Koizumi: In FY2022, there were significant changes in the Board of Directors due to the change of the Chief Executive Officer. What was impressive is that Mr. Horii, who became the new Chief Executive Officer, clearly laid out his own vision and numerical targets immediately, and that the future direction was quickly shared among the new management team. The timing was so early that I still remember it.
Miyake: I also feel that Mr. Horii is trying to align the vectors within the Company by clarifying the vision and targets. The clarification of the profit targets has stimulated more active discussions internally, and the internal Directors who also serve as Officers have started to speak out more proactively about other businesses as well, not just those they are personally responsible for.
Mimura: Although I have been in office for only one year, I feel that the strong aspiration of Mr. Horii, who had supported the previous Chief Executive Officer, Mr. Kobayashi (current
Chairman of the Board), to take the lead and make implementations, is very well conveyed in meetings of the Board of Directors. I also feel that other internal Directors are actively
incorporating our opinions as Outside Directors into management. Because my comments are also taken up outside of meetings of the Board of Directors, I am once again reminded
that I must take such influences into account when making comments.
Kanamaru: I was newly appointed as an Outside Director in June 2023. I was approached a little while ago, and I have been observing meetings of the Board of Directors and the Executive Committee for a year, which led to my current appointment.
What is expected of me as an attorney is of course my insights on legal and compliance aspects. I also expect that I will be asked for advice on Overseas Business based on my experience in Southeast Asian-related operations. Although compliance is a field where Mr. Horii has expertise, he is now in the position of leading the Group as a member of top management, and I want to support the strengthening of the Company’s compliance by providing a new perspective from an objective and neutral standpoint.
Mimura: The Company has a very large number of earnest people. Seeing the Five-year Rolling Plan, it is obvious that many people have passionately discussed the plan and carefully crafted it. However, there is a tendency to focus too much on short-term goals in the actual course of initiatives.
Regarding this, since I come from the manufacturing industry, the importance of growth investment looking 10 or 20 years ahead in R&D and production bases is ingrained in me, and I propose the necessity of creating systems and human resources development for facilitating discussions from a macro perspective in various opportunities, including meetings of the Board of Directors.
Especially as the automobile industry enters a period of a once-in-a-century drastic change, focusing only on the short term could leave us unprepared and unable to respond to sudden environmental changes. A long-term vision with an eye toward the next 10 years, Beyond AUTOBACS Vision 2032, was newly established in May 2023. As stated in the Vision, I would like to see steady progress from today to tomorrow, and from tomorrow to the next day, in a tangible manner that is more convincing to investors, and I would like to support that as an Outside Director.
Kanamaru: As an observer, I have attended meetings of the Board of Directors and the Executive Committee and felt that everyone in the Company is really working earnestly. While I think the Five-year Rolling Plan is a well-thought-out plan, it enters its fifth year from 2019. Going forward, the challenge is how to connect its results to the next growth strategy and how to communicate it to the outside world, while also reviewing the results of the plan to date.
Koizumi: While I highly regard the Five-year Rolling Plan in terms of the development of the business infrastructure and securing stable profits, I unfortunately feel that the IT and DX strategies lag slightly behind. Although the plan is progressing steadily, my view is that it has not yet reached the point where we can feel significant economic benefits from DX. Regarding this point, since a company in the IT and DX strategy area was made a wholly-owned subsidiary in April 2023 to speed up these strategies, I expect that business development in these areas will accelerate going forward.
As the long-term vision has been formulated and the Five-year Rolling Plan soon approaches its fifth year, it has become extremely important to set clear goals that are both quantitative and qualitative in the new Medium-term Business Plan and lay out specific strategies to achieve them. I look forward to the ongoing discussions on formulating the Medium-term Business Plan becoming more substantive and persuasive.
Miyake: I also view the Five-year Rolling Plan as highly effective, as it has achieved results such as the establishment of networks. Although the Five-year Rolling Plan, which has been continuously reviewed in accordance with the situation, has been extremely effective during the unpredictable times of the COVID-19 pandemic, I think it is now a good time to consider a new Medium-term Business Plan now that the pandemic has settled down, and as investors call for medium- to long-term growth strategies.
It is my understanding that while the fiscal year ending March 31, 2024 will be the fifth year of the Five-year Rolling Plan, it is also important to set a clear position for the next Medium-term Business Plan, and it will be a year to firmly set a goal for all businesses including Overseas Businesses, online alliances, and brands, and make decisive choices that lead to the next steps. For this reason, we abolished the officer system at the end of last year and established a new management position named General Manager who is responsible for each business. Going forward, I believe that managing each business by ROIC (return on invested capital) will lead to a review and restructuring of the business portfolio.
Mimura: We must carefully examine existing businesses, determine the areas in which investors accept and hold high expectations, and build up such businesses. ROIC is the easiest indicator to understand for assessing how efficiently profits are generated from actual invested capital. As such, it is an appropriate approach for the Company to use ROIC to evaluate how much the improvement in capital efficiency of its businesses is leading to increased corporate value. I hope this approach will be further strengthened. However, there is a risk of making unfavorable management decisions if we evaluate all businesses based on ROIC alone. In reviewing our business portfolio, it is necessary to determine which businesses we should engage in the long term while also considering the medium- to long-term vision.
What is important is that members of top management communicate a clear message about the medium- to-long-term vision both internally and externally, and indicators such as ROE and ROIC are effective tools to that end. Using indicators makes it easier to visualize and convey changes and facilitates the understanding of such changes within the Company, while also increasing external investor expectations, leading in turn to higher corporate value. I believe Mr. Horii is also acting with the intention of shifting the Company in that direction. For this reason, I want to support him as an Outside Director.
Miyake: I hear that discussions on the Medium-term Business Plan are currently progressing, mainly by younger employees who are expected to be active 10 years from now. I am looking forward to the Board of Directors meeting where discussion details will be reported on and there will be an exchange of opinions.
Kanamaru: I think that the purpose (raison d’étre) and direction of evolution (our ideal) are clearly articulated in well-crafted words in the long-term vision Beyond AUTOBACS Vision 2032. I also observed from the side the serious discussions held within the Company on the formulation of the plan, on which future directions the Company shall take, and how it will be involved in society through car-related services amidst rapid changes in people’s lives. I think that the work on formulating the Vision itself has been a very meaningful process for the Company.
The Vision also declares a commitment to evolution, stating, “The AUTOBACS Group will evolve even more on a global scale, at an unprecedented speed.” I understand that the expression “at an unprecedented speed” is based on the recognition that achieving numerical targets would be difficult if we continued at the current pace, considering that 10 years into the future will arrive in a heartbeat. I think the Vision is imbued with the intention to increase the speed of decision-making by abolishing the officer system, newly establishing General Managers and building a horizontal relationship, while maintaining a sense of speed and also aiming to achieve performance figures with the purpose in mind.
Miyake: We set a target of 500 billion yen in net sales by 2032 in the long-term vision. As this is more than double the net sales of 236.2 billion yen in the fiscal year ended March 31, 2023, we cannot achieve this unless we engage in discussions that are not a mere extension of what has been done so far. As the Company’s performance in recent years has been stuck at a plateau, no new ideas will be conceived unless we aim for high aspirational goals, and I see this as a potential turning point for the Company. In the next 10 years, I think we can aim for discontinuous growth by deepening discussions, especially among younger employees.
Koizumi: Yes, absolutely. Indeed, the Company’s performance over the past 10 years in terms of revenue has shown little growth, which I think is the main reason the stock price has not responded positively.
While a net sales target of 500 billion yen may sound like a very extreme goal if viewed only in terms of figures, setting a target of 300 billion yen under these circumstances would be insufficient as a long-term vision. We must set challenging, aspirational goals and pursue them seriously, otherwise, the Company will stagnate. Specifically, the long-term vision outlines a business growth image based on not only the existing business evolution such as used car purchasing and sales, statutory safety inspections and services, and automotive goods and service sales, but also new business creation such as micromobility platforms, and it clearly states the investment allocation for the next 10 years toward such growth. My understanding is that the net sales target of 500 billion yen is based on these factors. In my opinion, I believe the persuasiveness of the Vision for investors will increase even more depending on the content of the Medium-term Business Plan and specific strategies to be announced in the future.
Miyake: With a typical goal such as 300 billion yen in net sales, employees may think they can achieve it if they work hard, and no sense of urgency would be created within the Company, and new ideas that lead to growth will not be conceived. If the net sales target is 500 billion yen, there is a high likelihood of a shift in thinking where we must consider collaborations with other industries and types of business, including M&As, to achieve this target.
Kanamaru: Although the Company does not have an extensive track record in M&As, M&As will probably become one of the options as we consider future strategic initiatives. In this case, I would like to provide strong support for the PMI (post-merger integration) process as an Outside Director.
Mimura: In my previous job, I clearly remember being told by the management at the time when the sales were 200 billion yen to “aim for 1 trillion yen.” This insinuates that you cannot compete in the world unless you reach that scale. Another thing that left an impression on me was the idea regarding a market capitalization of 1 trillion yen. I was told to think about what needs to be done to reach 1 trillion yen because we could be bought through an M&A if we are not at the 1 trillion yen mark.
What is crucial is not to let the 500 billion yen net sales goal be just a slogan, but to actualize it, and that is the role of management. Currently, with the Company at a scale of 200 billion yen in net sales, achieving 500 billion yen requires raising our aspirations. To achieve this, it is crucial that members of management first elevate their perspective and change their viewpoint to have a different prospect, and it becomes extremely important how they articulate their findings to internal and external stakeholders in easily understandable terms. From this perspective, as someone familiar with such cases, I intend to offer assistance as much as possible.
Miyake: I believe that expanding our Overseas Business is necessary for realizing our long-term vision, and one of our strengths will be our ability to provide opportunities for young people to take on challenges overseas in order for them to actively participate in the future.
For the Company to succeed overseas, it would be ideal for our brand to become well-established and for our orange signs to shine around the world. To this end, I believe that we should make the most of our Japanese quality, which is recognized worldwide for our products and maintenance. PB (private brand) products will also be well-received overseas if they are wellstructured across multiple categories such as being environmentally friendly, rather than only making an appeal based on price.
At the same time, I feel that it is important to first create a successful case study overseas by organizing the current situation and narrowing down the area, rather than simply extending existing businesses overseas. The Company is currently operating wholesale and retail businesses in nine countries and regions overseas, but I believe it is time to bring focus to certain areas and businesses to set the stage for the next phase.
Recently, the priority has been to establish a wholesale business in Australia. However, despite being a layman, I believe the Company should venture overseas in retail, otherwise, the AUTOBACS brand value will ultimately not be demonstrated.
Kanamaru: In Overseas Businesses, there are unique circumstances and regulatory differences in each country. As such, brand management is certainly challenging. When expanding through franchises, it often becomes necessary to delegate a certain degree of management to local companies familiar with local conditions while maintaining control from Japan. Due to this, it is important to consider the balance of authority when entering into contracts.
In addition, it is essential to have a clear vision that can be shared in each country. Without a shared philosophy, problems that arise will be handled differently in each country. As such, it is necessary to establish an environment where businesses can be expanded with some degree of common understanding, by sharing with them some key points.
Miyake: Although there are various circumstances where direct management in retail would be appropriate for some countries and regions, and cases where franchise partnerships with local companies would be preferable rather than building a franchise business from scratch. If the Company plans to open franchises overseas, it needs to establish an even stronger franchise contract model than domestic franchises. I think the give-and-take relationship is clearer overseas than in Japan, and it is essential to clarify what we offer. In that sense, there is a need to make the strengths of AUTOBACS explicit, such as new formats, private brands, and Japanese quality, and to create systems where we can provide these.
Mimura: In the manufacturing industry, companies still handle their own products when going overseas, but in the retail industry, there is a lot more freedom in that regard. Of course, it is not possible to venture into areas where we do not have any know-how, but it is perfectly acceptable to start something completely different from what is done in Japan. By broadening perspectives in various directions, there is also the possibility of creating entirely different business entities through M&As, in addition to franchise contracts with local companies. Such thinking should naturally be considered as we elevate our viewpoint. In such cases, as Mr. Miyake mentioned earlier, it would be necessary to reset all existing Overseas Businesses and sort out what will remain and what will not. Nevertheless, the huge market for mobility is expected to continue prevailing in the world going forward, and there is plenty of room for growth as long as we can find a commitment to focus on.
Koizumi: In Japan, there are not many successful cases of retail companies going global. When considering the global possibilities for AUTOBACS SEVEN based on the few examples, as Mr. Miyake mentioned, I think having three elements would make us competitive globally: (1) strengthen our brand as an icon, (2) developing an overwhelming lineup of PB products, and (3) thoroughly implementing Japanese quality customer service and hospitality.
Currently, we are focusing on strengthening our business over the near term, by primarily expanding in the wholesale sector. However, I personally feel that the path to success ultimately lies in global retail expansion using the AUTOBACS brand mark.
Mimura: I have been urging Mr. Horii to focus on improving corporate value from an investor’s perspective. The reason is that discussing what should be done from an investor’s point of view will undoubtedly benefit the employees in the end. To achieve sustainable growth, it’s necessary to continuously formulate growth strategies and work toward achieving targets, and by consistently doing so, our corporate value will steadily improve, thereby enabling greater returns to employees.
By advancing a strategy that a manager is personally convinced of as his or her responsibility, the figures will naturally follow. As the accuracy of numerical targets improves, a cycle is created where investor confidence in the Company also grows, and expectations increase even further when even a single success story emerges from our efforts, ultimately improving corporate value. Regarding PBR, which has been of much attention, I have been advising Mr. Horii that what should be done to increase the PBR is clear from the relationship between the numerator and denominator, and we should definitely work toward that goal.
Koizumi: As I mentioned in our previous roundtable discussion, I believe that AUTOBACS is the number one brand in the industry in Japan, and can also become a global brand that operates worldwide. I believe that the DNA as a retailer, including the hospitality of our store staff, which has been handed down since our founding, will definitely be applicable overseas as well.
Perhaps the challenge for future globalization is how to share the philosophy and DNA of AUTOBACS globally. As Mr. Miyake often says, there are areas where the penetration of our philosophy overseas is slightly delayed, and I believe it is essential to strengthen this area.
In addition, looking toward the growth of business in Japan, I expect progress in IT and DX strategies. Although shifting to e-commerce within the franchise business model has its challenges, I believe that the revenue of the Domestic AUTOBACS Business will grow as the e-commerce ratio increases, and there is plenty of room for growth if profits expanded or generated in the domestic business can be diverted to investment in new businesses.
Miyake: What I expect is stronger brand marketing. I would like AUTOBACS to focus on elevating the image of trustworthiness and innovation that the AUTOBACS brand conveys, so that all stakeholders, not just investors and consumers, feel excited when they see that orange sign.
Although there was a sense of excitement when we initially launched as Japan’s first one-stop shop for automotive goods and services, that distinctive individuality has been somewhat buried amidst intensifying competition. By creating a system that constantly offers something new, such as proposals for new formats and the development of high-value-added PB products, we hope investors will have the impression that AUTOBACS is always on the move. As Mr. Mimura has said, I believe the figures will follow as a result.
Kanamaru: When the new Medium-term Business Plan is released, I hope that the enthusiasm of everyone involved in its formulation within the Company will gain the empathy of external stakeholders. The key will be to communicate in words and methods that can convince investors of the feasibility of the long-term vision, and I expect consistent efforts from the Company to this end.