| Metric | This Period | Prior-Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥45392.7B | ¥48596.5B | -6.6% |
| Operating Income / Operating Profit | ¥1122.0B | ¥1650.7B | -32.0% |
| Profit Before Tax (Tax Before Income Taxes) | ¥874.2B | ¥1443.2B | -39.4% |
| Net Income / Net Profit | ¥740.3B | ¥932.5B | -20.6% |
| ROE | 2.8% | 3.6% | - |
The fiscal year ended March 2026 closed with Revenue / Net Sales of 4兆5,392B円 (YoY -3,203B円 -6.6%), Operating Income of 1,122B円 (YoY -528B円 -32.0%), Ordinary Income of 733B円 (YoY -681B円 -48.1%), and Net Income attributable to owners of the parent of 702B円 (YoY -217B円 -23.6%), resulting in lower sales and earnings. The operating margin deteriorated to 2.5% from 3.4% a year earlier (worsened by 0.9pt). Gross margin improved to 11.6% (up 0.6pt from 11.0%) but SG&A ratio worsened to 9.5% (from 8.4%, up 1.1pt), indicating heavier fixed-cost burden and a negative leverage effect. Equity-method investment income of 545B円 (from 291B円, +87.2%) accounted for 62% of Profit Before Tax of 874B円, so affiliates’ results supplemented consolidated earnings. Meanwhile, financial expenses expanded to 304B円 (from 265B円, +14.7%), noticeably pressuring non-operating profit.
[Revenue] Revenue was 4兆5,392B円 (YoY -6.6%). By segment, the Steel Business recorded 2兆7,566B円 (YoY -8.4%) due to weaker core steel demand and softer market conditions; the Trading Business recorded 1兆1,990B円 (YoY -7.6%) due to shrinking distribution margins and reduced handling volumes; while the Engineering Business grew to 5,837B円 (YoY +5.3%) driven by project progress and execution of order backlog. Revenue composition was Steel 60.7%, Trading 26.4%, Engineering 12.9%, indicating high Steel concentration and vulnerability to market swings.
[Profitability] Cost of sales was 4兆133B円 (from 4兆3,265B円, -7.2%), compressed faster than the revenue decline, improving gross margin to 11.6% (from 11.0%, +0.6pt). However, SG&A rose to 4,311B円 (from 4,094B円, +5.3%) despite declining sales, pushing the SG&A ratio to 9.5% (from 8.4%, +1.1pt) and causing Operating Income to fall to 1,122B円 (from 1,651B円, -32.0%). One-off items included land sale gains of 32B円, Keihin land utilization promotion expenses ▲122B円, impairment losses ▲87B円, and GX plant construction removal costs ▲55B円, which in net reduced Operating Income by ▲232B円. Non-operating items saw equity-method investment income of 545B円 (up 254B円 from 291B円) supporting Profit Before Tax, while financial expenses of 304B円 (up 39B円) pressured profitability. Ordinary Income was 733B円 (from 1,414B円, -48.1%). A lower effective tax rate of 15.3% (from 35.4%) reduced tax burden, resulting in Net Income attributable to owners of the parent of 702B円 (from 919B円, -23.6%). In conclusion, the company reported lower sales and lower profits.
The Steel Business posted Revenue of 2兆7,566B円 (-8.4%) and Operating Income of 380B円 (+4.5%), with a margin of 1.4%; cost improvements kept it in profit despite thin margins. The Trading Business had Revenue of 1兆1,990B円 (-7.6%) and Operating Income of 402B円 (-16.2%), margin 3.4%, reflecting weaker market conditions and margin compression. The Engineering Business recorded Revenue of 5,837B円 (+5.3%) and Operating Income of 240B円 (+23.7%), margin 4.1%, driven by improved project profitability and order execution. By contribution, Trading led with 402B円 (composition 36.0%), followed by Steel 380B円 (34.0%) and Engineering 240B円 (21.5%). Post corporate adjustments, profit was positively impacted by 84B円 due to consolidation of equity-method investment income and dividend eliminations.
[Profitability] Operating margin was 2.5% (from 3.4%, -0.9pt), Net margin 1.6% (from 1.9%, -0.3pt), reflecting persistently low margins. ROE was 2.7% (from 3.7%, -1.0pt), indicating deteriorating capital efficiency. ROA (on Ordinary Income basis) was 1.5% (from 2.5%, -1.0pt), showing weaker asset returns. Equity-method investment income of 545B円 accounted for 62% of Profit Before Tax of 874B円, indicating high external dependence. [Cash Quality] Operating Cash Flow (OCF) was 3,791B円, 5.1x Net Income of 740B円, aided by working capital improvements (Inventory +458B円, Trade Receivables +314B円, Trade Payables ▲355B円). OCF/EBITDA was 0.98x (EBITDA = Operating Income 1,122B円 + Depreciation 2,743B円 = 3,865B円), a high level; accrual ratio was -5.2% ((Operating CF 3,791B円 – Net Income 740B円) / Total Assets 5兆8,952B円), indicating a cash-driven earnings structure. [Investment Efficiency] Capex was 3,799B円, 1.39x Depreciation of 2,743B円, reflecting active GX and renewal investments. ROIC is approx. 2.2%, calculated as after-tax operating profit (1,122B円 × (1-0.153) = 950B円) / Invested Capital (Equity 2兆6,195B円 + Interest-bearing Debt 1兆9,594B円 - Cash 1,678B円 = 4兆4,111B円), below cost of capital. [Financial Soundness] Equity Ratio was 44.4% (from 45.8%, -1.4pt) and remains healthy, but Interest-bearing Debt (current 443.3B円 + non-current 1兆5,161B円 = total 1兆9,594B円) equals 5.1x EBITDA of 3,865B円, and Interest Coverage is Operating Income 1,122B円 / Interest Expense 304B円 = 3.7x, giving limited cushion. Current ratio 155% and Cash 1,678B円 secure short-term liquidity.
Operating CF was 3,791B円 (roughly flat YoY), 5.1x Net Income 740B円, maintaining strong cash generation. Adding back Depreciation 2,743B円 and adjusting equity-method investment gains ▲545B円 to Profit Before Tax 874B円, working capital contributed positively via inventory reduction 458B円 and trade receivable collection 314B円, while trade payable decrease ▲355B円 and corporate tax payments ▲495B円 were negatives. Investing CF was ▲4,528B円 (from ▲2,832B円, due to higher spending), driven by capex ▲3,799B円 (from ▲3,148B円) and acquisition of investment securities ▲1,489B円 (from ▲812B円). Free Cash Flow was ▲737B円, indicating operations could not cover investments. Financing CF was +617B円 (from ▲1,574B円), strengthened by long-term borrowings 2,141B円 and bond issuance 700B円; net increase in short-term borrowings 620B円, bond redemptions ▲500B円, long-term loan repayments ▲1,421B円, and dividend payments ▲573B円 were executed. Foreign exchange translation effects +70B円 also impacted cash, resulting in period-end cash decreasing by ▲50B円 from 1,728B円 to 1,678B円.
Operating profit is the primary source of recurring earnings. From Gross Profit of 5,259B円 less SG&A 4,311B円 plus equity-method income 545B円, the business base strength is about 1,493B円 (adjusting business profit 1,354B円 with equity-method gains). Operating Income of 1,122B円 includes one-offs: plus land sale gain 32B円 and minus Keihin land utilization promotion expenses ▲122B円, impairment losses ▲87B円, and GX plant removal costs ▲55B円, netting to a ▲232B円 negative impact. Financial income of 56B円 (0.1% of sales) is minor, while financial expenses of 304B円 equal 27% of Operating Income and represent a significant drag. Equity-method investment income of 545B円 accounts for 62% of Profit Before Tax 874B円, increasing consolidated earnings volatility depending on affiliate performance. Comprehensive income was 1,550B円 (parent company portion 1,488B円) versus Net Income 740B円; the 810B円 difference is largely due to foreign currency translation differences on overseas operations 274B円, remeasurements of defined benefit plans 216B円, and fair value changes on capital-equity-type financial instruments 174B円, meaning valuation gains serve as a buffer. With OCF/EBITDA 0.98x and accrual ratio -5.2%, the earnings quality is cash-driven and high.
Full-year forecast assumes Revenue / Net Sales of 4兆8,000B円 (not achieved vs. first-half results 4兆5,393B円, but on an annual basis -1.2% vs. prior-year 4兆8,596B円), Net Income attributable to owners of the parent of 1,500B円 (first-half 702B円, progress ratio 46.8%), and EPS of 235.80円 (2.14x first-half EPS 110.30円). To reach the full-year plan from H1 results, the company needs an additional 798B円 of Net Income in H2 (H2 vs H1 +13.7%), which assumes improvement in operating margin (H1 2.5% → recovery to the 4% range in H2) and maintenance of high equity-method investment income. Dividend guidance is 80円 (including interim dividend of 40円 already paid in H1), implying a payout ratio of 33.9% on annual profit forecast 1,500B円, which is restrained and sustainable. Achieving the plan depends on price pass-through and mix improvement, improved profitability of Engineering projects, and moderation of interest burden, supported by inventory reduction and stable raw material costs.
The company plans an annual dividend of 80円 (interim 40円 + year-end 40円). The interim dividend of 40円 has already been paid. The payout ratio on H1 EPS 110.30円 stands at 69.2% (high relative to interim earnings), but on full-year EPS forecast 235.80円 the payout is 33.9% and more restrained. Total dividends paid were 573B円 (interim dividend payment), and coverage is negative versus Free Cash Flow ▲737B円, effectively supplemented by borrowings and bond issuance. Share buybacks were small at 6.5B円, so total shareholder returns are dividend-centric. Given cash and deposits of 1,678B円 and OCF generation of 3,791B円, short-term dividend sustainability is supported, but medium-term sustainability requires turning Free Cash Flow positive and normalizing operating margins.
Market Risk: Softening steel market and volatility in raw material prices (iron ore, coking coal) can significantly impact earnings under a thin gross margin of 11.6%. The YoY Revenue decline of ▲6.6% reveals deteriorating supply-demand; high inventory days of 108 days (average inventory during period 1兆1,881B円 / Cost of Sales 4兆133B円 × 365 days) pose valuation loss risk in price declines. Steel revenue concentration at 60.7% increases company-wide sensitivity to market conditions.
Interest Burden Risk: Interest-bearing debt of 1兆9,594B円 equals 5.1x EBITDA 3,865B円 and Interest Coverage of 3.7x, limiting resilience to rate rises or earnings declines. Financial expenses of 304B円 are 27% of Operating Income 1,122B円. The interest-burden coefficient is 0.78 (Financial Expenses 304B円 / (Ordinary Income 733B円 + Financial Expenses 304B円)), showing interest payments significantly weigh on profitability. Continued high Capex of 3,799B円 (1.39x depreciation) increases short-term external financing dependence.
Dependence on Equity-Method Income: Equity-method investment income of 545B円 accounts for 62% of Profit Before Tax 874B円, so consolidated earnings are highly sensitive to affiliate performance. Equity-method investment balance stands at 8,162B円 (from 6,370B円, +28% YoY), indicating active increases; adverse market moves in resource and shipbuilding investments could trigger impairments and equity-method losses. While dividend income could provide stable cash, impairment risk exists.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Return on Equity | 2.7% | 6.3% (3.2%–9.9%) | -3.6pt |
| Operating Margin | 2.5% | 7.8% (4.6%–12.3%) | -5.3pt |
| Net Margin | 1.6% | 5.2% (2.3%–8.2%) | -3.6pt |
Compared with the manufacturing sector median, profitability metrics are substantially below industry medians, with ROE, Operating Margin, and Net Margin all in the bottom 25%.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | -6.6% | 3.7% (-0.4%–9.3%) | -10.3pt |
In growth, the company recorded significant revenue decline while the industry shows expansion, placing it in the lower ranks.
※ Source: Company compilation
Medium-term task: exit low-margin, low-ROIC profile — Operating Margin 2.5% and ROIC approx. 2.2% remain below capital cost, and ROE 2.7% lags the industry median 6.3%. Improving the Steel Business margin (1.4%) requires mix shift to higher value-added steel, cost structure reform, and securing stable returns from equity-method investees. Achieving the full-year guidance EPS 235.8円 (2.14x H1 EPS 110.3円) requires substantial H2 profit improvement, dependent on market recovery and price pass-through.
Monitor balance between interest burden and investment load — Interest-bearing debt 1兆9,594B円, Debt/EBITDA 5.1x, Interest Coverage 3.7x imply limited headroom under rising rates or earnings contraction. While continuing GX and renewal investments (Capex 3,799B円, 1.39x depreciation), Free Cash Flow remains negative at ▲737B円 and investments are not fully funded by OCF. The 80円 dividend is currently being supplemented by external financing; medium-term dividend sustainability depends on investment payback, FCF positivity, and easing interest burden. Inventory days of 108 suggest elevated stock risk; inventory compression to improve working capital efficiency is a near-term cash driver.
Watch dependence on equity-method income and earnings volatility — Equity-method income 545B円 accounts for 62% of Profit Before Tax, and investee performance (resources, shipbuilding, etc.) could materially swing consolidated profits. Equity-method investment balance rose +28% YoY, heightening exposure to investee market downturns and impairment risk. Comprehensive gains of 810B円 (other comprehensive income) are largely valuation gains; while the balance-sheet buffer is substantial, converting these to realized earnings and monitoring external markets is critical.
This report is an AI-generated analysis of financial results auto-produced by 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 as needed before making any investment decisions.