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

This is Takashi Goto. I will first give you an overview of the current situation. Despite the gradual recovery in customer usage compared to the first quarter, the pace of recovery in demand has been slow, especially with more people taking up new lifestyles as a result of COVID-19 and the business environment surrounding the Seibu Group remained tough in the second quarter. As we will explain later, we acknowledge the possibility of this tough environment continuing in the next fiscal year onwards and have started working on management reforms to overcome this crisis and are continuing our efforts at this very moment. We are also working on initiatives that will lead to growth in the after-COVID-19 society such as promoting our sustainability actions towards realizing a sustainable society as well as reforming our business model to better cope with changes in people's values and actions brought about by COVID-19. Our results for the second quarter were better than our forecast announced on September 24, but we booked a net loss of JPY 39 billion. And we are expecting to book a significant net loss of JPY 63 billion for the full year ending March 2021. In order to minimize the depletion of net assets, we, unfortunately decided to not pay out the interim dividend and have set our forecast for the year-end dividend at 0 for the current year. There's no change to our basic policy of strengthening the management platform of the entire group, improving corporate value, building up our internal reserves and reinforcing our financial status and thereby, continuously paying out stable dividends. We will seek to grow revenue through initiatives such as capturing demand from the go-to travel campaign while ensuring the safety and security of our customers through measures including the Prince Safety Commitment. Moreover, we are determined to reform our management with speed, leaving no exceptions. And we'll do our utmost to recover our earnings and resume dividend payments as early as possible as well as to grow our corporate value and shareholder value in the medium to long term. We look forward to and appreciate the continued support from our shareholders and investors. Thank you. Please turn to Page 3. These are the financial results of the second quarter of the fiscal year ending March 2021. Operating revenue declined by 47% year-on-year, to JPY 154.8 billion due to weaker demand caused by COVID-19 and the resulting changes in people's lifestyles. As for profits, the operating loss was JPY 30.6 billion, and the quarterly net loss attributable to owner of parent was JPY 39 billion despite measures, including the reduction of fixed costs. As for our extraordinary P&L, we booked JPY 6.8 billion of extraordinary gains, which includes the employment adjustment subsidy we received from the government. Meanwhile, we booked the JPY 12.9 billion of fixed costs incurred during the suspension of operations of our facilities, based on the government's request, in order to stop the spread of COVID-19 as extraordinary expenses, even though these were the types of costs that we would usually have booked as operating expenses. Both operating revenue and profit for the first half were better than the forecast announced on the 24th of September due to leisure demand being stronger than expected, especially in September. In addition to those factors, thanks to the employment adjustment subsidy from the government, the net loss for the first half was JPY 11.9 billion better than the forecast. For an analysis of changes in the operating revenue and profit of each segment, please refer to Pages 4 and 5. Please turn to Page 7. Pages 7 and 8 describe the business status of each segment in the first half of the year. As you can see from the business status of our hotel operations on Page 8, for our hotels in Japan, we are continuing to temporarily suspend operations as well as consolidate operations in the second quarter onwards in accordance with the lower demand. Please turn to Page 9. Now on to our initiatives such as the securing of working capital. We secured more than JPY 240 billion of funding by September. We also temporarily suspended operations from the perspective of reducing our fixed costs, such as personnel expenses as well as making use of employment adjustment subsidies. Also, as announced on the 24th of September, we have decided, regretfully, that no interim dividends will be paid out, and the year-end dividend forecast will be 0. We have also agreed with all of the financial institutions involved to change the net asset level that we need to maintain as a covenant on part of our debt and have already made this change. Please turn to Page 10. In conducting our business operations during the COVID-19 pandemic, the Seibu Group is placing the highest priority on securing the safety and security of our customers and employees. As you can see on Pages 10 and 11, we are implementing countermeasures to prevent the spread of infections in each business segment as well as pursuing the recovery of profits through the opening of new facilities. And providing new services in response to changes in customers' needs. Furthermore, as shown on Page 12, we are continuing to proceed with the key initiatives, such as digital transformation, sustainability actions and collaborations both within the group as well as with external parties. Please turn to Page 28. Now, on to the full year earnings forecast. In the first half, we outperformed the forecast announced on the 24th of September. Demand is recovering, thanks to government stimulus measures such as Tokyo being included in the go-to travel campaign. However, we have not changed the full year forecast because the outlook remains unclear, and we need to continue watching the impact of COVID-19 on our business performance. For your reference, we have shown the current trends regarding our railway and hotel operations on Page 29. Please turn to Page 30. From here on, I will explain our initiatives based on the results and the outlook explained so far. There's a fair chance that the tough situation we are facing now could continue in the next fiscal year onwards, with the number of COVID-19 infections being on the rise again as well as the pace of recovery of customer usage being slow due to the adoption of new lifestyles. We have, therefore, decided on September 24, 2020, to conduct drastic management reforms. Taking a step further, the key business issues in 2020 announced in May as the group's policy to face and to overcome the current challenging environment as well as working towards thorough and drastic corporate structure improvements, we will accomplish a V-shape recovery in the recovery phase by reforming our business model, moving ahead of changes in people's values resulting from the COVID-19 pandemic. Next, I will explain the status of our management reforms that I just mentioned. Please turn to Page 31. This page explains the lowering of the breakeven point. As for the current fiscal period, in response to the significant decline in demand, we are working to lower the breakeven point by postponing nonessential expenses, suspending or consolidating operations of our facilities-based on demand and reducing fixed costs by controlling personnel expenses, et cetera. In terms of controlling personnel expenses, we will continue with our efforts to cut down on overtime work and we are planning to reduce the second half bonus payments across the group in order to match the weaker business performance. We will also thoroughly assess our business so that we can lower the breakeven point permanently in the next fiscal year onwards. Please turn to Page 32. In terms of controlling our investments, we announced on the 24th of September that we plan to reduce this year's CapEx by JPY 36 billion from the initially projected amount. This is equivalent to a JPY 21.9 billion reduction year-on-year. We have decided to dispose the Sugita Golf Driving Range, which we own and operate in Yokohama City, probably within the current fiscal year. We will continue considering the disposals of underutilized assets as well as noncore assets and businesses. Please turn to Page 33. this is regarding the group's raising of capital funds that doesn't dilute the company's shares. The details are described on Page 33 and 34. The group gave approval for Seibu Railway and Prince Hotels, Inc, Seibu Holdings subsidiaries, on November 12, to issue preferred shares totaling JPY 80.0 billion, through a third-party allotment to Mizuho Bank and Development Bank of Japan, and resolved at the meeting of the Board of Directors held yesterday, that as investment agreement regarding the underwriting of the preferred shares would be concluded with each issuer and allottee and signed the investment agreement on the same day. Taking into consideration that the severe situation due to the COVID-19 pandemic will likely continue, not only in the current fiscal year, but also in the next fiscal year onwards, we deemed that the group's financial foundation urgently required enhancement and made the decision for the issuance of the preferred shares. This funding through preferred shares will strengthen the group's financial foundation. It will be booked as shareholders' equity on the stand-alone balance sheet of Seibu Railway and Prince Hotels, Inc, and it will be booked as net assets held by noncontrolling shareholders on the consolidated balance sheet. In terms of the details of the issuance, Seibu Railway and Prince Hotels, Inc will issue JPY 70 billion and JPY 10 billion of preferred shares, respectively. November 26, 2020, will be the payment date, and the preferred shares will be allotted 50% each to Mizuho Bank and Development Bank of Japan. Preferred dividends will be paid to the allottees prior to common shareholders, and distribution of residual assets will be performed through the allottees prior to common shareholders. The allottees may not exercise voting rights at general meetings of shareholders. Please see the material for further details. Please turn to Page 35. Pages 35 and 36 outline our initiatives in each business segment for the third quarter onwards. Here, I will touch upon the renewal of the Seibuen Amusement Park and the Prince Smart Inn openings. Please turn to Page 37. The Seibuen Amusement Park has closed in November, and preparations are ongoing towards its reopening in the spring of 2021. The park will be reborn as a place full of happiness, where visitors can enjoy the vibrant show of style atmosphere throughout the park to their heart's content. In the post COVID-19 society, we believe the value of real experiences will be appreciated ever more than before. And people will be seeking happiness through the heart-to-heart relationships with others. Preparations are underway towards the grand reopening of the Seibuen Amusement Park, and we hope that the renewal will provide smiles and good spirits to visitors, and that it will contribute in bringing vitality to reinvigorate Japan. In the Tokorozawa area, renovation work to convert the MetLife Dome into a ballpark is due for completion in March 2021. And together with the reopening of the Seibuen Amusement Park, we will seek to create leisure and transport demand. For your reference, we have outlined the growth strategy of Seibu Railway on Pages 38 and 39, which forms the basis of the various initiatives that Seibu Railway is currently working on. Please turn to Page 40. This is regarding the Prince Smart Inn. On the 8th of October, we opened the Prince Smart Inn Ebisu, the first of our next-generation style hotel brand, Prince Smart Inn. Going forward, we will open Prince Smart Inn Atami in January 2021, with further openings planned in Kyoto and Naha of Okinawa. Prince Smart Inn in is the next-generation style hotel brand that continuously evolves and drives innovation for Prince Hotels. As a new type of hotel in the new normal society, Prince Smart Inn will serve its customers by always trying out new ways of operation, such as adopting state of the art technologies and services in response to customer needs of the time. We believe doing so will contribute to the entire Prince Hotel Group through new customer acquisitions, increasing life-long customers, driving innovation and continuously evolving the brand. This concludes my explanation. Thank you.