Premium Group Co.,Ltd. Q4 FY2025 earnings call

Core Financial Performance

• 8 consecutive years of revenue and profit growth achieved for FY2025 March, despite the system failure at subsidiary Premier Inc. pushing pre-tax profit below original forecast. Excluding one-time system failure costs, both operating profit and pre-tax profit grew over 30% year-over-year, with pre-tax profit reaching nearly 8.2 billion yen.
• Net profit was nearly flat year-over-year (up ~1%) due to a 4pp increase in effective tax rate to ~32%. Total operating revenue grew 15% year-over-year, while operating costs (excluding system failure-related increases) grew just over 10% year-over-year, demonstrating sustained cost efficiency.

System Failure Post-Incident Actions

• Total pre-tax profit impact from the system failure is 1.31 billion yen for FY2025 and 1.21 billion yen for FY2026, with all additional costs now recognized across the two periods and no further expected costs. Customer overbilling issues are largely resolved.
• The largest impact was an additional 1.02 billion yen allowance for bad debts, mostly for uninsured ecosystem and some lease receivables (all auto credit receivables are fully covered by insurance with no impact). Management expects this to be a temporary increase from delayed collections, and plans to reverse ~70% of this allowance in FY2026 (a conservative estimate, with a goal to reverse the full amount).
• Management is running old and new core systems in parallel to establish a fail-safe framework while rebuilding the new system, and has hired external IT advisory to prevent recurring issues. Total additional system investment is expected to be just over 2 billion yen for FY2026, including 0.42 billion yen for old system maintenance/amortization and 1.05 billion yen for new system maintenance/amortization.

Market & Strategic Updates

• Market environment: Q4 new vehicle sales grew 14% year-over-year (double-digit growth), but domestic new vehicle supply stagnated for the full year, leaving the used vehicle market nearly flat year-over-year.
• International expansion: Premier Group and Itochu jointly acquired a controlling stake in Thailand's Eastern Commercial Leasing (ECL), where Premier already held a 25% stake. The partnership will pursue stable expansion of auto credit business across Southeast Asia.
• Employee investment: A 4.2% base pay increase was implemented for all employees, aligned with sustained business performance.

1. Finance Business: Credit transaction volume maintained double-digit growth driven by growth in Car Premier Dealer members and increased transaction volume from large dealerships. Receivable balance grew 23% year-over-year. Q4 gross margin decreased 2.6pp to 60.5%, impacted by the sharp rise in long-term prime rate between Q3 and Q4 end with a lag in passing rate increases to customer rates. Reported pre-tax profit declined due to the system failure impact, but grew 24% year-over-year excluding the one-time system failure cost. Within the Finance segment, the Warranty Business: Total transaction volume grew 9.3% year-over-year, with high-margin in-house products growing 30% year-over-year while OEM product volume slightly declined from weak sales at large used vehicle partners. Operating profit grew ~45% year-over-year, with cost reduction from increased use of used parts for repairs bringing a 3.5pp decrease in cost ratio to 55.7%. International warranty business across Thailand, Indonesia, and the Philippines maintained double-digit growth in transaction volume. 2. Automobility Service Business: Pre-tax profit grew ~58% year-over-year, driven by growth in Car Premier Club membership and membership fee price adjustments that delivered stable revenue growth. Car Premier Dealer membership increased 808 companies year-over-year to a total of ~4,300 combined companies and locations with Car Premier Garage, with Diamond membership growing to 422 companies and over 300 Car Premier Anshin Shops opened nationwide. Car Premier Garage locations increased 148 year-over-year.

• For FY2026 March, the 9th consecutive year of revenue, profit and dividend growth is projected, after incorporating nearly 2 billion yen in additional system failure-related costs. Management has committed to a 31.4% year-over-year increase in pre-tax profit to 9 billion yen, and a 31.1% year-over-year increase in net profit to 6.1 billion yen. Excluding one-time system costs, pre-tax profit is projected to exceed 10 billion yen.
• Annual dividend is planned to increase 14 yen to 54 yen per share, with a projected payout ratio of ~34%.
• FY2026 is the final year of the current medium-term management plan. Management aims to catch up from the FY2025 pre-tax profit miss and exceed the original target excluding one-time costs, while hitting the Car Premier Club membership targets of 5,000 Car Premier Dealer companies and 1,500 Car Premier Garage locations.
• A new medium-term management plan will be developed during FY2026 for release after completion. The company's core strategic direction of high-margin business growth remains unchanged.

• A core system failure at subsidiary Premier Inc. caused data mismatches, delayed receivable collections, and a 1.31 billion yen negative pre-tax profit impact in FY2025, with an additional 1.21 billion yen impact expected in FY2026. While most customer issues are resolved, full recovery of the bad debt allowance is not guaranteed, even though management targets a 70% reversal in FY2026.
• Rising long-term prime rates created near-term margin pressure in the Finance segment, with a lag in passing rate increases through to customer rates that reduced Q4 gross margin.
• Weak domestic new vehicle supply and stagnant used vehicle market conditions create headwinds for transaction volume growth across the company's auto-focused businesses.
• Weak performance at large OEM partners has created slower growth in overall warranty transaction volume, though portfolio rebalancing to high-margin in-house products has offset this for profitability.

No substantive Q&A exchange is included in the provided transcript, only the prepared management presentation.