| Indicator | This Period | Prior Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥2829.1B | ¥2779.2B | +1.8% |
| Operating Income / Operating Profit | ¥81.0B | ¥166.5B | -51.3% |
| Ordinary Income | ¥117.0B | ¥177.4B | -34.1% |
| Net Income / Net Profit | ¥-93.8B | ¥38.7B | -43.7% |
| ROE | -3.4% | 1.4% | - |
For the fiscal year ended March 2026, Revenue was ¥2829B (YoY +¥50B +1.8%), securing modest top-line growth, while Operating Income was ¥81B (YoY -¥85B -51.3%), Ordinary Income was ¥117B (YoY -¥60B -34.1%), and Net Income attributable to owners of the parent was ¥13B (YoY -¥74B -82.7%), representing a steep decline in profitability. Gross profit margin fell to 34.2% (prior 35.7%), down roughly 150bp, and Selling, General & Administrative expenses (SG&A) rose to ¥887B (+¥50B +6.0%), outpacing sales growth and compressing operating margin by about 310bp to 2.9%. Special losses totaled ¥37B (including goodwill amortization/impairment), and a high effective tax rate of 59.0% heavily depressed Net Income, resulting in a payout ratio of approximately 350%, a level beyond earnings power. Operating Cash Flow was weak at ¥34B; deterioration in working capital (Accounts Receivable +¥82B, Inventories +¥65B) and Free Cash Flow of ¥-176B highlighted poor cash conversion efficiency during the period.
[Revenue] Revenue was ¥2829B (+1.8%) with modest increase. By segment, Publishing & IP Creation was ¥1556B (+2.8%, 55.0% of sales) remaining the core, while Web Services ¥205B (+13.7%) and Education / EdTech ¥172B (+13.5%) delivered double-digit growth. Conversely, Anime & Live-Action Visuals ¥483B (-5.6%) and Games ¥298B (-11.4%) declined, and the pullback in higher-margin segments impacted company-wide margins. By region, Japan accounted for ¥2247B (~79%), with overseas limited increases: US ¥303B, Asia ¥207B. Cost of sales was ¥1862B (cost ratio 65.8%), up ¥83B YoY, reducing gross margin to 34.2%.
[Profitability] Operating Income was ¥81B (-51.3%), roughly halved. The main drivers were a 150bp decline in gross margin and higher SG&A (¥887B, +6.0%, 31.3% of sales), with SG&A growth far exceeding sales growth. By segment profit: Publishing & IP Creation ¥41B (-51.6%, margin 2.6%), Anime & Live-Action Visuals ¥-5B (turned to loss, margin -1.0%), showing sharp deterioration in core profitability; Games ¥75B (-20.9%, margin 25.3%) remained the only high-margin performer. Goodwill amortization of ¥8B (recorded in SG&A) plus ¥40B of corporate-level costs not allocated to segments further pressured operating profit. Ordinary Income was ¥117B (-34.1%); non-operating income of ¥38B (interest income ¥11B, dividend income ¥5B, equity-method income ¥9B) provided support, but foreign exchange losses of ¥18B were a headwind. Profit before income taxes was ¥99B; the net impact of special income ¥20B (gain on sale of investment securities ¥19B) and special losses ¥37B (impairment ¥4B, goodwill amortization ¥27B, etc.) reduced net profit by ¥18B. Corporate taxes of ¥59B (effective tax rate 59.0%) resulted in Net Income attributable to owners of the parent of ¥13B (-82.7%). After deducting non-controlling interests ¥28B, consolidated Net Income was ¥-94B, yielding a revenue-up/profit-down outcome.
Publishing & IP Creation: Revenue ¥1556B (+2.8%), Operating Income ¥41B (-51.6%), margin 2.6%—low profitability. Digitization of books/magazines continues, but rising production and licensing costs pressured earnings. Anime & Live-Action Visuals: Revenue ¥483B (-5.6%), Operating Loss ¥5B (switched from profit ¥47B prior year), hit by pipeline gaps in major titles and weak streaming/theatrical receipts. Games: Revenue ¥298B (-11.4%), Operating Income ¥75B (-20.9%), margin 25.3%—despite revenue decline, maintained high margin and contributed 93% of consolidated operating profit, the largest profit source. Web Services: Revenue ¥205B (+13.7%), Operating Income ¥21B (+312.1%), margin 10.3%—strong improvement driven by video community and events businesses. Education / EdTech: Revenue ¥172B (+13.5%), Operating Income ¥28B (+19.4%), margin 16.6%—steady growth. Others: Revenue ¥170B (-4.8%), Operating Loss ¥40B (slight improvement from ¥-42B prior year), burdened by fixed costs from facility operations. The widening profitability gap across segments dilutes consolidated margins.
[Profitability] Operating margin 2.9% (prior 6.0%), Net Income margin attributable to owners 0.5% (prior 2.7%), significant deterioration. ROE 0.5% (prior 3.4%) primarily driven by lower Net Income margin; DuPont decomposition: Net Income margin 0.5% × Asset Turnover 0.716 × Financial Leverage 1.43. ROA (on Ordinary Income basis) 2.9% (prior 4.7%) also declined. [Cash Quality] Operating Cash Flow ¥34B vs EBITDA ¥169B (Operating Income ¥81B + D&A ¥87B) gives OCF/EBITDA ratio 0.20x, a substantial decline indicating slow cash realization of operating profit. Working capital deterioration (Accounts Receivable +¥82B, Inventories +¥65B) is the main cause; Days Sales Outstanding 98 days (prior 89), Inventory Days 82 days (prior 71) worsened. [Investment Efficiency] ROIC 2.5% (Operating Income ¥81B ÷ (Equity ¥2768B + Interest-bearing debt ¥8B)), falling below cost of capital. Adjusting for goodwill amortization (total ¥35B: SG&A ¥8B + special losses ¥27B), EBIT-adjusted ¥114B still yields ROIC 4.1%, remaining low. [Financial Soundness] Equity Ratio 70.1% (prior 67.7%), Current Ratio 231.5% (prior 232.8%) remained high; interest-bearing debt ¥8B (prior ¥267B) was significantly reduced. Debt/EBITDA 0.05x approaches net-debt-free, and Interest Coverage 199.8x indicates very strong financial safety.
Operating Cash Flow was ¥34B (prior ¥138B, -75.3%). From Profit before tax ¥99B to Net operating cash inflow subtotal ¥88B, working capital changes reduced cash by ¥-53B. Breakdown: Accounts receivable increase ¥-83B (ending AR ¥760B, prior ¥678B), Inventories increase ¥-65B (ending ¥419B, prior ¥348B), Trade payables increase ¥14B, Contract liabilities increase ¥8B—the buildup in receivables and inventory consumed significant cash. Change in time deposits ¥100B also pressured cash. Corporate tax payments ¥77B were heavy, and Operating CF declined ¥104B YoY. Investing CF was ¥-210B (prior ¥-84B), including CapEx ¥27B, intangible asset acquisitions ¥68B (software etc.), acquisition of investment securities ¥29B and sales ¥31B, plus M&A-related expenditures. Free Cash Flow was ¥-176B (prior ¥53B), a large deterioration that constrained investment and shareholder return capacity. Financing CF was ¥-224B, reflecting repayment of long-term borrowings ¥155B, net decrease in short-term borrowings ¥3B, dividend payments ¥44B, share buybacks ¥29B, offset by proceeds from public offering ¥497B—effectively prioritizing debt repayment and shareholder returns. Cash and cash equivalents at period-end decreased to ¥908B (from ¥1297B at beginning, -¥389B). OCF/EBITDA 0.20x and FCF/EBITDA -1.04x highlight poor cash conversion and make correction of working capital management an urgent issue.
Recurring earnings comprised Operating Income ¥81B and non-operating income ¥38B (interest income ¥11B, dividend income ¥5B, equity-method income ¥9B, FX gains ¥6B, etc.), with non-operating income limited to 1.4% of Revenue. One-off items included Special Income ¥20B (gain on sale of investment securities ¥19B) and Special Losses ¥37B (goodwill amortization ¥27B, impairment ¥4B, loss on retirement of fixed assets ¥2B, investment securities valuation losses ¥3B, etc.), exerting a large influence relative to Net Income ¥13B; substantive earning power should be assessed at the Operating Income level. From an accrual perspective, the divergence between Operating CF ¥34B and EBITDA ¥169B is sizable, and the build-up in working capital (AR +¥82B, Inventory +¥65B) is inhibiting cash realization of profits. Comprehensive income was ¥13B (consolidated Net Income ¥-94B plus Other Comprehensive Income ¥-27B), with Other Securities valuation losses ¥-45B, Foreign currency translation adjustments ¥11B, and Remeasurements of defined benefit plans ¥6B, indicating market value declines in securities weighed on comprehensive income. The gap between Ordinary Income ¥117B and Net Income ¥13B is roughly 89%, mainly due to high tax burden (effective tax rate 59.0%) and large swings in special items; therefore, assessments of sustainable earning power are more appropriate on Ordinary Income or EBITDA bases.
Company guidance for the fiscal year ending March 2027 projects Revenue ¥3003B (YoY +6.1%), Operating Income ¥101B (+24.7%), Ordinary Income ¥120B (+2.6%), and Net Income attributable to owners of the parent ¥58B (+350.0%). Operating margin is expected to modestly improve to 3.4% from 2.9%, assuming recovery in Publishing & Anime title pipeline and cost optimization. Progress rates stand at 94.2% for Revenue and 80.2% for Operating Income—Operating Income is somewhat behind, but given revenue recognition skew toward Q4, targets appear achievable. EPS is forecast at ¥39.46, and year-end dividend forecast is ¥0, signaling a shift to no dividend (from prior year dividend ¥30 actual) to prioritize strengthening the balance sheet through retained earnings and growth investments. Achievement of company guidance will require normalization of cash generation via working capital correction, improved profitability in Publishing & Anime, and stabilization of Game revenues.
A year-end dividend of ¥30 was paid, totaling ¥44B in dividends. With Net Income attributable to owners of the parent at ¥13B, the payout ratio was approximately 350%, clearly exceeding earnings and funded by retained earnings and cash on hand. Share buybacks of ¥29B were executed, bringing total shareholder returns to ¥73B, far exceeding Free Cash Flow ¥-176B. Guidance for the next fiscal year indicates DPS ¥0 (no dividend), reflecting a decision to prioritize internal reserves to strengthen the financial base and reallocate to M&A and growth investments based on earnings and cash generation. Backed by cash on hand ¥1160B and an effectively net-debt-free balance sheet, the company maintained shareholder returns this period, but has revised dividend policy considering sustainability.
Working capital management and deteriorating cash conversion: Days Sales Outstanding 98 days (prior 89) and Inventory Days 82 days (prior 71) have lengthened, and the large gap between Operating CF ¥34B and EBITDA ¥169B shows delayed cash realization. Build-up in Accounts Receivable ¥760B and Inventories ¥419B implies collection delays and inventory stagnation risks; if working capital correction is delayed, persistent Free Cash Flow deficits could become the norm, eroding investment and return capacity.
Concentration and volatility of segment profitability: Games (¥75B, margin 25.3%) account for 93% of Operating Income, while Publishing & IP Creation (margin 2.6%) and Anime & Live-Action (margin -1.0%) are low-margin and dilute consolidated returns. Dependence on a narrow set of game titles, development delays, and rising anime production costs are drivers of the low consolidated ROIC 2.5%; delayed recovery in core segment profitability would make sustainable operating margin improvement difficult.
Goodwill amortization/impairment and structural tax pressure: Goodwill amortization/impairment total ¥35B (SG&A ¥8B + special losses ¥27B) and a high effective tax rate of 59.0% heavily compress Net Income, complicating assessment of underlying profitability. While the goodwill amortization of ¥27B recorded as a special loss is temporary, future impairment risk remains, and the remaining goodwill balance ¥59B could continue to add volatility to Net Income through amortization/impairment movements associated with M&A.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 2.9% | 8.1% (3.6%–16.0%) | -5.2pt |
| Net Margin | -3.3% | 5.8% (1.2%–11.6%) | -9.2pt |
Operating margin 2.9% is 5.2ppt below the industry median 8.1%, placing profitability in the lower tier within the industry.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth (YoY) | 1.8% | 10.1% (1.7%–20.2%) | -8.3pt |
Revenue growth 1.8% is significantly below the industry median 10.1%, indicating weaker growth performance relative to peers.
※ Source: Company compilation
Restoring profitability and cash generation is the near-term focus. Operating margin 2.9%, OCF/EBITDA 0.20x, and deteriorated working capital days (DSO 98, Inventory 82) signal delayed cash realization of profits; strengthening receivables/inventory management and optimizing SG&A are urgent. While next-year guidance assumes a slight improvement to 3.4%, without recovery in Publishing & Anime profitability and stabilization of Games revenue, sustainable margin improvement will be difficult. The timing of Free Cash Flow returning to positive via working capital correction will be the inflection point for dividend resumption and renewed M&A capacity.
Optimize segment mix and expand high-margin areas. High-margin segments—Games (25.3%), Education / EdTech (16.6%), Web Services (10.3%)—account for only 25% of sales, while low-margin Publishing & IP Creation (2.6%) represents 55%, dragging down ROIC 2.5%. Medium-term actions should shift resources toward higher-margin areas and improve Anime & Live-Action profitability (production efficiency, expansion of streaming/royalty revenues) to directly improve capital efficiency and restore ROIC. Given goodwill balance ¥59B and impairment risk, monitoring M&A returns and synergy realization is also important.
This report is an earnings analysis document automatically generated by AI based on XBRL financial statement data. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the firm from public financial disclosures. Investment decisions are your own responsibility; consult a professional advisor as needed.