Revenue growth fails to translate into profit growth, with the Q1 operating margin falling to 1.3%

Revenue in Q1 of the fiscal year ending March 2027 was ¥48.540 billion, up ¥11.493 billion, or 31.0%, from ¥37.047 billion in the same period last year. Operating profit, however, was ¥631 million, down ¥822 million, or 56.6%, from ¥1.453 billion. Operating profit moved in the opposite direction from revenue growth, causing the operating margin to fall by approximately 2.6 percentage points, from approximately 3.9% in the same period last year to approximately 1.3%.

The main drivers of revenue growth were higher selling prices accompanying the rise in electricity market prices, increased external fuel sales volumes and improved utilization at overseas operations. Cost of sales, however, rose 35.1% year on year to ¥44.801 billion, outpacing the 31.0% increase in revenue. Supplementary materials cited higher procurement prices in the retail business, derivative losses and the reversal of development fees recognized in the same period last year as factors behind the decline in operating profit. Even when higher market prices lift revenue, revenue does not remain as profit if procurement costs and fluctuations in gains and losses on valuation are significant.

Gross profit was approximately ¥3.7 billion, with a gross margin of 7.7%, while selling, general and administrative expenses were approximately ¥2.8 billion. High-voltage electricity sales volume rose 5.3% year on year to 664 GWh, and high-voltage contracted capacity increased 4.1% to 1,076 MW, but low-voltage electricity sales volume fell 2.2% to 227 GWh. Longer inspection periods at the Saiki and Nakagusuku biomass power plants also affected results. Accordingly, H1 results need to be assessed by separating market prices and sales volumes from procurement prices, the number of power-plant inspection days and derivative gains and losses.

The company forecasts full-year operating profit of ¥7.807 billion, putting Q1 progress at only 8.1%. A simple equal quarterly allocation cannot be treated as the company’s plan itself, but whether profit can be accumulated to at least approximately ¥1.95 billion by H1 will be an important test at the next results announcement. Particular attention should be paid to whether the gross margin improves from 7.7%, whether cost of sales growth falls below revenue growth and whether derivative losses recur.