JEOL Ltd. FY2026 FY Earnings Report

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Executive Summary

For the fiscal year ending March 2026, Revenue was ¥1,793.5B (¥-173.4B YoY, -8.8%), Operating Income was ¥260.2B (¥-94.8B YoY, -26.7%), Ordinary Income was ¥286.1B (¥-58.1B YoY, -16.9%), and Net Income was ¥209.6B (¥+27.3B YoY, +14.9%). Although top-line and operating profits declined, Net Income increased due to normalization of special gains/losses after the prior-year investment securities valuation loss of ¥123.8B was removed. Operating margin declined by 3.5pt to 14.5% (prior year 18.0%), gross margin was 46.3% (prior year 47.0%), and SG&A ratio rose to 31.8% (prior year 28.9%), indicating pressure on the profit structure. The main drivers of revenue decline were demand slowdowns in Scientific / Measurement Instruments (-6.8% YoY) and Industrial Equipment (-14.8% YoY); regionally China decreased by -20.5% and Other regions by -14.5%. ROE remained at a high level of 14.5%, and the company prioritized capital efficiency in shareholder returns by conducting share buybacks of ¥127.7B.

Drivers of Performance Variance

[Revenue] Revenue of ¥1,793.5B represented a decline of ¥-173.4B (-8.8%) YoY. By segment: Scientific / Measurement Instruments ¥1,163.0B (YoY -6.8%, composition 64.8%), Industrial Equipment ¥481.3B (YoY -14.8%, composition 26.8%), Medical Equipment ¥149.3B (YoY -3.2%, composition 8.3%) — all segments experienced revenue declines. By region, Japan was ¥587.9B (YoY +3.7%) with slight growth, while China was ¥356.1B (YoY -20.5%), Other regions ¥573.2B (YoY -14.5%), and Americas ¥276.4B (YoY -1.9%), reflecting a general slowdown overseas. The largest decline came from the Industrial Equipment segment, primarily due to a pause in demand for electron-beam lithography systems to China. Scientific / Measurement Instruments were affected by lower sales of electron microscopes and analyzers; Medical Equipment saw only a slight decline with limited contribution. Contract liabilities (advances received) were ¥297.7B, maintaining 16.6% of sales, but down ¥-42.7B from ¥340.4B a year earlier, indicating cautious near-term order momentum.

[Profitability] Gross margin decreased by 0.7pt to 46.3% (prior year 47.0%), with gross profit of ¥830.3B (prior year ¥923.9B). This was mainly due to adverse product mix and cost-frontloading (work-in-process ratio high at 70.8%). SG&A was ¥570.1B (prior year ¥568.9B), a slight increase, but SG&A ratio rose to 31.8% (prior year 28.9%) due to lower sales, resulting in negative operating leverage. Consequently, Operating Income fell 26.7% to ¥260.2B (prior year ¥355.0B) and operating margin dropped to 14.5% (prior year 18.0%). Non-operating items included foreign exchange gains of ¥14.2B but also foreign exchange losses of ¥19.5B, resulting in a net currency headwind. Equity-method investment gains contributed ¥4.6B, and Ordinary Income was ¥286.1B (prior year ¥344.2B), down 16.9%. Extraordinary items included gains on sale of investment securities ¥10.2B and impairment loss ¥2.3B (tangible assets in Industrial Equipment), netting to +¥8.8B and normalizing from the prior year’s large special loss (investment securities valuation loss ¥123.8B, net special loss -¥94.6B). Profit before tax was ¥294.9B (prior year ¥249.6B), up 18.1%; effective tax rate was stable at 25.1% (prior year 25.1%). Net Income rose 14.9% to ¥209.6B (prior year ¥182.3B), improving net margin to 11.7% (prior year 9.3%). In summary, operating profit decline from lower sales was offset at the Net Income level by normalization of special items and stable tax burden.

Segment Analysis

Scientific / Measurement Instruments: Revenue ¥1,163.0B (YoY -6.8%), Operating Income ¥130.7B (YoY -13.0%), margin 11.2% (prior year 12.0%). Demand declines for electron microscopes and mass spectrometers impacted results; by region, China ¥184.9B (-25.0%) and Other ¥367.1B (-4.9%) drove the declines. Margin deterioration was due to higher SG&A ratio and compressed gross margin.

Industrial Equipment: Revenue ¥481.3B (YoY -14.8%), Operating Income ¥193.6B (YoY -26.4%), margin 40.2% (prior year 46.6%) — still high but down 6.4pt. A pause in China demand for electron-beam lithography systems was the main factor; China ¥164.7B (-16.8%) and Other ¥203.8B (-28.1%) both fell double digits. Margin decline was driven by a lower proportion of high-margin projects and cost-frontloading.

Medical Equipment: Revenue ¥149.3B (YoY -3.2%), Operating Income ¥0.6B (YoY -90.3%), margin 0.4% (prior year 4.3%) — a significant deterioration. Reduced sales of automated analyzers and relatively fixed SG&A compressed profits to near zero.

Corporate expenses were ¥-64.8B (prior year -¥65.0B), roughly flat, yielding adjusted Operating Income of ¥260.2B. While the high margin of Industrial Equipment supports overall profitability, Medical Equipment’s contribution is limited, making the business portfolio increasingly polarized.

Key Financial Indicators

[Profitability] Operating margin 14.5% (prior year 18.0%), Net margin 11.7% (prior year 9.3%). The operating margin decline was driven primarily by a 0.7pt drop in gross margin and a 2.9pt rise in SG&A ratio. ROE 14.5% (prior year 14.3%) slightly improved, aided by higher net margin and capital reduction from share buybacks. ROA on Ordinary Income basis decreased to 12.3% (prior year 15.2%). The Industrial Equipment segment’s operating margin of 40.2% materially lifts the company average, while Scientific / Measurement Instruments at 11.2% and Medical Equipment at 0.4% show significant disparity.

[Cash Quality] Operating Cash Flow (OCF) was ¥160.0B versus Net Income ¥209.6B, giving an OCF/NI ratio of 0.76x, below the 0.8 threshold, raising concerns about cash conversion efficiency. OCF/EBITDA (Operating Income + depreciation) was 0.51x (EBITDA calculated as ¥315.9B), low due to working capital stagnation. Working capital days worsened: DSO 103 days (prior year 96), DIO 286 days (prior year 222), CCC 353 days (prior year 318). Inventory turnover fell sharply to 1.28x (prior year 1.64x), with work-in-process of ¥534.9B accounting for 70.8% of inventories, suggesting project ramp-up and installation delays.

[Investment Efficiency] Total asset turnover fell to 0.74x (prior year 0.88x), indicating deteriorating asset efficiency. Capital expenditures were ¥134.9B, 2.5x depreciation of ¥53.7B, and Construction in Progress (CIP) stood at ¥127.8B (33.7% of tangible fixed assets), indicating ongoing capacity expansion and new-product investments. Financial leverage modestly increased to 1.67x (prior year 1.63x), Equity Ratio remained high at 59.9% (prior year 61.4%).

[Financial Soundness] Current ratio 214.6% (prior year 232.2%), quick ratio 193.0% (prior year 210.0%) — short-term liquidity remains healthy. Interest-bearing debt was ¥219.0B (short-term borrowings ¥140B + long-term borrowings ¥79B) versus cash and deposits ¥389.5B, yielding net cash of ¥170.5B. Debt/EBITDA was 0.70x and interest coverage was 195.6x (calculated as Operating Income + interest income / interest expense), showing minimal interest burden. Short-term liabilities ratio (current liabilities / total liabilities) was 63.9%, indicating refinancing reliance, but cash / short-term liabilities was 2.78x, providing a substantial liquidity buffer.

Cash Flow Analysis

OCF was ¥160.0B (prior year ¥231.0B, -30.7%). The subtotal was ¥258.3B (profit before tax ¥294.9B + depreciation ¥53.7B - equity-method adjustments), and working capital changes included collections from trade receivables +¥24.7B and reductions in inventories +¥15.8B as cash inflows, while trade payables -¥36.9B and contract liabilities -¥64.2B (release of advances received) were significant cash outflows. Corporate taxes paid -¥102.6B further weighed on cash, resulting in final OCF of ¥160.0B. With Net Income ¥209.6B, OCF/NI of 0.76x indicates slow cash realization, mainly due to working capital stagnation (DSO 103 days, DIO 286 days, CCC 353 days). Investing Cash Flow was -¥137.6B, largely due to capital expenditures -¥134.9B and accumulation of CIP ¥127.8B, tying up funds. Financing Cash Flow was -¥15.5B: share buybacks -¥127.7B and dividend payments -¥59.1B were partially financed by short-term borrowings ¥140B and long-term borrowings ¥80B. Free Cash Flow (FCF) was ¥22.4B (OCF ¥160.0B - investing CF ¥137.6B), far short of shareholder returns (dividends + buybacks ¥186.8B), so cash and borrowings were used. Cash and cash equivalents at year-end were ¥373.3B (opening ¥346.1B), supported by FX effects +¥20.4B. The decline in cash generation was mainly due to high work-in-process ratio (70.8%) and release of advances; inventory reduction, completion of inspections, and CIP capitalization to fixed assets are key to CF improvement.

Quality of Earnings

Ordinary Income ¥286.1B versus Net Income ¥209.6B — the ¥76.5B difference is largely taxes of ¥73.9B, indicating a sound structure. Non-operating items contributed net +¥25.9B, comprising FX gains ¥14.2B, dividend income ¥2.3B, equity-method gains ¥4.6B offset by FX losses ¥19.5B and interest expense ¥1.3B; net currency effect was -¥5.3B (a headwind). FX effects appear temporary; core earnings should be evaluated at the Operating Income level. Extraordinary items were net +¥8.8B (gain on sale of investment securities ¥10.2B and impairment ¥2.3B). The prior year included large special losses (investment securities valuation loss ¥123.8B) creating a prior-year net special loss of -¥94.6B; current-year normalization contributed to the +18.1% increase in profit before tax. Comprehensive income was ¥268.0B, ¥58.4B above Net Income ¥209.6B, driven by FX translation adjustments ¥20.3B, valuation differences on available-for-sale securities ¥8.4B, and retirement benefit adjustments ¥17.4B. The increase in securities valuation differences reflects unrealized gains not yet monetized. With OCF ¥160.0B versus Net Income ¥209.6B (OCF/NI 0.76x), accruals and CF divergence are significant, mainly due to working capital (WIP ¥534.9B, CIP ¥127.8B). Core earnings quality remains relatively strong at the Operating Income level (14.5% margin), but the Net Income uplift from normalization of extraordinary items is less persistent; recovery at the operating level is critical for sustainability.

Forecast / Guidance

For FY ending March 2027, guidance is Revenue ¥1,640.0B (YoY -8.6%), Operating Income ¥265.0B (YoY +1.9%), Ordinary Income ¥262.0B (YoY -8.4%), Net Income ¥213.0B (YoY +1.6%). Despite projected revenue decline, Operating Income is planned to slightly increase assuming fixed-cost optimization and retention of high-margin projects. Planned operating margin is 16.2% (vs. 14.5% this year, +1.7pt), implying SG&A compression and product-mix improvement. The anticipated decline in Ordinary Income reflects the expected drop-off in non-operating income (e.g., FX gains). Progress towards targets: Operating Income has already reached 98.2% of the full-year plan (¥260.2B / ¥265.0B), effectively achieved; Revenue progress is 109.4% (¥1,793.5B / ¥1,640.0B), exceeding the company’s assumed decline, reflecting intra-year demand and order backlog conversion. Key focus areas for next year are conversion of contract liabilities ¥297.7B to sales, inventory (especially WIP) reduction, and CIP start-up to improve productivity; these are critical to achieve the planned operating margin improvement and OCF recovery.

Shareholder Returns

Annual dividend is ¥132 per share (interim ¥53, year-end ¥79), a sizeable increase from prior-year annual dividend ¥44 (increase of ¥88, 3x). The year-end dividend was raised ¥26 from the initial forecast of ¥53 to ¥79, reflecting improved performance and strengthened reserves. Total dividends were ¥59.1B (interim ¥26.3B, year-end ¥32.8B), implying a payout ratio of 29.0% against Net Income ¥209.6B. Share buybacks totaled ¥127.7B, bringing total shareholder returns to ¥186.8B and a Total Return Ratio of 89.1% (total returns / Net Income), representing substantial returns. However, FCF was only ¥22.4B, far insufficient to cover total returns ¥186.8B, requiring use of cash on hand and borrowings. FCF coverage was 0.33x (0.38x for dividends only), raising sustainability concerns. Future sustainability depends on OCF improvement (inventory & WIP reduction, contract liability conversion to sales) and CIP capitalization to curb investing CF. Cash & deposits ¥389.5B and net cash ¥170.5B provide ample short-term capacity to maintain dividends, but medium-term improvement in OCF/Net Income ratio (target > 0.8) and investment efficiency is necessary. Dividend policy targets a payout ratio around 30%; for next year the forecast dividend is ¥66 against projected EPS 432.64 yen (payout ratio 15.3%), a conservative plan but subject to upward revision depending on full-year performance.

Risk Factors

1. Working capital stagnation risk: DIO 286 days, with work-in-process ratio 70.8% (¥534.9B) extremely high, suggesting project ramp-up and installation delays. Decrease in contract liabilities to ¥297.7B (prior year ¥340.4B) implies reduction in advances as a source of near-term sales. DSO 103 days (prior year 96) indicates receivables stagnation and CCC 353 days (prior year 318) signals prolonged cash conversion. With OCF/Net Income at 0.76x, cash realization is slow; if inventory drawdown or inspection delays worsen, OCF could be further pressured. Progress in WIP elimination and speed of contract liability conversion are key to CF improvement.

2. Capital expenditure execution risk: CIP ¥127.8B (33.7% of tangible fixed assets) is high and CapEx ¥134.9B is 2.5x depreciation ¥53.7B, indicating aggressive investment. Continued delays in CIP commissioning could pressure Operating Income through front-loaded depreciation and costs and reduce capital efficiency due to delayed investment payback. An impairment loss of ¥2.3B was already booked in the Industrial Equipment segment, underscoring the need for careful investment decisions. Monitoring CIP capitalization, commissioning, and productivity/yield improvements is critical. Investment payback delays pose risks to both OCF and ROA.

3. Demand cycle slowdown risk: Core segments showed significant declines: Scientific / Measurement Instruments -6.8%, Industrial Equipment -14.8%. Regional weakness was pronounced in China -20.5% and Other -14.5%, driven by a pause in R&D and capital investment demand for electron microscopes and electron-beam lithography systems. Operating margin fell from 18.0% to 14.5% largely due to fixed SG&A (+2.9pt) and gross margin compression (-0.7pt). Next year also assumes revenue decline (-8.6%), and timing of demand recovery is uncertain. The business is sensitive to sector-specific R&D and semiconductor equipment investment cycles; external deterioration could accelerate revenue and profit declines.

Industry Benchmark (Reference; Company Compiled)

Profitability & Returns

Both operating and net margins are well above industry medians, placing the company among the higher-profit manufacturing firms.

Growth & Capital Efficiency

Revenue growth underperforms the industry median by 12.5pt, highlighting the impact of demand cycle slowdown relative to the manufacturing average.

※ Source: Company compiled from public financial statements

Key Takeaways from the Financial Results

1. Gap between profitability and cash generation: Despite high profitability (Operating margin 14.5%, ROE 14.5%), cash conversion is weak (OCF/Net Income 0.76x, OCF/EBITDA 0.51x). High WIP ratio 70.8%, CIP ratio 33.7%, and CCC 353 days indicate working capital and investment funds are tied up. Progress in inventory reduction and CIP capitalization would materially improve OCF and secure sustainable shareholder returns (dividends + buybacks). In the short term, conversion of contract liabilities ¥297.7B to sales and completion of WIP inspections are key to next-year OCF improvement.

2. Portfolio polarization and dependence on Industrial Equipment: Industrial Equipment with Operating Income ¥193.6B (margin 40.2%) accounts for 74.4% of company operating profit, while Scientific / Measurement Instruments margin 11.2% and Medical Equipment 0.4% show large disparities. Industrial Equipment maintains high margins via high-value products like electron-beam lithography systems but is sensitive to China and other regional cycles; this segment declined -14.8% this period. Maintaining Industrial Equipment margins and improving Scientific / Measurement Instruments profitability are essential for overall margin sustainability. Medical Equipment is nearly loss-making and may require restructuring or SG&A optimization.

3. Balancing aggressive shareholder returns and financial capacity: The company distributed dividends of ¥132 (payout ratio 29.0%) and executed share buybacks of ¥127.7B, delivering a Total Return Ratio of 89.1%. With FCF of only ¥22.4B, total returns were funded by cash and borrowings, but net cash ¥170.5B and Debt/EBITDA 0.70x indicate solid financial capacity. Improvement in OCF and investment efficiency should raise FCF coverage and support sustainable high-level returns. The company targets a payout ratio around 30%, and in an earnings recovery scenario, further dividend increases are possible; the shareholder return stance is positively viewed.

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This report was automatically generated by AI analyzing XBRL earnings disclosure data. It does not constitute a recommendation to invest in any particular security. Industry benchmarks are reference information compiled by the company based on public financial statements. Investment decisions are your responsibility; consult professional advisors as necessary.