Fujitsu Limited FY2026 FY Earnings Report

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Executive Summary

This was a decrease in revenue but an increase in earnings, with net income nearly doubling due to a significant improvement in profitability and the boost from one-time gains. Revenue remained at ¥35029.7B (-1.3% YoY), while Operating Income rose to ¥3483.3B (+31.4% YoY) and Net Income attributable to owners of the parent increased to ¥4494.1B (+104.5% YoY). The primary drivers of earnings growth were an improvement in gross margin resulting from a mix shift toward service-related businesses (35.6%, +2.7pt), a sharp increase in share of profit of investments accounted for using the equity method (¥503.2B versus ¥82.5B in the previous year), and contributions from one-time factors such as profit from discontinued operations and gains on the sale of shares in subsidiaries.

Factors Affecting Results

【Revenue】Consolidated revenue was ¥35029.7B, down -1.3% YoY. While ServiceSolutions continued to grow, reaching ¥23147.9B (66.1% of total, YoY+4.7%), HardwareSolutions declined to ¥9333.3B (26.6%, YoY-11.0%) and UbiquitousSolutions declined to ¥2295.3B (6.6%, YoY-8.7%), resulting in an overall decrease in revenue. A mix shift is occurring, characterized by a contraction in hardware and ubiquitous solutions and a rising service mix.

【Profit and Loss】Operating Income improved to ¥3483.3B (YoY+31.4%), while the Operating Margin improved to 9.9% (from 7.5% in the previous year, +2.4pt). Gross margin also increased to 35.6% (from 32.9% in the previous year, +2.7pt), while SG&A expenses remained broadly flat at ¥8867.1B, resulting in operating leverage. Profit Before Tax was ¥4090.3B (YoY+49.6%), boosted by the sharp increase in share of profit of investments accounted for using the equity method to ¥503.2B (¥82.5B in the previous year). In addition, profit from discontinued operations of ¥1463.4B was recorded, resulting in Profit for the period of ¥4546.4B (¥4494.1B attributable to owners of the parent, YoY+104.5%). In conclusion, this was a decrease in revenue but an increase in earnings.

Segment Analysis

Adjusted Operating Income (underlying profit after excluding one-time gains and losses) for ServiceSolutions was ¥3614.6B (¥2899.7B in the previous year, YoY+24.7%), making it the largest contributing segment. Its Adjusted Operating Margin also improved to 15.6% (13.1% in the previous year). HardwareSolutions generated ¥670.1B (¥613.0B in the previous year, YoY+9.3%), with a margin of 7.2% (5.8% in the previous year), while UbiquitousSolutions generated ¥388.3B (¥313.7B in the previous year, YoY+23.8%), with a margin of 16.9% (12.5% in the previous year). Margins improved across all segments, including those that experienced revenue declines. On a company-wide basis, business reorganization and business structure reform expenses of ¥369.2B and M&A-related expenses of ¥53.4B were deducted from Adjusted Operating Income, resulting in Operating Income of ¥3483.3B. Improved profitability across the segments supported operating earnings growth despite the overall decline in revenue.

Key Financial Metrics

【Profitability】The Operating Margin was 9.9% (7.5% in the previous year), while the Net Profit Margin (based on net income attributable to owners of the parent) was 12.8% (449,408 million yen ÷ 3,502,971 million yen), indicating that the improvement from the 35.6% gross margin flowed through to all levels of profitability.【Cash Quality】Operating Cash Flow (OCF) was ¥3381.3B, representing approximately 0.75x Net Income attributable to owners of the parent of ¥4494.1B, confirming that cash generation is somewhat lagging profit growth.【Investment Efficiency】Total asset turnover was approximately 1.0x (revenue of 3,502,971 million yen ÷ average total assets during the period of 3,448,777 million yen), while ROE remained high at 23.9%. The high ROE reflects a combination of a high net profit margin and financial leverage of approximately 1.66x.【Financial Soundness】The Equity Ratio improved significantly to 59.6% (from 49.8% in the previous year, +9.8pt), while cash and cash equivalents accumulated to ¥4503.7B (+40.7% YoY). The sharp increase in the Equity Ratio coincides with substantial purchases and cancellation of treasury shares, as well as the accumulation of retained earnings.

Cash Flow Analysis

Operating Cash Flow (OCF) was ¥3381.3B (+11.3% YoY). The increase in Profit Before Tax was partly offset by higher income taxes paid (-¥986.6B) and an increase in contract assets (-¥261.9B). Investing Cash Flow was positive at +¥1444.9B, as proceeds of ¥2987.2B from the sale of subsidiaries and equity-method affiliates substantially exceeded capital expenditures of -¥1089.8B. Financing Cash Flow was -¥3797.5B, with the main expenditures consisting of share repurchases of -¥1700.2B, dividend payments of -¥514.7B, and a net decrease in short-term borrowings of -¥1111.6B. Free Cash Flow (OCF + Investing Cash Flow) was ample at ¥4826.2B; however, it should be noted that the positive Investing Cash Flow depended on the one-time factor of proceeds from the sale of businesses and assets.

Earnings Quality

Operating Income of ¥3483.3B was after deducting business structure reform expenses and other costs, whereas Profit for the period included one-time factors such as profit from discontinued operations of ¥1463.4B and gains on the sale of shares in subsidiaries. Share of profit of investments accounted for using the equity method also fluctuated significantly, reaching ¥503.2B (¥82.5B in the previous year), making it a volatile source of earnings. Comprehensive Income attributable to owners of the parent was ¥5109.5B, exceeding Net Income of ¥4494.1B by +¥615.5B. The primary factors were other comprehensive income items such as remeasurements of defined benefit plans of ¥374.9B and foreign currency translation adjustments for foreign operations of ¥195.4B. The fact that OCF remained at ¥3381.3B, approximately 0.75x Net Income, suggests that a portion of Profit for the period consisted of one-time accounting gains that did not involve cash realization, including gains on disposals, equity-method investment gains, and OCI-related items.

Earnings Forecast and Guidance

The company’s plan for the following fiscal year calls for revenue of ¥35100B, Operating Income of ¥4150B (YoY+19.1%), Net Income attributable to owners of the parent of ¥3100B (YoY-31.0%), EPS of ¥182.43, and annual dividends of ¥55. While Operating Income is expected to increase, Net Income is forecast to decline substantially. This assumes that one-time factors recorded in the current period, such as profit from discontinued operations and gains on the sale of shares in subsidiaries, will not recur in the following period. Operating Income is expected to remain on an upward trend, with the forecast reflecting two differing directions: continued improvement in core earnings power and normalization of one-time factors.

Shareholder Returns

The annual dividend was ¥50 (¥15 interim and ¥35 year-end), resulting in a conservative Payout Ratio of 19.6%. The company plans to increase the annual dividend to ¥55 in the following period, and the dividend burden is limited in light of OCF of ¥3381.3B and Free Cash Flow of ¥4826.2B. During the current period, the company repurchased ¥1700.2B of its own shares, resulting in a Total Return Ratio of approximately 57.5% when combined with dividends. Treasury shares declined substantially from ¥5597.3B at the end of the previous period to ¥108.3B, reflecting the cancellation of a large amount of treasury shares. Against the backdrop of a robust Equity Ratio of 59.6% and ample cash on hand, the company can be considered to have relatively substantial capacity for shareholder returns.

Risk Factors

1. Delay in cash generation: OCF of ¥3381.3B was approximately 0.75x Net Income attributable to owners of the parent of ¥4494.1B. The increase in contract assets of ¥261.9B and the rise in income tax payments to ¥986.6B were contributing factors, and the delay in cash conversion relative to profit growth should be monitored.

2. Dependence on one-time gains: Profit for the period included one-time factors such as profit from discontinued operations of ¥1463.4B and gains on the sale of shares in subsidiaries. The company’s plan for the following period assumes a -31.0% decline in Net Income attributable to owners of the parent, representing a conservative plan that incorporates the removal of one-time factors.

3. Segment concentration risk: The company has a high degree of dependence on ServiceSolutions in both revenue and profit, with the segment accounting for 66.1% of revenue. Utilization rates and pricing trends in this segment have a relatively significant impact on company-wide results.

Industry Benchmark (Reference; Company Analysis)

Industry Benchmark (manufacturing)

Profitability and Returns

Both Return on Equity and Net Profit Margin significantly exceed the industry median, placing the company’s profitability in a superior position within the industry.

Growth and Capital Efficiency

Revenue growth was below the industry median, placing the company at a relative disadvantage within the industry in terms of top-line growth.

※Source: Company compilation

Key Points from the Results

1. Margin improvement despite declining revenue: Gross margin improved by +2.7pt and Operating Margin by +2.4pt, while Adjusted Operating Margins increased across all segments: ServiceSolutions, HardwareSolutions, and UbiquitousSolutions. The shift toward services and cost discipline contributed to strengthening core earnings power.

2. Quality of the doubling in Net Income: Net Income attributable to owners of the parent increased substantially by +104.5%, but one-time factors such as profit from discontinued operations and gains on the sale of shares in subsidiaries made a significant contribution. The company’s plan for the following period projects a -31.0% decline in this profit figure, making the sustainability of core earnings power after the removal of one-time factors the key focus.

3. Financial soundness and expansion of shareholder returns: The Equity Ratio increased to 59.6%, and the capital structure changed following the large-scale cancellation of treasury shares. In addition to a Payout Ratio of 19.6%, the company repurchased ¥1700.2B of its own shares, bringing the Total Return Ratio to approximately 57.5%.

Theoretical Share Price (Reference Value)

This is a reference range mechanically calculated solely from publicly disclosed data using a residual income model (Ohlson-type model with an explicit 5-year fade). It is not a forecast of the market share price or a recommendation of any specific investment action.

Sensitivity: ¥1,422–¥1,509 at ±1% for the Cost of Equity, and ¥1,457–¥1,476 at ±0.1 for ω.

(Calculation model: residual income model / Interest rate reference month: 2026-06 / This figure does not predict or guarantee the future share price)

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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 discretion and responsibility, after consulting a professional as necessary.

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