Q1: Operating profit rose despite lower revenue, with Steel Structures absorbing the Civil Engineering loss

Consolidated revenue in Q1 was ¥26,272 million, down 4.6% from ¥27,551 million a year earlier, while operating profit rose 15.2% from ¥1,080 million to ¥1,243 million. The operating margin improved by 0.81 percentage points, from approximately 3.92% a year earlier to approximately 4.73%, indicating that profitability was driven by project margins and construction-cost progress rather than revenue growth.

Steel Structures was the main driver of the profit increase. Revenue was ¥12,647 million, up only 3.1% year on year, but operating profit rose 113.1% to ¥2,401 million. The company attributed the improvement to a high order backlog carried over from the previous fiscal year, progress in estimating anticipated costs for large-scale projects, and the acquisition of design changes. However, it has not disclosed how many millions of yen of profit improvement each factor contributed. In the first half, it will be necessary to determine whether the effects of revising anticipated costs and securing design changes are one-off, or whether similar margin improvements are spreading across multiple projects.

Civil Engineering, meanwhile, reported revenue of ¥5,935 million and an operating loss of ¥1,269 million. It had recorded operating profit of ¥25 million a year earlier, representing a swing from profitability to a substantial loss. The company cited the small number of projects offering new bidding opportunities, the limited revenue contribution in the quarter from the many long-duration projects, costs incurred ahead of revenue recognition, and the absence of large design changes. Civil Engineering is facing not only lower revenue but also weaker margins due to costs incurred ahead of revenue recognition, so the extent to which the loss narrows from ¥1,269 million in the first half will determine the volatility of group operating profit.

In the other segments, Building Construction reported revenue of ¥4,197 million and operating profit of ¥414 million, up 20.1% year on year. Solutions reported revenue of ¥1,892 million and operating profit of ¥709 million, increases of 8.2% and 12.2%, respectively. Other reported revenue of ¥2,008 million and an operating loss of ¥167 million, an improvement from the ¥252 million loss a year earlier. In the first half, it will be necessary to assess whether profit growth continues not only in Steel Structures but also in Building Construction and Solutions, and whether the Civil Engineering loss continues to be absorbed by profit from the other segments, alongside segment revenue and operating profit. The materials provided do not disclose segment-level amounts by factor or the contribution to profit from design changes and cost improvements.