Can Project Z and price revisions establish an operating margin in the 5% range?

FY2026-H1 revenue was ¥101,917 million and operating profit was ¥5,575 million. In the prior-year period, revenue was ¥100,868 million and operating profit was ¥4,356 million, meaning operating profit increased 28.0% while revenue growth was limited to 1.0%. The operating margin improved by approximately 1.2 percentage points, from approximately 4.3% in the prior-year period to approximately 5.5% in the current period. Margin improvement, rather than the scale of revenue growth, is the central theme of the results.

The earnings supplementary materials attribute the ¥1.2 billion year-on-year increase in operating profit to a ¥1.6 billion Project Z benefit, a ¥1.2 billion benefit from price revisions in Japan and overseas, and a ¥0.4 billion foreign-exchange benefit. These were partly offset by a ¥1.0 billion impact from higher procurement prices for raw materials and other items and a ¥1.0 billion impact from higher SG&A expenses and other factors. In Q3, it will be important to determine how much of these individual factors remains and whether the company can separately explain the unit-price effect of price revisions and the fixed-cost and productivity improvements from Project Z.

The company is pursuing Project Z as a structural reform and growth strategy encompassing production optimization, development optimization, deeper domestic sales operations, and overseas growth centered on Europe. The supplementary materials also set a 5.0% operating margin target for 2027, meaning FY2026-H1's approximately 5.5% margin is running ahead of the target level. However, the full-year operating profit forecast is ¥6,000 million, of which 92.9% had already been achieved at the end of H1. It is therefore necessary to determine in Q3 whether the margin can be maintained or whether profit was simply concentrated in the first half.

At the next earnings announcement, we will check whether the operating margin remains in the 5% range, as well as the contribution from Project Z, the profit increase from price revisions, and any renewed increases in raw-material prices, logistics costs, and labor costs. If operating profit continues to increase in the second half, the potential for an upward revision to the full-year forecast may come into focus. However, if lower utilization rates associated with the restructuring of domestic production sites or higher SG&A expenses become evident again, the high H1 progress rate alone will not be sufficient to assess performance.