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Edited Transcript of 9024.T earnings conference call or presentation 15-May-19 5:45am GMT

Full Year 2019 Seibu Holdings Inc Earnings Presentation

Tokorozawa-Shi, Saitama May 31, 2019 (Thomson StreetEvents) -- Edited Transcript of Seibu Holdings Inc earnings conference call or presentation Wednesday, May 15, 2019 at 5:45:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Takashi Goto

Seibu Holdings Inc. - President, CEO & Representative Director

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Presentation

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Unidentified Company Representative, [1]

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I will now give you an overview of the financial results for the fiscal year ended March 31, 2019, using the overview of the financial results presentation.

Please turn to Page 2. These are the financial results for the fiscal year ended March 31, 2019. Operating revenue was JPY 565.9 billion increasing 7 periods in a row. The JPY 35.3 billion growth year-on-year was mainly driven by continued strong performance in the hotel operations and MICE, or meetings, incentives, conventions and exhibitions, businesses in the hotel business; an increase in rent revenue from Tokyo Garden Terrace Kioicho; and sales of the condominium, ENVIE-NÉ HOYA, in the Real Estate business; an increase in construction and renovation projects in the Construction business; rising attendance at the Seibu Lions baseball games; and an increase in hotel revenue in the Hawaii business. Thanks to top line growth, operating profit grew JPY 9 billion, up 14.1%. Ordinary profit grew JPY 9.9 billion, and profit attributable to owners of parent grew JPY 2.5 billion year-on-year. We reached record levels of operating profit and ordinary profit.

I will now go over the status of each segment. Please turn to Page 3. This line explains the operating revenue by segment. In the Urban Transportation and Regional segment, revenue grew JPY 1 billion. This was driven by growth in transportation revenue, which was due to factors such as the robust employment market, events held at the MetLife Dome, an increase in attendance at the MetLife Dome baseball games, the opening in March 2018 of Grand Emio Tokorozawa phase I, and the introduction of the HAIJIMA LINER extra-fare reserved seating trains, as well as the robust performance of our bus operations. In the Hotel and Leisure segment, revenue grew JPY 14.9 billion. This was mainly thanks to RevPAR growth, solid performance in the MICE business, and StayWell becoming a consolidated subsidiary. Revenue from the Real Estate business grew JPY 7.3 billion. This was mainly due to an increase in rent revenue from Tokyo Garden Terrace Kioicho and condominium sales. Revenue for the Construction segment grew JPY 9.6 billion, the Hawaii segment by JPY 3.7 billion, and in the other segment by JPY 2.5 billion for the reasons shown on the slide. Our consolidated revenue was JPY 3.9 billion lower than our forecast announced in May 2018. This was mainly due to the impact of natural disasters and extremely hot summer in our Hotel and Leisure business and the postponement of the real estate disposal in the Hawaii business.

Please turn to Page 4. The table at the top is our operating profit breakdown by segment. In the Urban Transportation and Regional segment, profit declined JPY 100 million. Although transportation revenue grew in our railway and bus operations, there was an increase in expenses, such as general and administrative expenses, electric power costs and fuel costs. In the Hotel and Leisure segment, there was an increase in expenses for future growth such as the strategic increase in head count as well as expenses related to new businesses. Our utilities and depreciation expenses also increased. Despite these increases in expenses, our profit grew thanks to top line growth. The other parts of our business also saw profit growth driven by revenue growth. We outperformed our earlier consolidated forecast by JPY 6.3 billion due to higher revenue in the Real Estate and Other businesses and the margin being higher than expected in the Construction business.

Please turn to Page 11. These are the results of our railway business. Commuter pass sales increased thanks to the strong employment situation continuing. Revenue was up 1.1% year-on-year. Noncommuter pass sales increased 1.3% year-on-year. This was due to the events held at MetLife Dome, an increase in attendance at the MetLife Dome baseball games, the opening of Grand Emio Tokorozawa phase I, and the introduction of the HAIJIMA LINER and so forth.

Please turn to Page 13. These are the key indicators of our hotel operations. Overall RevPAR was JPY 12,435, up 5.5% year-on-year. ADR grew 3.5% to become JPY 16,003, and occupancy improved 1.5 percentage points to become 77.7%. Although our resort facilities suffered cancellations and weaker bookings due to the repeated natural disasters in July onwards, our overall RevPAR outperformed our initial forecast thanks to revenue management with a stronger focus on lead time as well as the positive effects of our strategic shift in targeted regions.

Please turn to Page 15. These are the inbound trends. Both the number of as well as the room revenue from non-Japanese customers increased. The ratio of room revenue from non-Japanese customers, shown in the bottom right, increased to 36.9% from the previous year, driven by growth in customers from North America, Europe and China.

Please turn to Page 16. This slide shows the inbound room revenue from major countries and regions. You'll notice the continuous growth in revenue from the high price point regions such as North America, Europe and Australia. The strong revenue growth from China is a result of our strategy of securing the base booking volume depending on the level of demand at the time and then capturing demand from high price point individual customers on top of that. We have adopted this new strategy following changes in the market environment in 2016 onwards.

Please turn to Page 17. This is the status of MICE. We were able to capture demand related to corporate meetings, seminars as well as incentive demand, such as award ceremonies, and our MICE revenues continue to grow. We were able to outperform our initial target for the year.

Please turn to Page 30. This slide is a summary of our forecast for the year ending March 2020. This will mark the first year of the medium-term management plan, which we will explain later. We expect revenue to grow 3.3% year-on-year to become JPY 584.4 billion. This is due to factors such as growth in railway transportation revenue in the Urban Transportation and Regional segment, RevPAR growth in the Hotel and Leisure and the Hawaii segments thanks to better revenue management, the openings of new hotels both in and outside of Japan and the opening of DaiyaGate Ikebukuro as well as other factors. Our EBITDA expected to grow 0.9% year-on-year to become JPY 128.5 billion. Although there will be additional expenses for future growth such as costs related to the refurbishment work on the MetLife Dome area as well as business process reforms, top line growth will lead to our EBITDA increasing. We expect operating profit to stay at above the JPY 70 billion mark at JPY 71 billion in fiscal year March 2020. Net profit attributable to owners of parent will be JPY 46.2 billion, up 1.6% year-on-year. This is in relation to the extraordinary loss we booked in the year ended March 2019 not repeating itself as well as other factors.

Please turn to Page 32. This slide explains our CapEx plans for the year ending March 2020. We plan to spend a total of JPY 99.3 billion for the group, including continuous grade-separation work for the Seibu Shinjuku Line as well as constructing safety barriers on the platforms. The opening of the Prince Vacation Club, which is the new membership-style hotel business we entered into, construction of Grand Emio Tokorozawa phase II and refurbishment work on the MetLife Dome area.

Please turn to Page 35. This slide is about our dividends for the current year and the following year. During this period, we will be working on improving our financial status in order to prepare for large investments coming up in the future. However, we have decided to raise our dividend payout ratio benchmark for the time being from 15% to 20% with the aim of raising it further to 30% in the mid- to long term in order to further return to our shareholders. We are expecting to pay out an annual dividend of JPY 30 per share for the year ended March 2019. We plan to pay the same JPY 30 annual dividend for the year ending March 2020.

That is all from me. Thank you for your attention.

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Takashi Goto, Seibu Holdings Inc. - President, CEO & Representative Director [2]

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This is Takashi Goto, President of Seibu Holdings. I will now go over Seibu Group's medium-term management plan for the period of fiscal year 2019 to 2021.

Similarly to the current plan, the newly announced plan is a rolling plan based on the fiscal year 2017 to 2019 medium-term management plan. Since the establishment of Seibu Holdings in 2006, the Seibu Group began a phase of foundation building under the concept of concentrating on our core businesses. This was followed by the shifting gears phase with the opening of Tokyo Garden Terrace Kioicho as well as investments in renovations to add value to our hotels to achieve further growth. We have positioned the next period from fiscal year 2018 to 2020 as the phase in which we realize the effects of these value-add investments and set the road map for the next decade. Over the period of the newly announced plan, the Seibu Group will harvest the fruits of our investments to date and prepare for future business expansion by strengthening our financial status and accelerating the expansion into new business areas and fields, which will lead to a new management phase and management plan from fiscal year 2021 onward.

Let me now review the current plan and go over the highlights of the medium-term management plan. I will start with a review of the current plan. Many of the key issues we addressed based on our focus strategies have progressed according to plan. We executed various initiatives, such as the completion of DaiyaGate Ikebukuro as well as the overseas expansion of our hotels, utilizing the expertise of StayWell, which we acquired in fiscal year 2017. We strengthened lead-time-based revenue management in our hotel operations in order to realize the effects of our value-add investments. Meanwhile, we were impacted by weather conditions as well as natural disasters in our Hotel and Leisure business and the Hawaii business. We recognize this as one of the issues we need to address.

The business environment has been relatively favorable but there are future concerns of a slowdown due to uncertainties in the global economy. More companies are making use of digital technologies to reform their management. And there is heightened interest and stronger social requirements in relation to SDGs and ESG investments. Based on these trends, we have included the 4 initiatives shown on this slide into the newly announced plan: provide services that meet customers' needs by strengthening marketing functions; promote digital management across the group to increase profitability and productivity; aim for sustainable growth, working as a united group to tackle social issues with an awareness of the SDGs; collaborate within and outside the group and accelerate creation of new business areas and expansion into new fields.

I will now go over the highlights of the newly announced plan. As explained, there are no changes in the theme, the basic policy and key issues between the current and the new plans. We will continue to focus on creating new business areas while strengthening our existing businesses under the theme of "Toward sustainable, dynamic growth." In terms of the key measures, based on the points explained earlier, we have added "continuously strengthen management foundation" to the 5 measures that we have been working on under the current plan.

I will now go over the key measures during the 3 years and I will talk about the main topics later. First, the major initiatives in relation to strengthen marketing capabilities. We entered the membership-style hotel business with the Prince Vacation Club in order to capture demand from the active senior generation. We will open the first facility in the Karuizawa area in July 2019 followed by Sanyo-so in Izu, which will be the second facility. We launched the Prince Smart Inn, which is the accommodation-only hotel brand in order to address the diverse range of demand for accommodation, including inbound demand. Starting with the openings in Ebisu and Atami in the summer of 2020, we are planning to expand to around 100 hotels in the mid- to long term. In the Urban Transportation and Regional business, we introduced the new limited express train, Laview, together with the existing extra-fare reserved seating train, S-TRAIN and HAIJIMA LINER. The launch has been a success, and we will continue to offer services that meet our customers' needs.

Next, I would like to talk about our major initiatives related to make effective use of the group's assets. In Central Tokyo, we will continue planning mainly mixed-used developments in areas like Takanawa, Shinagawa and Shiba-koen using Tokyo Garden Terrace Kioicho as a model case. In the Tokorozawa area, we are planning to open Grand Emio Tokorozawa phase II in the summer of 2020. We will also promote the Tokorozawa west side development plan. In the MetLife Dome area, we are working on the ballpark project, which is expected to open in March 2021. We will consider measures to revitalize the Seibuen Amusement Park with aspirations to become a leisure park that customers choose to visit. We will conduct grade-separation projects along the Seibu Shinjuku Line and promote initiatives to improve the value of the railway corridor by making effective use of the ground level and the space under the railway lines as well as projects to make better use of the Shinjuku area, which serves as the gateway for the Seibu Shinjuku Line.

As for strengthen collaboration inside and outside the group, our internal organization, Seibu Lab, will be the driver of our expansion into new business areas, working on initiatives such as the open innovation program. In the previous fiscal year, we created the luxury brand, The Prince AKATOKI with the aim of providing luxurious services internationally with a touch of Japanese culture. Our plan is to open the first facility in London in 2019 followed by Guangzhou, China. We will accelerate our global expansion by integrating the expertise of StayWell, which we acquired in fiscal year 2017 and that of The Prince hotels.

We will also continue our strong focus on disciplined and efficient capital expenditure.

In relation to create an organization and corporate culture that brings about innovation, we relocated our headquarter functions, including the parent company and several subsidiaries, into DaiyaGate Ikebukuro, the newly completed office building. This move will serve as the catalyst in further promoting work-style reform using digital technologies as well as diversity, which will lead to innovation.

As for continuously strengthen management foundation, we are further reinforcing our corporate governance, including the introduction of stock compensation for our directors. We will also work on solving social issues while keeping SDGs in mind.

I would now like to talk about 2 topics in relation to the key measures. The first topic is promoting digital management. With global advances being made in digitalization, we will promote optimal digital management under the new plan from both an offensive as well as a defensive perspective. On the offensive side, we will integrate, share and utilize customer information mainly through the group's membership program, SEIBU PRINCE CLUB. By using digital technologies in our business processes, such as in our sales activities, we will strengthen our marketing capabilities and use the data to create new businesses and services, thereby improving profitability. On the defensive side, we will improve productivity and efficiency by automating and sophisticating our operations.

The second topic is about promoting sustainability actions. The Seibu Group has been working on natural and global environmental activities in collaboration with the local society through our diverse range of businesses, such as the railway and hotel businesses. Going forward, we will focus on SDGs and we have positioned the 12 items in 4 domains shown on this slide, such as safety, the environment, society and corporate culture, as our sustainability actions, and we will work on solving social issues.

Please turn to the next page. These are the major projects that we will work on, which will be completed during the 3-year period of the new plan.

Please turn to the next page. From here, I will go over our plans for revenues, CapEx and funding. These are the quantitative targets for fiscal year 2021, the final year of the new plan. We are planning to achieve robust growth. We expect revenue to grow by 2.8% per annum, reaching JPY 614.8 billion, operating profit to grow by 1.1% per annum to JPY 75.7 billion, and EBITDA growth to be 2.6% per annum to reach JPY 137.5 billion. As for our net interest-bearing debt to EBITDA multiple, our plan is to maintain the range of between 6 to 7x from fiscal year 2018 onwards and lower it to around 6.2x in fiscal year 2021. We will improve our financial status and prepare ourselves for the large investments coming up in fiscal year 2022 onwards.

Let me now explain how we anticipate the figures to trend during the 3 years as well as the differences with the current plan. We are expecting steady growth in revenue, as you can see from the bar chart. This is thanks to RevPAR growth in the hotels and Hawaii businesses as well as the opening of new hotels and real estate projects. Our revenue projection in the new plan is higher than that of the current plan. This is due to revenue growth in the railway business, the opening of new hotels as well as an increase in the number of visitors to the Seibu Lions baseball games. For EBITDA, although there will be some necessary costs for future growth in relation to business process reforms as well as the renovation of the MetLife Dome area, we are expecting our EBITDA to grow thanks to top line growth. Our operating profit reached a record level in fiscal year 2018 thanks to condo sales as well as the Climax Series baseball games of Seibu Lions. Although we have not factored in the post season of Seibu Lions, we expect operating profit to exceed JPY 70 billion in all 3 years of the mid-term plan. The operating profit projections in the new plan exceed that of the current plan. We will control the net interest-bearing debt to EBITDA multiple at between 6 to 7x in fiscal year 2018 onwards, and our plan is to lower it to around 6.2x in fiscal year 2021. We will improve our financial status in order to prepare for large investments coming up in the years after this mid-term plan period.

Let me now go over the KPI targets for our main businesses. Through the measures listed on the right-hand side, we expect railway commuter revenue to grow 2.7% over the 3 years while noncommuter revenue will grow 1.8%. In terms of RevPAR, which is the key metric for the hotel business, we are expecting growth of 15.7% for city hotels and 19.2% for resort hotels during the 3 years. The rentable area in our Real Estate business will grow 6.3% over the 3 years for retail facilities and 1.9% for office and residential properties.

I will now go over our financial strategy as well as our thinking in terms of shareholder return. Our basic policy is to maximize shareholder value by prioritizing growth investments. We will further focus on our shareholder return while striking the right balance with CapEx investments and our financial status. During these 3 years, we will work on improving our financial status in order to prepare for the large investments coming up in the years after the medium-term plan period. However, we are aiming to raise our dividend payout ratio to 30% in the mid- to long term to enhance return to our shareholders and have therefore decided to raise our target for the time being from 15% to 20%.

Let me explain the usage of funds during the period of the new plan. We are planning CapEx investments of JPY 287 billion during the 3 years. Out of this, JPY 189 billion will be spent on safety and maintenance and JPY 98 billion on value-adding work. We are anticipating the operating cash flow during the 3 years to reach JPY 330 billion. However, we will choose our CapEx investments very selectively in order to strengthen our financial status in preparation for the large investments coming up in fiscal year 2022 onwards. In terms of creating new business areas, we had earmarked funds in the name of strategic investment budget under the current plan. In the new plan, although we will not allocate a budget, we will continue our efforts to create new businesses for mid- to long-term growth by considering the necessity for such investments, our operating cash flow as well as the status of our CapEx investments.

That is all for me. Thank you for your attention.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]