearing debt increased by JPY 870.4 billion to JPY 1 trillion and 814.4 billion. However, our net debt-to-equity ratio, or NET DER, remained at 0.68, below my financial management target of 0.8. I believe we have managed our balance sheet within an appropriate range. As for the net interest-bearing debt, share buybacks was one of the contributing factors. The figure of JPY 944 billion for the previous fiscal year was relatively low, partly because we had received slightly over JPY 300 billion in proceeds from the sales of Toyota Industries Corporation shares. Next slide, please. Turning to cash flow, operating cash flow came in at negative JPY 2.9 billion. One contributing factor was approximately JPY 100 billion in additional corporate tax payments associated with the sales of Toyota Industries Corporation shares. In addition, working capital increased, particularly due to higher inventory levels. If we exclude these two factors, we estimate that operating cash flow would have been approximately JPY 300 billion. Therefore, although the reported figure was negative, we do not consider the performance as not necessarily weak. Investment cash flow was explained earlier by our President. Please move to the next slide. Let me now explain the breakdown of our investments. We classify our investments into three categories. First, nature, the JPY 27.9 billion mainly represents cash outflows from renewable energy projects that we had already been approved in previous periods. Second, social, we invested JPY 22.2 billion, primarily in recycling-related businesses and acquisitions in the healthcare sector in Africa. Third, core, investments totaled approximately JPY 70 billion, including leasing-related businesses such as Loxea in Africa, as well as our Metal+ related businesses. Please move to the next slide. Turning to the income statement, revenue reached JPY 7 trillion 180.6 billion, representing a substantial increase of approximately JPY 1.7 trillion. Even excluding the positive foreign exchange impact of JPY 370 billion, revenue increased by nearly JPY 1.74 trillion. The largest contributor was Digital Solutions, which recorded an increase of approximately JPY 700 billion, primarily driven by the growth in the memory-related business. Circular Economy increased by approximately JPY 400 billion, reflecting higher market prices as well as the consolidation of Radius. Africa also reached an increase of approximately JPY 250 billion. Net profit after tax came to JPY 262 billion. All levels of profit, from the gross profit through the net profit, reached record highs. As you can see from the operating profit, we were able to retain a relatively large portion of gross profit. In other words, we have been managing the business while keeping SG&A under tight control. Please move to the next slide. This is the waterfall chart showing the JPY 110.1 billion year-on-year increase in operating profit. The positive impact from foreign exchange was JPY 17.6 billion, while improved market conditions contributed JPY 53.3 billion. Memory-related businesses contributed an additional JPY 32.9 billion. This includes not only memory products, but also the power semiconductors for the automotive applications. In Circular Economy, market conditions for recycling-related businesses improved. Prices rose to both ferrous and non-ferrous metals, and we were able to benefit from these favorable market conditions. In automotive sales, our African business also recorded growth of more than JPY 20 billion. Please move to the next slide. Regarding other factors, equity-method income amounted to JPY 9.4 billion. This was partly attributable to an improvement in lithium market conditions, which increased our share of earnings from equity-method affiliates. Please move to the next slide. Let me discuss one-time gains and losses for the cumulative and first half period. One-time items resulted in a net loss of JPY 1.5 billion. Next, let me move on to performance by the business division. As shown in the variance column, Green Infrastructure and Lifestyle recorded one-off losses. Apart from these items, the other divisions generally performed very well. We will provide more details later. Turning to Metal+, operating profit declined by JPY 0.5 billion from JPY 33.1 billion to JPY 32.6 billion. As indicated on the right-hand side of the slide, the positive impact of foreign exchange helped offset weaker market conditions, decline in demand, and poor performance in China. Please move to the next slide. Moving on to Circular Economy, operating profit rose from JPY 25.1 billion to JPY 66.1 billion, an increase of JPY 41 billion. Profit after tax nearly tripled. As shown on the right, market prices, particularly in the recycling business, contributed JPY 20.5 billion. This includes Radius, of course, but also our existing aluminum business in the U.S. Improved aluminum spreads made a very significant positive contribution. We also saw gains in sustainable materials and chemicals, supported by rising naphtha prices. The item listed under others are all related to Radius, and they also made positive contributions. Equity-method income increased by JPY 7.8 billion, again driven by market condition, this time in lithium. Next, Supply Chain. The division continues to operate a very solid business. In the first half, operating profit rose sharply from JPY 31.7 billion to JPY 42.4 billion, an increase of JPY 10.7 billion. FX contributed JPY 2.2 billion. We also captured demand very effectively. Amid disruption caused by tariffs and logistic challenges, we continue to win new businesses. Demand and trading volumes contributed to an additional JPY 6.9 billion. Next, Mobility. Operating profit increased from JPY 39.6 billion to JPY 50.1 billion, up JPY 10.5 billion, with gains in Asia and Oceania and Europe. In Asia and Oceania, Laos has performed very well, along with Papua New Guinea, which is also included in this region. In Europe, Adria was a main positive contributor. Green Infrastructure has been facing significant challenges. Operating profit fell from JPY 22.6 billion to JPY 7.2 billion, a decline of JPY 15.4 billion. On the machinery side, several battery-related projects reached the launch stage last year, generating substantial gains. Those gains did not recur this year, and there were no comparable one-off items. This resulted in a year-over-year decline of JPY 3.6 billion. In renewable energy, mainly in Japan, utilization rates at our operation in northern Hokkaido have declined. Some facility has been shut down for replacement work. Others has been stopped due to a bird strike while we conduct further surveys of migratory birds. These factors have also weighed on earnings. The impairment loss in South American renewable energy related to Chile, as I explained earlier, the negative JPY 4 billion shown below reflect the absence of one-off gain from litigation in Spain that we recorded last year. Next, Digital Solutions. Operating profit rose from JPY 29.2 billion to JPY 71.8 billion, an increase of JPY 42.6 billion. As shown on the right, memory-related business contributed to JPY 32.9 billion, while in vehicle electronics, excluding memory, contributed another JPY 7.4 billion. Turning to Lifestyle, our domestic food business was affected, particularly rice. Rice prices fell quite sharply, and we recorded inventory valuation losses under the lower of cost or market method on our long position. We also have an overseas cottonseed oil business called Menu, which is negatively affected by market prices. On the other hand, NovaAgri made a positive contribution, helping to offset some of those losses. Next page, Africa. Operating profit rose from JPY 77.4 billion to JPY 104 billion. So even in just six months, operating profit exceeded JPY 100 billion. Both Mobility and healthcare performed very well, with positive results in every country, as shown on the right. Of course, foreign exchange also had a significant impact, contributing JPY 6.7 billion. Now, our full-year forecast. As the president mentioned, we have kept our exchange rate assumptions unchanged at JPY 155 to the US dollar and JPY 180 to the euro. Our profit forecast also remains unchanged at JPY 430 billion. Looking at our progress through the second quarter, I believe we could deliver more. However, we are currently reassessing our assets, including fixed assets, and we may need to recognize some fairly substantial write-downs of goodwill and fixed assets. We have therefore allowed for a buffer of around JPY 30 billion, possibly a little more, and kept our profit forecast at JPY 430 billion. We have also made adjustments across divisions, which I will explain shortly. Next. This slide shows the changes we made to our forecast by division. We have reduced the Green Infrastructure forecast to zero for the reason I just explained. As for the other division, Circular Economy benefited from Radius in the first half and along with a favorable market condition. Now looking ahead to the second half. However, the spreads are expected to narrow. Until now, we have been buying low and selling high. Going forward, we will need to buy at higher prices and sell at even higher prices. So given the pressure on spreads, we have taken a somewhat conservative view on Circular Economy. Similarly, Digital Solutions had an exceptionally strong first half, but in the second half, we expect to pay higher prices for memory products. We have therefore assumed narrower spreads for this division as well. Next slide, please. Our shareholder return policy also remains unchanged. The annual cash dividend is JPY 125 per share, with JPY 663.6 billion in share repurchases. Our total payout ratio is 181%, and we are on track for our 18th consecutive annual dividend increase. Next year, we are committed to achieving a total payout ratio of at least 40%. The material from slide 22 onwards are supplementary, so I will skip those slides. Now, I welcome your questions.