Park24 Co Ltd

TSE:4666

Earnings Call Transcript 2018-Q2

[Koichi Nishikawa, executive]

Welcome to Park24's financial results briefing meeting for first half of fiscal year 2018. With no further ado, I'd like to start my presentation. Please refer to the briefing materials during the presentation.

First, let me go over the results for the first half, which was announced on May 31. For the fiscal year of the October 2018 fiscal year, net sales was JPY 142.5 billion, 132.7% year-on-year. Gross profit was JPY 32.7 billion. Operating profit was JPY 9.3 billion, 108.7% year-on-year. Recurring profit was JPY 8.9 billion, 105% year-on-year and profit attributable to owners of parent stood at JPY 5.3 billion, which was 95.8% on a year-on-year basis. JPY 1.5 billion of amortization of goodwill was recognized. Therefore, operating profit before amortization of goodwill was JPY 10.8 billion.

The chart on the right shows the historical trend of first half results starting from the first half of fiscal year ended October 2014. During the reporting period, there was no damages in the winter, not only in Japan, but also in U.K. as well. More than average snowfall in both Japan and U.K. had a negative impact on net sales of about JPY 500 million.

Operating profit by segments is shown on Page 4. For the first half of fiscal year October 2018, operating profit for Parking business in Japan was JPY 12.8 billion; Mobility business, which includes car sharing, car rentals and road services was JPY 1.8 billion and the overseas Parking business posted a loss of JPY 100 million. Subtracting costs, including nonoperating costs and business development cost from the total of the above segmental operating profits is the consolidated recurring profit of JPY 8.9 billion.

Page 5 shows the trend of the domestic parking business's net sales, operating profit and number of sites and spaces for the first half. The total number of parking sites stood at 17,297, and the total number of spaces was 574,799. The graph reflects the continued steady progress of development for the reporting period. So the overall development environment is solid.

Page 6 is the car rental business. Net sales was JPY 18,420,000,000 and operating profit was close to 0. The number of vehicles was 29,604 units. In our car rental business, during the reporting period, some of the franchisees became directly operated stores. Specifically speaking, 10 franchisees of 58 stores were converted. When franchisees become directly operated, net sales and profit increase accordingly. That is one of the factors behind the big jump in net sales, as shown in the left chart.

On the other hand, operating profit declined from JPY 100 million in the first half of fiscal year October 2017 to close to 0. This is due to increase in SG&A costs because due to the aforementioned change of FC to direct operation, personnel and other SG&A-related costs of the converted 58 stores were recognized. That is why operating profit declined from the first half of fiscal year October 2017.

Page 7 is our car-sharing business. Net sales was JPY 13,030,000,000 and operating profit was JPY 1,690,000,000. The number of vehicles was 21,591 units and the total number of members stood at 980,289. The number of members is growing steadily and based on the most recent figures, we may reach the 1 million threshold by the end of June. The target for the number of vehicles by the end of the current fiscal year ending October 2018 is 23,000. Therefore, we're making a solid deployment of vehicles in line with the plan.

On Page 8, we show the net sales and expenses per vehicle of our car-sharing business. For the first half of fiscal year 2018, net sales per vehicle was JPY 105,100 compared to JPY 99,800 for the first half of fiscal year 2017. Net sales increased by about JPY 5,300 on year-on-year basis. Expenses per vehicle for the first half of fiscal year 2018 was JPY 91,400. Same time last year was JPY 90,600. So expenses increased by about JPY 800, but sales grew more to offset the increase in expenses. So operating profit per vehicle went up from JPY 9,200 in first half of fiscal year 2017 to JPY 13,700 for the reporting first half of fiscal year 2018. We made substantial growth in operating profit. While number of vehicles and members are growing steadily, utilization is also firm in the car-sharing business.

Page 9 is our Parking business overseas. Net sales, operating profit and goodwill amortization for the segments are shown. Starting from the left column is National Car Parks, NCP. Next is Secure Parking and to its right that says Times parking is the business that we've been operating since 2006 in Taiwan. Total net sales for the overseas segment stood at JPY 32,050,000,000. Operating profit was JPY 1,370,000,000. As for goodwill amortization, National Car Parks, NCP, recognized JPY 1,060,000,000 and Secure Parking recognized JPY 440 million, respectively, for a total amount of JPY 1.5 billion. Operating profit after goodwill amortization was JPY 120 million. Netting nonoperating profit and loss of about JPY 170 million, recurring profit for the segment was minus JPY 300 million.

As described in the slide's title, there were seasonal factors and impact of snow damages. In terms of seasonal factors, because Australia is in the southern hemisphere, December and January is summer vacation season or winter breaks, as we call it in Japan. The period also includes Christmas holiday season and such factors tend to slow the utilization rate seasonally. Also, as mentioned earlier, in U.K., there was more than average amount of snow this winter and related damages caused about JPY 110 million of negative impact. That is why despite posting operating profit of JPY 1.3 billion strong, we're slightly under JPY 1.4 billion, recurring profit was minus JPY 300 million. However, despite such numbers from full year perspective, we are making solid progress.

Based on such first half performances of each segments, the consolidated earnings for the full year is as shown on Page 10.

We have made no revisions from the plan announced at the beginning of the fiscal year. The planned net sales is JPY 290 billion. Gross profit is JPY 71.8 billion. Operating profit is JPY 22.5 billion. Recurring profit also JPY 22.5 billion, which is 10.9% growth year-on-year. Profit attributable to owners of parent is JPY 14 billion. Dividend for this fiscal year is already announced at JPY 70 per share, which is also not revised from what was originally announced at the beginning of the fiscal year. That covers the result of the first half of fiscal year 2018.

Now I'd like to talk briefly about our growth strategy going into the second half and beyond on a medium to long-term basis.

Page 12 is about our efforts for new mobility creation. Our business is best described with a keyword of network. That is probably the word that first comes up to one's mind. Up to present, we have made good progress in networking Times parking, cars and people through our businesses over the years. As for people, Times club membership now stands at 6.86 million. In addition, the number of our business card, Times business card issued is about 750,000.

As for cars, 100% of the car share operation vehicles are equipped with onboard devices, so they are connected in a system-wide sense.

For our fleet of 20,000 strong rent-a-car vehicles, more than 2,000 units are equipped with onboard devices today. We intend to increase gradually to ultimately achieve 100% onboard device installment for rental vehicles as well. We'd like to realize this within the next 2 to 3 years so that vehicle units are systematically connected. Parking sites are already connected via our online system since 2003. Our 17,000 parking sites already networked.

Then it leaves this second from the right circle on Page 12, which is communities. For our members, Cars and Times parking are merely means to serve a purpose and the ultimate objective is to reach their final destination. So we wanted to come up with some ways to network that destination. That is the thinking behind the launch of Times Pay, our new credit card payment service. Starting from the current fiscal year, we want to make this service as a core of our networking efforts. Specifically speaking, we will focus on increasing the number of merchants accepting this Times Pay settlement. Our plan is to acquire 10,000 outlets by the end of October 2018 fiscal year.

In the future, we want to expand this network from the planned 10,000 to 100,000, 300,000, 0.5 million and then 1 million. If we can establish and expand such network that covers and connects all aspects, including the members' needs of mobility, which is a car and a place to park that car at the endpoint of a journey and the purpose, which are the businesses at a destination, then we believe we can provide new services to our members. And ultimately, that will lead to improvement of the quality of services to our users and members. We want to make it our differentiating factor. That is what I'd like to realize going forward.

Page 13 shows the new developments of parking business. For the first half of fiscal year 2018, 888 new parking sites were developed. The number of new parking spaces was 44,135. The bar chart shows that for this first half, the development of new sites declined somewhat from the same period last year, but on the other hand, the number of new spaces increased substantially. 44,135 is the largest number of spaces developed for the first 6 months in the last 5 years.

So far, for this fiscal year, the development environment continues to be favorable and site development is making steady progress. Against such background, we also want to put effort in developing parking sites that can become a hub for the group's networking in an area. Going forward, we will actively focus on developing such parking sites for airports and iconic multiplex commercial facilities, often located in central downtown area of many large cities.

The left picture on Page 14 is Takamatsu Airport in Kagawa Prefecture. It started operation in April 2018. It is a facility management operation with 1,019 spaces under management. The picture on the right is Sapporo Sosei Square, which opened also in April 2018. The location is just about in between Sapporo Station and Susukino. This is a new multiplex building with a concert hall, retail facilities and the higher floors are leased to office tenants. We operate Times parking to provide parking services for this building.

From a group business perspective, airport operations can encompass parking and car share as well as car rentals in some cases. Likewise, in facilities like Sapporo Sosei Square, we can offer parking, car share and rentals. So such sites can be effectively utilized as a base for our Mobility business as well. We want to make aggressive efforts in developing such sites going forward. While the number of parking sites, parking spaces, development of symbolic sites continues to be our focus, the level of our services at our new sites are also improving. We continue to make modest updates.

As shown on Page 15, we are introducing multi IC card readers to accept diverse payment methods. The photo on the left shows the top half of an actual payment machine. At the center of the machine, there is an inlet for parking tickets and vouchers. There is a black boxy device to its left, and a close-up photo of that is what's on the right. This device was developed in-house. It can accept payments using e-money like Edy, nanaco, WAON and transportation fare payment IC cards like Suica and such.

The existing third-party payment machines does not accommodate IC card payment. So we developed such terminal in-house and mounted it to the machines. Recently, payment schemes are being diversified. Under such circumstances, it is nothing but inconvenience for our customers who can only use cash and credit cards for their payment for Times parking. Although accommodating diversified payment schemes incurs associated cost, we would like to prioritize the convenience for our customers by actively installing multiple IC card readers. It may take time, but ultimately, we would like to accommodate every possible means of payment for customers of Times parking.

Next, Page 16 describes our network expansion focused on vehicles. As written here, this is about increasing connected cars with onboard devices. Already older vehicles for car sharing, 21,591 of them are equipped with onboard devices and 2,324 rental cars, that is about 10% of the total fleet, also are equipped with the devices. Those cars are always connected to the information center for vehicle operation management and driving records. Ultimately, we would like to make all the cars in the fleet connected.

Right now, we have a fleet of almost 50,000 vehicles in total for rent-a-car and the car-sharing businesses. In the future, as we increase the fleet for both car sharing and rent-a-cars, approximately 100,000 cars in our fleet will be all connected to the information center. Thus, we'll be a company to operate 100,000, what we call, connected cars. We would like to actively develop the infrastructure for the expansion going forward.

As we expand such a network, you might wonder what we can do with it. Well, first of all, the biggest reason why traditional rental cars weren't equipped with such devices is that when customers rent or return cars, there are always people at the car rentals, so the cars didn't need to be connected. But by having the devices on the cars, for example, people can use unmanned leasing service at the rent-a-car stores. One more example is a service we already launched some years ago called Pitto-Go delivery. We deliver cars to customer designated pick-up places for those who live far from the rent-a-car stores, but live close to Times parking. Members can go to the nearest Times parking to pick up the car. This is an example of the services we can deliver. For the first time, rent-a-cars are equipped with those onboard devices.

When every car in the fleet is connected, we can offer a variety of services to our customers using a lot of systems so we would like to increase the number of cars with the devices going forward in rental cars as well. Ultimately, 100% of our vehicles will be all connected with the devices, that means the border between the car-sharing business and rent-a-car business will blur. The 2 businesses will merge. I explained this in previous meetings as well. Rent-a-car business and the car-sharing business compensate for each other.

Shared cars are parked near your home or your work while to rent a car, you have to go to the store. In which case, the distance matters. On the other hand, you can only use the make of the car that is parked near your home or work when you use the car sharing. In terms of rent-a-car, you might have to go some distance to rent a car, but you can choose your favorite make of a car at the store. So the 2 lines of business compensate for each other.

Also in terms of business hours, the car sharing is available 24/7, but to rent a car, traditionally, you had to go to the store when they are open. In that sense, by combining the car sharing and the rent-a-car business together, they will take advantage of the best of each other. That eventually will be beneficial for our customers in terms of convenience. So we would like actively to merge those 2.

Page 18 shows our car-sharing business. Promotion of use by Times Car PLUS corporate members. Since the second and the third year of launching this car-sharing business, the important point has been how we can increase the amount of weekday use. As I always say, that is the most important point for the profitability. The easiest way to increase the amount of weekday use is to acquire corporate members. So we have been continuing our effort to increase corporate members.

As shown on the left side of Page 18, in the second quarter, the ratio of corporate members is 39.2%. Compared to the first half of the last fiscal year, the ratio has increased by 0.9%. The ratio is steadily increasing.

The right side of the page shows the year-on-year comparison of the sales from weekday use. The increase of corporate members is 107.6%, 107.8%, 106.7% and 107.2% year-on-year. So we would like to focus on increasing the ratio of corporate members. That, of course, makes the amount of weekday use increase and as a result, the sales of weekdays will increase. We actually do not have a specific internal target, but as soon as possible, we would like to make the ratio of corporate members about half, 50% of the membership. So far, the progress is good.

In these 2 years or so, as the locations and number of cars for car sharing increase, our corporate sales are receiving positive responses from the market. 4 to 5 years ago, the number of locations and cars was not sufficient at all and the customers might have felt some concern such as if they could use the service for their business, but recently, for Tokaido Sanyo Shinkansen bullet trains, in front of every station, 100%, we have our service ready for users. For Tohoku and Hokuriku Shinkansen and all the Shinkansen lines, our coverage is 62.6%, still a little more than the half, but when you think about business use cases, using long-distance trains and using cars right after getting off the trains make the business trips very efficient. So we'd like to continue expanding this business to strengthen the environment in which corporate users can join the membership easily and use our service easily. As a result, the amount of weekday use will increase and the profitability will rise. That is the aim of our strong effort going forward.

Page 19 shows the Times Pay initiative to establish a network of destinations for drivers. What we do here is that for those stores, which can introduce Times Pay, we provide the set of 3 devices on this page, a credit card reader, a payment-dedicated tablet and a mobile printer. This is a set of credit card payment solution.

After shopping and eating at restaurants, customers can use their own credit cards for the payment. Times club members traditionally could save and use the points only when they use the car parking or rent-a-car and the car-sharing services. But in the future, by participating into our network this way, they can collect the points by just shopping and use them for another shopping. That should be the easiest example. The point is we really would like them to have this tablet that is shown in the middle. That is a very important point.

Now the point service is the only one we offer, but by creating applications going forward, they'll be able to use many different services through the applications on the tablet. As the number of member stores grow and the network expands, we can think about what kind of services we can offer and what kind of benefit users and member stores can enjoy.

It is an important point for us to enhance such services for both member stores and users. Because as we enhance the service level, what happens is that customers will say, "Let's park at Times if we go to the restaurant. There actually is a different parking place closer to the destination, but if you park at Times, you might get some additional service, so let's go to Times." The users might think this way for a long time since more than 20 years ago, we have been thinking about how to attract users to come to Times even if the parking place is far. This scheme might be an answer to that. By aiming at that going forward, we would like to strengthen Times Pay and acquire more member stores in the network.

Page 20 shows our new initiative for the future. We have already released this information. We have a joint demonstration project with Toyota Corporation. 60 Toyota C-HRs in Tokyo will be equipped with Toyota proprietary onboard devices, and they will be operated in our car-sharing network.

What we as well as car manufacturers want most is to use the data from the cars, data regarding the use of cars and operations. In order to collect such data, this time we received the offer from Toyota Corporation, and we also were hoping to do something jointly with them. So we decided to form an alliance for this project and made this announcement. Going forward, we wish to continue this kind of collaboration. Utilization and analysis of the data we can obtain from cars will be something we'll explore, both on our own and in some cases, in collaboration with car manufacturers. We would like to analyze various information so that we can provide services for our users to use the cars more comfortably. This experimental project will start this month in June and continue until the end of March next year.

Page 21 shows an example from our overseas business, especially as for the status quo regarding NCP, National Car Parks, and Secure Parking. First of all, our top priority is to strengthen governance and compliance structures. As I mentioned in the December meeting, because both companies were not publicly listed, when we thought about governance and the compliance of those 2 companies as our group companies, we had some concerns. So our first priority now is for them to have solid governance and compliance structures expected of public companies. We intend to thoroughly focus on the effort and now we are still working on it. In concrete, compliance with J-SOX is one, accounting practice is another, compliance as well. Those should be on par with the Japanese peers. That is what we are working on as the top priority.

Other than that, in terms of business, while this might be a minor thing, but in the pictures on Page 21 shows that we suggested the change of the signboard because it was hard to read before. This was a recommendation based on our experience. This is not as big as utilizing our know-how, but even for this kind of minor thing, we continue to give advice to them. So right now, we are making an effort to make their organization solid and at the same time, even on minor things, according to our successful experience in Japan, we are giving advice to those companies.

Page 22 showed something that was received with interest in other countries. In Japan, since we started this, you see many flap-type parking facilities like this, but you seldom see this outside of Japan. Since 2006, we introduced the flap-type facilities in Korea and Taiwan, so those countries have them, but other than that, in Sydney, Australia, New Zealand, Singapore, London, they don't have such facilities. In Malaysia, last month, we opened this flap-type parking facility. Going forward, we would like to bring this to Australia and to areas where there are Secure Parking, National Car Parks operations. We would like to actively introduce the flap-type facilities in the places where these kind of facilities are more efficient.

Now we are trying to introduce this, but as was in Japan, at first, even in Japan, this scheme did not take off immediately. The flap type was not something people were familiar with. At first, people didn't know what that was. There is a P sign, so this should be a parking area, but what is this bar to stop the car? Can we park here, was the response of some people even in Japan. The situation will probably be the same in Malaysia first. In the other countries too, I think the situation will be the same at first, but by having more parking facilities like this, gradually people will recognize such new type of parking spaces and then I think they'll start using them smoothly. So we would like to gradually increase the development of this flap-type parking facilities in other countries.

Now I just roughly went through the overview of the second quarter and mid- to long-term initiatives. Thank you very much.