| Metric | Current Period | Prior Year | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥49181.7B | ¥50188.9B | -2.0% |
| Operating Income / Operating Profit | ¥515.8B | ¥1861.2B | -72.3% |
| Ordinary Income | ¥1318.3B | ¥1890.0B | -30.2% |
| Net Income / Net Profit | ¥-1034.1B | ¥601.3B | -56.3% |
| ROE | -5.4% | 3.3% | - |
FY2026 results closed with Revenue ¥49,181.7B (YoY -¥1,007.2B -2.0%), Operating Income ¥515.8B (YoY -¥1,345.4B -72.3%), Ordinary Income ¥1,318.3B (YoY -¥571.7B -30.2%), and Net Income attributable to owners of the parent ¥350.9B (YoY -¥763.2B -68.5%), marking declines in both sales and profits. Operating margin fell sharply to 1.0% (down -2.7pt from 3.7% a year earlier). Gross margin deteriorated to 18.0% (down -3.5pt from 21.5%), and elevated SG&A of ¥8,348.2B (SG&A ratio 17.0%) combined to compress operating performance. Ordinary Income was supported by non-operating gains including foreign exchange gains ¥473.8B, interest income ¥275.7B, and equity in earnings of affiliates ¥168.8B, but extraordinary losses of ¥731.6B (impairment of fixed assets ¥86.0B, impairment losses ¥35.6B, etc.) reduced final profit. Operating Cash Flow was minimized at ¥2.2B (YoY -99.9%), and Free Cash Flow was -¥6.5B. Dividend payments totaling ¥346.8B were funded via financing cash flow including long-term borrowings +¥2,045.8B. An operating loss in the Japan segment of -¥1,618.2B materially eroded consolidated profits and could not be fully offset by North America operating profit of ¥1,675.4B.
[Revenue] Revenue was ¥49,181.7B (YoY -2.0%). By region, Japan was ¥33,578.8B (-10.0%) and North America ¥29,534.5B (-10.3%)—both double-digit declines—while Europe expanded to ¥8,889.2B (+16.0%). External-customer revenue mix was Japan 18.3%, North America 52.1%, Europe 17.5%, Others 12.1%, indicating high North America dependency. On a management basis including internal transactions, Japan ¥3.36T, North America ¥2.95T, Europe ¥0.89T, Others ¥0.66T. Japan internal sales ¥2.46T represent exports and intergroup supply, with a declining conversion rate to consolidated sales. Gross profit was ¥8,864.0B (gross margin 18.0%), a large contraction of ¥2,139.5B YoY (-19.4%). Cost of goods sold rose to 82.0% (up +3.5pt from 78.5%), with factors such as product warranty reserves ¥1,792.1B (3.6% of sales) and inventories ¥6,960.7B (work-in-process ¥889.6B; WIP ratio 54.4% suggesting production efficiency issues) pushing manufacturing costs higher.
[Profitability] Operating Income was ¥515.8B (operating margin 1.0%), a substantial YoY decline of -72.3%. SG&A ¥8,348.2B (SG&A ratio 17.0%) declined from ¥8,920.7B a year earlier but could not offset the large shrinkage in gross profit. Non-operating income totaled ¥1,033.1B (foreign exchange gains ¥473.8B, interest income ¥275.7B, dividend income ¥44.7B, equity in earnings of affiliates ¥168.8B) supporting the ordinary income stage, resulting in Ordinary Income ¥1,318.3B (ordinary income margin 2.7%). Conversely, non-operating expenses were ¥230.6B (interest expense ¥109.5B, foreign exchange losses ¥229.4B) and extraordinary losses totaled ¥731.6B (impairment of fixed assets ¥86.0B, gains/losses on disposal of fixed assets ¥95.8B, impairment losses ¥35.6B), compressing pre-tax profit to ¥593.8B. High tax expense ¥234.4B (effective tax rate 39.5%) further reduced Net Income attributable to owners of the parent to ¥350.9B (net margin 0.7%). Comprehensive income was ¥1,499.2B (foreign currency translation adjustments ¥635.9B, actuarial gains/losses ¥256.2B, valuation difference on available-for-sale securities ¥173.6B), diverging from net income by ¥1,148.3B. In summary, alongside revenue decline, severe deterioration in gross margin and operating margin led to lower sales and profits.
Japan reported an operating loss of -¥1,618.2B (turning from an operating profit ¥484.5B the prior year) with a margin of -4.8%. Revenue was ¥33,578.8B (-10.0%), impacted by a decline in internal sales of ¥2.46T. North America achieved Operating Income ¥1,675.4B (up from ¥669.5B prior year, +150.2%) with a margin of 5.7%. Despite revenue decline to ¥29,534.5B (-10.3%), profit improved substantially and accounted for the bulk of consolidated operating profit. Europe posted Operating Income ¥180.3B (down from ¥191.6B prior year, -5.9%) with a margin of 2.0%. Revenue increased to ¥8,889.2B (+16.0%) but cost increases led to slight profit decline. Other regions recorded Operating Income ¥327.1B (up from ¥230.6B prior year, +41.9%) with a margin of 4.9%, revenue ¥6,610.7B (+2.1%) showing stable performance. Consolidated Operating Income ¥515.8B is structured as North America profit ¥1,675.4B less Japan loss -¥1,618.2B plus Europe & Others contribution ¥507.4B. Improving profitability in the Japan business is the top priority.
[Profitability] Operating margin 1.0% (down -2.7pt from 3.7%), Ordinary Income margin 2.7% (down -1.1pt from 3.8%), Net margin 0.7% (down -1.6pt from 2.3%)—all stages saw significant deterioration. Worsening gross margin to 18.0% (down -3.5pt) was the primary cause, pressured by product warranty reserve level (3.6% of sales) and rising cost of goods sold (82.0%). ROE -5.4% (negative driven by negative net income; if recalculated assuming Net Income attributable to owners of the parent ¥350.9B positive, ROE ~1.8%). ROA on an ordinary income basis was 3.1% (down from 4.8%). EBITDA was ¥1,726.3B (EBITDA margin 3.5%), indicating low cash-generating ability despite depreciation ¥1,210.6B. [Cash Quality] Operating Cash Flow ¥2.2B / Net Income ¥350.9B = 0.01x, indicating very low cash conversion. Free Cash Flow was -¥6.5B and could not cover dividends of ¥346.8B, yielding a dividend/FCF coverage of -0.02x. [Investment Efficiency] Capital expenditures ¥893.3B and intangible asset investment ¥217.5B, total investment ¥1,110.8B, below depreciation ¥1,210.6B, indicating restrained investment. Inventory turnover days approx. 63 days (Inventory ¥6,960.7B ÷ COGS ¥40,317.7B × 365) and WIP ratio 54.4% suggest production flow inefficiencies. [Financial Soundness] Equity Ratio 43.0% (slight down from 43.8%) at a moderate level. Current ratio 151.8%, Quick ratio 108.7% indicating generally adequate liquidity. Interest-bearing debt totaled ¥7,583.6B (Long-term borrowings ¥6,223.0B, Bonds ¥1,050.0B, Short-term borrowings ¥310.6B), D/E 1.33x (up from 1.26x). Debt/EBITDA = 4.39x, EBIT/Interest = 4.71x, with credit metrics approaching the lower bound of investment grade.
Operating Cash Flow was ¥2.2B (down from ¥3,056.3B a year earlier, -99.9%). Pre-tax profit ¥593.8B plus depreciation ¥1,210.6B yielded an operating CF subtotal (before working capital changes) of ¥310.4B, but increases in other current assets -¥677.2B and corporate tax payments -¥363.9B absorbed funds. Inventory reduction +¥113.4B and increases in accounts payable +¥386.5B partially offset outflows, but decreases in trade receivables -¥245.5B and other operating activities -¥266.1B (including additional pension payments -¥78.6B) severely weakened operating cash generation. Investing CF was -¥8.7B: capex -¥893.3B and intangible asset acquisitions -¥217.5B were offset by sales of short-term investments ¥550.0B, net decrease in time deposits ¥468.9B, and recovery of long-term loans ¥178.1B. Free Cash Flow was -¥6.5B; combined with dividends ¥346.8B the funding shortfall was covered by financing CF +¥1,049.7B. Major financing CF items were long-term borrowings procured ¥2,600.0B, bond issuance ¥796.3B, repayments of long-term borrowings -¥1,117.5B, and bond redemptions -¥200.0B. Cash and cash equivalents rose by ¥1,875.8B to ¥1.29T at period-end, aided by foreign exchange impact +¥832.5B. Working capital issues center on expansion of other current assets and tax payments; normalizing inventory (WIP ratio 54.4%) to improve cash conversion is urgent.
Of Ordinary Income ¥1,318.3B, Operating Income ¥515.8B (39.1%) was from core operations, while the remaining ¥802.5B (60.9%) was non-operating income (foreign exchange gains ¥473.8B, interest income ¥275.7B, dividend income ¥44.7B, equity in earnings of affiliates ¥168.8B), indicating high dependence on non-operating items. Foreign exchange gains are largely one-off and their sustainability depends on continued yen weakness. Net of non-operating expenses ¥230.6B (interest expense ¥109.5B, foreign exchange losses ¥229.4B), the net non-operating income stands at ¥802.5B, substantially boosting the ordinary stage. Extraordinary losses ¥731.6B (impairment of fixed assets ¥86.0B, impairment losses ¥35.6B, gains/losses on disposal of fixed assets ¥95.8B) are one-off but point to issues in asset efficiency and investment decisions. The ¥1,148.3B gap between Comprehensive Income ¥1,499.2B and Net Income ¥350.9B is due to unrealized gains/losses: foreign currency translation adjustments ¥635.9B, actuarial adjustments ¥256.2B, and valuation difference on securities ¥173.6B, which do not accompany cash inflows. Operating CF ¥2.2B / Net Income ¥350.9B = 0.01x low accrual quality is mainly due to working capital movements (other current assets -¥677.2B, tax payments -¥363.9B), and earnings quality is influenced by temporary items and non-operating income.
Full Year guidance projects Revenue ¥5.50T (YoY +11.8%), Operating Income ¥1,500.0B (+190.8%), Ordinary Income ¥1,400.0B (+6.2%), and Net Income attributable to owners of the parent ¥900.0B (+156.4%). Progress against FY plan based on current results is Revenue 89.4%, Operating Income 34.4%, Ordinary Income 94.2%, Net Income 39.0%. Revenue and Ordinary Income are broadly on track, but Operating Income and Net Income are only 30–40% of the full-year plan, requiring substantial improvement in H2. Full-year Operating margin target is 2.7% (improving +1.7pt from 1.0%), necessitating reduction of Japan segment losses, lower quality-related costs, and SG&A cuts. Ordinary Income projection assumes continuation of non-operating income, but is sensitive to FX and interest rate changes. Net Income target ¥900.0B factors in reversal of the extraordinary losses ¥731.6B and normalization of tax rate. EPS forecast of ¥142.68 versus current EPS ¥55.64 (progress 39.0%); Dividend forecast ¥25.00 maintained, but sustainability is a concern if FCF does not recover and reliance on financing CF persists. Achieving the full year requires H2 Operating Income ¥984.2B (1.9x H1 ¥515.8B), and execution depends on the speed of profit recovery in the Japan segment.
Annual dividend is ¥55 per share (interim ¥25, year-end ¥30), total dividends ¥346.8B. Dividend payout ratio against Net Income attributable to owners of the parent ¥350.9B is 98.8%, exceptionally high. Free Cash Flow was -¥6.5B and could not cover dividend payments, so dividends were funded by financing CF including long-term borrowings +¥2,045.8B. Payout ratio 98.8% signals a policy of returning most earnings, but with Operating CF minimized at ¥2.2B and extraordinary losses compressing profits, actual capacity to return cash is limited. Full-year dividend forecast ¥25.00 (including interim ¥25 already paid) is maintained, but depends on profit recovery and OCF improvement in H2. No share buybacks were disclosed; Total Return Ratio equals the payout ratio. With no clear DOE target or explicit total return policy, sustainability of returns amid earnings and cash flow volatility is uncertain. Financial headroom (cash ¥1.08T, current ratio 151.8%) supports dividends in the near term, but prolonged FCF deficits would impair capital efficiency and credit metrics.
Prolonged Japan segment losses risk: Japan operating loss -¥1,618.2B (margin -4.8%) is a deficit that greatly exceeds consolidated Operating Income ¥515.8B. Without structural improvements, continued losses will impair consolidated profitability. Decline in internal sales ¥2.46T suggests weaker export competitiveness; heavy fixed cost burden and deteriorating COGS (gross margin 18.0%) are key issues. Achieving the full-year plan requires Japan segment to return to profit; improvement in quality costs (warranty reserve 3.6% of sales) and production efficiency (WIP ratio 54.4%) may take time, risking missed targets and additional impairment charges.
Weakening operating cash generation and entrenchment of financing dependency: Operating CF ¥2.2B (YoY -99.9%) and Free Cash Flow -¥6.5B mean dividend ¥346.8B is dependent on long-term borrowings +¥2,045.8B. Working capital drivers such as other current assets -¥677.2B and tax payments -¥363.9B absorb cash; delayed normalization of inventories/WIP will postpone improvements. Rising interest-bearing debt ¥7,583.6B (D/E 1.33x, Debt/EBITDA 4.39x) trend could continue. Interest coverage 4.71x is near the lower bound of investment grade; further deterioration risks rating downgrades and higher funding costs.
Dependence on non-operating income and risk of recurring extraordinary losses: Of Ordinary Income ¥1,318.3B, non-operating income ¥802.5B (foreign exchange gains ¥473.8B, interest income ¥275.7B, equity in earnings ¥168.8B) accounts for 60.9%, indicating fragile operating profit generation. FX is volatile and not guaranteed; extraordinary losses ¥731.6B (disposals/impairments) could recur, reflecting asset efficiency and investment decision issues. At an operating margin of 1.0%, adverse FX moves or additional losses could push the company into an overall loss, so strengthening the operating base is urgent.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 1.0% | 7.8% (4.6%–12.3%) | -6.7pt |
| Net Margin | -2.1% | 5.2% (2.3%–8.2%) | -7.3pt |
Both operating and net margins are well below manufacturing medians, placing the company in the lower tier within the industry.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | -2.0% | 3.7% (-0.4%–9.3%) | -5.7pt |
Revenue growth underperforms the manufacturing median by -5.7pt, indicating weaker growth among peers.
※ Source: Company compilation
Speed of Japan business profitability improvement is the most important KPI to achieve the full-year plan. Without turning the Japan operating loss -¥1,618.2B (margin -4.8%) to profit, reaching consolidated Operating Income ¥1,500B is unlikely. Monitor quarterly progress on reduction of quality costs (warranty reserve 3.6% of sales) and production efficiency (WIP ratio 54.4%). Feasibility of H2 Operating Income ¥984.2B (1.9x H1) should be assessed via monthly P&L trends in Japan.
Recovery of Operating CF is a precondition for maintaining financial health. With Operating CF ¥2.2B (YoY -99.9%) and Free Cash Flow -¥6.5B, continuation of dividends ¥346.8B (payout ratio 98.8%) depends on long-term borrowings +¥2,045.8B, raising the risk of rising interest-bearing debt ¥7,583.6B (D/E 1.33x, Debt/EBITDA 4.39x). Normalizing working capital (other current assets -¥677.2B, shorten inventory turnover 63 days) and improving operating margin (1.0% → target 2.7%) to raise OCF/Sales above 2% is necessary. Interest coverage 4.71x is at the lower bound for investment grade; further deterioration would affect ratings and funding costs.
High dependence on non-operating income and potential recurrence of extraordinary losses warrants caution. Of Ordinary Income ¥1,318.3B, non-operating income ¥802.5B (60.9%) includes foreign exchange gains ¥473.8B; changes in FX assumptions (undisclosed assumed rates) can significantly affect ordinary-stage results. Extraordinary losses ¥731.6B (disposals/impairments) are one-off but indicate issues in asset efficiency and investment decisions. Net Income target ¥900B (EPS ¥142.68) assumes reversal of extraordinary losses and tax normalization; confirming structural strengthening of the operating base is critical.
This report is an earnings analysis document automatically generated by AI from XBRL earnings release data. It does not constitute a recommendation to invest in any specific securities. Industry benchmarks are reference information compiled by the firm based on public financial statements. Investment decisions are your responsibility; consult professionals as needed.