A return to profitability in the first half is progress, but reported earnings were heavily influenced by gains on the sale of fixed assets

Revenue in the first half of fiscal 2026 was ¥717,352 million, up 4.9% year on year. Adjusted operating profit increased 6.6% year on year, while operating margin improved by 30 bps, from 12.0% in the prior-year period to 12.3%. Although organic growth in gross profit was limited to 0.3%, the effects of SG&A control and cost reductions from restructuring the operating platform are beginning to emerge, driving an improvement in adjusted profit that outpaced gross profit growth. In the third quarter, it will be necessary to determine whether the 6.6% growth in the first half reflected temporary cost controls or sustainable improvement in the cost structure.

On a reported basis, operating profit turned from a loss of ¥36,545 million in the prior-year period to a profit of ¥83,869 million, while interim profit attributable to owners of the parent also turned from a loss of ¥73,647 million to a profit of ¥46,277 million. However, the first half included a ¥29,634 million gain on the disposal of fixed assets, so the return to operating profitability cannot be regarded as a recovery in the underlying business without further analysis. In addition, ¥12,411 million in restructuring costs was recorded, making it important to assess the profit level after offsetting the gain on disposal against restructuring costs.

Operating cash flow in the first half was ¥95,115 million, up from ¥36,981 million in the prior-year period. It is therefore positive that cash generation also improved through working capital improvement, in addition to the return to reported profitability. However, the increase in operating profit includes the gain on the sale of fixed assets, so a focus of the next earnings release will be whether adjusted operating profit, operating cash flow and gains on the sale of fixed assets can be disclosed separately.

The company maintained its fiscal 2026 operating profit forecast of ¥152,600 million and full-year net profit forecast of ¥69,700 million. In the third quarter, the focus will be on whether adjusted operating profit, excluding the reversal of the gain on the sale of fixed assets, exceeds the prior-year level, whether operating margin can be maintained around 12.3%, and whether additional restructuring costs arise. In particular, continued growth in adjusted operating profit, rather than reported operating profit alone, will be the central indicator for assessing the achievability of the full-year forecast.