Can margins recover in Q2 under the plan revised upward for H1?

Revenue in the first quarter of the fiscal year ending March 2027 was ¥16,658 million, up 9.9% year on year. Operating profit, however, was ¥3,815 million, down 0.5%, and ordinary profit was ¥4,024 million, down 0.7%, while profit attributable to owners of the parent was ¥2,617 million, up 1.4%. Revenue increased by ¥1,507 million from the year-earlier quarter, whereas operating profit decreased by ¥21 million, causing the operating margin to decline by 2.4 percentage points, from approximately 25.3% to approximately 22.9%.

Based on its Q1 results and order trends, the company raised its H1 revenue forecast from the initial ¥31,500 million to ¥33,500 million and its operating profit forecast from ¥7,300 million to ¥8,000 million. After deducting Q1 results, Q2 alone must generate revenue of ¥16,842 million and operating profit of ¥4,185 million. This translates into a Q2-only operating margin of approximately 24.9%, about 2.0 percentage points above the Q1 result of 22.9%. Q1 progress against the H1 plan was also 49.7% for revenue but only 47.7% for operating profit.

Ordinary profit in Q1 decreased by ¥28 million year on year. The supplementary materials break down the factors behind the change into a positive ¥800 million from higher revenue, a negative ¥13 million from the increase in the variable-cost ratio, a negative ¥562 million from higher personnel expenses, a negative ¥128 million from higher depreciation expense, a positive ¥275 million from foreign-exchange effects and a negative ¥398 million from other factors. The burden of personnel expenses, depreciation and other costs outweighed the positive effects of higher revenue and yen depreciation, making the ability to absorb higher fixed costs through revenue growth a key issue in Q2.

The Q1 supplementary materials did not disclose gross profit margin, operating margin or selling, general and administrative expenses in absolute terms. Nor did they provide a breakdown of volume and price or assumptions for foreign exchange rates and raw-material prices underlying the earnings forecasts. Accordingly, at the H1 results, we will look for an explanation in numerical terms not only of the recovery in operating margin, but also of the cumulative contributions from personnel expenses, depreciation, processing materials costs and foreign-exchange effects.