| Indicator | Current Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue | ¥5000.1B | ¥5086.4B | -1.7% |
| Operating Income | ¥518.3B | ¥875.8B | -40.8% |
| Profit Before Tax | ¥490.5B | ¥792.2B | -38.1% |
| Net Income | ¥353.7B | ¥535.8B | -34.0% |
| ROE | 7.0% | 11.5% | - |
For the fiscal year ended March 2026, Revenue was ¥5,000B (YoY -¥86B, -1.7%), Operating Income was ¥518B (YoY -¥358B, -40.8%), Ordinary Income was ¥410B (YoY -¥246B, -37.4%), and Net Income was ¥354B (YoY -¥182B, -34.0%). This was a year of declining revenue and profits, with demand adjustment in the China market (-24.2%) and an impairment loss of ¥116B materially depressing profits. Gross margin remained high at 51.1%, but SG&A ratio rose to 32.9% (prior year 29.7%), up 3.2pt, and operating margin fell to 10.4% (prior year 17.2%), down 6.8pt. By region, EMEA (+12.1%) and the Americas (+6.1%) drove revenue growth, but declines in China (-24.2%) and Corporate HQ (-6.8%) offset this, and product/region mix deterioration pressured margins.
[Revenue] Consolidated revenue was ¥5,000B, down 1.7% YoY. By region, EMEA was ¥1,521B (+12.1%), Americas ¥1,305B (+6.1%), and AP ¥406B (+6.1%)—all solid—while China was ¥893B (-24.2%) with a large decline, and Corporate HQ was ¥876B (-6.8%). In China, testing demand adjustment and ongoing pricing pressure reduced its revenue share to 17.9% (prior year 23.2%). R&D expense was ¥292B (5.8% of sales), maintaining strategic investment levels to strengthen product competitiveness going forward. FX contributed positively this period (translation difference ¥304B, foreign exchange gains ¥21B), and yen weakness boosted overseas revenue.
[Profitability] Cost of goods sold was ¥2,443B, resulting in gross profit of ¥2,557B (Gross Margin 51.1%, down 2.4pt from 53.5%). The decline in gross margin was mainly due to a lower revenue mix from high-margin regions such as China. SG&A was ¥1,644B, up 9.0% YoY, and the SG&A ratio rose 3.2pt to 32.9%. Increases in personnel and logistics costs and strategic investments pushed up fixed costs. Impairment losses of ¥116B (prior year ¥32B) were recorded, primarily in the Corporate HQ segment for goodwill and intangible asset impairments. Operating Income was ¥518B (Operating Margin 10.4%), a large decrease of 40.8% YoY. Non-operating items included financial expenses of ¥44B and equity-method losses of ¥14B, which pressured profit, partially offset by foreign exchange gains of ¥21B. Ordinary Income was ¥410B (-37.4%), Profit Before Tax was ¥491B (-38.1%), and income taxes were ¥137B (effective tax rate 27.9%), resulting in Net Income of ¥354B (-34.0%). Given the decline in revenue and profits, completing the impairment cycle and controlling SG&A are key to profit recovery next period.
Corporate HQ reported Revenue ¥876B (-6.8%) and Operating Income ¥178B (-69.9%), with an operating margin of 20.3%. Most of the ¥115B impairment loss occurred in Corporate HQ, and reassessment of goodwill and intangibles significantly depressed profit. Americas reported Revenue ¥1,305B (+6.1%) and Operating Income ¥85B (+26.2%), with a margin of 6.5%; revenue growth and improved sales efficiency contributed to a 1.0pt YoY margin improvement. EMEA reported Revenue ¥1,521B (+12.1%) and Operating Income ¥99B (-6.4%), margin 6.5%; revenues were solid but profits declined as higher SG&A pushed margin down 1.3pt. China reported Revenue ¥893B (-24.2%) and Operating Income ¥93B (-12.2%), margin 10.5%; demand adjustment and pricing pressure caused large revenue declines, but a high-margin structure was maintained. AP reported Revenue ¥406B (+6.1%) and Operating Income ¥37B (+3.6%), margin 9.1%; revenue and profit growth continued, supporting stable growth. After the impairment cycle, recovery in Corporate HQ profitability and the timing of a trough in China demand will be focal points for consolidated performance.
[Profitability] ROE was 7.3% (down 4.7pt from 12.0% prior year), Net Profit Margin 7.1% (prior year 10.5%), Total Asset Turnover 0.71x (prior year 0.76x), and Financial Leverage 1.40x (prior year 1.43x), all deteriorating. Operating Margin 10.4% decreased 6.8pt from 17.2%, mainly due to impairments and higher SG&A. Gross Margin 51.1% (-2.4pt) remains high, but product/region mix deterioration had an impact. EBITDA was ¥983B (EBITDA Margin 19.7%), and adding back depreciation of ¥464B indicates underlying earning power was maintained. [Cash Quality] Operating Cash Flow / Net Income was 2.09x, very strong. Accrual ratio was -5.4% (OCF absorbed working capital increases), in a healthy range. However, OCF/EBITDA was 0.75x, somewhat weak, as inventory increase -¥90B, tax payments -¥297B, and lease payments -¥113B constrained cash conversion. [Investment Efficiency] Total Asset Turnover 0.71x (prior 0.76x), and CapEx/Depreciation ratio 0.71x indicate restrained investment this period. Working capital efficiency deteriorated with DSO 123 days (prior 117), DIO 143 days (prior 126), and CCC 215 days (prior 192), and inventory and receivables aging pressured cash turnover. [Financial Soundness] Equity Ratio was 71.4% (prior 69.7%), Debt/EBITDA 0.32x, Net Debt effectively minimal, indicating a very healthy capital structure. Interest Coverage was 11.9x (EBIT ¥207B / Financial Expenses ¥44B), showing ample debt service capacity. Goodwill fell to ¥41B (prior ¥142B, -71%), significantly reduced by impairment recognition, lowering future revaluation risk.
Operating Cash Flow was ¥738B (prior ¥882B, -16.3%), well above Net Income ¥354B, with OCF/Net Income 2.09x, indicating high quality. Pre-working-capital operating cash subtotal was ¥1,052B; after adding non-cash charges—depreciation ¥464B and impairment losses ¥116B—underlying earnings remained solid. Working capital movements included inventory increase -¥90B (inventory buildup), accounts receivable decrease +¥68B (collection improvement), and accounts payable increase +¥7B, resulting in net cash outflow of approximately -¥15B. Contract liabilities (advance receipts) rose slightly by +¥12B, remaining at ¥208B. Corporate tax payments -¥297B and lease payments -¥113B enlarged cash outflows, keeping OCF/EBITDA at 0.75x. Investing Cash Flow was -¥515B, with CapEx -¥329B (CapEx/Depreciation 0.71x), intangible investment -¥181B, and net increase in time deposits -¥2B as main items. Proceeds from disposals were limited: tangible fixed assets +¥16B and financial instruments +¥5B. Financing Cash Flow was -¥377B, driven by dividend payments -¥224B, share buybacks -¥32B, and lease repayments -¥113B. Debt repayments were -¥7B, with no external financing raised. FCF was ¥224B, nearly covering dividend payments of ¥224B, but total shareholder returns of ¥257B (including buybacks) exceeded FCF by ¥33B, yielding an FCF coverage ratio of 0.87x. Cash and cash equivalents were ¥841B, and after FX translation +¥98B the year-end balance was slightly down ¥55B YoY. A strong financial base and low leverage served as buffers, but improving working capital efficiency (inventory reduction and stronger collections) is key to enhancing cash generation next period.
Earnings quality is characterized by a mix of recurring and one-off factors. Of Operating Income ¥518B, impairment losses of ¥116B (recorded in operating expenses) are non-cash and largely one-time, implying pre-impairment operating income of ¥634B (equivalent to an operating margin of 12.7%). Non-operating items—financial expenses ¥44B and equity-method losses ¥14B—were recurring negative factors, while foreign exchange gains ¥21B provided positive contribution. Net non-operating items were -¥50B, and Ordinary Income ¥410B diverged from Operating Income by about -¥108B. No special gains/losses were disclosed; from Profit Before Tax ¥491B, income taxes ¥137B (effective tax rate 27.9%) were deducted to arrive at Net Income ¥354B. Operating Cash Flow substantially exceeded Net Income (OCF/Net Income 2.09x) and accruals at -5.4% are in a healthy range, so cash generation excluding impairments is solid. However, OCF/EBITDA at 0.75x is somewhat weak, with inventory, tax payments, and lease payments limiting cash conversion. Comprehensive income was ¥666B, ¥312B above Net Income ¥354B, mainly due to translation differences on overseas operations +¥304B, fair value changes on financial assets +¥5B, and remeasurements of defined benefit liabilities +¥3B. Translation differences are non-cash but increased shareholders’ equity by ¥312B, making this a FX-driven fiscal year. After the impairment cycle, recovery in core operating margins will be key to improving earnings quality.
Full-year guidance projects Revenue ¥5,350B (YoY +7.0%), Operating Income ¥580B (+11.9%), Net Income ¥360B (+1.5%), EPS ¥57.93, and DPS ¥20. Revenue assumes ¥350B increase driven by a troughing China market and continued expansion in EMEA/Americas. Operating Income is expected to rise ¥62B, reflecting completion of the impairment cycle (-¥116B) and SG&A restraint, with a modest improvement in operating margin to 10.8%. Net Income growth is limited to +1.5%, likely reflecting variability in non-operating items and tax burdens. DPS returns to a standard level at ¥20 with the removal of the ¥2 commemorative dividend, implying an expected payout ratio of 34.5% (¥20 / EPS ¥57.93), within an appropriate range. Progress toward the full-year guidance based on current-period results is: Revenue 93.5% (¥5,000B / ¥5,350B), Operating Income 89.4% (¥518B / ¥580B), and Net Income 98.2% (¥354B / ¥360B). Net Income is already at 98% of the full-year plan, suggesting the guidance may be conservative. Correction of working capital (inventory reduction and stronger collections) is a precondition for achieving the plan and improving FCF.
Dividend policy is ¥38 per share (interim ¥19, year-end ¥19), including a ¥2 commemorative dividend (¥1 each at interim and year-end) for the 30th listing anniversary. Total dividends amounted to ¥224B (including ¥2B for executive remuneration BIP trust and equity grant ESOP trust), giving a payout ratio of 66.7% (Total Dividends ¥224B / Net Income ¥336B) — relatively high. On a normal dividend basis, DPS would be ¥36, implying a payout ratio of about 63.3%. Share buybacks of ¥32B were executed, so total shareholder returns were ¥257B (dividends ¥224B + buybacks ¥32B) and the total return ratio was 76.4%. FCF of ¥224B fell short of total returns ¥257B, with FCF coverage at 0.87x. Treasury stock increased to ¥155B (prior ¥123B, +¥32B), outstanding shares were 629M, treasury shares 8M, and weighted average shares during the period were 623M. Guidance for the next fiscal year assumes DPS ¥20 and the end of the commemorative dividend, returning to a standard level and lowering the projected payout ratio to 34.5% (¥20 / EPS ¥57.93). Strong equity (¥505.7B, Equity Ratio 71.4%) and low leverage cushion continued dividend continuity, but the fact that total returns exceed FCF (FCF coverage <1x) is a sustainability consideration. Improvement in cash generation via working capital efficiency will influence future shareholder return capacity.
China market demand adjustment and pricing pressure risk: The China segment recorded Revenue ¥893B (-24.2%), significantly down, and its revenue share fell to 17.9% (prior 23.2%). Operating Income was ¥93B (-12.2%), with a high margin of 10.5% maintained, but the timing of demand recovery is uncertain. Testing demand in China is sensitive to policy and reimbursement regime changes; intensified price competition and prolonged demand weakness could pressure consolidated revenue and profit composition. While next-period guidance assumes a trough in China, a downside scenario could lead to missing targets.
Risk of increased fixed-cost burden from rising SG&A ratio: SG&A was ¥1,644B (YoY +9.0%), and the SG&A ratio rose to 32.9% (prior 29.7%), up 3.2pt. Personnel and logistics cost increases and strategic investments are drivers, but rising fixed costs amid a -1.7% revenue decline invert operating leverage and reduced operating margin to 10.4% (prior 17.2%), down 6.8pt. If SG&A growth continues to outpace revenue growth, structural margin deterioration could persist, keeping ROE at low levels.
Risk of cash conversion efficiency deterioration due to working capital stagnation: DSO 123 days (prior 117), DIO 143 days (prior 126), and CCC 215 days (prior 192) reflect worsening working capital metrics, with inventory at ¥95.6B (+13.8%) and receivables at ¥168.8B (+3.5%). Operating Cash Flow ¥738B yields OCF/EBITDA 0.75x, somewhat weak, and inventory buildup -¥90B, tax payments -¥297B, and lease payments -¥113B constrained cash conversion. Continued working capital inefficiency could depress FCF generation and entrench a situation where total returns coverage is below 1x (current period 0.87x).
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| ROE | 7.3% | 6.3% (3.2%–9.9%) | +1.0pt |
| Operating Margin | 10.4% | 7.8% (4.6%–12.3%) | +2.6pt |
| Net Profit Margin | 7.1% | 5.2% (2.3%–8.2%) | +1.9pt |
Within manufacturing, profitability exceeds the median, but ROE has deteriorated markedly from prior performance (prior year 12.0%), suggesting a contraction of industry-relative advantage.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | -1.7% | 3.7% (-0.4%–9.3%) | -5.4pt |
Revenue growth lags the industry median by 5.4pt, placing the company among slower growers in the sector.
※Source: Company compilation
Completion of the impairment cycle and SG&A control are keys to profit recovery next period: This period recorded impairment losses of ¥116B, substantially reducing Operating Income (pre-impairment Operating Income equivalent ¥634B, operating margin 12.7%). Impairments were mainly a reassessment of goodwill and intangibles in Corporate HQ and are largely one-off. Goodwill declined significantly to ¥41B (prior ¥142B, -71%), reducing future impairment risk. SG&A ratio rose to 32.9% (prior 29.7%), but next-period guidance anticipates a modest operating margin improvement to 10.8%, making cost containment a precondition for margin recovery.
Improving working capital efficiency is key to FCF generation and ROE recovery: Working capital stagnation is evident with DSO 123 days, DIO 143 days, and CCC 215 days, and OCF/EBITDA remained 0.75x. Correcting working capital through inventory reduction and stronger collections will support FCF generation and improve total asset turnover, contributing to ROE recovery. Strengthening inventory management and receivables collection is essential to improve the current situation where total returns ¥257B exceed FCF ¥224B (FCF coverage 0.87x).
Focus on regional mix improvement and timing of China market trough: While EMEA (+12.1%) and the Americas (+6.1%) continued revenue gains, the sharp slowdown in China (-24.2%) pressured consolidated revenue and profit composition. China’s operating margin is high at 10.5% but its revenue share declined to 17.9% (prior 23.2%), and the rising share of EMEA/Americas (margins 6.5%) pulled down consolidated margins. Next-period guidance assumes a trough in China and a 7.0% revenue increase, so the pace of China demand recovery and improvement in regional mix will be critical to achieving targets.
This report is an AI-generated earnings analysis document produced by 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 responsibility; consult a professional as needed before making investment decisions.