Seven Bank : Minutes of the Financial Results 2023 presentation.

Seven Bank, Ltd.

Financial Results for the Fiscal Year Ended March 31, 2024

May 13, 2024

Presentation

Moderator: Hello everyone. Thank you for participating in today's conference call of Seven Bank, Ltd.

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

Before we begin our conference call, I would like to make an announcement. In the following discussion, we may state forward-looking statements based on our current expectations, all of which are subject to risks and uncertainties. Please be aware that the actual results may differ from the forecast.

We will now begin the conference call. First, we will start with Shimizu's explanation. Thank you.

Shimizu: I am Shimizu from Seven Bank. I will now explain the first half of the presentation, up to the earnings forecast, while President Matsuhashi will explain the progress of the medium-term management plan and the strategies for FY2024.

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Page three of the document, these are the key points to the financial results for the fiscal year ended March 31.

Overall, although there were some special factors such as the loss of myna-points, the domestic ATM business and the overseas situation, especially in Asia, were favorable, resulting in an increase in both sales and profit on a consolidated basis.

Please refer to page four. Here are the numbers.

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Consolidated ordinary income was JPY197.8 billion, up 27.6% from the previous year, or about JPY43 billion.

These are the contents of the JPY43 billion add-on. Since Seven Card was integrated in July last year, this portion of the Seven Card business has been included for the entire nine-month period from July to March, boosting ordinary revenues by about JPY27 billion. Seven Bank alone added a little over JPY8 billion, and the three overseas companies added about JPY7.5 billion. Even if we exclude the JPY2 billion in overseas sales due to the impact of foreign exchange rates, the increase in sales is still JPY5 billion, so you can see that overseas sales are also growing.

Ordinary income was JPY30.5 billion. As of February, we had projected ordinary income of JPY25.5 billion, while net income was projected at JPY38.3 billion. Compared to this, ordinary income increased by about JPY5 billion and net income decreased by about JPY6 billion, but this is because the loss related to Seven Card's myna-points was recorded as an extraordinary loss instead of ordinary expenses.

Net income was JPY31.9 billion, with a negative goodwill of JPY21.5 billion due to the integration of Seven Card, and a negative JPY4.6 billion due to losses related to myna-points. This is also voluntarily disclosed, but it is about JPY1.4 billion in provision for litigation losses at FCTI. The combined negative balance of the Seven Card and FCTI deferred tax asset reversal was about JPY4.5 billion. The JPY4.6 billion in losses related to myna-points, which I mentioned earlier, includes those newly incurred in Q4 and those expected for FY2024, which are all recorded here.

Continued on page five. This is the transition to date.

Ordinary income, as I mentioned, reached JPY197.8 billion, the highest consolidated ordinary income ever. On the other hand, ordinary income was JPY30.5 billion, which is about JPY10 billion lower than the record high of more than JPY40 billion in FY2018.

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As disclosed in the financial statement, the ordinary income margin was 15.4%, and the profit margin, as has been the trend in recent years, declined in FY2023 as well. We are aware that this is an issue, and we will work hard to implement measures to increase the profit margin as much as possible.

Page six, stand-alone results.

Ordinary income was JPY128.8 billion, a record high, as was consolidated income. Compared to the previous year, the increase was 6.8%, or about JPY8.3billion.

The main contributor to the increase was ATM related fee incomes, which amounted to about JPY7 billion. In addition, the finance business has added a total of about JPY1.6 billion in card loans and BNPL. As for the financial business, we hope you can understand the situation in which, although the contribution to profit is still small, solid figures are being generated in terms of sales.

Ordinary income was JPY29.1 billion. As with consolidation, the record high was JPY45 billion in FY2019, so this is a lower level than the previous record.

In FY2023, depreciation increased by JPY1.7 billion due to the replacement of new model ATMs, and expenses increased by JPY1.6 billion in response to the new bank notes, which also had an effect. I hope you understand that ordinary income is slightly lower than the previous forecast due to such special factors.

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This is the status of our main business. Page nine.

The total number of ATM transactions exceeded 1 billion for the first time in FY2023 with 1.039 billion. The average number of transactions was 105 per day, an increase of 3.5 from the previous year.

We expect further growth in FY2024, with total transactions of 1.066 billion and average transactions of 105.8.

Although not listed here, in FY2023, savings and deposit financial institutions accounted for approximately JPY700 million out of 1,039 million transactions. The weight is slightly less than 70% of the total. On the other hand, as has been the trend for the past several years, the number of code payment companies have been increasing, and in terms of actual results for FY2023, the weight of these companies has increased to a level of over 23%.

The overall trend remains the same in FY2024. While the overall growth is expected to be slightly lower for savings and loan institutions and slightly higher for code payment companies.

The unit price (ATM related fee income per transaction) is written in note four on the left side of the document. The amount was JPY109.3 in FY2023. After continuing to decline in FY2021 and FY2022, the unit price in FY2023 was positive compared to the previous year.

We expect a slight decrease in FY2024, and at this stage we are looking at the upper half of the JPY108 range. However, our feeling is that the overall unit price has stopped falling.

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Please refer to page 10, the number of ATMs.

At the end of March, there were 27,422 units. Compared to the previous year, there was an increase of about 500 units. The number of units within the group was 138, while the number of units outside the group was 371, a situation that we have been building up firmly, mainly outside the Group.

In FY2024, we expect a net increase of about 470 units, and the trend is the same. We plan to increase the number of units by more than 470, mainly outside the Group, to 27,893.

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Please refer to page 11. This is the status of the replacement to fourth generation (T4) ATMs.

At the end of March, 19,771 units, or 72% of the total, had switched to T4 ATMs. We are now on our feet with plans to switch all ATMs to T4 ATMs by the end of FY2024 as scheduled.

Once all ATMs are converted to fourth generation, the +Connect service strategy, which Matsuhashi will explain in detail later in the strategy section, will also be implemented throughout Japan, which will greatly increase the potential for future expansion.

Since we are replacing ATMs at a considerable pace in FY2023 and FY2024, depreciation related to ATMs will amount to about JPY10 billion this fiscal year. We expect a slight increase in the next fiscal year to a little over JPY10 billion, and the depreciation related to ATMs will peak in FY2024 and FY2025.

In addition, the depreciation of ATMs alone will increase by about JPY3 billion in FY2024 compared to FY2023. As I mentioned at the beginning of this presentation, the increase in depreciation expenses will put considerable pressure on profits in FY2024.

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Page 12, topics related to ATMs.

As for +Connect, as Matsuhashi will explain in detail in the strategy section in the latter half of this presentation, we are steadily expanding our services and increasing the number of business partners.

On the right, the number of jointly operated ATMs reached 422 at the end of FY2023. The number of partners in the joint operation has expanded to 41 companies. In FY2023, more than 100 ATMs at Nomura Securities were removed at once at the beginning of the fiscal year, but we were able to maintain exactly 400 ATMs, so needs are still strong.

We expect to increase the number of jointly operated ATMs by at least 100 each year after FY2024, so that by the end of FY2024, the number of ATMs will exceed 500.

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Next is about retail business. Please refer to page 14.

The number of accounts was JPY3.03 million at the end of FY2023, with a deposit balance of JPY598.3 billion. The number of accounts increased by about 280,000 during the year ended March 31, 2023.

Since the beginning of this year, the 7iD linkage has begun, and as a result, information about customers with 7iDs is now linked, making it easier for them to open an account. Given this situation, we are aiming for a net increase of just under 700,000 accounts in FY2024 and 3.7 million accounts at the end of the fiscal year.

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