Seibu Holdings Inc. (9024) Earnings Call Transcript & Summary

First, I will give you the big picture overview. Fiscal year 2019 was a tough year for the Seibu Group due to the impact of the coronavirus since late January 2020 as well as other factors. However, we were able to secure a net income of JPY 4.6 billion, and we decided to pay JPY 15 of year-end dividend for the year ended March 2020, as was initially planned to our shareholders who support our business. We are expecting the extremely tough circumstances to continue in fiscal year 2020. And since it is hard to make a rational calculation of its impact on our earnings, we have left our forecast for the current year ending March 2021 undecided. Based on the business management policy that will be explained later, the Seibu Group will do its utmost to continue business operations. The impact from COVID-19 is not going away in the short term, and we must continue our business based on this assumption. We expect the changes in people's values and actions resulting from COVID-19 to have a major impact on our business and are currently discussing how to innovate our group's business model to accommodate these changes. Under these circumstances, I am communicating and sharing with our employees the following 3 points as the guideline for doing business in the era of COVID-19: First, to make the safety and security of our customers, employees and all stakeholders our top priority; second, to grasp the changing values, actions and needs of our customers in a timely manner by putting ourselves in our customers' shoes and deploy our services with speed; and thirdly, to thoroughly pursue the generation of clean and ethical profits based on these 2 points. By making these 3 points the underlying principles of our employees' actions, we will conduct our business so that we can offer smiles and good spirits to customers and the society even in circumstances such as this one. We have decided to reduce the compensation of Directors of Seibu Holdings and our group companies in order to show the strong will and intent of senior management to overcome this hardship. Traditionally, Seibu has had its strengths in moving people as well as offering places and facilities for people to enjoy. In preparation for the -- with corona and after corona societies, we will add to our traditional strengths and evolve ourselves into a company that is the ultimate supporter of people in many more ways, including their everyday lives and how they spend their time, which will lead to further growth of the group. We look forward to and thank you for the continued support of our shareholders and investors. I will now go over our results using the presentation material. These are the results for the year ended March 2020. Operating revenue declined JPY 11.3 billion year-on-year. For the first 9 months, revenue was growing, thanks to better earnings from accommodations in the Hotels business and the Hawaii business as well as growth in transportation revenue in our Railways business. However, there was significant impact from COVID-19 in the fourth quarter. We underperformed our forecast announced on the 6th of February by JPY 19.2 billion. Operating income was down JPY 16.5 billion year-on-year due to the revenue decline as well as the increase in depreciation and selling, general and administrative expenses and was JPY 10.6 billion below the February 6 forecast. Based on the guidance on accounting standard for impairment of fixed assets and after assessing the probability of future collection, we booked approximately JPY 24.3 billion of impairment charges in relation to some of our tangible Gulf and Hotel assets. Due to the above factors, net income attributable to owners of parent was down JPY 40.7 billion year-on-year. We have outlined the major positive and negative factors for each segment on Pages 4 and 5. Please turn to Page 3. This slide explains the impact from COVID-19. In terms of our consolidated results, there was around JPY 20.6 billion of negative impact to operating revenue and JPY 15.3 billion of negative impact to operating income. The biggest impact was in the Hotel and Leisure segment, and the details are as shown here. Please turn to Page 12. This slide shows the results of our Railway business. Total passenger transportation revenue for commuter and noncommuter declined 0.9% year-on-year. For commuter, the growth was only 0.6% year-on-year, with COVID-19 leading to passengers refraining from purchasing commuter passes as well as other factors. Noncommuter revenue was down 2.2% year-on-year. The stay-home movement had a major impact on our earnings. Please turn to Page 14. These are the KPIs for our hotel operations. For the overall accommodation division, RevPAR was down 6.4% year-on-year, ADR was up 1.1% year-on-year and occupancy fell 5.8 points year-on-year to become 71.9%. The year-on-year trend was positive until the third quarter, but with a significant drop in demand in the fourth quarter due to COVID-19, occupancy and RevPAR fell year-on-year. Please turn to Page 16. This slide explains the situation for inbound demand. COVID-19 had a major impact, and the number of foreign guests fell 12.9% year-on-year, and accommodation revenue from foreign guests fell 5.5%. Please turn to Page 18. This slide explains the situation regarding MICE. MICE revenue was trending positively year-on-year until the third quarter, but with the significant impact from COVID-19 in the fourth quarter, full year MICE revenue was down 8.9% year-on-year. Please turn to Page 25. I will explain the extraordinary loss. As mentioned at the beginning of my presentation, we booked JPY 24.3 billion of impairment charges in the year ended March 2020. We also booked losses from natural disasters, which includes expenses to repair the facilities in our hotels, golf courses, ski resorts, et cetera, that were damaged by typhoons. And we made a provision in the reserve for losses from natural disasters to cover additional expenses anticipated in the future, and this provision is also part of the extraordinary loss. Please turn to Page 31. This is regarding the forecast for the year ending March 2021. Due to COVID-19, the number of passengers in our railway and bus businesses is lower than usual with more people staying home, and our hotels, golf courses and leisure facilities are temporarily closed. With the timing of full-fledged recovery being unclear, it's hard to make a rational estimate of the impact on our group's earnings. Therefore, we have still not come up with a forecast for the year ending March 2021. We will promptly make an announcement when it becomes possible to do so. Please see Page 33. This is about our dividend. In the year ended March 2020, despite the impact from COVID-19, we are planning to pay out a year-end dividend of JPY 15, based on our basic policy and our financial strategy. Together with the half year dividend of JPY 15, this will make the total dividend for the year JPY 30. We have not decided what to do in relation to our dividend for the year ending March 2021 due to the fact that our earnings forecast is still undecided. That's all for me. Thank you for your attention. I would like to explain about our decision to not set the fiscal year 2020 to fiscal year 2022 Seibu Group's medium-term management plan and to cancel the fiscal year 2019 to fiscal year 2021 Seibu Group's medium-term management plan. Initially, we had started to prepare the new medium-term management plan, which was to cover the 3 years from fiscal year 2020 while we made progress in the current 3-year plan as of May 14, 2019. However, the business environment surrounding the Seibu Group has changed dramatically since the latter half of January 2020 with the spread of the coronavirus. With the timing of a full-fledged recovery being unclear, we felt the need to reassess our plans and, therefore, came decision to not set the new medium-term management plan as well as cancel the current plan. Now I will go over the next steps we will take. To overcome this hardship, we will be working on the 2 items shown here in fiscal year 2020, which include 4 points, and this will be the focus of the whole group. First, the section in red explains how we will focus only on essential business operations until COVID-19 is over. We will secure the necessary working capital and conduct business so that we can offer smiles and good spirits to customers and society. Second, highlighted in blue is how we will pursue initiatives in preparation for post COVID-19 while prioritizing 1 and 2 above. While we will continue to promote the initiatives that were to be included in the new medium-term management plan for FY 2020 to 2022, we will also conduct structural reforms in preparation for new values and demands in the post COVID-19 era. Now I will go over each point in more detail. First is, one, securing the necessary working capital. Under the current situation in which our earnings are under pressure, the timing of recovery remains unclear, and the impact from COVID-19 could be long term. We will do our utmost to secure working capital by raising the necessary funds as well as controlling the outflow of cash. Aside from our cash and deposits, we have borrowed JPY 33 billion from our main banks this April while raising the commitment line to a total of JPY 150 billion. We will continue to raise funding as necessary, including new loans, and increase our liquidity on hand. By postponing nonessential and nonurgent spending and capital expenditures until COVID-19 comes to an end, we will reduce our fixed costs, improve our profitability and control cash outflow. Next, I will go over our business management policy during the COVID-19 pandemic. We will return to our core management philosophy and, one, make the safety and security of customers and employees our top priority; two, view things from our customers' perspective and grasp their changing needs accurately and in a timely manner and deploy our services with speed; and three, actively pursue profit by implementing the above policies. By focusing on these 3 points, we will operate our business so that we can continue to provide smiles and good spirits to customers and society even in the current circumstances. Here, we have described the business management policy mentioned in the previous page by stakeholder. With the state of emergency in place, we have temporarily closed our hotels, golf courses, ski resorts, leisure and retail facilities with a few exceptions. Seibu Lions Games and other events at Yokohama Arena have been suspended. Meanwhile, we are continuing to operate our rail, bus and taxi services, which serve as lifeline infrastructure by implementing measures to prevent infections, including disinfection and ventilation. We are working together with our business partners to overcome this situation, such as by granting later collection periods for our accounts receivable and by agreeing to lower rents in our rental properties. After the state of emergency is lifted, and during the process of COVID-19 coming to an end, we will resume operations step-by-step while continuing to implement thorough measures to prevent infections. We will recover and grow earnings by first focusing on our existing businesses. In doing so, we will keep social distancing in mind and offer services that help relieve people's stress and mental fatigue that comes with staying home for so long. We will also cooperate with our business partners and seek new business opportunities. As of today, we have left undecided the forecast for the consolidated results and dividend for the year ending March 2021. We will make appropriate disclosures in a timely manner based on changes in the situation and will focus on recovering and improving our financial status as early as possible. As for our employees, the focus will be safety and security, being customer-oriented and generating profits in an ethical manner. The entire Seibu Group will work hand-in-hand to overcome this crisis. The business management policy by segment is as shown here. The 5 points highlighted in blue are the initiatives we had envisaged in the new medium-term management plan for fiscal year 2020 to 2022, which we had been preparing but chosen to not announce. We will promote these initiatives as much as possible while prioritizing the most essential business operations until the situation surrounding COVID-19 returns to normal: One, in relation to the offensive strategy towards DX and marketing strategy, we will strengthen our marketing capabilities using digital technologies with the aim of cross-selling and increasing the number of customers who use multiple group services; two, in terms of our defensive strategy towards DX, we will use digital technology to automate, standardize and sophisticate our business operations in order to promote diversity and work style reform; three, based on the group vision, which is our management philosophy, we will continue to promote sustainability actions with the goal of creating a sustainable society; four, by setting hurdle rates for each of our businesses, we will sophisticate the investment PDCA cycle and strategically promote investment projects that support our future growth; five, with changes in people's values in society, we will strengthen collaboration within the group as well as with partners outside the group, such as by modifying our business segmentation and utilizing new technologies as well as data from outside the group. Please see how we have changed our business segments from the current fiscal year 2020, including newly setting up the Sports segment. Under the new reporting segmentation, we will strengthen collaboration within the group and establish a new business model. Lastly, I will talk about structural reforms in anticipation of changes in people's values in the post COVID-19 era. Today, people's values are changing, triggered by new social trends, driven by digital technologies as well as the heightened momentum for sustainable development and SDGs. Post COVID-19, we believe there is a possibility that people's actions and values could change even further, including more people working from home as well as the way large-scale events are conducted. The Seibu Group will move ahead of such changes in people's values and conduct structural reform in preparation for the post COVID-19 era so that we can continue to be the corporate group that is best and most capable of supporting customer lifestyles.