Revenue rose in Q1, but the operating margin fell sharply, making profit recovery in H1 the key focus.

Revenue in Q1 of the fiscal year ending March 2027 was ¥46.590 billion, up ¥8.324 billion, or 21.8%, from ¥38.266 billion in the year-earlier period. However, operating profit fell to ¥1.736 billion, down ¥1.154 billion from ¥2.890 billion, representing a 39.9% decline. The operating margin fell approximately 3.9 percentage points from about 7.6% in the year-earlier period to 3.7%, showing that profit growth is clearly lagging the scale of revenue growth.

By segment, refractories maintained both revenue and profit growth, with revenue of ¥30.142 billion and segment profit of ¥2.292 billion. Insulation materials generated revenue of ¥4.157 billion and profit of ¥421 million, with profit down 18.7% year on year. Advanced equipment recorded a ¥33 million loss on revenue of ¥1.165 billion, while engineering recorded a ¥988 million loss on revenue of ¥11.483 billion. The engineering business acquired after the acquisition and the non-ferrous-steel-related growth businesses weighed on consolidated operating profit.

The company cited raw-material and fuel costs, equipment problems and repair costs at overseas affiliates, temporary changes in the sales mix, higher depreciation at the Setouchi plant, and delays in Reframax projects and inflation-driven cost increases as factors behind the decline in operating profit. Accordingly, at the next results announcement, the focus should be less on revenue growth alone and more on how many percentage points pricing, cost reductions and the resolution of equipment problems have added to the operating margin.

Against the full-year operating profit forecast of ¥13.0 billion, Q1 results represented only 13.4%. Reaching the simple half-year progress benchmark of ¥6.5 billion would require operating profit of approximately ¥4.764 billion in Q2 alone, making it important to assess whether this recovery is realistic in FY2027-H1. If cumulative operating profit for Q2 falls substantially short of ¥6.5 billion, the validity of assuming that pricing and project profitability improvements can be concentrated in H2 will come into question.