Full Year 2016 Park24 Co Ltd Earnings Presentation
Tokyo Jul 23, 2020 (Thomson StreetEvents) -- Edited Transcript of Park24 Co Ltd earnings conference call or presentation Friday, December 16, 2016 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 
I am Nishikawa. Thank you very much for joining our financial results briefing meeting for the year ending October 2016. Without further ado, I'd like to present on the results and the overview of fiscal 2016, following the handout.
Consolidated results for fiscal 2016 are shown here. Net sales were JPY 194.3 billion, up 8.2% year-on-year. Gross profit was JPY 53 billion, up 13.6% year-on-year. Operating profit was JPY 21.4 billion; recurring profit, JPY 21.1 billion; and net income was JPY 13.9 billion. We achieved the strong results in fiscal 2016 in every item, and profit make the record high.
Next slide shows the operating profit by business segments. In this fiscal year, Parking Business recorded JPY 24.9 billion; Mobility business marked JPY 4.4 billion; and in total, operating profit was JPY 29.4 billion. Subtracting costs resulted in the recurring income of JPY 21.1 billion. They were almost in line with the plan.
From FY 2016, we added a new item of business development cost, and this time, booked the expense of JPY 0.5 billion. For this business development cost, initially, we expected to book about JPY 0.1 billion in plan for a test project with Toyota Motor Corporation dubbed as Times Car PLUS x Ha:mo. A one-way trip drop-off type car-sharing service, using super auto small EV. We initially expected to spend about JPY 0.1 billion for the expansion of this project.
Besides B-Times, on which I will elaborate later and which is reservation-based Times parking service, costed us JPY 0.1 billion, and JPY 0.3 billion was spent for the integration of an overseas companies into the group. In total, the business development cost was JPY 0.5 billion, JPY 0.4 billion higher than the plan.
Next slide shows the development of parking sites on Page 6. Number of new parking sites was 1,709, and it was higher by 9 compared with a plan of 1,700. Number of new parking spaces were 63,764, 264 higher than the plan of 63,500. Both numbers of parking sites and the parking spaces were strong and achieved higher figure than the targets. As a result, total number of operating parking sites was 15,792 as of the end of October 2016, up 805 year-on-year. Number of parking spaces was 531,135, with a net increase of 31,662 year-on-year. The development was steady and expanding, and its quality was excellent as well.
We were able to develop several parking facilities in landmark facilities in our areas of operation. For example, as shown on this slide, in Tokyo, in Shinagawa Prince Hotel main tower, we developed 252 parking spaces of Times. And also, in annex tower, we developed 258 parking spaces. In Kyoto, very close to the central area, Shijo Karasuma crossing, we developed 751 parking spaces of Times.
Our basic policy is to develop large-sized parking facilities in landmark locations with the satellite structure of smaller parking sites of 10 to 15 parking spaces or even smaller allocated in vicinities. By expanding nationwide with this approach, we have captured extensive areas of operation, and this policy will remain unchanged in our Parking Business.
From Page 9, I will present our Mobility business, starting with Times Car Rental. As of the end of October, vehicles were 26,691, net sales were JPY 28.2 billion, and operating profit was JPY 1.4 billion. The key driver in the net sales growth was a steady increase in individual use. So I think this is a major reason why the performance has been very robust in this fiscal year.
Page 10 shows the net sales and expenses per vehicle in car rental. Net sales in fiscal 2016 were JPY 121,000, up JPY 4,400 year-on-year. Expenses were JPY 113,400, up JPY 4,200 year-on-year. And operating profit was JPY 7,600, up JPY 200 year-on-year.
Since the operating profit in the previous year was JPY 7,400, in this car rental business, profit has improved slightly, but steadily. In order to improve utilization of rental car on weekdays and in total, we launched new services and are trying to launch further to enjoy synergies impact in the group. One of them is a PitGo, simple rental car service, has developed further. Members of car sharing services have IC member cards and the use of cards to mobilize cars, and the card has been already usable for rental car service as well.
Only placing the membership card on the counter reader in the shop, you can rent a car immediately. Usually, you need to fill in the application form and insurance agreement and others at the counter when you rent a car. But with the membership card, you can skip these cumbersome procedures and can rent a car very quickly. And from November, this service will be open to members outside the Park24 Group. This service started to be applied to JALCARD members from last month, so this service will be open to the members outside the group.
From JALCARD viewpoint, the company wish to provide better services to frequent flyer members, and they took interest in our service. This is a background of opening PitGo service to outside members. In future, not only rent-a-car service, but other services will be more open if that will be conducive to grow the Mobility business by the betterment of the utilization.
Page 12 shows car sharing business of Times Car PLUS. As of the end of last fiscal year, the number of vehicles was 16,252, slightly higher than the target of 16,000. The number of members was 719,434. We do not set target for the number of the members, as I said before, but the number of members showed steady growth. We don't have the target number size because it doesn't make much sense to merely pursue the volume members. What matters to us is the utilization of vehicles. And if the ratio is low in certain areas, we will make extra effort to attract more members in the area.
If the utilization of vehicles is sufficient, we wouldn't strive to increase members further. Because if we have excessive individual members, that might cause a lack of availability of vehicles. That is a major reason why we don't have clear target number of members. But still, since the members have been steadily increasing, car sharing business has been steady and almost in line with the plan.
Page 13 shows the sales and profit of Times Car PLUS. Net sales were JPY 18.62 billion, and the operating profit was JPY 2.85 billion, with operating profit margin of 15.3%. It took about 4 years to reach to a breakeven point. But due to the nature of stock management business, after hitting the breakeven, profit increased steadily. Car sharing business is now in the pace of steady growth of profit.
Page 14 shows the net sales and expenses per vehicle in car sharing business. Net sales increased JPY 2,600 year-on-year, and expenses decreased JPY 4,500 year-on-year. Therefore, operating profit per vehicle increased JPY 7,100 to JPY 16,100 per vehicle.
Our target operating profit, for the time being, is JPY 20,000. Of course, JPY 20,000 is not the ultimate goal, but we'd like to achieve JPY 20,000 operating profit target per vehicle in early stage, and we are making headways gradually to that end. As one of the factors to improve profit, it is most important to increase use on weekdays, as I have been saying for quarters.
With that in mind, we are making effort to capture corporate customers. As a result, rate of corporate members increased by about 1.3%. Spend for a vehicle per day by corporate members increased 7.5%. It wouldn't grow drastically, say, by 10%, 20% or 30%. But year-by-year, ratio of corporate members has been growing steadily. And also, the spend by corporate member per day for a vehicle has been increasing. Future, this sales policy will remain unchanged and we will work hard to increase our weekday use. Because on weekends, we began to see more-than-sufficient use in not a few areas. And in those areas, naturally, we need to boost weekday use. We will develop a number of initiatives to that end.
Another important but not very spectacular side is cost reduction, where we need to make steady improvement. We are proactively trying to reduce the number of phone calls to call centers. By improving the information on the way of use and the response to complaints, the number of phone calls would decline. Putting detailed numbers aside, very steady decline in the trend in the number of calls are shown here, and this is a part of our steady efforts in various aspects to cut cost. We are not complacent with the status quo, and we'll make further effort to reduce the number of calls further.
Page 17 shows services. On the left, services for corporate clients is listed, i.e., visualization service of car driving has already started. All vehicles of car sharing are installed with the telematics, which show the driving patterns, including braking, accelerating, and the highest and average driving speed data. Those data in figures and graphics are presented to corporate clients, and they are appreciated as very useful for safety training for salesmen.
On the right, as a measure for reducing accidents, rearview cameras will be installed into all vehicles despite increased costs. Of the total cost, we can never neglect the costs related to accident, including minor scratches and a few cases of total collapse of vehicles were reported. But the most frequent cases are accidents in parking lots, not only in Times parking spaces but others as well. But if the number of accidents decreases with the installation of rearview cameras, it will be beneficial in long run even if the installation cost is rather expensive.
Therefore, from now on, all the newly purchased vehicles will be installed with rearview cameras. Existing vehicles without cameras will have installation at the time of replacement. So it will take about 4 years to install cameras into all the vehicles. But after 4 years, rearview cameras will be installed 100%. As shown at the bottom, the data shows the number of accidents occurred with a rearview camera was about 25% less than that of same cars without cameras. So with this data and the expectation for the relative decline of accidents, we will be promoting the installation.
I have been rather quick to walk you through the results as our presentation materials had more pages than usual. But with this, I conclude the presentation on the results of FY 2016. And now I will talk about the forecast for FY 2017.
Page 19 shows consolidated earnings forecast. Net sales will be JPY 232 billion, up 19.3% year-on-year. Gross profit, JPY 62.6 billion; operating profit, JPY 24.2 billion; recurring profit, JPY 24 billion, up 13.4% year-on-year; and net income will be JPY 16 billion, up 14.6% year-on-year. Every item and the profit will make positive growth. And if they are achieved as planned, all levels of profit will mark record highs in fiscal 2017.
Page 20 shows the operating profit by segment. Parking Business operating profit will be JPY 27 billion; Mobility business, JPY 6 billion; and overseas business, which will be elaborated later, Secure Parking, which was integrated into the group, will make JPY 1 billion of profit. The payment for this will be completed on the 6th of January next year, so the impact will be that of 9 months. JPY 1 billion of operating profit will be for the 9 months by Secure Parking.
Total operating profit will be JPY 34 billion. Costs will be JPY 8.5 billion, and this includes the nonoperating expenses and JPY 0.6 billion of amortization of overseas business goodwill. Another item which was added from the previous year is business development cost, and it will be JPY 1.5 billion this year. Subtracting the total cost, consolidated recurring profit will be JPY 24 billion in the fiscal year ending in October 2017.
Three years ago, we announced a medium-term plan for 3 years up to October 2017. Recurring profit target listed in the plan was JPY 24 billion, which was exactly same as the plan for this year. However, that plan was based on the assumption of consumption tax hike by 2% from April next year. But as you know, the consumption tax hike was postponed, so the profit for the 2% could have been added. That profit addition from April to October is about JPY 2 billion, and that could push up recurring profit from JPY 24 billion to JPY 26 billion.
But as I said, goodwill amortization is about JPY 0.6 billion and business development cost is about JPY 1.5 billion, and they offset the profit increase for the absence of tax hike, and that resulted in the recurring profit of JPY 24 billion, which is in line with the initial midterm plan. But if you exclude this impact, actually, JPY 26 billion of recurring profit could have been generated with our structure and the development was in line with the initial midterm plan.
Page 21 shows factors for increase and a decreasing recurring profit. Parking Business will increase profit by JPY 2 billion and the Mobility business by JPY 1.6 billion. But overseas business, Secure Parking, pushed down the profit by JPY 0.3 billion. With these factors for increase and decrease, ultimate recurring profit will be JPY 24 billion. Number of factors for the change are listed on Page 21.
Page 22 shows the planned number of operating parking sites and parking spaces. We plan to develop 2,000 parking sites in fiscal 2017, and 75,600 parking spaces development is in the plan. We also expect a number of sites and spaces which will be canceled to be slightly more than 800 and 26,500, respectively. Conversions and segment shifts include some of those with a large number of spaces to be converted into monthly parking sites or some others to be placed under facility management services, which, together, will total about 3,000. As a result, at the end of fiscal 2017, the total number of operating sites is expected to be 16,972 with 577,185 spaces, which will be representing a net year-on-year increase of 1,180 sites and 46,000 spaces, respectively.
Page 23 shows the forecast for car rental business. In fiscal 2017, our forecast for net sales is JPY 30.4 billion with operating profit of JPY 1.7 billion. Looking at the numerical forecast alone, you may not be able to see as much growth as you would in our car sharing business, but we will work to continue to achieve a steady improvement in profitability and sales in fiscal 2017 as well, with a slight improvement in the operating profit margin.
Now the average amounts of net sales and expenses per vehicle month behind those figures in the car rental business are shown here. We will strive to increase the net sales per vehicle by JPY 300 while reducing the expenses per vehicle by JPY 200 so that we can improve the operating profit by JPY 500 per vehicle in fiscal 2017.
Moving on to the forecast of the car sharing business, Times Car PLUS. At the end of fiscal 2017, we expect the total number of vehicles available to be 20,000. Up until fiscal 2016, it had been growing by about 3,000 per year. But fiscal 2017, we're going to increase the number of vehicles by close to 4,000 to reach 20,000 in total. This is expected to bring about net sales of JPY 23.5 billion and operating profit of JPY 4 billion, so we plan to ensure steady growth both in sales and profits in fiscal 2017.
Our intention for now is to reach 30,000 vehicles by October 2020, when Tokyo hosts the Olympic Games. To achieve this goal, an annual goals of 3,000 will not be sufficient, and therefore, we have decided to raise the number to 4,000 in fiscal 2017.
Now the average amounts of net sales and expenses per vehicle per month in the car sharing business are shown on this slide. Net sales per vehicle is expected to grow by JPY 3,400, whereas expenses are planned to rise by JPY 1,100. The reason behind this is as follows: the expense per vehicle in fiscal 2016 of JPY 88,800 was extremely good. By this, what I mean is, first of all, the fuel cost or cost of gasoline was very low. Furthermore, the insurance premium is determined by the result of 2 years before, when the accident ratio had been gradually rising compared to the prior years due to the increase in the number of vehicles available, and the gasoline price has been rising more recently. Therefore, we expect an increase of JPY 1,100 in the average amount of expenses per vehicle for fiscal 2017.
However, since we work to grow sales per vehicle to more than offset the increase in expenses, so we can achieve a JPY 2,300 growth in operating profit per vehicle per month. Hence, the JPY 18,400 for the target operating profit per vehicle per month in the car sharing business in fiscal 2017.
The next slide shows the business development cost, which I have been referring to. In fiscal 2017, we have budgeted JPY 1.5 billion under this expense item. As for the breakdown, the first item is Times Car PLUS x Ha:mo, which as I said, is our partnership project with Toyota Motors and is planned to be expanded in scale with a budget of JPY 200 million. Another item is JPY 350 million for the expansion of B-Times, which accepts reservations for parking spaces. Yet another is JPY 200 million for the cost of strengthening the membership strategy.
Although the Parking Business is our mainstay, our policy is to reap the benefits of spillover effects in peripheral businesses, such as B-Times, especially focused on is motorcycles and bicycles. Parking of bicycles, in particular, is always mentioned every time we visit municipal governments to promote our car parking business, where we are requested to take care of parking spaces for bicycles. So far, we had been hesitant as we had thought it would be hard for us to work on.
However, though, when it comes to realization of a comfortable automobile society, 4-wheel automobiles are the first thing that must come to mind, motorcycles and bicycles both run on the wheels. Therefore, we have decided to gradually incorporate them into our business network by strengthening bike times for motorcycles and cycle times for bicycles gradually, and we earmarked about JPY 30 million for the promotion of these businesses.
And about half of the total, JPY 700 million, is expected to be spent on integration of an overseas business, Secure Parking, into our group. That brings us the total business development cost of JPY 1.5 billion for fiscal 2017.
Page 28 describes the initiative I have been talking about, Times Car PLUS x Ha:mo. We are soon going to launch a demonstration experiment, where car sharing service is provided with vehicles stationed on the public roads, just as in metered parking. We were selected as a successful bidder for the project hosted by the Ministry of Land, Infrastructure, Transport and Tourism called the field test of car sharing on the road by utilizing the existing station platforms.
As a result, from December 20, 2016, until late December 2017, for about a year, Toyota-made electric vehicles, i-ROAD and COMS, will be used in the car sharing field test. We believe quite an epoch-making demonstration project has become a reality. Even though it is a social experiment, one private company will be allowed to use part of the general public roads to perform a field test like this, which in itself is quite significant, and something we definitely want to do more of proactively going forward.
If good outcome or data comes out of this demonstration, albeit for 1 year, the probability will be increased of making a viable business out of roadside car sharing service or ultrasmall EV mobility services, and therefore, we have high hope on this.
The next slide is about B-Times, which many of you may be familiar with as we have issued a press release already. It is often described as matching service, where either individuals or corporations who have extra space to rent out as a parking site will be matched with the driver who has a car to park and wants to book a space for parking by using our network.
As you may know, there are companies who have been already in this business ahead of us. And since our press announcement, several major players have entered into this market. Then why have we decided to go in? Well, ever since we initiated our Times Parking Business, people have kept asking us how come we don't accept reservations at Times Parking sites. Let me explain why.
People want to book the space because the parking site is likely to be fully occupied at that particular time they want to park their car. And when there are cars waiting in the queue for the next vacancy in front of the parking site, the car with the reservation arrives, but how can it physically enter the parking facility? We need to put up an entrance dedicated for the reserved cars.
Now if you look at the neighborhood, where most of Times parking sites are located, it is physically impossible to secure such spaces. Furthermore, if you are to offer the parking space at a particular time slot, you need to secure the space in advance, which obviously will result in an opportunity loss for us. Therefore, in terms of business viability, physical setting and IT system, we have not been able to offer reservation service no matter how much we wanted to.
However, with B-Times, we can complement our business by meeting the need among the Times members of making sure they can park their car even by going extra to book in advance. That is why we have decided to launch this business on a full-scale basis. As of December 16, 2016, we have parking spaces for about 4,000 vehicles already available. Going forward, we want to increase the number of spaces quite rapidly.
Page 30 is more of an announcement. The World Economic Forum, or Davos meeting, as commonly known, has informed us that our car sharing business, Times Car PLUS, has been selected as one of the finalists for the Young Global Leaders Award for Circular Economy SME of the forum. In this category, there are 6 finalists from around the world from which the winner will be selected ultimately, but it has yet to be announced who that winner will be. Since we received a notice that we were among the finalists, we have shared the information with you.
Page 32 is about the dividend payout ratio, which we announced December 15. Initially, we had planned to pay JPY 60 per share for the year ending October 2016, a JPY 5 rise from the year ended October 2015. But we decided to add another JPY 5 per share to total JPY 65 for fiscal 2016. Once it is approved by the Annual General Meeting of Shareholders scheduled on January 26, we plan to pay JPY 65 in dividend per share.
Moreover, the dividend for fiscal 2017 is planned to be JPY 70 per share. In terms of payout ratio, that would represent a more than 3 percentage point decline year-on-year. But basically, we are going to be in line with the policy from the very beginning of returning any incremental profits as dividends. If things go as planned, we're expecting another record high in profits to be posted in fiscal 2017. And so we have announced that we are going to increase the dividend by JPY 5 per share. We do not have any exact target for the payout ratio, but one metric we have in mind is to maintain at least 60%. Therefore, JPY 7 billion in dividend for fiscal 2017 is not a departure from our conventional policy and dividends.
The next few slides from Page 33 are about overseas business, and I'd like to explain about Secure Parking. The first thing I want to discuss is the background for our decision to go overseas. The last thing we want is the misconception that we are going overseas because the domestic market is saturated.
I want to emphasize here that, that is absolutely not the case. In 2014, we held an all-employee meeting in Gotanda, the birthplace of our business, and shared among ourselves a grand growth of 10 years ahead. The figures in the growth are not official ones, so I'm not in a position to disclose them. But in terms of scale, we said we would strive for more than the double of what we have achieved in fiscal 2016.
If that goal is the one that we need to achieve, I believe the domestic market alone is more than enough, and that view has never changed since. In Japan, there is still a huge demand for parking space, whereas the market is simply too short on supply to catch up. Even if our company runs parking sites that can accommodate 500,000 vehicles, it will be just a drop in the bucket, as there is still so much demand that has yet to be met.
In addition to Parking Business, in the Mobility business, we expect our car sharing business, among others, can continue to grow for multiple years to come. Given this, we can certainly achieve the internal goal for 2024 even if we stay only in Japan.
But there is another thing I sometimes share in occasions like this briefing. If I'm asked what I value most in running the business, it is never the number of parking sites or spaces we developed. They are just means to the end, and the end is profit growth. We keep taking on the challenge of achieving double-digit growth in recurring profit for multiple years. In other words, how many years in a row will we be able to continue to achieve more than 10% growth is what we go after. In that sense, the domestic market is more than enough for us to make it happen until 2024. The question is what happens after 2024 then?
If the recurring profit is to grow by 10% year after year, the absolute amount will become considerably large so that at some point in the future, we may face difficulty to keep growing 10% only with the domestic market. Since we have been running so many parking sites in Japan and started mobility services several years ago as well, we realized that it might not be so wise to limit the business only to the domestic market and changed our perspective slightly. That is the biggest reason why we have decided to do business overseas this time. In our mind, what we have done is as if what we have been doing in the limited space of Japan has been now expanded globally in terms of geographic area. Now we have spent JPY 18 billion to integrate Secure Parking into our group.
Had we chosen the path of starting up the business from scratch all by ourselves, it would have taken too much time, effort and money, and so we have decided to invite Secure Parking into our group as it was looking for a partner. Secure Parking is managing 1,500 parking sites with 1.2 million spaces in 11 different countries. Of the 11 countries, 5 are the ones that will be integrated into our group, and those are Australia, New Zealand, United Kingdom, Singapore and Malaysia. For the other countries, we would like to discuss with Secure Parking to explore further possibilities as we go along.
On Page 36, you can see the overview of the businesses in the 5 countries integrated into our group. In Australia, Singapore and Malaysia, Secure Parking is the largest parking operator, respectively. In Australia, it runs 461 sites with 136,000 spaces; and in New Zealand, 28 sites, a bit fewer, but with 14,000 spaces. In Singapore, it manages 277 sites with 100,000 spaces. It is only natural that our parking site operator outside of Japan does not have much name recognition here in Japan, but it has established a dominant position locally in each of the countries it does business in.
The payment for the acquisition is scheduled on January 6, 2017, and therefore, the integration won't be implemented until next year. But once Secure Parking is integrated into our group, we as Park24 Group will have our parking businesses in 8 countries, including Japan, South Korea and Taiwan, with 18,559 parking sites and 1 million spaces.
In terms of the number of parking sites, we have been the largest in the world already since 15 or 16 years ago. But in terms of the number of vehicles to be accommodated, we are not so large with 500,000 as a parking site operator doing business globally. Among the largest was a global player with more than 2 million spaces. Therefore, we will be fairly half in size of the largest player even after the integration in January 2017.
Page 38 shows vision and synergy effects. Ever since the establishment of business, we have been always engaged in car parking business for 45 years. During the first 20 years, we sold parking equipment and offered contract facility management services. And during the following 25 years, we have been operating parking sites ourselves.
On the other hand, Secure Parking has a history of 37 years in business, and it also has been consistently engaged in parking business for those 37 years. Therefore, we find each other quite easy to talk to, almost as if we share the same DNA. Since both have been focused on parking business for 30 to 40 years, they are the kind of partner that we feel very comfortable to work with.
Obviously, we can integrate expertise that each of us have and expect the economy of scale by expanding the geographic reach. Secure Parking is dedicated to the Parking Business and not engaged in car sharing or any of the kinds of mobility services that we provide, so we can launch mobility services using Secure Parking infrastructure going forward. Therefore, there are many areas that we can expect such synergistic effects.
So there is no change to our goal of realizing a comfortable automobile society, but we would like to expand the idea from previously being limited to Japan alone to include other countries on a global scale from next year.
Here, you can see the figures of the Secure Parking's business plan we put in the prospectus submitted for the integration into our group. At the moment, our forecast for the earnings of Secure Parking is JPY 33.3 billion in net sales and JPY 1.9 billion in recurring profit in 2019. But these are the numbers derived based on the assumption where there was no integration taken into account. And so obviously, it is not the case that we are satisfied with the numbers as they are. We definitely want to seek synergy effects and improve both of the figures from next year.
Since there are so many topics to cover, I had to speak rather fast, but that is all for my presentation on our plan for fiscal 2017. Thank you for your attention.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]