Alps Alpine: Midterm operating profit tops forecast, down year on year

First-half revenue, operating profit, ordinary profit and net profit all exceeded the forecasts released in April. But each profit measure was below its year-earlier level, leaving forecast-beating results alongside year-on-year declines.

• Revenue: Production and sales by major customers, particularly in North America, exceeded plans in the mobility business, while the weaker yen also contributed. Revenue beat forecasts in every segment.
• Operating profit: Higher memory prices raised costs, but the effects of increased revenue and the weaker yen lifted profit above forecast.
• Ordinary and interim net profit: Ordinary profit increased partly because of currency-related changes in the valuation of foreign-currency assets. Net profit also benefited from gains on the sale of investment shares, and exceeded forecast despite extraordinary losses including market-action-related costs.

Revenue was higher than a year earlier, but operating profit, ordinary profit and interim net profit all fell from the prior-year period. Investors will need to consider not only the gap against forecasts but also the decline in profit from a year ago.

A quality issue was identified in specific manufacturing lots of torque sensors for automotive electric power steering, prompting a recall of vehicles fitted with the affected products. Alps Alpine agreed to cover part of the related costs and booked ¥8.889 billion as an extraordinary loss for the first half. The company said the issue is limited to specific lots and does not affect its products generally.

• Cause: An investigation found that the issue stemmed from defects in the manufacturing process at a supplier commissioned to produce components used in the sensors.
• Cost recovery: Alps Alpine plans to seek contributions from the supplier in line with its responsibility, including for amounts claimed by customers.
• Insurance: The company is also in discussions with insurers. The amounts to be recovered or paid out, and the timing, have not been determined. There will be no double recovery.

Amounts sought from the supplier and any insurance recovery are not reflected in the first-half results or full-year forecast. Any recovery confirmed later could affect results, but the amount and timing cannot be estimated at this point.

Alps Alpine left its consolidated forecast for the year ending March 2027 and its year-end dividend forecast unchanged. The company said it would carefully assess the business environment in the second half, taking into account both the first-half results above forecast and the extraordinary loss.

Insurance proceeds and amounts to be recovered from the supplier are excluded from the full-year forecast because neither the amount nor the timing of receipt has been determined. Alps Alpine said it would promptly announce any necessary revisions to its outlook.

Although first-half profit exceeded the company's forecast, it fell sharply from a year earlier. Alps Alpine also plans to strengthen quality control and audits of suppliers to prevent a recurrence. Investors will be watching second-half demand and currency trends, as well as the company's response to the quality issue and progress in recovering costs.