Hello, everyone, and thank you for joining Japan Lifeline's full year earnings call for the fiscal year ended March 31, 2026. I'm Takeyoshi Egawa, Director and CFO. Before we dive into the numbers, I want to take a moment to acknowledge our dedicated team. Their hard work and adaptability over the past 12 months have been the driving force behind our record-breaking results, and their steadfast commitment remains the cornerstone of our ongoing success. Let's get into the financials. Please turn to slide four. I am pleased to report that net sales, operating profit, and net income for FY 2026 all reached record highs. Net sales hit JPY 59.18 billion, up 4.6% year-over-year.
Operating profit came in at JPY 12.60 billion, a 2.3% increase, and net income landed at JPY 9.35 billion, up just under half a percent from the prior year. Let's break down the key drivers into external and internal factors. Externally, we saw two main dynamics. On the positive side, atrial fibrillation, or AF, case volumes expanded by nearly 10%. Conversely, the rapid penetration of pulsed field ablation, or PFA, a novel arrhythmia treatment in the EP ablation space, negatively impacted select proprietary products. Turning to internal factors, we highlight four key items. Positively, our core product group delivered another year of robust growth. Furthermore, our new therapeutic areas, specifically the neurovascular and gastrointestinal segments, maintained their double-digit expansion.
On the downside, we faced higher personnel and R&D expenses, along with one-time costs recorded in Q3, which included inventory write-downs from business withdrawals and expenses related to our upcoming headquarters relocation. Despite these headwinds, solid top-line performance fully absorbed the impact, allowing us to post record top and bottom lines. Please turn to slide five, which details our consolidated PL. Gross profit came in at JPY 35.17 billion, up nearly 3%. Our gross margin, however, contracted by 100 basis points to 59.4%. While we benefited from volume growth driven by higher case counts, this was offset by a deteriorating product mix. Specifically, we absorbed two months of reimbursement price cuts, and our procured products grew at a faster clip than our proprietary lines.
As a result, our proprietary sales mix dipped by 140 basis points to 56.0%. Procured products, bolstered by neurovascular and hemostatic devices, expanded by nearly 8%, whereas proprietary products nudged up just under 2% due to PFA headwinds. SG&A expenses rose by JPY 703 million, or 3.2% to JPY 22.56 billion, driven primarily by higher personnel and R&D costs. Consequently, operating profit landed at JPY 12.60 billion, yielding a margin of 21.3%. Moving below the line, net income reached a record JPY 9.35 billion, though growth here was muted by a few negative factors. We recorded JPY 295 million in non-operating expenses for inventory write-downs linked to our exit from the cholangioscope and endoscopic laser ablation Catheter businesses in Q3.
We also booked JPY 108 million in extraordinary losses for headquarters relocation costs. Additionally, the bottom line comparison was a tough comp since we recognized deferred tax assets in the prior period. Finally, our international sales mix ticked up to 2.5%, and EPS landed at JPY 133.30. Slide six covers the operating profit variance analysis. We delivered a JPY 280 million increase over last year. This was driven by a JPY 983 million positive contribution from sales and cost factors, which was partially offset by a JPY 703 million drag from SG&A. Looking closer at sales and costs, volume variances were highly favorable for our core products and new areas.
Core products added JPY 1.70 billion to our profit, fueled by defibrillation catheters and hemostatic devices. New areas also contributed strongly, with neurovascular and gastrointestinal adding JPY 349 million and JPY 296 million respectively. Conversely, other products created a drag of roughly JPY 941 million, stemming largely from PFA-impacted items like esophageal temperature monitoring catheters. Pricing and other impacts presented headwinds, totaling roughly JPY 430 million from the reimbursement price revision and downward pressure on selling prices due to intensified competition in select lines. We also saw an impact from the sales transfer of certain GI-related products. On the SG&A front, the recurring portion increased by JPY 1.08 billion.
The primary drivers were personnel costs rising by JPY 462 million, R&D expenses by JPY 251 million, and sales-related costs by JPY 212 million. For one-time items, we recognized a net positive of JPY 377 million, mainly from reversing an allowance for doubtful accounts booked in the prior period. Altogether, these moving parts brought our operating profit growth to JPY 280 million. Moving to slide eight, which tracks our progress against full year guidance. While net sales and operating profit came in just shy of our targets, net income landed exactly on plan, aided by tax credits and other favorable items. Let's jump to slide 10 to review our top line drivers. Net sales expanded by JPY 2.57 billion, a 4.6% increase, reaching JPY 59.18 billion.
Breaking this down, existing areas grew by roughly JPY 1.5 billion and new areas by over JPY 1.1 billion. The standout contributors were EP ablation, adding JPY 1.26 billion, and neurovascular, contributing JPY 819 million. On slide 11, I'll provide some color on our individual business lines. In cardiac rhythm management or CRM, sales landed at JPY 13.05 billion, down 1.6% from the prior year. Pacemakers continue to face headwinds, with revenue dropping 14% as competitor leadless devices gained ground in de novo implants. Our core SICD offering started the year strong but faced pressure from new competitive products in the second half, finishing the year up just 0.4%, essentially flat. Looking ahead, however, we remain optimistic about volume growth in the ICD market, supported by a projected rise in preventative implantations.
Finally, our lead management portfolio has been steadily gaining traction since its Q1 launch. We rolled out an additional product in Q4 and are well-positioned to capture more market share next year. Moving on to slide 12, EP ablation sales reached JPY 21.90 billion, representing a 4.5% increase over last year. Even with the rapid penetration of PFA, our core products proved resilient and anchored a solid overall performance. In terms of market dynamics, we estimate AF case volumes expanded by nearly 10%. Capturing this demand, our core intracardiac defibrillation catheters posted a 7.6% revenue jump on an 8.6% volume increase, allowing us to maintain a commanding 95% market share as of March. Our second core pillar, hemostatic devices, delivered exceptional top-line growth of nearly 62%.
This surge was catalyzed by deeper penetration into small and mid-sized hospitals, coupled with the successful rollout of our new larger sized model. On the downside, PFA headwinds were pronounced through the third quarter, with estimated penetration reaching roughly 65% of total cases. Consequently, sales of esophageal temperature monitoring catheters plunged by nearly half, while EP catheters experienced a modest 3.4% pullback. Looking forward, we launched our proprietary transseptal puncture wire, XEROstar, in March 2026. Early clinical feedback has been overwhelmingly positive, positioning it as a highly promising growth engine for our proprietary portfolio. Turning to slide 13, our cardiovascular franchise posted JPY 12.65 billion in sales, climbing 3.7% from the prior year. The broader market continues to grow steadily, and our commercial execution kept pace. Our core frozen elephant trunk or FET saw revenue increase by nearly 4%.
Supported by a roughly 3% uptick in domestic market volumes, we are defending an estimated market share of over 90%. Vascular grafts also put up solid numbers with a 4.6% sales increase as we successfully captured share from competitors who are rationalizing their portfolios. Abdominal stent grafts faced fierce market competition, resulting in a slight 1.7% revenue dip. In our other products category, we saw valuable contributions from the introduction of a new sensor-tipped guidewire for TAVI, as well as the OEM supply of cell delivery catheter systems under our partnership with regenerative medicine startup Heartseed. Please jump to slide 14. Our neurovascular segment delivered a stellar performance, with sales surging 44.5% to reach JPY 2.66 billion. Aspiration catheters were the standout, rocketing to 1.7x l ast year's volume.
This propelled our estimated market share to 20%, securing a top three position in the space. Embolic coils also enjoyed strong momentum, with revenue climbing nearly 20% on the back of new product launches and an expanded sales footprint that now includes interventional radiology departments. Rounding out the portfolio, stent retrievers are gaining solid traction, doubling their sales over the previous 12 months. On slide 15, gastrointestinal sales landed at JPY 1.66 billion, marking a 23.5% expansion. While this top-line growth appears solid, overall segment sales actually fell slightly short of our initial internal targets. The one clear bright spot was our biliary tube stents. Specifically, the pigtail-type model we rolled out in Q1 significantly exceeded our expectations, driving category growth of roughly 50%.
While inventory constraints temporarily throttled our new customer acquisition efforts, the supply chain has now normalized, we are fully equipped to push sales heading into next year. Outside of this product, however, the rest of the portfolio faced a challenging environment. Endoscopic guide wires grew to more than double last year's figure, progress here is tracking slightly behind our expectations due to a crowded competitive landscape. Meanwhile, GI stents posted double-digit growth, though this was merely a mechanical rebound from the prior year's product recall. Lastly, liver cancer ablation needles experienced a severe revenue contraction due to unit price step-downs following the transfer of sales to our partner companies. Turning now to slide 17, let's discuss our full year guidance for the fiscal year ending March 2027.
The key takeaway is that while we project solid top-line expansion, profits will be weighed down by higher expenses, namely growth investments and our upcoming headquarters relocation. We forecast record net sales of JPY 63.20 billion, representing a 6.8% increase. Operating profit is guided at JPY 10.70 billion, down 15.1%, and net income at JPY 8 billion, a 14.4% contraction. Looking at the broader environment, we continue to assume a 9% expansion in AF cases. On the flip side, we have baked in the impact of the June 2026 reimbursement price cuts, which will compress unit prices. We are also navigating an inflationary landscape, which means higher manufacturing inputs like raw materials and labor, as well as broad-based increases across our SG&A services.
Internally, while our core product group should maintain strong momentum, we will incur substantial costs tied to accelerated growth investments and one-time expenses for relocating to Oimachi in March 2027. Please note that starting this year, we have added our transseptal puncture wire, XEROstar, to our core product portfolio. Slide 18 details our PL forecast. We expect our gross margin to compress by 150 basis points to 57.9%. This is primarily due to inflated raw material and labor costs. SG&A is projected to ramp up significantly by JPY 3.33 billion, or nearly 15% to JPY 25.90 billion. This surge reflects our accelerated growth investments, broader inflationary pressures, and the concentrated one-time costs for moving our headquarters.
Consequently, our operating profit target is set at JPY 10.70 billion, yielding a 16.9% margin, while net income should land at JPY 8 billion or a 12.7% margin. The drop in net income is partially cushioned by extraordinary income from the sale of investment securities. Our proprietary sales mix is expected to hit 57.9%, buoyed by a 10% sales jump in proprietary lines, particularly XEROstar. We also see our international mix ticking up to 2.7%, with EPS projected to adjust to JPY 114.02. Moving to slide 19, here is the bridge for the forecasted JPY 1.90 billion decline in operating profit. On the sales and cost side, we anticipate a JPY 2.45 billion boost from volume growth.
Specifically, we are modeling robust gains: JPY 1.2 billion from defibrillation catheters, JPY 880 million from transseptal puncture wire XEROstar, and JPY 420 million from new therapeutic areas. The JPY 490 million drag in other products includes the phase out of sales support for RF needles, which we intend to offset through XEROstar. Pricing and other headwinds will cost us about JPY 1.02 billion. This bakes in roughly JPY 320 million from the reimbursement price cut, alongside a JPY 610 million hit from higher COGS, including raw materials and labor. Looking at SG&A, we project a JPY 1.21 billion headwind from higher operational expenses, spanning personnel, depreciation, and IT.
Our growth initiatives will add JPY 1 billion+ in R&D and JPY 260 million to launch the OEM line at our Malaysia facility. Lastly, one-off factors will weigh in at roughly JPY 600 million for the relocation and a JPY 220 million unfavorable variance linked to bad debt provisions. Slide 20 provides some context on the upcoming reimbursement price cuts. We estimate a top-line hit of around JPY 400 million. This is actually quite manageable, less than half the impact we absorbed during the June 2024 cycle. The cuts in CRM were especially mild, capping out at roughly JPY 80 million. In EP ablation, the impact was also contained. Beyond these two segments, the most notable pressure point is on aspiration catheters in neurovascular, where we anticipate an JPY 80 million headwind.
All told, the net drag on our total sales is expected to be under 1%. Skipping to slide 21, let's look at our R&D strategy. Spend is scaling up this year to an estimated JPY 4.22 billion, comprising JPY 1.1 billion in personnel, JPY 2.43 billion in development costs, and the remainder in other R&D related expenses. We expect our PFA related R&D to peak this year and remain elevated into the following cycle. After that, we plan to normalize these costs, targeting an R&D to proprietary sales ratio of 8%-10%. Slide 22 breaks down these R&D themes. Our marquee project is the PFA therapeutic catheter for EP ablation, where we are allocating roughly three-quarters of a billion JPY for joint development with U.S.-based CardioFocus.
We're targeting OEM supply to them around 2027, followed by a domestic launch by 2030. Concurrently, we are developing our own proprietary solutions, though I can't share specifics just yet. The second major bucket is EP ablation peripheral devices at JPY 450 million, focused on the global rollout and regulatory clearances for our defibrillation catheters and XEROstar. We are also dedicating JPY 400 million to globally optimize our frozen elephant trunk in the cardiovascular space, plus another JPY 830 million for strategic bets like GI, regenerative medicine, and next-generation pipeline products. Slide 23 offers a high-level view of our FY 2027 sales guidance. We project broad-based top-line growth across all categories, adding approximately JPY 3.3 billion from existing areas and about three-quarters of a billion JPY from new frontiers, netting out to a 6.8% total expansion.
Slide 24 details the breakdown for our existing business. In CRM, we are guiding for JPY 13.07 billion, essentially flat with a 0.1% uptick. While pacemaker headwinds persist, we expect SICD gains bolstered by rising replacement cases to bridge the gap. For EP ablation, we project JPY 31.87 billion, an impressive 9.5% bump. This assumes a 9% market expansion in AF cases, allowing our intracardiac defibrillation catheters to scale proportionately while holding market share. We also foresee a 15% lift in hemostatic devices, thanks to new model rollouts, and we're aiming for a 30% first-year market share capture with XEROstar. Given the rapid shift toward PFA, we have modeled a 10% drop for esophageal temperature monitoring catheters, though EP catheters should hold steady.
Finally, cardiovascular is pegged at JPY 13.18 billion, up 4.1%. We expect the frozen elephant trunk to stabilize at a 5% growth clip as case volumes return to a cruising altitude, complemented by steady performance from our abdominal stent grafts and vascular grafts. Moving to slide 25, let's look at the guidance for our new therapeutic areas. We project neurovascular to reach JPY 3.13 billion, a 17.6% increase. Our key growth engine here will be stent retrievers. With the full commercial launch of our radiopaque marker models, we are aggressively targeting a 95% surge in revenue. For aspiration catheters, despite strong volume forecasts, we expect a slight revenue dip due to the upcoming reimbursement price cuts. Embolic coils, meanwhile, are slated for a 15% bump fueled by new product introductions.
Over in gastrointestinal, we are guiding for JPY 1.95 billion, matching that 17.4% growth rate. Biliary tube stents will continue to spearhead this segment. With our inventory bottlenecks resolved, we are stepping on the gas for new account acquisitions and targeting a 30% top-line increase. We have also set a highly ambitious stretch target of 60% growth for endoscopic guide wires as we aggressively pursue market share. Liver cancer ablation needles will likely see a 20% pullback. This is a mix of lower unit prices post-sales transfer and a tough comparison against the elevated inventory stocking orders we fulfilled last year. Jumping to slide 26 for our dividend outlook. For FY 2027, we are guiding a dividend of JPY 56 per share, translating to a 49.1% payout ratio. This actually exceeds our standard policy framework.
We made this call to prioritize our midterm business plan's five-year total return target of JPY 27 billion-JPY 30 billion over these final two years. Even though our EPS will take a temporary dip this year due to heavy growth investments, the underlying fundamentals of the business remain exceptionally sound. By anchoring on our midterm commitments and dividend stability, we've set a baseline of JPY 56 this year and expect to pay around JPY 57 next year. Should performance outpace our models, we are entirely open to considering additional shareholder returns. Starting on slide 27, we review the progress of our midterm plan. Slide 28 highlights how we view the macro environment. The reality is that sticky inflation poses a margin risk, especially in an industry where passing costs down to the customer is notoriously difficult.
To counter this, while we are committed to raising employee wages, we must relentlessly drive operational efficiencies and accelerate our global footprint to diversify away from domestic-only exposure. On the demand side, an aging population provides a natural tailwind, but it places a massive strain on the medical supply chain. Our solution is to provide products that demonstrably improve procedural efficiency. The secular shift from open surgery to endovascular treatments is accelerating, and we are prioritizing our strategic focus to fortify our endovascular portfolio. Regarding technology, we are treating disruptive trends like regenerative medicine and PFA not as threats, but as catalysts to aggressively develop new proprietary solutions. Turning to slide 29, let's review the scorecard for our core growth strategies.
In our existing business, we successfully defended our commanding 95+% market share for EP ablation defibrillation catheters, while the market penetration of our hemostatic devices actually outpaced our internal models. Our R&D pipeline for PFA-compatible products is advancing on schedule. In the cardiovascular space, we have maintained our dominant market position and launch preparations for our thoracic stent grafts are progressing nicely. Looking at our new frontiers, the GI segment will likely fall slightly short of our initial targets, primarily due to our strategic exit from the cholangioscope market. Conversely, neurovascular is firing on all cylinders with smooth product rollouts and expanding sales. We have fully enrolled the clinical trial for our flow diverters and are actively prepping our regulatory submission. In structural heart disease, however, we are facing significant delays with our TAVI portfolio as we execute a necessary pivot in our regulatory strategy.
On the global front, our market building efforts across the Middle East and Asia are yielding steady results, and we are making great strides in establishing a QMS framework to support future U.S. FDA approvals. In our OEM business, our partnership with Heartseed and the transition of manufacturing operations to our Malaysia facility remains solidly on track. Slide 30 tracks our financial KPIs. Top-line performance has been sturdy, averaging 4.6% growth over the first three years of the plan. While we forecast a solid 6.8% bump for FY 2027, there is a risk we might slightly miss our final year goal of JPY 70 billion, primarily due to regulatory delays in rolling out our TAVI products. That said, we are pushing hard to close that gap by ramping up XEROstar and other key lines.
On the margin front, our operating profit will dip to 16.9% this year, below our 20% target. However, we see this as the trough and fully expect to rebound to 18% or higher next year. The current squeeze is driven purely by our deliberate acceleration of growth capital and clustered one-off costs. As the top line expands and these temporary drags fall away, we anticipate a sharp V-shaped recovery in both absolute profit and margins heading into FY 2028. Slide 31 covers EPS and ROIC. Given the near-term margin compression, we will likely land slightly shy of our FY 2028 targets.
We are projecting an EPS of around JPY 125 versus our JPY 145 goal and an ROIC of 10.7% this year, edging up to just over 11% next year against our 13% target. Importantly, we are still generating returns comfortably above our 8%-9% cost of capital. To further sharpen our capital efficiency, right-sizing our inventory is a major priority. We are actively optimizing our supply chain to pull our turnover ratio down to roughly 250 days. On slide 32, let's review our capital allocation framework. We've refreshed our three-year cash allocation model. Our core philosophy remains intact. We aim to self-fund the lion's share of our growth via operating cash flow. However, we are completely willing to lever up strategically for the right M&A targets.
We project roughly JPY 27 billion in incoming operating cash flow. On the deployment side, we are earmarking JPY 11.5 billion-JPY 13.5 billion for shareholder returns. CapEx will range between JPY 6 billion-JPY 9 billion, which includes about JPY 2.5 billion for the headquarters move on top of baseline maintenance. Growth investments are budgeted at JPY 7 billion-JPY 12 billion, the bulk of which is a JPY 5 billion-JPY 10 billion war chest reserved for M&A. If the right deals don't materialize, we will proactively pivot those surplus funds, anything above a JPY 13 billion liquidity buffer, directly back to shareholders. Additionally, our growth bucket includes equity stakes to secure future pipeline access and hard investments to scale our manufacturing footprint. Let's turn to slide 33 to address our stock performance.
Since FY 2022, our P/E multiple has languished in the low 10s. Frankly, we view this as a heavily discounted valuation that fails to price in our mid to long-term growth trajectory. Even as our EPS has rebounded recently, the multiple has remained static. Our mandate is clear: bridge this valuation gap by consistently delivering on our growth targets and aggressively upgrading our IR communications to ensure the market fully understands our value proposition. Finally, on slide 34, I want to outline the specific valuation re-rating we are targeting. As we execute our pivot toward becoming a true global med tech company, we expect our multiple to expand in step. In the transitional phase, we are targeting a P/E of 15 to 18x . Long term, we are aiming for a multiple north of 20x alongside a price-to-book ratio of 3x or higher.
To get there, we are laser-focused on compounding EPS growth by hitting our midterm milestones. Concurrently, we are stepping up our IR efforts to hit that target multiple and boost our trading liquidity to an average daily volume of at least JPY 300 million. We are aligning management with shareholders by utilizing performance-based incentives such as restricted stock to drive proactive governance and maximize long-term value. That concludes our FY 2026 earnings presentation. Thank you very much for your time and attention today.