Operating profit increased in Q1, but net income includes a one-off gain

Q1 revenue was ¥18,805 million and operating profit was ¥2,022 million, up 18.9% and 40.3%, respectively, year on year. Based on revenue and operating profit, the operating margin was 10.8%, up approximately 1.7 percentage points from approximately 9.1% in the same quarter of the previous year. Higher revenue lifted gross profit and absorbed increases in selling, general and administrative expenses, mainly estimated design costs and research and development expenses, confirming the benefit of revenue growth at least at the operating level.

Ordinary profit was ¥2,090 million, while profit attributable to owners of the parent was ¥1,942 million. Net income increased 66.5% year on year, exceeding the 40.3% increase in operating profit, but the company recorded a ¥774 million gain on establishing a retirement benefit trust as extraordinary income. This amount is equivalent to approximately 38% of Q1 operating profit, so it would not be appropriate to view the net income growth rate alone as a measure of full-year earnings power. In the next results, it will be necessary to confirm ordinary pre-tax income and net income excluding this gain, as well as whether any additional extraordinary gains or losses arise.

The company did not prepare a consolidated statement of cash flows for Q1, and did not disclose cash flows from operating, investing or financing activities or the cash and cash equivalents balance at the end of the period. The extent to which the improvement in earnings was converted into cash through working capital and capital expenditure cannot be determined from these materials alone. In Q2, it will be important to see whether operating cash flow remains positive alongside earnings growth, and whether cash outflows for investment spending, borrowings or dividends have increased.

In the next results, priority should be given to whether operating profit builds further from Q1's ¥2,022 million and whether the operating margin can remain in the 10% range. The company also needs to disclose the difference between ordinary profit and operating profit, the breakdown of extraordinary income, the tax burden rate and cash flows. If the company continues to attribute growth mainly to higher revenue and gross profit, the key point will be whether profit growth independent of extraordinary income can be confirmed.