| Metric | Current Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue | ¥1294.3B | ¥1298.1B | -0.3% |
| Operating Income | ¥78.9B | ¥93.2B | -15.3% |
| Ordinary Income | ¥86.0B | ¥97.7B | -12.0% |
| Net Income | ¥83.9B | ¥42.0B | +100.0% |
| ROE | 9.3% | 4.5% | - |
For the fiscal year ended March 2026, Revenue was ¥1,294.3B (YoY -¥3.8B, -0.3%), Operating Income was ¥78.9B (YoY -¥14.3B, -15.3%), Ordinary Income was ¥86.0B (YoY -¥11.7B, -12.0%), and Net Income attributable to owners of the parent was ¥83.9B (YoY +¥41.9B, +100.0%). Revenue was essentially flat, but Operating Income declined due to deterioration in gross margin. The recognition of Special Income of ¥28.8B (prior year ¥0.5B) and a decline in the effective tax rate (17.0%) led to a doubling of Net Income. The Optical & Systems segment was the largest profit contributor with Operating Income of ¥35.4B and a margin of 9.7%, followed by Energy ¥20.6B and Functional Materials ¥14.7B. While working capital was compressed, a decrease in trade payables offset cash generation, resulting in Free Cash Flow of -¥61.3B. M&A investment (acquisition of subsidiary shares ¥74.0B) and share buybacks ¥132.3B were financed by long-term borrowings of ¥200.0B, raising leverage.
[Revenue] Revenue was ¥1,294.3B, down -0.3% YoY. By segment, Energy ¥429.4B (33.2% of sales), Optical & Systems ¥364.1B (28.1%), Functional Materials ¥326.1B (25.2%), and Value Co-creation Business ¥179.4B (13.9%). The company did not disclose detailed YoY movements by segment, but overall flat corporate revenue suggests growth and declines among core segments offset each other. Gross margin was 24.6%, a deterioration of -95bp YoY (cost of sales ratio 75.4%). With cost of sales of ¥976.0B (75.4% of sales), gross profit was ¥318.3B, but product mix deterioration or higher raw material and manufacturing costs pressured gross margin.
[Profitability] SG&A expenses were ¥239.4B (18.5% of sales, up 13bp from 18.4% prior year), primarily driven by salaries and allowances ¥104.5B (prior year ¥97.9B, +6.7%). Depreciation within SG&A was ¥14.0B, rent ¥10.4B, advertising ¥2.8B, indicating higher fixed-cost burden. Operating Income declined to ¥78.9B (Operating Margin 6.1%, down 110bp from 7.2%). Non-operating income was ¥14.0B (interest income ¥2.7B, equity method gains ¥4.0B, foreign exchange gains ¥2.1B, dividend income ¥2.4B), and non-operating expenses were ¥6.9B (interest expense ¥2.5B, foreign exchange losses ¥3.0B, fees ¥1.9B), resulting in Ordinary Income of ¥86.0B (Ordinary Margin 6.6%, down 88bp from 7.5%). Special Income of ¥28.8B (gain on sale of fixed assets ¥0.2B, other ¥28.6B) and Special Losses of ¥13.6B (impairment losses ¥6.1B, loss on disposal of fixed assets ¥3.6B) were recorded, producing Profit before Income Taxes of ¥101.2B. Income taxes were ¥17.2B (effective tax rate 17.0%, down significantly from 32.0%), resulting in Net Income attributable to owners of the parent of ¥83.9B (Net Margin 6.5%, improvement of +3.3pt from 3.2%), a substantial increase. In conclusion, revenue was flat and operating earnings declined; core earning power deteriorated due to lower gross margin and higher SG&A ratio, while Net Income was boosted by one-off items (improved special profit/loss and lower tax rate).
Optical & Systems reported Revenue ¥364.1B, Operating Income ¥35.4B, and margin 9.7%, accounting for 44.9% of company Operating Income and serving as the core profit source. High-value-added products such as automotive camera lens units, LED headlamp lenses, and semiconductor DMS support profitability. Energy reported Revenue ¥429.4B, Operating Income ¥20.6B, margin 4.8%; while the largest in battery sales scale, its margin lags Optical & Systems. Functional Materials reported Revenue ¥326.1B, Operating Income ¥14.7B, margin 4.5%; adhesives and industrial materials showed weak profitability. Value Co-creation Business reported Revenue ¥179.4B, Operating Income ¥8.2B, margin 4.6%; consumer-facing businesses such as health/beauty products and electrical tools have limited profitability. With a company-wide Operating Margin of 6.1%, only Optical & Systems is above the average; the other three segments depress the overall margin. Improving margins will require price pass-through and cost reduction in Energy and Functional Materials.
[Profitability] Operating Margin 6.1% (down 110bp from 7.2%), Net Margin 6.5% (up 3.3pt from 3.2%). ROE was 9.3% (up 4.9pt from 4.4%), composed of Net Margin 6.5% × Asset Turnover 0.717 × Financial Leverage 2.00x. EBITDA was ¥131.9B (Operating Income ¥78.9B + Depreciation ¥53.0B), EBITDA margin 10.2%. Gross profit margin (on Revenue) 24.6% (prior year 25.5%), SG&A ratio 18.5% (prior year 18.4%).
[Cash Quality] Operating Cash Flow (OCF) ¥83.7B / Net Income ¥83.9B = 1.00x, showing high consistency with earnings. OCF/EBITDA = 0.63x indicating weak cash conversion efficiency and significant working capital effects. Inventory turnover days 75 days (Inventories ¥201.4B / daily sales), Accounts Receivable days 79 days (Trade receivables ¥280.6B / daily sales), indicating working capital efficiency is higher (worse) than standard range. Trade payables ¥159.4B / daily sales equates to ~60 days of payables; CCC is 94 days (DSO 79 + DIO 75 - DPO 60).
[Investment Efficiency] Capital expenditure ¥78.4B / Depreciation ¥53.0B = 1.48x indicates expansionary investment. Investment cash flow was -¥145.1B including acquisition of subsidiary shares ¥74.0B, resulting in Free Cash Flow of -¥61.3B.
[Financial Soundness] Equity Ratio 50.0% (down 5.5pt from 55.5%). Interest-bearing debt (long-term borrowings ¥345.0B + short-term borrowings ¥25.6B) ¥370.6B. Net Debt ¥55.0B (Interest-bearing debt - Cash ¥315.6B). Debt/EBITDA 2.81x, Net Debt/EBITDA 0.42x. Interest coverage 31.7x (Operating Income ¥78.9B / interest expense ¥2.5B). Current ratio 183.7%, Quick ratio 140.4% indicating ample liquidity.
OCF ¥83.7B reflects Profit before Income Taxes ¥101.2B, Depreciation ¥53.0B, working capital changes (inventory decrease +¥19.5B, accounts receivable decrease +¥12.5B, trade payables decrease -¥24.2B, advances received decrease -¥11.4B, accrued expenses decrease -¥10.7B), and corporate tax payments -¥24.1B. Operating cash subtotal (before working capital changes) was ¥104.3B, but net working capital movements were a cash outflow of -¥20.6B, limiting cash generation and resulting in OCF/EBITDA 0.63x. Investing cash flow was -¥145.1B, with major items of CapEx -¥78.4B (expansionary), acquisition of subsidiary shares -¥74.0B (M&A), and intangible asset additions -¥4.8B. Financing cash flow was +¥29.1B, comprised of long-term borrowings +¥200.0B, long-term borrowings repayments -¥15.6B, share buybacks -¥132.3B, dividends paid -¥21.6B, and dividends to non-controlling interests -¥0.8B. With FCF -¥61.3B, total returns (share buybacks ¥132.3B + dividends ¥21.6B = ¥153.9B) were financed by long-term borrowings. Cash and deposits were largely unchanged at ¥331.6B (prior year-end ¥330.7B). Improvement in working capital efficiency (in particular optimizing trade payables management and continued inventory reductions) is key to returning to FCF positive territory.
Ordinary Income ¥86.0B and Net Income ¥83.9B are closely aligned, indicating that earnings at the ordinary income stage translated into Net Income. Of non-operating income ¥14.0B, interest income ¥2.7B, equity method gains ¥4.0B, and foreign exchange gains ¥2.1B are business-related; dividend income ¥2.4B appears to be a steady return from investment securities of ¥108.0B. Special Income ¥28.8B (prior year ¥0.5B) is temporary; aside from a gain on sale of fixed assets ¥0.2B, the composition is undisclosed and not expected to be recurring. Special Losses ¥13.6B (impairment losses ¥6.1B, loss on disposal of fixed assets ¥3.6B) are also one-off. The sharp decline in effective tax rate to 17.0% (from 32.0%) suggests recognition of deferred tax assets or use of consolidated tax systems; sustainability is uncertain. Comprehensive income ¥114.2B exceeded Net Income by +¥30.3B (foreign currency translation adjustments ¥11.5B, valuation differences on available-for-sale securities ¥6.3B, actuarial gains/losses on retirement benefits ¥12.5B), boosting equity via other comprehensive income. The gap between OCF and EBITDA (OCF/EBITDA 0.63x) indicates working capital decreases have not fully converted into cash, implying elevated accruals. Core earnings quality is reflected in the Operating Margin of 6.1%; absent special items and the low tax rate, Net Income would be closer to the operating level, so sustainable earnings rely on improvements at the operating stage.
Full year guidance is Revenue ¥1,430.0B (YoY +10.5%), Operating Income ¥100.0B (YoY +26.7%), forecast EPS ¥181.76, and forecast dividend ¥28.00. Compared with current-period results (Revenue ¥1,294.3B, Operating Income ¥78.9B, EPS ¥202.03), the company expects incremental Revenue of ¥135.7B and Operating Income of ¥21.1B. Progress rates are 90.5% for Revenue and 78.9% for Operating Income, assuming second-half incremental Revenue +¥135.7B and Operating income +¥21.1B. Full-year Operating Margin is guided at 7.0% (up +0.9pt from current 6.1%), contingent on gross margin recovery and SG&A control. While actual EPS ¥202.03 exceeded forecasted EPS ¥181.76, this was driven by low tax rate and special items; the full-year EPS forecast appears conservative, incorporating normalization of tax rate and a decline in special items. Forecast dividend ¥28.00 (down from current-period ¥50.00) reflects the absence of special dividends or normalization of profits. Second-half revenue drivers are expected to be order expansion in Optical & Systems and new product launches in Energy; Incremental Operating Income depends on gross margin improvement (price pass-through and mix improvement) and reduced SG&A ratio. Improvement in OCF from working capital normalization would also support achieving forecasts.
Annual dividend was ¥50.00 (interim ¥25.00, year-end ¥25.00), total dividend payment ¥21.6B. Payout ratio was 28.4% (based on Net Income ¥83.9B), indicating room relative to profit level. Prior year annual dividend was ¥25.00 (total dividend ¥24.5B, payout ratio 53.7%); the current period included a doubled dividend, but full-year guidance indicates a dividend cut to ¥28.00. Share buybacks totaled ¥132.3B (cash flow statement basis), with 10.09M shares repurchased, increasing treasury stock book value to -¥193.7B. Total shareholder returns (dividends ¥21.6B + buybacks ¥132.3B = ¥153.9B) were not covered by FCF (FCF -¥61.3B), resulting in negative FCF-based total return. Dividend-only return (dividends / Net Income) of 28.4% is sustainable, but total returns including buybacks materially exceeded cash generation and were funded by long-term borrowings of ¥200.0B. Policy aims to balance growth investment (CapEx / Depreciation 1.48x) and shareholder returns, but this period saw M&A and share buybacks coincide, producing aggressive returns while FCF was negative. From next fiscal year, FCF profitability via working capital efficiency improvements is the precondition for sustaining total returns. Payout ratio 53.7% (full-year forecast basis: dividend ¥28 / EPS ¥181.76 × 2 shares = 15.4%) is expected to decline significantly on a full-year basis; sustainability of dividend policy depends on expansion of Operating Cash Flow.
Risk of further gross margin deterioration and decline in Operating Margin: Gross margin 24.6% (YoY -95bp), Operating Margin 6.1% (YoY -110bp) indicate worsening profitability. If product mix shifts or raw material cost increases persist and price pass-through lags, Operating Income may miss targets. Except for Optical & Systems, other segments have low margins in the 4–5% range, making company profitability highly reliant on the core segment. Delay in margin improvement in Energy and Functional Materials could make achieving full-year Operating Income ¥100.0B (Operating Margin 7.0%) difficult.
Low working capital efficiency and weak cash conversion: Inventory days 75, receivable days 79, CCC 94 days indicate working capital efficiency is worse than industry norms. OCF/EBITDA 0.63x shows weak cash generation and exposes the company to risks of inventory buildup or delayed receivable collections during order fluctuations. A decrease in trade payables of -¥24.2B suggests shortening payment terms or reduced transactions; if this continues, achieving FCF positive will be difficult. Without improvements in working capital management, continuing M&A and shareholder returns will increase debt dependence and erode financial flexibility.
Rising financial leverage and interest burden risk: Long-term borrowings ¥345.0B (prior year ¥170.6B, +102.2%) pushed Debt/EBITDA to 2.81x, exceeding the upper bound of investment-grade range. In a rising interest rate environment, interest expense (¥2.5B this period, up 67% from ¥1.5B prior year) could further increase; while interest coverage is high at 31.7x, a decline in Operating Income would make financing costs a drag. Continued negative FCF and additional borrowings could further reduce Equity Ratio 50.0% (prior year 55.5%), risking rating downgrades or higher funding costs. Goodwill ¥61.8B (goodwill / equity 6.9%) from acquisitions carries impairment risk, which could trigger future special losses.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 6.1% | 7.8% (4.6%–12.3%) | -1.7pt |
| Net Margin | 6.5% | 5.2% (2.3%–8.2%) | +1.3pt |
Operating Margin is -1.7pt below the industry median, placing the company in a lower group, while Net Margin is +1.3pt above, largely due to temporary factors (special items and low tax rate).
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | -0.3% | 3.7% (-0.4%–9.3%) | -4.0pt |
Revenue growth lags the industry median by -4.0pt, indicating inferior growth performance. The company is positioned among firms with flat to declining sales, as Optical & Systems’ growth has not driven company-wide expansion.
※ Source: Company compilation
Recovery of core earning power is key to achieving next-year targets: The decline in Operating Margin to 6.1% (YoY -110bp) was driven by gross margin deterioration and higher SG&A ratio. Full-year plans assume Operating Margin 7.0%, so price pass-through, product mix improvement, and cost reduction are essential. Heavy dependence on Optical & Systems (margin 9.7%) means improving profitability in Energy and Functional Materials is directly linked to raising overall company profitability. If CCC (94 days) is shortened and OCF/EBITDA recovers from 0.63x to above 1.0x, FCF positivity and restored financial flexibility can be expected.
Realization of M&A synergies and effectiveness of growth investments: The company executed active investments including acquisition of subsidiary shares ¥74.0B and CapEx ¥78.4B (CapEx/Depreciation 1.48x). Intangible assets doubled to ¥101.6B (prior year ¥43.7B), including goodwill ¥61.8B, with the expectation that acquisition benefits will contribute to sales and profit in coming years. Investments in growth areas such as automotive lenses and semiconductor DMS in Optical & Systems underpin the second-half Revenue increase of ¥135.7B. However, with FCF -¥61.3B, continued expansionary investment is not sustainable without OCF improvement; working capital normalization to generate cash is a prerequisite for continued investment.
Sustainability of shareholder returns and financial balance: Payout ratio 28.4% (current period) is sustainable relative to profit, but total returns including share buybacks ¥132.3B (total ¥153.9B) were not covered by FCF and relied on long-term borrowings ¥200.0B. Debt/EBITDA 2.81x exceeds the upper bound of investment-grade range and Equity Ratio fell to 50.0% (prior year 55.5%). If FCF returns to positive territory (via OCF expansion and reduced investing cash flow), dividend stability and flexible buybacks could be maintained, but the current stance prioritizes growth investment and accepts higher leverage. In a rising-rate environment, increased financing costs pose risk; achieving Operating Margin 7.0% and OCF/EBITDA > 1.0x is the basis for continuing shareholder returns.
This report is an earnings analysis document automatically generated by AI based on XBRL earnings announcement data. It does not constitute a recommendation to invest in any specific security. Industry benchmark figures are reference information compiled by the company from public financial statements. Investment decisions are your responsibility; please consult advisors as appropriate before making investment decisions.