PARK24 Co., Ltd. (4666) Earnings Call Transcript & Summary

I am Nishikawa of PARK24. Thank you very much for taking your time for the financial results briefing meeting for the fiscal year ended October 2022. Allow me to proceed to the consolidated results for the fiscal year ended October 2022. On Slide 2 of the presentation material, we have the consolidated results. These are the financial figures announced yesterday. Net sales were JPY 290.2 billion. Operating profit was JPY 20.6 billion, recurring profit was JPY 16.9 billion, and net profit was JPY 2.4 billion. From the late first quarter to the second quarter of the fiscal year ended October 2022, meaning from late January till the end of March, the impact of the pandemic remained strong in the first half as evidenced by, for example, issuance of the priority measures to prevent the spread of infection and others. However, as the external environment eased very much towards the second half, we saw improvements in occupancy rate of parkings as well as mobility business, enabling us to achieve full year profits for the first time in 3 years. There is a big gap in recurring profit and net profit. I will explain about this later. Slide 3 shows sales and business profit by segment. Net sales of Parking Business Japan were JPY 153.8 billion and mobility business were JPY 78.7 billion. Parking Business International were JPY 57.9 billion. Business profit of Parking Business Japan was JPY 29.9 billion, and mobility business was JPY 9.3 billion. Parking Business International was negative JPY 3.4 billion. As for the reasons for the gap between business profit, recurring profit and net profit, mentioned earlier, if we look at consolidated mobility business, recurring profit was positive JPY 9.3 billion. At the bottom of the page, we have a table showing breakdown of mobility business profit by group company. Times Mobility was negative JPY 0.6 billion. PARK24 was JPY 4 billion. TIME24 was JPY 4.5 billion, and Times Communication, a call center business and time service, a maintenance service company, put together, was JPY 1.3 billion. In a nutshell, 3 companies generated profit while 1 company posted deficit. Further details are explained on Slide 4. Against the recurring profit of JPY 16.9 billion, there was extraordinary loss of JPY 2.3 billion. This is mainly because of extraordinary loss of JPY 1.5 billion related to the self-rehabilitation of business in the U.K. There is also losses related to 6 assets of unprofitable parking facilities of approximately negative JPY 0.6 billion. Below that is profit before income taxes of JPY 14.6 billion. From here, income taxes of JPY 8.6 billion will be deducted which does not include tax for Times Mobility as it was unprofitable. Total income tax was negative JPY 3.5 billion. But the original forecast for nonconsolidated Times Mobility was to be profitable for the full year ended October 2022. Times Mobility is basically a car sharing business, but there are a number of stations that utilize them as rental cars. As such, there are busy period and quiet period during the year. August, September and October are especially busy, which means the fourth quarter was the busiest period this fiscal year. On the other hand, from the first quarter to the second quarter, which is late January to March. When the priority measures to prevent the spread of infection had been issued, the business was negatively impacted. The plan was to offset the negative impact during the period when the priority measures to prevent the spread of infection was enforced by the busy period of the fourth quarter, spanning from August to October to achieve profits for the full year. However, the results of January to March have dropped more than we had expected and thus could not fully be offset by the busy period in the fourth quarter, resulting in negative JPY 0.6 billion of deficit. In light of such a situation, Times Mobility assessed the recoverability of its deferred tax assets and reversed part of it. As total income taxes were JPY 3.5 billion, deducting it from profit attributable to owners of parent makes net profit attributable to owners of parent land at JPY 2.4 billion. Slide 5 is about external environment. As many of you recognize, there was a sharp increase in the number of positive cases towards the beginning of the year, and the priority measures to prevent the spread of infection was issued impacting our business significantly. But since then, there has been no state of emergency declarations nor the priority measures to prevent the spread of infection. Although the number of positive cases are increasing now, there are no signs nor trends at all of decrease in occupancy rate of our businesses. Unlike before, this trend of having no signs of reduced occupancy rate due to increase in the number of positive cases has been continuing in the third quarter and the fourth quarter of the fiscal year that has ended. All the lines in the graph on Slide 5 represent net sales. As you can see, all the lines are showing an upward trend in general for Parking Business Japan, mobility business and overseas business. In the beginning, when the pandemic started, our occupancy rate and sales went down in proportion to the number of positive cases, but from the middle to the latter half of this year, we feel that there is less linkage between the two. Slide 6 is on changes in business operations since the beginning of COVID-19 explaining about the Parking Business Japan. With the spread of COVID-19, it became difficult to perform face-to-face sales activities targeting landlords. At the same time, occupancy rate of existing parking facilities went down, pushing down our sales. Therefore, rather than developing parking sites proactively, we became defensive. The rate of expansion of sales and the number of development of parking sites slowed down significantly, but we did continue the development with a full focus on being very selective. As a result, compared to fiscal year ended October 2019, a pre-COVID time, the ratio of unprofitable parking facilities decreased from 21.2% to 14.5%. In terms of the profit margin, it improved by 2.5% from 17% pre-pandemic to 19.5%. We believe our consistent steady efforts led to this result. Also for mobility business, we shifted our focus from proactive expansion to maximizing sales by maximizing earnings per vehicle. As a result, Operating profit per vehicle improved from JPY 18,800 in the fourth quarter before the pandemic to JPY 23,800 per vehicle as of the fourth quarter of the fiscal year ended October 2022. As there was significant impact of the pandemic, during the first and the second quarters, and there were big fluctuation in numbers, we compared the fourth quarter of the fiscal year ended October 2022 to the fourth quarter of the fiscal year ended October 2019 before the pandemic. Another change we saw was a rapid acceleration of membership growth probably because of the reasons such as people hesitating to take public transportation during the pandemic. Annual new membership during the fiscal year ended October 2019 was 206,000, but it increased roughly 50% to 315,000 new membership during the fiscal year ended October 2022. The number of members are increasing steadily at a good pace. For Parking Business International, we made efforts to optimize the leasing fees by one-to-one. On this slide, it is described as localized Times Parking. This means development of outdoor small-sized flat ground parking facilities like the ones in Japan. Pre-COVID, we used to develop 491 facilities a year, but it almost doubled to 969 in the fiscal year ended October 2022. Compared to pre-COVID, we were able to grow the number of developments substantially. Slide 7 shows quarterly results by business segment. Parking Business Japan and Mobility Business Were profitable in all 4 quarters from the first quarter to the fourth quarter. However, the second quarter number look smaller compared to the other 3 quarters as the priority measures to prevent the spread of infection have been issued. Having said that, the businesses were profitable throughout the year. Turning our eyes to Parking Business International, the first, the second and the third quarters ended in deficit. However, in the fourth quarter, it improved to close to 0. External environment of Parking Business International is on a recovery trend, and we are seeing a gradual improvement like in Japan, but the recovery curve is not as steep as in Japan. Since the recovery is very moderate, there is a slight time lag compared to the recovery of Japan business. However, external environment for Parking Business International is steadily improving, and we expect to be able to secure profits for the full year somehow this fiscal year, though the fiscal year ended October 2022 was in deficit. Slide 8 shows financial conditions. With the issuance of new shares and posting a profit Shareholders' equity rose to JPY 52.7 billion, resulting in an equity ratio of 17.2%. After issuance of new shares in April 2022, profits accumulated at the end of the fiscal year, resulting in improvements. In the fiscal year ended October 2021, we raised JPY 50 billion through subordinated loans. In terms of the credit rating, half of it will be recognized as capital. Therefore, for our credit rating purpose, shareholders' equity ratio is evaluated at 25.3%, but on the balance sheet, it stands at 17.2%. As such, we are at a stable level and will thus aim to achieve 30% equity ratio for the time being. Achieving this 30% will not be from 25.3% for credit rating purpose, but an improvement from 17.2% on the balance sheet. We aim to bring this up to 30% for the time being. Therefore, rather than paying out large amounts of dividends like before, we will prioritize achieving 30% and thus, we'll refrain from paying dividends for the fiscal year ended October 2022. This was brief, but this was the outline of the financial results for the fiscal year ended October 2022. From Slide 10 onwards, I would like to share the consolidated plan for the current fiscal year ending October 2023. In simple words, we will recover to pre-COVID state. Basically, for parking business, it is the number of facilities and the number of spaces. And for our mobility business, it is the number of vehicles we intend to increase. By realizing them, we intend to grow both sales and profit. This is the basic expansion strategy. However, because of the pandemic from the fiscal year ended October 2020 to October 2021, we focused on defense by suspending the expansion. But as I have been mentioning, the external environment has been improving significantly from the latter half of this year and assuming there will be no sharp deterioration of the external environment triggered by COVID-19, we will promote returning to the fundamental approach of network expansion. In addition, with regard to the digital strategy, we will take measures to improve convenience of customers using smartphones and IT tools, and we will also provide seamless services within the group. Expanding our network and promoting our digital strategy will be our key basic policies for this fiscal year. Based on the policy, the target figures of this fiscal year are net sales, JPY 323 billion, operating profit JPY 27 billion, recurring profit, JPY 23 billion and profit attributable to owners of the parent, JPY 13 billion. Recurring profit of JPY 23 billion is the highest ever. During this fiscal year, the number of infected people has increased slightly. So there is an impact of COVID-19, but even so the business that we have been doing for the past 2 years has become leaner. The number of parking facility developments was about 100 in the previous fiscal year, but we would develop 1,000 parking facilities this year. So I think we can aim for the highest profit by accelerating the development. From the Page 12, let me explain each business segment. First of all, the Parking Business Japan. The business plan is net sales, JPY 16.9 billion and business profit JPY 30.7 billion. As for the number of parking facilities, 1,000 will be newly developed. And the number of facilities to be operated is 17,600 at the end of the period. So the net increase is about 200. It includes our assumption of about 800 cancellations. These 800 cancellations are almost in line with the normal state, since the number of cancellations per year was about 700 to 800 in the pre-COVID period. During the pandemic, we actively engaged in canceling contracts for unprofitable facilities. Hence, in the fiscal year ended October 2020 and 2021, there were 1,400 or 1,200 cancellations. But this year, we expect the pace will return to pre-COVID level. Next, Page 13 is about the mobility business. Net sales, JPY 93.2 billion and operating income JPY 12 billion. The usage fees per vehicle is JPY 115,000, up JPY 11,100 year-over-year in our plan. The number of Times CAR vehicles increased by 6,538 vehicles This includes the vehicles for [ FCs ], so the number of vehicles at the directly managed store is 5,980. The plan is to expand the total number of operated vehicles to 59,600 of which 53,100 are directly operated vehicles. This plan itself is a bit bullish compared to the Parking Business. But in the assumptions and calculations, those numbers should be attained. We plan to achieve these numbers with some efforts and promotions. Page 14 talks about the Parking Business International. Our basic policy is shifted to expand the number of parking facilities in the international business as well. It is planned to achieve net sales of JPY 69 billion and business profit of JPY 0.7 billion aiming at realizing profitability for the full year. As I mentioned earlier, we will promote the development of parking facilities with a focus on creating many small-scale outdoor, flat parking facilities, just like in Japan. In terms of the number of developments, a total of 550 localized Times parking facilities will be newly developed, about half of the development in Japan, which is 1,000. At present, we are planning to develop new facilities in the area where we are expanding. Page 14 summarizes the total Parking Business international, and Page 15 shows the breakdown with U.K. and others. U.K. is on the left, showing the NCP figures. The net sales, JPY 35.5 billion. Looking at U.K. alone, it is actually in the red for the full year. The business profit is minus JPY 1.6 billion. The number of parking facilities will increase by 148 to 847. The right chart shows the number outside of the U.K.; Australia, New Zealand, Singapore, Malaysia and Taiwan. The combined sales is JPY 33.5 billion, and the business profit is JPY 2.3 billion. We plan to increase 189 parking facilities in these areas with minus JPY 1.6 billion in the U.K. and a plus of JPY 2.3 billion in other areas, the international business will generate a surplus of JPY 0.7 billion. While the U.K. is still in deficit and not profit making this fiscal year as well, it is due to the fact that the return of the traffic and external environment in the U.K. is still weak. It is gradually improving, combined with our effort to optimize the parking facility rents and the development of loss-making properties. Still, the monetization is inarguably difficult unless the absolute traffic volume returns. Our forecast for this fiscal year for the U.K. is that the external environment will not be strong enough to generate a surplus for the full year. And as a result of the simulation, we will have a deficit of JPY 1.6 billion this year. In terms of the overall international business, this external environment in other areas is relatively quick to recover, unlike the U.K., so we will earn profits in other areas and secure a surplus as the Parking Business International segment. Page 16 onwards explains the promotion of the digital strategy. There are 3 main initiatives. First of all, in terms of strengthening collaborations and usability of services, shown in blue in the upper left of the graph, centralizing service applications, smooth and shared use of parking spaces with Times CAR vehicles and others, which will be promoted in the digital field. The yellow part in the upper right is the reform of the service provision system. For example, as it is written on the right side of the Page 16, the number of Times CAR deployed will increase or decrease according to the busy period or quiet period of the parking spaces. Through the IT technology, the vehicle allocation becomes flexible. And by doing so, we will expand the profitability of Times CAR per vehicle. Another initiative is to re-inform the management foundation, though it is hard to see from the outside. In other words, the core IT system in the company will be rebuilt and renewed. Originally, the system we have been operating and using was the core system built when we were only doing the parking business. Since the company started the mobility business, the service we offer have largely changed. Until now, we have managed to respond with the virgin upgrade. But when considering the future development and it is the right timing for the company to reinforce the core system to cope with the expansion of the current business and the services to be expected in the future. Page 17 explains net sales and recurring profit by segment. We plan to have net sales of JPY 160.9 billion in Parking Business Japan, JPY 93.2 billion for Mobility Business and JPY 69 billion for Parking Business International. In terms of recurring profit, we plan to achieve JPY 30.7 billion in Parking Business Japan and JPY 12.2 billion in mobility business and JPY 0.7 billion in Parking Business International. Page 18 shows the financial conditions after achieving those plans. Since the profit for the fiscal year ending October 2023 will be added accordingly. The shareholders' equity ratio will be 21.9% on balance sheet as of the end of October 2023. When adding JPY 25 billion of the subordinated loans, shareholders' equity ratio on the credit ratings evaluation will be 30.2%. The plan is to attain recurring profit of JPY 23 billion and net profit of JPY 13 billion. As I mentioned earlier, our shareholders' equity ratio target is 30% on balance sheet, which is our top priority. Given such plan, we would like to suppress the dividends, so we decided not to pay dividends for FY 2023 as well. This is an explanation of the consolidated plan for FY 2023. Page 20 shows a mid- to long-term business growth image. We have been sharing this image for some time. and there has been no significant change in the basic idea. As it is written in the table on the upper left, the fiscal year ended October 2022 was affected by COVID-19. The current fiscal year still has a slight, albeit minor impact of COVID, while the impact will disappear from FY 2024 in our assumption. Our target is to achieve recurring profit of JPY 23 billion in the current fiscal year, JPY 30 billion for the FY 2024 and JPY 35 billion for the FY 2025. In this scenario, the shareholders' equity ratio for the FY 2025 will be 38.1%, meaning it will take until then to reach the shareholders' equity ratio of 30%. Nevertheless, as we expect to achieve 30% mark in the FY 2025, we will make our efforts to steadily achieve this goal. Finally, on Page 22, I would like to touch on our sustainability initiatives. In December 2021, we announced our support for the TCFD, the task force on climate-related financial disclosures and we will disclose information based on the TCFD recommendations, governance, strategy, risk management and metrics and targets. Details are on the Sustainability page of the website of PARK24. With respect to the human rights initiatives, we conducted human rights due diligence targeting domestic employees in the FY 2022. All risk items have been rated as low. Going forward, we will pay close attention to these risk items and implement initiatives in terms of prevention and mitigation. Hence, we will continue to implement human rights initiatives. Regarding supply chain initiatives, we carried out the self-assessment questionnaire, SAQ in May this year. The questionnaire items included the environment, human rights and anticorruption. The results of this survey did not identify any risks. Communications with the business partners will continue in order to prevent risks and raise awareness of sustainability. This concludes my quick overview of the financial results, FY 2022 and the plan for FY 2023.