Can profit improvement outpace revenue growth and absorb the pressure from the full-year plan?

FY2027 Q1 revenue was ¥20,052 million, up 3.3% year on year, while operating profit was ¥2,351 million, up 21.6%. The operating margin improved by 1.7 percentage points from the year-earlier quarter to 11.7%, while the cost of sales ratio fell 2.0 percentage points from 50.3% to 48.3%, creating a structure in which profit is growing faster than revenue. The company’s full-year forecasts are revenue of ¥91,000 million and operating profit of ¥9,500 million, representing increases of just 8.7% and 0.7%, respectively. It is therefore necessary to determine whether the Q1 margin improvement has created headroom against the full-year plan or reflects a temporary benefit.

The year-on-year increase in Q1 operating profit was ¥417 million. The earnings presentation breaks this down into a negative ¥463 million impact from the change in revenue, a positive ¥643 million foreign-exchange impact, a positive ¥368 million impact from the improvement in the cost of sales ratio, and a negative ¥131 million impact from higher SG&A expenses. In other words, sales volume and revenue scale alone were not sufficient to lift profit, and the increase was supported by foreign exchange and the improved cost ratio. By currency, the foreign-exchange impact was positive ¥312 million for the US dollar and positive ¥284 million for the euro, while the Chinese yuan had a negative impact of ¥120 million.

On the cost side, R&D expenses increased by ¥324 million, while product repair expenses declined by ¥91 million, consumables expenses by ¥52 million, and other expenses by ¥49 million. Continuing growth investment while controlling market-related expenses is positive, but the company plans full-year R&D investment of ¥7,600 million, making it important to determine whether the cost of sales ratio can remain around 48.3% from Q2 onward. In particular, the full-year operating profit forecast of ¥9,500 million is only ¥69 million above the previous year’s actual result of ¥9,431 million, indicating a strong assumption that margin improvement will offset slower sales expansion.

At the next earnings release, we will want to see how much revenue has accumulated in the first half against the full-year target of ¥91,000 million and whether the operating margin has fallen materially from 11.7%. As of Q1, no quarterly cash flow statement had been prepared, and sales volumes and prices and profit by market had not been disclosed, so it is not possible to fully verify whether the cost improvement resulted from underlying demand or from foreign exchange and product mix. Additional disclosure of first-half profit by market, the cost ratio, and the foreign-exchange impact would make it easier to assess the achievability of the full-year plan.