| Metric | This Period | Prior Year | YoY |
|---|---|---|---|
| Revenue | ¥100632.2B | ¥86955.3B | +15.7% |
| Operating Income | ¥2429.0B | ¥5479.6B | -55.7% |
| Profit Before Tax | ¥1728.1B | ¥5243.8B | -67.0% |
| Net Income | ¥447.5B | ¥3829.7B | -88.3% |
| ROE | 0.7% | 6.5% | - |
For the fiscal year ended March 2026, Revenue was ¥100632.2B (YoY +¥13676.9B, +15.7%), a large increase, while Operating Income was ¥2429.0B (YoY -¥3050.6B, -55.7%), Ordinary Income was ¥1779.0B (YoY -¥1163.4B, -39.5%), and Net Income attributable to owners of the parent was ¥171.6B (YoY -¥3330.7B, -95.1%), resulting in a large decline in profits despite higher revenue. Revenue growth was driven by the Steel segment (+17.3%) and System Solutions (+15.4%), but the recognition of restructuring loss of ¥2712.3B and a doubling of financial costs (¥1012.2B, YoY +¥568.0B) pressured operating and ordinary profit. At the bottom line, an abnormally high effective tax rate of 74.1% caused Net Income to plunge to ¥447.5B (YoY -¥3353.5B, -88.3%). This result reflects a transitional fiscal year with concentrated large M&A and restructuring costs.
[Revenue] Revenue expanded solidly to ¥100632.2B (YoY +15.7%). The Steel segment accounted for ¥91732.3B (+17.3%), representing 91.2% of total revenue and serving as the main growth engine. System Solutions performed well at ¥2926.4B (+15.4%), while Engineering ¥3575.2B (-3.7%) and Chemicals & Materials ¥2398.3B (-4.4%) declined. Expansion of the consolidated scope (109 newly consolidated subsidiaries) and volume/price effects in the steel business supported revenue growth, while demand deterioration was observed in Engineering and Chemicals areas.
[Profitability] Cost of sales was ¥86184.1B, yielding Gross Profit of ¥14448.1B (gross margin 14.4%, YoY -1.4pt), and the decline in gross margin was the initial source of profit pressure. SG&A was ¥9939.7B (SG&A ratio 9.9%, YoY +22.6%), increasing at a pace exceeding revenue growth and highlighting a deterioration in operating efficiency. Equity-method investment income was ¥854.1B (YoY -¥416.0B), reflecting deteriorated external conditions. Other income totaled ¥1087.8B against Other expenses of ¥1309.1B, a slight net negative, resulting in Business Profit of ¥5141.3B. From here, a restructuring loss of ¥2712.3B was recorded, compressing Operating Income to ¥2429.0B (Operating margin 2.4%, YoY -¥3050.6B). Financial income was ¥311.3B versus Financial costs of ¥1012.2B (YoY +¥568.0B), with interest burden doubling and Ordinary Income at ¥1779.0B (YoY -39.5%). High tax burden of ¥1280.6B (effective tax rate 74.1%) left Net Income at ¥447.5B and Net Income attributable to owners of the parent at ¥171.6B (YoY -95.1%), diluting earnings. The combination of restructuring loss, sharp rise in interest expense, and high tax burden produced the significant revenue-up / profit-down outcome.
The Steel segment (91.2% of sales) reported Revenue ¥91732.3B (YoY +17.3%) and Business Profit ¥4399.6B (margin 4.8%), with profit down ¥1810.4B YoY — a segment concentrated with restructuring costs and gross margin deterioration. Engineering posted Revenue ¥3575.2B (-3.7%) and Business Profit ¥231.1B (margin 6.5%), improving ¥83.6B YoY. Chemicals & Materials recorded Revenue ¥2398.3B (-4.4%) and Business Profit ¥219.5B (margin 9.2%), up ¥30.6B YoY. System Solutions achieved Revenue ¥2926.4B (+15.4%) and Business Profit ¥433.2B (margin 14.8%), up ¥44.3B YoY and maintaining high profitability. The three non-steel segments have relatively high margins around 10%, making improvement in steel profitability the company-wide priority.
[Profitability] ROE dropped sharply to 0.3% (down 6.6pt from 6.9% prior year). DuPont decomposition shows Net Profit Margin 0.2% (prior year 4.0%), Total Asset Turnover 0.686x (prior year 0.795x), and Financial Leverage 2.43x (prior year 1.85x), with the plunge in Net Profit Margin the main driver. Operating margin was 2.4% (prior 6.3%, -3.9pt) and Net Profit Margin 0.4% (prior 4.4%, -4.0pt), indicating broad deterioration in profitability metrics. In the five-factor ROE decomposition, EBIT margin was 1.7% (EBIT/Revenue), Operating Leverage 1.45 (Revenue/Total Assets), Interest Burden 0.711 (Profit Before Tax/EBIT), Tax Burden 0.099 (Net Income/Profit Before Tax), and Financial Leverage 2.43x; low Interest Burden and Tax Burden materially depressed ROE. [Cash Quality] Operating Cash Flow was ¥7169.4B (YoY -26.7%), 16.0x Net Income ¥447.5B, mainly due to non-cash items of Depreciation & Amortization ¥5739.2B and restructuring loss ¥2712.3B; estimated EBITDA roughly ¥8168B and OCF/EBITDA = 0.88x, within a normal range. [Investment Efficiency] Total Asset Turnover 0.686x (prior 0.795x), Inventory Turnover Days (DIO) 118 days (prior 92 days), Days Sales Outstanding (DSO) 64 days (prior 60 days) indicate deterioration in working capital efficiency. [Financial Soundness] Equity Ratio 37.7% (prior 49.2%), Debt-to-Equity 1.43x (prior 0.85x) with a rapid increase in interest-bearing debt (¥5.17T, prior ¥2.51T) raising financial leverage, yet current ratio 178% (current assets ¥5.29T / current liabilities ¥2.97T) preserves short-term liquidity. Interest coverage is estimated around 2.4x (EBIT / Financial costs), raising concerns about heavy interest burden.
Operating Cash Flow was ¥7169.4B (YoY -26.7%). Compared with Profit Before Tax ¥1728.1B, non-cash additions included Depreciation & Amortization ¥5739.2B and restructuring loss ¥2712.3B, but working capital build-up (slight increase in trade receivables, inventory +¥776.7B, trade payables -¥1093.0B) and temporary adjustments related to segment expansion caused cash outflows exceeding profit. After deducting corporate tax payments of ¥2233.2B from OCF, estimated net cash was about ¥4936B. Investing Cash Flow was a very large outflow of -¥28371.8B, driven mainly by acquisition of subsidiary shares involving changes in consolidated scope -¥20155.7B and acquisition of tangible and intangible fixed assets -¥8631.8B, reflecting concentrated large M&A and capex. Free Cash Flow was a large negative -¥21202.4B, which was covered by Financing Cash Flow raising ¥18863.0B (long-term borrowings ¥2526.9B, bond issuance ¥6113.3B, dividend payments -¥1464.8B). Cash and cash equivalents declined to ¥4612.6B (YoY -¥2112.6B). The large investments were primarily funded by increased debt; normalizing FCF via completion of the investment phase and recovery of OCF is a key issue going forward.
Recurring earnings center on Steel segment Business Profit and equity-method investment income ¥854.1B. However, a one-off restructuring loss of ¥2712.3B was recorded at the operating level, significantly depressing profit below operating income. Financial income of ¥311.3B is limited at 0.3% of revenue, while financial costs of ¥1012.2B (YoY +128% increase) reflect increased interest-bearing debt and rising interest rates. Non-operating income and expenses are roughly balanced, so contributions from non-core operations are small. On an accrual basis, Operating Cash Flow ¥7169.4B versus Net Income ¥447.5B gives OCF/Net Income = 16.0x, a high level reflecting one-off expenses and high depreciation diluting Net Income; OCF/EBITDA at 0.88x is reasonable. The gap between Ordinary Income ¥1779.0B and Net Income ¥447.5B is mainly due to corporate tax expense ¥1280.6B (effective tax rate 74.1%), suggesting effects from valuation allowances and deferred tax adjustments. Earnings quality is expected to improve next fiscal year as restructuring losses abate and tax burden normalizes.
The company guidance forecasts Revenue ¥11.0T (YoY +3.5%), Ordinary Income ¥1200.0B (YoY -32.5%), Net Income attributable to owners of the parent ¥2200.0B (YoY +1182.0%), EPS ¥42.00, year-end dividend ¥12.00. Revenue is expected to grow modestly, and Net Income attributable to owners of the parent is assumed to recover substantially to 12.8x the current year. Progress rates (this period / full-year guidance) are Revenue 91.5%, Ordinary Income 148.3%, Net Income attributable to owners of the parent 7.8%, indicating Ordinary Income already exceeds guidance while bottom-line results lag materially. The company’s scenario anticipates a V-shaped recovery driven by completion of restructuring costs, price/mix improvements, and stabilization of interest burden. However, revenue growth forecast of +3.5% is modest, and profit recovery relies primarily on margin restoration and cost absorption. Achieving guidance assumes improvement in Steel segment gross margin, normalization of working capital efficiency (inventory compression, receivables management), and realization of M&A integration synergies.
For the fiscal year ended March 2026, dividends were interim ¥60 (Q2) and year-end ¥12, but a 1-for-5 stock split (1 share → 5 shares) was implemented on October 1, 2025, so the annual dividend after split is effectively ¥24 per share. With Net Income attributable to owners of the parent ¥171.6B and total dividends paid ¥1464.8B, the payout ratio is an abnormally high ~853%, meaning dividends are not covered by current-year earnings. Free Cash Flow was -¥21202.4B, so dividends were financed from Operating Cash Flow and external funding. Share buybacks were minor at ¥0.4B, and shareholder returns are dividend-centered. The company’s guidance assumes EPS ¥42.00 and year-end dividend ¥12.00, and with profit recovery the payout ratio is expected to normalize to about 28.6%. Sustainability of dividends depends on (1) normalization of earnings as restructuring costs abate, (2) completion of the investment phase and improvement in FCF, and (3) progress on inventory compression and working capital management expanding OCF. The company is currently in an investment phase, and confirming recovery in earnings and cash flow is essential to stabilize dividend policy.
Concentration risk in the Steel segment: Steel accounts for 91.2% of revenue, making the company highly sensitive to declines in steel market conditions and demand. There is risk of delayed price pass-through for rising raw material and energy costs and potential inventory valuation losses. With a gross margin of 14.4% at a relatively low level, revenue pressure from market deterioration could become severe.
Deterioration in working capital efficiency risk: Inventory ¥2.78T (DIO 118 days, YoY +26 days) and Trade Receivables ¥1.77T (DSO 64 days, YoY +4 days) indicate bloated working capital, raising risks of inventory obsolescence, receivable credit losses, and prolonged cash tie-up. Large inventories in the Steel segment and expansion of the consolidated scope are the main causes; delays in inventory reduction and supply chain optimization will impede FCF improvement.
Rising financial cost risk: Rapid increase in interest-bearing debt to ¥5.17T (YoY +106%) caused financial costs to double to ¥1012.2B. Interest coverage is estimated at 2.4x, leaving limited headroom and making profits vulnerable in a rising-rate environment. Delays in M&A integration or slower-than-expected profit improvement could fix interest payments as a structural burden. Increase in deferred tax liabilities to ¥335.14B also reflects acquisition-related valuation adjustments and may be a future cash outflow factor.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| ROE | 0.3% | 6.3% (3.2%–9.9%) | -6.0pt |
| Operating Margin | 2.4% | 7.8% (4.6%–12.3%) | -5.3pt |
| Net Profit Margin | 0.4% | 5.2% (2.3%–8.2%) | -4.7pt |
Profitability metrics are materially below industry medians, placing the company in the lower ranks within the industry due to concentrated restructuring costs and interest burden.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 15.7% | 3.7% (-0.4%–9.3%) | +12.0pt |
Revenue growth outperforms the industry median by +12.0pt, reflecting high growth driven by M&A and business expansion.
※ Source: Company aggregation
Transitional period of large M&A and restructuring: FY2026 included recognition of restructuring loss ¥2712.3B and a significant expansion of consolidated scope (net increase of 74 consolidated subsidiaries), temporarily reducing profitability and capital efficiency. Goodwill +¥188.1B, intangible assets +¥569.6B, and tangible fixed assets +¥2.64T show substantial asset increases; confirming integration progress and realization of synergies will be key from FY2027 onward. Financial costs doubled to ¥1012.2B, with interest coverage around 2.4x, and the heavy interest burden constrains upside to profit recovery.
Urgent need to improve working capital efficiency: DIO 118 days and DSO 64 days show working capital expansion, and Steel segment inventory ¥2.78T poses risk of stagnation and cash tie-up. Next year will require inventory reduction and strengthened receivables management to expand Operating Cash Flow. Investing Cash Flow was -¥2.84T and Free Cash Flow -¥2.12T, a large deficit. A payout ratio of 853% shows divergence from earnings and cash; smoothing investments and recovering cash flow are essential to sustain shareholder returns.
Assumptions behind profit-recovery scenario: The company forecast assumes Net Income attributable to owners of the parent ¥2200B (12.8x this period), but achieving this requires (1) completion of restructuring costs, (2) gross margin improvement in the Steel segment (price revision and mix improvement), (3) OCF expansion through working capital compression, and (4) realization of synergies from M&A integration. Interest rate environment, raw material price volatility, and progress on integration will determine the likelihood of achieving the scenario. With ROE 0.3% and Operating Margin 2.4%, profitability and capital efficiency remain below industry peers, making confirmation of normalization top priority.
This report is an automated financial analysis document 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 a professional advisor as needed.