| Metric | Current Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥1255.5B | ¥1262.7B | -0.6% |
| Operating Income | ¥67.2B | ¥56.2B | +19.5% |
| Ordinary Income | ¥56.8B | ¥36.9B | +53.9% |
| Net Income | ¥43.1B | ¥-34.7B | +224.5% |
| ROE | 31.6% | -34.4% | - |
The fiscal year ended March 2026 posted Revenue of ¥1,255.5B (YoY -¥7.2B -0.6%), a slight decline, while Operating Income was ¥67.2B (YoY +¥11.0B +19.5%), Ordinary Income ¥56.8B (YoY +¥19.9B +53.9%), and Net Income attributable to owners of the parent ¥43.1B (turned to profit from ¥-34.7B prior year), delivering a substantial profit increase. Revenue decline was limited due to normalization of raw material procurement and production in the Smelting segment, and Operating Income increased due to significant SG&A reductions (¥75.7B → ¥59.0B -22.0%). Ordinary Income rose sharply (YoY +53.9%) contributed by reduced foreign exchange losses and higher operating profit. Net Income turned positive due to the reversal of prior-year impairment losses of ¥76.8B and improvement in gains/losses on sale of subsidiary shares. Operating margin improved to 5.4% (prior year 4.5%) up +0.9pt, and Ordinary Income margin improved to 4.5% (prior year 2.9%) up +1.6pt, indicating a marked improvement in profitability.
[Revenue] Revenue was ¥1,255.5B (YoY -0.6%), showing a slight decline. By segment, Smelting recorded ¥1,039.5B (+39.9%) and drove the overall increase, while Metal Recycling was ¥92.2B (-70.6%) and Electronic Components & Functional Materials was ¥35.2B (-23.5%), both showing large decreases. Smelting’s revenue growth reflected stabilization of production systems and raw material procurement following the zinc smelting business restructuring; Metal Recycling’s decline was a rebound from one-time revenue recognition due to transfers from the zinc smelting business in the prior year. Environment & Recycling remained firm at ¥69.3B (+9.0%), and Other segments maintained growth at ¥106.5B (+3.6%). Gross margin fell to 10.1% (prior year 10.5%) down -0.4pt, but SG&A ratio improved to 4.7% (prior year 6.0%) down -1.3pt, contributing to improved operating margin.
[Profit/Loss] Operating Income rose significantly to ¥67.2B (YoY +19.5%). The main driver was SG&A reductions, compressed from ¥75.7B to ¥59.0B (-¥16.7B, -22.0%). Within SG&A, general & administrative expenses decreased from ¥49.1B to ¥42.0B, and a reduction in allowance for doubtful accounts (prior year -¥45.8B → current year ¥1.2B) contributed materially. Cost of sales was ¥1,129.3B (prior year ¥1,130.7B), largely flat; the modest decline in gross margin reflects higher raw material and energy costs and changes in product mix. Non-operating items saw interest expense decline to ¥12.1B (prior year ¥15.1B), while foreign exchange loss remained ¥6.2B (prior year ¥6.2B), resulting in total non-operating expenses shrinking to ¥19.8B (prior year ¥29.0B). Ordinary Income increased substantially to ¥56.8B (YoY +53.9%), driven by operating profit growth and reduced financial expenses. Extraordinary items were net +¥0.4B (extraordinary gains ¥2.1B, extraordinary losses ¥1.7B) and minor; due to the rebound from prior-year impairment loss of ¥76.8B and prior-year loss on sale of subsidiary shares of ¥20.4B, profit before income taxes turned positive to ¥57.2B (prior year ¥-24.8B). Income taxes amounted to ¥9.3B (effective tax rate 16.3%), within a normal range, and Net Income attributable to owners of the parent was ¥43.1B, a major improvement from ¥-34.7B in the prior year. In conclusion, despite slightly lower revenue, reductions in SG&A drove higher operating profit, lower financial expenses drove a substantial increase in Ordinary Income, and improvements in extraordinary items produced a turn to Net Income profit — a structure of lower revenue but higher profit driven by cost reductions rather than revenue growth.
The Smelting segment achieved substantial revenue and profit increases with Revenue ¥1,039.5B (YoY +39.9%) and Segment Income ¥37.9B (YoY +6.2%). Revenue growth was mainly due to stabilization of production systems and raw material procurement following the zinc smelting business restructuring; profit growth benefitted from volume effects, though margin fell to 3.6% (prior year 4.8%) reflecting higher raw material costs and operating rates. Environment & Recycling was steady at Revenue ¥69.3B (+9.0%) but Segment Income declined sharply to ¥9.2B (prior year ¥16.7B -44.9%), with margin worsening to 13.3% (prior year 26.3%) down -13.0pt. Electronic Components & Functional Materials posted Revenue ¥35.2B (-23.5%) and Segment Income ¥4.6B (prior year ¥4.8B -4.8%), with demand weakness affecting results. Metal Recycling had Revenue ¥92.2B (-70.6%) but turned profitable to Segment Income ¥14.5B (prior year ¥-12.5B), reflecting the effects of the business restructuring. Other segments recorded Revenue ¥106.5B (+3.6%) and Segment Income ¥3.1B (prior year ¥4.7B -35.3%), with profitability declines in civil engineering and transportation businesses. Aggregate segment income of ¥69.3B less corporate adjustments of -¥12.5B resulted in consolidated Ordinary Income of ¥56.8B, clarifying a portfolio supported by Smelting revenue growth and Metal Recycling profitability turnaround.
[Profitability] Operating margin 5.4% (prior year 4.5%), Ordinary Income margin 4.5% (prior year 2.9%), Net Income margin 3.4% (prior year -2.7%) — profitability improved at each stage. Gross margin fell to 10.1% (prior year 10.5%) down -0.4pt, but SG&A ratio was sharply cut to 4.7% (prior year 6.0%), improving Operating margin by +0.9pt. ROE rose substantially to 31.6% (prior year -22.8%), exceeding the past 3-year average (not calculable), largely reflecting high financial leverage (described below) and profit turnaround. ROA (on Ordinary Income basis) improved to 5.7% (prior year 3.6%), indicating better total asset efficiency. [Cash Quality] Operating Cash Flow to Net Income ratio was 0.41x (¥19.5B ÷ ¥47.8B) and low, with deterioration in working capital constraining cash generation. OCF/EBITDA ratio was 0.24x ((Operating CF ¥19.5B) ÷ (Operating Income ¥67.2B + Depreciation ¥14.1B)) and low, indicating challenges in converting profits to cash. Days Inventory Outstanding (DIO) was 142 days ((ending inventories ¥85.4B + work-in-progress ¥231.9B + raw materials ¥123.0B) × 365 ÷ Cost of Sales ¥1,129.3B) and extended, with work-in-progress ratio notably high at 52.7% (¥231.9B ÷ ¥440.3B) indicating process stagnation. Days Sales Outstanding (DSO) was 26 days, Days Payable Outstanding (DPO) was 27 days, giving a Cash Conversion Cycle (CCC) of 141 days — long, highlighting scope for working capital improvement. [Investment Efficiency] Total Asset Turnover was 1.27x (Revenue ¥1,255.5B ÷ Total Assets ¥989.3B), standard, while Fixed Asset Turnover was high at 5.06x (Revenue ÷ Tangible Fixed Assets ¥211.6B), indicating good asset utilization. Capital expenditures were ¥13.6B, depreciation ¥14.1B, yielding a CapEx/Depreciation ratio of 0.97x, at a maintenance level with major investments restrained. [Financial Soundness] Equity Ratio improved to 13.8% (prior year 10.2%) up +3.6pt but remains low; D/E ratio stands at 6.24x (Long-term borrowings ¥615.2B ÷ Net assets ¥136.7B) indicating high leverage. Debt/EBITDA is high at 7.6x ((Long-term borrowings ¥615.2B + Short-term borrowings ¥9.4B) ÷ EBITDA ¥81.3B), placing heavy interest payment burden. Conversely, short-term liquidity is ample with Current Ratio 368% (Current assets ¥741.3B ÷ Current liabilities ¥201.6B) and Quick Ratio 325% ((Current assets - Inventories) ÷ Current liabilities), limiting immediate maturity mismatch risk. Interest coverage is 5.56x (EBIT ¥67.2B ÷ Interest paid ¥12.1B), and EBITDA coverage is 6.72x (EBITDA ¥81.3B ÷ Interest paid ¥12.1B), suggesting interest burden is tolerable for now, but leverage heightens sensitivity to rising interest rates.
Operating Cash Flow was ¥19.4B (prior year ¥28.9B -32.8%). Adjustments from profit before income taxes ¥57.2B included Depreciation ¥14.1B, reversal of impairment losses -¥76.8B, and decrease in allowance for doubtful accounts -¥37.6B as major non-cash items. In working capital changes, an increase in inventories of -¥61.2B was the largest cash outflow, partially offset by decrease in trade receivables +¥13.5B and increase in trade payables +¥15.5B. Interest and dividend received were ¥0.2B versus interest paid -¥12.4B and corporate tax payments -¥5.6B. Operating CF subtotal of ¥37.2B, after working capital changes, resulted in Operating CF of ¥19.4B. The Operating CF to Net Income ratio of 0.41x indicates inventory buildup and interest burden compressed cash generation. Investing Cash Flow was -¥9.9B, with capital expenditures -¥13.6B partly offset by proceeds from sale of fixed assets +¥4.1B and sale of securities +¥0.8B. Free Cash Flow was positive ¥9.5B (Operating CF ¥19.4B + Investing CF -¥9.9B) but significantly down YoY. Financing Cash Flow was -¥108.1B, mainly due to repayment of long-term borrowings -¥110.5B; new borrowings +¥92.0B and equity issuance +¥0.8B did not fully offset, resulting in net debt repayment. Dividend payments were zero. Cash and cash equivalents declined from ¥209.8B at the beginning of the period to ¥111.3B at the end, a decrease of -¥98.5B including foreign exchange effects of +¥0.1B. OCF/EBITDA ratio of 0.24x underlines weak cash conversion, and DIO 142 days / CCC 141 days show working capital inefficiency as the bottleneck. Short-term measures should prioritize inventory and WIP reduction and stricter credit control to improve OCF; medium-term priorities include lowering Debt/EBITDA and interest burden to stabilize funding.
Current period profits are primarily driven by recurring factors. Operating Income of ¥67.2B was achieved through SG&A reduction; one-off restructuring costs are small, recorded as extraordinary loss for business structure reform of ¥4.2B. Non-operating items included interest expense ¥12.1B and foreign exchange loss ¥6.2B, both recurring costs related to business operations. Foreign exchange loss remained at prior-year level of ¥6.2B, reflecting limited hedge effectiveness and yen depreciation effects. Extraordinary items were net +¥0.4B (extraordinary gains ¥2.1B, extraordinary losses ¥1.7B), consisting of gains on sale of fixed assets ¥2.1B and disposal losses ¥1.7B. Prior year included impairment losses ¥76.8B and loss on sale of subsidiary shares ¥20.4B, which did not recur this period, improving earnings quality. The gap between Ordinary Income ¥56.8B and Net Income ¥43.1B is due to tax expense ¥9.3B (effective tax rate 16.3%) and non-controlling interests adjustment -¥4.7B, within an acceptable range. Comprehensive income was ¥33.2B (Net Income ¥43.1B - Other Comprehensive Income -¥14.6B); Other Comprehensive Income included foreign currency translation adjustments -¥6.9B, deferred hedge gains/losses -¥12.0B, and actuarial gains related to retirement benefits +¥4.2B. Worsening deferred hedge gains/losses indicate mark-to-market losses on currency hedges and may foreshadow future profit impacts. Operating CF to Net Income ratio 0.41x highlights accrual magnitude, with inventory increase -¥61.2B and decrease in allowance for doubtful accounts -¥37.6B impeding cash conversion. The reduction in allowance for doubtful accounts reflects reversal of large prior-year provisions and remains a one-off. Overall, on an Ordinary Income basis, SG&A reductions and lower financial expenses produced high-quality profit growth, but at the Net Income level the prior-year extraordinary loss rebound was significant, and the divergence from cash flow reflects structural issues from worsening working capital.
For FY ending March 2027, the full-year forecast anticipates Revenue ¥1,785.0B (YoY +42.2%), Operating Income ¥67.0B (YoY -0.3%), Ordinary Income ¥45.0B (YoY -20.7%), Net Income attributable to owners of the parent ¥34.5B (YoY -19.9%), and EPS ¥116.07. The plan assumes substantial Revenue growth but flat Operating Income and declines in Ordinary Income and Net Income. Operating margin is expected to decline from 5.4% to 3.8% (-1.6pt), and Ordinary Income margin from 4.5% to 2.5% (-2.0pt), reflecting margin compression with growth. Growth is expected to come from volume expansion and favorable price assumptions in the Smelting segment, but conservative assumptions on rising raw material and energy costs, adverse FX, and normalization of product spreads result in lower margins. First half progress benchmarks are Revenue ¥446.3B (25.0% of full-year forecast) and Operating Income ¥16.8B (25.0% of full-year forecast); deviations greater than ±10% warrant revising assumptions. Non-operating items carry FX volatility risk, and interest expense may exceed forecasts depending on the interest rate environment. Inventory and WIP trends are key for working capital; delays in improving DIO and CCC would further deteriorate Operating CF and reduce the likelihood of achieving forecasts. Dividend forecast is zero, with priority on debt repayment and improving financial condition. Key metrics to monitor are 1Q progress and inventory trends, occurrence of FX gains/losses, and movement in Debt/EBITDA.
No interim or year-end dividends were paid in the current period; dividend payout is zero. Free Cash Flow remained positive at ¥9.5B, but Financing CF included long-term borrowings repayment of -¥110.5B and cash declined by -¥98.5B. Given priority on correcting high leverage (D/E 6.24x, Debt/EBITDA 7.6x), the company clearly emphasizes financial rehabilitation over shareholder returns. Conditions for resuming dividends are (1) stabilization of Operating CF (OCF/EBITDA recovery to >0.7), (2) reduction of Debt/EBITDA to <4.0x, and (3) reduction in interest burden (Interest coverage >10x). At present, inventory and working capital compression and progress on debt repayment are urgent, making timing of dividend resumption uncertain. No share buybacks were executed; Total Return Ratio is 0%. Enhancing shareholder value will depend on profit growth and financial stabilization to drive share price recovery.
High leverage and interest rate risk: With D/E 6.24x and Debt/EBITDA 7.6x, dependence on debt is high; rising interest rates would increase interest payments and pressure Ordinary Income. Current Interest coverage of 5.56x is acceptable but a 1% rise in interest rates would increase annual interest expense by ¥6.2B, eroding roughly 10.9% of Ordinary Income. Deterioration in refinancing terms or rating downgrades could raise funding costs.
Working capital expansion and cash flow pressure: DIO 142 days, WIP ratio 52.7%, and CCC 141 days indicate poor working capital efficiency; inventory accumulation is impeding cash generation. Operating CF to Net Income ratio 0.41x and OCF/EBITDA 0.24x show structural weakness; if inventories rise further during a growth phase, liquidity could tighten. Risks include inventory valuation losses and stagnation costs; delays in working capital improvement would accelerate weakening of financial condition.
Non-ferrous market, FX volatility and product spread risk: Smelting accounts for 77.4% of Revenue, making gross margin sensitive to zinc, lead, silver, and sulfuric acid price fluctuations. Gross margin has already declined to 10.1% (prior year 10.5%); further raw material cost increases or tightening product spreads would compress margins. FX risk: yen depreciation raises raw material procurement costs while improving export profitability, but continued foreign exchange losses (¥6.2B recorded) and limited hedge effectiveness present downside. Next fiscal year forecasts are conservatively set at Operating margin 3.8% incorporating FX and market headwinds, but downside risk could widen profit declines if assumptions prove optimistic.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 5.4% | 7.8% (4.6%–12.3%) | -2.4pt |
| Net Income Margin | 3.4% | 5.2% (2.3%–8.2%) | -1.8pt |
Compared with manufacturing industry medians, Operating Margin is -2.4pt and Net Income Margin is -1.8pt below median, placing profitability in the lower-middle of the peer group.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | -0.6% | 3.7% (-0.4%–9.3%) | -4.3pt |
Revenue growth of -0.6% is -4.3pt below the industry median of +3.7%, placing growth performance in the lower tier.
※ Source: Company aggregation
Achievement of operating profit growth through SG&A reduction and Metal Recycling turnaround: SG&A was cut -22.0% YoY improving Operating margin by +0.9pt; Metal Recycling swung from -¥12.5B to +¥14.5B. The effects of business restructuring are materializing and revenue structure is improving, but gross margin fell -0.4pt, and sustainability of profit gains from fixed-cost reductions depends on raw material costs, operating rates, and product spread movements. Next fiscal year assumes revenue growth, flat Operating Income, and margin decline; early progress and gross margin trends will determine sustainability.
High leverage and weak cash generation: With D/E 6.24x and Debt/EBITDA 7.6x, dependence on debt is high; Operating CF to Net Income 0.41x and OCF/EBITDA 0.24x point to weak cash generation. Compressing inventory and WIP (DIO 142 days, CCC 141 days) is the top priority; delays in improving working capital management would expose liquidity risk in a rising-rate environment. Short-term liquidity is ample (Current Ratio 368%), but reducing borrowings and interest burden (Debt/EBITDA <4.0x) is key to financial health.
Smelting concentration and market/FX risks: Smelting accounts for 77.4% of Revenue, making the company highly sensitive to non-ferrous market and FX movements. Next year’s plan is a growth-with-decline-in-profit scenario with conservative assumptions on raw material costs, FX, and product spreads; if assumptions prove worse, profit declines will be larger. Monitoring inventory and WIP reduction progress, FX gain/loss occurrences, and smelting spreads is critical to achieving forecasts. Dividend remains zero; resumption of shareholder returns is conditional on Operating CF improvement and leverage reduction.
This report is an earnings analysis document 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 firm based on public financial statements. Investment decisions are your responsibility; consult professionals as needed before making investment decisions.
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