TKP Corp
TSE:3479
Earnings Call Analysis
Q3-2024 Analysis
TKP Corp
The company saw a significant shift in its financial landscape following the sale of Regus in February 2023. While sales and EBITDA initially decreased due to this divestiture, the absence of goodwill amortization resulted in a substantial growth in other financial lines. The outcome for the first nine months of the fiscal year was remarkable, with ordinary income and net income reaching record highs. Even after adjusting for the removed Regus business, there was evident year-on-year growth in both revenue and profit across the board.
The report reflected an impressive growth in sales, particularly in the Leisure and Lodging segment in Q3. Contributing to this incline were revenues from Food and Beverages and other high-value options. Despite facing a decline in accommodation income, these segments drove the sales higher than in Q1. However, the growth did not parallelly translate to operating profits, which actually saw a decline in Q3 compared to Q1, due to an uptick in expenses related to personnel, especially within the increasingly fruitful Food and Beverage sector.
As the company actively expands with new facilities, such as the upcoming APA Hotel Oita ekimae scheduled for 2025, it is apparent that investments are being made with a future outlook. The high revenue trend continued, with Q3 generating JPY 9.653 billion and an ordinary income of JPY 1.17 billion, maintaining a trajectory of robust profit figures after Q1 and Q2. In line with this vision, a substantial amount of costs was attributed to human capital and initially outsourced services, depicting a strategic decision to invest upfront for potential paybacks in the following year. These investments are expected to bring the sales and profit growth back in alignment.
The Rental Space business is on the path of a full-scale recovery, showing particularly strong performance in Q3 which surpassed even the traditionally highest Q1 sales. Food and Beverage services led this resurgence, achieving approximately 70% of the revenue seen in February 2020, indicating a substantial recovery compared to the pandemic-stricken period. The full-scale resumption of receptions and other services contribute to this upward trend.
While the sales figures outshone those in Q1, the company is having to reconcile a lag in profitability due to pre-investments and a temporary delay in in-sourcing, leading to escalated expenses. Yet, the expectation is that revenue and expenses will eventually balance out, normalizing the costs associated with outsourced services and catering to the needs of the expansion strategy.
An analysis by a SBI analyst inquired about when the company expected the growth rates of sales and operating profit to align. The company is optimistic about internalizing Food and Beverage services, which is expected to reduce the costs of goods sold (COGS) in the coming fiscal year. Furthermore, the temporary uptick in expenses due to system investments is anticipated to lessen, allowing both SG&A and personnel costs already incurred to eventually fuel increased sales, steering the company back to a more balanced financial performance.
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But now we would like to start the results meeting for TKP for the third quarter results for the fiscal year ending in February 2024. First, I would like to introduce other presenters from the company. In front on your left is Mr. Takateru Kawano, President and CEO; and we also have Koji Nakamura, CFO and Director. So today, we will be presenting about the contents of the results announced today and also the business strategy. And at the end, we would like to open up the floor for Q&A. Today, we scheduled to finish by 5:00, take your time. Now without further ado, I would like to hand over to Mr. Nakamura.
Good afternoon, ladies and gentlemen. I am Koji Nakamura, the CFO and Director. So without further ado, I'd like to present about the Q4 results for the fiscal year ending in February '24. But before I dive into the content, I would like to send my deepest empathy for those people who were affected by the major earthquake that happened on January 1. We have facilities in Kanazawa. And fortunately, the damages were very small. So from the outset of the year, we have been operating as normal. So now I'd like to dive into the content of the result. As always, I will first start by presenting about the content of our results. And then later, Mr. Kawano will be talking about the business strategy. So this is the results for Q3. First, I would like to talk about the recent updates on the business and also the summary of the results. So there are 3 points on the result and 1 topic about the business updates. The first point is that overall, the business was brisk. The Rental Space business is enjoying a full-scale recovery. And also for the Lodging and Leisure business, it's [indiscernible]. So normally Q1 is the busiest quarter for us. But this time in Q3, the revenue exceeded that of Q1, and we enjoy the highest sales in terms of the quarter this year. And with the strong sales trend, 1 topic is in the second bullet point. The Reception has been resuming on a full scale. And in Q3, the food and beverage revenue was roughly 70% to what we saw before in February 2020. As the revenue has been trending very briskly, ordinary profit and net profit will continue to maintain a record high level following Q1 and Q2. And also regarding the business topic, given that background, we are very active in opening new facilities. One point to note is that in 2025, we are planning to start the operation of APA Hotel Oita ekimae and we have signed the franchise contract for the facility and details will be followed by the presentation by Mr. Kawano later. And I would like to focus on the details of the results. First, looking at the P&L for Q3 on a consolidated basis. In the middle, you can see on the table in the right line. That's the results for this quarter. Other revenue was JPY 9.653 billion, and ordinary income was JPY 1.17 billion. With the sale of Regus in February 2023, sales and also EBITDA because of the lack of business of Regus has come down, but the lines below OP increased substantially, thanks to the absence of the goodwill amortization. So for the first 9 months of the year, ordinary income and net income were record highs. And excluding the impact of Regus, if we try to compare the results from last fiscal year, this is how it looks. So the numbers from our fiscal year has been adjusted for Regus business. And if you look at this table, you can see that on a year-on-year basis, for all the lines revenue and profit, they grew year-on-year. And just for the Q3, we achieved positive growth. And also for the first 9 months of the year, we achieved a growth for all the lines. So business has been trending very well since the outset of the year. And then on the next slide, that assess the quarterly trend of sales and OP. On left-hand side is the sales, on the right is the OP ex Regus. First, on the left-hand side, looking at the sales trend, we can see a very good recovery from pandemic. We have not been able to achieve back to the level we saw before COVID, but we are starting to see a trend that was similar to what we observed back in pre-pandemic. And on the right-hand side, the operating income dipped into the negative territory during COVID. But since then, it's been recovering strongly, and we are seeing operating profit level similar to that before the pandemic. But it's been a little bit jumpy. So this Q3 and Q1, if we compare those quarters, I would like to offer you more details. If you look at the bar graph, if you look at the sales on the left, Q3 that just ended, the revenue has been recovering after pandemic. And after pandemic, it's a record high sales level in Q3. But on the other hand, when we look at the operating profit, as you can see, compared to Q1 to fiscal year, Q3 was lower in terms of OP, and there are a few reasons behind this. First and foremost regarding sales, if we can look at the next page, the breakdown of sales by service. The far right, is the breakdown of Q3 in 2 parts and to the left is Q1. And the total revenue has been growing. And if you look at closely, you can see that the red bar now is growing. One is the Food and Beverage. Compared to Q1, it's grown by over JPY 500 million. And also Leisure and Lodging, Q1 was strong, but Q3, we saw a growth of JPY 100 million. And apart from that, below Food and Beverages, the option revenue has also been quite strong. So the accommodation income has been declining a little bit, but the Food and Beverages and Options with a high value proposition are growing in terms of revenue. And that's why the sales has been on the rise. And this is the reason why Q3 sales were higher compared to Q1. However, if you look at the profit level the adjusted OP has been declining in Q3 compared to Q1. And this is because there are a few expense items that went up. One is the Food and Beverage revenue has gone up significantly. So we are active in recruiting. And so for the personnel expenses, including chef's personnel expenses has been higher compared to Q1. We have not been able to catch up with internalizing the process. So we are procuring a service from outside and that is provided as a food catering service. That ratio is still high. So compared to internalizing that service, the margin will be lower when we use the outside resources. And that's why the profit went down a little bit. And we are also active in opening new facilities. Also, our plan was to open up 10,000 tsubo. And in the first half, we achieved that. And after the Q3 the force base went up by 12,000 tsubo. So new openings has been very successful. And with that, well, we are making some operating investment for the initial fee for the space and also the rent. Also, that's why the expenses are decreasing sales or profit. And because of that, the COGS has been rising. But the sales is growing and the order book is also strong. So with that on the horizon, we are opening actively. And we're also trying to internalize other food and beverage services, which should be catching up later. So at some point in the future, the COGS will be normalized. So just looking at this quarter, there is some difference between sales growth and the profit growth and that may be an impression that you make at from the numbers. But from next fiscal year onward, at some point in the future, we should be able to recover this, and that is our view. As for SG&A, compared with the Q1, there was an increase in Q3. This is because of the personnel cost, which is incurred at an early stage. And also for the system investment, there are some temporary expenses because of the introduction of new systems. That is why there is an increase. However, system costs will be gone anyway and the SG&A and the personnel cost that we have spent will start contributing to increase in sales. So although there is some time gap, so revenue and expenses should balance sooner or later. So for this period, sales compared with Q1, it is bigger. However, there are some pre-investment and there are some delay in in-sourcing that caused some expenses to go up. So if you look at the current moment, the profits on a down trend. We looked at a 3-month period and we compare Q1 and Q3. Now let's look at the year-to-date 9-month results compared with the last year. In terms of the breakdown of sales and expenses, you can see the breakdown here. One major item is in the dotted line, that is a material cost because of the delay in in-sourcing, there is some increase. Other is material cost. These are the costs for the catering business that we are procuring from outside. And at the bottom, you can see personnel costs compared with the pre-COVID period, it is much smaller. But we are increasing hiring at the moment, especially the cooks, we have secured a lot of people. But compared with the pre-COVID, the personnel cost is much lower. In that sense, we have become more efficient and while increasing the number of employees. Actually, if you look at the trends in personnel costs, pre-COVID period had a large number of employees, both regular employees and the temporary employees, we had more than 3,000. Today, we have almost halved that number. We are increasing the number. However, we are not going back to the same level as pre-COVID period, which was a little bit bloated. Therefore, for the current midterm period, we would like to stay more efficient than in the pre-COVID period. So no, this is... You can see a very stable situation after the sale of Regus in terms of cash and net debt. Cash is abundant and net debt is kept at a low level. So during the 9-month period, for rental space and lodging accommodation facilities, we have invested aggressively. And the new businesses will be promoted continuously. So the investment for future business, we don't want to spare our investment in this area. So we like to be aggressive and at the same time, very cautious in the investment. So, so far, I've talked about the overall numbers and the results. From here, I would like to give you more details about the businesses. In terms of openings and closures, as I mentioned earlier, we had a very brisk demand and order book. So because of that, we are promoting new openings, and we did so during the first half. Because of that, at the end of Q3, we have 12,000 tsubo already opened this fiscal year, so which is a higher level than the plan. And in terms of the closure, there is some facilities we have closed. However, much of that was converted into Lectore [indiscernible] and this is a very huge facility. So in terms of tsubo size, it is big. However, in terms of the pure decrease in rental meeting space, there is not so much. Therefore, if you look at the Lectore impact, also compared with the decrease because of this, we have much more increase in the total space. And so as a result, as of the end of Q3, of rental space and hotels, we have 12 -- 140,000 tsubo, and we have 14,237. And you can see the KPI. This is sales for tsubo. And like in the case of sales, this has been trending up steadily. We have JPY 35,464. So this is very close to the pre-COVID number in terms of the sales for tsubo. So next year, we can hit -- we think that we can hit the pre-COVID number. Lastly, this is the sales ratio by usage in terms of TKP rental space. By application, you can see on the left-hand side, you can see Q3 in 2020. This is COVID-19 period. And you can see this in Q3 on the right-hand side. If you compare the sales mix looks very close to what we had before COVID. And also F&B has been increasing in the total sales mix. That's another observation we can have here. So in terms of the banquet sales and the reception of sales, we would like to capture that. And at the same time, we would like to realize more in-sourcing so that we can reap the fruit next year as a result of those efforts in terms of profit. So that was my brief explanation about the current performance and some numbers. From here, Mr. Kawano is going to take you through the updated business strategy.
Thank you very much. I would like to give you a business update. So for the first time in 4 years, we are opening up a new facility in Kansai, that is TKP Garden City premium Osaka Umeda [indiscernible]. This is 500 square meter major whole equipped facility. We have 28 in Osaka and 14,000 and we have 5,300 tsubo in the Umeda area and in the 7 in total in the Osaka City, and Garden City Kyoto Tower Hotel has been expanded as well. Compared with the past, we have added 2 more floors. So in total, we have 6 floors. So for this Kyoto Tower itself, we have Kyoto Tower Hotel and also banquet facilities operated by Kyoto Tower in the past as well as owner office, Keihan railway office. So all of them have become TKP. So half of this is a hotel and half is TKP rental space. And in front of Kyoto station, you can see TKP mark, which is lit in at night. So you can see, as you arrive in the Kyoto station, you can see the big signage of -- illuminated signage of TKP, which is in red. And so Yokohama area facility or in Yokohama, we have another one to be opened in March 2024. So for Q1 to Q3, you can see how active we are in opening up new facilities in the other day, and there was a guy [indiscernible] TV program in Japan, which highlighted our efforts in these areas. And they showed [indiscernible] and Tokyo Station and other areas, how actively we are opening up new spaces. And another update about hotel is the station area of Oita prefecture, in front of the Oita station, right in front of the station, TKP is constructing a new hotel, and this will be operated under the franchise agreement. This is an upper hotel brand. However, it's in Oita, so there will be a hot spring. So there is a big bus space as well as restaurants and rental meeting rooms and rooftop bar as well. So it's not just the expansion of the floorage. We are working on the content development for this facility as well, which is a new initiative. And also for the third quarter, we have conducted -- started TKP user meetings. Among the customers, they are working on common issues. So with the customer's network, they are strongly engaged. And among the users of TKP, especially the people in the personnel department, HR department. They attend these meetings as TKP users and discuss how to utilize the benefits of being membership on the membership of TKP. So this is a business strategy update. Looking at the next fiscal year. So headcount increase, in the last year, we have been augmenting the headcount increase and also you are in-sourcing the F&B business and also investing into IT system. Also during the pandemic, the business solution has contracted. But this fiscal year, we have been focusing to augment these best foundations so that we can capture the opportunity to grow the profit from next fiscal year onwards. We have also started our unique community program and also have been promoting the new hotel and resort project and also are establishing the high-value proposition business model, which is not just centered around office real estate. And at this point, we do not see any change in the business environment or demand that would trigger us to change the current midterm management plan. So we will continue to execute the current midterm plan in place. In Q4 and also the progress looking at next fiscal year. At this point, we are trying to expand the kitchen space. Right now, across Japan, we have roughly -- we just recruited 60 people for the F&B service. And from now, looking into Q4 and also Q1 of next fiscal year, we will see a big progress in in-sourcing. And in the busy timing April next year, we are hoping to achieve an in-sourcing ratio of 60%. And also we are nationally building up the order going into next fiscal year. We have a very solid projection. And we felt that the reception demand is getting brisk. So parties in the magnitude of a few hundred guests are now recovering, and this is something new that we are starting to observe now. So particularly in the latter part of Q3 or from the latter part of Q3, so observe leverage timing and also looking into the fourth quarter, December, January and also for the first quarter of next year, we see the training demand for the new hires recovering. Also, I believe that in the first quarter we should be able to forecast a record high sales. So that said, finally, revenue is making a good progress, but the profit has been a little bit under pressure due to cost for human capital and also costs related to in-sourcing as well as IT investment. Also there were some upfronted -- upfront investment that we had to incur. But the next year, we will be trying to get the payback from those investments. As long as the top line is growing, I would say that the profit will follow suit, and I'm looking forward to that. So that's all regarding Q3 results. So in sum, Q3 was a little bit of a struggle in terms of costs in order for us to achieve higher in-sourcing rate. However, having said that -- well, if I talk about Q4, from January to early February, the University in [indiscernible] conducted and it related sales are projected to be similar to that of last fiscal year. Also, we have been able to maintain last year's sales for that demand. And for Q1 of next fiscal year, we expect the occupancy rate to be very strong, especially for the long-term demand, others related to the training of new recruits or some -- the demand is for like 1-month or a 2-month period. And in some areas, the booking is full, and we are just trying to sell the niche in between times. Also you can build up our expectation for Q1, and I expect to see a record high sales in Q1 next fiscal year. Also -- well, this year, we are actively recruiting and also our spending on IT and also spending on in-sourcing. Also I think that adds up to extra JPY 500 million in cost, but that is going to lead to future profit for next fiscal year. That will be the end of my presentation. Thank you for your attention.
SO now we would like to open up for questions. [Operator Instructions] So the gentleman, the second row from the front.
My name is Ozawa from SBI. I have 2 questions. I will ask one by one. So in your detailed explanation on a quarterly basis, you mentioned about like JPY 500 million. But at which timing do you expect the growth rate of our sales and operating profit to be in line? So you mentioned that in April, the interest rate will be achieving a higher level for food and beverages. So is that when you expect the sales and operating profit growth to be in line? Or do you see how some important investment that will lead to some gap to sales and profit? So I want to ask about the contribution of the profit. Should I move on to the next question or should I ask one by one?
One by one, please. Thank you for the question. Regarding the in-sourcing ratio and the progress of that, early next year, we will not reach 100%. It will take some more time. However, having said that, right now, the order book is very brisk. So even if the in-sourcing rate of F&B is not 100%, I think the profitability will improve. So that said, in the first half of next fiscal year, I think we will start to see some good numbers, and that's what we would like to strive to achieve.
And my next question is for the rental space business, I think you're exploring for new applications. Also, you mentioned that you are establishing a community for the TKP users. But aside from that, have you seen any demand increase for anything else for the Kyoto Tower? Because Kyoto is a big definition for inbound tourism, that may be big demand. And also around a Akihabara, there are a lot of tourists. So are there any demand for your rental space in Akihabara ready to inbound, maybe also in Makuhari area as well. So if you could share any topic regarding that? I'd like to understand that.
Regarding the application or before I dive into that, looking at the current situation, the different business segments are seeing different types of sales starting from the training, internal training and also external training so it's not like we are getting new customers, but we are able to upsell or to be precise, I looked at the numbers just before this meeting. But with the dynamic pricing, we have the list price, but the average unit price has gone up by 10% for our rental space. Also I think this is a good result that we are seeing in upselling. Also, we would like to continue to exploit new demand from the existing customers and also explore new customers and also offer new applications for the usage of the rental space. [indiscernible] we had big banquet hall in Shinagawa. And with that kind of facility, if we have a banquet space, which can accommodate 500 people or 200 people, we can do something else like entertainment or events. So we would like to develop this kind of facility. And as for the usage, the former measures, it is trending to the event production business or team and that is handled -- they handle the user community meeting that I explained earlier. And this team has started with Goggle, but they're working on different types of events. In the next result meeting after announcing our Q4, I would like to offer you more details about this event management division. I think this will help us to upsell from just selling the floor space to also offering the contents and something to do with those space. So maybe in some unexpected areas, TKP has been quite active. There is something that we can share and cannot share but we are focusing on the event management capability. And I would like to offer you some more details in Q4. So as for the new different types of usage of the space, we would like to offer more options and break free from just offering the space to the customers.
Are there any other questions? Please wait for the microphone.
Thank you. My name is Suzuki from Bill Investment Trust. I have several. Regarding APA Hotel in Oita. Well, APA has been something you've been working on since COVID. But in the past, you had a certain approach. Probably, the facilities are the same. But are there any changes in the upcoming APA Hotel in Oita? Is it going to be different in terms of the content and so forth?
Well, the APA Hotel business in the past were conducted in places where there were TKP rental spaces so that we can accommodate B2B customers into the beach APA hotel. But this time, this is more related to regional development rather than the B2B business. So those hotel spaces are offered not only for just for accommodation, for business people. The people who use the hotel can enjoy hot springs and there is a Oita [indiscernible] soccer team as well. There is a neat room, which is the mascot character of the soccer team. So this is pretty much based on the local -- unique local culture and community. So it's not just a business or urban type APA Hotel. The one that we're working on next is the local community-based APA Hotel. So we like to do both. In terms of the hotel business, we are thinking about inbound customers. If you look at the Nipori APA Hotel, 70% are inbound customers. Going forward in the future, we would like to capture more of the inbound opportunities. Therefore -- So we will continue with the APA Hotel business, but we have a directly operated hotel Lectore and Ishinoya, those facilities are expecting inbound customers going forward, especially for the Lectore, it is still B2B for. But for Hayama and Yugawara, large facilities. Now we are accommodating on the B2B customers, but we are doing some refurbishments that we can accommodate B2C customers so that in those Hayama and Yugawara facilities. There are a lot of hotel rooms. So we'd like to open up for consumers and offer the hot spring and other attractions. Right now, the ADR is much higher for inbound customers. But in Lectore, it's about 15,000 to 20,000. But when we convert them into inbound, at least, we can increase it to JPY 50,000, JPY 60,000 per room. Therefore, for Lectore, we are changing the spec so that we can double or triple the ADR level from what we have today.
I understand. Next question is about the system investment. What is the content of this system investment -- IT investment? Is it more or less more than just platform? Is it for the services? In terms of the quality of the service and applications, do you expect improvement in the quality of service? So how does the ongoing investment in IT system work in the future?
Well, since the inception of the company, we have been using the same platform system. So we are changing the core system, it's IT system itself because it's been old. And the salespeople, they can use it, the new system for pricing and occupancy management in a more -- much more precise manner than in the past. So that is one benefit. Another benefit is to increase the services and the convenience for customers because today, the customers said they have to call out the salespeople and book hotel. So there are some benefits to that approach. However, 24 hours, 365 days, anytime the customers can make a booking, the kind of convenience should be offered as well. Therefore, we are renewing the IT core system itself. And also, at the same time, we would like to take a more scientific pricing approach for the salespeople as well as to enhance the customer experience as well. So it's a major investment. So that will be executed in several different phases over a 5-year period. So little by little, we would like to execute this. And the first stage has been progressing and it's nearing completion, and we are trying to get to the second phase of the IT investment.
In terms of the amount of money, how much is it JPY 1 billion, JPY 2 billion, 5-year or 10-year amortization?
Well, there are some different approach we are taking, but the total investment is a little bit more than JPY 1 billion. So that is the total system IT investment and there will be more running costs to be incurred on top of this JPY 1 billion.
I see, I understand. You talked about the dynamic pricing. But in terms of the service pricing, there was a discussion about a 10% increase. Well, the demand is going up and service is getting better. So in that sense, if you try to change the pricing and offer more value, so when you try to offer high value-added service and then can you even increase the margin other than just absorbing the costs. So in terms of the occupancy improvement, is it possible for you to increase the pricing at the same time? So what is your ongoing trend as well as the future policy?
Well, the costs are getting higher and higher. Therefore, we are making sure that we can pass on the increased cost to the pricing. In that sense, especially for food and beverage, we are internalizing and in-sourcing some of the services and at the same time, we are enhancing the service level, we are providing more delicious food. Therefore, under the new pricing scheme, it will be JPY 7,000 rather than JPY 4,000 or JPY 5,000 in the past. So the reception cost charge per person will be JPY 7,000. And then we are internalizing Therefore, the profit margin should be higher. Probably for Q4 or Q1, we should see the actual result, especially from Q1 next year, in the catering service. Well, we are taking orders today, but those orders were taken a little bit in the past. Therefore, those are around JPY 4,000 per person. But from Q1, we will see the catering services executed under the new service pricing scheme. So it will be increased from JPY 5,000 to JPY 7,000. So there will be a JPY 2,000 more. So the unit price is higher. Probably F&B unit price, average ADR should be higher and the margin should be higher. Today, there is about 20%, 15% to 20% kick back. But because of the in-sourcing, the margin we can take will jump up to 50% maybe or even 60%. So that's what we are expecting.
This is my last question. For TKP rental space, it's a space business. So you are using the sharing model to make it profitable. But in different places, people are talking about how to secure people and talent -- securing talent is the key. So in your case, I'm sure that you are doing various training and development of talent, and there will be more entertainment as well like leisure and lodging. In your case, if you look at the business as a talent business, what will be the positioning that you can talk about? What will be the possibilities and opportunities in the future when you think about your business as the talent-based business?
Well, TKP, if you look at that, that was Shinagawa, [indiscernible] and other businesses. So We do dispatch personnel and temp staff as well for those services. So we do have the people business. And there is a training program as well using our rental space, we can provide training programs and seminars for companies. So that's something we like to emphasize in the future. So in that sense, there are people on the companies who use TKP spaces, we would like them to use our training service as well. So we would like to enhance our relationship with the HR people and using Shikigaku and other partnerships as well. We would like to promote the talent-based business and offer new types of training and seminar opportunities. And we believe that we can open up these opportunities. And that is the aim of the Measurement Resources development program. So if the company customers, if they ask TKP, they can get the information not only on the space, but also the training content as well. That's the kind of company we would like to become.
Are there any other questions? [Operator Instructions] So the gentleman in the front.
My name is Tsukada. This is a little bit technical, but the negative vertical on the [indiscernible]. I would like to confirm for that negative goodwill. When that's going to be incurred, what is the magnitude of this negative goodwill? So that's my first question.
At this point, leading up to Q3, the negative goodwill was not reflected on to the P&L. We are talking to the auditing firm [indiscernible] as to how to assess this negative goodwill. So we're still in that process. So at this point, we cannot tell you the timing of the magnitude of the negative goodwill. At this point, we have not reflected that into our P&L.
My second question is, the headcount leading up to Q3 increased. And looking at the number of employees, I think the increase was 150 people. But then prework is increasing by 80. And if I may, which divisions are you increasing the headcount for? I had an impression that it was mainly for in-sourcing your F&B service chefs and the other related talent for that. What is your plan to future investment? And I think this kind relates to your business strategy. So what is the recruiting plan going forward?
Yes. So the biggest increase is for F&B business. Roughly 60 people or more new employees for the food and beverage business, especially for food catering and also chefs. So that's a big increase. And also looking closely for business planning going forward, regarding M&A opportunities, we have increased the headcount for business strategy and planning. Well -- so also we try to look for M&A opportunities, and we are increasing the talent in that field. And we have not been able to make announcement yet. But going forward, we'd like to offer you some more news flows. Of course, not related to the peripheral business, the rental space for hotels or maybe -- this is all with large corporation. As we are looking into the business and capital allowances to utilize our existing customers for the B2B business and also the real estate owners and also the owners of the office space, while we are looking into opportunities in this peripheral area to cooperate more with the existing partners. So the relevant account for that kind of domain has been increased. But mainly, the increase is coming from the F&B beverage and also people on the ground floor operation by increasing those accounts, we are able to increase the retention rate so that we can continue to do repeat business. But when we try to in-source F&B this process has just started. So for this to take a foothold, it's going to take a few more months or so. Also from the middle of the Q1 around April, I'm hoping that the in-sourcing of F&B will start to appear as solid numbers.
I asked this question previously, but when there is a fight over talent? Generally, I think looking at the average salary in [indiscernible] or the securities report is not high. It's a little bit lower compared to the average. And you may have to augment that. And regarding the profitability, I think you're still seeing some decline because you're in the process of trying to increase the in-sourcing ratio. So if you try to take a balance Well, in April this year, given what's going to be happening with the spring wage negotiation, how much personnel expenses do you expect to see as an increase?
We need to take our priorities for new graduates this April. We have offered an official invitation to roughly 74 people, and we're trying to raise the salary base, including them. As the wages are about 10% higher compared to previous level. And for the hospitality segment, where the staff in that business segment. We are resourcing talent from 2 countries in Southeast Asia. So we have recruited them last year and they are getting training for Japanese [indiscernible] and also the hotel services at their home country. And there will be about 30 to 40 new employees that will be joining from Southeast Asia in April. Once we will be coming gradually from the countries in Southeast Asia and we're trying to outsource talent from outside of Japan as well. It's not just trying to get the talent in Japan with high salary. Those we recruit in Japan will be candidate for managerial positions. But for different positions. We are also looking into sourcing the talent from outside of the -- outside of Japan.
When you say you are sourcing talent from Southeast Asia, what is the magnitude? And are you going to increase the recruitment from outside of Japan?
So right now, we have offered the job to 40 people from outside of Japan, and they are getting the Japanese training classes every day. And they will be working for [indiscernible] and APA Hotel. And in the hotel business, we have a very established manual. Also, they will be able to conduct the service based on the manual. And then on top of that, for further talent that is needed in other divisions for TKP we will be active in recruiting. And for the new graduates, we have offered a job to 74 people. And they will be contributing immediately for the sales and operation of TKP. Also we are going to develop their skill sets and they will be on the field. Until last year, we have been suspending the new grad hiring. Also 74 people back in 2019, we were recruiting, but a similar number. Also, the new grad recruiting has also recovered as well. For the mid- to higher, the salary level might be quite high. But for the new graduates, although we have increased our salary base, it is not as high as the mid carriers. Also I hope that we can develop their skill sets so that they can quickly contribute to our business.
My last question is about the stock price. I think quite easy as for many companies to manage the business with some attention page to the share price. Right now, your share price is not that high. I think from October last year, it has come down. So what is your perception? What are the lessons you learned? And what are the areas of business you need to improve looking at the share price?
Well, share price is determined by disappointing demand situation in the market, but the European and U.S. office market is very weak, especially in New York and London, including the flexible office space. So I think the weakness in the office sector elsewhere as a drug, WeWork went bankrupt. And so I think the perception of the market is that the investors overseas are still wondering if the employees are really coming back to the offices. And we did have the Regus business in the past. And our foreign investors were accounting for roughly 20% of our shareholder base. So I think they had a weak reception on the office sector. And when your sentiment is weak, our share price need to come down. So I think now we are at a tipping point of the shareholders is changing. But for us looking at the fundamental business, it has not changed, if not improved. I can understand that if we're loss-making, the share price might be coming down, but we are generating profit. And this fiscal year, next fiscal year, we do not see any material negative implications on business. we don't expect a rise of new pandemic but maybe some people are worried about that, but it's not happening in reality. We don't see any signs of that happening. So as TKP, we have cash of roughly JPY 30 billion. It's still sitting on the balance sheet. So we'd like to utilize that capital base or cash base to capture new business opportunities going forward. I know that investors are looking for a dividend and when we get the divisible profit, I would also like to consider dividend. We have both retail and institutional investors. But there aren't any really negative news that they need to be concerned about. And I hope that our shareholders will be able to support us over a long time. And I'm hoping that we can be supported by long-term shareholders. From Q4, we expect the reception demand to recover in full and also the office space demand to recover. And with that, the peripheral businesses that we serve and also when we look at the next 5 or 10 years, and for TKP, they will be active in investing. And I hope that will be something that investors will follow.
Yes. I think your financial position is very strong with cash. But on the other hand, it might be perceived that you're not effectively utilizing our cash base. Of course, you don't need to consume this immediately, but if you can show us a direction of how you are going to use your cash, maybe the market concerns could be shrugged off? Like listening to your presentation this time, you did not really mention about the usage of cash. Previously, we talked about M&A and also versus capital allowances with [indiscernible] and you had those news in the presentation, but not this time. So what is the progress on that kind of opportunity? And what is the direction of using your cash going forward?
As obviously, how to effectively use the cash is important. I don't have an intention to invest that into hotel or invest into land. I want to invest into the business. And through the business, I want to grow both the sales and profit. And obviously, as I said earlier, we are increasing the number of people for the business strategy or corporate planning. And that is a reflection is that we need to have a strong support team. Once we invest, PMI is going to be key, as we have seen in the case of Regus. So on that note, within TKP, we wanted to augment an internal support structure in order for us to be able to invest into the peripheral businesses. But for those kind of M&A activities, there are a lot of insider information. So we want to share the news. One we are able to do so and hope that we can continue to be active in Q4 as well.
Any other questions? So the person in the second row, please.
SMBC Nikko. My name is Hamada. So I don't think we have so much time. So let me ask you 1 quick question. You talked about the negative goodwill. In the previous earnings guidance meeting you said that you will book it within this fiscal year. Has it been unchanged? Or is it possible that you may delay it into the next year?
Thank you for the question. There is a discussion going on with [indiscernible], our accounting auditor. We would like to talk about the details. And before we share any more information with you.
Are there any other questions? [Operator Instructions] No more questions? Okay. With this, we would like to conclude the Q&A session. With this, we would like to conclude the third quarter financial results meeting for the fiscal year ending in February 2024 of TKP. And if you want to exchange business cards, please move forward to see the management. And we would appreciate you filling in the questionnaire. Please leave the questionnaire sheet on the table as you leave. Thank you very much for being with us today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]