Revenue increased, but the operating margin declined, making a recovery in profitability during H1 the key focus.

Revenue in Q1 of FY2027 ending March 2027 was ¥11,951 million, up 4.4% from ¥11,446 million in the same period a year earlier. Operating profit was ¥850 million, ¥13 million below the ¥863 million recorded in the prior-year period, a decline of 1.6% year on year. The operating margin, calculated on a simple basis, was approximately 7.1%, down approximately 0.4 percentage points from approximately 7.5% a year earlier. Ordinary profit also fell 3.1% to ¥869 million, while net profit attributable to owners of the parent fell 4.5% to ¥577 million, indicating that the benefit of higher revenue has not flowed through to lower levels of profit as well as operating profit.

The full-year forecasts remain unchanged at revenue of ¥54,000 million, operating profit of ¥5,400 million, ordinary profit of ¥5,450 million and net profit of ¥3,750 million as of Q1. Revenue progress was 22.1% and operating profit progress was 15.7%, indicating a significant delay in operating profit against a simple 25% quarterly benchmark. After deducting Q1 results, revenue of ¥42,049 million and operating profit of ¥4,550 million are required in the remaining 9 months, equivalent to 77.9% and 84.3%, respectively, of the full-year forecasts. Although the company indicated that results were broadly in line with plan, it has not disclosed specific H1 targets or the quarterly profit levels required to meet the full-year forecasts.

The company attributed the decline in profit to higher costs associated with the transfer of operations between segments and business restructuring, but did not disclose the amounts or distinguish one-off costs from recurring costs. In Q1, operating profit declined despite revenue growth of 4.4%, indicating that additional costs could not be absorbed through revenue growth. In FY2027-H1, it will be necessary to confirm whether the operating margin recovers from 7.1% and whether costs related to the transfer of operations and restructuring continue into Q2.

At the next earnings release, we will look at the position of cumulative H1 revenue and operating profit against the full-year forecasts, as well as the extent of improvement in the operating margin, the amount of costs related to the transfer of operations and the contribution from each segment. In particular, unless the gap between revenue progress and operating profit progress narrows from 15.7% versus 22.1%, reliance on the second half to achieve full-year operating profit of ¥5,400 million will increase further.