USS : Presentation Materials with Script（3.5 MB）

USS Co., Ltd.

Financial Results Briefing for the 2nd Quarter, Fiscal Year Ending March 2024

November 8, 2023

Event Summary

*Analysts that SCRIPTS Asia was able to identify from the audio who spoke during Q&A or whose questions were read by moderator/company representatives.

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Presentation

Moderator: Thank you for taking time out of your busy schedule today to participate in our financial results briefing for Q2 of the fiscal year ending March 31, 2024. In attendance today are Chairman, Representative Director, and Chief Executive Officer, Ando; President, Representative Director, and Chief Operating Officer, Seta; and Director, Executive Vice President, and Officer of the Supervisory Office, Yamanaka.

First, CEO Ando will explain the financial results, followed by a question-and-answer session. The entire briefing is scheduled to last for approximately one hour.

Now, Ando will start the explanation. Ando, please go ahead.

Ando: Hello, everyone. I am Ando from USS Co., Ltd. Thank you for taking time out of your busy schedule today to participate in the financial results briefing for Q2 FY2023.

As the secretariat has just informed you, the system is designed to allow interactive exchange of questions and answers with you. I will begin by explaining the financial results according to the explanatory materials, and then we will move on to the question-and-answer session. We would like to take as many questions as time permits, so please do not hesitate to ask.

Please see page four of the document. There are three points I would like to explain today.

The first is the consolidated financial results for Q2. Looking at new vehicle sales in Japan from April to September, the shortage of new vehicles due to semiconductor and parts shortages has improved since the fall of 2022, and the backlog of orders, or so-called back orders, has been eliminated, resulting in an increase in the distribution volume of new used vehicles generated by trade-ins and replacement purchases.

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In addition, demand for used vehicles remained strong, along with domestic demand and export demand, with the overall auto auction market recording 117% of the total number of vehicles offered for sale and 111% of the total number of vehicles contracted YoY. In addition, the auto auction market as a whole seems to have been largely unaffected by the export restrictions on used cars to Russia and the fraud issues by major used car dealers, which had been a concern.

For H1, USS posted a YoY increase of 113% in the number of units consigned and a YoY increase of 104% in the number of units contracted for auction results. Consolidated financial results reached a new record high in terms of net sales and all profit categories.

The second point is the upward revision of the full-year earnings forecast. The main factor was an increase in H1, and H2 was almost in line with the plan.

The third point is shareholder return. In line with the upward revision of the earnings forecast, the annual dividend per share was revised upward from JPY69.40 to JPY73.10.

This slide is the consolidated financial results for Q2 FY2023, as explained in the financial highlights.

As I mentioned earlier, we recorded record highs in sales and all profit categories.

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Next is net sales and operating profit by business segment. The details of each segment will be explained later.

This chart shows the increase in operating profit compared to H1 of the previous year.

The first factor behind the increase in net sales was an increase in commissions due to an increase in the number of vehicles put up for sale at auctions, as well as an increase in the number of orders for large-scale demolition work in the industrial plant recycling business. This was due to an increase in sales volume in the used car and other vehicle purchase and sales business.

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The increase in cost of goods sold, a primary factor in the cost of sales, was due to an increase in the number of vehicles disposed by sale and sold in the low-price car purchase and used car purchase and sales businesses.

The increase in purchases was due to an increase in the volume of large demolition work handled in the industrial plant recycling business and an increase in outsourcing expenses.

The increase in outsourcing expenses was due to the outsourcing of some of the auction operations on the premises, which led to higher labor costs.

Next, the consolidated balance sheet shows that the equity ratio is 74.8%, maintaining a high level of financial stability.

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From here, I will explain the trends in the automobile distribution market.

Trends in new and used cars are as explained at the beginning. The number of used cars exported has a significant impact on overall demand in the auction market. The previous record high was 720,000 units in H1 2008, but the export volume for H1 reached a record 800,000 units. This was probably due in part to a rush demand for exports to Russia before the export ban was extended and applied to vehicles subject to the ban.

I would now like to explain the auto auction segment. I will provide a detailed explanation starting with the next slide.

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This slide compares USS and industry averages for the unit price per bid for contracted vehicles.

The unit price of contracted vehicles began to rise in the auction market around May 2020 and had been higher than the same month of the previous year for more than two and a half years until January 2023. Although the current unit price of contracted vehicles is lower than that of the same month last year, the unit price of USS is still over JPY1 million, which is still high compared to the pre-COVID-19 period.

Continuing on, regarding the unit price per contracted vehicle, the difference between USS and the industry average, in January 2019 before COVID-19, it was about JPY200,000 per vehicle, and in the most recent September 2023, it has expanded to about JPY500,000 per vehicle.

Analyzing the difference between USS and the industry average, we believe that USS has an overwhelming competitive edge in the relatively new, high unit price vehicles that are used for retail purposes in Japan.

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This slide explains the changes in auction results. The lower left graph shows the change in market share. The share for the period January to June 2023 declined slightly to 39.6%. This was due to an increase in the share of automaker-affiliated auction houses as a result of higher sales of new vehicles.

Next, I will explain the changes in fees. In January, we raised the contract and bidding fees for almost all sections at the Tokyo and Nagoya venues. Other venues have also raised their prices in April. The listing fee per vehicle was JPY5,679, up JPY51 YoY. The main reason was a decrease in events with fee discounts.

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Next is the per-vehicle completion fee. The figure was JPY8,815, up JPY383 YoY. The bidding fee per vehicle was JPY13,366, a JPY529 increase YoY. The main reason for the increase was a rise in fees.

Next, I will explain the used vehicle purchasing and selling segment.

Regarding Rabbit, although sales volume increased, advertising expenses such as commercial production increased. As a result, net sales increased to JPY3.2 billion, 112% YoY, and operating profit decreased to JPY100 million, 85% YoY.

In the accident-damaged vehicle purchasing and selling business, although the number of vehicles sold increased, gross profit per vehicle decreased due to a decline in auction market prices. As a result, net sales decreased to JPY2 billion, 95% YoY, and operating profit decreased to JPY40 million, 45% YoY.

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