| Metric | This Period | Prior Year Same Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥2737.1B | ¥2595.9B | +5.4% |
| Operating Income | ¥231.0B | ¥232.4B | -0.6% |
| Ordinary Income | ¥280.8B | ¥261.5B | +7.4% |
| Net Income / Net Profit | ¥-14.8B | ¥211.0B | +7.7% |
| ROE | -0.8% | 12.3% | - |
For the fiscal year ended March 2026, Revenue was ¥2,737B (YoY +¥141B, +5.4%), Operating Income was ¥231B (YoY -¥1B, -0.6%), Ordinary Income was ¥281B (YoY +¥19B, +7.4%), and Net Income was a loss of ¥-15B (prior year ¥211B) due to a one-off goodwill impairment of ¥147B related to Sansho Pharmaceutical, resulting in a year of higher revenue, slight decline in operating profit, and a net loss. Revenue growth was driven by both Domestic Business (+5.3%) and Overseas Business (+7.0%), but SG&A rose to ¥760B (YoY +¥45B), compressing the operating margin to 8.4% (prior 9.0%, -0.6pt). Non-operating items included derivative valuation gains of ¥54B and foreign exchange gains of ¥8B, supporting higher Ordinary Income, but Special Losses of ¥149B (mainly impairment of ¥147B) and an effective tax burden of 60.1% led to a final net loss. Dividends were increased to an annual ¥80 (Dividend Payout Ratio 75%, DOE 2.1%). Operating Cash Flow (OCF) was ¥304B (YoY +30.0%) superficially steady, but driven mainly by non-cash reversal of impairments; inventory increases of ¥137B continued to absorb working capital and Cash Conversion (OCF/EBITDA) remained at 0.73x. Full-year guidance projects Revenue ¥3,040B (+11.1%) and Operating Income ¥320B (+38.5%).
[Revenue] Revenue was ¥2,737B (YoY +5.4%) maintaining a growth trend. By segment, Domestic was ¥2,170B (YoY +5.3%, sales mix 79.3%) and Overseas was ¥576B (YoY +7.0%, mix 21.1%), with both segments expanding. Domestic growth was supported by increased volumes of generic pharmaceuticals and price revision effects; Overseas was driven by higher sales in Europe and Latin America. Gross profit was ¥991B (gross margin 36.2%), with gross margin down 0.3pt YoY. Raw material and logistics cost increases and product mix shifts pressured gross margin.
[Profitability] SG&A was ¥760B (SG&A ratio 27.8%), about ¥45B higher YoY, with increases in personnel, logistics, and quality compliance costs outpacing revenue absorption, resulting in Operating Income of ¥231B (Operating margin 8.4%, prior 9.0%). Non-operating income included dividend income ¥0.2B, derivative valuation gains ¥54B, FX gains ¥8B, and total non-operating income ¥75B, supporting higher Ordinary Income. Interest expense rose to ¥23B (prior ¥16B) increasing finance cost, but non-operating net was +¥50B and Ordinary Income increased to ¥281B (YoY +7.4%). Profit before tax decreased to ¥132B after Special Losses of ¥149B (impairment ¥147B, loss on valuation of investment securities ¥1B), and income taxes ¥79B (effective tax rate 60.1%) were recorded, resulting in Net Income ¥-15B (prior ¥211B) — a final net loss. Comprehensive income was positive ¥104B driven by foreign currency translation adjustments ¥51B and valuation difference on available-for-sale securities ¥1B. In summary, while top-line grew steadily, higher SG&A and a one-off goodwill impairment led to a net loss despite increased Ordinary Income.
The Domestic Business reported Revenue ¥2,170B (YoY +5.3%) and Operating Income ¥271B (YoY -0.4%, margin 12.5%); while Revenue grew, higher SG&A led to a slight decline in operating profit. This is the core business generating the majority of operating profit and underpinning group earnings. The goodwill impairment of ¥147B was fully recorded in the Domestic segment, driven by deteriorating profitability at Sansho Pharmaceutical. The Overseas Business reported Revenue ¥576B (YoY +7.0%) and Operating Income ¥5B (YoY +2.0%, margin 0.8%), with both Revenue and profit increasing but margin still below 1%. Sales expansion in Europe and Latin America drove top-line growth, but limited operating leverage and lagging cost control constrained profitability. Overseas operations are a medium- to long-term growth axis, but short-term improvement in profitability is the top priority.
[Profitability] Operating margin 8.4% (prior 9.0%, -0.6pt), Net margin -0.5% (prior 8.1%, -8.6pt) — one-off impairment and high tax burden materially worsened net profitability. ROE was -0.8% (prior 11.6%), down 12.4pt, indicating significant deterioration in capital efficiency. Gross margin 36.2% (prior 36.5%) slightly declined due to higher raw material and logistics costs. Interest burden: interest expense ¥23B, 0.8% of sales; Interest Coverage (EBIT / interest expense) 10.2x, maintaining interest servicing ability. [Cash Quality] Operating Cash Flow ¥304B equals -20.5x of Net Income, turning positive mainly due to non-cash reversal of impairment, but substantive cash generation remains limited. OCF to sales ratio 11.1%; Cash Conversion (OCF/EBITDA) is 0.73x. Inventory increase ¥137B and accounts receivable increase ¥8B absorbed working capital, continuing deterioration in cash efficiency. [Investment Efficiency] Total asset turnover 0.58x (prior 0.55x) slightly improved. Inventory days (DIO) 258 days (prior 228 days), extended by 30 days, indicating worsening inventory efficiency. Receivables days (DSO) 84 days (prior 86 days), roughly unchanged. CCC 298 days (prior 269 days), extended 29 days, pressuring working capital efficiency and investment efficiency. [Financial Soundness] Equity Ratio 37.5% (prior 36.5%, +1.0pt) slightly improved. Current ratio 276%, quick ratio 220% indicating solid short-term liquidity. Cash and deposits ¥453B versus short-term borrowings ¥71B and current liabilities ¥969B gives a comfortable cash buffer. Interest-bearing debt ¥2,127B (short-term borrowings ¥71B + long-term borrowings ¥1,833B + current portion of long-term borrowings ¥218B + lease liabilities) yields Debt/EBITDA 4.59x, indicating high leverage. Debt-to-equity ratio 1.67x, Debt/Capital 51.7% are somewhat elevated, making deleveraging a medium-term priority.
Operating Cash Flow was ¥304B (prior ¥234B, +30.0%), up ¥70B YoY, but mainly driven by the non-cash reversal of impairment of ¥147B and thus actual cash generation is weakening. OCF subtotal (before working capital changes) was ¥406B; after tax payments of ¥85B, working capital changes (inventory increase ¥137B, trade receivables increase ¥8B) absorbed cash while trade payables increase ¥29B partially offset this. Inventory buildup reflects production ramp-up and demand matching, but DIO of 258 days and slower turnover highlight a clear deterioration in working capital efficiency. Investing Cash Flow was -¥257B, primarily capital expenditures ¥223B, exceeding depreciation ¥183B as investment in production capacity continued. Financing Cash Flow was -¥68B, with repayment of long-term borrowings ¥193B and dividends ¥39B partly financed by new borrowings ¥109B and sale-leaseback ¥51B. Free Cash Flow (OCF + Investing CF) was ¥48B, covering dividends ¥39B with coverage of 1.2x, leaving minimal buffer. Cash remained nearly flat at ¥453B from ¥454B at prior fiscal year-end, indicating limited short-term liquidity risk, but inventory reduction and improvement in working capital efficiency are essential to stabilize cash generation.
Of Ordinary Income ¥281B, Operating Income was ¥231B and the ¥50B difference was mainly non-operating income (derivative valuation gains ¥54B, FX gains ¥8B, etc.), indicating high dependence on non-operating factors. Derivative valuation gains arose from fair value measurement under hedge accounting, but sustainability into future periods is limited, introducing volatility to Ordinary Income. Net Income loss ¥-15B stems from Ordinary Income ¥281B less Special Losses ¥149B (majority impairment ¥147B) and heavy tax burden ¥79B (effective tax rate 60.1%). Comprehensive income ¥104B equals Net Income ¥-15B plus foreign currency translation adjustments ¥51B, reflecting valuation gains on foreign-currency assets amid yen depreciation; the divergence between Net Income and Comprehensive Income reached ¥119B. The fact OCF ¥304B far exceeds Net Income is driven by non-cash reversal of impairment ¥147B; accrual (profit vs. CF) divergence is due to one-off items, so cash-based earning power is lower than it appears. Distinguishing recurring vs. non-recurring, Operating Income and interest burden are recurring, whereas derivatives/FX non-operating income and most impairment/tax items are non-recurring; normalized earning power should be assessed at the Operating Income level.
Full-year guidance projects Revenue ¥3,040B (YoY +11.1%), Operating Income ¥320B (YoY +38.5%), and Ordinary Income ¥300B (YoY +6.8%), forecasting revenue and profit growth. Progress rates are Revenue 90.0%, Operating Income 72.2%, Ordinary Income 93.6%, with Operating Income lagging. Forecasted EPS is ¥436.75 versus actual ¥106.66 (progress 24.4%), implying significant profit accumulation in H2 is assumed. Dividend guidance is annual ¥40 but an interim dividend of ¥40 has already been paid; year-end dividend is undisclosed and should be noted. Achieving guidance assumes inventory reduction to avoid discounting/disposal losses, stabilization of domestic price revisions, improved utilization and cost reductions in Overseas Business, and normalization of non-operating factors such as derivatives and FX. Since a large impairment was processed in H1, P&L distortion should ease in H2, but achieving a 4pt improvement in operating margin requires substantial structural improvement and depends on execution on inventory, costs, and SG&A controls.
Annual dividend is ¥80 (interim ¥40 + assumed year-end ¥40), a significant increase from prior year dividend ¥30. Dividend Payout Ratio relative to EPS ¥106.66 is about 75% (¥80 / ¥106.66) which is relatively high, but compared to prior EPS ¥385.71, excluding impairment impact the implied payout ratio is estimated in the 20% range. DOE is 2.1%, and total dividend amount ¥39B represents 81% of FCF ¥48B, giving a coverage of 1.2x and a minimal buffer. Total Return Ratio equals the dividend payout since no buybacks were conducted. The dividend policy emphasizes stable dividends and the decision to raise the dividend despite a temporary profit decline signals shareholder-return focus; however, sustainability of dividends will depend on improving Cash Conversion and working capital efficiency given leverage (Debt/EBITDA 4.59x) and ongoing capital expenditure (¥223B).
Inventory efficiency deterioration risk: DIO 258 days (up 30 days from 228) and inventory expansion to ¥543B (prior ¥448B, +21.2%). Risk of inventory write-downs and disposal losses increases, and working capital absorption pressures liquidity. If inventory compression does not progress, additional discounting/disposal losses could erode margins and reduce FCF generation.
High leverage and interest burden: Debt/EBITDA 4.59x with interest-bearing debt ¥2,127B and interest expense ¥23B (prior ¥16B) increases interest burden. Interest Coverage 10.2x provides short-term tolerance, but in a rising interest rate environment failure to deleverage could increase interest payments and constrain growth investment. Timing and terms of refinancing long-term borrowings ¥1,833B could affect future profitability.
Low profitability in Overseas Business: Overseas Revenue ¥576B (mix 21.1%) with Operating Income ¥5B (margin 0.8%) indicates delayed monetization. While sales expansion in Europe and Latin America is observed, lagging utilization, SKU optimization, and cost management limit profit contribution. Any deterioration or additional impairment in Overseas Business would pressure group profitability and the balance sheet.
Profitability & Return
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 8.4% | -94.2% (-358.4%–8.6%) | +102.7pt |
| Net Margin | -0.5% | -101.5% (-373.7%–5.9%) | +101.0pt |
Operating margin 8.4% well exceeds the pharmaceuticals industry median of -94.2%, placing the company relatively well on profitability within the peer set.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 5.4% | -0.6% (-22.4%–13.3%) | +6.0pt |
Revenue growth 5.4% is above the industry median -0.6%, positioning the company among the upper ranks for top-line expansion.
※ Source: Company compilation
Recognition of goodwill impairment ¥147B has highlighted profitability issues at domestic subsidiaries centered on Sansho Pharmaceutical. Goodwill balance reduced from ¥281B to ¥95B, a 66% decline, which should reduce future amortization/impairment burden. From next fiscal year onward P&L distortion should ease and provide room for EPS recovery, but if Overseas segment (goodwill remaining ¥42B) does not improve profitability, residual impairment risk remains.
Inventory compression and working capital efficiency improvement are top priorities. With DIO 258 days and CCC 298 days, inefficiency continues and inventory ¥543B accounts for 11.4% of total assets. If inventory optimization progresses, discount/disposal loss suppression and release of working capital would improve OCF quality and FCF generation. Achieving next year’s guidance (Operating Income +38.5%) assumes normalization of inventory efficiency.
Deleveraging and optimal capital allocation are keys to medium-term shareholder value recovery. Debt/EBITDA 4.59x and Debt/Capital 51.7% are relatively high within the pharmaceuticals industry, and interest expense ¥23B (0.8% of sales) pressures profitability. Capital expenditure ¥223B exceeds depreciation ¥183B as production capacity is expanded; while dividends ¥39B have been paid within FCF ¥48B, balancing deleveraging is required. Improving OCF cash conversion and returning Debt/EBITDA to the 3x range would stabilize credit metrics and expand shareholder return capacity.
This report is an earnings analysis automatically generated by AI based on XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the Company based on public financial data. Investment decisions are your responsibility; please consult a professional adviser as necessary before making any investment decision.