Q1 earnings progress is slow, making a recovery in earnings in the second half the key issue for FY2027-H1.

FY2027-Q1 revenue was ¥65,114 million, down 21.4% year on year; operating profit was ¥6,202 million, down 62.9%; ordinary profit was ¥5,773 million, down 72.3%; and net income attributable to owners of the parent was ¥3,240 million, down 79.4%. The full-year forecasts are revenue of ¥314,000 million, operating profit of ¥46,000 million, ordinary profit of ¥46,000 million and net income of ¥65,000 million, putting Q1 progress at 20.7%, 13.5%, 12.5% and 5.0%, respectively. Operating profit, ordinary profit and net income are progressing more slowly than revenue, making the recovery in profit margins in H1 the first point to test.

By segment, Q1 revenue in Japan was ¥46,655 million and segment profit was ¥2,329 million, down sharply from ¥59,441 million and ¥9,420 million, respectively, in the year-earlier period. North America maintained a relatively high profit level, with revenue of ¥15,633 million and profit of ¥6,548 million, but both declined from ¥16,303 million and ¥6,864 million, respectively, year on year. Europe also fell below the year-earlier levels, with revenue of ¥2,794 million and profit of ¥1,340 million versus ¥6,249 million and ¥3,104 million. The Middle East swung to a loss, with revenue of ¥31 million and a loss of ¥109 million, compared with profit of ¥621 million a year earlier. Profit was below the year-earlier level in all 4 segments, indicating deterioration in the overall earnings environment rather than an issue confined to a single business.

The operating profit bridge in the earnings presentation attributed the ¥10.4 billion year-on-year decline in operating profit to a ¥2.9 billion decrease in overseas E&P, a ¥2.5 billion decrease in domestic E&P, a ¥4.9 billion decrease in infrastructure and utilities, and a ¥0.1 billion decrease in other businesses. Foreign exchange gains and losses, meanwhile, improved by ¥0.6 billion. Exploration expenses rose from ¥251 million in the year-earlier period to ¥3,929 million, while selling, general and administrative expenses increased from ¥8,369 million to ¥9,472 million. The decline in the operating margin reflected not only sales volumes and market conditions, but also exploration investment and fixed-cost burdens. In H1, it will be necessary to determine whether the increase in expenses is temporary or a structural burden that will continue throughout the year.

The company did not prepare a quarterly consolidated cash flow statement for Q1, and operating cash flow, investing cash flow, financing cash flow and the period-end cash balance were not disclosed. The full-year forecast for expenditure on the acquisition of property, plant and equipment is ¥43,000 million, making the actual level of capital expenditure, acquisition-related spending, changes in working capital and cash balance disclosures important in H1. Although the full-year operating profit forecast was raised from ¥41,000 million to ¥46,000 million, it will be necessary to determine, alongside H1 results, whether the increase reflects improved price assumptions, higher sales volumes, lower costs or one-off factors.