First quarter under IFRS front-loaded earnings; FY2027-H1 will test the sustainability of the full-year plan

The company adopted IFRS from the first quarter of the fiscal year ending March 2027. Operating revenue was ¥268,033 million, operating profit was ¥15,228 million, profit before tax was ¥13,723 million, and quarterly profit attributable to owners of the parent was ¥9,160 million. The full-year forecasts are operating revenue of ¥1,070,000 million, operating profit of ¥29,000 million, profit before tax of ¥37,000 million and profit attributable to owners of the parent of ¥23,000 million. Accordingly, first-quarter progress was 25.0% for operating revenue, compared with 52.5% for operating profit, 37.1% for profit before tax and 39.8% for profit attributable to owners of the parent.

The fact that profit progress is ahead of revenue reflects all three businesses, life insurance, non-life insurance and banking, reporting positive profit before tax. Segment profit before tax was ¥1,642 million for the life insurance business, ¥6,898 million for the non-life insurance business and ¥6,002 million for the banking business. Non-life insurance and banking are particularly supporting consolidated profit, but the first-quarter disclosure does not provide enough detail to determine the extent of the difference between total segment profit and consolidated profit before tax, holding company expenses and IFRS adjustment items.

It would be premature to use the fact that operating profit progress exceeded 50% as the sole basis for expecting an upside to the full-year outlook. Quarterly earnings at insurance companies are susceptible to market interest rates, bond sales, foreign exchange, minimum guarantees on variable insurance and reinsurance income and expenses, and the timing of profit generation is uneven. In addition, the company did not prepare a condensed statement of cash flows for the first quarter, and did not disclose enough information to assess the conversion of earnings into cash from operating and investing cash flows.

In FY2027-H1, we will first assess whether cumulative operating profit exceeds the first-quarter level of ¥15,228 million and how much profit before tax builds on the first-quarter figure of ¥13,723 million. We also need to track, by segment, market-related factors in the life insurance business, the loss ratio and business expenses in the non-life insurance business, and net interest income and operating expenses in the banking business. In addition to whether the full-year forecasts are maintained, further disclosure of the bridge between IFRS adjusted net income and statutory profit, cash flows and holding company expenses will be important in assessing earnings quality.