Q2 2014 Park24 Co Ltd Earnings Presentation Webcast
Tokyo Jul 27, 2020 (Thomson StreetEvents) -- Edited Transcript of Park24 Co Ltd earnings conference call or presentation Thursday, May 29, 2014 at 12:00:00pm GMT
TEXT version of Transcript
* Koichi Nishikawa
PARK24 Co., Ltd. - President & Representative Director
Koichi Nishikawa, PARK24 Co., Ltd. - President & Representative Director 
Good afternoon, ladies and gentlemen. I am Nishikawa, President of Park24. Thank you very much for joining us today.
Without further ado, I would like to begin the presentation on the financial results of the first half of the year ending October 2014.
First on consolidated results, which we announced May 29. Net sales were JPY 80.93 billion, 109.5% of the previous year; gross profit, JPY 21.42 billion, 104.6% of the previous year; operating profit, JPY 8.68 billion, 98.5%; recurring profit, JPY 8.67 billion, 99.1%; and net income, JPY 5.32 billion or 110.1%.
As you can see, we saw an increase in net sales but decline in operating and recurring profits, while we managed to grow net income year-on-year. One of the main reasons for the reduced profits was the heavy snowfall we had in February.
In terms of the impact on the macroeconomic environment, as shown on the left, indicating traffic density on the Tokyo Metropolitan Expressway, in February it dropped to 90.4% of the previous year, reflecting the trend of consumers refraining from going out.
The Parking Business is highly susceptible to decline in the absolute volume of traffic. As a result, in the Parking Business, there was a negative impact of JPY 600 million on the profit. In the Mobility Business, cancellations of reservations had a negative impact of JPY 100 million. So in total, JPY 700 million of negative impact was incurred due to the snowfall. We do assume possible impact from snowfall, to some extent in our plan every year, and JPY 100 million for this fiscal year. However, when the snowfall was as historic and heavy as it was this year, we could not help but were affected more than we had expected.
Now if you look at the Parking Business on a monthly basis year-on-year, net sales showed steady growths of 7.8%, 9.2% and 10.7% in November, December and January, respectively. But in February, the growth rate dropped to 1.8%. In March, since there was no snowfall, the utilization was around the typical rate with year-on-year growth of 8.7%. However, in April the year-on-year growth rate went back down to 2.1%. We had originally assumed a negative impact from the consumption tax hike of JPY 150 million, but it turned out to be JPY 650 million, resulting in JPY 500 million more impact. Thus, we ended up with increase in sales but decline in operating and recurring profit year-on-year due to the snowfall in February and more-than-expected negative impacts from the consumption tax hike.
There was a distinctive trend observed in the impact of consumption tax hike, depending on the type of parking facilities. In ST, as you can see from the graph, there was about JPY 200 million of negative impact, while in TPS, the impact was much larger than had originally been anticipated, which amounted to JPY 450 million. Due to the last-minute rush in spending in March, there was much less customer traffic to retail stores in April, which resulted in a meager 1.9% increase in net sales of TPS in April. In March, TPS posted a year-on-year growth of 14.1%, so it declined by almost 15 percentage points in April. Thus, the impact of the consumption tax hike was JPY 500 million more than the originally assumed JPY 150 million.
Here, you can see the key factors of change in recurring profit. In the first half of fiscal 2013, we recorded recurring profit of JPY 8.75 billion. In the first half of fiscal 2014, there was an increase of profit in Parking Business of JPY 1.39 billion and an increase of JPY 150 million in Mobility Business. Although there were some factors that pushed down the profit by JPY 270 million, had it not been for the snowfall and consumption tax hike, we would have been able to land a positive growth in recurring profit; or if we had not had snowfall, we would have posted an increase in recurring profit. Basically, ours is a stock business, and therefore, if we increase the number of parking sites and spaces, we would naturally grow both sales and profits in our business model. However, the snowfall was so heavy and concentrated in the Tokyo metropolitan area that we were severely affected. That was a result of the first half of fiscal 2014.
This shows the results in the first half by business. In the Parking Business, we posted net sales of JPY 62.89 billion and gross profit JPY 16.31 billion; while in the Mobility business, net sales were JPY 18.03 billion and gross profit JPY 5.1 billion.
If you look at each business more closely, although we struggled in terms of profitability, we were quite successful in developing new sites. We reached a record high in the number of new parking sites developed in fiscal 2013, and in the first half of fiscal 2014 we posted a record high in the number of new sites developed in the 6-month period. The total number of new sites was 1,030, of which 828 was for ST and 202 for TPS. Our plan for the first half was 850 in total, so we have overachieved the plan by close to 200. The number of new parking spaces, shown on the right, was 37,501, with TPS totaling 21,900 and ST, 15,601.
Our policy for this fiscal year from the beginning was to develop a core parking site in a given area and develop smaller ones in numerous surrounding locations as satellite sites. As we have been successful in developing core parking sites in each of the areas, here you can see some examples, one in Ota Ward in Tokyo, one in Hokkaido and another in Osaka. Those are all located in well-known places in the area, playing the role of a core parking site in each area. And we have been able to develop smaller-scale ST parking sites in the vicinity of the core site.
Page 10 shows how the average number of spaces per site has been trending chronologically. At the end of the first half of fiscal 2014, the average number was 18.8, slightly higher than the previous averages. This was because one of the STs we developed had 1,300 spaces, which lifted up the overall average to 18.8. If we exclude this special factor, the average number of spaces was mostly consistent with the past trend, which demonstrates that we have been able to develop smaller-scale ST sites. Therefore, we really wish there had not been that heavy snowfall in this first half. But on the other hand, because of the steady progress in our development of new sites, we expect to see benefit reflected in profits in the second half of this fiscal year.
Next, I'd like to discuss the Mobility Business and first touch upon car rental business. We are seeing steady performance in use by corporate customers. Corporate sales rose by 6.4% compared to the first half of fiscal 2013. In terms of costs, we are trying to make the most efficient use of the human resources within the group. So personnel in the parking maintenance company in the group, called Time Service, will be mobilized to operate the rental car stores. In other words, sales offices of Time Service and rental car stores will be integrated to realize efficient allocation of personnel, which we expect will help reduce costs, increase efficiency in operation of stores and expand profits.
Next, let me turn to car sharing, which is an important business for us. In the first half, we posted net sales of JPY 4.43 billion; gross profit, JPY 990 million; and operating loss of JPY 300 million. The original plan was JPY 4.25 billion in net sales and JPY 350 million in operating loss, so we were ahead of the plan in both net sales and operating profit.
Here, you can see the membership and the number of vehicles in the car sharing business. The membership is growing steadily, while vehicles are being increased as planned, to stand at 8,533 as of the end of April. And we are going to increase the number of vehicles to reach 10,000 by the end of October in accordance with our plan.
In the car sharing business, as far as the weekends are concerned, we have already reached the satisfactory utilization level to some extent, but what we need to do is to increase the utilization during weekdays. To this end, since the previous fiscal year, we have been focusing on acquiring new corporate members, and in the first half we have continued with this effort. And in the first half, the ratio of corporate members has improved by 1 percentage point compared to the end of fiscal 2013.
If you look at the year-on-year growth in the average amount spent per vehicle per day by corporate members on weekdays, in the first half of fiscal 2014 it was 34.7%. Thus, we can say our focus in sales activities is now gradually being reflected in our numerical results as well. So even though the car sharing business is still running operating losses, partly due to these efforts we were ahead of the plan by JPY 50 million.
Now this April marks the first anniversary since we standardized the brand. In April of fiscal 2013, we changed the brands of car rental and sharing businesses to Times Car Rental and Times Car PLUS, respectively, to unify the brand. And it's been 1 year since then, and much progress has been seen in our endeavor to promote mutual customer transfer between the different businesses.
Page 16 shows the results of gross sales. In terms of the amount spent for the group service, the year-on-year growth was more than 300%. In terms of frequency of use of the group service, we grew by 224% year-on-year. As 1 year has passed since the standardization, the car rental and car sharing services run by Times has become more widely recognized. Since the points of the Royalty Point Card are common between the 3 services, Times Club members seem to be more actively using our group services, and we hope to continue to focus on this effort going forward.
That was a brief overview of the first half of the fiscal 2014.
From this page onward, I will explain our initiatives for the second half. First, on the full year forecast for fiscal 2014. To give you the conclusion first, the plan announced at the beginning of the fiscal year will remain unchanged in terms of profits, with recurring profit planned at JPY 21.5 billion and net income JPY 12.7 billion. As we were behind the plan at the end of the first half, we will need to make up for the gap in the first half, in addition to achieving the original plan for the second half.
As was already announced, in the Parking Business, the net sales are expected to be JPY 129.5 billion and gross profit JPY 35.5 billion. In the Mobility Business, our forecast is JPY 38.5 billion in net sales and JPY 12.5 billion in gross profit.
As for the development of new parking sites, in the first half we enjoyed quite a success and overachieved the plan by 200 sites, but our forecast for the full year remains unchanged from the original plan. In terms of the number of new parking spaces, the original plan of 63,500 will be left as it is. Due to the heavy snowfall and the consumption tax hike, we are behind the plan by a total of JPY 1.1 billion in the first half, which we definitely want to make up for in the second half. What we are going to do specifically to that end boils down to reinforcing what we have always been trying to do: quickly improving profitability of newly developed parking facilities.
It takes about 3 months for a newly developed parking site to become breakeven, on the average. The more efforts and man hours we spend right after opening a new site, including distributing flyers and building a sign board indicating the opening of the site to enhance awareness, the more quickly the site will become profitable. So we plan to spend even more efforts and man hours in this effort to help new sites to become profitable as soon as possible. The other initiative is to maximize earnings, including the detailed strategy of parking fee setting.
On the other hand, in the external business environment, there is expected to be an impact from the consumption tax hike. But if you look at this graph showing year-on-year changes in daily sales of the parking facilities up to May 28, our sense is that the downward trend of daily sales seems to have bottomed out. People's unwillingness to go shopping or going out at all, seen in early April, may have run its course, and the effect may be beginning to be reflected in daily sales figures. Therefore, as daily sales recover gradually, we expect the full year results to turn better.
The other initiative is, as I said, is to take carefully crafted strategies to improve profitability for each site. I talked about such actions as distributing flyers and building a sign board or banner at the time of the opening. But in some of the parking sites that are several years old, those actions could bear fruits to some extent. And at the same time, we will carefully adjust the parking fee setting suited for that particular time and situation for each site. In the first half, we have changed the fees more than 6,000 times in total in our entire operation of parking sites. In the first half of fiscal 2013, the major parking fee changes counted 4,600, and in the second half, it was done 6,000 times. But in this fiscal year, we have changed fees already 6,000 times in the first half.
In fiscal 2013, since we are so successful in development of new sites in the first half, we intentionally slowed down the rate of development in the second half, so that extra resources freed up from development activities be assigned to initiatives to improve the operation of existing sites. As a result, the frequency of fee revisions was increased by 30% in the second half compared to the first half in fiscal 2013.
In fiscal 2014, in the first half, our development result was again quite strong. So we expect to adjust the pace of the development intentionally in the second half, thereby assigning the freed-up extra resources into operational improvement measures. If we run simple math, with the same amount of increase in resources of 30% from the first half as in fiscal 2013, we should be able to carry out 7,000 to 8,000 fee revisions. Therefore, we are determined to revisit the operation of every single existing site to take actions for improvement, including fee revisions.
In Mobility Business, we plan to enlarge the entire pie. [We'll] increase the number of stores. In fiscal 2013, the total number of stores stood at 460, but it was increased by 9 to 469 at the end of the first half of fiscal 2014. Our policy is to increase the total number of stores across the country to 500 for the next 2 to 3 years. At the same time, we're also striving to improve the quality of the services. What we are going to do is to eliminate cumbersome procedures for reservation as much as possible, especially for online reservations. The ratio of online reservations among individual users is rather high, and therefore, we will review the procedures on a day-to-day basis so that we can improve the quality of the services.
As for the car sharing business, or Times Car PLUS in the Mobility Business, our plan to reach breakeven for the full year in fiscal 2014 remains unchanged. In the first half, we are ahead of the plan by JPY 50 million. Therefore, we strongly hope to achieve this goal of becoming breakeven in operating income level or turning surplus if things go even better. In bringing the car sharing business into profitability, the biggest priority for us is to increase the utilization during weekdays. In order to achieve it, we are focusing on acquiring new corporate customers. But more recently, in order to enhance the convenience of corporate members, we used a payment card called TBC, or Times Business Card, which we have been issuing in our Parking Business, and add car sharing membership function onto this card and issue an integrated card. In other words, those who are already corporate members of the car sharing services can use their member card to pay the parking fee, and those who already have TBC can use it for car sharing services. We are hoping that this will help enhance the convenience for corporate members so that their use of the services will be further increased and corporate membership will be expanded.
Another initiative to improve the convenience, especially for corporate members, is to increase the variety of models available for car sharing. We will introduce a new vehicle model every month until October.
As we listen to what corporate customers say, we realize they find it difficult to use compact cars such as Demio. In order to respond to those voices, we are going to introduce cab over the engine types or vans, which would be assigned a license number indicating a commercial vehicle to meet the needs of corporate users. You can see the models we plan to introduce in May, June and July. They are mostly cab-overs, 7 seaters and other larger-sized vehicles instead of compact cars, which we hope will help enhance the convenience for corporate members. On the other hand, there are a wide variety of members, including individuals. Some may engage in behaviors that are prohibited by the membership rules. So we decided to give incentives to rule-abiding members to facilitate improvement in the way vehicles are used and implement what is called TCP program. Moreover, by enhancing the convenience, we hope to reduce nonoperating hours and increase the overall utilization.
So together with the initiatives in the Parking Business, we will reinforce overall measures to make up for the shortfall in profit of JPY 1.1 billion in the first half so that we will be able to achieve the full year recurring profit target of JPY 21.5 billion. We have announced this program already, but from February 28, we have started an ADR program, which is called Sponsored Level 1 ADR. Trading was started on February 28 of this year. The purpose of this program is, as shown on this page, to enhance recognition of the company and further expand the foreign investor base. So we wanted to expand the base to cover wider spectrum of investors, and we have decided to establish this ADR program.
That concludes my presentation on the results of the first half of fiscal 2014 and initiatives for the second half. Thank you for your attention.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]