Review of business results
In the fiscal year ended March 31, 2023, socioeconomic activities that had been restricted under the COVID-19 pandemic began to normalize, with a sign of moderate recovery in consumer spending. However, they were affected by soaring raw material and energy prices and rising prices due to the rapid depreciation of the yen.
In the Japanese automotive-related industry, the number of new car production, which had declined due to the global shortage of semiconductors, began to recover. Meanwhile, the Ukraine situation and China’s zero-COVID policy led to shortages of parts and disruptions to logistics. The number of used cars for trade-in available in the distribution market fell due to a decline in new car production, and the number of used cars registered was lower than the year-ago level. Market conditions for automotive goods and services were affected by rising prices, but demand for winter goods increased due to cold snaps and snowfalls.
In these circumstances, the Group has worked to enhance its market competitiveness by keeping pace with and adapting to changes in society, cars, and people’s lifestyles. The Group has focused on high growth potential areas while striving to strengthen its networks and business infrastructures, and promote its businesses for sustainable growth. As a result, consolidated net sales were 236.2 billion yen, an increase of 3.3% from the previous year, consolidated operating income was 11.7 billion yen, an increase of 1.5% from the previous year, and profit attributable to owners of parent was 7.2 billion yen, an increase of 3.3% from the previous year, exceeding the plans announced at the beginning of the fiscal year.
Allow me to explain the results for each segment. The Domestic AUTOBACS Business remained firm as a result of our efforts to strengthen sales promotions, in addition to signs of a recovery in personal consumption, despite the impact of the COVID-19 pandemic and rising prices. By merchandise, although the Company revised prices for tires in May and September, they performed well due to sales promotions and a strengthened product lineup. Also, in car electronics and car interior goods, although sales decreased due to a reduction in new car production, we were able to capture maintenance demand for existing cars in services.
For the Overseas Business, in Australia where the Company operates a wholesale business, both sales and profits rose due to sales activities such as the development of new wholesale customers and the introduction of new exclusive goods against the backdrop of the strong performance of car electronics goods and transceivers. In France, where the Company conducts retail operations, sales increased due to measures such as optimization of price and sales activities, despite the impact of inflation. As a result, operating losses were reduced in addition to increased revenue.
For the Car Dealership, BtoB and Online Alliance Business, the Car Dealership Business secured a higher level of operating income than in the same period of the previous year by facilitating efficient operations, despite being affected by a reduction in new car production. In the BtoB business, subsidiaries engaged in statutory safety inspection, maintenance services and tire sales performed well. The Online Alliance Business saw sales growth due to the increase in sales channels and the expansion of e-commerce website services. As a result, the segment not only increased its sales but also turned a profit.
As I mentioned in the beginning, business results exceeded the plans announced at the beginning of the fiscal year for both sales and profits, however, when viewed by segment, there are issues that remain to be addressed. We recognize that in order to achieve the sustainable growth of the Group, it is necessary not only to continue enhancing the efficiency of existing businesses but also to invest in growth areas and cultivate new businesses.
Five-year Rolling Plan
We have completed the fourth year of the Company’s Five-year Rolling Plan which began in the fiscal year ended March 31, 2020. The emphasis of our financial strategy in particular is to continue to review our business portfolio to strengthen the management of the individual businesses, and also to work on strengthening investment returns management, thus improving capital efficiency. We have been managing ROA by business segment since the fiscal year ended March 31, 2023 and have included it in the evaluation for General Managers. Since the introduction of the Five-year Rolling Plan, we have been reviewing items as required, and in FY2022, we discussed and implemented policies on six themes: 1. required working capital and surplus funds, 2. fund procurement, 3. reviewing the business portfolio by strengthening investment returns management, 4. approach to investing and financing for subsidiaries, 5. fund management, and 6. shareholder returns. In the Five-year Rolling Plan 2023, we have removed “5. fund management” due to the significant reduction in our cash position compared to the past, and we have also revised some of the contents of the other items.
To achieve the sustainable growth of the Group, it is necessary not only to continue improving the efficiency of existing businesses but also to invest in growth areas and cultivate new businesses. As we continue to take on new challenges for value creation, we will review the evaluation system for General Managers who are in charge of each business, and strengthen the monitoring system so that each business can be visualized and managed using ROIC (return on invested capital), and continue to review and replace businesses in the portfolio. When reviewing or restructuring the business portfolio, we will make decisions based on a variety of perspectives, such as the profitability and growth potential of the business, the potential for collaboration with other businesses, and their ability to contribute to solving social issues. We will then rebuild a business portfolio that will allow the Group to demonstrate its strengths to the full. In addition, along with enhancing investment returns management through these business portfolio reviews and improving capital efficiency through visualization for each business segment, we will implement stable and flexible shareholder returns as explicitly stated in the Five-year Rolling Plan, aiming for a five-year cumulative total return ratio of 100%.
Although we are aiming for an ROE that exceeds the capital cost, with an ROE of 5.7% for the fiscal year ended March 31, 2022 and 5.8% for the fiscal year ended March 31, 2023, the figures are still not satisfactory. For the fiscal year ending March 31, 2024, the fifth year of the Five-year Rolling Plan, I feel that we need to move on from the seed-sowing that we have been doing so far to a stage of selection and concentration, and then on to the harvesting stage. First of all, we will further enhance our profit-earning ability, especially in the Domestic AUTOBACS Business, our core business. At the same time, we will step up our efforts to review our company-wide cost structure. In addition, we are accelerating the speed of management, evolving each business, taking on challenges in business creation, and making changes to seize new opportunities. In order to achieve evolution and growth “beyond AUTOBACS up until now,” we have formulated a long-term vision Beyond AUTOBACS Vision 2032. This is a long-term vision that adapts to environmental changes, takes on the challenge of the expansion of business areas and the creation of new businesses, and aims for consolidated net sales of 500 billion yen in FY2032. To achieve this, we will aggressively execute investments of approximately 100 billion yen from FY2023 to FY2032, and we will consider replacing the businesses in our portfolio with those that offer a high return on investment.
Improving non-financial capital to increase financial value
We are promoting sustainability management and strengthening ESG. We started the ESG & SDGs Project in 2021 and have focused on human resources as a source of growth for the company and efforts to enhance corporate value.
In particular, in terms of non-financial capital related to human capital, we have set “Development of organization and personnel” as a materiality, and have established KPIs to achieve this in addition to non-financial goals. Our efforts include improving the status of certified mechanics and fostering them, which is an urgent issue in our Domestic AUTOBACS Business, creating a corporate culture full of diversity, establishing mechanisms for evaluating challenges, and creating healthy and active workplaces. To promote these initiatives within the Group, we have established a scheme in which the General Managers who are in charge of executing management act as leaders and take responsibility for implementing such initiatives.
We are also working to reduce CO2 emissions, and we will continue to engage in these efforts as our responsibility which is necessary for us to exist as a company in a sustainable society.
Improvement of PBR (price book-value ratio)
I feel that the Group has not been able to demonstrate its future growth potential. Regarding this point, we first presented our long-term vision Beyond AUTOBACS Vision 2032 in May 2023 that states our ideal 10 years in the future, with consolidated net sales of 500 billion yen and cumulative investment of 100 billion yen. Furthermore, we are currently discussing the formulation of a Medium-Term Management Plan by selected internal members, and we plan to disclose details such as profit levels and growth investments in the Medium-Term Management Plan. While indicating the direction in which the company is heading, we aim to improve capital efficiency and achieve enhancement of corporate value, thereby raising the PBR to more than one.
Regarding shareholder returns, the Company positions returning profits to our shareholders as an important management priority. We have set a basic policy of stable and flexible shareholder returns, with a cumulative total shareholder return ratio of 100% during the period of 5 years of the Five-year Rolling Plan. With respect to the acquisition of treasury shares, the Company will consider implementing such repurchases at an appropriate time to improve capital efficiency and shareholders’ profit, comprehensively taking into consideration the cash flow situation and other factors.
After FY2024 following the end of the Five-year Rolling Plan, in accordance with the long-term vision described earlier, we plan to invest proactively for growth, targeting a cumulative total of 100 billion yen over 10 years. Through growth investment, we will maximize operating cash flow and continue to provide stable and flexible returns to our shareholders in consideration of the business environment, performance, and financial position.