Gulliver International Co., Ltd. (7599)

Transcription

Shared Research Report
2014/6/12
Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is
to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an
accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and
findings. We will always present opinions from company management as such. Our views are ours where
stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback.
Write to us at [email protected] or find us on Bloomberg.
2014/6/12
Contents
Executive summary..................................................................................................3
Key financial data ....................................................................................................4
Highlights ...............................................................................................................5
Trends and outlook ..................................................................................................6
Business ............................................................................................................... 11
Business description ........................................................................................... 11
Profitability snapshot, financial ratios.................................................................... 19
Strengths and weaknesses .................................................................................. 21
Market and value chain ....................................................................................... 22
Strategy ............................................................................................................ 24
Historical performance ........................................................................................... 27
Income statement .............................................................................................. 30
Balance sheet .................................................................................................... 32
Cash flow statement ........................................................................................... 34
Other information .................................................................................................. 36
History .............................................................................................................. 36
News & Topics ................................................................................................... 37
Major shareholders ............................................................................................. 37
Top management ............................................................................................... 38
Employees ......................................................................................................... 38
Investor relations ............................................................................................... 38
Dividends and shareholder benefits ...................................................................... 38
By the way ........................................................................................................ 39
Profile .................................................................................................................. 40
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Copyright (C) 2013 Shared Research Inc. All Rights Reserved
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2014/6/12
Executive summary
Business description: Buyer and wholesaler of used vehicles; emphasis on
showrooms from FY02/14 onward
The company’s core business is buying and wholesaling used vehicles. The introduction of unified
purchasing prices nationwide was the key to the company’s growth. Used vehicle prices vary widely, and
the market value for used vehicles was difficult to assess. Gulliver was the first to introduce nationwide
unified purchase prices. This straightforward rule and use of a franchise model during its founding worked.
The company is Japan’s largest buyer of used vehicles (see Business section).
The company has been conducting display sales since FY02/13. Until recently, the main sales channel for
Gulliver was Dolphinet, in which the customer did not personally see the physical vehicle. From FY02/13
onward, the company started selling vehicles through display sales at directly run stores, as part of its
retail sales push. By end FY02/18, the company plans to have 400 stores using display sales for retail
customers (see Retail [display sales]).
Trends and outlook
Full-year sales for FY02/14 were JPY169.4bn (+18.1% YoY), operating profit was JPY7.1bn (+39.7%),
recurring profit was JPY7.2bn (+37.1%), and net income was JPY4.4bn (+46.3%). Thus the company
enjoyed growth in sales and profits.
In FY02/14, the company was targeting full-year consolidated sales of JPY173.0bn (+2.1% YoY),
operating profit of JPY8.5bn (+19.8%), recurring profit of JPY8.5bn (+18.0%), and net income of
JPY5.1bn (+17.0%).
The company’s new mid-term plan calls for annual retail sales of 150,000 vehicles in FY02/18, and
consolidated operating profit of JPY20.0bn (JPY13.0bn more than FY02/14).
Strengths and weaknesses
SR believes the company’s strengths to be top management that cooperates closely, low inventory risk
despite high transaction volume, and a large nationwide store network and brand. Weaknesses are its
limited showroom retail sales experience, significant capital requirements for expansion, and an
unbalanced organizational structure (see Strengths and weaknesses).
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Key financial data
Income Statement
(JPYmn)
Total Sales
YoY
Gross Profit
YoY
GPM
Operating Profit
YoY
OPM
Recurring Profit
YoY
RPM
Net Income
YoY
Net Margin
Per Share Data
Number of Shares
EPS
EPS (Fully Diluted)
Dividend Per Share
Book Value Per Share
Balance Sheet (JPYmn)
Cash and Equivalents
Total Current Assets
Tangible Fixed Assets, net
Other Fixed Assets
Intangible Assets
Total Assets
Accounts Payable
Short-Term Debt
Total Current Liabilities
Long-Term Debt
Total Fixed Liabilities
Total Liabilities
Net Assets
Interest-Bearing Debt
Cash Flow Statement (JPYmn)
Operating Cash Flow
Investment Cash Flow
Financing Cash Flow
Financial Ratios
ROA
ROE
Equity Ratio
FY02/10
Cons.
148,853
-9.1%
38,918
-1.7%
26.1%
5,281
35.2%
3.5%
5,008
90.1%
3.4%
348
-
FY02/11
Cons.
142,038
-4.6%
36,473
-6.3%
25.7%
8,001
51.5%
5.6%
7,824
56.2%
5.5%
5,140
1377.0%
FY02/12
Cons.
132,881
-6.4%
32,989
-9.6%
24.8%
6,249
-21.9%
4.7%
6,318
-19.2%
4.8%
3,785
-26.4%
FY02/13
Cons.
143,417
7.9%
33,889
2.7%
23.6%
5,077
-18.8%
3.5%
5,252
-16.9%
3.7%
2,980
-21.3%
FY02/14
Cons.
169,398
18.1%
36,554
7.9%
21.6%
7,094
39.7%
4.2%
7,201
37.1%
4.3%
4,377
46.9%
0.2%
3.6%
2.8%
2.1%
2.6%
10,689
38.29
76
1,794.18
10,689
544.67
544.39
93
2,454.79
10,689
37.35
37.34
115
269.22
10,689
29.41
29.41
88
290.50
10,689
43.01
43.00
13
323.99
3,613
50,179
8,717
7,452
1,599
67,948
4,230
26,159
41,587
8,516
9,967
51,555
16,393
34,675
8,896
36,338
7,434
15,128
954
59,856
3,806
8,517
22,698
11,000
12,265
34,964
24,891
19,517
8,472
30,925
8,403
14,353
961
54,643
2,912
2,000
16,060
9,000
11,290
27,351
27,292
11,000
6,863
29,555
9,609
13,146
942
53,253
3,439
5,000
17,357
4,000
6,445
23,802
29,451
9,000
14,688
33,463
10,989
7,315
1,011
52,779
2,852
0
13,525
4,000
6,407
19,933
32,846
4,000
-3,586
-1,336
5,056
14,253
2,790
-11,749
10,665
-1,580
-9,919
3,064
-1,348
-2,830
10,061
3,734
-5,981
0.5%
2.2%
24.1%
8.0%
24.9%
41.6%
6.6%
14.5%
49.9%
5.5%
10.5%
55.3%
8.3%
14.0%
62.2%
-
FY02/15
Est.
173,000
20.6%
8,500
67.4%
4.9%
8,500
61.8%
4.9%
5,100
71.1%
2.9%
50.31
15
Source: Company data, SR
Figures may differ from company materials due to differences in rounding methods
The company initiated a 1-for-10 stock split on May 1, 2013, but per share figures are calculated as if the split had occurred at the
beginning of FY02/14.
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Highlights
On June 11, 2014, Gulliver International Co., Ltd. announced monthly sales data for May 2014; please
see the monthly trends section for further details.
On May 15, 2014, the company announced monthly sales data for April 2014.
On April 25, 2014, SR updated comments on the company’s FY02/14 full-year earnings based on
interviews with management; please see the results section for further details.
On April 14, 2014, the company announced a new medium term management plan (FY02/15-FY02/18).
The new mid-term plan calls for annual retail sales of 150,000 vehicles in FY02/18, and consolidated
operating profit of JPY20.0bn (JPY13.0bn more than FY02/14).
The company plans to expand its network of retail sales showrooms to 400 stores (370 stores more than
FY02/14, average of 315 stores operating during the period) and achieve average monthly sales per store
of 30 vehicles, with an increase in total retail sales of 100,000 vehicles (315 stores x 30 vehicles x 12
months).
The increase of 100,000 vehicles in total retail sales comprises an increase of 50,000 vehicles in retail
sales and a transfer of former wholesale sales of 50,000 vehicles to retail sales. The company is aiming for
an increase in gross profit of JPY32.0bn (the company has not disclosed further details on this figure).
The company expects SG&A expenses to increase by JPY5mn per store, and JPY19.0bn across 370 stores,
compared to FY02/14. Therefore, the company is targeting a consolidated operating profit of JPY20.0bn
in FY02/18—an increase of JPY13.0bn (JPY32.0bn minus JPY19.0bn).
Medium Term Management Plan
FY02/14 (Act.)
Operating Profit (JPYmn)
7,094
Retail Sales (Vehicles)
50,386
New Store Openings
-
FY02/15
8,500
60,000
50
FY02/16
11,400
87,000
100
FY02/17
15,000
120,000
110
FY02/18
20,000
150,000
110
Source: Company data
On the same day, the company announced monthly sales data for March 2014.
On April 11, 2014, the company announced earnings results for FY02/14; please see the results section
for details.
For corporate releases and developments more than three months old, please refer to the
News & Topics section.
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2014/6/12
Trends and outlook
Monthly trends
Total car sales at directly operated stores
Mar
Apr
May
FY02/11
27.5%
31.4%
5.0%
FY02/12
-3.8% -12.7% -10.7%
FY02/13
8.0%
15.1%
1.8%
FY02/14
12.3%
3.2%
14.3%
FY02/15
-7.1% -26.9% -21.9%
Jun
6.0%
9.5%
-5.0%
10.4%
Jul
-5.8%
5.4%
-7.1%
13.2%
Aug
-12.4%
2.3%
16.5%
6.6%
Sep
9.8%
-4.1%
-1.0%
9.8%
Oct
-19.1%
3.2%
11.0%
24.6%
Nov
-14.6%
-3.1%
29.6%
13.2%
Dec
-11.8%
17.1%
-7.8%
29.3%
Jan
-7.1%
-11.5%
18.6%
11.2%
Feb
-3.1%
-6.5%
21.5%
10.3%
Note, Total car sales here refers to the total number of cars sold at directly operated stores. It is the sum of wholesale unit sales and retail unit sales, and includes various sales
channels, such as auctions and the Dolphinet system.
Retail car sales at directly operated stores
Mar
Apr
May
FY02/11
6.7%
2.3% -14.2%
FY02/12
-19.2%
10.8% -23.9%
FY02/13
59.1%
14.1%
42.6%
FY02/14
14.5%
18.8%
11.7%
FY02/15
6.3% -30.0% -18.5%
Jun
-11.0%
-17.5%
62.5%
1.1%
Jul
-23.1%
-7.5%
44.3%
-0.3%
Aug
-10.7%
-21.8%
52.1%
-7.4%
Sep
-6.9%
-17.3%
57.5%
3.9%
Oct
-24.4%
-3.9%
40.7%
12.2%
Nov
-9.6%
-9.8%
40.0%
30.1%
Dec
-15.7%
5.6%
11.2%
32.1%
Jan
-17.0%
15.6%
17.8%
2.5%
Feb
-15.1%
12.2%
11.9%
16.7%
Quarterly trends and results
Gulliver’s quarterly gross profit margin (GPM) fluctuates due to seasonal factors. The peak period for
auctions is the end of the fiscal year in February and March, and April is a quiet period. Consequently,
GPMs tend to be high in Q4 and low in Q1. Wholesale prices fall when the auctions are quiet, but the
company’s gross profit/unit is steady at around JPY100,000-JPY150,000, and gross profit tends to rise in
proportion to prices.
Quarterly Performance
(JPYmn)
Sales
YoY
Q1
38,755
FY02/13
Q2
Q3
32,544
37,870
Q4
34,248
Q1
45,729
FY02/14
Q2
Q3
37,672
45,236
Q4
40,761
19.0%
4.3%
-1.9%
14.7%
16.0%
18.0%
15.8%
19.5%
7,736
7,927
8,819
9,407
9,053
8,710
9,494
9,297
YoY
-17.7%
-4.9%
14.2%
24.9%
17.0%
9.9%
7.7%
-1.2%
GPM
SG&A
20.0%
7,038
24.4%
7,035
23.3%
7,090
27.5%
7,649
19.8%
7,157
23.1%
7,049
21.0%
7,139
22.8%
8,115
GP
YoY
8.2%
7.2%
6.3%
9.3%
1.7%
0.2%
0.7%
6.1%
18.2%
697
21.6%
892
18.7%
1,730
22.3%
1,758
15.7%
1,896
18.7%
1,661
15.8%
2,355
19.9%
1,182
-76.0%
-49.5%
64.6%
231.7%
172.0%
86.2%
36.1%
-32.8%
1.8%
747
2.7%
971
4.6%
1,759
5.1%
1,775
4.1%
1,913
4.4%
1,745
5.2%
2,354
2.9%
1,189
YoY
-74.3%
-45.0%
66.4%
200.3%
156.1%
79.7%
33.8%
-33.0%
RPM
1.9%
348
3.0%
520
4.6%
1,084
5.2%
1,028
4.2%
1,227
4.6%
1,071
5.2%
1,409
2.9%
653
YoY
-77.2%
-64.9%
77.7%
519.3%
252.6%
106.0%
30.0%
-36.5%
NPM
0.9%
1.6%
2.9%
3.0%
2.7%
2.8%
3.1%
1.6%
SG&A / Sales
OP
YoY
OPM
RP
NI
FY02/14
% of FY
FY Est.
100.1%
169,300
99.9%
7,100
100.0%
7,200
100.2%
4,350
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2014/6/12
FY02/14 results
In Q4 FY02/14 (December-February), sales were JPY40.8bn (+19.0% YoY), operating profit was
JPY1.2bn (-32.8%), recurring profit was JPY1.2bn (-33.0%), and net income was JPY653mn (-36.5%).
The company curbed advertising and promotional spending, but the cost of running the company’s
growing network of directly managed stores increased, which resulted in a YoY increase of 6.1% in SG&A
expenses, to JPY8.1bn.
Full-year sales for FY02/14 were JPY169.4bn (+18.1% YoY), operating profit was JPY7.1bn (+39.7%),
recurring profit was JPY7.2bn (+37.1%), and net income was JPY4.4bn (+46.3%). Thus the company
enjoyed growth in sales and profits.
The company’s results were in line with forecasts, after the company made upward revisions to its
forecasts on March 28, 2014.
Underpinned by measures to strengthen retail sales, directly managed stores sold 50,386 vehicles
(+11.3% YoY). Accompanying the increase in retail units sold, an increase in customer numbers led to
higher used vehicle purchases at 159,316 vehicles (+103% YoY), and this also pushed up wholesale sales
to 128,383 vehicles (+13.1% YoY).
In FY02/14, Gulliver opened 22 stores: 13 Outlets, two Liberala, one new-vehicle dealer (Volvo
Matsuyama), five Gulliver stores, and one Minikuru store. At end FY02/14 Gulliver had 304 directly
managed stores and 113 franchises, for a total of 417.
In FY02/14, GPM was 21.6% (23.6% in FY02/13). The reversal of a reserve in FY02/13 and a rise in
auction prices in FY02/14 drove down GPM. Since Gulliver’s gross profit amounts are fixed, when auction
prices rise, the GPM falls. In the previous year, demand shifted to new vehicles driven by a government
subsidy program for eco-friendly vehicles. The termination of this program saw auction prices rise.
SG&A expenses (parent basis) rose due to the cost of running the expanded directly managed store
network, despite restrained advertising and promotional spending. Advertising and promotional spending
was JPY4.9bn (-3.7% YoY), and outsourcing expense was JPY1.1bn (-5.3% YoY). Personnel expenses
were JPY11.3bn (+1.8%), depreciation was JPY1.3bn (+13.7%) and rental costs were JPY4.9bn (+6.4%).
As a result, SG&A expenses (consolidated) were JPY29.5bn (+0.9%). The number of employees at
directly managed stores was 1,540 (+2.3% YoY). At end-FY02/14, the number of store staff was 1,525
(1,486 at end-FY02/13).
Fixed assets were JPY19.3bn (-18.5% YoY), due to a decline in long-term loans. Note that JPY3.6bn in
accounts receivable were for consolidated subsidiary G-One Financial Services (finance receivables). In
3Q (September), JPY6.5bn in loans were repaid ahead of schedule by Premia Financial Services (formerly
SBI Credit).
For details on previous quarterly and annual results, see the Historical performance section.
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Full-year (FY02/15) outlook
FY02/15Forecast
(JPYmn)
Sales
YoY
1H
83,401
FY02/14
2H
85,997
Full-Year
169,398
Company Estimates
1H
2H Full-Year
80,200
92,800
173,000
17.0%
19.2%
18.1%
65,638
17,763
67,205
18,791
132,843
36,554
YoY
GPM
13.4%
21.3%
3.1%
21.9%
7.9%
21.6%
SG&A
14,206
15,254
29,460
SG&A / Sales
17.0%
17.7%
17.4%
Operating Profit
3,557
3,537
7,094
3,200
5,300
8,500
123.9%
4.3%
1.4%
4.1%
39.7%
4.2%
-10.0%
4.0%
49.8%
5.7%
19.8%
4.9%
CoGS
Gross Profit
YoY
OPM
Recurring Profit
YoY
RPM
Net Income
YoY
-3.8%
7.9%
2.1%
3,658
3,543
7,201
3,200
5,300
8,500
112.9%
4.4%
0.3%
4.1%
37.1%
4.3%
-12.5%
4.0%
49.6%
5.7%
18.0%
4.9%
2,298
2,062
4,360
1,900
3,200
5,100
164.7%
-2.4%
46.3%
-17.3%
55.2%
17.0%
Figures may differ from company materials due to differences in rounding methods.
For FY02/15, the company forecasts consolidated sales of JPY173.0bn (+2.1% YoY), operating profit of
JPY8.5bn (+19.8% YoY), recurring profit of JPY8.5bn (+18.0% YoY), and net income of JPY5.1bn
(+17.0% YoY). 1H sales are forecast to decline 3.8% YoY but 2H sales are forecast to rise 7.9% YoY.
While a pullback in sales in 1H is anticipated in the aftermath of the demand increase ahead of the
consumption tax increase, new store openings are expected to drive sales up in 2H.
The company forecasts 164,000 vehicle purchases (FY02/14: 159,316), wholesale vehicle sales of
123,000 units (128,383), and 60,000 retail vehicle sales (50,386). Measures to bolster retail sales are
expected to see retail unit sales increase by 10,000, with this including around 5,000 vehicles subtracted
from the wholesale total.
The company plans to open 50 new stores in FY02/15, giving an end-FY02/15 total of 467 stores (417 at
end-FY02/14). Of this total, 354 are expected to be directly managed stores (304) and 113 franchise
stores (113). As of April 2014, the company had opened four stores and signed lease agreements for 34
stores. Negotiations were in progress for a further 40 stores. Hence, the 50-store opening target appears
to be on track. Of JPY5.0bn inplanned capex (FY02/14: JPY2.4bn), JPY4.7bn is allocated to investment in
stores.
Gross profit is forecast at JPY39.2bn (+7.1% YoY), and GPM is expected to be 22.6% (FY02/14: 21.6%),
driven by an increase in retail sales, which command high gross margins. The gross profit margins on
retail sales are 2–3 times that of wholesale sales.
SG&A expenses are forecast at JPY30.7bn (+4.0% YoY), with an SG&A-to-sales ratio of 17.7% (17.4%).
Advertising expenses (parent basis) are forecast at JPY4.9bn (-4.2% YoY), while personnel expenses are
expected to rise to JPY12.2bn (+9.5% YoY), driven by the increase in directly managed stores.
Depreciation is forecast at JPY1.4bn (+17.9% YoY), and rental expense is expected to be JPY5.0bn
(+6.5% YoY). In FY02/15, the company expects to hire 219 new-graduate recruits (FY02/14: 145), and at
end-FY02/15 there are expected to be 1,657 store staff (end-FY02/14: 1,525).
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2014/6/12
SG&A
(JPYmn)
Parent
YoY
Personnel
YoY
Outsourcing
YoY
Commission Ｆｅｅｓ
YoY
Depreciation
YoY
Advertising
YoY
Rent
YoY
Others
YoY
Consolidated
YoY
SG&A/Sales
FY02/14
29,161
2.4%
11,334
1.8%
1,148
-5.3%
519
5.1%
1,349
13.6%
4,924
-3.7%
4,938
5.2%
4,946
6.4%
29,460
2.2%
17.4%
FY02/15
30,300
3.9%
12,200
7.6%
1,150
0.2%
550
6.0%
1,400
3.8%
4,900
-0.5%
5,000
1.3%
5,100
3.1%
30,650
4.0%
17.7%
Source: Company data、SR　Inc. Research
The company forecasts dividends per share of JPY15.0 (FY02/14: JPY13.0), for a payout ratio of 29.8%
(30.2%).
Outlook
The company announced a new medium term management plan (FY02/15-FY02/18) on April 14, 2014.
Medium Term Management Plan
FY02/14 (Act.)
Operating Profit (JPYmn)
7,094
Retail Sales (Vehicles)
50,386
New Store Openings
-
FY02/15
8,500
60,000
50
FY02/16
11,400
87,000
100
FY02/17
15,000
120,000
110
FY02/18
20,000
150,000
110
Source: Company data
The new medium-term management plan calls for annual retail sales of 150,000 vehicles in FY02/18,
leading to consolidated operating profit of JPY20.0bn (+JPY13.0bn compared with FY02/14).
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The company plans to expand its network of retail sales showrooms to 400 stores (370 stores more than
FY02/14, an average of 315 stores operating during the period) and achieve average monthly sales per
store of 30 vehicles, giving an increase in total retail sales of 100,000 vehicles (315 stores x 30 vehicles x
12 months). The assumption of 30 vehicle sales per month per store uses the average monthly vehicles
sold at the company’s outlet stores as reference.
The 100,000 unit increase in retail sales includes 50,000 units that would have previously been sold
wholesale. Based on the applicable gross profit per unit, the total increase in gross profit is estimated at
JPY32.0bn.
Source: Company materials
SG&A expense per store is forecast to rise by JPY5.0mn compared with FY02/14, giving a total increase
over 370 stores of JPY19.0bn. Around half of SG&A expense is used for personnel expenses (4-5 staff per
store), with rental expense being another significant item. As a result, in FY02/18, the plan calls for an
increase in consolidated operating profit of JPY13.0bn (JPY32.0bn minus JPY19.0bn), for JPY20.0bn in
operating profit (FY02/14: JPY7.0bn). The average capex per store is forecast at JPY80mn, giving an
assumed payback period of 36 months (actual average payback period for existing stores is 24 months).
SR sees the per-store unit retail sales and SG&A assumptions as realistic. The company says it will open
stores while taking account of the recruiting situation for sales staff. The keys to the company’s
medium-term management plan are likely to be staff recruitment and securing sufficient new store
locations.
In the Asia region, Gulliver expects to operate 800 stores by FY02/18. In addition to calling for 300 stores
in Thailand, the plan envisages business development centering on ASEAN countries, such as Indonesia,
Malaysia and Myanmar. Gulliver opened its first store in Thailand in March 2014. Note that the figures
contained in the medium-term plan do not include overseas operations.
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Business
Business description
The company’s core business is buying and wholesaling used vehicles. The introduction of unified
purchasing prices nationwide was the key to the company’s growth. Used vehicle prices vary widely, and
the market value for used vehicles was difficult to assess. Gulliver was the first to introduce nationwide
unified purchase prices. This straightforward rule and use of a franchise model during its founding worked.
The company is Japan’s largest buyer of used vehicles.
In FY02/14, the company spent around JPY120bn purchasing about 160,000 vehicles at its directly
operated stores. The company then sells vehicles via three channels.
Wholesale (around 70% of sales in FY02/13), selling purchased vehicles at auction.
Retail (around 30% of the total), selling retail through the screen-based Dolphinet system.
Display sales (showroom-based retail), from FY02/14.
Selling
(retail)
Buying
Consumers
sell used cars
Buying used
cars
Selling via Dolphinet
Display sales
Selling
(wholesale)
To used car auctions
Consumers
purchase
used cars
Two weeks
Source: SR diagram, based on interviews with the company
To guard against sudden declines in value and to limit inventory risk, Gulliver restricts retail (Dolphinet
and showroom) sales to a two-week period after purchasing a vehicle. If the vehicle remains unsold after
two weeks, it is sold via auction.
Wholesale auctions account for around 70% of consolidated sales. Dolphinet retail operations, meanwhile,
account for about 50% of consolidated gross profit (FY02/14, SR estimates). Gross profit per vehicle is
around JPY100,000-150,000 at auction, and JPY300,000-400,000 for retail.
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FY02/14
Units
Average purchase price
% of sales
% of gross profit
Purchases
(directly
managed
stores)
Purchases
(franchises)
159,316
~JPY700,000
-
53,000
-
Auctions
(wholesale
business)
Dolphinet
(retail business)
128,383
70%*
~35%
50,386
30%*
~50%
Others
(franchise
revenue,
peripheral
sales etc)
~2%
~15%
Source: SR based on company data
Note, % of sales and % of gross profit figures are SR estimates.
*Just under.
Purchasing
In FY02/14, Gulliver’s vehicle COGS was around JPY130bn, for approximately 210,000 vehicles purchased.
Directly managed stores bought 160,000 vehicles (76% of total) and franchises bought 50,000 (24%).
Average purchase price: around JPY700,000.
The used-vehicle purchase price that Gulliver offers is based on nationwide auction transactions, and the
price is the same nationwide. Before the company began operations in 1990, there were two ways a
vehicle owner could sell a vehicle. They had the choice of trade-in when buying a new vehicle from a
new-vehicle dealer, or selling directly to a used-vehicle dealer. There was not a clear boundary between
the discounts on the new vehicle and the trade-in price the new-vehicle dealer offered. Prices offered by
used-vehicle dealers were unclear, with wide discrepancies among individual dealers. Spotting an
opportunity, Gulliver created a database based on auction results and made purchase prices transparent.
Since it pays the same purchase price nationwide, its used-vehicle prices are uniform across the country.
FY02/14
Cars purchased
Directly managed stores
Franchise stores
159,316
50,000
Average purchase price
~JPY700,000
Source: Company materials, SR
Note, Average purchase price figures are SR estimates.
Gulliver sets its standard purchase prices by using the prices paid at the bestselling auction houses in the
country and deducting a gross margin (JPY100,000-150,000). Gulliver provides feedback on the purchase
price to each of its shops, and thus pays the same price for each model nationwide. The company only
holds inventory for two weeks, limiting its exposure to inventory risk. Thus, it is able to offer higher
purchase prices than used-vehicle dealers with showrooms.
Gulliver’s purchasing flows
Gulliver’s used-vehicle purchasing process has been optimized for easy inspection, assessment and
decision-making. The only aspect it leaves up to individual stores is vehicle inspection, which is based on
companywide standards set by corporate headquarters. HQ determines valuations based on the results of
inspections, and decides on when and where to send vehicles for auction.
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Buyers make appointments via the internet or Gulliver’s call centers. In some cases a sales person visits
customers’ homes. In others, the customer visits the store. We note that 60% of purchases are from the
customer visiting the store, and 40% relates to home visits. In regions that do not have a regional office,
a representative from one of the directly operated stores will personally visit the customer.
At each store the vehicle’s condition is first assessed. This takes about 20 minutes. The results are noted
on an assessment sheet, with data sent to HQ. HQ then takes about 10-15 minutes to price the vehicle
based on its condition and corresponding auction value, and sends the data back to the store. In over a
third of cases, this results in a transaction.
10-15 minutes
Sending data
Receiving data
Headquarters
Customer
visits the
store
Inspect the
car's
condition
Complete
assessment
sheet
Decide on
price
Display the
value
Negotiation
Contract
Source: SR based on company materials
Purchasing branch network
Directly
Number of Stores
managed
(year-end)
stores
FY02/00
92
FY02/01
126
FY02/02
154
FY02/03
178
FY02/04
205
FY02/05
248
FY02/06
278
FY02/07
291
FY02/08
299
FY02/09
308
FY02/10
288
FY02/11
286
FY02/12
288
FY02/13
294
FY02/14
304
Franchise
stores
Total
456
474
403
333
287
249
217
184
151
145
128
135
127
118
113
548
600
557
511
492
497
495
475
450
453
416
421
415
412
417
The purchasing store network comprises 304 directly managed stores (including 50 regional offices) and
113 member stores. Around 60 companies run the member stores and some of the larger companies
control up to four or five stores. Since FY02/01, when its brand recognition increased, Gulliver has been
shrinking the member network and opening more directly managed stores, which contribute more to
profits. Also, because Gulliver put a hold on new store openings starting in FY02/10 as part of efforts to
improve its financial standing, and store numbers overall have been shrinking. From FY02/14, as the
company was beefing up its retail (showroom) business, it restarted its store openings, focusing on new
showroom formats.
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Sales through Dolphinet (directly managed stores)
In FY02/13 SR estimates that this segment accounted for sales of just under JPY50bn (about 30% of the
total), and around JPY18bn in gross profit (about 50% of the total).
Information on all vehicles purchased by directly managed stores and franchises is uploaded to Gulliver’s
used-vehicle information system, Dolphinet. Through this system, Gulliver sells around 50,000 vehicles to
customers (28% of the company’s volume). Retail margins are about two to three times wholesaling
margins.
Some customers selling their vehicle at a Gulliver store would buy a different vehicle on the spot, using
the in-store Dolphinet terminal to search the available inventory. Dolphinet displays an array of detailed
information, including pictures, specifications and repair history. Selling vehicles on-screen without the
customer being able to see the actual vehicle was thought impossible. But thanks to its trusted brand and
an advanced pricing system based on real-time auction data, Gulliver was able to overcome this challenge
and become a successful pioneer of selling cars sight unseen.
The sale of vehicles through Dolphinet—utilizing pictures without the need for stores or display
areas—has kept store opening costs in check. As flagged, Gulliver limits the time to sell vehicles it has
purchased to two weeks, and sells them to consumers through Dolphinet directly to consumers. By
limiting the holding period to two weeks, Gulliver cuts inventory risk.
Auction sales (wholesale)
Sales at auctions in FY02/14 reached around JPY100bn, 70% of the total, with gross profit of about
JPY12bn, or 35% of the total (SR estimate). Gulliver sold 125,000 vehicles at auction (70% of sales
volume).
Vehicles not sold within two weeks of listing on Dolphinet are put to auctions operated by major car
auction companies. When purchasing vehicles, Gulliver pays customers an amount equal to the best
auction price minus its gross margin. Auction and transport fees are accounted for as an incidental portion
of CoGS.
Companies such as USS (TSE1: 4732), TAA (Toyota Auto Auctions), JAA (Japan Automobile Auctions) and
CAA (Chubu Auto Auctions) operate the auction centers. Market shares in 2012: USS 31.5%; TAA 9.7%,
and JAA 8.6%. In FY02/13, USS sold JPY62.3bn of Gulliver’s stock—43.5% of Gulliver’s sales.
USS is a pioneer in the used-vehicle auction field, starting in 1980 as Aichi Automobile General Services. It
had the top market share in the industry in FY2012. USS has 17 auction sites nationwide, which hold
weekly auctions, and had 45,000 employees in FY03/13. Among USS’ subsidiaries are R&W, which
operates a specialty vehicle purchasing chain, Rabbit, one of Gulliver’s competitors.
Retail (display sales)
The company has been conducting display sales since FY02/13. Until recently, the main sales channel for
Gulliver was Dolphinet, in which the customer did not personally see the physical vehicle. From FY02/13
onward, the company started selling vehicles through display sales at directly run stores, as part of its
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retail sales push. By end FY02/18, the company plans to have 400 stores using display sales for retail
customers.
For display vehicles as well, the company will auction those not sold within two weeks. In line with
increased retail sales, ancillary income (maintenance, insurance etc) should also rise. SR estimates that
these brought in around JPY1bn in FY02/14.
New stores are categorized into one of several types. WOW! TOWN stores divide vehicles into different
segments such as outdoor, leisure, family, and active. LIBERALA specializes in high-end imported vehicles
such as Porsche and Ferrari. Minikuru provides an environment catering to women, with soothing colors
and a café atmosphere. Gulliver Outlet showcases less-than-perfect vehicles, such as those with scrapes
or dents, or cars with unpopular colors for low prices and no warranty.
Average retail price varies with store format, with a rough breakdown below. Retail margins are about two
to three times wholesale margins.
 LIBERALA (red): High-end imported vehicles. Estimated average price: JPY10.0mn.
 LIBERALA (black): Imported vehicles. Estimated average price: JPY3.0mn.
 Hybrid vehicle specialist: Estimated average price: JPY2.0mn.
 WOW! TOWN: Large showroom. Estimated average price: JPY1.7mn.
 SNAP HOUSE: Minivan specialist. Estimated average price: JPY1.5mn.
 Gulliver: Flagship store brand. Estimated average price: JPY1.2mn.
 Minikuru: Light vehicles. Estimated average price: JPY1.0mn.
 Gulliver Outlet: Low cost vehicles. Estimated average price: JPY800,000.
LIBERALA (red)
LIBERALA (black)
According to the company, when opening new retail showrooms it tries to depict lifestyles associated with
the particular type of vehicle, showing customers how these vehicles might fit into their daily lives.
WOW Town! does not use designations such as minivan, light vehicle, compact vehicle etc, but family,
fashion, eco & eco, active and driving pleasure, in line with the buyer’s lifestyle. The company has divided
the display space into zones with five scenes. Also, to attract more women, Gulliver has installed cafes
and children’s play rooms in its stores. At first most of the customers visiting the stores were replacing
used vehicles. But the company said that now it is seeing increasing numbers of customers replacing
vehicles they had bought new.
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WOW! TOWN
WOW! TOWN (inside)
Gulliver plans to open 100 shops yearly through FY02/18, or a total of 400. The company said it costs
JPY60-80mn to build a shop (prior to FY02/14); the land is leased, and Gulliver handles construction work.
The average shop covers 1,000 sq m and payback is around two years.
WOW! TOWN (inside)
From FY02/10 through FY02/13, Gulliver restrained the number of (used-vehicle purchasing) store
openings, so it has well over one hundred assistant store managers who have store manager
qualifications (company’s own standards). As these assistant managers are store manager candidates, it
has two years’ worth of reserve store managers for the store rollout program.
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Gulliver Azumi Store
Revenue from member stores
In addition to retail and wholesale sales, Gulliver receives revenue from member stores. At end FY02/14,
Gulliver had 113 member stores.
New member stores pay JPY8mn to join, with royalties fixed at JPY900,000 per month. In FY02/14,
royalty income was JPY1.1bn. When member stores (118 stores) or used-vehicle dealer members
(20,000-30,000 stores) use Dolphinet to sell used vehicles to consumers they pay an auction commission
to Gulliver. The commission is JPY24,500 for member stores and JPY34,500 for other used-vehicle dealers.
If a directly owned store sells a vehicle held by a member store, the member store pays a commission of
JPY22,500 as a contract fee.
Revenue
Amount
Details
New franchise fees
JPY8mn
When stores become part of the
franchise
Renewal fees
JPY3mn
When stores renew their franchise
contracts
Royalty fees
JPY900,000/month
A fixed monthly amount
Dolphinet commission
(completed deals)
JPY22,500/unit
When directly managed stores purchase
a car via a franchise store
Dolphinet commission
(successful bids)
JPY24,500, JPY34,500/unit
When franchise stores sell a car
Auction agency
commission
JPY7,000/unit
When unsold cars are taken to auction
en masse
Source: Company materials, SR
In line with company policy, franchisees auction off vehicles that are not sold within two weeks. Gulliver
bundles the franchisees’ stock with its own when putting vehicles to auction, for reasons of efficiency. The
franchisees pay JPY7,000 in auction fees to the auctioneers and another JPY7,000/vehicle to Gulliver as
an auction agency commission. Gulliver also receives contract renewal fees. The first renewal is for five
years and costs JPY3mn; subsequent renewals are JPY3mn for three years.
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If directly run stores buy vehicles through franchisees, they add a margin of JPY200,000-250,000—as
usual when selling to consumers. The franchisees pay a contract closing fee of JPY22,500 to Gulliver.
Overseas expansion
In November 2004, the company established Gulliver USA. In 2007 and 2008 it planned to open in
emerging markets such as China and India. Its subsidiary G-Trading was exporting construction
equipment to Russia. However, the company withdrew from all overseas markets except for the US in
2009 amid the global financial crisis to concentrate management resources on the domestic business.
In 2014, Gulliver was again intent on expanding overseas. The company said one necessary condition for
a used-vehicle market to develop was a certain number of new vehicles. It said that Thailand, with more
than 1mn new vehicle sales a year, was an attractive market. It planned to start overseas expansion with
Thailand from FY02/15 onwards. Gulliver said that the Thai used-vehicle market was already around
2.1mn vehicles per year.
Gulliver’s first step was to set up a joint venture (49% Gulliver owned) with the Viriyah Group, the leading
property and casualty insurance company in Thailand, to start a franchise business. The joint venture will
receive a franchise membership fee of JPY8mn, and monthly royalties of JPY900,000, the same as the
domestic franchise operations, with 30% going to Gulliver as licensing fees. The company said that
used-vehicle supply in Thailand is small, so prices tend not to fall too much. Thus, rather than an
auction-dependent business model, the joint venture would take on a degree of inventory risk (a few
months) by lengthening its holding period, and develop the retail business.
Gulliver aimed to have 800 stores overseas as well as in Japan by FY02/18. In addition to 300 in Thailand,
it planned to have shops in other ASEAN countries, such as Indonesia, Malaysia and Myanmar.
Finance business
The finance business comprises subsidiaries G-One Financial Services and Gulliver Insurance. G-One
Financial Services is not accepting new customers during FY02/15. Although its outstanding loans are
providing revenue, Gulliver plans to eventually liquidate the subsidiary.
Sales of G-One Financial Services are JPY198mn, and JPY297mn for Gulliver Insurance (casualty
insurance agency), less than 1% of consolidated sales. Operating profit was JPY1mn for G-One Financial
Services and JPY215mn for Gulliver Insurance, less than 1% of consolidated operating profit.
G-One Financial Services offers loans for vehicles sold in the retail business, and receives interest income.
In July 2010, Gulliver transferred shares in G-One Credit Services to SBI Holdings, at the same time
making a loan to SBI Credit (now Premia Financial Services). In September 2013 the loan was repaid in
full. In FY02/11 Gulliver switched from G-One Financial Services to using credit companies’ automobile
loans. Given that outside credit companies are extending new loans, Gulliver’s own loan balance is
shrinking. The volume of accounts receivable and loans in the finance business is steadily declining, and
Gulliver expected them to reach almost zero in FY02/15, from around JPY3.6bn in FY02/13.
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Major group companies
Consolidated subsidiaries (F02/13 Gulliver’s shareholding in brackets):
G-One Financial Services (100%): Finance (only automobile loans business is continuing).
Gulliver Insurance (100%).
Gulliver USA (100%): Used vehicle purchase/sales in the US (four stores).
Profitability snapshot, financial ratios
Profit margins
(JPYmn)
Gross Profit
Gross Profit Margin
Operating Profit
OP Margin
EBITDA
EBITDA Margin
Net Profit Margin
Financial Ratios
ROA
ROE
Total Asset Turnover
Inventory Turnover
Days of Inventory
Working Capital Requirement
Current Ratio
Quick Ratio
OCF / Current Liabilities
Net Debt / Equity
OCF / Total Liabilities
Cash Cycle (days)
Changes in Working Capital
FY02/10
Cons.
38,918
26.1%
5,281
3.5%
6,895
4.6%
0.2%
FY02/11
Cons.
36,473
25.7%
8,001
5.6%
9,216
6.5%
3.6%
FY02/12
Cons.
32,989
24.8%
6,249
4.7%
7,462
5.6%
2.8%
FY02/13
Cons.
33,889
23.6%
5,077
3.5%
6,267
4.4%
2.1%
FY02/14
Cons.
36,554
21.6%
7,094
4.2%
8,448
5.0%
2.6%
0.5%
2.2%
2.3
11.9
16.1
36,408
120.7%
55.5%
-0.1
189.5%
-0.1
69.8
7,936
8.0%
24.9%
2.2
12.2
16.4
20,177
160.1%
85.8%
0.4
42.7%
0.4
63.2
-16,231
6.6%
14.5%
2.3
12.8
17.0
16,411
178.2%
73.3%
0.6
9.3%
0.4
41.8
-3,766
5.5%
10.5%
2.7
11.5
15.1
16,555
170.3%
40.3%
0.2
7.3%
0.1
36.0
144
8.3%
14.0%
3.2
13.4
15.1
13,725
247.4%
91.5%
0.7
-32.5%
0.5
23.7
-2,830
Source: Company data processed by SR
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Sales, CoGS breakdown (parent)
(JPYmn)
Sales
Goods sales
Cars
Store supplies
Other operating revenue
Franchise income
Royalty income
Other
CoGS
Goods CoGS
Other operating CoGS
Goods gross profit
Gross profit
Gross profit margin
FY02/09
Parent
139,572
132,963
n/a
n/a
6,609
72
1,481
5,054
104,376
103,401
975
22.2%
35,196
25.2%
FY02/10
Parent
136,406
130,065
n/a
n/a
6,340
75
1,327
4,937
102,140
101,108
1,032
22.3%
34,266
25.1%
FY02/11
Parent
133,716
127,026
126,981
44
6,690
72
1,352
5,261
101,273
100,217
1,056
21.1%
32,443
24.3%
FY02/12
Parent
130,138
122,346
122,280
66
7,791
51
1,325
4,807
98,543
97,883
660
20.0%
31,595
24.3%
FY02/13
Parent
142,060
136,161
136,097
64
5,898
50
1,239
4,673
108,770
108,034
736
20.7%
33,290
23.4%
Revenues for Gulliver’s parent company come from sales of vehicles and merchandise (store fixtures),
franchise joining fees, royalties, and other (auction agency commissions, Dolphinet [contract and auction
fees and franchise renewal fees]). The main item in cost of goods sold is vehicles (cost of merchandise
sold).
GPMs are on a slight downward trend, from 25.2% in FY02/09 to 23.4% in FY02/13 (see preceding table).
Royalties and franchise renewal fees are declining in line with franchise store numbers. Through FY02/12,
the volume of retail sales (higher gross profit) also declined. Competition among new vehicle dealers
heated up when the eco vehicle subsidies came into effect. In what was effectively discounting, the prices
of used vehicle trade-ins were bid up. Goods COGS improved in FY02/13 as a result of increased retail
sales. However, a decline in other operating revenue led to a lower gross profit margin overall.
Units handled at directly operated stores
FY02/10
FY02/11
Units purchased
1,444,618
137,391
Wholesale
108,190
114,128
Retail
40,445
35,680
FY02/12
142,350
113,198
33,091
FY02/13
144,402
113,484
45,269
FY02/14
159,316
128,383
50,386
SG&A Breakdown (parent)
(JPYmn)
Advertising
Provision for Bad Debt
Director Bonuses and Salaries
Miscellaneous Wages
Employee Bonuses
Provision for Employee Bonuses
Provision for Director Retirement
Total
FY02/10
Parent
10,815
2,134
570
1,541
5,325
4,479
4,158
29,024
FY02/11
Parent
10,341
2,088
543
1,148
3,839
4,401
3,902
26,264
FY02/12
Parent
10,831
1,124
444
1,178
3,685
4,428
4,357
26,050
FY02/13
Parent
11,138
1,212
494
1,187
5,113
4,695
4,648
28,491
FY02/14
Parent
11,334
1,148
519
1,349
4,924
4,938
4,946
29,161
Personnel costs account for 39% of SG&A expenses. The bulk of this is store personnel (1,525 of the
company’s 2,018 personnel work in the stores). Advertising and promotion account for 18% and rents
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16% (FY02/13). Outsourcing costs comprise salaries for dispatch workers and contracted work. Fees paid
comprise banking transaction fees and consulting fees.
Cars purchased per store employee (units/month)
Cars sold per store employee (retail) (units/month)
Cars sold per store (retail) (units/month)
Personnel cost per car (JPY)
Advertising cost per car (JPY)
FY02/11
FY02/12
FY02/13
FY02/14
8.2
2.1
10.3
69,034
25,489
8.3
1.9
9.6
74,042
25,195
8.1
2.5
12.9
70,162
32,210
8.7
2.8
14.1
63,402
27,547
Note, personnel cost per car and advertising cost per car figures are based on both retail and wholesale operations.
Stores here refer to directly operated stores.
Looking at profitability indicators, advertising and promotion expenses tend to fluctuate widely. In
response to deteriorating market conditions in FY02/11, the company temporarily shifted from a focus on
number of units sold to gross profit, and capped its advertising budget to about JPY25,000 per vehicle. In
FY02/13, to prepare for expanding the retail business, Gulliver invested in upfront advertising and
promotions. Meanwhile, it has been limiting new store openings and thus hiring since FY02/10 so
personnel-related indicators have been improving as shown in the table above.
Strengths and weaknesses
Strengths
 Top management cooperates closely: Gulliver’s top management comprise Chairman Kenichi
Hatori’s eldest son Yusuke Hatori and second son Takao Hatori. The sons are co-presidents. The Tokyo
Stock Exchange said no other listed company has two presidents. Yusuke Hatori said that the idea for
two presidents came from himself and Takao. They believe that giving the top two equal authority
underpins stability. It appears that the two were discussing the next-generation management structure
even before they were appointed as co-presidents. The two think that general organizational decline is
typically due to one all-powerful leader being dictatorial. Clearly the pair are planning stable long-term
growth. Even when the two agree on a subject, they always discuss it before making a decision.
 Buys and sells many cars but has little inventory risk: Gulliver has an overwhelming share of
the used vehicle purchasing market, and typically has inventories of some 6,000 vehicles. It buys
about twice as many vehicles per year as Rabbit, its closest rival (source: company materials, YANO
Research). Yet inventory risk is limited—the existence of the auction market means that the company
can wholesale any used vehicles it has not been able to sell within two weeks. With the paradox of
having both ample inventories and little inventory risk, conditions appear ripe for the company to
develop its retail business.
 Large nationwide store network and strong brand: Since 1996, Gulliver has aggressively
advertised on TV. With JPY60bn in accumulated advertising and promotion spending, it has created a
powerful brand. The company says brand awareness is 96% (its own survey, 12,800 respondents).
However, shops need to be close to buyers for brand awareness to impact the bottom line. Rabbit, the
number two used-vehicle buyer, had around 170 stores. Gulliver had 417 in 2014. The company has
built a large store network to take advantage of its brand awareness. SR thinks Gulliver’s strong brand
will give a tail wind to retail expansion.
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Weaknesses
 Limited showroom retail sales experience: Gulliver’s strategy through FY02/18 focuses on
expanding the retail business. Its retail expansion strategy was laid out in FY02/14, so as of FY02/14 it
is still too early to tell whether or not the company’s retail store push will bear fruit. As part of its
expansion strategy, the company’s retail business will target customers who had previously been
buyers of mid- to high-priced used and new vehicles. This customer base differs from Gulliver’s
previous customer base, and will require a higher level of sales and service.
 Significant capital investment needed for expansion: SR estimates that capex for 400 new
stores will be over JPY30bn, and that operating expenses such as salaries and leases will increase by
over JPY10bn during the four year period until FY02/18. This equates to an average additional cash
outflow of JPY10bn per year for the next four years (versus FY02/14). The company’s financial state
has improved (it moved into a net cash position [excess of cash and deposits over interest-bearing
debt] in FY02/14, and generated operating cash flow of about JPY10bn), and SR does not believe that
there will be a significant need for financing in order to construct more stores. However, Gulliver lacks
experience in retail display sales and overseas expansion. If these initiatives do not progress as
planned, the company does not currently have the financial stability (February 2014) to accommodate
such losses.

Unbalanced organizational structure: For 2015 and beyond, Gulliver is planning to hire
aggressively, adding between 500 and 700 new employees per year. At end FY02/14 it had 2,024
employees. As a result, SR estimates that by spring 2017, over half of the employees will have less
than three years of experience. According to the company, store management should not be an issue
since there are many assistant managers that are ready to be promoted. Although employing a
disproportionately large number of young workers is sometimes unavoidable for growing companies,
it can potentially warp the formation of the corporate culture and give rise to high employee turnover.
Market and value chain
Market overview
When an owner who has bought a new vehicle buys a replacement, he will either sell the old one to a
new-vehicle dealer as a trade-in or to a used-vehicle dealer. The dealer will either conduct necessary
maintenance and sell the vehicle independently, or put it on the used vehicle auction market.
In the 1960s the Japanese used-vehicle distribution system was in its infancy. New-vehicle dealers who
could not independently sell all of their stock would sell to independent used-vehicle dealers either
directly or through a broker. Most used-vehicle dealers were small, with new-vehicle dealers dominating
the market. The latter mostly wanted to sell new cars, with the used-vehicle business being an
afterthought. In the 1970s, auctions appeared, gaining prominence and scale in the 1980s.
The demand shift from new to used vehicles was a tailwind for the company. Through the late 1990s, the
market overall expanded greatly, and used-vehicle registrations outstripped those of new vehicles. Since
the early 2000s, the market has peaked, and according to the Japan Automotive Parts Recyclers
Association, there has been a shift to lower cost, earlier models (ie, older vehicles). Particularly since the
2008 global financial crisis, there has been a tendency to hold onto vehicles for longer. Plus young people
are not as interested in vehicles as earlier generations. Both used and new vehicle registrations have been
falling. In 2011, production was disrupted by the Tohoku earthquake, so new-vehicle supply dried up and
trade-ins along with it. The upshot: a severe shortage of used vehicles. In 2012, eco vehicle subsidies
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spurred new vehicle sales, boosting the supply of trade-in vehicles. Used vehicle registrations rose for the
first time in seven years (+7.3% YoY) to 6.9mn vehicles.
Used car registrations
New car sales
Total number of cars
1990
7,109,536
7,777,493
57,993,866
New car sales
Total number of cars
1995
7,945,867
6,865,034
68,103,696
2008
7,178,255
5,082,133
79,080,762
2000
8,213,918
5,963,042
74,582,612
2009
6,698,592
4,609,182
78,800,542
2005
8,106,460
5,851,921
78,278,880
2010
6,539,496
4,956,038
78,693,495
2006
8,066,864
5,739,407
78,992,060
2011
6,450,151
4,210,174
78,660,773
2007
7,530,096
5,353,581
79,236,095
2012
6,919,103
5,369,661
79,112,584
Source: Japan Automobile Dealers Association, Japan Light Motor Vehicle and Motorcycle Association
While about 7mn used vehicles are registered each year, SR understands that this includes transactions
between dealers, and so actual sales to consumers are about half of this (3.5mn). Of this number, around
half are trade-ins from new vehicle dealers, meaning the used vehicle purchase market is, in practice,
around 2mn vehicles annually. Gulliver has about a 10% share of the used vehicle purchase market.
In Europe and the US, the used-vehicle markets are broad and deep. In the Japanese domestic market,
the ratio of new to used vehicles is 3:2 (consumer sales basis); in the US, the ratio is 1:2, with used
vehicles by far in the majority. Based on this overseas experience, Gulliver believes that the Japanese
used vehicle market has significant scope for growth.
When the new vehicle market is mature, manufacturers must encourage replacement sales. If more
buyers replace their vehicles, the trade-in market expands and the used vehicle market grows. In Japan,
due to the traditional preference for new vehicles, the used vehicle market was slow to develop, but since
the 2000s, buyers (especially younger ones) have become more cost conscious, driving away the
once-dominant preference for new cars. According to Gulliver, if the preference for used vehicles
increases to western-country levels, the used-vehicle market could potentially triple in size to around 6mn
vehicles.
The auction market
('000 units)
Cars sent to auction
Cars purchased at auction
2002
6,022
3,284
2003
6,466
3,655
2004
6,983
3,830
2005
8,119
4,325
2006
8,427
4,584
2007
8,498
4,760
2008
8,435
4,270
2009
6,795
3,733
2010
6,360
3,823
2011
6,875
4,011
2012
6,979
4,139
Source: Used car System Solutions
Subsequent to the 2008 global financial crisis, a decline in new vehicle sales and the tendency for
consumers to own the same vehicle for longer led to a fall in supply of desirable used vehicles.
Competition
Competition in vehicle purchasing comes from Rabbit (USS), T-UP (Toyota), Apple (Mothers: 2788),
Carchs (TSE2: 7602), and carseven, among others. In terms of vehicles purchased through directly
managed stores, Gulliver is the number one, with a big gap between itself, the number two player and the
rest of the field. Rabbit (operated by USS) and T-UP (Toyota) are among the largest purchasers (by
number of vehicles purchased).
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Cars purchased at major car dealers (units)
250,000
200,000
150,000
100,000
50,000
0
Cars purchased at directly operated stores
Cars purchased at franchises
Source: Company materials (based on "Used Car Distribution Industry 2009", YANO Research Institute Ltd.)
Retail (used vehicle sales) competitors include KU (TSE1: 9856), Hanaten (TSE1: 9870), and various
manufacturer affiliated dealers nationwide. Gulliver estimates its market share at around 2%, adding that
because most players are very small this share makes it the biggest player.
Strategy
Store openings focused on mid- to high-priced second-hand vehicle sales
In order to succeed as a retailer, Gulliver believes that a balanced mix of competitive pricing, product
selection, and points of customer contact is vital. As a foundation for this mix, the company has realized
competitive pricing via low cost operations and a purchasing business capable of holding 6,000 vehicles in
inventory at all times. By FY02/18, the company’s plans also call for construction of 400 new display
stores to serve as points of customer contact.
Gulliver use as a reference CarMax, the largest seller of used vehicles in the US (source: CarMax 2013
Annual Report). Gulliver’s pre-tax profit margin was 4.0% (FY02/14); CarMax’s was 8.0% (FY12/13).
According to the company, while there were many small players selling low-priced vehicles in the US
used-vehicle market, CarMax set itself apart at least partly because it was focusing on higher value-added
part of the market—mid- to high-priced vehicles.
In FY2012, the new vehicle market in Japan saw over 5mn vehicles sold. Gulliver said that the
demographic that buys new vehicles is starting to become interested in buying reasonably priced used
vehicles. Taking advantage of this trend, Gulliver will use its expertise in providing quality mid- to
high-priced vehicles for reasonable prices to expand market share.
Gulliver planned to open stores mainly in the directly managed SNAP, Minikuru and Outlet formats, with
different product lineups in the different shops. For an overview of brands by stores, see the Retail
business (display sales) section.
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From FY02/14 onward, Gulliver plans to open new stores in the retail (display) format, aiming at 400 by
FY02/18.
In FY02/14, the individual stores in its new store brand lineup were not advertising on their own. Gulliver
thought that from FY02/15 it would be necessary to consider a marketing strategy using non-TV media
that would not be costly—for instance, advertising its high-end format Liberala in fashion and car
aficionado magazines.
It did not plan to advertise all of its store brands. Of note, the catchment area for automobiles is around
15km, and the shops themselves serve as “billboards”. Thus, Gulliver thought it was not necessary to run
large-scale advertisements for separate store brands.
Improving staff productivity by developing young talent
In line with its retail expansion strategy, Gulliver plans to boost employee numbers. In spring 2015
(FY02/16), it aims to hire 700 people, three times the number hired in spring 2014 and the equivalent to
over 30% of its workforce as of FY02/13.
Gulliver said that as it had kept a lid on new store openings since 2010, well over 100 personnel who had
passed the store manager exam remained at the assistant manager level. Even though the company
plans to accelerate its store rollout, hiring new graduates to staff the stores will not hinder store
management. Gulliver said it planned to open new stores at the pace of 100 per year through FY02/18,
and it had trained enough managers to meet two years of demand (until FY02/16). The company believes
that the number of employees with store manager qualifications will keep increasing to handle the 100
store per year pace.
Expansion into ASEAN countries through franchises
Gulliver plans to have 800 overseas stores by FY02/18: 300 in Thailand and the others in ASEAN nations
such as Indonesia, Malaysia, and Myanmar.
In ASEAN, Gulliver plans to use only the franchise model so as not to incur startup costs. In Thailand it set
up a joint venture with the Viriyah Group, the largest property and casualty insurance company in
Thailand, in 2013. In 2013, there were at least four auction houses operating in the country including a
large US player, making the market for used vehicles sufficiently liquid to make the Gulliver model work.
At the same time, the company pointed to persistent shortages of used-vehicle inventory in Thailand. This
means that even if the vehicles are held in inventory for up to a year, price declines are minimal and it is
therefore feasible to hold a year of inventory without incurring too much risk. This in turn makes it easier
to develop a showroom-based retail business.
In December 2015 the ASEAN Community will be created and tariffs will be eliminated. According to the
company, the difference in used-vehicle price ranges among the ASEAN countries was large as of 2014.
Gulliver believes that the elimination of tariffs within ASEAN will make the used-vehicle market much more
liquid, and thus aims to continue its store rollout through FY02/18. In ASEAN as well, Gulliver may
attempt retail (showroom) sales in the future, but will focus first on buying and developing its ability to
procure used vehicles.
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M&A
In December 2013, Gulliver created an M&A team for the planned purpose of opening new stores and
pursuing M&A activities. By opening new locations, the company believes that it will be better able to
connect with customers, which will lead to increased opportunities for purchasing.
Gulliver’s financial health had improved and it had net cash (cash and deposits minus interest-bearing
liabilities) as of FY02/14. The company is able to fund investments through cash flow and borrowings, and
plans to consider an expansion strategy that includes capital alliances.
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Historical performance
Summary
Q3 FY02/14 results
In Q3 FY02/14 (September-November), sales were JPY45.2bn (+19.5% YoY), operating profit was
JPY2.4bn (+38.1％), recurring profit was JPY2.4bn (+33.8%), and net income was JPY1.4bn (+30.0％).
Cumulative Q3 FY02/14 sales were JPY128.6bn (+17.8% YoY), operating profit was JPY5.9bn (+78.1％),
recurring profit was JPY6.0bn (+72.9%), and net income was JPY3.7bn (+89.9%).
In Q3 (September-November), Gulliver sold 13,559 vehicles (+15.0% YoY) at its directly operated stores,
and on a Q3 cumulative basis, it sold 38,860 vehicles (+9.7%). In Q2, amid expectations that it would
meet its full-year financial and vehicle-sales targets, the company raised retail prices to boost gross retail
profits. However, in Q2 its retail vehicle sales fell by 1.9% YoY. In Q3, Gulliver restored its retail prices to
previous levels, with a consequent rebound in retail sales volumes. Gulliver bought 41,519 vehicles in Q3
(+14.6% YoY), bringing the cumulative Q3 total to 119,254 (+12.9%). Wholesale vehicle sales were
32,500 in Q3 (+16.6%), bringing the cumulative total to 97,004 (+12.9%).
In Q3 (September-November), Gulliver opened six stores: three Outlets, one Liberala, one new-vehicle
dealer (Volvo Matsuyama), and one Gulliver One store. At end Q3 Gulliver had 303 directly managed
stores and 109 franchises, for a total of 412.
In Q3 (September-November), GPM was 21.0% (23.3% in the same quarter last year). A rise in auction
prices drove down GPM. Because Gulliver’s gross profit amounts are fixed, when auction prices rise, the
GPM falls. In the previous year, demand shifted to new vehicles because of subsidies for eco-friendly
vehicles; as these were not provided in FY02/14, auction prices rose. Cumulative Q3 GPM was 21.2%
(22.4% in the same quarter last year).
In Q3 (September-November), SG&A expenses (parent basis) rose due to the cost of running the
expanded directly managed store network, despite restrained advertising and promotional spending.
Advertising and promotional spending was JPY1.2bn (-13.2% YoY), and outsourcing expense was flat at
JPY242mn. Personnel expenses were JPY2.8bn (+1.7%), depreciation was JPY335mn (+15.1%) and
rental costs were JPY1.2bn (+3.5%). Cumulative Q3 SG&A expenses (parent) were JPY21.1bn (+0.9%).
The number of employees at directly managed stores was 1,540 (1,486 in the same quarter last year) at
end Q3.
Fixed assets were JPY18.3bn (-22.9% QoQ), due to a decline in long-term loans. Note that JPY4.7bn in
accounts receivable were for consolidated subsidiary G-One Financial Services (finance receivables). In
3Q (September), JPY6.5bn in loans were repaid ahead of schedule by Premia Financial Services (formerly
SBI Credit).
Gulliver maintained its full-year forecasts. By end Q3 FY02/14 it had reached 88.7% of its sales target and
101.9% of its operating profit forecast. In the previous Q4, the company posted an operating profit of
JPY1.8bn. As such, unless there are significant costs in Q4 the company will likely beat its full-year
targets.
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FY02/13 results
In FY02/13, sales were JPY143.4bn (+7.9% YoY), operating profit was JPY5.1bn (-18.8％), recurring
profit, JPY5.5bn (-16.9%) and net income, JPY3.0bn (-21.3%).
Gulliver sold a record number of vehicles (45,269) to its retail customers (33,091 the year earlier) from its
directly run stores. In recent years Gulliver had enhanced personnel training at existing Gulliver stores,
and there was a contribution from new store openings, including large display showrooms. However,
profitability on second-hand vehicles sold at auction in the wholesale market to used-vehicle dealers fell in
the first half as the eco vehicle (new vehicle) subsidies were in effect until September 2012. Gulliver
bought 144,402 vehicles (142,350 the year earlier) and sold 113,484 in the wholesale market (113,198
the year before). Wholesale profit per unit sold fell by 13.5% YoY.
SG&A expenses rose by 7.8% YoY to JPY28.8bn as Gulliver invested in advertising and promotion to set
the stage for growth in its retail operations, and personnel expenses rose as it employed more workers,
mainly new graduates.
As Gulliver was shrinking the business of consolidated subsidiary G-One Financial Services, its operating
profit fell to JPY1mn, down JPY337mn from the year before. At the end of the period, accounts receivable
(finance receivables) were JPY6.7bn, down JPY3.0bn YoY.
FY02/12 results
In FY02/12, sales were JPY132.9bn (-6.4% YoY), operating profit was JPY6.2bn (-21.9%), recurring profit,
JPY6.3bn (-19.2%), and net income, JPY3.8bn (-26.4％).
Directly run shops sold 33,091 vehicles to retail customers (35,680 the year before). In an environment of
slumping consumption, sales continued to fall on a year-on-year basis through Q3. In Q4, in addition to
personnel training at existing Gulliver stores, there was a contribution from new store openings, including
large display showrooms, and sales started posting year-on-year growth. Gulliver bought 142,350
vehicles (137,391 the year earlier); wholesale profit per unit sold fell by 7% YoY. The auction market
surged after the earthquake but fell back from summer, and in H2 gross profit per vehicle fell sharply.
As the finance business was in run-off mode from the previous year, operating profit at consolidated
subsidiary G-One Financial Services fell to JPY339mn, down by JPY1.2bn from the year earlier. At the end
of the period, accounts receivable (finance receivables) hit JPY9.7bn, down JPY3.5bn YoY.
Gulliver posted JPY950mn in abnormal profits on a reversal in provisions for losses on business liquidation.
The company had booked losses on business liquidation in FY02/11 that were anticipated from
transferring and consolidating functions at headquarters accompanying the integration of group
companies. The reversal of these losses was booked because Gulliver decided to review certain of these
transfer and consolidation plans in light of power-saving measures following the Tohoku earthquake.
The abnormal losses totaling JPY672mn comprised: a loss on adjustments for changes in accounting
standards for asset retirement obligations, a loss on disaster, and loss on disposal of fixed assets.
FY02/11 results
Sales were JPY142.0bn (-4.6% YoY), operating profit was JPY8.0bn (+51.5%), recurring profit, JPY7.8bn
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(+56.2%), and net income, JPY5.1bn (+1,374.2%).
The main reason for the fall in sales was falling retail sales at its directly run stores due to the eco vehicle
subsidies. Further, the finance business shrank—the bulk of the vehicle loans Gulliver provided when
selling to retail customers was switched to other consumer credit companies from May 2010; and G-One
Credit Services was no longer consolidated following the transfer of its shares. The number of vehicles
handled by G-Trading also declined. Directly managed stores sold 35,680 vehicles over the year,
compared with 40,445 the year before. The number of vehicles purchased was 137,391, vis-à-vis 144,618
the year before. Also, Gulliver shifted its focus from number of units sold to profitability (gross
profit/vehicle) in response to worsening business conditions.
The transfer of shares in G-One Credit Card Services generated abnormal share-sale profits of JPY1.2bn.
However, Gulliver also posted JPY3.2bn in abnormal losses as shown below.
The company posted a total of JPY2.5bn in business liquidation losses. These came from: the closure of
G-Trading Rus. LLC (a subsidiary of its consolidated subsidiary G-Trading) and expected future losses from
the consolidation and transfer to headquarters of functions accompanying the integration of group
companies. Gulliver also posted JPY435mn in provisions for doubtful accounts. The company’s
consolidated subsidiary G-Trading’s subsidiary G-Rental (construction equipment) saw business shrink,
resulting in an increase in its negative net worth.
Gulliver posted a loss on disposal of fixed assets of JPY338mn due to the closure of some directly
managed stores. Corporate tax declined for several reasons. Losses in the previous year following the
transfer of all the issued shares of G-One Credit Services to SBI Holdings offset the abnormal profits
generated in FY02/11 for tax purposes. Also, carry-forward losses from G-One Financial Services were
deducted from the current year’s taxable income. Further, in August 2010 Gulliver sold all of the issued
shares it held in G-One Trading to G-One Financial Services, so the provisions Gulliver posted in regard to
G-One Trading were recognised as losses for tax purposes.
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Income statement
Income Statement
(JPYmn)
Total Sales
YoY
CoGS
Gross Profit
YoY
GPM
SG&A
SG&A / Sales
Operating Profit
YoY
OPM
Non-Operating Income
Non-Operating Expenses
Recurring Profit
YoY
RPM
Extraordinary Gains
Extraordinary Losses
Tax Charges
Implied Tax Rate
Minority Interests
Net Income
YoY
NPM
FY02/10
Cons.
148,853
-9.1%
109,934
38,918
-1.7%
26.1%
33,637
22.6%
5,281
35.2%
3.5%
169
442
5,008
90.1%
3.4%
229
2,979
1,905
84.4%
3
348
-112.3%
0.2%
FY02/11
Cons.
142,038
-4.6%
105,565
36,473
-6.3%
25.7%
28,472
20.0%
8,001
51.5%
5.6%
153
330
7,824
56.2%
5.5%
1,203
3,284
603
10.5%
5,140
1377.0%
3.6%
FY02/12
Cons.
132,881
-6.4%
99,892
32,989
-9.6%
24.8%
26,739
20.1%
6,249
-21.9%
4.7%
249
180
6,318
-19.2%
4.8%
950
672
2,810
42.6%
3,785
-26.4%
2.8%
FY02/13
Cons.
143,417
7.9%
109,527
33,889
2.7%
23.6%
28,812
20.1%
5,077
-18.8%
3.5%
285
110
5,252
-16.9%
3.7%
6
86
2,191
42.4%
2,980
-21.3%
2.1%
FY02/14
Cons.
169,398
18.1%
132,843
36,554
7.9%
21.6%
29,460
17.4%
7,094
39.7%
4.2%
181
74
7,201
37.1%
4.3%
50
180
2,711
38.3%
4,377
46.9%
2.6%
FY02/15
Est.
173,000
2.1%
8,500
19.8%
4.9%
8,500
18.0%
4.9%
5,100
16.5%
2.9%
From its founding in 1997 through FY02/08, Gulliver’s sales and profits rose (with the exception of
FY02/07). From FY02/09, sales trended down owing to the financial crisis (tighter credit), effects of the
eco vehicle subsidy (explained earlier in this report) and contraction in the finance business in order to
improve the company’s financial position. Beginning in FY02/11, the company moved to emphasize profits
(gross profit per vehicle sold) over unit sales volume, and this led to a significant rise in profits. The eco
vehicle subsidy ended in September 2012, and this yielded improvement in profitability for FY02/14.
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Historical forecast accuracy
Initial CE vs. Results
(JPYmn)
Sales (Initial CE)
Sales (Results)
Operating Profit (Initial CE)
Operating Profit (Results)
Recurring Profit (Initial CE)
Recurring Profit (Results)
Net Profit (Initial CE)
Net Profit (Results)
FY02/10
Cons.
154,000
148,853
-3.3%
5,000
5,281
5.6%
5,000
5,008
0.2%
2,300
348
-84.9%
FY02/11
Cons.
137,000
142,038
3.7%
4,000
8,001
100.0%
3,900
7,824
100.6%
1,900
5,140
170.5%
FY02/12
Cons.
133,000
132,881
-0.1%
6,600
6,249
-5.3%
6,500
6,318
-2.8%
3,500
3,785
8.1%
FY02/13
Cons.
134,000
143,417
7.0%
5,000
5,077
1.5%
5,000
5,252
5.0%
2,800
2,980
6.4%
FY02/14
Cons.
145,000
169,398
16.8%
5,800
7,094
22.3%
5,800
7,201
24.2%
3,300
4,377
32.6%
In FY02/09, forecasts fell short due to the global financial crisis. In FY02/11, in response to worsening
market conditions, the company: shifted from focusing on units sold to profitability (gross profit/vehicle);
improved advertising; and cut subsidiaries’ SG&A expenses. Thanks to this, earnings topped forecasts by
a wide margin. In FY02/12, the company lifted its operating profit forecast from JPY6.6bn to JPY8.0bn.
Subsequently it cut its forecast. While the auction market expanded sharply post the Tohoku earthquake,
it slumped from summer and profit per vehicle fell in 2H. In FY02/14, the company pursued new store
openings in the retail channel. Consequently, a higher number of retail units sold also pushed up
customer numbers, vehicles purchased and wholesale units sold. These results exceeded initial forecasts.
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Balance sheet
Balance Sheet
(JPYmn)
ASSETS
Cash and Equivalents
Accounts Receivable
Allowance for Doubtful Accounts
Inventories
Other Current Assets
Total Current Assets
Buildings
Land
Construction in Progress
Other Fixed Assets
Total Tangible Fixed Assets
Investments
Stocks of subsidiaries and affiliates
LT Loans
Deferred Tax Assets
Deposits Made
Insurance Reserve Fund
Other
Allowance for Doubtful Accounts
Total Other Fixed Assets
Goodwill
Other
Total Intangible Assets
Total Fixed Assets
Total Assets
LIABILITIES
Accounts Payable
Short-Term Debt
Lease Obligation
Income Taxes Payables
Provision for Bonuses
Other Current Liabilities
Total Current Liabilities
Long-Term Debt
Lease Obligation
Reserve for Retirement Benefits
Other Fixed Liabilities
Total Long-Term Liabilities
Total Interest-Bearing Debt
Total Liabilities
Shareholder Equity
Issued Capital
Reserves
Retained Earnings
Treasury Stock
Foregin Currency Translation Adjustment
Subscription rights to shares
Minority Interest
Total Shareholder Equity (Net Assets)
Working Capital
Interest-Bearing Debt
Net Debt
FY02/10
Cons.
FY02/11
Cons.
FY02/12
Cons.
FY02/13
Cons.
FY02/14
Cons.
3,613
30,287
-1,400
10,351
16,737
50,179
6,986
218
270
1,243
8,717
14
859
328
367
3,055
2,955
528
-654
7,452
48
1,551
1,599
17,769
67,948
8,896
16,979
-552
7,004
9,864
36,338
6,462
218
13
741
7,434
14
805
8,983
433
2,926
2,814
254
-1,101
15,128
27
927
954
23,517
59,856
8,472
10,683
-65
8,640
10,515
30,925
7,553
218
22
610
8,403
14
768
7,993
235
2,894
2,840
261
-652
14,353
5
956
961
23,718
54,643
6,863
9,614
-61
10,380
12,174
29,555
8,820
218
40
531
9,609
14
361
6,558
249
3,065
2,758
252
-111
13,146
0
942
942
23,698
53,253
14,688
7,163
-59
9,414
11,671
33,463
9,981
218
184
606
10,989
3
435
251
253
3,319
2,812
304
-62
7,315
1
1,010
1,011
19,316
52,779
4,230
26,159
3,032
1,528
570
6,068
41,587
8,516
877
574
9,967
34,675
51,555
3,806
8,517
2,278
918
496
6,683
22,698
11,000
816
449
12,265
19,517
34,964
2,912
2,000
2,130
2,532
489
5,997
16,060
9,000
807
1,016
467
11,290
11,000
27,351
3,439
5,000
1,829
579
464
6,046
17,357
4,000
772
1,129
544
6,445
9,000
23,802
2,852
0
1,721
2,116
440
6,396
13,525
4,000
741
1,191
475
6,407
4,000
19,933
4,157
4,032
18,798
-11,178
583
4,157
4,032
20,083
-3,975
586
7
24,891
20,177
19,517
10,621
4,157
4,032
23,021
-3,975
54
2
27,292
16,411
11,000
2,528
4,157
4,032
25,171
-3,975
62
3
29,451
16,555
9,000
2,137
4,157
4,032
28,548
-3,975
80
4
0
32,846
13,725
4,000
-10,688
16,393
36,408
34,675
31,062
32/41
2014/6/12
Assets
As of FY02/14 trade receivables were JPY7.2bn. Of this, JPY3.6bn was trade (finance) receivables due to
consolidated subsidiary G-One Financial Services. In Q3 FY02/14 (September 2013), around JPY6.5bn in
long-term loans was repaid early by Premia Financial Services (formerly SBI Credit). Gulliver expected
trade receivables in the finance business to be nil in FY02/15. Also, since Gulliver rents its stores, lease
and guarantee deposits accounted for 6% of total assets (FY02/14).
Liabilities
Accounts payable were 14% of total liabilities (FY02/14). As Gulliver capped store openings starting in
FY02/09, its financial health improved after restructuring; from net debt (interest-bearing liabilities minus
cash and deposits) of JPY25.0bn in FY02/09, the company moved into a net cash position in FY02/14.
Net assets
Gulliver maintained high ROE. Net assets increased from JPY10.6bn in FY02/01 to JPY32.8bn in FY02/14.
ROE
FY02/06
27.5%
FY02/07
37.6%
FY02/08
23.7%
FY02/09
-
FY02/10
2.2%
FY02/11
24.9%
FY02/12
14.5%
FY02/13
10.5%
FY02/14
14.0%
Shareholder equity
In FY02/09, the company’s equity ratio stood at 26.9%, rising to 62.2% as of FY02/14. A high ROE from
FY02/11 onward, collection of receivables resulting from a contraction in the finance business, and the
repayment of interest-bearing debt helped the equity ratio.
Shares outstanding
Gulliver’s investment activities have been mainly funded via operating cash flow, so the company has not
raised equity since listing on the Second Section of the TSE in December 2000. The number of shares was
steady at 10,688,800 from FY02/05, but on 1 May 2013, the company executed a 1:10 split of its common
shares, bringing the new total to 106,888,000.
33/41
2014/6/12
Cash flow statement
Cash Flow Statement
(JPYmn)
Operating Cash Flow (1)
Investment Cash Flow (2)
Free Cash Flow (1+2)
Financial Cash Flow
Depreciation & Amortization (A)
Capital Expenditures (B)
Working Capital Changes (C)
Simple FCF (NI + A + B - C)
FY02/10
Cons.
-3,586
-1,336
-4,922
5,056
1,614
-1,870
7,936
-7,844
FY02/11
Cons.
14,253
2,790
17,043
-11,749
1,215
-1,345
-16,231
21,241
FY02/12
Cons.
10,665
-1,580
9,085
-9,919
1,213
-1,514
-3,766
7,250
FY02/13
Cons.
3,064
-1,348
1,716
-2,830
1,190
-2,473
144
1,553
FY02/14
Cons.
10,061
3,734
13,795
-5,981
1,354
-2,907
-2,830
5,654
Cash flows from operating activities
Key components of operating cash flows: net income before tax and other adjustments; changes in
working capital; and depreciation. In FY02/09 and FY02/10, the years of the global financial crisis,
operating cash flow deteriorated as profits slumped. The cash conversion cycle is about two months, so
when profits deteriorate working capital tends to increase. The company expects trade receivables in the
finance business to be nil by FY02/15, so working capital should also decline. Around half of the JPY7.2bn
in trade receivables in FY02/14 was in the finance business.
Cash flows from investing activities
Gulliver does not make major capital investments as its new stores are usually rented or leased. Therefore,
its investment activities are usually funded by operating cash flow; investing cash flows are minimal.
When cash flows from investing activities are positive, it is usually due to the refund of lease and
guarantee deposits when closing a store, or recoveries of loans made to Premium Financial Services Co
Ltd. In FY02/11 there was JPY5.0bn of loan recoveries. At end FY02/13, loans to Premium Financial
Services were JPY6.4bn, but in September 2013 the amount was repaid early and in full with the intention
of reducing interest-bearing debt. The outstanding balance was reduced to zero ahead of schedule. We
note that it was slated to reach zero in February 2015.
Cash flows from financing activities
Cash flows from financing activities were negative. This was due to loan repayments that began in
FY02/11, prompting a reduction in interest-bearing debt. Gulliver plans to open 100 new stores yearly
from FY02/15 as part of its retail expansion strategy. Assuming one store needs JPY80mn in capex, the
annual cost for the store rollout is around JPY8bn. Considering Gulliver’s operating cash flow of JPY10.1bn
and cash and deposits of JPY14.7bn (FY02/14), financing risk appears low.
34/41
2014/6/12
Cash conversion cycle
Accounts Receivable Turnover
Days in Accounts Receivable
Inventory Turnover
Days in Inventory
Payables Turnover
Days in Payables
Cash Conversion Cycle (days)
FY02/10
Cons.
5.6
65.7
22.7
16.1
30.4
12.0
69.80
FY02/11
Cons.
6.0
60.7
22.3
16.4
26.3
13.9
63.24
FY02/12
Cons.
9.6
38.0
21.5
17.0
27.6
13.2
41.75
FY02/13
Cons.
14.1
25.8
24.2
15.1
73.9
4.9
35.99
FY02/14
Cons.
20.2
18.1
24.2
15.1
38.6
9.4
23.73
In the finance business Gulliver plans to cut accounts receivable to zero. Days in accounts receivable is
declining as a result. The company buys vehicles from consumers and auctions off inventory that is not
resold within two weeks. As a result, inventory turnover is about 15 days. Payables are primarily accounts
payable to consumers, as the company buys vehicles. Transferring cash to customer accounts can take
three to four days, precipitating low turnover. In FY02/13, the cash conversion cycle was around one
month. If accounts receivable in the finance business can reach zero from FY02/15 onward, then the cash
conversion cycle may drop to as low as 10 days.
35/41
2014/6/12
Other information
History
In 1994, the current chairman, Kenichi Hatori, established the automobile purchase division of Tokyo My
Car Sales in Koriyama City, Fukushima. The same year the first Gulliver store opened in Asaka, and the
first Gulliver franchise in Hirosaki. Gulliver International Corp was also established in Koriyama City.
In the beginning, the company had only JPY270,000 in the bank, so funds were limited and management
resources were spread thinly. Gulliver developed a new business model: specializing in wholesale
auctioning of used vehicles, without display sales. The company said no competitors were specializing in
purchasing. Used-vehicle dealers were interested only in the retail market. The driving force behind
Gulliver’s growth was a business model specializing in purchasing rolled out rapidly nationwide using
franchising and brand recognition. In 1995 in particular, the company accelerated store rollout. Gulliver
offered half of the franchise fees as an incentive to Venture Link (currently C&I Holdings Co Ltd; TSE2:
9609)—its franchise development agent—to recruit franchise stores.
Gulliver recruited franchise owners not from the used-vehicle business but other industries, as
used-vehicle dealers’ business model did not match Gulliver’s. Whereas used-vehicle dealers display their
own vehicles on the lots to sell them, Gulliver did not display vehicles and had a shortened inventory
holding period. The company was able to create nationwide brand recognition and develop store
infrastructure as a result of hiring employees from various industries. Workers had fewer or no biases
stemming from previous related experience. This both saved time and prevented clashes of opinion. To
boost brand recognition, in 1996 Gulliver started to aggressively advertise, beginning with TV
commercials starring celebrity Yuri Mitsui. As a result, it expanded its vehicle-purchase store network
through franchising. In 10 years it sported Japan’s largest inventory. Aiming for further expansion,
Gulliver began internet sales directly to consumers in 1998 via its Dolphinet system.
In 2004, Gulliver launched a finance business subsidiary, G-One Financial Services. In the same year, the
company moved overseas, first to the US then to China and India. But its financial situation deteriorated,
held back in part by the global financial crisis. As a result, from around 2008, Gulliver started liquidating
subsidiaries. Starting in 2010, it capped new store openings for three years, aiming to restore its financial
health. In 1H FY02/14, the company’s cash finally topped its interest-bearing debt. From FY02/14,
Gulliver was once again on the road to expansion, aiming at 800 domestic stores and re-launching its
overseas push.
In 1998, Gulliver registered its shares with the Japan Securities Dealers Association. In 2000 it listed on
the Second Section of the Tokyo Stock Exchange. In 2003, it listed on the First Section of the Tokyo Stock
Exchange.
36/41
2014/6/12
News & Topics
March 2014
On March 28, 2014, the company announced a revision to its FY02/14 earnings and dividends
forecasts.
FY02/14 full-year earnings forecast
Sales: JPY169.3bn (Previous forecast: JPY145bn)
Operating profit: JPY7.1bn (JPY5.8bn)
Recurring profit: JPY7.2bn (JPY5.8bn)
Net income: JPY4.4bn (JPY3.3bn)
The number of vehicles sold across all store types was approximately 50,000 units, in line with the
company’s initial expectations. Sales were especially brisk at newly opened stores for different retail
channels, such as outlet stores (low cost vehicles) and LIBERALA stores (luxury vehicles). Vehicles
purchased by the company across all store types were higher than initial estimates, a result of increased
customer traffic from higher sales. In light of these facts, Gulliver has made an upward revision to its
full-year earnings forecast.
The year-end dividends forecast for FY02/14 has been revised upward by JPY3 per share to JPY8 per
share. In line with this change, the total full-year dividend forecast was revised to JPY13 per share.
Major shareholders
Top shareholders
Forward Co., Ltd.
Yusuke Hatori
Takao Hatori
BBH for Fidelity Low-Priced Stock Fund
The Master Trust Bank of Japan, Ltd. (Trust account)
Japan Trustee Services Bank, Ltd. (Trust account)
The Chase Manhattan Bank NA, London, SL Omnibus Account
State Street Bank and Trust Company 505224
SSBTOD05 Omnibus Account Treaty Clients
Japan Trustee Services Bank, Ltd. (Trust account 9)
Amount
Held
26.20%
7.92%
7.92%
6.27%
4.49%
3.56%
2.86%
2.81%
1.18%
1.07%
Source: Company data, SR Inc. Research
As of February 28, 2014
Forward Co Ltd is an affiliated company that is headed by President Takao Hatori. Takao Hatori is also the
president of Gulliver.
37/41
2014/6/12
Top management
Chairman Kenichi Hatori (born 1940) joined Hatori Automotive Industry in 1959, and in 1976 launched
Tokyo My Car Sales, becoming representative director. In 1994 he founded Gulliver, becoming president
and representative director. In 2008 he became chairman and representative director.
In June 2008, Kenichi Hatori was appointed chairman. His eldest son Yusuke Hatori and second son
Takao Hatori were appointed co-presidents.
Yusuke Hatori, the first son (born in 1971), was tasked by the current chairman with setting up an office
in Sapporo, Hokkaido, the year he graduated from university. He was appointed a director of Gulliver in
1995. In FY02/15, he was responsible for new businesses, the franchises, and head office functions
including investor relations.
Takao Hatori, the second son of Kenichi Hatori (born in 1972), was appointed a director in 1995, and in
1999 became a managing director. He was made a senior managing director in 2006 and representative
director in 2008. In FY02/14, he was mainly in charge of directly managed stores.
The two presidents change duties regularly. Whether or not they agree on an issue, they always talk until
both are satisfied. Acting swiftly to open stores, expanding overseas and conducting M&A activities,
Gulliver faces some important decisions. The co-presidents said that they always discuss the underlying
risks inherent in such activities and make decisions only when they have reached agreement.
Employees
At end FY02/14, Gulliver had 2,024 regular employees, and an annual average of 570 temporary
employees.
Details of the 2,018 parent-company employees (end FY02/14):
 Average age: 33.0 years.
 Average length of service: 6.0 years.
 Average annual salary: JPY4.5mn.
The company does not have a labor union.
Investor relations
Gulliver holds profit briefings twice yearly, at the full- and half-year results.
Dividends and shareholder benefits
Gulliver believes returning profits to shareholders is important, and emphasizes the dividend payout ratio.
Through FY02/08, Gulliver had a publicly stated policy of paying out 30% of parent company net income
as dividends. In FY02/09, it changed the basis to consolidated net income. In FY02/15, Gulliver stated it
plans to pay a dividend of JPY15 per share, giving a payout ratio 29.8%.
38/41
2014/6/12
By the way
The company’s website address, 221616.com, is a Japanese-language play on words and numbers that
roughly translates as “all kinds of things that go vroom, vroom”.
39/41
2014/6/12
Profile
Company
Gulliver International Co., Ltd.
Phone
+81-3-5208-5505
Established
October 5, 1994
Website
http://221616.com/gulliver/en/
IR web
http://221616.com/gulliver/en/ir_top/
Head office
Tokyo Building 25F,
2-7-3, Marunouchi, Chiyoda-ku
Tokyo, Japan 100-6425
Listed on
Tokyo Stock Exchange 1st Section
Exchange listing
December 11, 1998
Fiscal year-end
February
40/41
2014/6/12
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41/41

Gulliver International Co., Ltd. (7599)

Transcription

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