Q2 2015 Park24 Co Ltd Earnings Presentation
Tokyo Jul 20, 2020 (Thomson StreetEvents) -- Edited Transcript of Park24 Co Ltd earnings conference call or presentation Friday, May 29, 2015 at 6:30:00am 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 attending the briefing for the financial results of the first half of the year ending October 2015.
Now without further ado, let me start my presentation referring to the screen in front and the handouts distributed to you.
First, on numerical results of the first half on a consolidated basis, we have posted net sales of JPY 86.5 billion, up 7% year-on-year; gross profit of JPY 21.3 billion, 99.8% of the previous year; operating profit, JPY 7.9 billion, 91.3% of the year before; recurring profit of JPY 7.9 billion or 91.4% of the previous year; and net income of JPY 4.9 billion or 92.2% of the year before.
As you can see, in the first half, sales have grown but profits declined. We had originally planned for increased sales and decreased profits in the first half due to the expected impact of the consumption tax rate hike from 5% to 8%, but we are behind the plan by JPY 200 million in terms of recurring profit.
The next slide shows the trend in profit by business segment, indicating the chronological results of the first half of each of the years ended October 2008 through October 2015. In the Parking business, the operating profit decreased by JPY 2 billion in the first half of fiscal 2015 from a year before. While the Mobility business, after remaining in the red in the first half for the first 5 years since its inception, has now turned into black with JPY 610 million in operating profit. With these numbers added up, the recurring profit of JPY 7.926 billion was posted.
In the bottom half of this slide, you can see reasons for the increase and decrease of profits presented in bar chart. In the Parking business, recurring profit dropped by JPY 1.43 billion year-on-year. While in the car sharing business, it went up by JPY 670 million. And other Mobility services, including rental cars and road services, increased by JPY 50 million year-on-year, respectively. In the total Mobility business, there was a positive growth of JPY 72 million year-on-year. Including the company-wide cost increase of JPY 40 million, the total recurring profit declined from JPY 8.67 billion in the first half of fiscal 2014 to JPY 7.92 billion in the same period in fiscal 2015.
Let me explain in more detail by segment. This shows changes in sales and profits of Times parking business in the first half of each of the past few fiscal years. In the first half of fiscal 2015, the Times parking business posted sales of JPY 65.54 billion, gross profit of JPY 15.42 billion and operating profit of JPY 10.73 billion. More details of factors for changes in operating profit of Times parking business are shown on Page 5.
In the first half of fiscal 2014, the operating profit was JPY 12.17 billion. Due to the expansion of the size of the entire parking operation, the operating profit increased by JPY 1.42 billion. And this year, there was snow effect of the heaviest snowfall in 50 years, which we did suffer from last year. This has contributed to the year-on-year growth in operating profit of JPY 540 million. With the increase of consumption tax by 3 percentage points, since the prices of the parking spaces are inclusive of the consumption tax, we got affected unless we managed to pass the tax hike on to the prices. Direct impact from that was worth about JPY 1.5 billion. Of the negative impact, JPY 420 million have been passed on to prices by changing the pricing scheme. But on a net basis, we were affected by the consumption tax hike for about JPY 1.1 billion. The biggest negative factor was a decline in the overall traffic volume since April last year, and this trend has persisted in fiscal 2015 in terms of numbers, which we believe caused a decline of about JPY 2.04 billion in operating profit.
In the final months of the first half, April, when the consumption tax rate was the same at 8% as the previous year, and yet even considering that fact, the profit growth was slightly weaker. This has caused a negative impact of JPY 280 million as compared to what would have been in a normal year, especially because the holiday TPS sales failed to grow as much as expected. Consequently, we ended up with the operating profit of JPY 10.73 billion in Times parking business in this first half.
While there are not many good news with regard to profits, such as decline in the traffic volume and hike in the consumption tax, development has continued to make steady progress as in the previous term. The strong performance in development was mainly due to the continued benefit we enjoyed in this fiscal year from the transformation of the sales organization into an area-based system implemented in the year ended October 2014.
As of the beginning of fiscal 2014, we had left the sales offices untouched and assigned each sales representative a geographic area and a team. But some teams had to travel 1.5 hours or 2 hours to make a one-way trip to the area from their sales office. So therefore, since the previous term, those teams with assigned areas located afar have opened their sales offices in the area they were assigned to. There are 19 sales offices at the end of the previous term, but it was increased by 10 to reach 29 at present.
Given the strong development performance, this is how the number of operating sites and spaces has resulted. The total number of parking sites reached 14,653, up 9.2% year-on-year. And the total number of parking spaces is 492,619, up 8.6% year-on-year. As you can see, the development has been maintaining a high level of growth steadily.
Now I would like to explain more about sales and consumption tax hike. On Page 9, you can see the same diagram as we used in the previous term, which shows chronological changes in the year-on-year comparison of net sales between November 2013 or the beginning of fiscal 2014 and the end of the first half of fiscal 2015. The 4 months average prior to the consumption tax hike is shown on the left bottom. If February has been excluded, as there was a heavy snowfall last year, the average was 109.1%. After the consumption tax hike in April 2014 until March 2015, excluding February 2015 when there was a backlash from the impact of the heavy snowfall in the previous year, the average year-on-year comparison was 103.0%. So it has manifested itself in these numbers how significant the impact from consumption tax hike was.
Looking at the monthly numbers, in March 2015, it was 103.4%, followed by 106.4% in April 2015 when the growth rate seems to have soared because the year-on-year comparison was suddenly with the same consumption tax rate of 8% from this month. And yet, the rate was still 2.7 percentage points lower than the average during the period right before the consumption tax hike.
I keep saying how the traffic volume has been declining recently, but perhaps I need to demonstrate it in numerical terms. It tends to take time for the traffic volume data on general roads to become available, and so we have used the traffic volumes from Tokyo Metropolitan and Hanshin Expressways, which get announced relatively quickly. The average year-on-year comparison of traffic volumes over the 4 months prior to the consumption tax hike was 102.5% for both Tokyo Metropolitan and Hanshin Expressways, respectively. While after the tax hike, it was 98.5% for Tokyo Metropolitan and 98.9% for Hanshin Expressway. If you just focus on the first half of fiscal 2015, it was 98.2% for Tokyo Metropolitan and 98.4% for Hanshin Expressway. So I'm sure you can see how the past 6 months have suffered a sharp drop in the traffic volume even when compared to 1 year average of the decline since April 2014.
In the Parking business, therefore, there are not many positive factors as far as the external environment is concerned. On the other hand, in the car sharing business, we have been performing quite well in comparison with our plan. As of the first half of fiscal 2015, the number of vehicles available for the business was 11,851, with the membership of 470,149.
Page 12 shows the net sales and operating profit for the first half of each of the past years in the car sharing business. In the previous year, we posted net sales of JPY 4.43 billion. While in fiscal 2015, we reached JPY 6.45 billion in net sales, and gross profit of JPY 990 million in the previous year, rose to JPY 1.53 billion in this fiscal year. We incurred the operating loss of JPY 300 million in fiscal 2014. Whereas in fiscal 2015, JPY 370 million in operating profit was posted. So on a half year basis, we managed to post a positive operating income of more than JPY 300 million. It took us 5.5 years. And in our 6th year, we finally succeeded in turning the car sharing business into a profitable one.
Page 14 shows the reasons for the car sharing business turning profitable in the first half. As for sales, we have been saying all along that you're enhancing our efforts in sales to corporate customers. During the weekends, we have already reached utilization rates sufficiently satisfactory to us. In contrast, the utilization rates during weekdays are still low, and so we are working hard to raise the utilization of vehicles during weekdays, which naturally led us to step up our efforts in acquiring contracts with corporate customers. As a result, the ratio of corporate members has grown to 36% in the first half of this fiscal year, up 0.6 percentage point year-on-year.
Furthermore, the amount spent for vehicle per day by corporate members has been steadily increasing, represented by the 7.6% growth achieved in fiscal 2015. All of these efforts have resulted in the increase in the utilization of vehicles during weekdays. That was a brief overview of the financial results of the first half of fiscal 2015.
Next, I would like to discuss the full year forecast from Page 15. As we announced on May 28, we have left the initial plan for the full year unchanged with net sales at JPY 180 billion; operating profit, JPY 18.6 billion; recurring profit, JPY 18.5 billion; and net income, JPY 11.5 billion. Therefore, the number of new parking sites and parking spaces planned to be developed has also remained unchanged with the number of sites planned at 2,000 and spaces at 68,000.
In terms of the number of parking sites, we have achieved more than half of the full year target in the first half, and the number of parking spaces, slightly more than 60% has been already developed in the first half. Therefore, we are confident that the planned numbers for the new development, both in terms of sites and spaces, will be able to be achieved.
Looking at the forecast by business segment. We're expecting to post JPY 135 billion in net sales in the Parking business, with gross profit of JPY 34.4 billion and operating profit of JPY 24.4 billion. Given this full year plan, since we're behind the plan in the first half in terms of profit of the Parking business, moving forward, we will focus on raising the profitability level by stepping up our efforts further to increase utilization of parking spaces.
Furthermore, as part of the initiatives to promote the use of our parking facilities, we have started the services to lead customer traffic from our parking sites to nearby stores. There are flyers folded in 3 called Tanoshii Machi, which shows parking sites and shops and restaurants located nearby on the map, with the coupons provided by those stores, which will allow customers to enjoy benefits such as getting 1 beverage free in exchange for buying a lunch at JPY 1,500 or more. But if that is all, we would just end up bringing customer traffic to shops and restaurants near our parking sites. What we are offering is distributing these flyers with ad spaces, which would normally cost you about JPY 30,000 per space. But we offer the stores ad spaces for free in exchange for them buying the tickets for Times parking spaces. Therefore, the stores are asked to provide their coupons to be included in the flyers and to offer parking spaces free of charge or at a discount to customers who have spent a certain minimum amount in their stores. In this scheme, while we provide more customer traffic to stores nearby, we can expect some customers to use one of our parking sites to get to that particular store. In other words, we both benefit by sending customer traffic to each other. This flyer program has now been rolled out to 200 areas across the country. We are hoping to repeatedly issue those flyers on a continuous basis, and we'll be aggressive in distributing them in new areas so that we can attract more customer traffic to our parking sites.
As you can see on Page 22, in an effort to improve utilization of our parking sites, as many corporations have been doing, we offer Times parking space tickets or Times Car tickets that can be used for car sharing or car rental services provided by the local government as part of the token of appreciation to the participants in the hometown local tax payment program. With these initiatives, we're promoting the use of our parking facilities and car rental services.
From Page 23 onward, you can see the business plan for Times Car PLUS or car sharing business. There is no change made to the original plan announced at the beginning of the fiscal year. The total number of vehicles available at the end of fiscal 2015 is expected to be 13,000 with net sales of JPY 14.7 billion and operating profit of JPY 500 million. In the first half, we have already achieved JPY 300 million plus in operating profit, and therefore, it is likely that we will overachieve the full year forecast in the car sharing business.
While we will more aggressively expand the car sharing business, at the same time, we hope to enhance the profitability further as well. So we are working to make the service easier to use. As indicated on Page 24, vehicles and trains are interconnected with each other as many people combine the 2 different modes of transportation in 1 trip. So we are now proactively deploying the fleet at the railway stations where Shinkansen bullet train stops. With initiatives like these, what we find is that it helps improve the convenience of not just individual members, but it's well received by corporate members.
In this slide, only Shinkansen stations are shown for the sake of making it easier to see, but we are increasing the services at private railway stations as well. An increasing number of customers choose to take train for the long distance leg and use car sharing services from the station closest to the destination to engage in sales activities rather than taking a car all the way and back. This allows them to shorten the time to get to a distant place and enhances efficiency. We find more corporate members starting to appreciate the benefit. And this is one of the reasons why the surplus on the operating income level in this business has increased in the first half.
Conventionally, our strategy was to place the vehicles for car sharing services in Times parking sites. And today, that still remains our basic policy. That way, we have been able to run the car sharing business without paying for car parking spaces, which has been the biggest benefit for us to engage in the business. But now the cars are being placed in parking facilities other than Times as well. Since there are sometimes no Times parking sites located where you definitely want to offer car sharing service. As long as we can ensure the car sharing business is sufficiently profitable on its own right, even after paying for the parking spaces, we do not have to stick with the conventional policy. Therefore, we are increasingly deploying cars in areas where there are no Times parking sites as well. By doing so, we're expanding the nationwide car sharing network to make it even more convenient so that the entire utilization rate will be enhanced and profit margin expanded.
Furthermore, using the car sharing service mechanism, we're making various new attempts. First of all, we like the car sharing to be recognized as one of the common means of transportation. When you are asked to mention means of transportation, you would probably say, trains, buses and taxis, except for your own passenger cars. And what I hope to do is to develop this car sharing service so that it will be perceived as another popular means of transportation. Given this goal, in addition to continuing to use the conventional vehicle models, we should look at various models with different shapes and sizes being launched in the market. One of them is electric vehicles, obviously, of which ultra-compact electric vehicles are, in particular, what manufacturers are starting to focus their efforts on in research and development. Therefore, we also would like to incorporate them proactively in our services as roads in some urban areas tend to get congested. If we can provide an environment where people can travel smoothly using the ultra-compact electric vehicles, it will serve our mission to realize a society with comfortable transportation services. So we would like to stay committed to pursue it, including demonstration projects going forward.
In connection with such services, we are now offering on a pilot basis one way cost-sharing services using Toyota's i-Road, where customers can leave the car at the place different from where they originally started their journey. Moreover, on top of those new initiatives, we're also attempting to provide more opportunities for our members to know the fun of driving and thereby to enhance the utilization of the vehicles.
As you can see on Page 26, one example is what we call drive check-in service, where members can earn loyalty points if they park a Times Car PLUS vehicle at one of the partner facilities for a designated amount of time.
Page 27 describes the corporate fleet service, which we are presently focused on as part of our sales activities targeting corporate customers. We start with consulting service to visualize the use of company-owned vehicles by researching how they are actually being used and then come up with the recommendation on at least how many vehicles the company needs to own to support their sales activities and how much cost can be potentially saved by keeping a certain number of them and replacing the rest with car sharing or rental car services. By so doing, we are hoping to acquire new corporate members. So the corporate fleet service is one of the activities we are now putting our efforts into. And by continuing to engage in those activities, we are hoping to enhance the utilization of the car sharing and rental car services.
What is indicated on Page 28 is not something we would expect to become one of the main revenue streams going forward. Having said that, however, we sell used vehicles to the order of several thousands every year. Service life for vehicles used either in car sharing or rental cars is usually 4 years, although it depends on the extent of wear and tear of each vehicle, how long we decide to use it ultimately. But once we find a vehicle too worn out to be used any longer, we obviously decide to sell it as a used car. Conventionally, we then need to sell those used cars through auctions, but we started services to sell them directly to some of our members. We have already succeeded in signing deals to sell 40 such vehicles. By selling directly to members, we have been able to reap higher profits, albeit only by about JPY 100,000 per vehicle, honestly speaking, than when we sell them through auctions or intermediaries. So we hope this will also help increase the profitability of the business.
Last but not least, on Page 29, membership strategies are described. It may be too early to say that there are any tangible results we see out of those strategies, but slowly and gradually, by enhancing the network, we hope to improve the convenience for the current 5.3 million members. By so doing, as I mentioned, we want to create an environment where our members would not mind going an extra distance to use a Times parking facility even if it is located a bit far. So we will be more aggressive in introducing services specifically designed for our members.
By focusing more on those member-specific services, we'd like to enhance the competitiveness of the parking facilities themselves. That's all from me on the financial results of the first half of fiscal 2015 and forecast for the full fiscal year.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]