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

This is Takashi Goto, President of Seibu Holdings. I will first give you an overview of yesterday's results announcement. In the first half of the fiscal year, the society in Japan began shifting towards a new phase of life with COVID in its response to the pandemic, and there were hopes of a recovery in the economy. Meanwhile, the external environment underwent rapid change, such as the situation in Ukraine becoming long lasting, the suppression of economic activity in China, the accelerated depreciation of the yen triggered by interest rate hikes in the U.S. and the ensuing rise in raw material costs. Such changes in the external environment are still ongoing. Under these circumstances, the Seibu Group achieved a consolidated operating income of JPY 13.4 billion. Net profit attributable to owners of parent was JPY 64.6 billion, an improvement of JPY 77.3 billion from the previous year. This includes factors such as the booking of extraordinary income related to the disposal of 4 properties, including the Prince Park Tower Tokyo on September 30 as part of the hotel asset-light strategy in our management reforms. Meanwhile, on September 29, 2022, prior to the end of the second quarter, we revised down the full year earnings forecast for the year ending March 2023, in light of the current external environment. We expect transportation revenue in our railway business as well as demand in the domestic hotel operations to be below the expectations we had at the beginning of the fiscal year. As for inbound tourism, although Japan's border restrictions have been eased since October 11, 2022, including the review of restrictions on foreigners entering Japan, we expect it to take some time for a full-fledged recovery in demand. We are also expecting a drop in revenue compared to our initial forecast as a result of the disposal of 4 properties as part of the hotel asset-light strategy. Although we are anticipating fixed costs for the full year to be around JPY 24 billion lower than the year ended March 2020 through various cost control measures and the disposal of the 4 hotels because we expect operating revenue to be below expectations. We expect operating income and the other profit items to be below our initial forecast. Meanwhile, we have made no changes in this results announcement to the forecast announced on September 29. The Today, the government is promoting various measures to boost travel and ensuing demand such as the travel discount program to encourage people to travel to nearby prefectures, for which the scope was expanded nationwide on October 11. This is helping to give more clarity to the road map towards a post-COVID life. Aside from the positive factors to our future earnings, we will make sure to assess the negative factors such as the rise in raw material costs and geopolitical risks. -- pass on to the end prices as necessary and provide services that match those prices, thereby strengthening top line revenue as well as generating profit. The Seibu Group has been focusing on the theme of looking ahead to our vision for the group in a post-COVID-19 society, overcoming the impact of COVID-19 and creating a pathway for rapid growth in formulating the Seibu Group's medium-term management plan for the 3-year period ending fiscal year 2023 and advanced initiatives with a 3-point framework comprising management reforms, digital management and sustainability. Today, I would like to update you on the progress so far on management reforms. First, the reform of our organizational structure. In the organizational reform of Prince Hotels and Seibu properties, Seibu Prince Hotels worldwide became a hotel operation company since April 1, 2022, and is focusing on strengthening its asset-light chain management capabilities, while Seibu Realty Solutions, which aspires to become a comprehensive real estate company, we'll use various methods to maximize the value of properties owned by the group. As part of that initiative, Seibu Realty Solutions will redevelop not only the areas in Central Tokyo, such as Takanawa, Shinagawa, Shibakoen and Shinjuku, but also the well-known resort areas of Karuizawa, Hakone and Furano, et cetera, while being mindful of sustainability. We will also set up a shared services company within this calendar year in order to consolidate and standardize administrative support operations and reallocate our human resources. We are making preparations so that this shared services company can begin full-fledged operations next spring. This company will provide shared services that are best suited for our highly specialized talent as well as making possible a flexible work style, which will serve as the foundation of corporate value enhancement and support the growth of the group as a whole. We are now entering the final stage of management reforms of the Urban Transportation and Regional business. Commuter demand is continuing to decline for Seibu Railway due to the spread of working from home, et cetera. Going forward, as the changes in people's values and behavior brought about by COVID-19 becomes permanent, we do not expect commuter revenue to fully recover, and we will, therefore, review our earnings structure. The concept is to establish the optimal structure to achieve profitability enhancement and group synergies in the Urban Transportation and Regional business, which is a combination of various businesses. The concept that is common to this series of organizational reforms is sophistication or enhancing the specialization of each group company's capabilities. We believe it is important to form alliances with external partners in order to achieve future growth. And the first step is to reinforce our own strength so that we can negotiate with any potential partner on an equal footing. Next is the hotel asset-light strategy. We selected as partner, GIC, the Singapore government fund on February 10, 2022. We signed a basic agreement with Reco Pine Private Limited, GIC's subsidiary with the objective of establishing a long-term partnership between the Seibu Group and GIC and maximize earnings of the 31 properties subject to the transaction, make the Seibu Group more asset-light, further develop our hotel and leisure business and maximize the corporate value of the entire Seibu Group. We then signed the sale and purchase agreement and management contract on June 30. And on September 30, we transferred 4 properties, including the Prince Park Tower Tokyo as the first step of the transaction. We are currently in discussions towards closing of the remaining properties. This initiative has brought 4 positive effects to the Seibu Group. The first is a stronger financial base. The second is lower risk in our hotel business, which has some volatility. The third is establishing the environment to gain competitiveness as a hotel operator. And the fourth positive effect is building up expertise on real estate securitization. Seibu Realty Solutions is actively engaging in the last point, building up expertise on real estate securitization. I'm convinced that we are taking the right steps towards making the leap to become a comprehensive real estate company. The management reforms will be pretty much complete within the current fiscal year. And with a new management structure in fiscal year 2023 onwards, we will promote our businesses with a view on fiscal year 2024 onwards, which will be the period of our next midterm management plan. Lastly, let me explain about our dividends. We are planning to pay out JPY 10 per share as the full year dividend for fiscal year March 2023 based on factors including the securitization of our hotel and leisure assets, the consolidated earnings forecast as well as the status of our finances. We will be paying out a midyear dividend of JPY 5 for the first time in 3 fiscal periods. The COVID pandemic has brought about changes in people's values and behavior that are not one-off but are here to stay. With the instabilities and the environment continuing, the Seibu Group will do its utmost on the 3 themes of management reforms, digital management and sustainability during the current midterm management plan period, which will serve as the foundation for long-term growth and pursue both economic and social value. In the past, the Seibu Group has been faced with hardships such as the global financial crisis in 2008 and the -- great East Japan Earthquake in 2011, and have powerfully overcome them. We are continuing with our management reforms in this fiscal year, which marks the second year of the midterm management plan, doing everything we can to achieve victory over the COVID shock through the solidarity and challenging spirit that we have built up so far within the group. We look forward to the continued support from the group's shareholders and investors. Thank you.

This is Furuta, in charge of finance. I was appointed Director and Senior Managing Officer on June 22 this year. Let me explain using the presentation titled Overview of Financial Results for the 6 months ended September 30, 2022. Please turn to Page 3. This is a summary of the first half results. I will explain some of the highlights shown here. Page 4, please. These are the results for the first 6 months of the fiscal year. In the first half, both revenue and profit improved year-on-year, thanks to the demand recovery in our businesses such as the hotel and railway businesses with the easing of COVID-related restrictions. Operating profit, ordinary profit and net profit were all positive for the first time in 3 years. And as our President, Mr. Goto mentioned at the beginning, at the end of September, we disposed 4 out of the 31 subject assets in the hotel and leisure business, for which we are shifting to a more asset-light model and booked a gain on the sale of noncurrent assets. As a result, profit attributable to owners of parent was JPY 64.6 billion, making it a record first half for us. The remaining 27 assets are to be disposed in the second half of this fiscal year. We announced a revision to our earnings forecast on September 29. However, the first half results were almost in line with expectations. Operating profit outperformed by JPY 2.4 billion, but this was due to some expenses being pushed back into the second half. Net income was JPY 600 million higher than our forecast. We have details of the results of each segment on Pages 5 and 6. On Page 5, we show the operating revenue by segment. The results were almost the same as the revised forecast on September 29. You will notice the plus JPY 2.5 billion in adjustments, which was mainly the translation effect from the weak yen in relation to our international businesses. As shown on Page 6, operating profit was positive in almost all segments. Page 8 onwards explains the major operational updates as well as the progress related to the shared services company as part of the current midterm management plan initiatives. We have details on segment information and key operational metrics on Page 19 onwards for your reference. Page 28 shows the details of the results. Pages 28 and 29 are related to the P&L mentioned earlier. Page 30 shows the consolidated balance sheet. Due to the disposal of the 4 properties in the hotel and leisure segment, net interest-bearing debt declined from JPY 843 billion to JPY 730 billion. And as a result, the equity-to-asset ratio increased from 18.3% last year to 22.7%, and we are strengthening our financial base. Please turn to Page 33. As for the full year earnings forecast, there is no change from the revised forecast announced on September 29. We -- we plan to lower fixed expenses by JPY 24 billion from the year ended March 2020, which is further progressed from the reduction target set out at the beginning of the year. Meanwhile, based on the recent environment, we have factored in a JPY 2.1 billion increase in power costs in our railway operations. As for the 27 hotel and leisure business assets expected to be disposed in the second half, the closing could take place in multiple phases. So when setting our forecast, we have assumed that the delivery of the properties will take place at the end of March 2023 and have factored this into the forecast. Page 34, please.These are our assumptions as well as current trends in the railway and domestic hotel operations. First, for the railway business, the graph and table at the top show the assumptions for transportation revenue in the revised forecast announced on September 29. And at the table at the bottom shows the gate passage volume up to October. As for the gate passage in October, if we exclude one-off items such as the negative impact from typhoons in 2019, commuter was around 80% of 2019 while noncommuter had recovered to above 90% of 2019. As far as the October results show, we feel the recovery in noncommuter usage. Page 35, please. Next is the domestic hotel operations. The graph and table at the top show the assumptions used in the revised forecast announced on September 29, and the table at the middle of the page show that he metrics up to October. The graph at the bottom shows the hotel booking trends for up to a month ahead. As for October, room occupancy was 56%, while RevPAR recovered to 66% of the October 2019 level. We are seeing a strong recovery in bookings. The booking status shown here is as of last weekend, November 6, and bookings for November were at 95% of the same period in 2019, and this is expected to improve to 111% in December. The number of rooms booked for December is as of November 6, higher than before COVID. We will continue to capture the recovering demand driven by policies to support domestic travel as well as the easing of border restrictions. This concludes my presentation. Thank you.