Executive Vice President and Chief Financial Officer (CFO) Masaya Saito
Our financial policy is based on the principle of strengthening cash generation capabilities by efficiently utilizing management resources while maintaining an optimal balance between growth investments, shareholder returns, and financial soundness under appropriate financial discipline, and by responding resiliently to unpredictable environmental changes while achieving sustainable corporate value enhancement.
In fiscal year 2025, despite the continued unstable and challenging economic and market environment, revenue increased in all regions and businesses, resulting in record-high sales and operating profits. Significant increases were also seen at each profit level, and the EBITDA margin improved to 17.0%. Strong growth in Southeast Asia, particularly Vietnam and Indonesia, along with contributions from Eu Yan Sang Co. and Mono Co., which were newly consolidated in fiscal year 2024, contributed to the performance, and overseas sales grew significantly even under the influence of the strong yen. Domestically, inbound demand and core categories such as "Hada Labo" and eye drops performed steadily.
Although the cost of goods sold ratio rose slightly due to increased raw material costs, the significant increase in revenue absorbed this, resulting in increased profits. Furthermore, by promoting efficient asset management, we were able to further enhance the overall cash-generating capacity of our business. As a result, we generated 61.649 billion yen in operating cash flow before deducting research and development expenses, an increase of 9.7 billion yen (18.7%) compared to the previous year. This profitability is a crucial foundation that supports our financial strategy and future growth.
Progress of the medium- to long-term growth strategy
The core of our medium- to long-term growth strategy from a financial perspective lies in strengthening our ability to consistently earn from our core business and allocating our limited management resources in a disciplined manner to growth investments and shareholder returns. In the first year, we generated operating cash flow that exceeded our plan and steadily advanced aggressive growth investments and progressively expanded shareholder returns. Our dividend payout ratio is 30.4%, DOE is 3.7%, and ROE is 12.1%, all of which meet the levels set forth in our medium- to long-term growth strategy. In our "Medium- to Long-Term Growth Strategy 2026," announced in October 2026, we updated our operating cash flow before R&D expenses to 380 billion yen for the six years up to 2031.
To further enhance our future cash-generating capabilities, we are expanding our overseas production facilities to meet growing demand, developing the "Rohto Science Hub Tokyo" which serves as a point of contact between research and customers, and making DX and IT investments, including a global ERP project. In research and development, we are making aggressive investments, mainly in the medical field, which we position as a pillar of future revenue, with the development of ROH-101 progressing to the application stage.
Furthermore, in a highly uncertain business environment, it is crucial to thoroughly manage working capital and fixed assets to achieve both stable supply and capital efficiency. We will strengthen production and procurement functions in Japan and Asia, while also paying attention to the efficiency of working capital, including inventory, to enhance resilience to environmental changes and secure investment capacity for growth.
Strengthening Cash Generation Capabilities
The source of our cash-generating power lies in "science-based value creation" based on human resources and production/development functions. We will refine our research and development capabilities to create unique and high-value-added products and services, our marketing and sales capabilities to accurately communicate that value, and our production and procurement capabilities to support stable supply while adapting to environmental changes. By efficiently rotating these capabilities, we will connect them to sales growth and improved profitability, thereby strengthening our structure to generate cash stably.
Furthermore, we believe that strengthening non-financial management foundations such as human capital, sustainability, and governance, in addition to improving financial figures, will lead to increased cash flow generation and sustainable corporate value enhancement in the medium to long term. We will achieve sustainable growth by working together both financial and non-financial aspects.
Aggressive growth investment and disciplined capital management
To broaden our future revenue base, we are making disciplined investment decisions while identifying growth opportunities. In fiscal year 2025, we actively invested in production facilities and research and development in Core businesses both domestically and internationally. In addition, we acquired the trademark rights, licenses, and sales rights for our core skincare brand "Obagi" in Japan, and resolved to make Tan Oriza, a Thai wellness company, a subsidiary, laying the groundwork for accelerating growth in the Asian well-being sector. Going forward, we will continue to actively invest in research and development to create science-based value that will be the source of our growth, while controlling the R&D expense ratio to within 5%. Furthermore, we will focus our capital allocation on human resource investment, which is central to our cash generation capabilities, domestic and international production facility investment, DX and IT investment to improve operational efficiency and the quality of decision-making, and M&A and investments to enhance profitability through synergies with our own businesses.
While promoting these aggressive growth investments, we generated approximately 18 billion yen in free cash flow in fiscal year 2025, strengthening our financial foundation to support further growth. In terms of capital efficiency, we recognize our cost of equity as being around 6-8% *, and we aim to secure an ROE that consistently exceeds this. In fiscal year 2025, we achieved an ROE of 12.1%, demonstrating capital profitability that exceeds the cost of equity. We also place importance on ROIC, which indicates how efficiently the capital invested in our business is converted into profits, and we will contribute to sustainable corporate value enhancement by maintaining and improving a level that exceeds WACC.
Regarding shareholder returns, in addition to increasing dividends for the 22nd consecutive year (46 yen per share) in fiscal year 2025, we resolved to repurchase up to 1.5 million shares for 3 billion yen, which was implemented in fiscal year 2026. Going forward, we will continue to maintain a balance between growth investments, financial soundness, and capital efficiency, and will flexibly consider stable progressive dividend increases and share repurchases to implement capital policies that contribute to enhancing corporate value.
Furthermore, in order to further refine these financial management practices, we will place great importance on constructive dialogue with stakeholders, including shareholders and investors. By clearly communicating our value from both financial and non-financial perspectives, and by utilizing the feedback we receive in management and board discussions, we will enhance disclosure, promote mutual understanding, and achieve a reduction in the cost of capital and sustainable enhancement of corporate value.
* This is determined by comprehensively considering not only the quantitative analysis results (approximately 6-7%) based on CAPM, which incorporates the expertise of external specialists, but also the expected return and market valuation levels grasped through engagement with investors.
Executive Vice President ROHTO Pharmaceutical Co., Ltd.
Chief Financial Officer (CFO)
Masaya Saito