Seven Bank : Minutes of the Financial Results for the Second Quarter of Fiscal 2023 presentation.

Seven Bank, Ltd.

Financial Results for the Second Quarter of Fiscal 2023

November 13, 2023

Presentation

Moderator: Good afternoon, ladies and gentlemen. Thank you for taking time out of your busy schedule today to participate in this conference call with Seven Bank, Ltd.

Present today are Masaaki Matsuhashi, President and Representative Director, and Ken Shimizu, Executive Officer and General Manager, Planning Division. Today, Matsuhashi and Shimizu will explain the financial results for Q2 of the fiscal year ending March 31, 2024, followed by a question-and-answer session. The entire meeting will last approximately one hour.

We would like to remind everyone before we begin the conference call. In the following discussion, we may make forward-looking statements based on our current expectations, all of which are subject to risks and uncertainties. We would like to remind everyone that actual results may differ from the forecast.

We will now begin the conference call. First of all, I would like to start with Shimizu. Thank you for your cooperation.

Shimizu: This is Shimizu from Seven Bank. I would now like to explain the first half of the document.

Let's start with page three of the document. These are the key points of the Q2 results.

Both consolidated and non-consolidated sales and income increased. Profits, in particular, were significantly higher than planned.

In the domestic ATM business, the number of transactions in H1 of the fiscal year was very strong.

In the domestic retail business, the number of accounts and loan balances is increasing steadily as planned, in line with our ambitious plan at the beginning of the fiscal year.

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As for overseas markets, while the US continues to be in a difficult situation, Asia, especially the Philippines, performed well. After this, I will provide you with individual explanations.

Page four, consolidated profit and loss.

Consolidated ordinary income was JPY92.2 billion in H1. Compared to the same period of the previous fiscal year, the increase was 24.9%, or JPY18.4 billion in value.

The largest YoY increase in value was due to the consolidation of Seven Card as a subsidiary. As for Seven Card, the total for Q2 from July to September is only the sum of the figures for the previous fiscal year, which was zero, so the YoY comparison shows an increase of about JPY8.3 billion.

Seven Bank, on a non-consolidated basis, added JPY5.45 billion, and FCTI, ATMi, and PAPI, the three overseas businesses, added about JPY3.8 billion compared to the previous year. In addition, domestic subsidiaries such as Bank Business Factory and ACSiON also posted an increase of about JPY600 million compared to the same period of the previous year.

As I mentioned earlier, in terms of sales, our overseas and domestic subsidiaries are making a solid contribution.

Ordinary profit was JPY16.4 billion. This represents a 13.1% increase over the same period last year, or JPY1.86 billion.

Seven Bank alone contributed significantly to the increase of approximately JPY1.7 billion, followed by Seven Card with JPY700 million, and domestic businesses such as ACSiON and Bank Business Factory with an increase in profit of JPY400 million. On the other hand, profits for FCTI, PAPI, etc. were negative compared to the same period of the previous year.

The net income for the interim period is JPY32.6 billion, which includes JPY21.5 billion of negative goodwill resulting from the consolidation of Seven Card Service Co.

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Then comes page five. This is a transition of business performance.

As I mentioned, consolidated ordinary income soared to a record high of JPY92.2 billion. This is a significant increase over the previous record of JPY74.5 billion in H1 of 2019.

On the other hand, ordinary profit was JPY16.4 billion, not a record high, but the first increase in four fiscal years since 2018.

This is followed by stand-alone figures, see page six of the document.

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Ordinary income was JPY64 billion on a non-consolidated basis. The record high was JPY60.4 billion in FY2018, so this is a new record for non-consolidated ordinary income in H1 of the year. Compared to the previous fiscal year, the increase was 9%, or JPY5.4 billion.

ATM acceptance fees increased by JPY4.1 billion compared to the same period of the previous year. In addition, interest on card loans, post payment service, and other financial business activities increased by more than JPY700 million YoY. You can see how we are growing well not only in ATMs but also in the financial business.

Ordinary profit was JPY16.9 billion on a non-consolidated basis, an 11.1% increase over the same period last year. This is an increase of JPY1.7 billion in value. As with the consolidated results, although the record highs were not exceeded, the profit increased for the second consecutive fiscal year.

I will continue with the individual projects. In the document, it is on page nine.

First, as for the main figures of the ATM business, the total number of transactions in H1 of the year was 515 million, an increase of 36 million compared to the same period of the previous year.

The average number of cases used was 104.7, also up five cases from the same period last year. From H2 of 2022 to 2023, we have been able to maintain the number of cases at the 100 level.

I will explain the contents of 515 million cases. The dark green area shows that savings and deposit financial institutions account for 70%, and the light green area shows a mix of non-banks, such as consumer credit and credit card companies and business companies, with non-banks accounting for about 7% and business companies about 23%.

The weighting of business companies continues to increase, but it is no longer as large as it was at one time and seems to be gradually settling down.

The number for H2 was 514 million, and the average was 103.2, which may seem a little conservative. This background will be explained on a later page.

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In the lower left-hand corner, the unit price is written in small letters in Note 4. The unit cost of incoming commissions in H1 of the year was JPY110. The plan was JPY109.20, which was approximately JPY0.90 higher than the plan. In H1 of the previous year, the exchange rate was at about the same level as H1 of the previous year (JPY109), so the exchange rate was JPY1 higher than in H1 of the previous year.

For the past several years, we have been talking about the decline in unit prices. Looking at the current level of H1 of the year, there are signs that the decline in the unit price has finally come to a halt.

We are forecasting the unit price in the JPY109 range for the second half of this fiscal year, and based on current conditions, we believe that the unit price will land at approximately the level of our plan.

Page 10. The number of ATMs.

At the end of H1, there were 27,099 units. We are about 50 units behind the plan.

H2 of the fiscal year plan shows a figure of 27,334 units, but in light of the current installation situation, we have revised the number downward by a little more than 260 units to 27,334 units at the end of the fiscal year.

As for the replacement ATMs for financial institutions, although it is not mentioned in the materials, there were approximately 400 units at the end of H1 of this fiscal year. Also, as I mentioned before, the number of replacement ATMs for Nomura Securities decreased by more than 100 units this spring, but since then the number of replacement ATMs for financial institutions has been increasing steadily, and the 400 units have been achieved again.

We expect that the number of replacement units will continue to increase toward the end of the fiscal year, and we estimate that we will probably be able to increase the number of replacement units by another 40 to 50 units toward the end of the fiscal year.

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Page 11, the status of the replacement of Type 4 ATMs. As of the end of H1, there were 15,982 units that had been replaced, or nearly 60% of the total. In H1 of the year, 2,500 units were replaced, and we plan to replace about 6,000 units this year, with about 3,500 units to be replaced in H2.

We are moving almost exactly as planned. We expect that about 19,500 units will be switched to Type 4 by the end of the fiscal year and that all units will be switched by the end of the next fiscal year as planned.

Page 12. This is the background for our view of the plan for H2 of the year as I mentioned earlier.

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The left-hand side shows the total number of cases and the comparison with the previous year. Looking month by month, H1 of the fiscal year showed a movement of more than 107% compared to the previous year. In October, which is only a single month, it was 103%.

H1 of last year was still under the influence of the corona disaster, and consumption and human flow had not yet gained momentum. On the other hand, in H2 of last year, there was a recovery in such items. The fact that the average number of cases consistently exceeded 100 since October should give you an idea of the situation.

That being said, for this year, H1 of the year will be the reverse of H1 of last year. In H2 of the year, we expect the YoY increase to be maintained, but the margin of increase will shrink, as H2 of last year was also on a recovery trend. We have set a plan for the overall number of transactions. Our view for the entire fiscal year is that the number of transactions will be in the range of 102 to 103%.

Therefore, as I mentioned earlier, for H2 of the year, we are planning for 514 million cases.

In addition, several banks raised their fees for customers in early spring. We are seeing some of these effects gradually appearing throughout H1 of the year, and this is one of the reasons why we are looking at a slightly conservative number of cases in H2 of the year.

On the other hand, non-bank and overseas cards on the right side have been performing well since October despite such circumstances.

As you can see by adding the bar graph, the total number of non-bank loans in H1 of the year from April to September was about 28 million. Compared to last year, it is 106.4%, and in October, it is still at 108%, which as I just mentioned, is solid.

The line graph shows a decline in the number of overseas cards, but compared to last year, the rate has doubled over the past year.

If you add up the bar graph, the total for H1 of the year, from April to September, was 5.26 million. We are planning 6.8 million overseas card transactions for the current fiscal year, and at this rate, we expect to exceed 10 million transactions per year.

As I have explained several times, the unit price of overseas cards is very high compared to other transactions because the foreign exchange earnings from DCC are also included in our commission income as a unit price. The fact that this part of the revenue is significantly higher than planned will have a very positive impact on the overall revenue and unit price.

This is a situation where we expect to greatly exceed our plan this fiscal year.

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It will be retail after this. It is on page 14 of the document.

The number of accounts was 2,876,000 at the end of H1 of the year, an increase of 255,000 accounts plus. Deposits totaled JPY589.8 billion, a JPY26.6 billion increase over the same period last year. Both the number of accounts and deposit balances are progressing steadily as planned.

Turn to page 15 of the document. This is a personal loan service.

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The year-end balance at the end of H1 was JPY39.4 billion. Compared to the same period last year, the increase was about JPY8.4 billion.

Then, we issued a release at the beginning of November, and since then the balance has exceeded JPY40 billion. We have set a target of JPY44 billion by the end of the fiscal year, and we believe that we will probably achieve this goal.

Page 16 of the document, which is about the post payment service.

As for the post payment service, the service was launched in September 2021 and has been growing steadily as shown in this graph.

In Q2, transaction volume was JPY14.8 billion and the number of transactions was 1.1 million.

As you can see by adding up the figures for Q1 and Q2 of fiscal 2023, the total transaction volume was JPY28.7 billion and the number of cases handled was 2.14 million in H1 of 2023.

In H1, there was an increase of JPY7.2 billion in transaction volume and more than 400,000 cases handled compared to the same period of the previous year. As I mentioned at the beginning of this presentation, this growth is now contributing to ordinary income.

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