Air Water Swings to ¥63.9 Billion Net Loss on Impairments and Improper-Accounting Costs as Revenue Rises 5.3%

Revenue rose 5.3%; every profit line turned to a loss

Air Water Inc. (TSE: 4088), the Osaka-based group whose businesses range from industrial and medical gases to LP gas, dental materials, food processing, logistics and salt, published consolidated results for the fiscal year from April 1, 2025 to March 31, 2026 on July 31, 2026, under IFRS. Revenue rose 5.3% to ¥1,066,795 million. An operating profit of ¥62,538 million a year earlier became an operating loss of ¥37,157 million, a pre-tax profit of ¥60,869 million became a pre-tax loss of ¥51,447 million, and profit attributable to owners of the parent of ¥39,929 million became a loss of ¥63,949 million, or ¥279.01 per share against earnings of ¥174.58. The shares are listed on the Tokyo and Sapporo stock exchanges. The release is dated a month after the annual general meeting of June 29, 2026, and gives July 31, 2026 as the scheduled filing date of the annual securities report.

The gross line held up. Gross profit rose 7.4% to ¥240,297 million and the gross margin edged up from 22.1% to 22.5%. Almost everything below it moved the other way. Selling, general and administrative expenses rose 19.4% to ¥201,529 million, an increase of ¥32,751 million — about twice the ¥16,537 million gain in gross profit. Other expenses jumped to ¥99,990 million from ¥9,414 million, only partly offset by other income of ¥20,063 million against ¥12,638 million and ¥4,001 million of equity-method profit. The income statement does not itemise other expenses, but the management discussion names three one-off items for the year: impairment losses on goodwill and fixed assets of ¥107,981 million, investigation-related costs of ¥13,036 million arising from the improper accounting, and a ¥12,325 million gain on a step acquisition recognised on a new consolidation. The filing does not state on which lines each of them is booked.

What the investigation found

The losses follow an improper-accounting case that the filing sets out in detail. In July 2025 Air Water found improper accounting involving inventories at its consolidated subsidiary Nippon Helium. In September 2025 its internal review found similar treatment of inventories and stored supplies at two further consolidated subsidiaries and at the company's own Plant Gas Department, and the external auditor raised the same points during its audit. An internal investigation led by outside Audit & Supervisory Board members found that company officers or employees might have been involved in those four cases, and on October 9, 2025 the company set up a special investigation committee of outside experts to establish whether the same thing had happened elsewhere in the group. The committee delivered reports on February 12, 2026 (as of February 9) and March 31, 2026, and a supplementary report on June 19, 2026.

The investigation found that, against a background of excessive pressure from top management to meet sales and profit targets, improper accounting aimed at inflating sales and profit had been carried out widely, by a variety of methods, at the company and at a considerable number of subsidiaries and affiliates: overstated inventories, deferred write-downs of assets, overstated and prematurely recorded sales, sales inflated by routing transactions through unnecessary intermediaries, avoided provisions, and spending with no asset value recorded as assets. At the disaster-prevention subsidiary Air Water Safety Service, the practices included overstated work in progress, manipulation of the period in which sales were recorded and profit shifting through cost reallocation, together with forged documents to conceal them. At the seawater-products subsidiary Nihonkaisui, periodic plant repair and labour costs had been arbitrarily capitalised, agent transactions that should have been shown net were shown gross, and costs were shifted between divisions. A further self-inspection by the company then found unrecorded impairment losses on fixed assets arising once the improper entries were corrected, and unrecorded valuation losses on investments in and loans to affiliates.

Air Water concluded that the resulting misstatements had to be corrected retrospectively in the financial statements of its previously filed annual, semi-annual and quarterly reports, and it has filed amended reports. The filing says the combined one-off effect of the committee's findings and the self-inspection has been reflected in the results of both this fiscal year and past years, so the FY3/2025 figures used for comparison in this release are the corrected ones; the release does not reprint the figures as originally reported. The corrections to revenue alone were −¥64,714 million for FY3/2026, including −¥57,789 million to move transactions to net presentation and ¥557 million for period attribution, and −¥62,859 million for FY3/2025, including −¥55,962 million for net presentation and −¥5,880 million for period attribution, across a large number of transactions. Air Water Safety Service's revenue included in the consolidated statements was ¥25,176 million this year, with cost of sales of ¥16,722 million, and ¥23,760 million last year, with cost of sales of ¥16,918 million.

The company says the amendments may be treated as breaches of disclosure rules under the Financial Instruments and Exchange Act, which could make it the subject of an investigation by the authorities or an order to pay an administrative surcharge; because the effect cannot be reasonably estimated, nothing has been reflected in the financial statements. Costs will also continue. Beyond the committee's fees and the cost of correcting past results, Air Water is using outside experts to help design recurrence-prevention measures — built on corporate-culture reform, governance reform, rebuilding management and internal controls, and a review of company-wide strategy including the business portfolio — and to prepare an improvement plan and status report. It plans to book those costs from the first quarter of FY3/2027 onward, puts the amount already incurred as of the report date at approximately ¥11,226 million, and expects the final figure to rise because the support is continuing.

¥107,981 million of impairments, most of it in Digital & Industry

Separately, Air Water reviewed the business plans behind past investments in light of the business environment and future profitability and, after testing their recoverability, booked impairment losses on goodwill, fixed assets and other items of ¥107,981 million, which it says were centred on overseas businesses, against ¥9,518 million a year earlier. By segment, Digital & Industry took ¥70,645 million, including goodwill and fixed assets in its Global Engineering unit; Health & Safety took ¥17,896 million, centred on goodwill in the dental care unit; Other Businesses took ¥11,414 million at two power-generation subsidiaries, including the operator of the Onahama biomass power plant, citing a severe deterioration in the business environment from inflation and the weaker yen; Energy Solutions took ¥4,036 million on fixed assets in the Green Innovation unit; and Agri & Foods took ¥3,484 million, centred on goodwill in the Foods unit. A further ¥504 million related to corporate assets not allocated to any segment.

Four of five segments grew revenue; all five earned less

Segment figures are revenue from external customers and segment operating profit, with FY3/2025 restated to a new segment structure that moved overseas industrial gases in India and North America, the high-power UPS business and domestic engineering into Digital & Industry. Digital & Industry, the largest segment, was the only one whose revenue fell, 4.2% to ¥329,938 million, and it swung from a profit of ¥30,113 million to a loss of ¥40,888 million, which includes the Global Engineering impairments and a one-off cost of withdrawing from part of the cryogenic equipment business. Within it, price management supported industrial gases, while gas supply to steelworks fell as some blast furnaces were shut; sales of gases and thermal-control equipment for semiconductors grew on strong demand linked to generative AI; in India, plant operations were unstable throughout the year as customers' blast-furnace maintenance ran long; in North America part of the cryogenic equipment business was reviewed after hydrogen-related demand fell under US policy; and emergency generators were weak amid intensifying competition from Chinese makers.

The other four grew revenue but earned less. Health & Safety rose 21.8% to ¥268,471 million, helped by dental materials and digital dental equipment and by a dental supplies mail-order business consolidated from the third quarter, but segment profit fell 13.0% to ¥10,395 million as medical products faced weaker hospital demand and the dental care impairment was booked. Other Businesses rose 5.4% to ¥216,894 million on steady salt, water-treatment, trading and logistics operations, but profit fell 80.3% to ¥1,475 million after the power-subsidiary impairments. Agri & Foods rose 2.2% to ¥152,988 million with profit down 26.5% to ¥3,664 million, and Energy Solutions rose 6.3% to ¥98,502 million with profit down 21.4% to ¥6,394 million; the filing says both include impairment-related one-off effects. The segment-profit adjustment for intersegment eliminations and unallocated head-office items was −¥18,197 million against −¥106 million a year earlier, and the filing gives no breakdown of that change.

Below the operating line, finance costs tripled and tax was still charged

Finance costs more than tripled, to ¥18,490 million from ¥5,778 million, against finance income of ¥4,200 million. The cash-flow statement adds back ¥12,528 million of other finance costs as a non-cash item, against ¥178 million a year earlier, alongside interest expense of ¥5,842 million; the filing does not explain the other finance costs. Income tax expense of ¥14,834 million was still charged on the pre-tax loss of ¥51,447 million, so the loss for the year reached ¥66,282 million, of which non-controlling interests bore ¥2,332 million. Other comprehensive income was a positive ¥36,350 million, chiefly ¥21,034 million of fair-value gains on financial assets and ¥10,233 million on cash-flow hedges, leaving total comprehensive income at −¥29,932 million.

Goodwill down by a third, borrowing up, equity ratio at 32.1%

Total assets were ¥1,216,287 million at March 31, 2026, up ¥6,177 million, as inventories rose to ¥121,761 million from ¥101,005 million while goodwill fell 34.1% to ¥51,587 million and intangible assets fell to ¥31,976 million from ¥41,678 million. Liabilities rose ¥53,430 million to ¥805,316 million, mainly on bonds and borrowings, which totalled ¥468,455 million against ¥422,807 million. Equity attributable to owners of the parent fell 11.8% to ¥390,229 million, retained earnings dropped to ¥213,479 million from ¥290,533 million, and the ratio of owners' equity to total assets fell from 36.5% to 32.1%; equity per share was ¥1,702.38 against ¥1,929.76.

Operating cash flow nonetheless rose to ¥107,583 million from ¥92,737 million, as depreciation and the impairments are non-cash charges added back to the pre-tax loss. Investing outflows grew to ¥88,611 million, including ¥71,188 million for property, plant and equipment and ¥25,792 million to acquire subsidiaries with a change in consolidation scope, against ¥2,467 million a year earlier; 20 companies were newly consolidated during the year, a parent and its 19 subsidiaries. Financing used ¥5,708 million: a ¥62,256 million net increase in short-term borrowings covered ¥53,725 million of long-term loan repayments, ¥18,463 million of dividends and a ¥6,522 million redemption of preferred shares. Cash and cash equivalents ended the year at ¥87,139 million. After the year-end, under a ¥113,000 million syndicated commitment line signed on February 12, 2026 to secure working capital and stabilise its finances, Air Water borrowed ¥30,000 million on June 29, 2026 and ¥17,000 million on July 29, 2026 from Sumitomo Mitsui Trust Bank, each for one month and unsecured.

Guidance leaves out the strategy review, and the dividend forecast is undetermined

For FY3/2027 Air Water forecasts revenue of ¥1,140,000 million (+6.9%), operating profit of ¥48,000 million, pre-tax profit of ¥44,000 million and profit attributable to owners of ¥28,000 million, or ¥122.15 per share — a return to profit on each line. The company moved to a new management structure after the June 2026 annual general meeting and is examining a new management policy, business strategy and a review of its business portfolio; the forecast does not include their effects, which it will disclose as needed once they can be reasonably estimated. Despite the loss, the FY3/2026 annual dividend was kept at ¥75.00 per share, paid as ¥37.50 at the interim and ¥37.50 at the year-end against ¥32.00 and ¥43.00 a year earlier, a decision the company bases on its financial position, cash flow and the continuity of shareholder returns; the total was ¥17,191 million, and payment of the year-end dividend began on June 30, 2026. The FY3/2027 dividend forecast is undetermined while the company reconsiders its shareholder-return policy alongside the strategy review, and it says it will disclose one promptly once a reasonable calculation is possible.

JapanStockPulse provides informational content only and does not constitute investment advice. Figures are taken from the company's published earnings short report and may be subject to subsequent revision.