| Metric | This Period | Prior Year | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥58947.5B | ¥55217.1B | +6.8% |
| Operating Income / Operating Profit | ¥4330.9B | ¥3918.5B | +10.5% |
| Profit Before Tax | ¥5260.8B | ¥4372.6B | +20.3% |
| Net Income | ¥3532.0B | ¥2889.9B | +22.2% |
| ROE | 7.6% | 7.1% | - |
For the fiscal year ended March 2026, the company achieved revenue of 5兆8,947B円 (YoY +3,730B円 +6.8%), Operating Income of ¥4,331B (YoY +412B円 +10.5%), Ordinary Income (JGAAP) / Ordinary-stage profit of ¥4,610B (YoY +1,816B円 +65.0%), and Net Income Attributable to Owners of Parent of ¥4,078B (YoY +837B円 +25.8%), representing significant increases across profit measures. Revenue and Operating Income reached record highs, and Adjusted Operating Income reached ¥5,012B (+27.9%). The operating margin improved to 7.35% from 7.09% a year earlier (+26bp), and gross margin improved by +150bp from 67.9% → 69.4% due to improved cost structure. At the ordinary-income stage, equity-method investment gains of ¥696B (+179%) and improvements in financial results drove the ordinary income margin up to 8.9%. Operating Cash Flow was ¥5,760B (+26.3%), generating Free Cash Flow (FCF) of ¥2,316B; in addition to a dividend of ¥55 (payout ratio 28.5%), ¥1,014B of share buybacks were executed, bringing total shareholder returns to approximately 53% and strengthening shareholder returns. EPS was ¥198.31 (+27.4%), marking the second consecutive increase, and ROE rose to 9.7% (prior year 8.4%). By business, Infrastructure achieved revenue +19.8% and Operating Income +72.9%, and FA Systems delivered Operating Income +63.8%, with expansion of high-margin businesses driving margin improvement. For the next fiscal year, management forecasts revenue of ¥6.2兆 ( +5.2%), EPS ¥231.01 (+16.5%), and aims for an adjusted operating margin of 9.5%.
[Revenue] Revenue of 5兆8,947B円 (+3,730B円 +6.8%) driven by growth. The Infrastructure division increased to ¥1兆4,514B (+19.8%), led by large defense system orders (+676B円) and domestic/overseas demand for energy systems (+778B円) and social systems (+941B円). The Life division reached ¥2兆2,865B (+5.7%), supported by overseas and domestic renewal demand in Building Systems and consolidation of Middle East affiliates, and increased HVAC & home appliance demand in Europe and North America. The Industry & Mobility division was ¥1兆6,549B (+1.8%), with FA Systems (+10.0%) capturing AI-related and smartphone equipment capex demand and growing revenue; Auto Equipment declined (△4.7%) due to lower sales to Chinese Japanese OEMs and reduced North American car multimedia. By region, Japan was ¥2兆9,324B (+2.1%) and overseas ¥2兆9,623B (+11.7%), with broad-based growth including North America +6.7%, Asia +4.5%, Europe +7.9%. Cost of sales ratio improved from 69.4% → 67.9% (△1.5pt), aided by price revisions and cost reduction (approx. +¥400B) and a higher share of high-margin businesses such as Infrastructure and FA Systems.
[Profitability] Operating Income ¥4,331B (+412B円 +10.5%), operating margin 7.35% (+26bp). SG&A was ¥1,388.3B (+6.0%), below revenue growth (+6.8%), resulting in an SG&A ratio of 23.6% (△0.2pt) reflecting efficiency gains. Adjusted Operating Income was ¥5,012B (+27.9%); excluding the Next Stage support program △¥1,053B and other losses △¥681B, the effective operating income was ¥5,384B. By segment, Infrastructure ¥1,547B (+72.9%, margin 10.7%), Life ¥1,706B (+8.4%, margin 7.5%), Industry & Mobility ¥1,311B (+58.7%, margin 7.9%)—the three main segments achieved double-digit profit growth. Semiconductor & Devices was ¥475B (+17.0%, margin 18.4%) maintaining high margins. Ordinary Income (経常利益) was ¥4,610B (+65.0%), driven by equity-method investment income of ¥696B (+307B円) and improved financial results (financial income ¥303B +145%, financial expense ¥69B △48%). Profit Before Tax was ¥5,261B (+889B円 +20.3%), effective tax rate was low at 17.5%, and Net Income Attributable to Owners of Parent was ¥4,078B (+25.8%). Comprehensive Income was ¥7,834B, 1.8x Net Income, boosted by foreign currency translation gains +¥1,642B and defined benefit plan remeasurements +¥1,944B improving OCI. In conclusion, revenue and operating-level profitability improved via price improvements, cost reductions, and expansion of high-margin businesses; equity-method gains and financial income provided a tailwind at the ordinary-income stage, and one-off structural reform costs were absorbed while Net Income rose substantially.
The largest business by contribution is Life (Operating Income ¥1,706B, ~39% of company operating income). Life posted revenue ¥2兆2,865B (+5.7%), Operating Income ¥1,706B (+8.4%), margin 7.5%. Building Systems revenue was ¥707.8B (+6.3%), Operating Income ¥667B (+32.9%, margin 9.4%) with consolidation of Middle East affiliates and overseas/domestic renewal demand driving strong profit growth. HVAC & Home Appliances revenue ¥1兆6,103B (+6.0%), Operating Income ¥1,038B (△3.1%, margin 6.4%)—increased HVAC demand in Europe, domestic and North America was offset by currency effects, cost increases, and higher material costs leading to profit decline.
Infrastructure revenue ¥1兆4,514B (+19.8%), Operating Income ¥1,547B (+72.9%, margin 10.7%)—the largest profit growth across segments. Defense & Space Systems revenue ¥4,214B (+19.1%), Operating Income ¥405B (+42.6%, margin 9.6%) with progress on large orders; Energy Systems revenue ¥4,733B (+19.5%), Operating Income ¥453B (+64.7%, margin 9.6%); Social Systems revenue ¥5,686B (+19.7%), Operating Income ¥688B (+105.4%, margin 12.1%) with strong domestic and overseas transportation and UPS businesses. The Infrastructure division’s double-digit margins and large profit gains drove overall corporate performance.
Industry & Mobility revenue ¥1兆6,549B (+1.8%), Operating Income ¥1,311B (+58.7%, margin 7.9%). FA Systems revenue ¥7,982B (+10.0%), Operating Income ¥766B (+63.8%, margin 9.6%), benefiting from increased demand in AI-related, smartphone, and machine tool investment and price improvements. Automotive Equipment revenue ¥8,756B (△4.7%), Operating Income ¥544B (+52.0%, margin 6.2%)—despite revenue declines in China and North America, price improvement and cost reduction drove strong profit gains.
Semiconductor & Devices revenue ¥2,589B (△0.4%), Operating Income ¥475B (+17.0%, margin 18.4%), supported by steady demand for optical communication devices and a favorable sales mix maintaining high margins. Digital Innovation revenue ¥853B (+0.9%), Operating Income ¥120B (+9.8%, margin 14.0%).
There are significant margin disparities across segments: Semiconductor & Devices 18.4%, Digital Innovation 14.0%, Social Systems 12.1%, Infrastructure 10.7% are double-digit, while Life and Industry & Mobility are in the 7% range. This fiscal year, large profit increases in Infrastructure and Industry & Mobility (+72.9%, +58.7%) lifted overall company results. For the next fiscal year, scale expansion of Defense Systems +¥1,385B, FA Systems +¥667B, Life +¥1,117B and price improvements and Next Stage effects are expected to target an adjusted operating margin of 9.5%.
Profitability: ROE 9.7% (prior year 8.4%, +1.3pt), operating margin 7.35% (prior year 7.09%, +0.26pt), net margin 6.9% (prior year 5.9%, +1.0pt), adjusted operating margin 8.5% (prior year 6.7%, +1.8pt). DuPont decomposition: net margin 6.9% × total asset turnover 0.801 × financial leverage 1.59 ≈ ROE 8.8% (approx.). Reported ROE 9.7% reflects increases in equity from comprehensive income. Gross margin 32.1% (prior year 30.6%, +1.5pt) and improvements in cost structure drove profitability. SG&A ratio 23.6% (prior year 23.8%, △0.2pt) showing efficiency. Interest burden factor 1.215 with financial income exceeding financial expense, resulting in net positive contribution.
Cash quality: Operating Cash Flow (OCF) ¥5,760B / Net Income ¥4,338B = 1.33x (on XBRL Net Income ¥3,532B basis it is 1.63x), indicating solid cash backing of earnings. Accrual ratio △2.3% (= [Net Income △ OCF] / Total Assets) suggests cash-driven earnings. FCF ¥2,316B (OCF ¥5,760B △ Investing CF ¥3,444B) funded dividends ¥1,136B + share buybacks ¥1,014B of total returns ¥2,150B, with FCF coverage about 2.1x indicating high sustainability.
Investment efficiency: Capital expenditure ¥1,962B / Depreciation ¥2,338B = 0.84x, indicating investment within depreciation, but total investing CF ¥3,444B including acquisitions ¥1,581B and intangible asset purchases ¥463B points to growth investment. Total asset turnover 0.801x (down from 0.85–0.87x over the past three years) is pressured by increases in inventory and contract assets. Days Inventory Outstanding (DIO) 115 days (prior year 119 days) shows slight improvement but remains elevated.
Financial soundness: Equity Ratio 60.9% (prior year 61.9%, △1.0pt), current ratio 177% (current assets ¥4,027.7B / current liabilities ¥2,281.5B) indicating sound liquidity. Interest-bearing debt (bonds, borrowings, lease liabilities) ¥3,633B, cash ¥7,316B, net cash ¥3,683B. D/E ratio 0.08x (interest-bearing debt / equity) is minimal. Equity ¥4,484.3B (prior year ¥3,949.7B, +¥534.6B) expanded due to retained earnings and comprehensive income improvements.
Operating CF: ¥5,760B (prior year ¥4,559B, +26.3%), 1.33x of Net Income ¥4,338B, demonstrating strong cash backing. Adjustments in operating activities included inventory decrease +¥513B (DIO improvement) and other liabilities increase +¥2,377B (contract liabilities +¥819B, accrued expenses +¥348B, accrued corporate tax +¥534B etc.) contributing to cash inflow. Offsetting outflows included contract assets increase △¥1,095B (progress on large infrastructure orders) and trade receivables increase △¥875B. Depreciation ¥2,338B, equity-method income reverse adjustment △¥696B, and gain on sale of subsidiaries △¥169B were adjusted from operating subtotal ¥6,543B, less corporate tax payments △¥1,058B, yielding OCF ¥5,760B.
Investing CF: △¥3,444B (prior year △¥1,918B) reflecting expanded investment. Tangible fixed asset acquisitions △¥1,962B correspond to 84% of depreciation ¥2,338B and are conservative, but acquisitions of subsidiaries △¥1,581B (e.g., consolidation of Middle East Building Systems affiliates) and intangible asset acquisitions △¥463B indicate active M&A and intangible investments. Acquisition of securities △¥633B and sales proceeds +¥709B net to +¥76B, and fixed asset sales proceeds +¥194B are part of portfolio rebalancing.
Financing CF: △¥3,048B (prior year △¥2,653B). Dividend payments △¥1,136B (prior year △¥1,043B) and share buybacks △¥1,014B (prior year △¥313B) strengthened shareholder returns. Short-term borrowings increase +¥153B, long-term borrowings repayment △¥200B, lease liabilities repayment △¥686B. Dividends to non-controlling interests △¥211B. Cash ended the period at ¥7,316B (opening ¥7,573B, △¥257B), including foreign exchange effects +¥475B.
FCF: ¥2,316B (prior year ¥2,642B, △¥326B) decreased due to expanded investing CF but still comfortably covers total returns ¥2,150B. Cash-generation indicators remain strong (OCF / Net Income 1.33x, positive FCF).
Drivers of divergence between Ordinary Income ¥4,610B and Net Income Attributable to Owners of Parent ¥4,078B: Profit Before Tax ¥5,261B less corporate tax ¥923B (effective tax rate 17.5%) yields Net Income ¥4,338B; less non-controlling interests ¥260B yields ¥4,078B. Low tax burden reflects utilization of deferred tax assets and timing of revenue recognition. The increase from Operating Income ¥4,331B to Ordinary Income ¥4,610B was mainly due to equity-method investment income ¥696B (1.2% of revenue) and net financial results +¥233B (financial income ¥303B △ financial expense ¥69B). Equity-method gains increased by ¥307B year-on-year due to recovery in resource-related and automotive equity affiliates and improved utilization, but these are externally dependent and volatile. Financial income ¥303B primarily comprises dividends received and securities investment gains, representing 0.5% of revenue and within a reasonable range.
There were significant one-off items in non-operating results: Other losses △¥681B (prior year +¥154B) include Next Stage support program special measures △¥1,053B, representing structural reform costs that compressed operating-stage profits. Adjusted Operating Income ¥5,012B excludes these items and reflects underlying earnings power. Gain on sale of subsidiaries +¥169B was another one-off.
Accruals: Operating CF ¥5,760B exceeded Net Income ¥4,338B by 33%, indicating high quality of earnings. Working capital adjustments included inventory decrease +¥513B and other liabilities increase +¥2,377B facilitating cash conversion. Contract assets increase △¥1,095B reflects progress on large projects and is a source of future cash generation. Comprehensive Income ¥7,834B is 1.8x Net Income, with foreign currency translation +¥1,642B and defined benefit remeasurements +¥1,944B boosting equity.
Full Year Forecast: Revenue ¥6.2兆 (YoY +5.2%, progress rate 95.0%), Net Income Attributable to Owners of Parent ¥4,750B (YoY +16.5%, progress rate 85.9%), EPS ¥231.01 (YoY +16.5%). Target Adjusted Operating Income ¥5,900B (+17.7%, margin 9.5%). Progress rates for revenue and operating income exceed standard progress (H1=50%), indicating a strong start toward full-year achievement.
Key assumptions: Business scale expansion +¥530B (Defense Systems +¥1,385B, FA Systems +¥667B, Life +¥1,117B, etc.), price improvement +¥450B, Next Stage effects +¥450B (restructuring and efficiency), offset by material cost increases △¥540B (incorporating higher crude-derived materials and logistics costs due to Middle East conditions). FX assumptions: USD ¥150 (actual ¥151), EUR ¥160, CNY ¥21.5 (actual ¥21.4). FX sensitivities: USD 1 yen movement affects revenue by ≈ ¥50B and operating income by about 1/4; EUR 1 yen movement affects revenue by ≈ ¥40B and operating income by about 1/3.
Backlog / Revenue Coverage: Contract liabilities ¥4,126B (prior year ¥3,306B) indicate a strong advance-receipt structure and backlog depth. Contract liabilities / annual revenue ratio ≈ 7.0% offers standard visibility for project businesses. Contract assets ¥4,576B (prior year ¥3,432B) reflect progress on large infrastructure projects, underpinning backlog. Long-term contracts are common in defense, transportation, and energy systems, supporting revenue visibility in subsequent periods.
Reasons for progress variance: Operating income progress 85.9% significantly exceeds standard 50% due to concentrated recognition and price improvements from Infrastructure large orders in H1. In H2, material cost increases and potential yen appreciation based on FX assumptions may pressure margins, but the full-year plan remains unchanged.
Dividends: Annual dividend ¥55 (interim ¥25, year-end ¥30; prior year ¥20, +¥35), payout ratio 28.5% (based on Net Income Attributable to Owners of Parent ¥4,078B; total dividends approx. ¥1,136B), maintaining a stable dividend policy. Next fiscal year’s dividend forecast is undecided, but maintaining the current payout ratio 28.5% against forecast EPS ¥231.01 would imply a dividend of approx. ¥66. With FCF ¥2,316B and dividends ¥1,136B, dividend-to-FCF coverage is about 2.0x indicating high sustainability.
Share Buybacks: ¥1,014B (financing CF basis) executed; combined with dividends ¥1,136B total returns ≈ ¥2,150B, total return ratio ≈ 53% (dividends + buybacks / Net Income Attributable to Owners of Parent). FCF ¥2,316B nearly covers total returns and cash balance ¥7,316B maintains soundness. Treasury stock increased △¥1,711B (prior year △¥718B), a △¥993B increase due to acquisitions, contributing to per-share metrics and capital efficiency improvement.
Shareholder return policy: The company emphasizes balancing continuous growth investment (capex & M&A) with FCF generation, strengthening shareholder returns through stable dividends and flexible buybacks. Targeting total return ratio above 50%, with room for dividend increases as performance and capital efficiency improve. With forecast EPS +16.5% next year, there is significant scope for increased dividends if payout ratio is maintained.
[Short-term] (1) FY2027 Q1 results (to be released Jul–Aug 2026): monitor progress on Infrastructure large orders, persistence of AI-related demand in FA Systems, and the impact of Middle East developments on raw material costs. (2) Disclosure of next-year dividend forecast: will management indicate a dividend increase given profit growth and FCF generation? (3) FX movements: USD, EUR, and CNY volatility could trigger revisions to revenue and profit forecasts.
[Long-term] (1) Achievement of adjusted operating margin 9.5%: progress from price improvements, Next Stage effects, and portfolio rebalancing. (2) Completion of portfolio optimization: improvement in profitability of HVAC & home appliances and mitigation of North American car multimedia reductions in automotive equipment. (3) High-margin Infrastructure: continued awards for large defense contracts and expanded overseas deployment of Social and Energy Systems. (4) M&A & PMI execution: realization of synergies from consolidation of Middle East Building Systems affiliates and confirmation of recoverability of intangibles and goodwill. (5) Inventory efficiency improvement: normalization of DIO 115 days and recovery of total asset turnover above 0.85x. (6) ROE in double digits: achieving >10% through margin and asset-turn improvement.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Return on Equity | 9.7% | 6.3% (3.2%–9.9%) | +3.4pt |
| Operating Margin | 7.3% | 7.8% (4.6%–12.3%) | -0.4pt |
| Net Margin | 6.0% | 5.2% (2.3%–8.2%) | +0.8pt |
Industry positioning: ROE is +3.4pt above the median, placing the company in the top 25% range; net margin also exceeds the median, while operating margin is 0.4pt below the median and around the manufacturing average. There is room for margin improvement.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 6.8% | 3.7% (-0.4%–9.3%) | +3.1pt |
Industry positioning: Revenue growth rate is +3.1pt above the median, indicating higher-than-average growth for the manufacturing sector, positioned in the 25–50%ile range.
※ Source: Company compilation
Risk of prolonged inventory turnover and rising raw material costs: DIO 115 days (prior year 119 days) indicates continued inventory retention. Inventories ¥1,262.1B represent 17.2% of total assets, suggesting excess raw materials and WIP. Although inventory decreased +¥513B this period providing cash, deterioration in Middle East conditions could drive up crude-derived raw material and logistics costs (forecast material cost increase △¥540B next year) posing inventory valuation loss risk. If product or project mix bias and overproduction persist, markdowns or obsolescence losses may be recorded. Failure to normalize inventory could further depress total asset turnover from 0.801x and exert downward pressure on ROE.
Large project accounting and cost-estimate risk: Contract assets ¥4,576B (+¥1,145B +33.3%), contract liabilities ¥4,126B (+¥819B +24.8%) reflect greater exposure to project-based business and increased weight of project accounting. As large infrastructure projects progress, revenue and profit recognition timing may be brought forward, but lower accuracy in cost estimates, inspection delays, or claims could require profit adjustments. Contract assets increase △¥1,095B was a cash outflow driver for OCF, and timing mismatches in project collections could slow cash generation. Although OCF / Net Income is healthy at 1.33x this period, further increases in contract assets may signal deterioration in earnings quality.
FX volatility and equity-method investment risk: The +65.0% increase in Ordinary Income to ¥4,610B was driven by equity-method investment income ¥696B (+¥307B +179%) and improved financial results. Equity-method gains are dependent on external factors such as commodity prices and auto sales and thus are volatile. Foreign currency translation gains +¥1,642B boosted comprehensive income, but a stronger yen could reverse this benefit. FX sensitivity is material: USD 1 yen impacts revenue by approx. ¥50B and operating income by ~1/4; EUR 1 yen impacts revenue by approx. ¥40B and operating income by ~1/3. Next fiscal year assumes USD ¥150 (actual ¥151), but further yen appreciation or commodity price declines would negatively affect equity-method gains and gross margins.
Expansion of high-margin businesses and realization of restructuring effects: Adjusted Operating Income ¥5,012B (+27.9%), adjusted margin 8.5% on an improved trajectory. High-margin segments—Infrastructure (margin 10.7%), Semiconductor & Devices (18.4%), Digital Innovation (14.0%)—lifted the company average, and management targets adjusted operating margin 9.5% next year. The Next Stage support program is enabling portfolio rebalancing (improving HVAC & home appliance profitability and reducing North American car multimedia exposure in automotive equipment) and price adjustments (+¥450B expected) as drivers of margin expansion. If broad-based profit increases such as FA Systems +63.8%, Infrastructure +72.9%, Industry & Mobility +58.7% are sustained, double-digit ROE and higher total return ratios become attainable.
FCF generation capability and sustainability of shareholder returns: FCF ¥2,316B generated, OCF / Net Income 1.33x indicating solid cash backing. Dividend ¥55 (payout ratio 28.5%) plus share buybacks ¥1,014B yield total return ratio ≈ 53%, and FCF coverage ≈ 2.0x, signaling high sustainability. Net cash ¥3,683B (Cash ¥7,316B less interest-bearing debt ¥3,633B) suggests resilience against dividend cuts in downturns. With next-year EPS forecast ¥231.01 (+16.5%), maintaining the payout ratio would allow substantial dividend increases. If inventory normalization (DIO 115 days → low 100s) and contract asset collection progress, FCF could expand and total return ratio could be raised above 60%.
Attention to inventory & contract-asset management and FX volatility: Elevated inventory DIO 115 days and contract assets +33.3% are signs of BS expansion and the decline in total asset turnover to 0.801x (prior 0.867) may pressure ROE. Timing mismatches in project collections and cost-estimate variances pose earnings adjustment risks. The company’s comprehensive income benefit from foreign currency translation +¥1,642B and equity-method gains ¥696B is externally dependent; yen appreciation or commodity price declines would increase profit volatility at the ordinary-income stage. Despite broad-based profit increases this period strengthening the foundation, next-year material cost increase △¥540B and FX assumption execution remain key. Monitoring inventory turnover and project profitability will be crucial for investment decisions.
This report is an earnings analysis document automatically generated by AI integrating XBRL earnings brief data and PDF earnings presentation materials. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the company based on public financials. Investment decisions are your responsibility; consult professionals as necessary before acting.