Revenue was flat, but profit fell sharply, making recovery from the low profit base the focus for FY2027-H1.

FY2027-Q1 revenue was ¥72.557 billion, up 0.3% year on year and essentially flat, but operating profit was ¥687 million, ordinary profit was ¥1.695 billion and net profit attributable to owners of the parent was ¥1.634 billion. Operating profit fell 78.9% year on year, ordinary profit fell 52.9% and net profit fell 25.3%, indicating a sharp decline in margins despite maintained revenue scale. The operating margin was approximately 0.95%, down approximately 3.56 percentage points from approximately 4.51% in the same period of the previous year.

The company's full-year forecasts are revenue of ¥305 billion, operating profit of ¥3 billion, ordinary profit of ¥4 billion and net profit of ¥5 billion, and had not been revised as of Q1. Q1 progress against the full-year forecasts was approximately 23.8% for revenue, 22.9% for operating profit, 42.4% for ordinary profit and 32.7% for net profit. Revenue and operating profit were slightly below a simple one-quarter pace for the full year, while ordinary profit and below were affected by non-operating and extraordinary items. Q1 included ¥1.136 billion in extraordinary gains, including a ¥1.133 billion gain on the forgiveness of lease liabilities, and ¥1.05 billion in extraordinary losses, including a ¥721 million valuation loss on investment securities. It is therefore inappropriate to assess underlying earnings power based solely on net profit progress.

By segment, the paper and pulp business reported revenue of ¥65.558 billion and operating profit of ¥449 million, with revenue down 0.3% and operating profit down 84.6%. The packaging and paper processing business reported revenue of ¥4.452 billion and operating profit of ¥37 million. Revenue rose 3.5%, but operating profit fell 36.5%. The timber business reported revenue of ¥1.325 billion and operating profit of ¥88 million, while Other reported revenue of ¥1.221 billion and operating profit of ¥96 million. The sharp decline in profit was concentrated in the paper and pulp business, but revenue growth in packaging has also failed to translate into profit growth.

At the next results announcement, FY2027-H1, we will assess whether operating profit on a standalone Q2 basis can return to positive year-on-year growth, or at least whether the decline can narrow from Q1's 78.9%. It will also be important to determine whether the qualitative explanations given in Q1 for raw material and fuel prices, overseas subsidiaries' pulp prices, logistics costs, and higher costs in transportation and warehousing can be broken down into amounts by factor. Since the Q1 summary report did not disclose amounts by factor or operating cash flow, the depth of H1 disclosure itself will also be an area of assessment.