TKP Corp

TSE:3479

Earnings Call Analysis

Earnings Call Transcript 2025-Q1

[Unknown Attendee]

Welcome to the first quarter financial results announcement for the fiscal year ending in February for 2025 for TKP. Now we would like to introduce the participants from our company. Towards your left, we have our President and CEO, Takateru Kawano; and also our CFO, Koji Nakamura.

For today, based on the announcement that we made related to the financial results and business strategies, we will make a presentation, and then we will take time for Q&A at the end. And we plan to end at 5 p.m. today.

Now, I would like to have Nakamura present.

[中村 幸司, executive]

Good afternoon, ladies and gentlemen. My name is Nakamura. I am the CFO. And for the first quarter of this fiscal year, I would like to start presenting on the financial results. And as always, I would like to briefly explain about the numbers. And then with regards to the strategies going forward, our CEO, Kawano will be presenting. That will be the flow.

And so first of all, for the Q1 financial results, I would like to give you a summary. I have two highlights. One is the Q1 financials, and we have the business topics.

And after COVID has settled down and starting from last fiscal year, gradually, the hotels as well as the Rental Space businesses are doing well and consolidated results were higher than what we had before COVID. And so basically, we have overcome COVID completely, and we're at a point to move on to the next step. That is the first point.

And the second point is that we have been investing in labor cost strategically, and we are continuing with the recruitment, and that is continuing since last fiscal year. And [ Lilycolor ], we have booked the gains from the equity method investment. And so we were able to mark a record high in ordinary profit. That is the overview of the Q1 financials.

And in terms of the business topics, this is Q2 onwards, so Kawano will be presenting on the details. But first of all, for the leisure and lodging business, in order to expand further, we are accelerating the openings of new hotels. And the second bullet point is related to the investments. [ Lilycolor ] and Novarese, we have invested in those 2 companies. And including our capital, we are going to expand the business domains. And those are the topics between Q1 to Q2.

And so I would like to talk about the numbers for the consolidated financials for the first quarter. Please refer to Page 4 of the handout. With regards to the consolidated P&L for the first quarter of this fiscal year, the chart that's highlighted in red is the number for the first quarter.

Our sales were JPY 10.562 billion, and OP was JPY 1.69 billion, and operating profit was JPY 1.762 billion. And after tax, it was JPY 1.87 billion. And in terms of sales, we were able to mark higher than COVID, and it was JPY 10.4 billion before COVID. And so the result for this quarter was higher than that. And compared to the same time last year, we grew by 7.1%. So the sales are solidly growing.

And in terms of gross margin, it was JPY 4.3 billion, and our gross profit margin was 41.3%. And compared to the previous year, the gross margin ratio is about the same. And in the previous year, we were active in opening new outlets, and those sites are now in operation. Those were the drivers. And so the sales growth and the profit growth is going to be more synchronized. And so GP margin is at a very good level, which is similar to last year.

And related to SG&A, last year was JPY 2 billion, and this year was JPY 2.6 billion, so it's an increase of JPY 670 million. And our SG&A rate was worsened by [ 3.1 ] points.

And as we explained previously, strategically, we are increasing the headcount, and we are continuing with that efforts. Especially for the openings, we were able to pull forward the plan and we were able to open many locations in the previous year, but it's very difficult to hire the people and catch up. And so when you compare to last year, we're gradually increasing the headcount. And so that is adding on.

And although restaurants are not catching up, the sales are already at JPY 10.5 billion. And on top of this, we're expecting sales to grow in Q3 and Q4. And once that happens, the SG&A rate should get better.

And system cost. We're still seeing some irregular spending on system costs year-on-year. When you compare against without the system, so the system cost is higher, about JPY 60 million. But last quarter, compared to Q4, the system cost is lower by about JPY 30 million. And so the onetime cost is starting to settle down and will be another factor in improving the OP margin, going forward.

Next is related to the consolidated sales by service. And as you can see, we are seeing very good growth. And the number that you see on the left is before COVID. And this quarter is higher than the pre-COVID level. So the sales are solidly growing, and the orders are solidly growing, and you can see that from the diagram. And in Q2 onwards, we are seeing solid growth as well. So we want to continue with this level of growth, going forward.

And that is a consolidated balance sheet. And as you see here, we're seeing a high equity ratio and we're able to maintain that level. Right now, it's 52.3% equity ratio, and we have JPY 30 billion in interest-bearing debt. Then we have cash, as you see here, in June in Q2, we will continue with the active opening and investment. And how we effectively utilize the cash to improve the corporate value is something that we want to actively drive.

And next, I would like to go into the details around the openings and closings as well as the business status.

First of all, in terms of opening and closing, in the middle left, you see the status of the first-quarter openings and closings. And as you see, there's a major decline compared to last year. We have a new 3 openings and 3 closings. And so compared to last period, a number of facilities or the size in tsubo is much lower.

And in terms of the lead, as you can see, last period, we were very active in opening facilities, like Tokyo Station, Akihabara, Shinagawa and also Umeda in Osaka, Tianjin, in Fukuoka. We were opening large facilities that are convenient and hotel and banquets. In Makuhari, we opened a large facility.

And so we have pulled forward the plan, and we achieved them in the last fiscal year. So for this fiscal year, it's more about increasing the occupancy of those facilities. And if there's any good locations or facilities, we will open them. That is the thinking.

And so in that context, Q1, we opened 3 facilities, and that's where we spend. But it doesn't mean that we won't open facilities. But as I mentioned earlier, if we find any good facilities, we will be active in opening them, and we will continue with that effort.

And, as a result of opening and closing those facilities, we have this many facilities, depending on the grade, we have 232 facilities, and 140,000 tsubo plus facilities are being operated. So we will continue increasing the facilities and be efficient on the operation.

As for the KPI, the revenue per tsubo in quarter 1 JPY 39,079. Looking at the pre-COVID numbers, quarter 1 and the -- it was 93%. Quarter 1 was JPY 41,831. But the quarter 2 or quarter 3 at JPY 36,000 or JPY 38,000, it's higher than that. So those are already overcome and that we are trying to stably grow these numbers, going forward. We haven't fully reflected the food and beverage recovery, but still, we are seeing this number. So that means that we are growing the unit price steadily.

Next is the revenue by the usage and applications. Right-hand side is the quarter 1 this year. And as you can see here, the training sales mix is growing rapidly. After the COVID and the now as in post-COVID, so the in-person, face-to-face physical training is now increasing and some customers and the companies believe in the importance of the in-person gathering.

And that's why we are seeing this percentage increase. This is the positive move for us. For those customers, we want to go deeper into those customers' demand and the -- horizontally expand.

And lastly, the other measures and initiatives. This is about the quarter 2, but the -- we have concluded the social loan agreement. So let me briefly explain about this purpose.

We have explained this before the [ Park-PFI ] Shoningahama Park in Beppu City, Oita, we have been involved in this investment. And the regional bank is also engaged in the social loan agreement, and this was concluded on the 28th of June this year. This is JPY 1.35 billion loan and Shoningahama Park, this project will spend this amount. And from the third-party organizations, they have -- gave us the [ accreditation ].

This is the compressive framework. So using this framework, we want to address the other regions, regional revitalization initiatives. So the social loan is the first step to do that.

So that was the brief quarter 1 numbers briefing. So now we want to move on to the business strategy update. So Kawano will talk about the future investment as well as the openings and the closings.

[Takateru Kawano, executive]

First, I'd like to talk about the progress on the opening leisure and lodging and the training lodging businesses. This is the second pillar of our business. We are enhancing the opening. This year, July and August, as you can see on the slide, LecTore, Atami Momoyama SMART and APA Hotel, [ Kyoto Gojo Omiya, Obihiro Ekimae, Hakodate Ekimae ], 4 facilities are expected to open.

On the next fiscal year and beyond, the -- based on the officially announced one Beppu, Shoningahama Park Hotel and the TKP Cottage Hotel Hanyu and 2 facilities, APA Hotel Oita, 1 facility, those 3 are expected.

The target of the midterm plan is the 10 lodging facility openings. Towards that target, we already have the 7 openings decided and also existing LecTore [ Hakone Gora ] renewal and extension and LecTore Yugawara. They are in the construction for the renovation now. And not just for the training purposes, but we would like to serve the inbound tourists and also the inbound MICE visitors. So we will have the renovation to grow the revenue and the profit further.

And also, the hotel and lodging, there are several projects, potential projects under consideration. So when the timing is right, we will make an announcement.

Directly operated hotels and the facilities we have already decided is the 27 and 14 [ APA ] hotel, 14 sites and the 7 site for LecTore and the other 6 sites. So these include the ones that are planned to open in the future. But if we include the ones we are considering, then it's going to be more than 30 facilities. So our group's second pillar, the lodging service business, we want to expand this more.

And next is the policy investment and the business investment. As you can see here, from the February this year to date, Apamanshop, Lilycolor, Novarese, we have invested in them. And the ESCRIT and [ SHIKIGAKU ] doors are the existing investment we have.

Close to the last 6 months or so, we have been announcing the series of the business alliance. Our M&A is not the one-off our company and the company we invest in, we try to complement and combine the strengths and the weakness to generate the new business domain. In the future, we are also thinking about the investing in many different business areas, and we want to generate more revenue and profit opportunities.

And this is the capital alliance agreement with Lilycolor. That's [ overview ], it's here. And the Lilycolor, we have the acquired 53.01% of the shares outstanding. And the -- from the September 1, our second half [ where ] they will be the subsidiary of the TKP, and we would like to consolidate them.

And based on the capital alliance, we have the Business Alliance Promotion Committee. And the subcommittee is thinking about how we can collaborate together. And also, the Apaman and ESCRIT, we are investing already, and we will be starting some synergy-related discussions.

And also, the Novarese capital alliance contract. Novarese, we have acquired 33% of their shares outstanding. And starting from the September 1, we are going to incorporate them as a consolidated equity method company and the Apaman, ESCRIT [ color ]. And together, we want to consider the potential synergies and also the collaboration with SHIKIGAKU start-up investment corporative -- limited cooperatives.

We have invested in the 5 companies and the JPY 700 million investment, and those are the 5 companies we have invested on this side. So TKP have the 140,000 tsubo and 1.3 million customers. So leveraging on those, we want to support the start-up companies.

And the next is the revision of 2025 February business forecast. From the second half, Lilycolor will be the consolidated subsidiary on our P&L and the profit and the revenue is going to grow dramatically. So that's why we want to make a revision of the forecast in new plan.

JPY 45 billion was original revenue, and that will be JPY 62 billion and the OP JPY 7.35 billion will be JPY 8.2 billion. And the ordinary profit of JPY 7.5 billion, that will be over JPY 8 billion. And the -- also the net income [ JPY 5.1 billion ] to become the [ JPY 5.5 billion ]. So we will have the record-high numbers.

And again, -- as you see here for both Lilycolor and Novarese, we will continue driving the capital alliance, so that TKP in the affiliate companies in the subsidiaries like Lilycolor, we will help them to increase their profit and sales and we will continue preserving with the synergy with TKP, so that the consolidated sales and profit will go up. And I will make sure that I take the lead and drive this forward.

The announcement today based on this revision of the forecast for our TKP's Rental Space and Lilycolor. In addition to the Rental Space, when we build APA Hotel, we changed hospitals into APA Hotel. And Lilycolor has been strong in the renovations, I mean the interiors or the wallpapers or the ceiling. They have very strong capabilities in those interiors.

And in the past, we used to use [ Otsuka ] to utilize the space more and focus more on interiors. But this time, through investing in Lilycolor, the hardware and the spaces when they become idle, how we convert them and change the purpose and/or renovate them so that we can challenge a new opportunity.

In ESCRIT and Novarese, has experience in changing [ Rental ] Space or holes. And they're expecting that Lilycolor can demonstrate this capability. I mean, of course, as TKP, we have the Rental Space in the core and we have a peripheral business like leisure and lodging or entertainment business, production business. So we're expanding the domain.

And as an extension, we have things like SHIKIGAKU to offer training programs. And for the owners, we have Lilycolor. And in terms of the effective usage of space, we have [ Lilycolor], and we can convert the -- use their capability to convert them into higher class.

And so not just TKP stand-alone margin, but we are thinking of capturing the margin of those independent companies together. And so we will now start by building a tree to a forest and gradually expand the business domain, so that TKP's sales exceeded JPY 100 billion in sales -- JPY 10 [ billion ] in sales -- JPY 10 billion in OP -- [ exceed ] JPY 10 billion in OP quickly. Thank you.

[Unknown Attendee]

Now we would like to move on to the Q&A session. [Operator Instructions]

[田澤 淳一, analyst]

I'm from SMBC Nikko. My name is Tazawa. So I have three questions. First question is related to Page 10. The ASP for the Rental Space has grown a lot, and it's 93%. And food and beverage, I think, is growing, too. But 2Q onwards, of course, there is seasonality. And so Q2 tends to be lower than Q1, based on the past trend. But -- for example, in Q1, it was 39,000. And so that's 93% compared to before COVID.

But when you compare to Q2, Q3, Q4 before COVID, based on the current orders, are you close to 100%, if you could comment on the current trend, including the orders?

[中村 幸司, executive]

Well, if you look at the chart, it's gone up to 39,000, and so we're getting very close to before COVID level. But the number of rooms, the size has declined. So before COVID, we were expanding space and we were trying to increase the sales and drive profit, that was our style. But we are now suppressing that, the space instead of rapidly growing the space.

I mean, last year, we grew by like 15,000 tsubo suddenly. And because of that, cost went up. And along with that, we had more catering and reception. And in order to prepare for that, we had to invest in advance and we had to invest in systems.

But from Q2 onwards into Q3 and Q4, the opening -- new openings is going to be suppressed. Well, ASP per tsubo is around 39,000, and we want to try and increase that more per annum. Profit-base margin is going to be higher, I think. And the cost that we used to spend before, will be used for M&A or renovation, so that the peripheral margin can be more solidified. That is all.

[田澤 淳一, analyst]

Thank you. In terms of the cost, in the first quarter, there has been ongoing the initial investment from last year. On the OP margin basis, it decreased. But the Q2 and onward, the SG&A increased to JPY 2.67 billion. And I wonder if it's going to increase more.

And including that, in Q2 and onward, there will be more sales, including the food and beverage. So Q2 and beyond, is it going to be more increase in the operating profit? And related to that, you made a revision this time in the forecast, original TKP number, have you changed the [ doors ] of TKP [ lone ] numbers?

[Takateru Kawano, executive]

As for the forecast, SG&A seems increasing. We welcome many newcomers and the -- also the mid-carrier employees. So the employee cost increased dramatically, especially April and May. Well, because of the talent shortage, we are trying to recruit the people nationwide. So we preemptively try to do that.

And also, we are trying to shift to the in-sourcing of the food and beverage. It's harder than we expected. For example, the cost of the food and material going up and the -- of course, that's a pass-through onto the customer price. So the -- we are facing the shortage of the kitchen space.

So currently, 50% is in-house production. But the April and May, well, the May have the more revenue of the food and beverage compared to the April, and the June is bigger than the May. And that, we are not catching up.

And also the outsourcing vendors, well, that's the factor for our profitability to deteriorate. So we need to quickly shift more towards the in-sourcing to reduce the cost and the SG&A. Reducing the SG&A and the cost is very important. And also the increase in the profitability, that is very important.

And as for the revision of the forecast, the upward revision -- based on our initial announcement of the forecast, the Lilycolor's projection and the numbers are reflected in addition to the original numbers. So this is about this fiscal year. Therefore, we haven't really changed the TKP portion.

[田澤 淳一, analyst]

Just related to the answer, what is your outlook for in-sourcing, going forward? Just related to that comment, what is your outlook on the in-sourcing? I mean last year, it was like 50% and 60%, and you said you want to raise that. But you're still struggling, I think, is what you said. But what are the initiatives to accelerate this? If there's any views that you could share?

[Takateru Kawano, executive]

Well, the major location in Tokyo. In Tokyo, in [ Azure Takeshiba ], we're building a facility there, but the kitchen utilization is close to [ 122% ]. And during peak time, we are not able to cook anything. And in order to support this in [ Chiba ] and Makuhari, our [ banquet ] kitchen is used.

But it's very far. When it's busy, it takes about 90 minutes to bring the food into Tokyo. And as a second kitchen within Tokyo, especially in Minato-ku -- Minato [ ward ], we are looking for a place. And also possibly in [ other ward ], we're doing some investigation. And if there's a bid, we participate in those bids. So I hope you would wait a little bit more.

And in Osaka, the first kitchen is already full, and we have found the second kitchen already. And so Osaka [ order ] capacity per day is now 2.5x or 3x higher, starting from this month. So I think we're able to cover the shortage. But Tokyo, Nagoya, Osaka, the largest, especially Tokyo is the largest. And the first priority is to expand the kitchen in Tokyo.

[Unknown Attendee]

Anyone else? The person sitting in the third row from the front.

[オザワ, analyst]

This is Ozawa from SBI Securities. I have two questions. The first question is the lodging and the hotel, where the revenue is exceeding the pre-COVID and it's very good. What is the profit situation? Existing facilities, maybe the price is increasing, so the profit may be increasing, but also the 7 accommodation lodging services, can you talk about the current profit and also the more details on the breakdown? That's my first question.

[Takateru Kawano, executive]

Thank you very much for the question. So lodging service hotel profit, this is not disclosed, but the ADR continue to go up. So the -- it is also increasing. So we see the upward trend of the profit. We opened the facilities, and the size of the revenue is increasing. And in the hotel business -- lodging business, we are hitting the record high.

[オザワ, analyst]

Oita was decided before. But recently, July and the August 4 facilities, so you rebrand the existing one and rebranding, and it have some investments. So it's probably not so big investment, I guess, because this is rebranding or the changing the existing ones. Is that correct to understand?

[Takateru Kawano, executive]

Well, yes, that's correct. But the -- in case of our hotels, it's a high utilization. And the high utilization -- so the from the initial year, the PL is quite good. So the -- we can recover very quickly. So it's similar to the existing P&L.

[オザワ, analyst]

Second question is on Page 8, you explained about openings. And in midterm planned, the original target was about 10,000 tsubo per year. And previous year, you were pulling that target forward. And like explained today, Tokyo or Shinagawa, those large facilities have very strong demand. And you said you opened a lot up.

But according to today's tone, you want to utilize what you have already and think you're more selective. It looks like you're lowering your tone. But of course, you achieved 13,000 already. So do you need to fill them in? So I'd just like to get some more color around if there is a change in thinking.

[Takateru Kawano, executive]

We're just expanding the space, and using them as a meeting room is something that we used to do, and we're giving more added value. And we weren't able to expand during COVID, and so we wanted to catch up. So that's why we expanded quickly by 15,000 tsubo. And this fiscal year as a producing event, we have large events being operated or -- where I want to use the TKP space to produce the event. But we want bigger space. We want events whole, where we want a very nice space.

And as a result, we came with the conclusion of investing in Novarese, I mean, in some historical buildings that can build banquet space. And different to the bridal, so it doesn't have to have a luxurious interiors, it has very good synergy. And they can be used by inbound MICE. And also, we can provide a buffet-style restaurant. And so there is strong synergies.

So instead of us forcing ourselves to build the large hotels, we can use the space during the weekends while the space is used as bridal on the weekdays. And [ ESCRIT ] is a different domain. [ ESCRIT ] has a construction company in their group, and they build them internally, and we're asking them to build Shoningahama project.

And for Novarese, what they in-source is wedding gifts and other peripheral goods, and they produce them internally. And ESCRIT and Novarese, if you combine them together, maybe they can become a very high-margin business. So in that context as TKP, we have no intention of forcing ourselves to open new facilities, and we want to effectively utilize what we already have, and we want to increase the ASP.

And for the customers of TKP, we could use other facilities for [ training ] or we can renovate up a hotel so that it can be used for training. But -- moreover, we have very strong inbound demand. And so we want to capture the demand from inbound, supported by the weaker yen. I think that's more important. I mean there's a limited resource of developing the real estate. And having a hotel and accommodation that can capture the quickly growing inbound demand is the first.

And for [ Hakodate ] and Obihiro, other than Sapporo, we expect the demand to grow in Hokkaido. And so APA Hotel, we will purchase the facilities from them so that we can directly operate those facilities. And we have license to do tourism, and we can offer tourism as well as trading.

And mainly around accommodation, we want to deploy business for the tourists. I mean, APA Hotel is mainly capturing the business customers. But in our case, we will look at the inbound tourists or the MICE customers. We will build facilities to cater those customers, and that's how we want to separate the demand.

[中村 幸司, executive]

Even if you don't achieve the 10,000 tsubo this year, there's no concerns. And also the Novarese. Rather than the rent in Tokyo, Shinagawa, the large scale, the debt -- investment efficiency is high. Well, Novarese has already been investing, so we can use it from today. So it's a low risk. And also, we should compete against the nearby branded hotel and the [ Horain Capital Hotel ] banquet or the same hotel with stars, so we can capture the new customers. Thank you very much.

[Unknown Attendee]

Anyone else have any questions? Person from the second row from the front.

[Toshiyuki Anegawa, analyst]

From Morgan Stanley, my name is Anegawa. I have two questions. First question is that with regards to the upward revision, I'd like to understand the breakdown. While you might have talked about this, but on an operating profit level, it's JPY [ 815 ] million. What's the breakdown? How much comes from [indiscernible]?

And ordinary profit level, it's JPY 800 million. But Novarese is equity method. And so it's from the ordinary profit level, is that the right understanding? Well, the OP and ordinary profit, I'd like to understand the breakdown of the upward revision.

And the second question is...

[中村 幸司, executive]

I would answer the first question first. So with regards to the upward revision, Lilycolor, their second half, the 6 months will be included in our consolidated P&L. That is our schedule now. And they are a listed company, too. So they are disclosing their guidance.

And the second-half portion will be taken into our financials in principle. And of course, there could be some elimination on a consolidation. And so we have that adjustment. But in principle, the performance guidance that they have and the second half of that, that will be consolidated.

So simply, so in the guidance that we disclosed, we'll add Lilycolor's guidance, and there will be some adjustments made on top of that. That is how it works.

[Toshiyuki Anegawa, analyst]

This is the equity method. So it's the -- at the ordinary profit level?

[中村 幸司, executive]

Yes, that's right.

[Toshiyuki Anegawa, analyst]

And the others, there's no others. Is this correct to understand?

[中村 幸司, executive]

Yes. Let me just touch on the details. TKP's performance forecast numbers, the profit is unchanged, but we lowered the revenue a little bit because as Kawano mentioned earlier, the opening of the facility, we don't really force ourselves to do that. So we are controlling them this fiscal year.

Therefore, revenue increase is a little bit suppressed, but the profit doesn't change. No change at the profit level, but the -- as we try to achieve the [ JPY 620 million ] or so, we are doing that.

[Toshiyuki Anegawa, analyst]

Second question is the Lilycolor and Novarese. You incorporated -- partially incorporated and consolidated. And the EPS and ROE, you can expect the contribution to doors to a certain extent. And the future growth and the profit volatility, if you think about those for the future, equity method affiliate and the subsidiaries, we can really follow the details of their performance.

Compared to your company's performance, the volatility and the growth, how do you evaluate [ doors ] and look at this? That's my second question.

[中村 幸司, executive]

This forecast numbers, they disclosed the numbers and the stand-alone nonconsolidated numbers, those will be incorporated as is. So in that sense, it's conservative. As Kawano explained earlier, as our strategy earlier, the corporate strategy, strength and the weakness of each company should be combined and the leverage strings to grow, that's going to be the future forecast. And that part is not included as a number. So this performance forecast is rather conservative.

[Takateru Kawano, executive]

Just to add on to that. Well, Lilycolor is the one that was included into the consolidation. And finally, we were able to hold the Capital Alliance meeting and are deciding on the [ directors ], and we're trying to open the extraordinary AGM.

And the existing Lilycolor's profit, first of all, needs to be understood thoroughly. And from our perspective, it's a company that's been founded 125 years ago also. Also how can we vertically integrate them more? Well, their sales are growing. But for margin, I think I believe it can be higher and so how we move more into the upstream business. And for the downstream, rather than just doing wholesale, maybe we can consider doing some direct sales, and we can take on that challenge.

So based on that right now, we are concentrating on Lilycolor. We want to focus the resources on Lilycolor first. And Apamanshop that we're investing in and ESCRIT or Novarese that we invest in by [ 10 years ] to Lilycolor and consider what they can do. I mean, for Apaman, they do real estate management and they have a lot of real estate owners. And during the renovation for those apartments, maybe we can work together, and we started the discussion.

And because of that, we have those initiatives. Once they start to bear the fruit, the revenue or the margin or the consolidated sales could go up even more. And TKP is of course, the core business, and we have the [ progressive ] businesses. And along with the capital alliance as the total group, we want to grow both sales and profit.

And until now, we were just trying to expand the business and expand the Rental Space. But in addition to that, we have the hotels and we have new sales coming from inbound. And also, we can expect additional profit from the companies that we acquired. I mean, we're doing everything we can to grow the sales and profit. I mean, we want to spend more resource.

And we sold off Regus and received JPY 38 [ billion ] worth of [ budget ], and we have opportunities to effectively utilize that money. And so we want to invest that in those business and take on a challenge to develop a synergy, and we want to focus more.

And we're finally able to do that from February this year. And it's only 5 months -- or sorry, 4 months since we started because we're in July, it's just moved into the fifth month, and it's less than a year, and so we want to be more aggressive in driving the M&A strategy and investment strategy.

And in that context, you see the potential candidates, company A, B and C and include how we enhance the existing business. We will all take consider all those possibilities.

[Unknown Attendee]

Anyone else have any other questions? The person sitting in front.

[Unknown Analyst]

This is [ Sakuda ] from Toyo Keizai. I have three questions. The first question is that hotel lodging business is becoming the pillar. And you mentioned you want to expand that and including the inbound opportunities, President Kawano mentioned about that.

So the opening hotel opening and the expansion -- extension strategy, Hakone and Gora, these are the resort area. You are doing the conversion to incorporate the inbound demand. And on the other hand, [ Obihiro ] Ekimae and Hokkaido properties, those are regional cities properties. And opening facility, opening strategy, can you share the assumption as of today?

And also, you mentioned about the expansion. This year, you are planning to open this much. And also, what about the mid- to long-term strategy? To what extent do you want to expand, based on the current view you have?

And perhaps that it requires some investment or capital and you have this Regus capital, you can use that. And in Shoningahama, you can use a social loan and the -- your own capital and the loans. Depending on the format of the business and the location that our financial strategy is different. So please elaborate more on that.

[中村 幸司, executive]

Hotel and lodging accommodation business, the yen is depreciating very much, and we want to focus on the inbound. [ Toto ] and Tokyo, there are so many inbound visitors. But the next year and the year after next year, I believe that the tourist people will go to the regional cities directly, especially the core cities that are unknown to the foreign people, there is a big opportunity. And Hokkaido, it's concentrated in the Sapporo. But the Sapporo is a bit behind, and it's concentrated in the [ Niseko ] now.

And then the Obihiro, Asahikawa, Hakodate will probably [ hope, follow ]. And if we have the more Shinkansen, the bullet's train, then there will be more changes. And Oita, Beppu, Hot Spring is one attraction. So through the Oita Airport, the route to the carrier or the Taiwan or the other Asian cities, so there will be some flights coming from those Asian locations, then we can take that. And the Gojo Omiya, Kyoto, that's another location.

So not just trying to capture the dot or the point, and we have the tourism license or permit. So it's not just for the individual personal trip, but the inbound MICE trip demand should be captured by us. And we have the agencies, Taiwan, Shanghai, Hong Kong, that's a traveling agency and -- we have the partnership with. So our desk or the -- our members can have some relationship with them.

And as for the financing the hotel, the social loans and also indirect financing from the banks, we can use them. If we are to buy the buildings, and we will finance that. And the equity from the divesture of the Regus, this cash will be allocated to the business investment.

[Unknown Analyst]

According to what you just said in the regional cities, you are going to open more hotels using the APA Hotel format. And that way, you want to expand the hotel. That was the impression I got. Is that the right understanding? And along with that, the mid- and long-term target, I mean, how many number of facilities or sales and profit target, can you share them with us?

[Takateru Kawano, executive]

Well, over the past 3 years, we wanted to open 10, but we already opened 7 already only in 5 months -- sorry, 4 months. But we already opened 7 hotels already and so rather than 30, maybe we can increase that to about 50. And basically, our brand, Ishinoya brand and [ LecTore ] brand, those are the brands that we want to use.

But for the business cities that has no Hot Spring, APA hotel will be effective. So for those cities, the cities with about 500,000 to 1 million population, for the cities of that size, if it's close to the station, APA Hotel brand will be effective, I think.

[Unknown Analyst]

The second point is this year's plan. As mentioned in the earlier question, in Q1, the profit is flattish. And every year, usually, the Q1, the 30% to 40% of the profit is earned, that's a seasonality of your business. But currently, it's behind. And to be honest, TKP stand-alone, it might be difficult to achieve that target. But how are you going to recover that?

[中村 幸司, executive]

If you look at a sales, it's not behind. But the SG&A has increased a lot. So on the profit basis -- margin basis, then that is a reason for the -- being behind because of the SG&A. So if the SG&A is reduced, then the profit increases. Well, of course, the -- if we suppress the investment, then that portion will become the profit in Q3 and Q4.

But the last year, -- for example, the number of tsubo, as we expand that, 10,000 or 15,000 tsubo, the cost to expand the site and facilities, how much we can suppress that is related to how we can minimize SG&A.

Should we do that? Or do we want to focus more on the in-sourcing and increase the sales while also increasing the cost? But at this point, instead of spending the money in the space, we need to focus on the in-sourcing, and we want to minimize the SG&A and increase the top line sales, so that we can increase the profit or margin amount.

And once we complete that and if we have so many hotels and the many M&A and business investments are complete and if we have sufficient space then -- that we want to open facilities more.

However, including New York, the recovery of office is coming. So until last year, Europe and the U.S., the vacancy was still high. So the trend was to convert that into the condo or others. But the -- based on my latest information, the office -- back-to-office in Manhattan or the vacancy rate recovery is coming, so the vacancy is declining. So the employees are asked to come back to the office, including financial institutions. So we see the stronger trend. That's what I heard.

So I don't think that the sourcing will be so easy compared to the past. And if the demand/supply is tighter than our utilization increases, so we may be able to try to get that opportunity to open. We may use our revenues Novarese or the Rental Space, TKP so that we can create a space more than -- better than the garden cities of TKP.

So if you look at the Japan around the Tokyo Station and [ Azabudai Hills, Roppongi ], the band is not growing, but the supply is increasing. That's my impression. However, the yen is depreciating so much than many industries, their power will be revitalized and the Nikkei average is increasing. So especially among the large enterprises, investment is going to increase, and the foreign companies may come into the Japanese market more. So that demand may become tight in the future.

So as a temporary space, not just the rental space, based on the hours, that may be monthly rental space for the enterprise. Such temporary space demand may be stronger, going forward. So in that sense, there may be -- if we see some opening opportunities, then we would like to expand. But rather than that, currently, maybe we should look at the inbound lodging facilities, training facilities and M&A.

So now PBR and PRY, looking at those metrics, I think this is an opportunity. The Nikkei average is increasing. However, the share price in the gross market is not increasing, and there are individual good performing shares or the company's index.

So that -- we should work together with TKP to maximize the corporate value, so this is a revitalization through the combination. And also the -- even if the industry is a red ocean, we can collaborate with TKP. And if we can find the blue ocean in the red ocean, then not just the revitalizing the properties, real estate, we can also work on revitalizing the [ doors ] businesses. It's basically same.

[Unknown Analyst]

Probably towards the second half, how much you can collect the profit behind is the key. And so I think that is mainly driven by how much profit you can make from food and beverage. And looking at -- hearing out what you just said, the kitchens for Tokyo is still under investigation and internal environment partners or the outsourcing companies are struggling. And so in that context, whether the in-sourcing activity will proceed as planned is a concern.

And so when you take that into consideration, I think it might be difficult to collect the investment on food and beverage. And because of that, it might be difficult to achieve the target, but you might have a different view. So what is the background as to the reason why you can say that's not the case?

[Takateru Kawano, executive]

Well, we have the hedge. Nobody has already goes -- going to [ beat ] the hedge. So we can't cook it, we can just use a venue from Novarese. And TKP facilities and venues can become more [indiscernible], it could be converted into Lilycolor [indiscernible]. And we should build venues that can have higher ASP.

Of course, it's good to bring food by catering. But if a venue already has that facility, that way we can raise ASP more. So if we're not able to in-source ourselves, we can provide added value to embrace this ASP and [ increase ] sales and profit. When we want to do both -- I mean if you can cook everything internally, that's great, and we will try to do that. But it's very difficult to find such a large kitchen now.

And these are large companies with large market cap, and it will be nice if we can acquire them, but it's not that easy. So of course, we want to have our own kitchen. But if we just build a kitchen just for TKP, there's a lot of ups and downs. And if there's a down or -- we will have loss-making.

I think the best way is to do catering along with the other company. And if there's a catering company for sale out there, then we want to buy. But right now, we are aligning to the bottom. And even at that bottom, we don't have enough kitchen.

So even for a second kitchen or a third kitchen, we want to try and grow the number of kitchens. And even if we don't achieve that on a consolidated basis, we will bring the customers to the other business, so that we can achieve the consolidated base sales and profit. For the companies that are consolidated or under the equity method, that will bring the customers into those companies and generate more sales.

And so we will make sure that we can capture everything as the group. And that's the way we want to pursue the maximization of our profit as the TKP Group.

[Unknown Analyst]

And lastly, the M&A strategy, your investment strategy, Novarese and Lilycolor investment, is it going to be the good return on investment? I am skeptical about this because the -- as for the Novarese, as I look at the properties, they are -- many of them are in the regional area and the result location and the -- on the weekend, it's [ wedding ]. And during the weekdays as a TKP,but the -- I think this is used for the Rental Space. But looking at this location, it might be difficult.

And for the Lilycolor, so the subsidiary, even without making them as a subsidiary, you can generate the synergy, but the -- why did you need to make them the subsidiary?

And also ESCRIT, the [indiscernible] facility you partnered for and the -- it is not -- the number is not increasing after the partnership. And are we -- or are you able to expand this? And are you delivering the synergies, I'm skeptical. Can we expect a positive impact from this?

So for example, the -- so far, so this was difficult, and this is how we -- you want to change. If you have that, will you please tell us -- tell me about that?

[Takateru Kawano, executive]

Novarese, well, you said that the facilities are located in the regional area, yes. In Yokohama, it's next or close to the stations, but -- for example, day-trip company training, in that sense, not at the distant locations. So it's not like the Rental Space. But if the company wants to hold the event, then that could be the location.

And the Lilycolor, you think that the -- we didn't have to buy it. Well, whether we participate in the deal management of the business or not, that will change the level of forecast. And also the Lilycolor has a traditional way of doing business. And the vertical integration of that is important.

And doing that can contribute to the expansion of the sales and the margin. So to do that, the TKP has to be present and participate in their management or business. And ESCRIT -- bridal was struggling. At that time, we, together with [ SBI ], made an investment, and we are seeing the profit generated and the bridal demand is coming back.

In case of ESCRIT, that's opposite to the Novarese. It's in the urban area, the Tokyo station, the Kyobashi area. So with the TKP, we can expect the synergy. The number of the facility is not increasing. Well, there was a new opening in Nagoya the other day. But the -- first, we prioritized on the recovery of the bridal, so we didn't have so much new openings, but the existing bridal facilities usage during the day -- weekday, it's increasing, and we are also some -- introducing or navigating the customer traffic to them. So in that sense, we see some synergy.

[Unknown Attendee]

Any other question? No.

Thank you very much. We would like to close the Q&A session.

That will be all for TKP. We will close the first quarter financial results announcement for the fiscal year ending February 2025. If you would like to exchange business cards, please come to the front of the room. And along with the materials, we have distributed a survey, so we would like you to fill in the survey. And once you fill in the survey, please leave it on the desk. Thank you very much for coming today to office despite your busy schedule today.