| Metric | Current Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue | ¥2250.9B | ¥2292.1B | -1.8% |
| Operating Income | ¥81.3B | ¥153.4B | -47.0% |
| Ordinary Income | ¥95.1B | ¥153.1B | -37.9% |
| Net Income | ¥79.8B | ¥66.5B | +20.0% |
| ROE | 5.1% | 4.5% | - |
For the fiscal year ended March 2026, Revenue was ¥2,250.9B (YoY -¥41.2B -1.8%), Operating Income was ¥81.3B (YoY -¥72.1B -47.0%), Ordinary Income was ¥95.1B (YoY -¥58.0B -37.9%), and Net Income attributable to owners of the parent was ¥79.8B (YoY +¥13.3B +20.0%). While the business side showed clear weakness with lower revenue and a large decline in Operating Income, Net Income exceeded the prior year due to non-recurring gains—Special gains of ¥44.5B led by gain on sales of available-for-sale securities of ¥44.3B—resulting in a profit structure dependent on one-off items. Operating margin fell 3.1pt to 3.6% (prior year 6.7%), with gross margin deteriorating 1.4pt to 32.4% (prior year 33.8%) and SG&A increasing to ¥647.8B (+4.4%), both exerting dual pressure on profitability. By region, Asia was the sole region to increase Operating Income to ¥56.5B (+14.2%) and became the core, contributing about 70% of consolidated Operating Income, while Japan (¥5.9B, -86.7%), Americas (¥9.1B, -64.8%), and Europe (¥8.0B, -67.4%) all posted significant declines, widening inter-regional profit disparities.
[Revenue] Revenue was ¥2,250.9B (YoY -1.8%), a slight decline. By region, Europe performed well at ¥461.7B (+7.1%) and Asia achieved a modest increase to ¥508.8B (+1.3%), while Japan declined to ¥923.3B (-3.7%) and the Americas to ¥564.9B (-15.8%), with demand softness in key markets dragging on top-line. Sales in the flavors & fragrances business were ¥2,236.9B, accounting for over 99% of consolidated revenue; regional price-mix deterioration and demand volatility directly affected the top-line. Gross profit was ¥729.1B (prior year ¥773.9B), and gross profit margin declined 1.4pt to 32.4% (prior year 33.8%), pressured by persistently high raw material and energy costs and delays in passing on price increases.
[Profitability] Operating Income was ¥81.3B (YoY -47.0%), roughly halved, and SG&A rose to ¥647.8B (+4.4%), increasing despite lower sales and causing negative operating leverage. Operating margin fell to 3.6%; low margins in Japan (0.6%), Americas (1.6%), and Europe (1.7%) weighed on results, while Asia (11.1%) maintained high profitability and barely kept the group in the black. Non-operating items improved net ¥13.8B (prior year -¥0.3B → current +¥13.8B), boosted by foreign exchange gains of ¥9.2B (net improvement of about +¥15B from prior year FX loss of ¥5.7B) and higher dividend income of ¥6.7B (prior year ¥5.6B). Ordinary Income was ¥95.1B (YoY -37.9%), a smaller decline than Operating Income, showing that core weakness was partially mitigated by external factors such as FX. Special gains were ¥44.5B (prior year ¥27.7B), mostly from gain on sales of available-for-sale securities of ¥44.3B, bringing profit before tax to ¥137.1B (prior year ¥176.9B). Income taxes were ¥35.9B (effective tax rate 26.2%), and Net Income attributable to owners of the parent was ¥79.8B (+20.0%). Excluding the contribution of special gains, core net income substantially trailed the prior year. In conclusion, this was a year of lower revenue and large Operating Income decline, with one-off gains underpinning Net Income (technically revenue down but Net Income up due to non-recurring items).
Japan segment: Revenue ¥923.3B (YoY -3.7%), Operating Income ¥5.9B (-86.7%), Operating margin 0.6% (prior year 4.7%), with a sharp deterioration in profitability, likely driven by weak domestic demand and intensified price competition. Americas segment: Revenue ¥564.9B (-15.8%), Operating Income ¥9.1B (-64.8%), Operating margin 1.6% (prior year 3.9%), experiencing significant revenue declines and margin compression, affected by demand slowdown in local currencies and higher costs. Europe segment: Revenue ¥461.7B (+7.1%), Operating Income ¥8.0B (-67.4%), Operating margin 1.7% (prior year 5.7%), where revenue rose but profits fell sharply due to insufficient price pass-through and high costs. Asia segment: Revenue ¥508.8B (+1.3%), Operating Income ¥56.5B (+14.2%), Operating margin 11.1% (prior year 9.9%), the only segment with increased profit and double-digit margin, accounting for 69.5% of consolidated Operating Income and serving as the earnings pillar, aided by market growth and a shift to higher value-added products. The inter-regional margin gap widened by over 10pt, increasing dependency on Asia.
[Profitability] Operating margin 3.6%, Net margin 3.5% (attributable to owners of the parent), down 3.1pt and 2.3pt respectively from prior year 6.7% and 5.8%, indicating materially weakened profitability. ROE 5.1% (prior year 9.8%) halved, and ROA 3.6% (prior year 6.2%) also declined, showing a significant deterioration in capital efficiency. Gross margin 32.4% (prior year 33.8%) worsened by 1.4pt due to higher input costs and delayed price pass-through, and SG&A ratio rose to 28.8% (prior year 27.1%), indicating rigidity in the cost structure that pressured profits. [Cash Quality] Operating Cash Flow was ¥42.7B versus Net Income ¥79.8B, giving OCF/Net Income of 0.53x, showing weak conversion of profits to cash. Working capital absorbed cash via increases in trade receivables (¥-24.2B) and inventories (¥-42.0B). EBITDA was ¥168.9B (Operating Income ¥81.3B + Depreciation ¥87.6B), and OCF/EBITDA was 0.25x, very low and indicating serious issues with cash generation. CCC (cash conversion cycle) extended to about 202 days (AR days 87 + DIO 160 - AP days 45), making improvement of working capital efficiency urgent. [Investment Efficiency] Capital expenditures were ¥192.6B, 2.2x depreciation of ¥87.6B, indicating an aggressive investment posture. Free Cash Flow was ¥-119.5B, substantially negative, meaning investment cash needs are not being met by internally generated cash. Construction in progress decreased from prior year ¥110.5B to ¥49.6B, showing assetization of projects, but future depreciation increases may pressure earnings. [Financial Soundness] Equity Ratio 57.6% (prior year 55.8%) remains solid. Interest-bearing debt totaled ¥519.4B (short-term borrowings ¥323.4B + long-term borrowings ¥196.0B), Debt/EBITDA 3.08x which is somewhat heavy but not yet at alarm levels. Interest coverage was 9.18x (EBIT / interest expense), indicating sufficient interest-servicing capacity, but the short-term borrowing ratio is high at 62%, and short-term borrowings coverage against cash of ¥195.8B is 1.65x, indicating increasing maturity mismatch. Current ratio 187.8%, quick ratio 143.4% indicate short-term liquidity is secured, but prolonged weak OCF would raise refinancing sensitivity.
Operating Cash Flow was ¥42.7B (prior year ¥189.2B, -77.4%), a sharp decline. Starting from profit before tax before adjustments of ¥137.1B, adding back non-cash expenses such as depreciation ¥87.6B produced operating cash subtotal of ¥84.6B, but increases in working capital absorbed cash. Specifically, increases in inventories -¥42.0B (inventories rose to ¥350.3B, +¥33.0B), increases in trade receivables -¥24.2B (notes and accounts receivable rose to ¥534.7B, +¥31.9B), and decreases in accounts payable -¥37.0B (accounts payable down to ¥186.4B, -¥32.4B) were cash outflows; payments of income taxes -¥41.7B further reduced OCF to ¥42.7B. Investing Cash Flow was -¥162.2B (prior year -¥91.3B), mainly due to capital expenditures of -¥192.6B, partially offset by proceeds from sale of available-for-sale securities of ¥48.9B. Free Cash Flow was -¥119.5B (prior year +¥97.9B), and combined with dividend payments of -¥54.5B, the company met funding needs through long-term borrowings of ¥85.0B, net increase in short-term borrowings of ¥2.0B, and drawing down cash reserves. Cash and deposits fell ¥160.1B ( -45.0%) from ¥355.9B to ¥195.8B, tightening the liquidity position. The main driver of OCF weakness was deterioration in working capital, with DIO 160 days and AR days 87 days extending, making enhancement of working capital management an immediate priority.
Quality of earnings deteriorated. Operating Income of ¥81.3B was boosted by a net improvement in non-operating items of +¥13.8B (foreign exchange gains ¥9.2B, etc.), raising Ordinary Income, and Special gains of ¥44.5B (gain on sales of available-for-sale securities ¥44.3B) pushed profit before tax to ¥137.1B. The contribution of one-time items (special gains) to profit before tax reached 32.4%, indicating a large divergence from core earning power. Non-operating income of ¥25.9B was 1.2% of revenue, limited and below 5%, but the foreign exchange gain of ¥9.2B included a swing of about ¥15B from prior year FX loss of ¥5.7B, showing high sensitivity to FX. From an accrual perspective, OCF/Net Income was 0.53x (¥42.7B OCF vs ¥79.8B Net Income), indicating profits are not converting to cash. Comprehensive income totaled ¥153.1B, which comprises Net Income ¥79.8B plus foreign currency translation adjustments ¥31.2B, actuarial adjustments for retirement benefits ¥16.8B, etc.; the difference of ¥73.3B reflects valuation gains/losses via the balance sheet and indicates divergence between Net Income and substantive enterprise value increase. Ordinary Income ¥95.1B and Net Income ¥79.8B are close in level, but special gains are present, and even at the ordinary level results were supported by non-recurring factors such as FX, so caution is required regarding sustainability and quality of earnings.
The company plans for FY2026 Full Year Revenue ¥2,400.0B (YoY +6.6%), Operating Income ¥110.0B (+35.3%), Ordinary Income ¥115.0B (+20.9%), and EPS ¥96.43. Although cumulative Q3 results were not disclosed, progress against the full-year plan is estimated at about 74% for Operating Income (¥81.3B/¥110.0B) and about 94% for Revenue (¥2,250.9B/¥2,400.0B), implying substantial revenue and profit increases are expected in Q4. Achieving the plan requires continued expansion in Asia, price corrections and product-mix improvements in Japan, Americas, and Europe, suppression of SG&A, and normalization of working capital through inventory reduction. Given that Ordinary Income progress (82.7%) trails Operating Income progress, scope for improvement in non-operating items appears limited. Dividend guidance is DPS ¥26 (post-split basis) with annual dividend cash total of about ¥25B, conservatively designed, but sustainable dividends require FCF to return to positive territory.
Dividends were DPS ¥80 (¥120 at Q2 + ¥28 at year-end, pre-stock-split) yielding an annual dividend cash outflow of about ¥54B, implying a payout ratio of approximately 68% relative to Net Income attributable to owners of the parent of ¥79.8B. The stock split (1 share → 5 shares effective October 1, 2025) complicates presentation, but based on dividend payments of ¥54.5B in the cash flow statement, the payout ratio is 68%, a high level. Share buybacks were minimal at ¥0.03B, and Total Return Ratio is roughly in line with the payout ratio. Because Free Cash Flow is ¥-119.5B, dividends were not funded from internally generated cash but via borrowings and cash drawdown. Next year’s dividend is forecast at DPS ¥26 (post-split basis, annualized about ¥25B), representing a dividend cut from this year’s level, reflecting a priority on FCF normalization. While payout ratio 68% is high, sustainability is low unless Operating Cash Flow improves and working capital is reduced; achievement of FCF positivity next year is a precondition for maintaining dividends.
Demand weakness in key markets: Japan, Americas, and Europe have Operating margins of only 0.6–1.7%, an extremely low level. If structural demand weakness and intensified price competition persist, the company could become overly dependent on Asia. Japan+Americas+Europe Operating Income totals ¥23.0B versus Asia ¥56.5B, and widening inter-regional profit gaps increase consolidated earnings volatility.
Funding risk from working capital deterioration: Accumulation of inventories ¥350.3B (+¥33.0B) and trade receivables ¥534.7B (+¥31.9B) reduced OCF to ¥42.7B and extended CCC to 202 days. Continued inventory stagnation and delays in receivables collection could necessitate discounts or write-downs, further degrading cash flow and raising refinancing pressure. With short-term borrowings at ¥323.4B and cash ¥195.8B, cash coverage is 0.61x, and expanding maturity mismatch could strain funding.
Quality-of-earnings risk from dependence on one-off gains: Special gains ¥44.5B accounted for about 56% of Net Income ¥79.8B, and profit structure relied on gain on sales of available-for-sale securities of ¥44.3B. If core earnings do not recover, there is risk of sharp profit declines and insufficient dividend resources in subsequent periods. Operating margin of 3.6% has fallen substantially from prior 6.7%; if structural cost increases and delayed price pass-through continue, further declines in ROE from 5.1% and returns below cost of capital could erode shareholder value.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating margin | 3.6% | 7.8% (4.6%–12.3%) | -4.1pt |
| Net margin | 3.5% | 5.2% (2.3%–8.2%) | -1.6pt |
The company’s Operating margin is 4.1pt below the industry median of 7.8%, and Net margin is 1.6pt below the industry median of 5.2%, placing it in the lower tier on profitability within the industry.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue growth (YoY) | -1.8% | 3.7% (-0.4%–9.3%) | -5.5pt |
The company’s revenue growth rate of -1.8% is 5.5pt below the industry median of +3.7%, indicating weak growth relative to peers.
Source: Company aggregation
The precipitous decline in core earning power is the greatest concern: Operating margin fell to 3.6% (down 3.1pt from 6.7% prior year), 4.1pt below the industry median of 7.8%. Japan, Americas, and Europe have Operating margins of 0.6–1.7%, very low, creating a fragile structure dependent on Asia’s high margin of 11.1%. Management guidance for next year calls for Operating Income recovery of +35.3%, but achieving this requires simultaneous price corrections, improved product mix, and SG&A restraint. At minimum, gross margin must improve by at least 1pt and SG&A growth must be cut by more than -5%.
Working capital deterioration and weak cash conversion are structural risks: OCF ¥42.7B (YoY -77.4%), OCF/Net Income 0.53x, OCF/EBITDA 0.25x—all very low. DIO 160 days, AR days 87 days, CCC 202 days, and combined inventories and receivables of about ¥885B are tying up cash. Continued CapEx of ¥192.6B (2.2x depreciation) has resulted in Free Cash Flow of -¥119.5B; together with dividends of ¥54.5B, funding was met by borrowings and cash drawdown. Cash and deposits fell to ¥195.8B (YoY -45.0%), cash coverage against short-term borrowings is 0.61x, and Debt/EBITDA 3.08x indicates somewhat heavy leverage. Normalizing Operating Cash Flow and reducing inventory (target DIO ≤ 120 days) are urgent.
Earnings quality has declined due to one-off gains: Special gains ¥44.5B (gain on sales of available-for-sale securities ¥44.3B) accounted for 56% of Net Income ¥79.8B, and sustainability is low. Foreign exchange gain ¥9.2B included about ¥15B of swing from prior year, showing reliance on non-operating items. Given negative FCF, payout ratio 68% is unsustainable, and the forecast dividend cut to DPS ¥26 (post-split) is reasonable. FCF recovery and working capital normalization are minimum conditions to maintain dividends.
This report was automatically generated by AI analyzing XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information aggregated by the Company based on public financial statement data. Investment decisions are your responsibility; consult advisors as necessary.