Q2 2017 Park24 Co Ltd Earnings Presentation
Tokyo Jul 20, 2020 (Thomson StreetEvents) -- Edited Transcript of Park24 Co Ltd earnings conference call or presentation Thursday, June 1, 2017 at 10:59:00am GMT
TEXT version of Transcript
* Koichi Nishikawa
PARK24 Co., Ltd. - President & Representative Director
Koichi Nishikawa, PARK24 Co., Ltd. - President & Representative Director 
Ladies and gentlemen, good afternoon. My name is Koichi Nishikawa. Thank you very much for sparing your time to attend Park24 group's financial results briefing meeting for the second quarter of fiscal year ending October 2017. With no further ado, I'd like to start my presentation.
First, results for the second quarter under review. On a consolidated basis was net sales of JPY 107.4 billion, 114.7% year-on-year. Gross profit of JPY 26.7 billion, 109%. Operating profit of JPY 8.5 billion, 89.8% year-on-year, recurring profit of JPY 8.5 billion, 91.7% year-on-year and net income of JPY 5.6 billion, 93.2%. So consolidated sales increased, but profit declined during the first half of the year under review.
Next, on Page 5, is operating profit by business segments. Starting from the top, Parking Business domestic operating profit was JPY 11.9 billion. Mobility business, which includes car sharing and rental car service, was JPY 1.1 billion. And Parking Business overseas, that includes Secure Parking which the group acquired in January 2017, was JPY 50 million.
Total operating profit was JPY 13.1 billion. Subtracting the costs of JPY 3.7 billion and the business development cost of JPY 800 million is our consolidated recurring income of JPY 8.5 billion. Detailed factors are explained in next page, Page 6.
The waterfall chart starts from far left with the recurring profit of the previous year's first half of JPY 9.31 billion. From there, in our Parking Business, for the first half of this fiscal year, it was up by JPY 740 million, which is about 6% growth in profit percentage-wise. However, there was increase in tax due to pro forma standard taxation, which was minus JPY 240 million. So actual growth of domestic Parking Business was JPY 500 million.
Car sharing and car rental business combined was down by JPY 280 million. I shall explain about this in detail later.
Next item is a JPY 370 million decline due to leap year effect. This is due to the fact that our monthly costs are mainly fixed cost for all businesses. So one less business day directly hits our profitability.
Company-wide costs have been reduced to show a positive impact of JPY 140 million. Business development costs increased by JPY 360 million. Parking Business overseas was up by JPY 200 million. However, JPY 190 million of goodwill amortization of the acquired Secure Parking is recognized.
In addition, although this is a one-off, there was the acquisition cost of Secure Parking, which was JPY 410 million. Therefore, Parking Business overseas was down by JPY 400 million. So all in all, recurring profit for the first half of this fiscal year was JPY 8.53 billion.
Next looking at performances by each business segments. The graph on Page 8 shows the number of new parking sites and parking spaces. Number of new parking sites was 1,010. Last year, the number of new sites dropped during the first half, but this year was back on track, so as to say, to surpass the 1,000 mark. The number of new parking spaces, which is shown on the right, stood at 33,545 compared to over 40,000 spaces a year ago on total basis. This was about 7,000 spaces less.
In ST development, we take team-based, region-based approach. And we promoted to work diligently to acquire even relatively small land lots. Therefore, many of the new development had less spaces per site. Although there was a decline year-on-year on year basis, number of new sites was back to over 1,000 level, so we view the overall performance was good.
Page 9 is the number of operating parking sites and parking spaces. Within Japan, the group operates 16,404 sites; 543,242 spaces. So as for the sites and spaces, we are showing steady development.
Topics for the first half is related to the much talked about increase of inbound tourists visiting Japan. We have been receiving requests for some time now from the public sector to help solve charter tour bus parking issues. This is not only Tokyo, but as well as in the Kansai area, namely the prefecture and the City of Osaka are amongst those who face traffic congestion problems caused by such charter tour buses and has been asking us to offer bus parking sites.
During the first half, in Ginza 6-Chome of Tokyo. Ginza 6 newly opened, of which we undertake the parking operation management for the facility. As increased number of tour buses are expected, Ginza 6 has passenger drop-off and pickup place for such buses. We offer our proprietary bus reservation systems so that with prior reservation, after dropping off passengers at Ginza 6, the bus can wait at our Harumi 4-Chome bus pool till the due pick up time and then go back to Ginza 6. The passenger drop-off terminal and the bus parking site is not close by, but the waiting time spent at the parking site is much longer. So even if it is slightly away, this bus pool can be of use.
Going forward, such parking sites for large buses will be proactively sought after when there are suitable projects so as to make contribution to solving such problems.
Page 11 plots Times parking's historical trend of gross profit margin over the last 12 months. As you can see, it starts from May 2011, and slightly declines at first, followed by a gradual recovery and then our profit margin declined after the consumption tax hike. Since then, although moderate, gross profit margin is on a recovery trend as this graph shows.
After April 2014, when the consumption tax was raised, because parking fees are charged on tax-inclusive pricing basis, the 3% increase had to be mainly covered from our parking fee revenue. And so our profit margin continued to decline. But around May 2015, it hit the bottom and entered into a recovery track. We will keep on working to improve our profit margin.
Next car rental business of the Mobility segment. Page 13 is the sales and profit of Times Car Rental. Total number of vehicles at the end of the first half was 28,227. Net sales of JPY 14.2 billion, operating profit of JPY 0.1 billion, with operating profit margin of 0.7%. Compared to fiscal year '16, sales went up, but operating profit was down and so as the operating margin. But actually, the numbers don't match what we feel happening in the business.
Our perception of the car rental business performance is that it is very strong. Specifically speaking, the demand for substitute cars is especially strong. Car rental customers are not only corporates and individuals, but there's also substitution needs. This is where nonlife insurance companies loan to their policyholders a substitute vehicle while the damaged car is being repaired, and this demand is very strong.
Conventionally, car rental business recognizes the capital gain on sales of aged fleet to the used car market as a part of its profit. But because of the strong substitute to demand, we are deferring the disposition of vehicles to use for such substitution. As a result, sales did go up, but the profit didn't grow as much. And the reason for suppressed growth of profit is because of such nonlife insurance companies are large customers and users, their business tends to be low margin. That is why profit didn't grow in line with sales growth.
However, towards the fiscal year-end, vehicle sales to the used car market should increase so on a full year basis, that will push up the profit to a certain extent from the current level.
Page 14 is the net sales and expenses per vehicle of car rental business. Net sales per vehicle was up JPY 1,700 year-on-year, but expenses per vehicle also went up by JPY 2,700. And therefore, operating profit per vehicle per month was down JPY 1,000.
Next is our car sharing business Times Car PLUS results.
Page 16 shows the number of members and vehicles under operation. Members exceeded 800,000, standing at 800,958 people. Rate of corporate members is at 38.3%, plus 1.1 year-on-year. Number of vehicles is 18,380 million, and this is an increase of 3,463 year-on-year.
Page 17 is the net sales and operating profit of the car sharing business, Times Car PLUS. Net sales was JPY 10.2 billion, operating profit was JPY 940 million.
Page 18 shows per vehicle results. Net sales per vehicle per month was down JPY 2,700 year-on-year. Expenses, on the other hand, is up JPY 2,300. As a result, operating profit per vehicle is minus JPY 5,100. JPY 14,300 posted for the first half of fiscal year 2016 went down to JPY 9,200 in the first half of fiscal year 2017. The factors are explained in the next page.
First, factors for decreasing sales: it says, delay in taking promotional measures compared to the active installation of vehicles. What this means is that during this period, there was a net increase of 2,100 vehicles. And this is not from the previous first half, but from the previous fiscal year-end. Furthermore, Times Car sharing vehicles are basically deployed at Times parking sites. By doing so, the parking cost is shouldered by the parking businesses, and the car sharing business can generate profit without burdening the parking expenses. This is the concept that we run our business on. But what happens when the parking site gets canceled is that the vehicle stationed at that site must also be relocated.
There was 756 of such vehicles during the period ended. The car sharing vehicles are located at, what we call, stations. And for low-utilization stations with multiple vehicles allocated, we reduced the number of vehicles to improve utilization.
The number of reduced low-utilization vehicles were 430. So a total of 1,100 vehicles had to be replaced to other stations. On top of the net increase of 2,100 vehicles, virtually, we had to deploy a total of 3,200 new vehicles worth of man-hour because to relocate vehicles requires the same man-hour as placing new vehicles.
Last year's net increase was 3,000 for the year. So we handled that same volume of new deployment in just 6 months. And the following is our miscalculation that led to declined profit. Against man-hour requirement of the net increase of 3,200 vehicles, we didn't have sufficient resources. This is the biggest reason why our car sharing business suffered profit decline this first half.
Aside from that, well, this is somewhat related to the car rental business, but the decrease in the number of vehicles sold and the impact of the nonleap year were other factors. And so JPY 1,300, JPY 1,000 and JPY 400 impact, respectively, to result in JPY 2,700 sales decrease.
On the cost side, installation costs for parking sites other than Times refers to, as mentioned earlier, basically, operation is installed at Times parking sites to save parking costs. So the service would have been used by members in the neighborhood with Times parking site had been originally located. But what happens when the parking site get canceled. If we only pursue profitability, there should be no hesitation in closing down the station. But we have members that pay us monthly fee for the services. So when our site is canceled, we rent third parties monthly parking spaces in the vicinity. Such costs divided by the total number of vehicles is this JPY 1,100 per vehicle. So this factor costed JPY 1,100 more than our original budget.
And another factor is accidents. From the second half of fiscal year 2015, the accident rate of car sharing business is gradually increasing and related cost went up by JPY 900 per vehicle. The third factor is placement of vehicles with safety equipment. This is our endeavor to decrease even minor accidents. So now we make it mandatory that our new installed vehicles be equipped with rearview cameras. Many accidents occur when driving in reverse when you park. So we equipped the fleet with rearview cameras, but such features tend to be available only on optional basis, so it leads to increasing cost upon vehicle procurement.
So cost increased by JPY 300 per vehicle. Thus, the total decline of operating profit was JPY 5,100. I would like to reiterate that our car sharing business did not achieve the operating profit initially planned, but that does not mean that there is a fundamental problem with the business.
On reflection, the plan itself may have been overly bullish. On the other hand, our competitors in the car sharing industry are rapidly catching up. Our plan is to deploy 30,000 vehicles by the year 2020, but we would like to achieve this target as soon as possible. During this fiscal year, we plan to add 4,000 vehicles anew, combined with the number of vehicles to be relocated. In this pace of expansion, the total number of new vehicle placement will be 5,500 or 6,000. This includes net increase of vehicles as well as relocated vehicles that require deployment work.
In the first half of the year, we faced shortage of human resources. During March and April, we executed reorganization and made structural changes. Some areas within the Park24 group, such as the Times service in charge of the maintenance of parking sites and the sales force in charge of parking site development will lend their support to the car sharing business. Going into the second half of the year, we will leverage all the resources we have to improve this business.
During March and April, we have started to execute improvement measures, including reorganization. We will devote all our efforts in improving the performance of this business so as to achieve the full year target. In the first half, the car sharing business did not produce satisfactory results due to internal reasons. You may wonder why we are increasing the vehicles by 4,000 units, nevertheless. The biggest reason is that we are sensing that there is a very large potential in this business. As I have mentioned, our competitors are strengthening their business space.
Given such environment, for now, we should not be prioritizing profitability and reduce the number of vehicles nor can we decelerate our speed of expansion. I believe such actions may cause issues in the future. Although it is tough at the moment, we plan to continue to increase the number of vehicles in the second half as well without reducing speed.
The next topic is our Parking Business overseas. Page 21 describes the results for Secure Parking in 5 countries and Taiwan. Net sales was JPY 7.84 billion, gross profit was JPY 1.05 billion and operating profit was JPY 50 million. The right-hand side chart shows the number of parking sites and parking spaces by area of business. The overseas total was 1,534 sites and 372,641 spaces. The actual numbers of the first half do not exactly coincide with the plan.
In Singapore and Malaysia, we made progress according to the plan. In Taiwan, due to steady progress of the development, profit has increased.
The issue was Australia, although it was anticipated when we planned. In Sydney, there were large-scale construction works for the street cars taking place in several places within the city. We have our parking sites within the construction areas and the operating rate of our parking sites as well as profit were affected. In our plan, the schedule of the construction was incorporated in the second half of the year, but it actually started in the first half. Therefore, the profit in the first half was lower than the plan.
Since the construction work started early, it will end early, so the full year profit will not be affected. But in comparison to the plan, there is a small gap.
Page 23 onwards describes the actual results of the business development costs for the first half of the year. We invested JPY 800 million in total to the business development during the first half of the fiscal year. The first item is Times Car PLUS Ha:mo. This service utilizes Toyota's electric cars called i-ROAD and COMS and provides one-way rental car service in predefined area. We are expanding the scale of this service and invested JPY 80 million in the first half.
The second item is a service called B-Times, matching the needs of landowners and drivers offer to the members of Times Club, which is parking sites dedicated to users with reservations. JPY 130 million was invested for the expansion of this service.
Third item, we invested JPY 160 million to strengthen the membership strategy.
Fourth item is Bike Times and Cycle Times for motorbikes and bicycles we started to develop from second half of last year, JPY 20 million was invested.
Last item, integration of overseas company into the group, JPY 410 million was invested for the integration of Secure Parking. This is the breakdown of the JPY 800 million invested during the first half for business development.
From Page 25 onward, I would like to explain the measures we plan to implement in the second half of fiscal year 2017. Page 25 describes the overall measures to be taken in order to improve the profits of our car sharing business. The key is to accelerate this cycle and improve efficiency. Placements of vehicles are to be made in areas with high demand, strengthen membership acquisition in the surrounding areas and increase the usage of vehicles. It is easier said than done. When we place a car, the first thing we do is to distribute flyers through mailboxes in the surrounding area, communicating the start of the car sharing service. Flyer distributions are not effective if done only once, so we distribute several times.
In addition, we conduct promotions to acquire members at the location where the car is placed. Every time we place a car in a new location, we thoroughly execute such promotional activities. The key is how we can proceed with speed and efficiency.
In the second half of the fiscal year, we are to accelerate the speed by mobilizing the cooperation of businesses outside the car sharing business.
Page 26 outlines the measures for increasing sales and cost reduction. The largest factor is to open new stores at convenient locations. We conducted questionnaire, surveys to the corporate members of Times Car PLUS. The result shows that the largest demand for use was for meetings at clients' offices. The second was to use during business trips.
In order to cater to such needs, we are strengthening the opening of new stores in front of railway stations including Shinkansen bullet trains and local trains. We are planning to introduce a variety of measures to stimulate the needs and usage so as to promote the use in accordance with needs.
As I have been saying during the past 2 years, the level of usage of car sharing during the weekend is at a satisfactory level. The challenge is to what extent we can improve the utilization during the weekdays. There are many outside leisure facilities where the visitor number is very low during the week days. By partnering with such facilities, we can encourage the use of our car sharing service to drive to these facilities during the weekdays, enjoy and drive back. Our car sharing service can promote the visits to these facilities. And in return, we are negotiating for some kind of special service offerings such as the usage-fee discount for these facilities.
Under the concept of plan for outing, we intend to proactively develop packaged products through such partnerships and offer to our customers.
On measures for cost reduction, we will introduce vehicles that are equipped with rear monitors. We will be basically replacing all vehicles with those equipped with rear monitors.
Promotion of Times Car integration. We believe in the future, the rent-a-car and the car sharing will be integrated. We currently offer Pitto-Go service to the members of car sharing. If they make reservations in advance, they can go to the rent-a-car station and can immediately rent-a-car with their car sharing membership card using the dedicated card readers.
As shown in the right-hand side of the slide, the Pitto-Go delivery service will be expanded. The conventional Pitto-Go service assumes that the user will visit a rent-a-car station. In case of Pitto-Go delivery, a rental car will be delivered in advance to a Times parking space near the user's residence so that the user can pick up the rental car nearby their homes. Currently, this service is offered only in Kanto, Tokai and Kansai areas. We plan to expand the service area of the Pitto-Go Delivery to Hokkaido, Tohoku, Chugoku and Kyushu during the current term.
Another point, as described in the left-hand side of the slide, the members of the car sharing pay a monthly basic charge of JPY 1,030. This charge can be appropriated to the charges for the use of a rental car. The car sharing fee is JPY 206 for 15 minutes. So if a user uses for more than 1 hour and 15 minutes every month, the monthly fee will not be incurred. However, there are some users who do not use so much. So now we started to allow the monthly charges to be appropriated to the charges for the use of a rent-a-car. This is one measure to promote the integration of rent-a-car and car sharing. We intend to proactively promote further integration in the future.
Page 28 describes Parking Business overseas, PMI promotion. In overseas market, we plan to actively promote the introduction of the Times style services that we have built in Japan. We have seen some cases where improvement of visibility is necessary, and there are many cases where the signs are not in line with our standards. These are the areas of improvements to be made. There are sites with extremely complex fee systems, which will be changed to a simple fee system. These are our detailed knowhow accumulated during the past 25 years to be extended to the overseas parking sites.
Strengthening of the governance system includes compliance with J-SOX, management through figures and establishment of a system for reporting on KPIs.
Page 29 outlines B-Times reservation-only parking sites. We are actively promoting the use of land held by companies for B-Times. For example, our operation of monthly parking sites of JR East Urban Development Corporation was increased to 450 sites with 1,400 vehicles. We plan to develop such large-scale corporate parking sites proactively going forward.
Speaking on the use of the group's resources, we will enable the Times business card, a card for account receivable exclusively for cooperations to be used for the payment for B-Times. By actively introducing these measures, we intend to strengthen the retention of B-Times.
Page 30 and onward outlines the plan and the forecast for fiscal year 2017. There are no changes made to the plan from the one we announced in the beginning of this term. Net sales, JPY 232 billion, recurring profit, JPY 24 billion, comprehensive income attributable to owners of parent JPY 16 billion. There are no changes made to the initial plan.
The profit for the first half declined and as I have said earlier, towards the second half of the year, the profitability of the car sharing business is to be improved by leveraging the group-wide resources. The development of the parking sites are performing well. We will sustain the current level of development and strive to improve the profitability. Since the profit for the first half declined, the bar has been raised for the achievement of the full year plan, but it is not unattainable. We will drive ahead in the second half, targeting the JPY 24 billion recurring profit.
Page 32 outlines the fiscal year 2017 business development cost plan. JPY 800 million was invested in the first half, and the full year plan total is JPY 1.5 billion, JPY 700 million is planned for the second half. The cost items in the second half is almost the same as the first half. Each of these items will accompany investments in the second half as well. JPY 700 million will be invested, and the total full year investment will be JPY 1.5 billion.
Page 33 shows the full year plan of Times Car PLUS, our car sharing business. The total of 20,000 vehicles are to be deployed by the end of October. Net sales to reach JPY 23.5 billion, operating profit of JPY 4 billion to be achieved. We intend to gather all the group's resources and strengths to complement the shortage of the first half and strive to achieve this target.
Page 34 indicates our dividend payout ratio and dividend per share. This is the same as what we have announced in December last year. Dividend is JPY 70 per share and the payout ratio is 64.1%.
Anyhow, in the first half, the profit was short by JPY 1 billion, which raised the bar for the second half let me repeat that no change in the full year forecast means that we believe there is a high chance that we can achieve the goal. We will strive and drive ahead to cover the shortfall of the first half and achieve full year target.
I ran through my presentation quite hastily, but this concludes my presentation of the first half financial results and the full year forecast for fiscal year 2017.
Thank you for your kind attention.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]