| Metric | This Period | Prior Year | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥1103.9B | ¥1110.1B | -0.6% |
| Operating Income / Operating Profit | ¥27.4B | ¥48.4B | -43.4% |
| Ordinary Income | ¥33.8B | ¥51.1B | -34.0% |
| Net Income / Net Profit | ¥19.8B | ¥10.7B | +85.4% |
| ROE | 3.3% | 1.9% | - |
For the fiscal year ended March 2026, Revenue was ¥1103.9B (YoY -¥6.2B, -0.6%) and essentially flat, Operating Income was ¥27.4B (YoY -¥21.0B, -43.4%) showing a significant decline, and Ordinary Income was ¥33.8B (YoY -¥17.3B, -34.0%) also down. Conversely, Net Income rose to ¥19.8B (YoY +¥9.1B, +85.4%). In the core Paper & Pulp Manufacturing business, delayed pass-through of selling prices and persistently high raw material, fuel and logistics costs pressured operating-level earnings, causing gross margin to deteriorate by 1.9pt to 13.5% (prior year 15.4%) and operating margin to compress by 1.9pt to 2.5% (prior year 4.4%). At the ordinary-income level, foreign exchange gains of ¥3.3B and dividend income of ¥2.5B contributed to ¥11.2B of non-operating income, and extraordinary items were limited to a loss of ¥0.25B (¥2.5B? note: original states 2.5億円 loss) as a rebound from the prior year’s large impairment of ¥27.3B, resulting in Profit Before Tax of ¥33.1B (prior year ¥18.4B, +79.8%) and a substantial increase in Net Income.
[Revenue] External revenue was ¥1103.9B (-0.6%), essentially flat. By segment, Paper & Pulp Manufacturing was ¥1005.0B (-0.9%), slightly down as demand for paper products declined structurally in Japan, with volume declines and delayed selling price revisions. Power Generation was solid at ¥56.6B (+0.7%), and Other Businesses increased to ¥175.4B (+2.9%), but these did not drive group-wide growth. No regional sales or new business disclosures; business structure remains highly concentrated in domestic Paper & Pulp Manufacturing (sales mix 91.1%).
[Profitability] Cost of sales was ¥954.4B, leaving Gross Profit ¥149.5B and Gross Margin 13.5% (prior year 15.4%), a 1.9pt deterioration. Persistently high raw material and energy costs and logistics costs (¥6,988 million vs ¥7,021 million prior year) remained heavy, and price pass-through lagged, compressing price spreads. SG&A was ¥122.1B (prior year ¥122.6B, -0.4%) and essentially flat; fixed costs such as salaries and allowances ¥13.6B and depreciation ¥2.1B were stable, but shrinking gross profit raised the SG&A ratio slightly to 11.1% (prior year 11.0%). Operating Income fell sharply to ¥27.4B (-43.4%). Non-operating income included dividend income ¥2.5B, FX gains ¥3.3B, and equity-method investment income ¥3.1B, offset by non-operating expenses ¥4.8B (interest expense ¥3.5B etc.), resulting in Ordinary Income ¥33.8B (-34.0%). Extraordinary items were net -¥0.7B (extraordinary income ¥1.8B, extraordinary loss ¥2.5B including asset retirement losses ¥1.7B, impairment losses ¥0.4B, etc.), minor compared with the prior year’s large impairment of ¥27.3B, driving Profit Before Tax to ¥33.1B (+79.8%). After income taxes ¥8.3B and non-controlling interests ¥0.3B, Net Income attributable to owners of the parent was ¥19.8B (+85.4%). Operating-level performance showed revenue and profit declines due to cost inflation and delayed price pass-through, while ordinary and final-stage results improved due to non-operating income and the prior-year extraordinary loss reversal.
The Paper & Pulp Manufacturing segment recorded Revenue ¥1005.0B (-0.9%), Operating Income ¥16.9B (-53.8%), with margin deteriorating sharply to 1.7% (prior year 3.6%). The decline in profitability in the core business is notable, as delayed product price revisions and persistently high raw material and logistics costs squeezed margins. Power Generation reported Revenue ¥56.6B (+0.7%), Operating Income ¥5.1B (-6.9%), margin 9.0% (prior year 9.7%), maintaining relatively high margins and contributing to corporate profit stability. Other Businesses posted Revenue ¥175.4B (+2.9%), Operating Income ¥4.9B (-9.7%), margin 2.8% (prior year 3.2%), with Nano Forest and transport/maintenance auxiliary businesses increasing revenue but slightly lower margins. Segment profit composition: Paper & Pulp Manufacturing 62%, Power Generation 19%, Other 18%, and the margin decline in the core business pushed consolidated operating margin down to 2.5%.
[Profitability] Operating margin deteriorated 1.9pt to 2.5% (prior year 4.4%), and Gross Margin narrowed 1.9pt to 13.5% (prior year 15.4%), highlighting price spread deterioration. ROE was 3.3% (based on balance-sheet equity ratio 50.3% and Net Profit Margin 1.8%), indicating low capital efficiency, primarily due to margin compression in the core business. [Cash Quality] Operating Cash Flow (OCF) was ¥46.7B, 2.4x Net Income ¥19.8B, indicating good convertibility, but OCF subtotal ¥55.5B was offset by working capital headwinds (Accounts receivable increase -¥12.0B, Accounts payable decrease -¥22.5B, Inventories increase -¥2.7B), impeding cash conversion. Depreciation ¥61.5B vs CapEx ¥46.5B shows restrained investment; Free Cash Flow was ¥6.7B, marginally positive. [Investment Efficiency] Total Asset Turnover was 0.93x (Revenue ¥1,103.9B ÷ Total Assets ¥1,190.9B), unchanged; Tangible Fixed Asset Turnover was 2.24x, asset efficiency within manufacturing norms. Investment securities increased to ¥152.9B (prior year ¥116.5B, +31.2%), contributing to Comprehensive Income ¥49.2B, but did not improve operating asset turnover. [Financial Soundness] Equity Ratio improved to 50.3% (prior year 45.9%), Interest-bearing debt ¥332.8B (short-term borrowings ¥218.7B, long-term borrowings ¥114.1B), Debt/Equity ratio 0.56x, neutral. Cash and deposits ¥48.8B (prior year ¥90.1B, -45.8%) reduced liquidity buffer; Current Ratio 120.9%, Quick Ratio 98.8% indicating short-term payment ability near the lower bound. Interest Coverage (Operating Income ¥27.4B ÷ Interest Expense ¥3.5B) was 7.8x, showing interest resilience.
Operating Cash Flow was ¥46.7B (prior year ¥103.6B, -54.9%). OCF subtotal ¥55.5B (Profit Before Tax ¥33.1B, Depreciation ¥61.5B, Equity-method income -¥3.1B, impairment losses ¥0.4B, etc.) was offset by working capital headwinds of -¥8.8B. Components: Accounts receivable increase -¥12.0B (DSO approx. 90 days, elongated collection terms), Inventories increase -¥2.7B, Accounts payable decrease -¥22.5B, making payable reduction a cash outflow pressure, and after corporate tax payments ¥8.7B, OCF roughly halved year-on-year. Investing CF was -¥40.0B, with Capital Expenditure -¥46.5B (CapEx/Depreciation ratio 0.76x, indicating restrained renewal investment) partially offset by recovery of long-term loans ¥6.3B and short-term loan recoveries ¥4.4B. Free Cash Flow was ¥6.7B (prior year ¥43.5B, -84.6%), sharply reduced, limiting capacity to cover dividend payments of ¥9.4B. Financing CF was -¥47.9B, with long-term borrowings procured ¥83.0B versus long-term borrowings repayments ¥116.2B, net short-term borrowing decrease ¥5.0B, and dividend payments ¥9.4B as cash outflows. Working capital headwinds drove cash down by ¥41.2B to year-end cash ¥48.8B. Signs of working capital management issues include simultaneous AR increase and AP decrease, showing mismatch between extended collection terms and tightened payment terms, pressuring liquidity.
Of Ordinary Income ¥33.8B, Operating Income was ¥27.4B and the difference ¥6.4B was non-operating items. Non-operating income ¥11.2B included FX gains ¥3.3B, dividend income ¥2.5B, and equity-method investment income ¥3.1B—items susceptible to cyclical conditions and market fluctuations, limiting the stability of recurring earnings. Non-operating expenses ¥4.8B were mainly interest expense ¥3.5B; interest burden is 0.3% of sales, within tolerance. Extraordinary items were net -¥0.7B (extraordinary income ¥1.8B, extraordinary loss ¥2.5B), minor, and the prior-year large impairment of ¥27.3B was the principal reason for the increase in Net Income. OCF ¥46.7B is 2.4x Net Income ¥19.8B, indicating high profit convertibility and an accrual ratio of -1.4x ((Net Income - OCF) ÷ Net Income) which is favorable. Comprehensive Income ¥49.2B included valuation gains on securities ¥21.5B and actuarial gains/losses adjustments ¥2.1B, so unrealized gains expanded the capital cushion. The divergence between Ordinary Income and Net Income is explained by tax burden ¥8.3B and the prior-year extraordinary loss reversal. Working capital headwinds resulted in an OCF/EBITDA ratio of 0.53x (OCF ¥46.7B ÷ EBITDA ¥88.9B), indicating room to improve cash conversion.
The company plan for the fiscal year ending March 2027 forecasts Revenue ¥1,140.0B (YoY +3.3%), Operating Income ¥23.0B (-16.1%), Ordinary Income ¥27.0B (-20.0%), Net Income attributable to owners of the parent ¥16.0B (-19.2%), and EPS ¥127.40. While revenue is expected to recover, the company assumes a conservative operating margin of 2.0% (down 0.5pt from 2.5% this period), likely reflecting continued assumptions of delayed price pass-through and persistently high raw material costs. Progress rates are Revenue 96.8% (¥1,103.9B ÷ ¥1,140.0B) and Operating Income 119.1% (¥27.4B ÷ ¥23.0B), indicating the full-year operating income target has already been exceeded, but guidance anticipates worse profitability in H2. Ordinary Income guidance factors in uncertainty of non-operating income and assumes -20% from prior-year actuals; Net Income guidance assumes normalization of extraordinary items and higher tax rates, -19.2% conservative. Dividend is cut to annual ¥60 (from ¥90, -33.3%), yielding a Payout Ratio of 47.1% against EPS ¥127.40, an adjustment in shareholder returns aligned with reduced cash generation.
Annual dividend was ¥90 (interim ¥40, year-end ¥50), Payout Ratio 46.3% relative to EPS ¥194.34 (computed on a prior-year basis giving 51.2%), a moderate level. Free Cash Flow ¥6.7B vs total dividends ¥9.4B yields a dividend coverage of 140.3% (i.e., FCF insufficient), so dividend maintenance depends on continued OCF generation. No share buybacks were executed; Total Return Ratio equals the Payout Ratio. FY2027 dividend forecast is ¥60 (-33.3%), maintaining a Payout Ratio of 47.1% against EPS forecast ¥127.40 while reducing the absolute payout to align with lower cash generation. Compressing total dividends to about ¥7.5B could secure roughly ¥10B of FCF cushion, enabling dividend coverage if OCF recovers to mid-¥70B levels and CapEx restraint continues.
Price spread compression risk: Paper & Pulp Manufacturing operating margin has halved to 1.7% (prior year 3.6%), with delayed selling price pass-through and persistently high raw material and logistics costs structurally pressuring profitability. Gross Margin 13.5% is below historical levels; progress in product price revisions and stabilization of input costs is urgently needed. Structural domestic demand declines weaken pricing power, so margin recovery may take time.
Deterioration in working capital efficiency: Accounts receivable increase -¥12.0B and Accounts payable decrease -¥22.5B produced a working capital headwind of -¥8.8B, with DSO approx. 90 days and extended collection terms notable. Although OCF ¥46.7B is 2.4x Net Income, working capital cash tie-up led to a -54.9% YoY OCF decline. Reliance on short-term borrowings ¥218.7B (65.7% of interest-bearing debt) for liquidity raises the risk that delays in working capital improvement will force higher borrowings and increased interest burden.
Liquidity and refinancing risk: Cash and deposits ¥48.8B (YoY -45.8%) reduce liquidity buffers; Current Ratio 120.9% and Quick Ratio 98.8% indicate short-term payment ability near the lower bound. Short-term borrowings comprise two-thirds of interest-bearing debt, creating dependency on rollover. With Free Cash Flow ¥6.7B, dividends ¥9.4B are not fully covered, and although some refinancing into long-term debt progressed (+¥29.2B), concentrated short-term maturity risk persists.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 2.5% | 7.8% (4.6%–12.3%) | -5.3pt |
| Net Profit Margin | 1.8% | 5.2% (2.3%–8.2%) | -3.4pt |
Operating Margin 2.5% is 5.3pt below the manufacturing sector median 7.8%, indicating bottom-quartile profitability.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | -0.6% | 3.7% (-0.4%–9.3%) | -4.3pt |
Revenue growth -0.6% is 4.3pt below the median 3.7%, indicating weak growth and notable impact from declining domestic demand.
※ Source: Company compilation
Restoring profitability in the core business is the top priority. The halving of Paper & Pulp Manufacturing operating margin to 1.7% (prior year 3.6%) is mainly due to delayed price pass-through and persistent raw material cost inflation, placing the company’s operating margin at 2.5% (5.3pt below the sector median 7.8%), low within the industry. The company’s plan also assumes a conservative operating margin of 2.0%, so realizing product price adjustments and cost optimization is key to structural improvement. The Power Generation segment’s margin of 9.0% is relatively stable and provides a complementary stabilizing effect.
Improving working capital efficiency and cash conversion is a condition for stable funding. DSO approx. 90 days and accounts payable decrease -¥22.5B pressured OCF to -54.9% YoY, and Free Cash Flow ¥6.7B is insufficient to cover dividends ¥9.4B. With Cash and deposits ¥48.8B (YoY -45.8%) and high dependence on short-term borrowings ¥218.7B (65.7% of interest-bearing debt), ongoing refinancing management is essential. If working capital improvement can restore OCF to roughly ¥70B, the company could self-fund dividends and minimum investment.
Comprehensive income and investment securities provide a capital cushion. Comprehensive Income ¥49.2B (2.5x Net Income ¥19.8B) includes valuation gains on securities ¥21.5B; investment securities ¥152.9B (+31.2%) and unrealized gains contributed to improving the Equity Ratio to 50.3%. While the financial asset portfolio supports financial stability in the short term, recovery of core business profitability is indispensable over the medium to long term.
This report is an automated earnings analysis document generated by AI based on XBRL earnings disclosure data. It is not a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the Company from public financial statements. Investment decisions are your responsibility; consult a professional advisor as needed before making investment decisions.