Godo Steel,Ltd. FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ended March 2026, the Company reported lower revenue and lower earnings, mainly due to decreased sales and deteriorating profitability in its core Steel Business. Revenue was ¥1,917.7B (-6.5% year on year), Operating Income was ¥98.1B (-28.6%), Ordinary Income was ¥110.9B (-28.1%), and Net Income was ¥80.7B (-29.4%; Net Income attributable to owners of the parent was ¥80.5B, -28.9%). The decline in earnings, which exceeded the decline in revenue, reflects the adverse reversal of operating leverage resulting from a lower gross margin and higher SG&A expenses. Meanwhile, Operating CF remained solid at ¥214.3B, and debt reduction progressed, maintaining financial resilience.

Factors Affecting Business Performance

【Revenue】Revenue declined 6.5% year on year to ¥1,917.7B. The Steel Business, which accounts for 90.9% of consolidated revenue, was the primary source of the decline, with revenue of ¥1,743.1B (-7.5%). The Agricultural Materials Business generated revenue of ¥127.2B (+4.3%), while Other Businesses generated ¥47.5B (+6.1%), both representing increases. However, the combined revenue share of these two businesses was only 9.1%, limiting their ability to absorb fluctuations in steel market conditions.

【Profit and Loss】Operating Income declined 28.6% to ¥98.1B, Ordinary Income declined 28.1% to ¥110.9B, and Net Income declined 29.4% to ¥80.7B, with deterioration in each case substantially exceeding the decline in revenue. The gross margin was 17.1%, down approximately 0.6pt from the previous fiscal year, while SG&A expenses increased 2.2% year on year to ¥229.4B. As a result, the Operating Margin contracted by 1.6pt, from 6.7% to 5.1%. On a segment profit basis (Ordinary Income basis), the Steel Business was the primary contributor to the overall deterioration, with profit of ¥102.9B (-32.6%), while the Agricultural Materials Business returned to profitability with profit of ¥2.8B. Extraordinary gains and losses contributed only ¥1.3B of profit. The gap between Ordinary Income and Net Income was attributable to the burden of income taxes, with no significant temporary factor. The Company reported lower revenue and lower earnings, and the decline in margins drove the deterioration in performance in the absence of support from revenue growth.

Segment Analysis

The Steel Business reported revenue of ¥1,743.1B (-7.5%), segment profit of ¥102.9B (-32.6%), and a profit margin of 5.9%, indicating a deterioration in profit exceeding the decline in revenue. The Agricultural Materials Business reported revenue of ¥127.2B (+4.3%) and segment profit of ¥2.8B, returning to profitability from a loss in the previous fiscal year; however, its profit margin was 2.2% and its scale remained small. Other Businesses reported revenue of ¥47.5B (+6.1%), segment profit of ¥5.4B (+17.2%), and the highest profitability, with a margin of 11.4%, but accounted for only 2.5% of consolidated revenue. The structure in which deterioration in the Steel Business determines consolidated performance remains unchanged, and the diversification benefits provided by the other businesses are limited.

Key Financial Indicators

【Profitability】The Operating Margin was 5.1%, down 1.6pt from 6.7% in the previous fiscal year, while the Net Profit Margin also deteriorated to 4.2% from approximately 5.5%. ROE was 5.6%, down 3.0pt from 8.6% in the previous fiscal year, primarily due to deterioration in the Net Profit Margin and a decline in total asset turnover. 【Cash Flow Quality】Operating CF was ¥214.3B, approximately 2.7 times Net Income, indicating favorable cash conversion. However, this was partly supported by temporary working capital contraction, including decreases of ¥58.99B in accounts receivable and ¥18.75B in inventories; caution is therefore required when extrapolating this level as a recurring figure. 【Investment Efficiency】ROIC was 4.4%, a level that leaves room for improvement when considering the cost of capital. Capital expenditures reached ¥89.9B, or 1.87 times depreciation and amortization of ¥48.1B, requiring future monitoring of investment returns. 【Financial Soundness】The Equity Ratio rose to 56.5% from 53.0% in the previous fiscal year, while long-term borrowings declined 31.7%, from ¥259.3B to ¥177.2B. The Current Ratio was 181.2% and the Quick Ratio was 114.4%, indicating secured short-term liquidity; however, short-term borrowings accounted for approximately 59.7% of current liabilities, requiring monitoring of the funding structure.

Cash Flow Analysis

Operating CF increased 12.0% year on year to ¥214.3B, approximately 2.7 times Net Income of ¥80.7B. Decreases of ¥59.0B in accounts receivable and ¥18.8B in inventories contributed to cash inflows, while trade payables also increased by ¥16.8B, with overall working capital supporting Operating CF. Investing CF represented an outflow of ¥95.9B, primarily reflecting ¥89.9B in acquisitions of property, plant and equipment and intangible assets, an active investment level equivalent to 1.87 times depreciation and amortization of ¥48.1B. Free Cash Flow, calculated as Operating CF less Investing CF, was secured at ¥118.4B. Financing CF represented an outflow of ¥137.3B, primarily reflecting reductions in short-term borrowings and repayment of ¥103.9B in long-term borrowings. While combining this with partial funding through the issuance of ¥50.0B in bonds and ¥24.0B in long-term borrowings, the Company proceeded with overall debt reduction. The improvement in Operating CF during the period was substantially dependent on working capital contraction, and the Company will need to monitor whether any reversal occurs.

Earnings Quality

The decline in the Operating Margin during the period was attributable to recurring business factors—decreased sales and deteriorating profitability in the Steel Business—while the impact of extraordinary gains and losses was limited. Extraordinary gains were ¥3.3B, including a ¥3.0B gain on the recognition of negative goodwill, and extraordinary losses were ¥2.0B, consisting of losses on disposal of property, plant and equipment. The net contribution was therefore only ¥1.3B to Net Income, while the gap between Ordinary Income and Net Income was primarily attributable to the ¥31.6B income tax burden. Non-operating income, including ¥7.5B in dividend income and ¥6.1B in equity in earnings of affiliates accounted for using the equity method, supported Ordinary Income; however, the latter declined from ¥9.1B in the previous fiscal year, and the scale of such income remained in the 1% range of revenue, indicating limited dependence on non-core income. Operating CF reaching approximately 2.7 times Net Income indicates favorable cash conversion, but this includes the effects of temporary working capital contraction; accordingly, whether the same level can be sustained in subsequent periods requires close attention.

Earnings Forecast and Guidance

For the following fiscal year (fiscal year ending March 2027), the Company forecasts Revenue of ¥2,000.0B (+4.3% year on year), Operating Income of ¥65.0B (-33.8%), Ordinary Income of ¥70.0B (-36.9%), and EPS of ¥294.04. Despite anticipating revenue growth, the Company expects substantial declines in Operating Income and Ordinary Income. The forecast Operating Margin is calculated to decline by approximately 1.8pt from the current-period result of 5.1% to 3.3%. The forecast assumes that revenue growth will not directly translate into earnings recovery, making trends in the Steel Business spread and fixed-cost absorption key to achieving the plan.

Shareholder Returns

The annual dividend totals ¥180, consisting of an interim dividend of ¥100 and a year-end dividend of ¥80, resulting in a Payout Ratio of 32.7%. Share repurchases amounted to only ¥0.0B, leaving the Total Return Ratio at approximately the same level as the Payout Ratio. Operating CF of ¥214.3B and Free Cash Flow of ¥118.4B both substantially exceeded total dividends, ensuring sufficient funding for the current-period dividend. For the following fiscal year, the Company plans to maintain a dividend of ¥100. Based on forecast EPS of ¥294.04, the forecast Payout Ratio is approximately 34.0%, a level within the range of projected earnings.

Risk Factors

1. Business concentration risk: The Steel Business accounts for 90.9% of consolidated revenue, and segment profit deteriorated by 32.6%, substantially exceeding the 7.5% decline in revenue. Consolidated performance is structurally directly linked to fluctuations in the spread between steel supply and demand and raw material and fuel costs.

2. Declining profitability: The gross margin of 17.1% declined by approximately 0.6pt from the previous fiscal year, while the Operating Margin deteriorated by 1.6pt from 6.7% to 5.1%. The Company forecasts a further decline in the Operating Margin to 3.3% for the following fiscal year.

3. Working capital and funding structure: Short-term borrowings account for approximately 59.7% of current liabilities, indicating relatively high dependence on short-term funding. In addition, the improvement in Operating CF during the period was supported by decreases in accounts receivable and inventories, requiring close monitoring of whether this working capital contraction can be sustained.

Industry Benchmark (For Reference; Company Analysis)

Profitability and Returns

Both the Company's Operating Margin and Net Profit Margin are below the industry median, indicating relatively weaker profitability.

Growth and Capital Efficiency

While many companies in the industry reported revenue growth, the Company reported a decline in revenue and lagged in terms of growth.

※Source: Company analysis

Key Takeaways from the Financial Results

1. The primary causes of lower revenue and lower earnings were decreased sales and deteriorating profitability in the Steel Business, which accounts for 90.9% of consolidated revenue; the diversification benefits provided by the other businesses were limited. The Operating Margin declined from 6.7% in the previous fiscal year to 5.1%, and the Company forecasts a further decline to 3.3% for the following fiscal year.

2. Operating CF reached approximately 2.7 times Net Income, and Free Cash Flow was secured at ¥118.4B. Financial soundness indicators improved, including a 31.7% decline in long-term borrowings and an increase in the Equity Ratio to 56.5%.

3. ROE was 5.6% (8.6% in the previous fiscal year), while ROIC remained at 4.4%, leaving room for improvement in capital efficiency. The increase in Operating CF during the period was partly supported by decreases in accounts receivable and inventories, making the sustainability of this working capital effect a key point of attention.

Theoretical Share Price (Reference Value)

Sensitivity: ¥8,006–¥8,468 at Cost of Equity ±1%; ¥8,180–¥8,266 at ω ±0.1.

Notes:

• Amortization of goodwill of ¥31.6 per share has been added back to earnings (to reflect a non-cash expense and improve comparability with IFRS companies).
• As forecast ROE is below the Cost of Equity, the theoretical value is below Book Value per Share.

(Calculation model: Residual Income Model (Ohlson type; explicit 5-year fade) / Interest rate reference month: 2026-07 / Mechanically calculated solely from publicly disclosed data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not forecast or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with a professional as necessary.

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