Park24 Co Ltd

TSE:4666

Earnings Call Transcript 2022-Q2

[Koichi Nishikawa, executive]

This is Nishikawa. Thank you for your time today. I will now proceed to explain the financial results for the first half of the fiscal year ending October 31, 2022.

First of all, these are the consolidated results for the first half of FY 2022. Net sales were JPY 135.8 billion. Gross profit was JPY 29.6 billion. Operating profit was JPY 5.5 billion, and recurring profit was JPY 3.9 billion. In contrast, the bottom line was net loss of JPY 600 million, which means that we were able to secure profits up to recurring profit for the first time in 3 years, but net profit was still in the red in the second quarter.

There is a difference of JPY 4.5 billion between recurring profit and net profit. The breakdown of this difference is JPY 1.5 billion in extraordinary losses and JPY 3 billion in corporate tax, which is mainly taxation on domestic operations. Our overseas operations are still in the red, and we are taxed only on the profits of our domestic operations, and the losses of our overseas operations are added on top to make up the net loss of JPY 600 million. The extraordinary loss of JPY 1.5 billion is shown under losses related to lease contract in the financial statements. These are the figures for the first half.

Next page explains the background of the business performance and the external environment. The first quarter, November, December and January period, progressed well with profitable trend. However, in the second quarter, from late January to the end of March, the priority measures to prevent the spread of infection was enforced, and this had an impact on both the Parking business and Mobility business.

If the situation in the first quarter have continued in the second quarter, we would have seen a stronger outperformance of the first half. But since we saw some slowdown in the second quarter, we were unable to maintain the momentum of the first quarter and the results have worsened slightly in the second quarter.

Next page shows the net sales and profit by segment. In the first half of the fiscal year, net sales of Parking Business Japan were JPY 74.7 billion, JPY 35.5 billion for the Mobility business and JPY 25.6 billion for the Parking Business International.

The business profit for each segment was JPY 13.1 billion for Parking Business Japan, JPY 2.1 billion for Mobility business and business loss of JPY 2.6 billion for Parking Business International. I think you can see from the results that the Parking business was very strong. The background to the strong performance of the domestic Parking business is that the external environment has improved significantly compared to the first half of last year.

As I mentioned earlier, the second quarter was affected by the priority measures to prevent the spread of infection, but compared to the first half of the fiscal year ending October 31, 2021, compared to the previous year, the external environment was still favorable in terms of traffic volume. In terms of development, we have been extremely selective. In other words, we have limited development to properties that can be developed quickly and have high potential to contribute to revenue by the end of this fiscal year. In addition, there are efforts we have been continuing since the previous fiscal year and the year before. Since the impact of COVID-19 pandemic still remains, we negotiated rent reductions and exemptions and canceled unprofitable properties.

In short, we reduced costs in unprofitable areas or canceled contracts to make our Parking business operations leaner. In addition to the improvement of external environment, these factors contributed to the year-on-year increase and the outperformance against the plan. We were very selective in development of the sites. Under normal circumstances, we develop about 1,700 or 1,800 sites a year. However, since we carefully selected our development, the number of sites developed was very small. On the other hand, the number of cancellations was the same as usual.

In addition to cancellations by the landlords, we also canceled sites that are in the red in order to improve profitability. Compared to the normal situation, the number of cancellations is relatively high, resulting in a net decrease in both the number of sites and the number of spaces. Although the scale of our parking facilities has shrunk in this way, as I have mentioned earlier, the parking facilities themselves have become leaner, and the external environment has improved significantly.

In fact, even under these circumstances, the Parking business achieved record-high profits. So we feel that the Parking business has completely bottomed out, and we can expect the business to generate substantial revenues once the external environment returns to its pre-COVID state as the pandemic subsides. So that was the status of the Parking Business Japan.

Next, I would like to explain the Mobility business. The Mobility business posted net sales of JPY 35.5 billion and business profit of JPY 2.1 billion. In the same period previous year, net sales was JPY 31.6 billion, and business profit was JPY 1.2 billion. So we have achieved an improvement on year-on-year basis. However, they were still short of the plan. Net sales fell short by JPY 1.6 billion and business profit was JPY 1.8 trillion (sic) [ JPY 1.8 billion ] short of the target. In a nutshell, the reasons for the shortfall compared to the plan is that our estimates were a little high.

As is the case in the Parking business, we had high expectations that the external environment will calm down. And we were also focused on improving the profitability of each vehicle. We thought that if we continue such efforts, we can expect significant improvement in profitability in the first half of this fiscal year. However, there were some negative factors against renting cars and traveling in the first quarter and also in the second quarter as well, such as the priority measures to prevent the spread of infection being enforced.

People who own cars traveled and used our parking facilities, but I feel that there was a stronger hesitation among people to go through the trouble and rent a car to travel than for people who own cars to travel. I think the situation in the first half of the year reflects such sentiment. But still, although the pace is gradual, the recovery is continuing. Therefore, going forward, although it is a little slower than the Parking business, I believe the trend of recovery, including profitability, will continue.

Let me explain the grounds for my optimism. As you can see on Page 7, although the results fell short of the plan, the sales per vehicle and the unit price per vehicle are steadily increasing. So that did improve, but the initial plan expected even a greater improvement and they felt (sic) [ fell ] short of hitting the numbers as planned.

The usage fee sales per vehicle dedicated to Times CAR, which used to be called CAR share, was JPY 88,400 as of FY 2019, which is before pandemic. And now it's JPY 90,900 as of the first half of FY 2022. Individual number shows improvement, and we also see moderate improvement as a whole, but we resulted in missing the target because the plan was rather bullish and ambitious. We'll keep doing what we have done, which is continuously pursuing higher profitability and sales increase.

Then Parking Business International. The overall trend has been towards moderate recovery, but the pace is much slower compared to Parking Business Japan. As for overseas, such as U.K., lockdown and other restrictions are no longer imposed. But given the utilization of parking lots, the level of people's activities hasn't fully come back to the prepandemic level. It proves that there are still many cautious people, which we assume is the biggest factor behind the stagnated Parking business performance. Both net sales and business profit made significant improvement compared to the previous fiscal year, but it would take a little longer to turn positive as full year results.

Next is Page 9. It's about financial situation as of the end of first half. In April, we issued 16 million of new shares through an overseas offering and procured JPY 25 billion. As of the end of the previous fiscal year, October 2021, shareholders' equity ratio was 7.9%. After raising JPY 25 billion, the ratio achieved a recovery to mark 16%. Out of JPY 25 billion we procured, JPY 10 billion will be spent on digital, such as enhancement and improvement of system infrastructures, while remaining JPY 15 billion will be invested in vehicle purchase.

Page 10 and onward talks about initiatives we took in the first half of this fiscal year aimed at mid- to long-term growth. As a car sharing business, Times CAR should be more convenient for users. In other words, it should be more user-friendly. For example, a user can open and lock the car with app or an online membership is easy to sign up and all the services are at the users' fingertips. Such handy services will contribute to increase of users with a driver's license through offering an easy way to sign up and to use them.

As for another topic on Page 11, we started development of landing pads and charging stations for flying cars, which could be a prime example of initiatives for mid- and long-term growth. The announcement received a great response. We formed the business alliance with U.K.-based Skyports, Aioi Nissay Dowa Insurance and Kanematsu Corporation. We'll examine how to leverage Times parking as a parking area or landing pad for flying cars. A flying car is somewhat a drone bike aircraft. It will become widely used in the future. And to make that happen, we decided to participate in this initiative from an early stage when we still can explore the multiple facets of its possibility. We take this as a fun project of a sort from mid- and long-term perspective. Page 12 is the outlook for fiscal year 2022 based on the result of first half. Net sales is JPY 283 billion. Operating profit is JPY 13.5 billion. Recurring profit is JPY 8.5 billion, and net profit is JPY 2.5 billion, which remains almost the same as the ones announced at the beginning of this fiscal year.

Given the outperformed result in the first half, I wouldn't deny a chance of exceeding the plan in the second half as well, but we think it's difficult to make revisions at this point, while we can't confidently say pandemic is certainly diminishing despite recent rather stable situation. Therefore, our full year outlook hasn't changed since the start of this fiscal year.

Having said that, we are determined to maximize profitability of domestic business, since there is no state of emergency declared, no quasi-emergency measures imposed. We will also keep improving profitability of international business, and ultimately, we should achieve maximized profitability as full year result.

We have announced the policies at the start of the year, which are listed on Page 13 under Parking Business Japan, Mobility business and Parking Business International. Obviously, we'll continue to work on them in second half.

On top of them, we set Mobility business profitability improvement as a focus area in the second half, which should push up numbers to meet the initial targets. Therefore, we will make more efforts to improve profitability of Mobility business in the second half. That concludes my quick overview of financial result for the first half of FY 2022 and measures planned for the second half.

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