In the term ending March 2016 (from April 1, 2015 to March 31, 2016), impairment loss is estimated to be recorded in our consolidated subsidiaries as mentioned below. As a result, we will revise our consolidated earnings forecast for the term ending Mar. 2016 released on May 8, 2015 as follows. In addition, we announce that we will have a loss on valuation of stocks of subsidiaries and affiliates related to non-consolidated business results.
1. Impairment Loss in Our Consolidated Subsidiaries
(1) Impairment of goodwill related to consolidated subsidiaries
- We have discussed the possibility of future recovery of goodwill that was posted when we acquired the stocks of our consolidated subsidiaries, PROTO MALAYSIA Sdn. Bhd. (hereinafter referred to as PROTO MALAYSIA) and Kings Auto Co., Ltd. (hereinafter referred to as Kings Auto) and when we took over the business of PROTO (TAIWAN) Co., Ltd. (hereinafter referred to as PROTO (TAIWAN)) based on each company’s immediate business trend, and we expect the full amount of undepreciated balance of goodwill, 2,329 million yen (1,889 million yen for PROTO MALAYSIA, 285 million yen for PROTO (TAIWAN), and 154 million yen for Kings Auto), to be recorded as impairment loss because we determined that the amount is irrecoverable.
(2) Background for impairment loss
- Our corporate group acquired MTM Multimedia Sdn Bhd (currently PROTO MALAYSIA), a company that provides automobile-related information in Malaysia, as our subsidiary in September 2011 to enrich the main line of our business, the automobile-related information service. In addition, we have been working on the global expansion of our core business, the automobile-related information service, by, for example, establishing PROTO (TAIWAN) in December 2011 as our fully-owned subsidiary and taking over the automobile information media business in Taiwan from CARNEWS. COM LTD. in January 2013.
Unfortunately, PROTO MALAYSIA currently has a shrinking profit level that mainly resulted from a rapid decrease in sales due to stagnating consumption and intensified competition environment caused by the goods and services tax (GST) which was introduced in Malaysia in April 2015. PROTO (TAIWAN) is also facing a diminishing profit level that is primarily caused by a decline in sales due to an inactive used-car market and the intensification of competitions in Taiwan.
Our corporate group also acquired Kings Auto that has experience of exporting used cars as our subsidiary in April 2012 to enlarge the sales channels of used-car dealers who are our main customers. However, because of several issues such as the competitive environment that is getting more severe in export destinations, the number of used cars exported has not grown as much as expected and the current profit level has deteriorated.
We have taken numerous measures such as the review of unprofitable businesses and conclusion of alliances with other companies in PROTO MALAYSIA and PROTO (TAIWAN) as well as enlargement of export destinations in Kings Auto to achieve our business plan. However, based on the immediate market environment and competition trend surrounding each company, the full amount of the undepreciated balance of goodwill of each company is expected to be posted as impairment loss because we considered it difficult at the moment to realize the investment recovery plan which we initially proposed.
(3) Our future plan
- In the markets of East and Southeast Asia that will grow in the mid-to-long term, we will continuously aim to recover our business results in Malaysia and Taiwan to globally develop the main business of our corporate group, the automobile-related information service.
For recovery of our business performance, in PORTO MALAYSIA and PROTO (TAIWAN), we will strengthen our advertisement business through the enrichment of websites and provide more services to support management of our clients. As one of such approaches, we made PROTO MALAYSIA and PROTO (TAIWAN) start a service to assess conditions of used cars, “Goo-inspection,” that is made available in Japan by CAR CREDO Co., Ltd., one of our subsidiaries. Especially in Malaysia, we have a plan to offer a long-term warranty service only for used cars, “Goo Warranty,” to give customers “a sense of security” after they purchase used cars. Following the conclusion of a contract for business partnership with Opal Auto Mart Sdn. Bhd., a local warranty company, we plan to launch the service. With business development principally based on the inspection and warranty services, we will boost earnings by differentiating us from competitors and increasing the number of partner companies.
In addition, in Kings Auto, we will reinforce the export service of used cars to Hong Kong and Myanmar in the future. Particularly in Hong Kong, we established an office for local staff in July 2015 and re-enhanced the sales activities toward existing and new customers and moreover, initiated a service accompanying “Goo-inspection” for used cars exported to Hong Kong in September 2015 so that we can distinguish us from the competition and further strengthen measures for recovering our business performance.
2. Revision to Consolidated Earnings Forecast
(1) Modifications of the consolidated earnings forecast figures for FY ending March 2016 (from April 1, 2015 to March 31, 2016)
(Unit: million yen)
| | Net Sales | Operating
Income | Ordinary
Income | Net income attributable to owners of parent | Net Income
per Share |
|---|
Previously announced
forecast (A) | | | | | Yen |
| 56,862 | 5,510 | 5,574 | 3,457 | 170．72 |
| Current modified forecast (B) | 54,155 | 4,105 | 4,219 | (331) | (16．41) |
| Change (B-A) | (2,706) | (1,404) | (1,354) | (3,788) | － |
| Change rate (%) | (4.8) | (25.5) | (24.3) | － | － |
(Reference) Results of previous FY
(FY ended March 2015) | 48,602 | 4,233 | 4,548 | 2,381 | 116．76 |
(2) Reasons for revision
①Net Sales
Due to the mild winter, the sales quantity and unit sales price of studless snow tires fell considerably below the plan in AUTOWAY Co., Ltd. that sells mainly tires and wheels. While the environment surrounding used-car dealers has been intensely changing, we have revised the estimated sales for the term ending March 2016 to 54,155 million yen based on the fact that the number of companies participating in MOTOR GATE fluctuated below our initial plan and other factors.
②Operating Income, Ordinary Income
We presume that the SG&A expenses will fall short of the plan. However, as mentioned above, it cannot compensate for the decrease in the profit margin on sales due to less sales than the plan and we made prior investment in the new businesses in our company, such as “GooPit.” So we have revised the estimated operating income and ordinary income for the term ending March 2016 to 4,105 million yen and 4,219 million yen, respectively.
③Net income attributable to owners of parent
In addition to the forecast that operating income and ordinary income will be just under the plan as mentioned above, as a result of our careful consideration of the possibility of future recovery based on each company’s immediate business trend regarding goodwill which was posted when we acquired the stocks of PROTO MALAYSIA and Kings Auto as well as when we took over the business of PROTO (TAIWAN), it is expected that 2,329 million yen of impairment loss will be recorded as irrecoverable amount, and thus, we have revised the estimated profit attributable to owners of the parent for the term ending March 2016 to (331 million yen) .
3. Loss on Valuation of Stocks of Subsidiaries and Affiliates related to Non-consolidated Business Results
It is predicted that the full amount of the undepreciated balance of goodwill of our consolidated subsidiaries, PROTO MALAYSIA, PROTO (TAIWAN) and Kings Auto, will be posted as impairment loss as mentioned above. Consequently, in the non-consolidated business results, 3,078 million yen of loss on valuation of stocks of subsidiaries and affiliates is estimated to be recorded as extraordinary loss. The loss on valuation of stocks of subsidiaries and affiliates will be recorded only in the non-consolidated business results and has no effect on consolidated results.
- (Note) We will announce the definitive values of the consolidated results on Friday, May 13, 2016.
- (Note) Although the earnings forecast figures in this document are calculated based on the information available as of the day of announcement, the actual earnings may be different from the above forecast figures due to uncertain factors that are inherent in the forecast.
