Park24 Co Ltd

TSE:4666

Earnings Call Transcript 2019-Q2

[Koichi Nishikawa, executive]

This is Nishikawa. Thank you so much for taking your precious time today to attend PARK24'S financial results briefing meeting for the second quarter of the fiscal year ended in October 2019. Now based on the presentation material, I would like to explain the performance of the second quarter. First, the consolidated results of the first half. Please turn to Page 3. Net sales was JPY 154.1 billion, 108.1% compared to the previous year. Recurring profit was JPY 9.5 billion, which was 106.6% of the previous year. The progress is mostly in line with the initial plan.

In the performance of the first half, as written in the bottom comments, we included the expense of JPY 600 million for moving into this new headquarter building. Our original plan was to include the expense in the second half, but we appropriated this JPY 600 million in the first half result. So in terms of cost, the result is slightly different from our original plan. Next, Page 4 shows profit by segment. Parking business in Japan was JPY 13.7 billion, 107.1% year-on-year. Mobility business was JPY 3 billion, which was 168.8% year-on-year. Parking business overseas was JPY 800 million, that is 58.9% year-on-year. Profit in this segment is down by a little bit more than 40% year-on-year. The total business profit was JPY 17.6 billion. Other than that, business development cost is JPY 600 million. Other cost total, including goodwill amortization and nonoperating expenses, was JPY 7.4 billion, and the consolidated recurring profit was JPY 9.5 billion. As for the breakdown of the business development cost of JPY 600 million, as in the comment at the bottom, R&D-related expenses for payment service, Times Pay, was JPY 430 million. And the parking reservation service, Times parking B, which we used to call B-Times, was JPY 150 million. That was the breakdown of R&D-related expenses of JPY 600 million. Page 5 is the business scale. Left side is the Parking business. As of the end of April, in Japan, we had 19,549 sites, which is the space for 736,836 vehicles. In overseas countries, we had 2,512 sites for 649,429 vehicles. In total, we had 22,061 sites, 1,040 additional sites compared to last year for 1,386,265 vehicles, 105,282 additional vehicles compared to last year. On the right is the Mobility business. First, rent-a-car. Number of rental sites was 384 year-on-year. The number declined by 23. Number of vehicles was 33,468. The change from the end of previous year was plus 3,864 vehicles. In car sharing business, we had 11,984 sites. That was plus 1,316 sites year-on-year. The number of vehicles was 25,010. That was plus 3,419 year-on-year. In total, the number of sites was 12,368, up 1,293 year-on-year. And the number of vehicles was 58,478, up 7,283 year-on-year. Page 6 shows the Parking business in Japan. Both sales and profit are written here. Net sales was JPY 80.6 billion, and the operating profit was JPY 13.7 billion. That is shown on the left side with the bar chart and the line. Both of them are increasing steadily. On the right side is the number of sites and spaces. These are steadily increasing too. In this first half, in the Parking business, the performance was pretty favorable during the 6 months.

Next, Page 7 shows the rent-a-car business. Net sales was JPY 21.9 billion, and the operating profit was minus JPY 160 million. The decline of the operating profit was due to the reasons written in the yellow box. First of all, we used to have more franchise stores, but they are mostly now directly managed. When the business is directly owned because of our fiscal year that ends in October and starts in November, when comparing the first half and second half, we have 3 additional working days in the second half. On top of that, busy seasons such as summer vacation time and golden week are all concentrated in the second half. So in comparison, results of the second half tend to be higher than those of the first half. By converting franchised stores to directly owned stores, there were some impact on the profit. Also, labor cost was impacted by additional hiring.

Work style reform is a recent initiative. And to enhance customer service at rental car stores, we have hired some more people that increased the labor cost. So due to those reasons, franchised to direct ownership and the labor cost increase, the operating profit was minus JPY 160 million year-on-year.

The right side of the page shows the net sales, cost and the operating profit per vehicle per month. The net sales is increasing steadily. So overall impression on the car rental business is steady, if not robust. However, due to the 2 reasons I described before, the profit slightly declined. Page 8 is our car sharing business. The left side is the net sales and operating profit. The net sales was JPY 16.3 billion, 125.3% year-on-year. Operating profit was JPY 3.1 billion, 183% year-on-year. Right side shows the number of stations for shared vehicles and the number of vehicles. In car sharing business, 30,000 vehicles as of the end of October 2020 is our plan. The progress is very good since we already reached 25,000 vehicles in the end of April. The utilization has been very good and both sales and operating profit exceeded our plan.

At the bottom of Page 8, you can see the year-on-year comparison of the monthly vehicle utilization. Overall utilization and weekday, holiday utilization by corporate and individual customers are written here. Weekday utilization by corporate customers is really increasing. That is one of the major factors that contributed to the increase of both sales and profit.

On the left side of Page 9 shows KPI per vehicles per month. Net sales was JPY 112,900, cost was JPY 91,500 and profit per vehicle was JPY 21,400. In car sharing business, since some years ago, we have had the target of JPY 20,000 per vehicle in profit for the foreseeable future. In this first half, we exceeded the target and reached the operating profit of JPY 21,400 per vehicle. This JPY 20,000 per vehicle was a target just for the foreseeable future. So of course, we would like to exert more efforts to further increase the profit per vehicle.

On the right is the number of membership. In the first half of fiscal year '19, in the end of April, we had 1,194,708 members, out of which 40% is corporate members. In this car sharing business, the biggest point for increase of sales and profit is how to increase utilization in weekdays. Since some years ago, we already reached somewhat a satisfactory level of utilization in weekend and holidays, but in order to increase total sales and profit, increasing weekday utilization is a very important point.

When there is an increase in number of individual members, weekday utilization increases, and also, it increases in weekends and national holidays, which is a higher risk of availability of cars when demand concentrates. So we would like to increase members who use our car share service during weekdays. That means, we would like to increase corporate members and that has been what I have kept saying since some years ago.

As on the right side of Page 9, as the yellow line shows, every year, the number of corporate members have stably been increasing. As of now, the number reached 40% of the total membership, which shows the achievement of our efforts. As a result, the operating profit per vehicle reached JPY 20,000 in the first half of the fiscal year that ends in October 2019. In this period, we have made such good progress in car sharing business. Page 10 might represent the biggest concern when you look at our business from outside. This is our Overseas Parking business. Net sales was JPY 33 billion, up 3.2% year-on-year. Gross profit was JPY 4.1 billion, which was 94.4% compared to last year. That's minus 5.6%. The operating loss is next. It was minus JPY 100 million in the first half of 2018 and now it is minus JPY 600 million. With JPY 1.4 billion of goodwill amortization, the business profit was JPY 800 million. That is 58.9% year-on-year, that is close to 50% decline. Right side of the page shows some comments in key factors in the increase of year-on-year net sales. National Car Parks is included. This business is in the U.K. Net sales from existing sites increased due to change in the fare and increase of managed sites. These are the biggest factors.

The core sites of Secure Parking are in Australia. In this business, we are also developing new sites. So number of managed sites increased. That contributed to the sales. Meanwhile, here are key factors in the year-on-year decrease of business profit. In the U.K., in one word, the cost increased. Gross profit slightly increased year-on-year. And as I have mentioned before in this kind of meeting many times, what I really wanted to do first was to strengthen governance structure. National Car Parks in the U.K. and Secure Parking in Australia were both private before. For them to join a group of public companies, they have to establish strong governance structure and be ready to meet J-SOX requirements.

As I have mentioned many times before, there is a lack of human resources and so on to establish such strong structures. Hiring staff increased SG&A and the cost increased accordingly. That is the biggest factor. For Secure Parking, both net sales and profit declined due to the decrease in number of facility management sites. In terms of facility management site, this is a public contract by the housing corporation in Singapore, and we were not awarded the contract in the rebidding this time. That affected the decline of facility management sites.

There is one more thing about the reasons behind the decline in sales and profit. In the first half of 2018, there is the parking lot-related equipment sales in Malaysia, which was one-off and is not recurring in 2019. That also is a factor for the decline in sales and profit. Moving to Page 11. The progress of strengthening governance, which is a challenge we have been facing from before, is summarized on this page. On the very top, the priority matters are listed. The first is development of management system followed by development of internal audit and internal control and system structure to support J-SOX. These are the 3 main challenges we face. National Car Parks, NCP, in the U.K. and Secure Parking in Australia, New Zealand, Singapore and Malaysia. The progress of each is listed on here. People may point out the progress is slow. However, our top priority is to thoroughly establish a firm structure rather than making haste to go after speed. That is our focus. In that perspective, we are steadily making progress. So that would be the progress of this area.

Next, I would like to explain the progress of our mid- and long-term plan. Our mission is to develop business towards the creation of sustainable corporate value. People, cars, parking and communities are the 4 networks we would like to expand and seamlessly connect. Our goal is to connect all of these together and make them seamless.

Each of the results and initiatives for the second half for people, cars, communities and parking, Page 14. In the people network, we have the Times Club membership business. The number of members achieved 7,597,919, which is 734,000-plus increase year-on-year same period. Times business card business is for corporates. It is roughly JPY 122,000 more year-on-year same period.

Under cars network is the Times Car servicing business. We have cherrypicked the car rental and car sharing business to provide a new integrated service. This new service started off from January 30 in 2 stores with 28 vehicles. We hope to increase the total number of stores and cars.

Community network offers Times Pay, an acquiring service. The number of membership stores is 12,866, an increase of 9,442 year-on-year same period. The tailwind is working in favor of us, therefore, we would like to continue to accelerate the speed in expanding the number of membership stores.

The Times Tower business referred to here would be the parking site payment service that we have internally developed. At the moment, 202 units have been installed. The existing Times parking had finished installation of credit card payment service 100% from quite a while ago. The newly developed Times Tower not only accepts credit cards, but e-money as well. It accepts pretty much any cashless payments in the market today. This Times Tower will be installed in all of the new Times parking lots. For the existing parking lots, it will be installed in the iconic parking lots of each area. The landmark parking lots will be replaced. However, for any other parking lots, replacement will be made when each of the payment devices reaches its maturity of the 5-year lease. Hence, in 5 years, all parking lots will have Times Tower installed.

In the end, all parking lots can accept credit card or e-money payment. At the moment, the cashless ratio is a little over 30%. We hope to increase the Times Tower installation ratio to increase the overall cashless payment ratio. The right side of Page 14 will be our second half initiatives. For people network, our plan is to increase the number of membership. Times Club member target is to expand to 8 million. And for corporates, the target is to reach 984,000 Times business card members.

Under cars network, by the end of this term, in other words, by the end of this October, our target is to achieve 36,500 Times cars. And we hope to expand our business with our car rental and car share cherrypicked service.

As we pursue this Times Car business, onboard equipment needs to be installed to the rental car. Car share vehicles already have this equipment installed. However, rental cars do not have the equipment installed and manual labor was required at the car rental stores to install the equipment. Going forward, we will install the onboard equipment to the cars at the car rental stores to change them to Times Car, so that it can be used for both sharing and renting. By the end of October, 10,000 cars in the car rental offices will have the onboard equipment installed to enable a system to station 36,005 (sic) [ 36,500 ] Times cars.

Under our community initiative, we will ride the wave of the government's current policy of promoting cashless payment to increase Times Pay membership stores. For Parking, we hope to increase the number of Times Tower installations to roughly 1,000 by the end of October this year. Next is Page 15. The slide shows development of business towards the creation of sustainable corporate value. Development of new CI and BI is an initiative to change the company logo and the brand's logo. This change was announced last October. The official change to the new logo was initiated on May 1. In line with the establishment of the new CI and BI, the new group philosophy was stated as you can see on the slide. The philosophy is to provide comfort and convenience that meet the needs of the era and be preemptive. On the bottom left of Page 15 shows relocation of head office. After the Golden Week from May 7, the operation in the new office started. As written on this slide, we have returned to Nishigotanda, where the business originally was founded. The prior Chairman and Founder of the business started this business very close to our new office. It is 200 meters in direct distance from where we are. Close by our new office, there is a Nissei Building, and [indiscernible] is on the first floor of this building. Before this building was built, the former Chairman's house was there. He was born in this house. And Nishikawa Shokai was founded on the second floor of this house in an 8.2 square-meter room study, a desk with a black phone. That would be the origin of Nishikawa Shokai. The office relocation brought the business back to where it started off. As a result of various luck and fate, we were able to return. I entered this company in [indiscernible] 5 in 1993. And when I reflect the 26 years from 1993 to 2019, the time when this company had the most powerful momentum was when I entered the company in 1993, slightly before the office was relocated to Yurakucho. When I entered the company in 1993, there were only 200 Times parking across Japan. The Times24 salespeople and the entire company was committed to expand this new parking site nationwide. Everyone was highly motivated in new creation and expansion.

At that time, many people outside of the company said that our business was able to operate only because of the timing of bubble burst and bad debt increasing. We argued that, that was not true. In reality, none of the parking sites we were borrowing had bad debts. We knew that there was strong demand for parking sites, and we sensed it as well. We had strong passion and the goal at that time to go public and to become listed in the first subscription in the future. Was -- why we were able to have such momentum? It's that mindset and passion that I wanted to recall.

Nowadays, whenever I am given an opportunity to speak, including internal communication, I talk about the history of PARK24. We were able to grow because we were ahead of the curve and doing things others weren't doing with significant speed so that when other players and competition entered into the space, we would have a certain level of advantage. We maintained this advantage to continue to grow. This was our traditional way of winning. This was the case for Times parking.

For car sharing, technically speaking, there were other players. However, since we executed car sharing with significant speed in the starting of the business, we stand in the current position. These are the efforts that led us to growth. I guess you can call it our formula of success. This is how we grew. And therefore, as we break-in our new office, we need to exercise our wisdom to create new service. This is where we would plan to set our efforts. The working space in our new office is designed to create an environment where people can think and concentrate. I hope the relocation from Yurakucho to Nishigotanda here will create an environment where new services generate more and more. On the top right of Page 15 shows establishment of the Appointment and Compensation Committee. This was decided in yesterday's Board of Directors' meeting. There are 3 purposes as you can see on the slide: to further improve the Corporate Governance system; to appropriately secure opportunities for outside directors to involve and advise appointments of directors and compensation; to improve fairness objectively and for transparency of the Board of Directors' decision process. These would be the purpose. The member of this Appointment and Compensation Committee are myself, as one resident director of the Board, and 3 independent outside directors. The Chairman of the Committee will be one of the independent outside director out of the 3. The date of establishment is planned to be June 1, 2019.

Last, but not least, is the full year plan for fiscal year 2019 ending in October. As already announced yesterday, our initial plan remains to be the same. Net sales is JPY 320 billion and recurring profit is JPY 23 billion. Our first half results slightly exceeded our plan. However, the cap is within our expectation. Therefore, there are no plans of revision to the initial full year plan at the moment. Our current plan is to land as initially planned and announced in the beginning of the term. The plan remains to be the same as announced in the beginning of the term in achieving the highest net sales and profit. That would be the key point.

And that is all for the fiscal year 2019 second quarter briefing in the November to October full year plan. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]