Proactive positioning ahead of the October liquor tax reform, anchored by the Orion The Draft refresh and equity investment in UK-based Sunrise; EBITDA at 117% of plan, marking a solid start to the year

Summary

In 1Q FY2027 (ending March 2027), revenue came in at JPY 7.18B (+2% YoY) with EBITDA of JPY 1.35B (▲9% YoY), delivering top-line growth but a decline in earnings. The profit decline was attributable to the front-loading of strategic investments into 1H in anticipation of the October liquor tax reform, while EBITDA beat the plan at 117%. Management left full-year guidance unchanged, with no revisions to either 1H or 2H targets, citing strong momentum in the licensing business and RevPAR growth at the Motobu hotel. The briefing outlined concrete actions looking beyond the tax reform, including the Orion The Draft package refresh and 360-degree brand communication campaign, the company's first overseas equity investment in UK-based Sunrise, and the acquisition of new non-alcoholic beverage customers through the Chiikawa collaboration.

Key Points (Earnings Highlights and Growth Initiatives)

• Corporate Strategy And Market Assessment
  • Elevating beer mix and optimizing the product portfolio positioned as the top priority ahead of the October 2026 liquor tax reform and expiration of the special measures act
  • Management noted that Asahi Beer's aggressive promotional push following its system outage recovery actually had a positive impact, with the competitive landscape within Okinawa remaining stable
  • Typhoon impact was more severe than in a typical year, flagged as a risk factor to monitor from 2Q onward, particularly for the hotel business
• Current Business Progress And Drivers
  • Alcoholic & non-alcoholic beverage segment posted revenue growth of +5.7% within Okinawa and +5.3% outside the prefecture; Okinawa Fair promotional initiatives drove mainland growth
  • Licensing business surged +154.4% YoY, offsetting the shortfall in within-Okinawa sales caused by typhoons
  • Overseas revenue declined ▲26.0% due to shipment timing differences for US-bound RTD products, though management noted the result was positive on a delivered basis
  • Manufacturing costs were reduced through lower utility expenses from equipment upgrades and pre-emptive procurement of materials ahead of price increases
• Strategic Initiatives And Inflection Points
  • Orion The Draft underwent a package refresh centered on the "Friend Time Communication" concept, with a full 360-degree rollout spanning TV commercials, billboards, and in-store displays
  • GBP 1M equity investment in UK-based Sunrise, establishing a foundation for a licensed manufacturing model aimed at European market expansion
  • Chiikawa collaboration Clear Free sold out within 15 minutes of launch, successfully acquiring new customers in the non-alcoholic category
  • In October, Mugishokumin and Southern Star will be transitioned from happoshu to beer, targeting an 81% beer mix ratio in 2H

Outlook And Strategy

• Full-year guidance unchanged: revenue of JPY 31.11B, operating income of JPY 4.35B, and EBITDA of JPY 5.94B. 1Q EBITDA progress rate of 23% is tracking in line with plan when adjusting for seasonality
• 2H targets call for within-Okinawa beer revenue (volume basis) at 138% of prior year, with Orion The Draft at 118%
• Accelerating European expansion via UK-based Sunrise, with a target of JPY 1B in Orion The Draft sales through Sunrise by FY29
• The new mid-term plan (FY26–29) targets revenue CAGR of 5.9%, EBITDA margin of 25.0%, and ROE of 16.0%; approximately two-thirds of JPY 21.4B in operating cash flow over four years allocated to growth investment and roughly one-third to shareholder returns
• Total shareholder returns planned at JPY 2.02B (+10% YoY), including JPY 550M in share buybacks; DOE target of 8.0%

Positive Factors

• Licensing business revenue sustained high growth at +154.4% YoY. Licensee count is planned to expand from 79 in FY25 to 110 by FY29, with projected revenue CAGR of 7.3%
• Motobu hotel RevPAR rose to JPY 25,853 (+11.0% YoY), driven primarily by ADR uplift reflecting the payoff of value-up investments
• Out-of-prefecture revenue maintained strong growth with a CAGR of 14.4% (FY19–25); Okinawa Fair proposals and collaboration merchandise continue to expand nationwide distribution
• A series of cross-industry collaborations including Chiikawa, FREAK'S STORE, and MARK STYLER are diversifying brand touchpoints
• Clear Free is slated for a package renewal and TVCM rollout in September, with further plans to improve profitability through in-house production

Concerns And Risks

• The October 2026 liquor tax reform and expiration of the special measures act are expected to add approximately JPY 440M in EBITDA headwinds on a full-year basis, with the impact concentrated in 2H
• Net financial debt increased to JPY 8.06B (+JPY 2.21B vs. prior fiscal year-end), with net D/E ratio rising to 0.46x. The increase was primarily driven by share buybacks and seasonal working capital needs, but leverage trajectory warrants monitoring
• Typhoon impact was more severe than typical, with risk of continued drag on hotel business utilization rates and RevPAR from 2Q onward
• Full-year advertising and promotional spend is planned to decline YoY; the decision to prioritize absorbing the special measures act expiration raises questions about the sustainability of brand investment
• Within Okinawa, residual demand softness from prior-year price hikes persists, compounded by typhoon impacts resulting in a slight miss vs. plan at ▲1.4%

Performance Highlights

In 1Q FY2027, revenue was JPY 7,189M (+2% YoY), operating income was JPY 953M (▲11% YoY), and EBITDA was JPY 1,358M (▲9% YoY). While the period saw top-line growth with earnings decline on a YoY basis, EBITDA came in at 117% of plan. Within the alcoholic & non-alcoholic beverage segment, revenue from within Okinawa, out-of-prefecture, and licensing channels remained solid and in line with plan. The tourism & hotel segment continued its underlying growth trend on a like-for-like basis, excluding the impact of the Naha hotel divestiture.

Segment Performance

• Alcoholic & Non-Alcoholic Beverage EBITDA: JPY 1,118M (▲8.9% YoY)
• Tourism & Hotel EBITDA: JPY 240M (▲9.4% YoY)
• EBITDA Margin (Excluding Liquor Tax): 23.1% (vs. 25.8% in prior-year period)
• Orion Hotel Motobu RevPAR: JPY 25,853 (+11.0% YoY)
• Equity Ratio: 41.0% (vs. 41.9% at prior fiscal year-end)
• Net D/E Ratio: 0.46x (vs. 0.32x at prior fiscal year-end)

Q&A List

• Q: Regarding the manufacturing cost reductions cited in the EBITDA variance analysis vs. plan, could you elaborate on the specific initiatives and their magnitude of contribution? Also, please provide more detail on the optimization of expense timing.
  A: On manufacturing cost reductions, the first factor is lower utility expenses achieved through equipment upgrades. Additionally, we budget for materials based on anticipated price increases, but we were able to effectively secure and utilize materials at pre-increase prices, which was another positive contributor. On expenses, while we planned to invest aggressively in 1H, we evaluated whether each item needed to happen immediately or could be shifted later based on business trends. We are prioritizing investment in the highest-priority items while optimizing timing for others by monitoring business trends.
• Q: What are the potential downside risk factors for margins and revenue from 2Q onward, and what countermeasures are in place?
  A: Typhoon impact has been more severe than usual this year, and we are closely monitoring the situation. Hotels are particularly exposed to direct impact, so we intend to work proactively with business partners to strengthen group and school trip bookings, and to capture external dining demand at our renovated restaurants. We are also pursuing mutual customer referral programs with nearby tourist facilities and optimizing expense timing in response to typhoon developments, working steadily toward plan achievement while maintaining close monitoring.
• Q: Could you discuss sales trends by distribution channel, such as convenience stores and e-commerce?
  A: Since our listing, we have disclosed channel breakdowns by within-Okinawa, out-of-prefecture, overseas, licensing, and other categories. We refrain from providing quantitative disclosure of breakdowns for convenience stores, e-commerce, and similar sub-channels. Qualitatively, e-commerce has been performing very well. Convenience stores, mass retail, and other channels are broadly tracking in line with the trends shown in our within-Okinawa and out-of-prefecture channel disclosures.
• Q: On the revenue by region shown on page 5, did the Asahi Beer impact have any effect during the April–June quarter?
  A: Regarding Asahi Beer, they have been running very aggressive promotional campaigns following their recovery from the system outage. As a result, the impact has actually been positive for us.
• Q: On the overseas business, are there differences by country in terms of which markets grew and which did not?
  A: By country, South Korea experienced a temporary shipment adjustment, and the US saw a negative impact from delayed delivery timing. When including delivered volumes, we landed in positive territory, but since those cannot be recognized under accounting rules, the result is reported as negative. All other markets are progressing smoothly.
• Q: Regarding advertising spend in the alcoholic & non-alcoholic beverage segment, will spending increase in the July–September quarter compared to 1Q? Consolidated SG&A only rose by approximately JPY 90M versus 1Q last year, which seems lower than expected—did you hold back on advertising in 1Q?
  A: On a full-year plan basis, advertising spend has been reduced compared to last year. However, in terms of timing, we front-loaded spending into Q1, so the result of this active investment actually exceeded last year's level. Last year, we did not make such aggressive investments in Q1. On a full-year basis, we have planned to significantly curtail advertising and promotional investment to absorb the impact of the special measures act expiration.
• Q: Are there several line items within consolidated SG&A that have decreased versus last year?
  A: The largest reduction has been in advertising and promotional expenses.
• Q: Regarding the tourism & hotel segment, what was the cost associated with renovation work?
  A: We do not disclose specific figures, but the amount was below JPY 100M.
• Q: Customer traffic at the renovated restaurants appears to be growing—what is the customer profile? Is it primarily international tourists, local Okinawan residents, or Japanese tourists?
  A: International tourists are certainly part of the mix, but we have also received very high satisfaction ratings from local customers.
• Q: Looking at RevPAR trends broken down by April, May, and June, did the pace of RevPAR improvement accelerate after the renovation was completed, or was it a steady ~10% increase across all three months?
  A: The fundamental driver has been ADR appreciation, and we view this as the cumulative effect of our ongoing value-up investments materializing in these results.