Tohoku Electric Power Company (9506) FY2026 FY Earnings Report

Quick View

Executive Summary

For the fiscal year ended March 2026, the Company reported substantial decreases in revenue and earnings, mainly due to a decline in revenue related to electricity charge reduction support and deteriorating fuel and electricity trading conditions. Revenue was ¥23724.2B (-10.3% YoY), Operating Income was ¥1603.8B (-42.8%), Ordinary Income was ¥1264.1B (-50.8%), and Net Income was ¥859.2B (-53.5%). The substantial decline in earnings, which exceeded the rate of revenue decline, indicates high downside earnings elasticity within the fixed-cost-intensive electricity business structure. The Operating Income margin was 6.8%, down 3.8pt from 10.6% in the previous fiscal year.

Factors Affecting Performance

【Revenue】Revenue was ¥23724.2B, down -10.3% YoY. The core Power Generation and Retail Business recorded a decline in revenue to ¥18434.4B (-10.6%), and the deterioration in this business, which accounted for 77.7% of consolidated revenue, weighed on overall results. The Transmission and Distribution Business was largely flat at ¥4767.0B (+0.3%), while wheeling revenue increased to ¥1315.6B (+10.7%). Subsidy revenue related to support for reducing electricity and gas charges amounted to ¥452B in the Power Generation and Retail Business, down from ¥596B in the previous fiscal year, with this policy-related factor also contributing to the revenue decline.

【Profit and Loss】Operating Income was ¥1603.8B (-42.8%), Ordinary Income was ¥1264.1B (-50.8%), and Net Income was ¥859.2B (-53.5%), representing declines in earnings substantially exceeding the rate of revenue decline. By segment, Ordinary Income in the Power Generation and Retail Business contracted to ¥1266.0B (-48.4%), while the Transmission and Distribution Business shifted from a profit in the previous fiscal year to an Ordinary Loss of ¥11B in the current fiscal year. Interest expenses were ¥310.6B, up +19.8% YoY, indicating an increase in the interest burden and contributing to the compression of Ordinary Income. An extraordinary loss of ¥76.0B was also recorded as a one-time factor. In conclusion, the Company experienced decreases in both revenue and earnings.

Segment Analysis

The Power Generation and Retail Business recorded Revenue of ¥18434.4B (-10.6%) and Ordinary Income of ¥1266.0B (-48.4%, profit margin of 6.9%), reflecting a significant deterioration in the profitability of the core business, which accounted for 77.7% of consolidated revenue. The Transmission and Distribution Business remained resilient in terms of revenue, at ¥4767.0B (+0.3%), but its Ordinary Income (Loss) shifted from a profit of ¥204B in the previous fiscal year to a loss of ¥11B in the current fiscal year. System maintenance and resilience investments, as well as the timing of collecting wheeling revenue, will be key to improving profitability. Other Businesses, including comprehensive facilities engineering, real estate, and DX/IT, generated Revenue of ¥522.8B and Ordinary Income of ¥159.5B, representing a high profit margin of 30.5%; however, these businesses accounted for only 2.2% of consolidated revenue and are too small to offset the earnings decline in the core businesses.

Key Financial Indicators

【Profitability】The Operating Income margin was 6.8%, down 3.8pt from 10.6% in the previous fiscal year, while the Net Income margin also contracted to 3.6% from 6.9%. ROE was 7.6% (based on net assets; this represented a substantial decline from the previous fiscal year’s level, which was generally in the 20% range), primarily due to the deterioration in profit margins.【Cash Flow Quality】Operating Cash Flow (OCF) was ¥3701.6B, reaching 4.3 times Net Income of ¥859.2B and indicating cash generation significantly exceeding accounting earnings.【Investment Efficiency】Acquisitions of non-current assets were ¥3954B, reaching 1.75 times depreciation expense of ¥2258.7B, indicating that capital investment is running ahead of depreciation. Free Cash Flow (FCF) was a deficit of ¥55.4B.【Financial Soundness】The Equity Ratio was 19.8%, while total assets expanded to ¥57318.6B, up +6.2% YoY. Long-term borrowings were ¥14938.5B and bonds were ¥16117.0B, indicating substantial reliance on long-term funding; liabilities accounted for approximately 80% of total assets.

Cash Flow Analysis

Operating Cash Flow was ¥3701.6B, down -9.8% YoY, but reached 4.3 times Net Income of ¥859.2B, indicating solid cash backing for current-period earnings. A decrease in trade receivables of ¥380.4B contributed to cash inflows, while an increase in inventories of ¥128.3B and a decrease in trade payables of ¥225.7B were sources of cash outflows. Investing Cash Flow represented an outflow of ¥3756.9B, primarily due to acquisitions of non-current assets of ¥3954B, resulting in Free Cash Flow of a deficit of ¥55.4B. Financing Cash Flow was an inflow of ¥1151.8B, as funding through long-term borrowings and bonds exceeded repayments and redemptions. Operating Cash Flow alone was insufficient to cover investment and dividends, resulting in a funding structure partially dependent on external financing. Cash and cash equivalents increased to ¥6605.9B, expanding the short-term liquidity buffer.

Quality of Earnings

Operating Cash Flow reached 4.3 times Net Income, indicating high-quality earnings with limited accrual factors. Meanwhile, the ¥76.0B extraordinary loss was recorded as a one-time factor contributing to the difference between Ordinary Income and Net Income; Net Income was reached after deducting income taxes and other taxes of ¥328.9B from Profit Before Tax of ¥1188.1B. Non-operating expenses were ¥463.0B, substantially exceeding non-operating income of ¥123.3B, primarily due to interest expenses of ¥310.6B. The deterioration in the non-operating balance is a structural factor resulting from the increased interest burden and should not be viewed as temporary. Comprehensive Income was ¥1471.3B, substantially exceeding Net Income of ¥859.2B, with changes in valuation differences, including adjustments related to retirement benefits of ¥395.8B and valuation difference on securities of ¥89.5B, contributing to the increase in net assets.

Shareholder Returns

The annual dividend was ¥40 per share (¥20 interim and ¥20 year-end), representing an increase from ¥35 in the previous fiscal year (¥15 interim and ¥20 year-end). Total dividends were approximately ¥200.4B, and the Payout Ratio against Net Income of ¥859.2B was 23.6%, indicating a moderate dividend burden relative to earnings. Operating Cash Flow of ¥3701.6B substantially exceeded total dividends, demonstrating strong capacity to pay dividends. However, Free Cash Flow after investment was a deficit of ¥55.4B, meaning that the current-period dividend was not funded solely by internal funds after investment; instead, the capital allocation involved financing through borrowings and bonds.

Risk Factors

1. Concentration in the Power Generation and Retail Business and earnings volatility: Ordinary Income in the Power Generation and Retail Business, which accounted for 77.7% of Revenue, declined substantially by -48.4% YoY. The business structure is highly exposed to fuel prices, wholesale electricity prices, and the timing of passing costs through to tariffs.

2. High leverage and rising interest burden: The Company has long-term borrowings of ¥14938.5B and bonds of ¥16117.0B, while the Equity Ratio remains at 19.8%. Interest expenses increased to ¥310.6B, up +19.8% YoY, and higher funding costs could place pressure on future earnings.

3. Deterioration in the profitability of the Transmission and Distribution Business and negative post-investment FCF: Ordinary Income (Loss) in the Transmission and Distribution Business shifted to a loss of ¥11B, while acquisitions of non-current assets reached 1.75 times depreciation expense and Free Cash Flow was a deficit of ¥55.4B. Continued large-scale investment entails reliance on external funding.

Industry Benchmark (For Reference; Compiled by the Company)

Industry Benchmark (utilities)

Profitability and Returns

The Company’s profitability metrics are substantially below the industry median, indicating an inferior level of earnings efficiency compared with peer companies.

Growth and Capital Efficiency

The Revenue growth rate also fell below the industry median, positioning the Company among industry participants experiencing a decline in revenue.

Source: Compiled by the Company

Key Points from the Financial Results

1. The Operating Income margin declined by 3.8pt YoY, while the Net Income margin also contracted. The results confirm that deterioration in the profitability of the Power Generation and Retail Business and the shift of the Transmission and Distribution Business into the red weighed on consolidated earnings.

2. Operating Cash Flow reached 4.3 times Net Income, providing strong cash backing for earnings. However, Free Cash Flow was a deficit of ¥55.4B due to increased capital investment, and the capital structure remains partially dependent on debt financing for investment funds.

3. The Company increased dividends, with a Payout Ratio of 23.6% and annual dividends of ¥40. However, the high D/E ratio and increase in interest expenses (+19.8% YoY) warrant attention in terms of both the pace of future earnings recovery and financial soundness.

---

This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly available earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting with a professional as necessary.

---End of Report---