| Metric | Current Period | Prior Year | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥6452.2B | ¥6105.2B | +5.7% |
| Operating Income | ¥121.9B | ¥269.5B | -54.8% |
| Ordinary Income | ¥136.2B | ¥243.3B | -44.0% |
| Net Income | ¥113.6B | ¥222.9B | -49.0% |
| ROE | 5.6% | 11.3% | - |
For the fiscal year ended March 2026 (FY2026 Full Year), revenue was ¥6,452B (YoY +¥347B, +5.7%), Operating Income was ¥122B (YoY ▲¥148B, ▲54.8%), Ordinary Income was ¥136B (YoY ▲¥107B, ▲44.0%), and Net Income attributable to owners of the parent was ¥111B (YoY ▲¥109B, ▲49.0%). The company posted higher revenue but lower profit. Strong top-line growth in the Environmental Business (+11.4%) drove revenue, but gross margin declined to 16.9% (down 180bp), SG&A increased to ¥96.8B (≈+11.0%), and Operating Margin fell sharply from 4.4% to 1.9% (down 250bp). At the ordinary income level, interest income received (¥2.7B) and equity-method gains (¥2.7B) increased, but foreign exchange losses of ¥3.3B weighed on non-operating results. Extraordinary items included impairment losses of ¥1.9B, with net special losses of ▲¥2.6B, which depressed final profit.
Revenue: The Environmental Business led expansion with ¥5,057B (YoY +11.4%), while Machinery & Infrastructure fell to ¥731B (YoY ▲19.7%), resulting in consolidated revenue of ¥6,452B (+5.7%). Growth in Environmental Business was supported by increased orders for waste incineration power generation/recycling facilities and energy systems, whereas the Machinery Business was hurt by lower orders for food machinery and bridges. Contract liabilities (equivalent to deposits received) increased by ¥1,348B to ¥548B, maintaining revenue backlog support. Trade receivables rose to ¥2,612B (+¥332B), DSO lengthened to 148 days, indicating a slight elongation in the collection cycle and timing mismatch between revenue recognition and cash conversion.
Profitability: Cost of sales was ¥5,362B (cost of sales ratio 83.1%, prior year 81.3%), causing gross margin to decline to 16.9% (down 180bp) and gross profit to fall to ¥1,091B (prior year ¥1,142B). SG&A rose to ¥969B (prior year ¥872B, ≈+11.0%), and Operating Income plunged to ¥122B (prior year ¥269B, ▲54.8%). Operating margin declined to 1.9% (prior 4.4%, down 250bp). Deterioration in Environmental segment profitability (Operating Margin 3.3%, down 230bp from 5.6%) and a swing to loss in Machinery (Operating Loss ▲¥24B, prior year Operating Income ¥1.0B) pressured consolidated profits. Non-operating items included interest income received ¥2.7B and equity-method gains ¥2.7B, but foreign exchange losses ¥3.3B offset these, leaving net non-operating income at only +¥1.4B. Special items comprised impairment losses of ¥1.9B (M&I Mukojima plant assets) contributing to net special losses of ▲¥2.6B. Income taxes were ▲¥0.3B (effective tax rate negative relative to pre-tax income ¥11.0B) due to valuation allowance reversals on deferred tax assets and other factors. In conclusion, despite revenue growth, lower gross margin, higher SG&A and Machinery losses resulted in higher revenue but lower profit.
Environmental segment (Revenue ¥5,057B, Operating Income ¥167B, Margin 3.3%) posted substantial revenue growth of +11.4% YoY but Operating Income declined by ▲34.2%, and margin fell 230bp from 5.6% to 3.3%. The main causes were margin deterioration on large plant projects and an increase in construction loss provision of ¥8.0B. Machinery & Infrastructure segment (Revenue ¥731B, Operating Loss ▲¥24B, Margin ▲3.3%) saw a significant revenue decline of ▲19.7% YoY and a swing from prior-year Operating Income ¥1.0B to an Operating Loss; recognition of impairment losses of ¥1.9B pressured profitability. The margin gap across segments is 660bp, and structural issues in Machinery plus margin management in Environmental are key to restoring consolidated profitability.
Profitability: Operating margin 1.9% (prior 4.4%), Net profit margin 1.8% (prior 3.6%) — both materially lower. ROE 5.6% (prior 12.6%), below the 3-year average of 8.1%. ROA on Ordinary Income basis 2.1% (prior 4.3%). Gross margin 16.9% (prior 18.7%) indicates deterioration in profitability. EBITDA margin was 4.3% (Operating Income ¥122B + Depreciation ¥156B = ¥278B ÷ Revenue ¥6,452B), down from 6.6% last year.
Cash quality: Operating Cash Flow / Net Income is 1.05x (nominally consistent), but Operating Cash Flow / EBITDA is 0.42x, down materially from the 3-year average of 0.65x — cash conversion weakened. DSO 148 days (prior 137 days), DPO 41 days (prior 42 days), CCC 122 days (prior 86 days) show deterioration in working capital efficiency. Free Cash Flow was ▲¥364B (prior ▲¥318B), a wider deficit.
Investment efficiency: Total asset turnover 0.90x, ROIC (NOPAT / Invested Capital) roughly 2.0% — low levels. Capex ¥21.7B and M&A-related outlays ¥19.1B increased investment burden. Goodwill rose to ¥31.1B (prior ¥14.1B) and amortization expense (¥2.4B) also pressured profits.
Financial soundness: Equity Ratio 28.3% (prior 31.1%), D/E 2.53x (prior 1.72x) — leverage increased. Debt/EBITDA 5.85x (prior 4.29x), indicating greater reliance on external funding. Current ratio 112%, Quick ratio 111% — minimum liquidity maintained, but short-term debt ratio 40.7% and Cash / Short-term debt 1.18x suggest limited refinancing resilience.
Operating Cash Flow was ¥11.6B (prior ¥24.8B, ▲53.0%), roughly halved. Working capital changes absorbed cash with increases in trade receivables ▲¥33.0B and other current assets ▲¥18.0B, partially offset by increases in contract liabilities +¥13.5B and other current liabilities +¥17.0B. Operating CF subtotal (before working capital changes) was ¥15.1B; adding depreciation ¥15.6B did not cover pre-tax income ¥11.0B by a wide margin, indicating limited accrual accumulation and weak cash generation. Investing Cash Flow was ▲¥48.0B, primarily due to Capex ▲¥21.7B and acquisitions of subsidiary shares ▲¥19.1B, reflecting goodwill increase (+¥17.0B) and intangible asset increases (+¥21.7B) from additional acquisition of a European subsidiary. Free Cash Flow was ▲¥36.4B. Financing Cash Flow was +¥41.5B, with short-term borrowings +¥27.7B and long-term borrowings +¥32.8B covering the shortfall. Cash and deposits increased to ¥78.0B (prior ¥70.8B), but interest-bearing debt expanded to ¥162.7B (prior ¥116.6B, +39.5%), raising financial leverage.
Ordinary Income was ¥13.6B and Net Income was ¥11.1B (ratio 82%), so divergence is limited, but net special losses ▲¥2.6B (including impairment ¥1.9B and negative goodwill ¥1.6B) pressured intermediate results. Non-operating income totaled ¥10.1B (1.6% of revenue), comprised of interest income received ¥2.7B, equity-method gains ¥2.7B, and other ¥4.4B; non-operating expenses were ¥8.7B, of which foreign exchange losses ¥3.3B equaled 27% of Operating Income, indicating high FX sensitivity. Accrual ratio is ▲0.1% (= (Net Income ¥11.1B – Operating CF ¥11.6B) ÷ Total Assets ¥718.6B), slightly negative and acceptable, but Operating CF / EBITDA 0.42x shows weak cash realization. The difference between Ordinary Income and Pre-tax Income is ¥2.6B primarily due to special items; income taxes ▲¥0.3B (negative effective tax rate) reflects temporary factors like valuation allowance reversals on deferred tax assets and has limited sustainability. Construction loss provision balance ¥8.0B (1.2% of revenue) is material and represents risk for future loss recognition.
Management guidance for FY2027 (next fiscal year ending March 2027) projects revenue ¥6,400B (YoY ▲0.8%), Operating Income ¥255B (YoY +109.2%), and Ordinary Income ¥220B (YoY +61.5%). The plan assumes recovery of Operating Margin to approximately 4.0% (up 210bp from current 1.9%) based on improvements in gross margin, SG&A control, and normalization of Machinery segment profitability. Given the current-year shortfall versus plan (Operating Income ¥122B vs plan ¥255B), next fiscal recovery hinges on margin correction in Environmental projects and rigorous cost management. Progress ratio (current Operating Income ¥122B ÷ next-year plan ¥255B) is 48%; V-shaped recovery requires improvement in project margins and normalization of FX impacts. Dividend guidance is DPS ¥38, implying payout ratio in the 30% range; the planned increase from current DPS ¥25 is contingent on profit recovery.
Year-end dividend ¥25 (interim ¥0), total returns ¥4.2B, payout ratio 19.0% (based on Net Income) — conservative. Dividends of ¥4.2B are coverable by Operating CF ¥11.6B, but with Free Cash Flow ▲¥36.4B the company effectively funded investment and dividends via external financing (short-term borrowings +¥27.7B, long-term borrowings +¥32.8B). Next-year dividend plan DPS ¥38 (assumed payout ratio ~30%) signals intent to raise dividends with profit recovery, but sustainability depends on improvements in cash generation (working capital efficiency and project margins) and control of investment pace.
Margin deterioration risk in Environmental plant projects: Gross margin worsened by 180bp to 16.9%. Construction loss provision balance ¥8.0B (1.2% of revenue) highlights margin management issues on large projects. Although contract liabilities ¥548B backlog supports future revenue, taking orders and starting construction without ensured profitability raises the risk of additional losses. Improving Environmental segment margin from 3.3% (prior 5.6%) is critical for consolidated recovery.
Structural loss risk in Machinery & Infrastructure: The Machinery segment swung to an Operating Loss of ▲¥24B (prior Operating Income ¥1.0B), with impairment losses ¥1.9B recorded. Revenue declined sharply by ▲19.7% YoY; order shortfall and margin deterioration are concurrent. Next-year plans assume consolidated profit recovery, but without structural reforms in Machinery (cost reductions, disposal of unprofitable sites), the segment could continue to depress consolidated profits.
Deterioration of financial flexibility due to high leverage and working capital burden: D/E 2.53x, Debt/EBITDA 5.85x show rising debt dependence. Short-term debt ratio 40.7% and Cash / Short-term debt 1.18x indicate limited refinancing resilience. DSO 148 days and CCC 122 days show worsening working capital efficiency; imbalance from delayed receivables collection and rising contract liabilities could crystallize funding risk. In a rising interest rate environment, interest expense (current period ¥2.3B) could increase and further pressure profits and cash flows.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 1.9% | 7.8% (4.6%–12.3%) | -5.9pt |
| Net Profit Margin | 1.8% | 5.2% (2.3%–8.2%) | -3.4pt |
Both Operating Margin and Net Profit Margin are materially below the manufacturing sector median; profitability ranks in the lower cohort within the industry.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 5.7% | 3.7% (-0.4%–9.3%) | +2.0pt |
Revenue growth exceeds the industry median, indicating top-line expansion that is above average within the sector.
※ Source: Company compilation based on public financial statements
Higher revenue but lower profit with sharp margin deterioration: Revenue grew supported by Environmental segment +11.4%, but gross margin fell 180bp and Operating Margin plunged to 1.9% (prior 4.4%). The Machinery segment’s swing to loss pressured consolidated results. Next-year guidance assumes Operating Margin recovery to ~4.0%, but realization depends on Environmental project margin correction and structural reform in Machinery; monitoring progress is essential.
Weak cash generation and rising leverage: Operating CF / EBITDA 0.42x and Free Cash Flow ▲¥36.4B indicate weak cash generation, with working capital deterioration (CCC 122 days, DSO 148 days) absorbing cash. Interest-bearing debt rose to ¥162.7B, D/E 2.53x, Debt/EBITDA 5.85x, and short-term debt ratio 40.7% — leverage increased and refinancing resilience is limited. Improving receivables collection and converting contract liabilities to revenue are focal points for cash normalization.
Build-up of contract liabilities and backlog supporting future revenue: Contract liabilities ¥548B (YoY +¥13.5B) indicate a solid order backlog with long-term Environmental projects accumulating. However, without ensuring order profitability and containing construction loss provision balance ¥8.0B, top-line growth may not translate into improved profits or cash flow. Recovery in gross margin and working capital efficiency from the next fiscal year onward are conditions for sustainable growth.
This report is an AI-generated financial analysis document created by analyzing XBRL earnings disclosure 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 own responsibility; consult a professional advisor as appropriate.