| Metric | This Period | Prior Year Same Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥469.5B | ¥519.1B | -9.6% |
| Operating Income / Operating Profit | ¥55.2B | ¥100.9B | -45.2% |
| Ordinary Income | ¥64.3B | ¥90.8B | -29.1% |
| Net Income / Net Profit | ¥25.8B | ¥70.9B | -63.7% |
| ROE | 5.8% | 16.6% | - |
FY2026 results closed with Revenue ¥469.5B (vs prior year ▲¥49.6B ▲9.6%), Operating Income ¥55.2B (vs prior year ▲¥45.6B ▲45.2%), Ordinary Income ¥64.3B (vs prior year ▲¥26.4B ▲29.1%), and Net Income ¥25.8B (vs prior year ▲¥45.1B ▲63.7%), marking declines in both top and bottom lines. The core Titanium business entered a demand adjustment for aerospace and chemical customers, resulting in the first revenue decline in two fiscal periods. Operating margin fell to 11.8% (prior year 19.4%), down 7.6pts, as gross margin contracted (24.6% vs prior year 31.1%) and energy and raw material cost increases compressed profitability. Recognition of Special Losses ¥26.2B (including asset retirement ¥17.2B and impairment ¥4.6B) drove a large reduction in Net Income. Comprehensive Income was ¥122.4B, substantially exceeding Net Income, as improvements in unrealized gains on securities ¥23.1B and retirement benefit adjustments ¥6.6B bolstered equity.
[Revenue] Revenue ¥469.5B (YoY ▲9.6%) was primarily driven by the Titanium segment recording ¥404.4B (YoY ▲10.6%), a double-digit decline. The segment accounts for 86.1% of revenue mix and was hit directly by demand adjustments for aerospace and chemical plant titanium products. The High Performance Materials segment recorded ¥65.1B (YoY ▲2.5%) with limited decline, but its small absolute size limited its ability to offset group-wide revenue decline. Gross margin fell to 24.6% (prior year 31.1%), down 6.5pts, pressured by higher energy prices, increased raw material costs, and a deteriorated product mix.
[Profitability] Operating Income ¥55.2B (YoY ▲45.2%) and Operating Margin 11.8% (prior year 19.4%) declined significantly. SG&A was ¥60.3B versus ¥60.4B a year earlier, roughly flat, but as a percentage of sales rose to 12.8% (prior year 11.6%) due to lower sales, creating negative operating leverage. Ordinary Income ¥64.3B (YoY ▲29.1%) included non-operating income ¥13.4B—foreign exchange gains ¥7.1B and subsidy income ¥1.5B—while non-operating expenses ¥4.3B included interest expense ¥3.4B, resulting in net non-operating income of ¥9.1B. Special Losses ¥26.2B (asset retirement ¥17.2B, impairment ¥4.6B, environmental measures ¥3.4B) were non-recurring; after these items, income before taxes was ¥38.1B and Net Income ¥25.8B (YoY ▲63.7%). By segment, Titanium Operating Income was ¥46.5B (YoY ▲48.1%), margin 11.5% (prior year 16.3%), significantly deteriorated; High Performance Materials Operating Income was ¥8.7B (YoY ▲22.8%), margin 13.4% (prior year 16.9%), relatively more resilient but the overall company concluded with declines in revenue and profit.
The Titanium segment posted Revenue ¥404.4B (YoY ▲10.6%), Operating Income ¥46.5B (YoY ▲48.1%), and Operating Margin 11.5% (prior year 16.3%). Demand adjustment for aerospace and chemical plant titanium products led to lower shipment volumes and a worse product mix, pressuring profitability. Rising energy costs also contributed to margin compression. The High Performance Materials segment recorded Revenue ¥65.1B (YoY ▲2.5%), Operating Income ¥8.7B (YoY ▲22.8%), and Operating Margin 13.4% (prior year 16.9%), maintaining relatively high margins despite declines. Titanium accounts for 84.2% of consolidated Operating Income, and the segment’s high sensitivity to market conditions drives consolidated performance volatility.
[Profitability] Operating Margin 11.8% declined 7.6pts from prior year 19.4%, primarily due to gross margin contraction to 24.6% (prior year 31.1%) and higher energy/raw material costs. ROE was 5.8%, down sharply from 17.4% prior year. DuPont breakdown shows Net Profit Margin 5.5% (prior year 13.7%), Total Asset Turnover 0.439x (prior year 0.514x), and Financial Leverage 2.42x (prior year 2.36x); the decline in Net Profit Margin is the largest deterioration factor. [Cash Quality] Operating Cash Flow (OCF) ¥41.7B exceeded Net Income ¥25.8B (OCF/NI=1.62x), and the accrual ratio ▲1.5% indicates generally sound accrual-based earnings quality. However, OCF/EBITDA fell to 0.49x (EBITDA ¥85.8B) as working capital items—inventory increase ¥24.6B and decrease in accounts payable ¥12.2B—hindered cash conversion. Free Cash Flow was ▲¥55.1B, impacted by large CapEx ¥80.7B (CapEx/Depreciation = 2.65x). [Investment Efficiency] Total Asset Turnover 0.439x declined from 0.514x prior year as inventory buildup and lower sales impaired asset efficiency. For ROIC-related metrics, NOPAT (post-tax operating profit) is approximately ¥36.9B (Operating Income ¥55.2B × assumed effective tax rate 33%); estimating invested capital as Shareholders’ Equity ¥443.1B + interest-bearing debt suggests asset efficiency decline contributed to ROIC compression. [Financial Soundness] Equity Ratio 41.4% (prior year 42.4%) remains in a stable range, and net increase in interest-bearing debt is estimated at approximately ¥59B (new long-term borrowings ¥164B ▲ repayments ¥105B). Interest coverage is robust at Operating Income ¥55.2B ÷ interest expense ¥3.4B = 16.2x; on an EBITDA basis it is 25.1x. Year-end cash ¥41.5B (prior year ¥46.2B) decreased but liquidity risk is limited.
Operating Cash Flow (OCF) was ¥41.7B (prior year ¥28.6B), up +45.8% YoY, exceeding Net Income ¥25.8B, but the conversion rate versus EBITDA ¥85.8B (Operating Income ¥55.2B + Depreciation ¥30.5B) remained 0.49x. From subtotal OCF ¥46.5B, working capital deterioration (inventory increase ▲¥24.6B, trade receivables increase ▲¥9.2B, trade payables decrease ▲¥12.2B) absorbed cash, and after corporate taxes paid ▲¥7.2B, OCF totaled ¥41.7B. Investing Cash Flow was ▲¥96.8B, largely due to CapEx ▲¥80.7B (CapEx/Depreciation = 2.65x), indicating a capacity expansion investment phase. Financing Cash Flow was +¥49.9B, where net borrowings ¥59B (new long-term borrowings ¥164B less repayments ¥105B) and net short-term borrowings increase ¥2B exceeded dividend payments ▲¥11.1B. Free Cash Flow was ▲¥55.1B (OCF ¥41.7B ▲ Investing CF ¥96.8B), meaning current CapEx and working capital increases were not covered by internal funds and were financed by external borrowings. Including foreign exchange effects +¥0.4B, net change in cash was ▲¥4.7B, resulting in year-end cash ¥41.5B.
Core recurring earnings center on Operating Income ¥55.2B and EBITDA ¥85.8B. Non-operating income ¥13.4B (2.9% of sales) included foreign exchange gains ¥7.1B and subsidy income ¥1.5B, reflecting a temporary boost from FX. Non-operating expenses ¥4.3B included interest expense ¥3.4B, resulting in net non-operating income ¥9.1B. Special Losses ¥26.2B (asset retirement ¥17.2B, impairment ¥4.6B, environmental measures ¥3.4B) were non-recurring and materially compressed Net Income ¥25.8B. The gap between Ordinary Income ¥64.3B and Net Income ¥25.8B (▲60%) is attributable to Special Losses and tax burden (effective tax rate ~33%). Since OCF exceeds Net Income (OCF/NI=1.62x), accrual accounting earnings quality is generally sound. However, OCF/EBITDA at 0.49x is low, and working capital deterioration such as inventory increases and accounts payable decreases delays cash conversion. Comprehensive Income ¥122.4B significantly exceeded Net Income ¥25.8B; unrealized gains on securities ¥23.1B and retirement benefit adjustments ¥6.6B improved equity but are valuation gains and not recurring cash inflows. Overall, while recurring earnings have cash backing, the large size of non-recurring items warrants caution in assessing normalized earning power.
Full year guidance is Revenue ¥480.0B (vs prior year +2.2%), Operating Income ¥34.0B (vs prior year ▲38.5%), Ordinary Income ¥30.0B (vs prior year ▲53.4%), Net Income ¥18.0B (vs prior year ▲30.1%), EPS 48.92 yen. Achievement versus current period results corresponds to Revenue 97.8%, Operating Income 162.5%, Ordinary Income 214.5%, Net Income 143.1%, indicating current levels materially exceed company assumptions. Company guidance is a conservative view premised on lower profit, incorporating expectations of titanium market adjustment, higher energy/raw material costs, and FX impact. Projected Operating Margin is 7.1% (this period 11.8%), Net Profit Margin projected 3.8% (this period 5.5%), implying margin contraction next fiscal year. Although current progress exceeds guidance, the company maintains conservative plans given external uncertainties; supply-demand improvement or price revisions would be upside catalysts.
Annual dividend is ¥18 (interim ¥5 + year-end ¥13), with Payout Ratio 25.7% (total dividends ¥18.4B ÷ Net Income ¥25.8B), at a conservative level. Free Cash Flow is ▲¥55.1B and does not cover dividends, with FCF coverage at ▲3.0x, indicating dividend payments were financed by borrowings this period. Payout ratio is at similar level to prior year 25.9%, but sustainability from internal funds is limited. Considering cash and deposits ¥41.5B and OCF ¥41.7B, there is short-term dividend capacity, but in a period of large CapEx, recovery in cash generation (improvement in OCF/EBITDA) and confirmation of CapEx peak-out are key to dividend sustainability. There were no share buybacks; shareholder returns are dividends only. The full-year forecast assumes dividend ¥0, and next fiscal year dividend policy will be determined after assessing performance trends.
Titanium market and customer demand volatility: The Titanium segment accounts for 86.1% of revenue and 84.2% of Operating Income, representing a high concentration; cyclical demand from aerospace and chemical plant customers significantly affects performance. This period saw revenue ▲10.6% and Operating Income ▲48.1% as demand adjustment effects manifested.
Working capital increase and deterioration of cash conversion efficiency: Inventory increase ¥24.6B and decrease in accounts payable ¥12.2B pressured OCF, resulting in OCF/EBITDA 0.49x, a low level. Inventory buildup amid slowing sales may be excess inventory, and delayed demand recovery could lead to inventory write-downs or additional funding needs.
Funding burden and risks of large-scale CapEx: CapEx ¥80.7B (CapEx/Depreciation = 2.65x) aims to strengthen mid-term supply capacity, but Free Cash Flow is ▲¥55.1B and dependence on external borrowing has increased. If start-up delays, lower-than-expected utilization, or cost overruns occur, financial burden could be prolonged.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 11.8% | 7.8% (4.6%–12.3%) | +4.0pt |
| Net Profit Margin | 5.5% | 5.2% (2.3%–8.2%) | +0.3pt |
Operating Margin is 4.0pts above the industry median, and Net Profit Margin exceeds the median by 0.3pts. Profitability ranks high within manufacturing, though the decline from prior-year levels is large and relative advantage is narrowing.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | -9.6% | 3.7% (-0.4%–9.3%) | -13.3pt |
Revenue growth is 13.3pts below the industry median, placing the company in the lower tier within manufacturing. The company was strongly affected by demand adjustment and lagged industry averages.
※Source: Company compilation
Upside potential in profitability: Although Operating Margin 11.8% is above the industry median, it fell significantly from 19.4% prior year. Margin recovery driven by supply-demand improvement and price revisions is a key point. Special Losses ¥26.2B were one-off and underlying earning power may exceed this period’s results. Full-year guidance is conservative, but current results exceeding guidance indicate potential for upward revisions if external conditions improve.
Realization of large-scale investment benefits: CapEx ¥80.7B (CapEx/Depreciation = 2.65x) targets mid-term supply capacity enhancement. Short-term Free Cash Flow will be negative, but post-investment utilization gains and improved product mix should drive medium-term earnings recovery. Interest coverage 16.2x indicates strong financial resilience and capacity to bear investment burden.
Normalization of working capital: Inventory increases and lower payables have weakened cash conversion (OCF/EBITDA = 0.49x). If demand stabilizes and utilization improves, working capital should normalize, boosting OCF and returning Free Cash Flow to positive. Pace of inventory normalization and order trends will be leading indicators of cash generation recovery.
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 compiled by the Company based on public financial statements. Investment decisions are your own responsibility; consult a professional as needed before making investment decisions.