TKP Corporation (3479) Earnings Call Transcript & Summary

First of all, I would like to introduce you to the attendees presenters of today. Towards the front, starting from the left, we have Representative Director and President, Kawano Takateru. And starting from June of this year, we have the newly appointed COO, Mr. Norihisa Nagao. And also, we have the Director and CFO, Mr. Koji Nakamura. And we will be talking about the monthly progress in the business. And first of all, that will be presented by our CEO, Mr. Kawano.

This is Kawano from TKP. For the second quarter, we would like to start the earnings call. First of all, in terms of the highlight, in terms of the business performance, first quarter was JPY 20.4 billion but in the second quarter, it was JPY 54.4 billion. And so for the second quarter, we were able to mark the record high in terms of the quarterly performance. In TKP, our core business, which is the rental space business and the mid- and long-term business -- rental business and -- I say Bridal business are growing quite steadily, and that was the driver for this good performance. And also space regeneration and distribution business that we announced in addition to the rental space business, there is a momentum where people going back to the office, and we have seen that significant growth starting from April. And because of that, TKP has revised the guidance to upward, and we have revised it to JPY 104 billion. And so for the TKP core business, it is expanding and also the leisure and lodging business is also expanding. And in terms of the business progress, we have been active in opening new hotels. And in June, we opened 2 APA Hotels in Miyazaki Prefecture and one hotel in Yamaguchi Prefecture. And including the one in opening in Oita Station front in December, we will have 20 in total APA Hotels. And in July, we opened SHONIN Park and the ramp-up is quite successful. And the First Park PFI business has started its operation. And in terms of the forecast, this time, in the first half, because we had strong demand, we were very active in opening the spaces. And in opening those new spaces, the sales are increasing, but we had made prior investments. And in the third quarter and the fourth quarter, we can expect the profit to be generated. And so towards achieving the full year guidance that we have been progressing quite steadily, and that is what we're seeing now. And in the third quarter, we will be promoting the openings of rental spaces and share offices and landmark properties, and we want to capture the demand even further to improve our awareness and brand capabilities. And fabbit that was transferred from APA Hotels, we're not just offering the space, but also we would like to position this for people to interact between local companies and administration as well as start-ups. So the one that was newly opened in Takamatsu, but also after that, fabbit that's opening in Oita, we would like to position this as a place for people to interact together. And this will be positioned as a fourth pillar to activate the regional economy and also create new value. And the 20th anniversary celebration of TKP was held at TKP Garden City Makuhari. And this banquet space that can cater for 1,000 people or 2,000 people used to be located in Shinagawa, but I have always wanted to have this in Tokyo. And so in the third quarter and the fourth quarter, a large-sized event holds or banquet spaces will be procured. And we are looking for the locations. And in the third quarter and fourth quarter, we're hoping to establish this location. In Bridal industry, NOVARESE is doing quite well. And from the region, bridal demand is coming back. And in the second quarter already, bridal has already exceeded the pre-COVID level for both our sales and profit. And so bridal and wedding is becoming more diversified, but the number of weddings held is increasing. I mean, they used to have limited number of guests, but the size of the guests are increasing and the number of weddings are increasing. And so as TKP, we want to -- because we think there's going to be more demand for wedding and the way wedding is held is becoming more diversified. So we look forward to addressing the diversified demand. And that was for the business forecast, and I gave you some summary on the business and strategy topics. And now I would like to hand over to Nagao-san, our COO; and our CFO, Nakamura-san, to give you more details. And I would like to hand over to Nakamura-san to talk about the numbers in detail and also have Nagao-san explain about the strategic details and then move on to Q&A.

Good afternoon, everybody. This is Nakamura, and I would like to take over and give you some details around the performance of the second quarter. Starting from the consolidated P&L, I would like to talk about the P&L for the business. And starting from the second half of last year, Lilycolor has been included in the P&L. And starting from this -- beginning of this fiscal year, NOVARESE has been included in the consolidation. And so the group has expanded. So the number itself will become bigger. And on top of that, like Kawano-san has just mentioned, the meeting demand. I mean people are coming back to the office, and we're capturing that demand. And so the space regeneration and distribution business, which is the ex TK business is growing in sales, and that's one thing. And the group company, Bridal, NOVARESE is doing quite well as well. And so as a result, as you see in the middle of this chart, the Q2 net sales were JPY 25.43 billion. And compared to the previous year, we were able to grow sales quite significantly. And for profit, OP was JPY 1.437 billion and ordinary profit was JPY 1.167 billion. And so for one single quarter, we were able to achieve a very significant result. Also, that was the result for the second quarter. And I would like to talk about the ex TKP business, excluding Lilycolor and NOVARESE. And the next page shows the comparison just for the TKP business. And as I just mentioned, this is very solid as well. And the result for the second quarter is JPY 12.451 billion and OP was JPY 1.257 billion. And you see the result for the same time last year, and we were able to grow the sales quite significantly. And flexible space, the meeting space business typically has a slower season in the second quarter because the business days are very limited in August. So it's a slower season. But for this fiscal year, as I mentioned before, people are coming back to meeting rooms, and we're capturing the face-to-face event demand. And so the sales were very similar to the Q1 level. Also, we were able to achieve a very significant increase in sales and profit has grown a lot as well. And to give you more details, the gross profit margin has gone down slightly compared to the previous year. It's about 2.3 points lower than last second quarter. And as Kawano-san mentioned, there was advanced investments for large deals being recognized in second quarter. And so the cost of goods has gone up in second quarter, but that will be tentative and that will not be take place in third quarter and fourth quarter, and we're expecting gross profit ratio to be higher in third quarter and fourth quarter. So we're expecting to have solid sales and profit in the second half. And also for leisure and lodging business, business has been performing very well. And for the meeting rooms, lodging and leisure, the demand has been trending very solidly. And please look at the next page for the breakdown in terms of net sales by service. If you look at different colors, this shows the quarterly trend of net sales by service. As you can see, year-on-year and also Q-on-Q, the revenue has been increasing, which is making almost record high levels. In particular, please pay attention to Q2. If you look at the room rent, which is at the bottom of the bar, which has grown so much year-on-year and option revenue and also catering, F&B, revenue is up significantly. Even in a quiet low quarter, which is Q2, revenue in those services for the flexible service segment has performed very well. That is the biggest highlight for the second quarter. In addition, for the leisure and lodging, continuously demand has been trending well. Continuously from Q1, we have made the record high revenue. Therefore, overall, Q2 revenue performed very well. This pace is expected to be maintained in Q3 onwards. That is our strong expectation. This completes the briefing of the Space Regeneration and the Distribution segment. Next, let me go on to the results of the results of the Lilycolor and NOVARESE business. For these 2 companies, which are listed entities, basically, we are just using their reported numbers as they are -- as they report. And of course, there's a consolidation adjustment, but basically, we're using their numbers. And please go to their disclosure for the details. But for Lilycolor, there is a seasonality. In the first half for them, seasonality is weak in the first half for Lilycolor. So at the moment, their business is not so great. But so far, we are expecting a strong recovery for the full year. So in the second half, I would like to support their progress. That's for the Lilycolor business. And for NOVARESE business, as Mr. Kawano mentioned at the beginning, their business is performing very well. At the moment, in Q2, which is spring season, April, May and June, relatively speaking, their business performed well. And their seasonality-wise, this is a good season, but they exceeded their internal expectation in Q2, which is great. So probably this momentum is going to be continued in the second half of the year for NOVARESE, which is very good going so far. Let's go on to the consolidated balance sheet and also cash flow statement. On the back of strong orders, we have been acquiring new hotel locations and NOVARESE is opening new locations. And because of those strong openings of new locations, the tangible assets, fixed assets have increased. And we have completed in Q2 in terms of the buyback. So net assets have been reduced a little bit. On the other hand, interest-bearing debt has increased due to the acquisition of fixed assets. So capital efficiency has improved together with the strong demand using the leverage and interest-bearing debt, we have been investing in our businesses such as for opening new locations in this quarter, and we are going to continue that going forward. Upward revision of the guidance. On August 14, in Q2, we announced our upward revision to our guidance. Please look at the third column from the left, the new plan, you see the numbers after the revision, upward revision. OP, ordinary income revised upward by JPY 2 billion because of the higher revenue. In addition, because of the better business efficiency, we have revised our profit levels upward to these levels, JPY 104 billion revenue and OP, JPY 9 billion and ordinary income -- ordinary profit, JPY 8 billion are the new forecast numbers. In the second half, in Q3 and Q4, order is expected to trend very well, and they are trending very well at the moment. So towards the achievement of this budget, we expect to make a steady and good progress. Please go on to the next page. In the Space Regeneration and Distribution Business, let me explain in more details. In the space regeneration and distribution business, there are 2 businesses, flexible space and hotel lodging training business. So let me first explain about the flexible space, which includes the flexible space for meeting rooms. Let me explain the result of the new openings and closures. If you look at this chart, as we have mentioned, on the back of strong orders so far, accordingly, we have opened new locations continuously, as you can see. In Q2, as you can see, we opened by this number. For 3 months, 7 locations and [ 6,529 ] tsubo making more than 10,000 tsubos increased in the total of the first half. As a result, nationwide, we have directly managed 219 locations and 11,000 tsubo or higher contracted area is now in our portfolio, which is steadily growing. Please move on to the next page. This is revenue per tsubo, which is one of our KPIs. As you can see on the right-hand side, this shows the current Q2 revenue per tsubo, JPY 45,000 which is a very good number. So last year, in Q4, JPY 42,301, so up despite amount. And on the left-hand side, you see the numbers before COVID. On the left-hand side, in Q2, because of the low season, even before COVID, JPY 39,533 comparing to that, it's higher by more than JPY 6,000, which is doing very well. And furthermore, the effective contracted rentable area, Q2 before COVID, 54,000 tsubo was the effective rentable area. Now it's higher, 54,800 tsubo or so. So the total contracted area for the flexible space is higher compared to pre-COVID and revenue per tsubo is now higher, reaching a record high level. So doing very well. Moving on to the Leisure and Lodging business. First, the number of locations. At the bottom on the left-hand side, you see some locations which were opened in Q2. And also at the bottom on the right-hand side, there are locations opened in Q2. So in total, 4 opened in Q2 and at the bottom on the right-hand side, 30 locations totaling 56,000 tsubos. So we have many locations now in total for lodging and leisure segment. And if you look at in bracket, there are 2 which are locations to be opened in the future. Moving on to the Hotel and Accommodation. RevPAR, which is one of the KPIs and also the number of accommodation locations, JPY 8,140, which is down by JPY 434. And in the previous Q2, JPY 8,422 and the number of locations increased to 30. So more by 8 rooms. relatively speaking, in regional cities, we have more locations in this Q2. So compared to Tokyo, RevPAR is lower in regional cities. So that is the reason for the decline of RevPAR. But accordingly, cost is lower. So in terms of the profitability, RevPAR is down, but there is no negative impact on the profitability. This is coincidentally just a different mix of locations in terms of the areas of locations. So the trend is still solid. ADI and OCC are trending steadily. That's the situation for the Hotel Accommodation Training Business. This completes the brief explanation of the results financially. And other pages, moving on, we are going to give you updates on the specific businesses. And we are going to hand over to Mr. Nagao.

I would like to give you an update on the business strategy from my side. So first of all, for the Space Regeneration and Distribution Business, I would like to talk about the key of the new openings, and I would like to give you an update. For the third quarter, TKP Garden PREMIUM “Tenjin Brick Cross, which is in Fukuoka and also TKP Yokohama Minato Mirai Conference centers, these 2 will be open. And “Tenjin Brick Cross is located in the “Tenjin subway, and this is directly connected to the subway station. So it has very good connection. And also, this is the center of the economy in Fukoka, so we can expect a higher traction of the visitors. And TKP Minato Mirai, I mean, we already have several flex spaces in Yokohama. Minato Mirai is a little bit far from Yokohama station, but we have a relatively large facility in Minato Mirai, and we have prepared this facility. And going forward, we think that within the Yokohama economy, there are many companies and enterprises. And so we think that we can capture more demand. And next is related to the Flexible Space, which is called shared offices. And TKP fabbit Takamatsu, we are entering into Takamatsu in full scale. And also in Toranomon, which is in Tokyo, we are opening TKP fabbit Toranomon. And so we have opened 2 shared offices. And as Kawano-san mentioned at the beginning, shared office, there are many competitors in this space, but we're not just offering the location or space, but also we're providing different software or content as added value. What I mean is that, for example, of community to develop start-ups or community where freelance people can interact with each other, and we will be active in offering those form. And in order to do that, the regional banks or the regional companies or the local administration and the start-up relevant functions will be involved in active communications so that we can establish a place where information and the people locally will gather in this space, and that is what we want to do for fabbit. And next, moving on to Leisure and Lodging Business and the progress in the new openings and Nakamura-san, the CFO, has already mentioned, we have increased the facilities to 32 directly operated facilities. And in December, APA Hotel Oita Station Front will open -- and in front of Oita Station, we are opening this facility to be a base for tourism, and we want to position this as a value that offers value for -- as a new accommodation place. So we're thinking of being very creative, and I'm hoping that this will be adopted by the regional visitors. And Atami Momoyama LecTore in next year and Hakone Gora LecTore are a plan for opening next year. And especially within the leisure and lodging business, we've mentioned several times about the SHONIN PARK opening, and it's been referred to many times. But as part of the Park-PFI business, we're offering this resort facility within the park. I mean, we're developing a huge value add to a park. And ISHINOYA Beppu is a facility -- accommodation facility that has spas, but also we offer sand spas and also Hawaiian restaurants that values the scenery of the region and also food. And these are all provided comprehensively so that we can contribute to regenerating the value of that region. And also as a tourist site in Oita, we think this can be leveraged. And our -- we believe that our activities will be leveraged to drive the value of the region. And just to talk about the value creation in the region, especially in Oita, APA Hotel Oita Station front will open in December, March and TKP fabbit Oita Station front. I mean this is right next to APA Hotel, but we acquired this building, and we will offer a rental space as well as fabbit. And also by using the open space, various events are being planned. And including Beppu, our Oita locations will organically be leveraged and comprehensively leveraged so that we can build a new community to invite new people into the community. And if for a start-up business, TKP know-how can be used in that way, we want to promote active interaction amongst those people. And that was the update on the business strategy. And now I would like to talk about strategic investments and business alliance updates. And this is a slide that we're showing all the time. So this is just a simple recap. But TKP originally has the rental space business is the initial business that we started off with. And based on different grades, we're addressing different needs, and we have different facilities offering different grades. And on the left-hand side -- right-hand side, we have catering or events or BPO, bring value adds. I mean we're adding services on top of the space, and we have been expanding our business that way. And basis, the service or the value add that's supporting the business will be developed further and expanded. And on the other hand, we have other business like shared office, which is a little bit different to the hourly rental space that's capturing a different demand, and we are responding to the needs in more detail. And also, we have the interior business for hotels and meeting space. And we have made Lilycolor as our subsidiary that offers interiors. And the know-how of Lilycolor business development is utilized to move into the wedding business. I mean, after COVID, the number of weddings is declining. But like was mentioned earlier, we're seeing increase in weddings in the regional areas and the Tokyo Hotel wedding spaces are becoming more actively used. And so we would like to capture that momentum and the demand so that we can actively be involved in the change in the industry so that we can keep the good tradition in Japan and deliver profits as well. And this page shows the different expansion of the facilities, and it's just showing the previous slide in a different way. But like I mentioned, we have the rental space, which is a space regeneration and distribution business, and we will add business revitalization on top of that. And we will use that in revitalizing the industry. And at the end, we want to contribute to developing the value for the region. So we're using the meeting space as a basis, and we will leverage on the capability and expand that to the other areas so that we can expand our business scope so that we can work with the partners in the region and the stakeholders and develop a win-win relationship. And to talk about the subsidiaries, the Lilycolor and NOVARESE progress, I'm just going to talk about the highlights. And with regards to Lilycolor, in the metropolitan area, they're using our TKP facilities, and they have decided to host the sales event for interior product. And so that they can contribute to improve the awareness and brand loyalty. And Lilycolor's SG&A will jointly be spent by Lilycolor and TKP, we will jointly review them and so that we're more efficient and effective using the expenses and the cost reduction effect is gradually delivered. And so we will do our best so that we can improve our margin even further. And for NOVARESE, as was mentioned several times, but we are seeing recovery of the demand in the regional area. And so we would like to capture the demand increase so that TKP corporate customers can be sent to NOVARESE facilities. And in order to do so, the sales reps, TKP sales reps will go through education, and we are doing viewing events for the customers and especially the house wedding facilities of NOVARESE is very nice and lavish. And for the companies, they can use it for different events, commendation events or other events like award-giving ceremonies. And this will be very suitable for such opportunities. And so as TKP sales, they will continue focusing on them. At the same time, NOVARESE subsidiary sales gifts. Therefore, we'd like to promote their sales to TKP's customers. Lastly, Shoningahama Park, this is location generation plan. So photo wedding in Beppu, they can have beautiful scenery on the back in the photo. So we are collaborating with NOVARESE for wedding photos. So overall, for Lilycolor and NOVARESE, for both partners, the number of touch points between them and TKP customers has been increasing. So in many different formats, revenue and cost expenses and customer referrals, overall, I would like to expand the number of touch points with each other so that we can enhance the corporate value for the whole group. This completes my brief update of businesses and the strategies and policies. Thank you.

Now we'd like to move on to the Q&A session. [Operator Instructions] anybody do have questions? Let's move to that person in the middle. Please wait until the microphone is delivered.