| Metric | This Period | Prior Year | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥24365.8B | ¥25550.3B | -4.6% |
| Operating Income / Operating Profit | ¥1298.8B | ¥1587.2B | -18.2% |
| Ordinary Income | ¥1213.4B | ¥1571.9B | -22.8% |
| Net Income / Net Profit | ¥590.0B | ¥1037.2B | -43.1% |
| ROE | 4.4% | 8.4% | - |
For the fiscal year ended March 2026 (FY2026), Revenue was ¥24365.8B (YoY -¥1184.5B, -4.6%), Operating Income was ¥1298.8B (YoY -¥288.4B, -18.2%), Ordinary Income was ¥1213.4B (YoY -¥358.5B, -22.8%), and Net Income attributable to owners of the parent was ¥590.0B (YoY -¥447.2B, -43.1%), resulting in a decline in both revenue and profit. Revenue fell for the first time in three years, driven by a large decline in the Steel & Aluminum business (-10.7%) and a contraction in the Power business (-21.5%), which pulled down overall performance. Operating margin declined to 5.3% (down 0.9pp from 6.2% a year earlier), with a gross margin of 16.5% as the impact of elevated raw material and energy costs and delayed price pass-through became apparent. Ordinary Income was further compressed by deterioration in non-operating income/expenses (foreign exchange losses ¥40.8B, interest expense ¥134.0B), and Net Income was halved due to special losses (impairment losses ¥241.6B) and the lapse of one-off gains in the prior year. On the positive side, Operating Cash Flow was ¥2016.8B (YoY +36.0%) and improved markedly due to inventory reductions, yielding a healthy Free Cash Flow of ¥1280.2B.
[Revenue] Revenue of ¥24365.8B (YoY -4.6%) was led by a significant decline in the core Steel & Aluminum business to ¥9969.2B (-10.7%). The Power business also shrank by over 20% to ¥2032.0B (-21.5%), diluting the mix of high-margin segments. In contrast, Machinery ¥2827.4B (+6.6%), Engineering ¥1939.0B (+10.9%), and Materials ¥3328.7B (+5.0%) recorded revenue increases, while Construction Machinery ¥3895.6B (+0.4%) and Welding ¥964.6B (+2.7%) provided modest support. The Steel & Aluminum revenue decline was mainly due to weakening domestic demand and margin compression caused by delayed selling price adjustments in a phase of declining raw material prices. Power revenue declined due to lower generation volumes and market price movements. Machinery and Engineering achieved double-digit growth supported by steady backlog digestion and contribution from overseas projects. Contract liabilities were ¥789.9B (prior year ¥755.4B), indicating accumulated advance payments and potential revenue capture in subsequent periods.
[Profitability] Gross profit was ¥4032.2B (gross profit margin 16.5%, -0.1pp from 16.6% a year earlier), reflecting a slight decrease as higher raw material and energy costs were not fully passed through. Selling, General & Administrative expenses were ¥2733.4B (SG&A ratio 11.2%, up 0.8pp from 10.4%) and fixed-cost absorption was insufficient against lower sales, compressing Operating Income to ¥1298.8B (Operating margin 5.3%). Segment profit contributions show Machinery at ¥467.0B (segment margin 16.5%) and Power at ¥347.6B (17.1%) accounting for over 60% of corporate profit, while Steel & Aluminum struggled at ¥28.9B (0.3%), diluting corporate margins. Non-operating items included dividend income ¥51.8B, interest income ¥31.4B, and equity-method investment income ¥141.2B (up 19.9% from ¥117.7B), but were offset by interest expense ¥134.0B and foreign exchange losses ¥40.8B (on par with prior year), resulting in net non-operating loss of ¥85.4B and pushing Ordinary Income down to ¥1213.4B. Extraordinary items included gains on sales of investment securities ¥218.7B, gains on sales of fixed assets ¥70.7B, and negative goodwill recognized ¥167.1B (total special gains ¥289.4B), offset by special losses of ¥294.0B centered on impairment losses ¥241.6B, nearly netting out. Profit before income taxes was ¥1208.7B; after income taxes of ¥230.4B (effective tax rate 19.1%) and non-controlling interests of ¥41.1B, Net Income attributable to owners of the parent was ¥590.0B (YoY -43.1%). In conclusion, the result is a year of lower revenue and profit.
External customer revenue and Ordinary Income (profit) by reportable segment are as follows. Machinery ¥2690.1B (prior ¥2516.4B, +6.9%) with profit ¥467.0B; Power ¥2032.0B (prior ¥2588.1B, -21.5%) with profit ¥347.6B; Steel & Aluminum ¥9614.7B (prior ¥10780.2B, -10.8%) with profit ¥28.9B; Materials ¥3202.2B (prior ¥3043.5B, +5.2%) with profit ¥87.0B; Construction Machinery ¥3894.7B (prior ¥3878.6B, +0.4%) with profit ¥123.7B; Engineering ¥1915.2B (prior ¥1723.9B, +11.1%) with profit ¥126.3B; Welding ¥956.1B (prior ¥932.2B, +2.6%) with profit ¥58.6B. Machinery and Power account for roughly 60% of corporate profit: Machinery achieved revenue and profit growth driven by overseas projects and higher-value products, while Power maintained high margins despite revenue contraction. Steel & Aluminum saw segment profit plunge from ¥236.6B to ¥28.9B due to higher raw material costs and deteriorating spreads. Engineering achieved double-digit revenue growth on backlog digestion and overseas plant projects. Construction Machinery was broadly flat and Welding showed modest growth.
[Profitability] Operating margin 5.3% (prior 6.2%) and gross margin 16.5% (prior 16.6%) are low for capital-intensive manufacturing, with low-margin Steel & Aluminum and insufficient fixed-cost absorption as primary downward drivers. ROE was 4.4% (prior 8.4%), halved due to the decline in Net Income margin. EBITDA margin remained in double digits at 10.4% (= EBITDA ¥2538.3B / Revenue ¥24365.8B), indicating a certain level of cash-generating capacity. [Cash Quality] Operating Cash Flow of ¥2016.8B was 3.4x Net Income ¥590.0B, indicating ample cash generation; the accrual ratio was -3.8% (=(¥590B-¥2016.8B)/¥2865.2B), suggesting high quality. Inventory reduction contributed ¥199.7B to cash generation. The OCF/EBITDA ratio of 0.79x is below the 0.9x benchmark, indicating remaining receivables and inventory retention. [Investment Efficiency] Total asset turnover was 0.85x; inventory turnover days were 124 days, with inventory levels well above the steel industry standard (30–45 days). CapEx was ¥1244.4B (CapEx/Revenue 5.1%, CapEx/Depreciation 1.00x) focused on maintenance and renewal, and R&D ratio was a low 1.1%. [Financial Soundness] Equity Ratio 46.4% (prior 42.8%), Debt/EBITDA 2.25x, Debt/Capital 30.1%, and Interest Coverage 9.69x are in the investment-grade range and stable. Current ratio was 163% and quick ratio 133%, indicating solid short-term liquidity. Net defined benefit assets were ¥497.4B (prior ¥271.5B), improving pension funding and the quality of equity.
Operating Cash Flow was ¥2016.8B (prior ¥1482.6B, +36.0%), 3.4x Net Income ¥590.0B, reflecting high-quality cash generation. After adjustments for non-cash items—depreciation ¥1239.5B, impairment losses ¥241.6B, goodwill amortization ¥4.5B, and equity-method investment loss ▲¥141.2B—subtotal Operating CF reached ¥2187.3B. Working capital changes included inventory decrease ¥199.7B contributing to cash, while accounts receivable increase ▲¥259.3B and accounts payable decrease ▲¥46.9B consumed cash, leaving net working capital with a minor negative impact. After corporate tax payments ¥235.0B, interest and dividend receipts ¥201.4B, and interest payments ¥136.8B, Operating CF totaled ¥2016.8B. Investing Cash Flow was ▲¥736.6B, driven by acquisition of tangible and intangible fixed assets ¥1244.4B, partially offset by proceeds from asset sales ¥106.8B and sales of investment securities ¥322.4B. As a result, Free Cash Flow was a substantial positive ¥1280.2B. Financing Cash Flow was ▲¥1624.1B, with repayment of long-term borrowings ¥1449.7B, bond redemptions ¥350.0B, dividends ¥374.7B, and share buybacks ¥31.6B consuming cash, partially offset by long-term borrowings obtained ¥584.8B. Cash and cash equivalents at period-end were ¥1890.3B (from ¥2198.7B at the beginning, ▲¥308.4B), maintaining appropriate liquidity while prioritizing debt management and shareholder returns.
Of Net Income ¥590.0B, recurring elements centered on Operating Income ¥1298.8B, equity-method investment income ¥141.2B, dividend income ¥51.8B, and interest income ¥31.4B. One-off elements included special gains of ¥289.4B (gains on sales of investment securities ¥218.7B, gains on sales of fixed assets ¥70.7B, negative goodwill ¥167.1B) and special losses of ¥294.0B (impairment losses ¥241.6B, loss on sale of subsidiary shares ¥52.4B) which nearly netted out. Special items accounted for gross amounts equivalent to roughly 50% of Net Income, increasing EPS volatility. Of non-operating income ¥421.7B, equity-method investment income and dividend/interest income represent recurring sources and account for about half of the total; foreign exchange gains ¥29.5B are variable. Non-operating expenses ¥507.1B were led by interest expense ¥134.0B and foreign exchange losses ¥40.8B, indicating that interest burden and FX volatility are persistent downside pressures on recurring earnings. Comprehensive income was ¥1384.9B (¥1323.0B attributable to owners of the parent), substantially above Net Income ¥590.0B; components included foreign currency translation adjustments ¥60.0B, actuarial gains related to retirement benefits ¥270.8B, and deferred hedge gains/losses ¥52.7B, which strengthened equity cushions. With Operating Cash Flow 3.4x Net Income and supported by inventory reduction and substantial depreciation, cash-based profitability remains relatively high quality despite accrual-based profit compression.
The company’s plan for FY2027 (year ending March 2027) projects Revenue ¥25600.0B (YoY +5.1%), Operating Income ¥1500.0B (YoY +15.5%), Ordinary Income ¥1200.0B (YoY -1.1%), Net Income attributable to owners of the parent ¥500.0B (YoY -15.3%), forecast EPS ¥251.80, and forecast dividend ¥40.00 per share. The company plans a significant improvement in Operating Income (+15.5% YoY), assuming inventory normalization, price corrections, and increased contributions from Machinery and Engineering. Ordinary Income is forecast to be broadly flat (-1.1%), likely reflecting conservative assumptions on non-operating items (equity-method investment income, financial results, FX). Net Income is planned to decline to ¥500.0B (-15.3%) on the assumption of the lapse of special gains, incorporating the reversal of one-off gains in the current fiscal year. Progress rates against the full-year forecast are Revenue 95.2%, Operating Income 86.6%, Ordinary Income 101.1%, Net Income 118.0%; Ordinary Income and Net Income have already exceeded the full-year plan, implying a scenario where Operating profit gains do not transmit to below-operating-line results only if non-operating items deteriorate. Realization depends on improvement in Steel & Aluminum profitability (raising gross margin and normalizing spreads), acceleration of inventory turns, and digestion of Machinery and Engineering backlog. The net amount of contract liabilities ¥789.9B minus contract assets ¥485.4B equals ¥304.5B in advance payments, indicating short-term revenue capture potential.
The annual dividend is ¥80 per share (interim ¥40, year-end ¥40), with a payout ratio of 33.8% (= total dividends ¥79.21B / Net Income attributable to owners of the parent ¥590.0B), a conservative level. Total distributions of ¥79.21B in dividends plus ¥31.6B in share buybacks amount to ¥110.8B, and the total return ratio relative to Free Cash Flow ¥1280.2B is 8.7%, a low level. Even with dividends plus buybacks, only about 9% of FCF is returned to shareholders; surplus funds have been prioritized for interest-bearing debt repayment (long-term borrowings repayment ¥1449.7B, bond redemptions ¥350.0B). Dividend sustainability is supported by cash and deposits ¥1892.3B and Operating Cash Flow ¥2016.8B, with Debt/EBITDA 2.25x and Interest Coverage 9.69x indicating limited financial constraints; maintaining payout ratios in the 30% range is feasible. The next-period dividend forecast is ¥40.00 per interim/final (¥80 annual), planned at the same level as this year, signaling a policy to maintain dividends despite projected earnings declines. Equity is substantial at ¥1330.5B (Equity Ratio 46.4%), indicating ample dividend capacity. The divergence between payout ratio 33.8% and total return ratio 8.7% reflects a policy to prioritize financial strengthening over shareholder returns.
Raw material price and spread volatility risk: The Steel & Aluminum business has a low gross margin of 16.5%. Continued raw material (iron ore, scrap, energy) price hikes and delayed selling price adjustments can compress spreads. Steel & Aluminum accounts for 40.9% of revenue, with segment profit ¥28.9B (margin 0.3%), acting as a drag on corporate profit. A renewed upward movement in raw material markets could further squeeze gross margins and risk turning the segment into an operating loss.
Inventory valuation and working capital expansion risk: Inventory turnover days are 124 days, far exceeding industry standard (30–45 days), and high inventory levels impair capital efficiency. Inventory ¥2560.5B (prior ¥2659.4B) decreased year-on-year but remains high, posing the risk of valuation losses or discounted sales in a demand downturn, which would pressure gross margins. OCF/EBITDA of 0.79x is below the benchmark; delayed working capital optimization could reduce Operating CF.
Insufficient fixed-cost absorption and deteriorating operating leverage risk: SG&A ¥2733.4B (SG&A ratio 11.2%) remains high relative to lower sales, and fixed-cost flexibility is limited. With sales down -4.6% and Operating Income down -18.2%, operating leverage is functioning in reverse, amplifying profit declines in revenue downturns. The next-period plan assumes Operating Income +15.5% on Revenue +5.1%; missed revenue targets could lead to profit shortfalls due to insufficient fixed-cost absorption.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 5.3% | 7.8% (4.6%–12.3%) | -2.4pt |
| Net Profit Margin | 2.4% | 5.2% (2.3%–8.2%) | -2.8pt |
Operating margin 5.3% and Net Profit margin 2.4% are 2–3pp below the manufacturing median, placing the company in the mid-to-lower group within the industry. The high weighting of the low-margin Steel & Aluminum segment indicates substantial room for profitability improvement.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | -4.6% | 3.7% (-0.4%–9.3%) | -8.3pt |
Revenue growth -4.6% is 8.3pp below the manufacturing median +3.7%, indicating strong industry headwinds. Declines in Steel & Aluminum and Power drove the contraction, while Machinery and Engineering supported the results. Achieving next-period plan +5.1% is key to returning to industry-level performance.
※ Source: Company aggregation
Operating Cash Flow ¥2016.8B and Free Cash Flow ¥1280.2B demonstrate robust cash generation, with inventory reduction contributing ¥199.7B and supporting cash quality. Debt/EBITDA 2.25x and Interest Coverage 9.69x indicate investment-grade financial soundness, providing ample capacity to cover interest-bearing debt repayments (long-term borrowings repayment ¥1449.7B, bond redemptions ¥350.0B) and dividends ¥374.7B. However, OCF/EBITDA 0.79x (below 0.9x) and inventory turnover days 124 indicate that inventory high levels remain a working capital efficiency challenge.
The next-period plan expects Operating Income +15.5% but Ordinary Income flat (-1.1%) and Net Income down (-15.3%), suggesting a conservative estimate of non-operating items that assumes operating profit improvements do not necessarily translate below the operating line. Achievement requires Steel & Aluminum gross margin improvement (raw material cost control and price correction), acceleration of inventory turns (shorter DIO), and digestion of Machinery & Engineering backlog. Contract liabilities ¥789.9B (advance receipts) and contract assets ¥485.4B produce a net advance receipts position of ¥304.5B, indicating short-term revenue capture potential to support top-line recovery.
This report is an earnings analysis document automatically generated by AI analyzing XBRL financial statement data. It is not a recommendation to invest in any particular security. Industry benchmarks are reference information compiled by the company from public financial statements. Investment decisions are your own responsibility; please consult a professional if necessary before making investment decisions.