Seven Bank,Ltd. Q3 FY2025 earnings call

Overall Consolidated Performance

• Consolidated ordinary revenue reached 159.4 billion yen, up 10% YoY (an increase of just under 15 billion yen), marking an all-time high. Consolidated ordinary profit reached 23.1 billion yen, up 0.8% YoY (an increase of 0.15 billion yen). Net profit of 14.9 billion yen declined sharply YoY due to the lapping of last year's negative goodwill gain from the Seven Card Service acquisition.
• Seven Bank standalone posted ordinary revenue of 103 billion yen, up 5.8% YoY, driven by domestic ATM growth, loan revenue gains, and an investment share sale gain in the first half. Standalone ordinary profit of 23.2 billion yen declined 3.3% YoY due to higher depreciation from 4th generation ATM replacement.

Key Operational Updates

• Domestic ATM: 91% of 4th generation ATM replacements were completed by December 2024, on track to finish all replacements by March 2025 as scheduled. The new FACE CASH facial authentication cash withdrawal/deposit service launched February 6, 2025, initially for Shizuoka Bank and Seven Bank accounts, with gradual expansion planned.
• Domestic Retail: A 10% cashback campaign for credit card payments at 7-Eleven launched in November 2024. While overall membership growth has not yet materialized, the share of new members under 40 years old has increased from 28% of total membership to over 40% of new sign-ups, successfully moving toward the goal of rejuvenating the user base.
• Overseas: New services launched in Malaysia, with a strong initial start from existing ATM location replacements. The US business has achieved second half profitability with shrinking full-year losses, while Indonesia and the Philippines both delivered YoY profit growth.

1. Domestic ATM Business: Cumulative third quarter ATM usage reached 824 million transactions (up 42 million YoY), with average usage of 108.8 transactions cumulative and 110.8 transactions for the quarter. Terminal count at quarter end was 27,848 units (up 546 YoY), 4,320 of which are outside the Seven & I group (up 418 YoY). Fee per transaction came in at 106.7 yen, below plan, with further modest declines expected through year end. 2. Domestic Retail Business: (a) Seven Bank personal banking: 3.266 million accounts at quarter end (up 300,000 YoY), deposit balance of 62.06 billion yen (up 17 billion yen YoY); personal loan balance reached 54.6 billion yen (up 13.5 billion yen YoY), on track to hit the full-year target of 60 billion yen; postpaid service recorded 3.717 million cumulative transactions (up 430,000 YoY) and processing volume of 55.3 billion yen (up 10.8 billion yen YoY), outperforming expectations despite partner age verification tightening. (b) Seven Card Service: 3.29 million credit card members at quarter end (down 270,000 YoY), shopping transaction volume of 598.9 billion yen (down 23 billion yen YoY), financial product balance of 45.3 billion yen (down 1.1 billion yen YoY); 83.03 million electronic money members (with active members lower and declining), electronic money transaction volume of 1.2533 trillion yen (down 176 billion yen YoY). 3. Overseas Business: Cumulative total ATM usage across three markets reached 390.5 million transactions (up 80 million YoY). (a) US: Third quarter ordinary revenue 20.1 billion yen, ordinary loss of 1.17 billion yen; turned profitable in July 2024, with full-year expected total loss of under 0.8 billion yen; ATM count declined to 8,332 units due to 7-Eleven US unprofitable store rationalization. (b) Indonesia: Ordinary revenue 6.24 billion yen, ordinary profit 0.72 billion yen, growing YoY but below plan; the decline in usage is expected to bottom out after location optimization and a new digital wallet partnership. (c) Philippines: Average usage grew to 198 transactions, ordinary revenue 5.92 billion yen, ordinary profit 0.23 billion yen (both up YoY); profit is compressed by rising operational costs from rapid usage growth, with improvement expected over time. (d) Malaysia: New ATM service Reachful launched in January 2025 with 19 initial units, on track to hit the 100-unit target by spring 2025.

• Management maintained its original full-year 2025 March fiscal year guidance: consolidated ordinary revenue of 215 billion yen, consolidated ordinary profit of 28 billion yen, net profit attributable to parent shareholders of 19.5 billion yen, and full-year dividend of 11 yen per share.
• No update on the proposed group structure change led by Seven & I Holdings, which was previously announced, with no new progress at the time of the call.
• Full-year domestic ATM usage is projected to land around 1.1 billion transactions, and year-end domestic ATM terminal count is expected to exceed 28,000 units.

• While top-line revenue hit an all-time high, profit growth has stalled, which is the company's core current challenge. Higher depreciation from 4th generation ATM replacement and rising general costs have pressured margins, and management is focused on shifting to a more profitable operating model.
• Domestic ATM fee per transaction is below plan and expected to decline further through year end, pressured by the growing share of lower-fee corporate transactions.
• Seven Card Service membership and transaction volume continue to decline due to Ito-Yokado store closures and non-renewal of inactive cards, and growth is lagging initial plan.
• General inflation is driving up operating costs, which is expected to continue alongside potential rising interest rates, pressuring profitability if not offset.
• Indonesia's business performance is below internal plan, and the Philippines' profit growth is pressured by rising operational costs from rapidly growing usage.

Q: If Seven Bank were given the opportunity to replace E-net ATMs at FamilyMart locations, is a replacement feasible, and how would it impact usage volume? / A: There is no current progress on capital structure changes or any finalized plans for this opportunity, so no concrete details can be shared. Seven Bank does not have visibility into E-net and FamilyMart's existing contracts or system setups, so feasibility cannot be assessed. While new services that FamilyMart does not currently offer could drive modest usage growth, overall ATM demand will not increase drastically, so no firm projections can be made at this stage.

Q: Seven Card membership growth is lagging plan and pressuring performance. What is the turnaround strategy going forward? / A: The current membership gain is well below the target of 400,000 new members for the 5-month campaign period, but the campaign was only launched 3 months ago, so no major strategic shift is planned. The campaign has already delivered a positive shift in the age demographics of new members, so management will continue focusing on attracting new users from 7-Eleven's customer base to deliver long-term improvements.

Q: Why have standalone expenses increased in the third quarter, and will they stay above plan for the full year? Will higher costs be passed through to ATM fees? / A: Third quarter expenses are slightly above plan due to higher outsourcing costs for 4th generation ATM replacement work and general price inflation. While it is unclear if the fourth quarter will also see over-plan expenses, management expects inflation and rising interest rates will keep cost pressure high over the medium term, and is focused on building a leaner cost structure. Management acknowledges that higher costs will need to be appropriately reflected in pricing, and will discuss this internally, but no specific pricing plans have been finalized.

Q: How is progress tracking against the mid-term management plan targets, and is the commitment to financial discipline weakened? / A: Management recognizes there is a large gap between current performance and the mid-term targets of 250 billion yen in ordinary revenue and 45 billion yen in ordinary profit, and shares investor concerns about hitting the targets in the final year of the plan. Management has a strong sense of urgency around lower profit margins, driven by depreciation and rising general costs, and is currently building 2025 fiscal year plans with quantitative cost control targets to close the gap and prepare for further inflation and interest rate increases.