Oriental Land Co Ltd

TSE:4661

Earnings Call Transcript

[Tomoyuki Shimoda, executive]

Good afternoon, everyone. I'm Tomoyuki Shimoda. Thank you very much for coming to our financial presentation despite your busy schedule. First, I'd like to explain our financial results for the first half year of the fiscal year ending March 31, 2025.

Please refer to Page 4 of the handout. Results for the first half year are as shown here. In comparison with the same period of the previous fiscal year, net sales reached a record high, driven by an increase in net sales for the hotel business segment and an increase in net sales per guest for the Theme Park segment, but operating profit decreased due to increased costs.

I will explain the results by segment and the reasons for changes. Please refer to Page 5. Net sales for the Theme Park segment increased by JPY 4.8 billion to JPY 238.7 billion. Attendance decreased year-on-year due to a decline in travel demand on the back of a slowdown in revenge spending that occurred after the pandemic and the severe heat, offsetting the increase driven by the opening of Fantasy Springs. For your reference, attendance in July, August and September decreased by about 3%, 16% and 5%, respectively, from the same period of the previous fiscal year.

With regard to net sales per guest, revenue from attractions and shows increased year-on-year due to sales of a larger proportion of high-priced tickets based on variable pricing, along with an increase in revenue from Tokyo Disney Resort vacation packages.

Food and Beverages revenue increased year-on-year due to the opening of restaurants and refreshment outlets within the newly opened Fantasy Springs. Merchandise revenue decreased year-on-year, primarily as a result of the termination of the sale of products related to the Tokyo Disney Resort 40th anniversary.

Please refer to Page 6. Operating profit for the Theme Park segment decreased year-on-year by JPY 12.9 billion to JPY 49.9 billion due to increases in costs. The merchandise and food and beverage cost ratio rose overall year-on-year.

The Food and Beverages cost ratio increased due to a surge in raw material prices as well as the ordering of some ingredients from external parties. Meanwhile, the merchandise cost ratio also climbed as a result of reductions made to sales prices in light of inventory levels.

Personnel expenses increased year-on-year, primarily as a result of an upward revision of wages and a rise in personnel expenses for part-time class members, owing to an increase in the number of hours worked due to the opening of Fantasy Springs.

Miscellaneous costs increased year-on-year, chiefly due to a rise in maintenance costs for addressing age-related deterioration. Depreciation and amortization expenses increased mainly due to the acquisition of new assets related to the opening of Fantasy Springs.

Please refer to Page 7. Net sales for the Hotel business segment increased year-on-year by JPY 7.4 billion to JPY 50.2 billion as a result of an increase in accommodation revenue on the back of the opening of the Tokyo DisneySea Fantasy Springs Hotel, among other factors.

The occupancy rate at Disney Hotels during the first half year decreased year-on-year by 5.5 percentage points to 93.3%, primarily due to the renovations being carried out at the Tokyo Disney Celebration Hotel. The average charge per room rose by JPY 8,110 to JPY 61,456.

Operating profit decreased by JPY 1 billion to JPY 12.3 billion, chiefly due to increases in costs resulting from the opening of the Tokyo DisneySea Fantasy Springs Hotel. Bookings for the Tokyo DisneySea Fantasy Springs Hotel continue to be robust. We will make ongoing efforts to enrich the experience we offer at the resort as a whole by leveraging our Disney Resort vacation packages and other means.

Please refer to Page 8. Net sales for the Other Business segment increased year-on-year by JPY 0.6 billion to JPY 8.2 billion, primarily owing to an increase in net sales from the Monorail business, driven by a rise in the number of passengers. Operating profit was JPY 0.5 billion, owing to an increase in net sales.

Please refer to Page 9. Here is a comparison of the results for the first half year with our initial forecast. Net sales and all levels of profit fell short of the initial forecast, mainly due to lower-than-expected attendance. I'll explain the results by segment and the reasons for changes.

Please refer to Page 10. Net sales for the Theme Park segment fell short of our forecast by JPY 19.1 billion. Attendance was lower than expected due to the greater-than-expected impact of the decrease in travel demand resulting from a slowdown in the revenge spending that occurred after the pandemic as well as severe heat.

For your reference, first half year attendance was about 8% lower than the initial forecast. By month, attendance in July, August and September fell short of the forecast by about 12%, 24% and 11%, respectively. As for net sales per guest, revenue from attractions and shows slightly exceeded the initial forecast, driven by robust demand for Tokyo Disney Resort vacation packages.

Merchandise revenue was lower than projected as a result of a decrease in food products and the temporary restriction in sales in consideration of the high demand expected for products related to Fantasy Springs. Food and Beverages revenue was roughly as expected.

Please refer to Page 11. Operating profit for the Theme Park segment was JPY 7.1 billion lower than our forecast, owing to lower-than-expected net sales, although miscellaneous costs and personnel expenses were not as high as expected. The merchandise and food beverages cost ratio was higher than expected overall.

The merchandise cost ratio exceeded our expectations as a result of reductions in sale prices in light of inventory levels. And the food and beverages cost ratio also surpassed our forecast due to the higher-than-expected production personnel cost ratio on the back of decreased net sales.

Personnel expenses were lower than we had expected, primarily due to lower-than-expected personnel costs for part-time cast members owing to hours worked coming in less than projected as a result of attendance falling below our forecast.

Miscellaneous costs were lower than expected, primarily due to a deferral of sales promotion costs and others in the third quarter and after, along with lower-than-expected energy costs and business tax. Depreciation and amortization expenses were roughly as expected.

Please refer to Page 12. Net sales for the Hotel business segment exceeded our forecast by JPY 1.1 billion due to the opening of Fantasy Springs and other factors. Operating profit surpassed our forecast by JPY 0.7 billion, primarily due to the higher-than-projected net sales. Net sales and operating profit for the Other business segment exceeded our forecast by JPY 0.3 billion and JPY 0.2 billion, respectively.

This will be all from me. Thank you very much.

[吉田 謙次, executive]

Good afternoon, everyone. I'm Kenji Yoshida. As we explained earlier, our financial performance was heavily affected by the severe summer heat, which pushed attendance down to a level below our initial forecast. I'd like to provide a review of our measures against the intense heat this summer, followed by updates on our discussion of the future direction of our approach to the attendance.

Please refer to Page 14. In consideration of the severe heat experienced during the same period of the previous fiscal year, we took possible measures in terms of both structural and nonstructural aspects. In our effort to make the park environment as comfortable as we possibly could, we significantly expanded the volume and scope of our water shows, installed more air conditioners and created more shade.

While employing measures to alleviate the heat for guests and cast members alike, such as shortening the business hours at some outdoor stores, we also focused on enhancing the efficiency of our park operations. Having taken such measures, we reviewed our performance during the summer season by utilizing the results of guest, non-guest surveys and general satisfaction measurement and came up with such insights as shown here in terms of the attributes of high-intent visitors and contents.

In light of these insights, we are currently discussing our approaches for attendance for the next fiscal year and beyond. Today, I'd like to explain the direction of our approaches. Please refer to Page 15.

We are discussing the direction of our approaches for fiscal year 3, '26 and beyond as shown here. We have learned that certain guest populations are eager to visit even during the hot summer season and that we can encourage visits by introducing appealing content.

So instead of surrendering to the severe heat, we have decided to strive to increase summer attendance. Specifically, we are exploring various measures to attract guests, primarily focusing on providing special experiences, providing appealing systems and providing a comfortable park environment. Furthermore, we will consider how we can attract attendance throughout the entire year, including implementing measures for the first and fourth quarters.

Our intention is to carry out measures from diverse perspectives without being bound by precedents. Today, we have only presented the direction of our discussion, but we will continue to explore further possibilities involving unified group-wide efforts to present concrete initiatives at the time we announce our next management plan.

Even though there is an effect of severe heat, we will encourage the change guest sentiment to such thoughts as we want to visit the parks on the summer break or we want to enjoy the parks in summer to the fullest. In addition, we will aim to achieve the sustainable structure of attracting guests, which can adjust to the changes in the external environment. Please keep an eye on future developments at Tokyo Disney Resort.

Please refer to Page 16. Next, I'd like to explain our forecast for the fiscal year ending March 31, 2025, in light of our first half year results. Please refer to Page 17. While expecting the conclusion of the Tokyo Disney Resort 40th anniversary to bring about negative effects, we set stretch goals and have worked hard to achieve them this fiscal year.

In the first half year, we continue to face a challenging external environment, including a drop in travel demand and an effect of severe heat. However, the recent trend has been steady. Strong demand for certain services such as Tokyo Disney Resort vacation packages is expected to continue from the first half year, and we will also engage in group-wide cost control efforts.

Given such circumstances, although net sales and operating profit fell short of our initial forecast for the first half year, we project an increase in net sales for the second half year and therefore, have decided to retain our initial forecast for the full fiscal year.

Please refer to Page 18. As we aim to achieve an operating profit of JPY 170 billion for the full fiscal year, we expect operating profit to increase, decrease as illustrated here. Although the impact of decline in travel demand and decrease in a reaction to the end of the Tokyo Disney Resort 40th anniversary event is expected to remain to a certain extent.

We aim to raise the level of attendance by contents planned going forward and sales of tickets limited to certain targets and periods. We project revenues from the Theme Park segment to exceed our initial forecast, owing to the continued strong demand for Tokyo Disney Resort vacation packages and additional delivery of out-of-stock products related to Fantasy Springs.

Our revenues from the Hotel business segment continue to be strong right now, and we intend to align our charges per room with the high demand. Costs for the second half year are expected to exceed our initial forecast due to a deferral of costs from the first half year. However, our cost control measures are expected to result in costs for the full fiscal year 3, '25 to fall below the initial forecast.

Net sales and all levels of profit are projected to outperform our initial forecast for the second half year. However, we will make all-out efforts to increase earnings and reduce costs with strong determination to fulfill the forecast.

Please refer to Page 19. The current fiscal year is the final fiscal year under the 2024 medium-term plan. In the past 3 years, we have been steadily implementing the strategies upheld in the medium-term plan. Through our interactions with shareholders and investors, we have noticed their keen interest in our next management plan. So today, I'd like to update you on the development of our next management plan.

Please refer to Page 20. We intend to announce our next management plan at our fiscal year 3, '25 financial results presentation scheduled for late April 2025. With our cruise business to be launched in fiscal year 3, '29, the OLC Group's business portfolio will undergo changes.

Our next management plan will, therefore, incorporate a long-term plan that takes such internal changes into account, along with our conventional 3-year medium-term plan. Our dialogues with you have made us aware of the need to present a clearer picture of our ideas, especially with regard to our capital policy.

As we develop our next management plan, we are discussing our plans on cash allocation, optimal capital structure, ROE target level, et cetera. Please bear with us until April 2025 when we will disclose our plan. Furthermore, OLC management will also focus on shareholder returns. We will utilize our debt capacity as well as operating cash flow to make investments and provide shareholder returns, including by acquiring treasury stock.

In the event of a release of a certain amount of our shares, we will acquire the information beforehand and aim to proceed flexibly to take the best possible measures. With the aim of developing a management plan that incorporates the perspectives of the stock market, we will continue to engage in constructive dialogues with our shareholders and investors in an effort to further enhance our corporate value.

This will be all from me. Thank you very much.