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Edited Transcript of 1925.T earnings conference call or presentation 8-Aug-19 10:59am GMT

Q1 2020 Daiwa House Industry Co Ltd Earnings Call

Osaka Aug 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Daiwa House Industry Co Ltd earnings conference call or presentation Thursday, August 8, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Presentation

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Unidentified Company Representative, [1]

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We would like to present our financial results using the presentation material titled Financial Highlights for Fiscal Year 2019 First Quarter.

Please turn to Page 1. Net sales stood at JPY 1,017.9 billion, increased by 12.8% year-on-year. Operating income, JPY 92.3 billion, up by 22.7%. Ordinary income, JPY 93.4 billion, up by 21.2%. And net income attributable to owners of the parent, JPY 65 billion, up by 24.2%. Earnings per share were JPY 98.02, up by 24.3% year-on-year. Quarterly net sales exceeded JPY 1 trillion for the first time, and all items marked record numbers.

Net sales grew for the ninth consecutive year. Operating income and ordinary income grew for 11th consecutive year, and net income grew for the third consecutive year.

Page 2 illustrates our analysis of major factors for changes in net sales and operating income. The top half shows an analysis of factors contributing to the increase in net sales, which grew JPY 115.5 billion year-on-year. Logistics, Business & Corporate Facilities business increased JPY 48.2 billion. Condominiums business increased JPY 19.2 billion. Single-Family Houses business increased JPY 14 billion. Commercial Facilities business increased JPY 9.7 billion. Sale of development properties increased JPY 5.8 billion. A major breakdown for impact on other businesses and others includes JPY 8.4 billion in Existing Homes business and JPY 8.3 billion in Environment and Energy business.

The bottom half shows factors contributing to the increase in operating income, which grew JPY 17 billion year-on-year. Top line growth brought JPY 21.1 billion increase. Increased income from sale of development properties contributed JPY 0.7 billion, and improved cost of sales ratio contributed JPY 0.4 billion. Selling, general and administrative expenses increased JPY 5.1 billion.

Page 3 and 4 show the profit and loss summary. Numbers are reported earlier. Operating income margin improved by 0.8 percentage points from 8.3% to 9.1%. And operating income margin, excluding the sale of development properties, has improved by 1 percentage point from 5.9% to 6.9%. Major companies contributing to sales increase are: Daiwa House, on a nonconsolidated basis, by JPY 41.7 billion year-on-year; Fujita Group by JPY 10.5 billion; Daiwa Living Group by JPY 8.5 billion. Major companies contributing to operating income increase are: Daiwa House, on a nonconsolidated basis, by JPY 2.9 billion; and Cosmos Initia group by JPY 2.4 billion.

Next, let me present the balance sheet. Please look at the top table on Page 5. Total assets decreased JPY 12.5 billion since the end of March 2019 to JPY 4,321.4 billion. Current assets decreased JPY 62.7 billion to JPY 1,858.2 billion mainly due to decreases in cash and deposits and accounts receivable. Noncurrent assets increased JPY 50.1 billion to JPY 2,463.1 billion. Total inventories, shown in the bottom left, stood at JPY 969.2 billion, up by JPY 13.6 billion. In overseas inventories, land for sale increased by JPY 22.1 billion, and buildings for sale decreased by JPY 8 billion. Changes in overseas inventory are recorded across relevant segments to reflect the restructuring of segments. Total property, plant and equipment in the bottom right increased JPY 66.9 billion on the back of steady progress in investment in real estate development and so on.

Page 6 shows liabilities and net assets. Liabilities stood at JPY 2,658.7 billion, decreased by JPY 31.5 billion since the end of March 2019. Net assets were JPY 1,662.6 billion, up by JPY 18.9 billion. Interest-bearing liabilities, shown in the bottom table, increased JPY 177.2 billion to JPY 955.8 billion at the end of June 2019. The equity ratio stood at 0.59.

Page 7 states the breakdown of investment real estate. The book value of investment real estate was JPY 1,077.9 billion at the end of March 2019 and JPY 1,140.3 billion at the end of June 2019, increased by JPY 62.3 billion in 3 months. The book value of real estate available for sale was JPY 788 billion, of which properties being rented were JPY 307 billion; and not being rented, JPY 481 billion.

The breakdown of real estate available for sale by type is indicated in the top right. Logistics facilities were worth JPY 560.8 billion and continue to be our core investment. The bottom tables show the breakdown of rented real estate available for sale, rented profit-earning real estate and NOI yield. NOI yield of real estate available for sale was 6%, improved by 0.3 percentage points compared to the end of March 2019. NOI yield of profit-earning real estate was 12.6%, deteriorated by 0.2 percentage points compared to the end of March 2019.

Page 8 shows earning forecast for fiscal year ending March 2020. The forecast remained unchanged from our announcement in May 2019.

Page 9 illustrates sales and operating income by segment for fiscal year 2019 first quarter. The top half shows sales. Sales increased in all segments. The bottom half shows operating income. Operating income increased in all segments, except in the Single-Family Houses business.

Page 10 shows forecast of earnings by segment. The forecast remained unchanged from our announcement in May 2019.

From Page 11, we will explain the status of each segment. First, we will explain the Single-Family Houses business. Thanks to favorable orders received from January to March 2019 in Japan, favorable sales for Stanley-Martin communities housing project in Washington, D.C. and the ramping areas in America, sales increased by JPY 14 billion, operating income decreased by JPY 0.2 billion and a decline in the cost of sales ratio and increased selling, general and administrative expenses.

The bottom indicates every sale per unit and average area per unit for Daiwa House on a nonconsolidated basis. The unit price per custom-built house increased by JPY 1.9 million year-on-year.

Page 12 states Rental Housing business. Sales increased by JPY 5.4 billion, while construction decreased by JPY 8.4 billion. Revenue from rental management and sale of development properties increased. Operating income increased JPY 5.4 billion, largely on higher income on sale of development properties. The bottom table shows the management of units and occupancy rates of the Rental Housing business. Management of units were 580,000, including 539,000 lump-sum contracted units. Occupancy rate at the end of June 2019 was 95.7%, remaining the same level at the end of June 2018.

Page 13 states Condominiums business. Thanks to higher sales of properties in Japan compared to the previous fiscal year and additional property handovers for the Summer Hill project in Australia, sales increased JPY 19.2 billion, and operating income increased JPY 3.4 billion. The middle part shows the stock of completed condominiums, which stood at 767 units, including 44 units with orders recognized at the end of June 2019.

Page 14 states Commercial Facilities business. Orders received of hotels and multi-use Commercial Facilities remain firm. Additionally, sale of development properties also progressed. As a result, sales increased by JPY 16 billion, and operating income increased by JPY 2.3 billion.

Page 15 states Logistics, Business & Corporate Facilities business. Sales increased by JPY 41.5 billion, and operating income increased by JPY 0.6 billion mainly due to an increased construction. The operating margin declined 1.5 percentage point year-on-year mainly due to a decrease in sale of development properties. Operating income margin, excluding the sale of development properties, has improved by 1.9 percentage points year-on-year.

Page 16 illustrates the progress of investment in the top table. And our cash flow stands as shown in the consolidated statement of cash flows in the bottom table.

Page 17 and 18 show Daiwa House's results and forecast of orders received and sales by segment on a nonconsolidated basis for this fiscal year. During the term, orders received increased by 8.8% year-on-year overall. The forecast remained unchanged from our announcement in May 2019.

Page 19 illustrates the progress of overseas business. The top table shows a summary of earnings per area.

This completes the presentation.