OPTIMUS GROUP COMPANY LIMITED Q2 FY2026 earnings call

• Overall Industry and Operating Environment

  • New Zealand has continued to face prolonged economic downturn, with used vehicle demand suppressed by high inflation, high interest rates, and misaligned environmental regulations; the current downturn has lasted longer than the 2008 Global Financial Crisis downturn, though January 2026 is expected to bring partial regulatory changes that could act as a tailwind. The company forecasts near-term recovery cautiously but expects clearer trends by year-end 2025.

  • The Australian new car market faces severe over-supply driven by increased exports from global automakers (especially large inflows of Chinese brands), leading to intense price competition and industry-wide excess inventory that pressures dealer profitability.

  • Gross profit margin fell in Q1 due to hail damage at the Nagoya Kinjofuto facility, but recovered to previous levels in Q2; all hail-related losses were fully covered by insurance payouts recorded in non-operating income.

  • M&A and Geographic Expansion Strategy

  • Autopact (Australian multi-dealership platform) has grown its network to ~150 showrooms across ~33 dealerships covering nearly 40 brands, up from over 100 locations previously. The company is actively adding Chinese EV brands (including BYD, with multiple new BYD dealerships in the pipeline) to capitalize on Chinese brands' 20% market share in Australia (EV penetration is ~7% nationally).

  • The company is executing a "roll-up" strategy to acquire small dealerships to fill gaps in regional and brand coverage, pursuing synergies with existing operations. Recent examples include acquisitions of CD Motors (adding Mitsubishi and Hyundai franchises in Victoria, enabling part sales synergies with existing Bayford Parts), Heritage Auto Group (adding Kia in Lilydale), and Keystar (in high-growth coastal Queensland), all completed on attractive terms amid broader industry stress.

  • The company is cross-pollinating expertise between Autopact (new cars) and OzCar (used cars) in Australia, including inventory sharing to capture cross-segment synergies.

  • Geographic Diversification Progress

  • 40% of the import/export segment's revenue now comes from non-New Zealand markets, up from a much lower share previously, with the UK (the primary right-hand drive European growth market, 60 million population) as the core non-New Zealand market. Japanese used vehicles have gained permanent market acceptance in the UK due to structural supply shortages (domestic new vehicles suffer faster corrosion from road salt and higher mileage wear) that will persist even after UK new car sales recover.

  • The inspection segment has already shifted to two-thirds of volume from non-New Zealand markets, with growth driven by proactive expansion during the New Zealand downturn.

  • Cost Structure and Operational Optimization

  • The company's top priority is normalizing Autopact's inventory levels and reducing floor plan interest expenses. It is also pursuing group-wide cost optimization, strengthening global corporate functions to improve cross-group collaboration and cut costs, and reevaluating its business portfolio using ROIC metrics to improve overall profitability.

1. Retail & Wholesale Segment: The largest segment by both consolidated revenue and assets, dominated by Australian new car multi-dealership business Autopact. Autopact sales volume remained steady, but intense competition in the Australian new car market forced price discounting that compressed margins, and excess inventory (around 2,000 units over optimal levels, totaling 7,000 units) drove higher interest costs. This segment also includes New Zealand-based retail business Trade Cars. It accounts for the majority of the company's total consolidated revenue. 2. Import/Export Segment: Led by Nippon Trade, which exports Japanese used vehicles to global markets. New Zealand-bound exports declined sharply (from near 17,000 units per quarter to 5,000-8,000 units per quarter) due to New Zealand's prolonged economic downturn, but high-margin, high-price exports to Europe (especially the UK and Ireland) have offset much of the revenue and gross profit decline. As of Q2, 45% of the segment's used vehicle exports go to non-New Zealand markets, with Nippon Trade holding ~25% market share in the UK and ~15% in Ireland. 3. Logistics Segment: Includes traditional vehicle shipping operations across Japan, New Zealand and Australia, plus Australian vehicle logistics, preparation and storage business Autocare Services (acquired last fiscal year). Amid industry-wide excess new car inventory in Australia, Autocare has outperformed plan, with storage volumes up 40% year-over-year, driving above-expectation revenue and profit that has offset Autopact's margin compression. 4. Services Segment: Includes auto loan services for preferred dealers in New Zealand, online used vehicle marketplace Auto Trader, and automotive sales information subscription and training business Blue Flag, supporting core automotive trade operations. 5. Inspection Segment: Led by JEVIC, which provides pre-shipment inspection and quarantine services for used vehicle exports to licensed markets. Volume from New Zealand declined sharply, but the segment has expanded to other markets: after Sri Lanka resumed used vehicle imports following foreign reserve recovery, JEVIC (as the country's long-standing designated inspection provider) has secured more volume than the New Zealand decline, and non-New Zealand markets now account for two-thirds of total segment volume, with non-New Zealand volume up 3x year-over-year. It also includes vehicle inspection and maintenance businesses Fasttrack and VINZ in New Zealand.

• Full-year (FY2026 March term) guidance is maintained at the original initial plan levels, despite first-half results coming in slightly below plan. This is based on recent positive trends: Autopact sales volume has grown strongly from October 2025, New Zealand shows early signs of market improvement, upcoming environmental regulatory changes in New Zealand are expected to be supportive, and the recent larger-than-expected depreciation of the yen against the Australian dollar and New Zealand dollar provides an offsetting benefit to results.
• The company's medium-term target remains to return to 15 billion yen in operating profit, 6 billion yen in parent net profit, 15% ROE, with a 4.5% DOE target for dividends, as quickly as possible, after being impacted by the recent macro downturn.

• Prolonged economic stagnation in New Zealand continues to pressure used vehicle export and inspection segment results, with uncertainty around the timing and magnitude of the expected recovery following upcoming regulatory changes.
• Intensified competition and excess inventory in the Australian new car market continue to pressure Autopact margins, and excess inventory leads to high floor plan interest costs that weigh heavily on overall group profitability. As of the first half, Autopact-related interest costs account for 17 billion yen of the group's 28 billion yen first-half interest expense.
• The group's capital structure has a low reported equity ratio (13.6% as of end-September), and heavy reliance on short-term borrowing for inventory financing, though the adjusted equity ratio (excluding Autopact floor plan borrowing and Autocare lease liabilities) is just over 21%.
• Expansion into emerging markets outside of Australia, New Zealand, the UK and Ireland carries higher geographic and regulatory risk that must be carefully managed.
• Higher-than-expected inflation across Australia and New Zealand has increased general operating expenses across the group.

Q: What is the company's core strategic geographic focus as it expands beyond Australia and New Zealand? / A: Australia will remain the company's core strategic focus given the large scale of Autopact's new car business, which will act as a platform for expansion. For used vehicle exports, the UK is the primary core market outside New Zealand, with Ireland as a secondary adjacent market. Structural shortages of quality used vehicles in the UK mean Japanese imports have earned permanent market acceptance, so the business is sustainable even after UK new car sales recover. Smaller European markets are lower priority, and expansion into higher-risk emerging markets will proceed cautiously with controlled risk exposure. The company's near-term core pillars remain the UK and New Zealand for the used vehicle export business.

Q: What key risk scenarios is the company preparing for, and what mitigation plans are in place? / A: The primary risk is continued over-reliance on any single market, and the challenge of maintaining bottom-line profitability for Autopact amid top-line growth and industry-wide excess inventory. The core mitigation strategy is business diversification across regions and segments, building out a diversified portfolio where weakness in one market or segment can be offset by strength in others. The company will replicate the New Zealand model (combining multiple complementary automotive businesses to stabilize bottom-line profits) to other regions to build a more resilient operating model.

Q: Why does the company have a large amount of short-term borrowing, and is there a plan to shift to longer-term borrowing? What is the medium-term capital structure strategy? / A: The company prioritized rapid access to capital to seize M&A and growth opportunities, so balance sheet asset-liability matching was deprioritized in the short term. The company previously targeted a 30% equity ratio, but the current low ratio reflects Autopact underperforming original profit projections. The company acknowledges the need to rebalance the capital structure over the medium term, and has already begun taking steps to address this. It will adjust the short-term/long-term borrowing mix over time in line with ALM principles, but will continue prioritizing flexibility to capture growth opportunities.

Q: What is the company's current dividend policy going forward? / A: After the Autopact acquisition changed the company's financial structure significantly amid volatile macro conditions, the company shifted from a 30% payout ratio target to a 4.5% DOE target to communicate its commitment to stable, predictable dividends more clearly. The company has no intention to maintain dividends at the cost of eroding the company's capital or asset base, and will only maintain the target based on its confidence in achieving expected profit levels.