The business environment for the fiscal year ended in March 2014 was characterized by lower overall demand in the first half, as new-car sales declined in the absence of subsidies for purchases of fuel-efficient cars, and a second-half demand surge driven by consumers rushing to buy new and used vehicles, and automotive goods, ahead of the April 1, 2014 consumption tax hike.
At an overall level, AUTOBACS Chain stores in Japan recorded a 1.3% year-on-year net sales decline in the automotive goods business. While sales of tires and wheels benefited from the strengthening of sales promotions and the sales system, their impact was outweighed by factors such as lower unit prices for car navigation systems. In the statutory safety inspections and maintenance business, meanwhile, steps like the implementation of stronger guidance to stores and an online reservation system for statutory safety inspections worked to increase the number of vehicles undergoing statutory safety inspections by 1.3%, to around 580,000. In the automobile purchase and sales business an increase in the number of franchises from 244 at the end of the previous fiscal year, to 359, together with an update of our vehicle appraisal system and improvements to our training and sales systems, resulted in a 25.5% leap in overall vehicle unit sales, to roughly 23,100.
Reflecting such store-level sales results, the Company’s consolidated net sales rose by 0.7% year on year, to ¥231.7 billion. With the added impact of a higher gross margin, success in controlling selling, general and administrative expenses, and factors such as progress in boosting operating efficiency at store subsidiaries, operating income rose by 9.4% to ¥13.9 billion. Net income went up by 28.9% to ¥9.8 billion.
Under the AUTOBACS 2010 Medium-Term Business Plan, the Company, in focusing on implementing the key business strategy of improving store margins and market share in the domestic franchise chain business, has thoroughly strengthened operations. While it is unacceptable that we did not achieve our operating income and ROE targets, we have made the transition to a type of operation that is capable of generating stable earnings in any environment.
In more specific terms, the high-priority measures we implemented under our Measures to Boost Store Profitability in three key areas — sales space reforms, gross margin improvements through procurement and other changes, and reforms in personnel and operations — translated into better operating income margins at the store level, and higher sales of maintenance-related items and services. Steady expansion of our statutory safety inspections and maintenance, and automobile purchase and sales businesses, was another important outcome.
Meanwhile, under our Measures to Increase Market Share, we actively opened new stores mainly in small commercial areas, which we have not targeted for store openings in the past. The 82 stores we established over four years include three tire specialty stores. These are part of an experiment that we began in the fiscal year ended in March 2012 and is yielding hints for the future. We also proceeded to strengthen our online sales channel and achieved progress in gaining new customers.
Despite all we were able to achieve, however, we did not reach our target aftermarket share. Going forward, therefore, I believe it will be necessary to implement additional growth strategies focused on expanding earnings.
AUTOBACS 2010 Medium-Term Business Plan Results
AUTOBACS 2010 Medium-Term Business Plan Results and Evaluation
| Item | Item | Results | Evaluation |
|---|---|---|---|
1 Measures to Boost Store Profitability |
Operating margin of 6.9% at existing AUTOBACS stores (5.2% for the FY ended March 2010) | Operating margin of 6.2% at existing AUTOBACS stores (+1.0 pt. vs. the FY ended March 2010) | B |
| Sales Space Renovation |
|
|
A |
| Gross Income Improvement |
|
|
A |
| Personnel and Operational Reforms |
|
|
A |
| Expansion of the Vehicle Inspection Business |
|
|
B |
| Expansion of Car Purchase and Sales Business |
|
|
A |
2 Measures to Increase Market Share |
Increase share of auto aftermarket to 18% (15.1% as of FY ended March 2010) | Share of auto aftermarket declined to 14.9% (-0.2% vs. FY ended March 2010) | C |
| New-Store Openings |
|
|
B |
| Service Business Development |
|
|
B |
| Multi-channel Strategy |
|
|
A |
3 Overseas Business |
|
|
A |
4 Headquarters Cost Efficiency Improvement |
|
|
A |
5 Financial Strategies |
|
|
B |
6 CSR / Governance |
|
|
A |
We should expect to see factors like declining unit prices for car navigation systems and falling demand related to motor sports shrink Japan’s automotive goods market by another 2–3%. On the other hand, though, there has been little change in automobile ownership in Japan, and with the average service life of cars increasing, the overall aftermarket field — including statutory safety inspections and maintenance — can be expected to see stable demand.
In the past, the main players in the automotive goods aftermarket were gas stations and small- and medium-size maintenance and repair garages, but their numbers have now fallen drastically. We expect competition will intensify with car dealers in the middle and new entrants — including online services, telecom carriers, and other players — coming from outside the industry. AUTOBACS, with its brand, high customer traffic at its stores, and other differentiating strengths, is prepared for the competition. Developing our business by drawing on our strengths, we are committed to clearly demonstrating our competitive advantage.
Automobile Ownership and Average Service Life
Note: Automobile ownership data is for passenger cars; trucks, buses, motorbikes, etc. are not included.
Source: “Car Ownership Trends in Japan” (Automobile Inspection & Registration Information Association)
Automotive Goods and Safety Inspection and Maintenance Markets
Based on our achievements under the previous medium-term plan, the 2014 Medium-Term Business Plan, which we have positioned as the start of a new stage for realizing growth over the medium to long term, aims to establish a three-pillar structure consisting of the domestic AUTOBACS business, where efforts will target earnings expansion, and new business and overseas business, both of which will be the focus of development efforts.
In the domestic AUTOBACS business, the objective will be to establish competitive advantage in the auto aftermarket. This will be done by enhancing convenience and security for customers, and here we aim to bolster our traditional customers with more people who are not so familiar with the details of cars, but would like to keep their current vehicles in top working order. Toward that end, we will undertake a transition to a “one-stop car goods and service” business that sell cars, provides maintenance services, and makes driving more fun.
In the new business portion of the plan, we will develop new business focusing on car-related fields where we can leverage our strengths. Attention will focus on developing new business emphasizing speed through M&A and alliances, and active investment of management resources will begin in the coming fiscal year.
Overseas business endeavors will target the ASEAN region, which is poised for growth, and will be open to achieving business expansion not only through our traditional store format but also wholesale and other related businesses.
As performance targets, our aims are to achieve operating income of ¥18.0 billion, ROE of 8%, and DOE (Dividend on Equity ratio) of at least 3%, all by the end of the final fiscal year covered by the plan — the fiscal year ending March 31, 2018.
2014 Medium-Term Business Plan
(Covering the four years from April 2014 to March 2018)
Performance Targets
(FY March 2018)
Under the 2014 Medium-Term Business Plan, we will pursue measures along four priorities — Car goods and services, Statutory safety inspections and maintenance, Automobile purchase and sales, and E-commerce — for achieving further growth of the domestic AUTOBACS business.
In car goods and services, we will work to expand tire sales by adding sales locations through the establishment of new stores and using e-commerce solutions. Furthermore, to further strengthen our merchandising capabilities, we will revamp our private brand product strategy and develop reasonably priced products and services with reliable quality.
Regarding statutory safety inspections and maintenance, we will enlarge the number of vehicles inspected by increasing the number of service locations and enhancing customer convenience. Our goal is to perform inspections on 1 million vehicles during the final fiscal year of the plan. At present, the number of inspections performed annually differs significantly depending on the store, and performance will be improved where needed by continuing to provide advice to store management and using customer data to strengthen targeted marketing.
In automobile purchases and sales, we aim to steadily increase unit sales by displaying more vehicles at stores, updating the appraisal system, and adding to the number of stores handling vehicle purchases and sales. By the fiscal year ending March 2015, almost all of our stores will be handling vehicle purchases and sales, and we will increase customer awareness and vehicle unit sales by advertising, including through mass media, and strengthening sales promotions.
As for e-commerce, efforts will focus on increasing points of contact with new customers by enhancing product offerings and boosting awareness of the “AUTOBACS.COM” online shop, while also offering at-store installation services for goods purchased online, as well as other services that leverage our store network as a strength.
In addition to implementation of the measures above, we will move forward with store operation reforms and personnel development to more strongly link car goods and services, statutory safety inspections and maintenance, and automobile purchase and sales at each store, and transform ourselves into a one-stop car goods and service business with appropriate solutions for customer concerns and desires. In the domestic AUTOBACS business, we aim to achieve medium-to-long term growth by maintaining our brand as one for which “Anything about cars, you find at AUTOBACS” resonates to clearly differentiate ourselves from the competition.
Quantitative Targets in Key Areas*
Car Goods: Tire Unit Sales
Statutory Safety Inspection and Maintenance: Vehicles Inspected
Automobile Purchase and Sales: Sales
*Targets for AUTOBACS Chain stores in Japan
E-commerce: Sales
In our overseas business, we currently have operations in seven countries — France, Singapore, Thailand, China, Taiwan, Malaysia, and Indonesia — and, after profitability improvement initiatives, brought the business into the black as of the fiscal year just ended.
Going forward, business expansion efforts will focus on the ASEAN region and speed will be critical. While building an operational foundation through partnerships with local companies, we will also pursue vigorous expansion not only through store-based retail sales and services but also merchandise wholesaling and other related businesses. In the fiscal year just ended, we took initial steps toward that end by establishing an automotive goods wholesale joint venture with a local company in Indonesia, and entered into an operational and capital alliance with a Japanese company engaged in the wholesaling of car products in Malaysia to advance core retailing operations in that country.
For the AUTOBACS Group, CSR means practicing management that responds to economic, environmental, and social concerns, and being a company that is beneficial for society and helps customers get greater enjoyment from their cars. The AUTOBACS Group, therefore, pursues business activities that stress the importance of our relationships with customers, suppliers, investors, local communities, employees, governmental bodies, and all other stakeholders. Our impact on the environment is among our most pressing concerns, and we actively work to improve the environmental impacts of societies where cars are a major presence. For example, we strive to not only lower the environmental impacts of our own business operations but also promote the reuse of automobiles and parts, have installed charging stands for electric vehicles at our stores, and train our mechanics to properly service hybrid, electric, and other types of environmentally conscious vehicles.
As a foundation for our CSR approach, we continuously conduct compliance guidance and enlightenment activities for the entire Group and practice integrated risk management to ensure we can properly respond to the risks we face.
Under our financial strategy, we plan to vigorously undertake investments to maximize returns and expect to invest a total of ¥50.0 billion over a four-year period. With emphasis on capital efficiency, we aim to pay generous returns after considering the business environment and financial stability requirements.
As for our dividend policy, we will maintain a target DOE of at least 3% and pay a stable dividend as earnings permit. ROE is the indicator we place the greatest emphasis on and we will flexibly undertake investments or shareholder return measures including share buyback to boost ROE.
We intend to achieve medium- to long-term growth, and raise the corporate value of the AUTOBACS Group, by implementing our medium-term business plan, and will welcome the continued understanding and support of our investors and all of our other stakeholders going forward.
Dividend Per Share
Notes 1. A 3-for-1 share split was implemented on April 1, 2013. Figures for prior fiscal years have been adjusted to reflect the impact of this split.
2. The dividend for the fiscal year ended March 31, 2014 includes a special dividend commemorating the 40th anniversary of AUTOBACS’ founding.
Treasury Shares Purchased
