PARK24 : Annual Report 2023

ANNUAL REPORT 2023

Year ended October 31, 2023

Management's Discussion and Analysis

Overview of the Fiscal Year Ended October 31, 2023

Results of Operations

During the fiscal year ended October 31, 2023 (November 1, 2022 through October 31, 2023) (the "fiscal year under review"), the outlook for the global economy remained uncertain, notwithstanding the easing impact of COVID-19, chiefly because of surging resource and energy prices, price rises around the world, and rapid exchange rate fluctuations linked to monetary policies in major countries. Meanwhile, the Japanese economy was trending toward a moderate recovery. The background of the recovery lies in the fact that the impact of the COVID-19 pandemic was weakening and consumer spending and corporate capital investment in particular began to pick up in the face of the rise in commodity prices caused by rapid increases in resource and energy prices and the continued weakening of the yen.

In this environment, the Group focused on "returning to the fundamental approach of network expansion" and "promoting digitalization" to achieve its medium-term business growth strategy: "Expand and seamlessly connect our four networks (people, cars, communities and parking facilities)." To return to the fundamental approach of network expansion, the Group returned to pursuing an expansion policy in its businesses, which had been restrained due to the pandemic. To facilitate seamless connections, it accelerated the investment for growth aggressively under the policy of promoting digitalization. Regarding people (or members), one of the four networks, the Group achieved the medium-term target of 10 million Times CLUB members in January 2023.

In terms of operating conditions, the provision of services was generally solid both in Japan and overseas, partly due to the effects of measures continued from the previous fiscal year in addition to improvements in the external environment.

As a result, for the fiscal year under review, the Group posted net sales of ¥330,123 million ($2,208,034 thousand) (up 13.7% year on year), operating profit of ¥31,986 million ($213,943 thousand) (up 54.7%) and recurring profit of ¥27,673 million ($185,091 thousand) (up 63.1%). Consequently, profit attributable to owners of parent stood at ¥17,542 million ($117,330 thousand) (up 608.2%).

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Results of Operations by Segment

1. Parking Business Japan

Parking operations in Japan remained robust during the fiscal year under review as no activity restrictions were imposed throughout the year despite a temporary increase in the number of new COVID-19 infections. During the pandemic, the Group conducted selective development limited to parking facilities that would highly likely turn profitable. Leveraging such expertise on selective development, the Group is now conducting business development suited to the conditions in different areas to increase the number of profitable parking facilities. As a result, during the fiscal year under review, 974 new parking facilities were opened. Furthermore, as a measure to improve convenience, the Group worked to build next- generation parking services that increase the ease of entry and exit of vehicles and payments. These include a development for parking which monitors and controls vehicle entry and exit by camera, for PARTNER SERVICES (services for the management of parking lots attached to facilities), and cashless payments through the diversification of means of parking fee settlement.

As a result, the numbers of Times PARKING sites and parking spaces managed as of October 31, 2023 were 17,639 (up 1.4% year on year) and 576,262 (up 4.4%), respectively. The total number of parking sites managed, including monthly parking and facility management services, was 25,379 (up 0.5%), and the total number of parking spaces managed was 761,654 (up 3.9%). Net sales in this segment (including intersegment sales) for the fiscal year under review stood at ¥167,915 million ($1,123,103 thousand) (up 5.7% year on year), and segment profit amounted to ¥36,909 million ($246,867 thousand) (up 7.9% year on year).

2. Parking Business International

Among the regions in which the Group operates businesses, parking operations in the U.K. continued to recover from the COVID-19 pandemic and consistently exceeded the plan. Parking operations in Australia were recovering moderately, but the recovery from the pandemic was slower than expected, especially in urban areas, and sales were soft. In other regions, parking operations performed well.

The Group promoted the development and mass production of short-term contract parking facilities suited for demand for parking sites in each region, based on the strategy of "small, dispersed and dominant" used in the Parking Business Japan. Through this, it has optimized the business portfolio which concentrated heavily on large and long-term contract parking facilities, aiming to reduce business risk and make it profitable as quickly as possible. Also, the Group worked to improve customer convenience and satisfaction by facilitating cashless payments, the ubiquity of which has rapidly increased during the pandemic.

As a result, for the fiscal year under review, the numbers of overseas parking sites and parking spaces managed as of October 31, 2023 were 2,586 (up 9.4% year on year) and 538,161 (down 3.9%), respectively. The total numbers of parking sites and parking spaces managed worldwide were 27,965 (up 1.3%), and 1,299,815 (up 0.5%). Net sales in this segment (including intersegment sales) for the fiscal year under review were ¥69,478 million ($464,707 thousand) (up 19.8%). Segment loss was ¥1,609 million ($10,764 thousand) (compared with operating loss of ¥5,049 million for the previous year).

• The consolidated accounting period applicable to the overseas group companies for the fiscal year under review was October 1, 2022 through September 30, 2023.
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3. Mobility Business

The Times CAR increased the number of members and the use of cars steadily, with usage fees per vehicle remaining strong. This was attributable to measures to increase the number of cars commensurate with demand, the active opening of new rental sites to appropriately deploy vehicles, and efforts to capitalize on robust consumer demand for leisure travel, corporate demand for business travel and other trends, as well as the implementation of campaigns and other promotions to facilitate the use of services by both consumers and companies. In addition, the Group started to undertake large-scale promotions in May 2023 chiefly via the mass media in a bid to raise awareness of the Times CAR brand to corporate customers, and to increase the number of corporate members and their use of services. During the fiscal year under review, the Group added 6,985 vehicles and 1,885 Times CAR rental sites, thereby making steady progress of the expansion of the network.

As a result, the total number of vehicles in the Mobility Business as of October 31, 2023 was 60,047 (up 13.2% year on year), the number of Times CAR rental sites was 16,017 (up 13.3%), and the number of Times CAR members was 2,423,817 (up 18.8%). Net sales in this segment (including intersegment sales) for the fiscal year under review were ¥98,287 million ($657,400 thousand) (up 25.5%), and segment profit was ¥12,655 million ($84,646 thousand) (up 165.2% year on year).

Analysis of Financial Position

Assets

Total assets at the end of the fiscal year under review increased ¥530 million ($3,550 thousand) from the end of the previous fiscal year to ¥308,157 million ($2,061,116 thousand). This is primarily a result of increases of ¥3,628 million ($24,266 thousand) in investments and other assets, including deferred tax assets, and ¥3,509 million ($23,470 thousand) in property, plant and equipment, including machinery, equipment and vehicles, offsetting decreases of ¥4,479 million ($29,961 thousand) in current assets, including cash and deposits, and ¥2,003 million ($13,401 thousand) in intangible assets, including contract-based intangible assets.

Liabilities

Total liabilities decreased ¥17,843 million ($119,343) from the end of the previous fiscal year to ¥249,741 million ($1,670,400 thousand). This mainly reflected an increase of ¥3,235 million ($21,639 thousand) in current liabilities, including the current portion of long-term borrowings, and a decline of ¥21,078 million ($140,983 thousand) in non-current liabilities including long-term borrowings.

Net assets

Net assets increased ¥18,373 million ($122,893 thousand) from the end of the previous fiscal year to ¥58,416 million ($390,716 thousand). This is primarily a result of ¥17,542 million ($117,330 thousand) posted as profit attributable to owners of parent and ¥1,018 million ($6,810 thousand) as foreign currency translation adjustment.

Analysis of Cash Flows

The balance of cash and cash equivalents at the end of the fiscal year under review decreased ¥11,766 million ($78,696 thousand) from the end of the previous fiscal year, to ¥73,299 million ($490,264 thousand).

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Cash flows from operating activities

Net cash provided by operating activities was ¥48,188 million ($322,311 thousand) (¥18,819 million ($125,872 thousand) increase year on year). This primarily reflected the total of profit before income taxes and depreciation of ¥55,991 million ($374,497 thousand), which was partly offset by income taxes paid of ¥12,374 million ($82,765 thousand).

Cash flows from investing activities

Net cash used in investing activities was ¥25,661 million ($171,636 thousand) (¥8,304 million ($55,541 thousand) increase year on year). This was mainly attributable to capital expenditures for Times PARKING and purchase of Mobility vehicles.

Cash flows from financing activities

Net cash used in financing activities was ¥35,633 million ($238,335 thousand) (¥15,517 million ($103,785 thousand) increase year on year). This was attributable primarily to proceeds from the issuance of bonds with share acquisition rights, which were more than offset by payment for the redemption of bonds with share acquisition rights, repayments of long- term borrowings and lease liabilities, and a net decrease in short-term borrowings.

Liquidity and Capital Resources

The Group financed the funds required for its business activities mainly through borrowings from financial institutions and issuance of bonds with share acquisition rights, in addition to cash flows from operating activities, and in April 2022, the Group executed a new share issue. In the fiscal year under review, the Group issued bonds with share acquisition rights in February 2023, raising funds in the amount of ¥35.0 billion ($234,098 thousand). The funds were mainly used for the repurchase and redemption of the bonds with share acquisition rights maturing in 2025, issued in October 2019, with the aim of levelling and diversifying the funding burden while building a strong financial base and reducing fund-raising costs.

Dividend Policy and Distribution of Dividends in the Current and Next Fiscal Years

The Group puts its first priority on improving corporate value through profit growth. Our basic policy is to provide internal reserves to fund investments required for sustainable growth, and to distribute the remaining earned surplus to shareholders, primarily in the form of dividends.

Internal reserves are allocated to capital expenditure, research and development, M&A, business alliance, and other initiatives required for the Group to expand its business as well as to enhance and expand the services it offers. By doing so, the Group believes that it can create new forms of comfort and convenience by responding to the needs of today as stated in its philosophy.

In principle, the Company pays dividends annually at the end of each fiscal year with the amount subject to the resolution by the general meeting of shareholders. During the fiscal year under review, the impact of COVID-19 became weaker than the previous fiscal year both in Japan and overseas. In fact, the profitability of the Parking Business and the Mobility Business has been improving, backed by a range of measures, including establishing leaner business operations.

However, based on the conviction that achieving financial soundness is a critical management issue, we have decided not to pay dividends at the end of the fiscal year under review.

Going forward, the Company will redefine the optimal way of returning profits to shareholders, with a focus on dividends, taking into account the balance between investment in growth and capital efficiency, while placing priority on achieving a shareholders' equity ratio of 30% at the end of the fiscal year ending October 31, 2025, which is an indicator of financial

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soundness.

It is noted that the Company has stipulated in its Articles of Incorporation that it may pay interim dividends to shareholders with the record date of April 30 each year upon a resolution by the Board of Directors.

Business strategies for fiscal year ending October 31, 2024

Based on its medium-term business growth strategy "Expand and seamlessly connect our four networks (of people, cars, communities and parking facilities)," the Group will focus its efforts on "accelerating network expansion" and "facilitating the evolution of services."

In the Parking Business Japan, the Group will increase the number of developments while simultaneously adhering to carefully selected developments. In addition, as part of its efforts to facilitate the evolution of services, it will work to expand camera-assisted parking sites, thereby building next-generation parking services that enable easier entry, exit and parking fee settlement.

In Parking Business International, the Group will develop short-term contract parking sites optimally suited for demand for parking sites in each region based on the strategy of "small, dispersed, and dominant" used in the Parking Business Japan. By doing so, it will review the current business portfolio, which concentrates heavily on large and long-term contract parking sites, to reduce business risk while also striving to improve the profitability of existing parking sites by implementing measures according to regional characteristics and utilizing the parking site operation management system. Also, the Group will work to improve customer convenience and satisfaction by enhancing the content of services including measures to facilitate cashless payments.

In the Mobility Business, it will seek to raise the awareness of the Times CAR brand through the continuous implementation of promotions, among other measures, and will improve convenience by improving the membership programs and organizing the user interface of applications. Through these measures as well as the implementation of campaigns and other programs aimed at facilitating use, it will step up its efforts for acquiring Times CAR members and expanding the scope of use. Moreover, it will increase the number of cars in sync with created demand and regional characteristics and actively open new Times CAR rental sites. By doing so, it will seek to expand the scale of services while also facilitating the growth of vehicle utilization. Meanwhile, given a rise in operation cost due to sharp rises in a variety of expenses as in the previous year, the Group plans to revise traveling distance-based charges and subscription fee for "Safe Compensation Service Subscription" in February 2024.

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Consolidated Financial Statements

1. Consolidated Balance Sheets
								Thousands of
					Millions of yen		U.S. dollars
						As of October 31,
				2022	2023	2023
Assets
	Current assets:
		Cash and deposits		85,781		73,957		494,667
		Notes receivable - trade		-		100		673
		Accounts receivable - trade		20,783		23,524		157,341
		Investments in leases		4,406		5,889		39,389
		Inventories	*1, 4	2,497	*1, 4	2,044	*1, 4	13,671
		Prepaid expenses		16,137		16,834		112,595
		Other		9,346		11,731		78,465
		Allowance for doubtful accounts		(1,138)		(745)		(4,989)
		Total current assets	137,814	133,335		891,815
	Non-current assets:
		Property, plant and equipment:
		Buildings and structures:		52,585		54,991		367,814
		Accumulated depreciation	(23,598)	(26,383)	(176,463)
		Buildings and structures, net		28,986		28,608		191,351
		Machinery, equipment and vehicles:		56,593		54,434		364,085
		Accumulated depreciation	(27,832)	(21,885)	(146,382)
		Machinery, equipment and vehicles, net		28,761		32,548		217,702
		Tools, furniture and fixtures:		36,311		40,375		270,052
		Accumulated depreciation	(32,513)	(35,262)	(235,852)
		Tools, furniture and fixtures, net		3,798		5,113		34,200
		Land	*3	25,747	*3	24,899	*3	166,542
		Leased assets		55,254		58,454		390,973
		Accumulated depreciation	(47,843)	(50,861)	(340,189)
		Leased assets, net		7,410		7,592		50,784
		Right-of-use assets		76,835		73,702		492,963
		Accumulated depreciation	(55,547)	(53,653)	(358,862)
		Right-of-use assets, net		21,288		20,049		134,100
		Construction in progress		1,665		2,354		15,746
		Total property, plant and equipment	117,658	121,167		810,428
		Intangible assets:
		Goodwill		18,147		18,117		121,176
		Contract-based intangible assets		9,453		6,545		43,780
		Other		6,457		7,392		49,445
		Total intangible assets		34,058		32,055		214,402
		Investments and other assets:
		Long-term prepaid expenses		4,067		4,878		32,631
		Leasehold and guarantee deposits		4,591		5,037		33,690
		Retirement benefit asset		211		642		4,298
		Deferred tax assets		7,063		9,205		61,570
		Other		1,887		1,664		11,133
		Allowance for doubtful accounts		(25)		(3)		(22)
		Total investments and other assets		17,796		21,425		143,302
		Total non-current assets	169,513	174,647	1,168,132
	Deferred assets
		Share issuance costs		297		174		1,168
		Total deferred assets		297		174		1,168
Total assets		307,626	308,157	2,061,116

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						Thousands of
			Millions of yen		U.S. dollars
				As of October 31,
		2022	2023	2023
Liabilities
Current liabilities
	Short-term borrowings		17,309		3,154		21,097
	Current portion of long-term borrowings		16,001		28,257	189,002
	Lease liabilities		11,047		10,742		71,852
	Accounts payable - other		13,804		15,931	106,560
	Accrued expenses		19,487		22,238	148,744
	Income taxes payable		7,302		6,119		40,932
	Provision for bonuses		2,446		3,390		22,674
	Other	*2	13,287	*2	14,087	*2	94,225
	Total current liabilities	100,687	103,922	695,089
Non-current liabilities
	Bonds with share acquisition rights		35,000		42,310	282,991
	Long-term borrowings		96,398		68,204	456,187
	Lease liabilities		19,158		18,055	120,761
	Deferred tax liabilities		1,658		1,709		11,431
	Asset retirement obligations		9,474		9,722		65,028
	Other		5,207		5,817		38,911
	Total non-current liabilities	166,897	145,818	975,310
Total liabilities	267,584	249,741	1,670,400
Net assets
Shareholders' equity
	Share capital		32,739		32,739	218,976
	Capital surplus		28,326		28,326	189,460
	Retained earnings		(7,050)		10,491		70,172
	Treasury shares		(1,255)		(1,255)		(8,399)
	Total shareholders' equity		52,758		70,301	470,209
Accumulated other comprehensive income
	Valuation difference on available-for-sale		120		118		790
	securities
	Deferred gains or losses on hedges		(27)		23		157
	Revaluation reserve for land	*3	(1,035)	*3	(1,035)	*3	(6,923)
	Foreign currency translation adjustment		(9,117)		(8,099)		(54,171)
	Remeasurements of defined benefit plans		(2,719)		(2,943)		(19,688)
	Total accumulated other comprehensive		(12,778)		(11,936)		(79,835)
	income
Share acquisition rights		62		51		342
Total net assets		40,042		58,416	390,716
Total liabilities and net assets	307,626	308,157	2,061,116

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2. Consolidated Statements of Income and Consolidated Statements of Comprehensive Income

Consolidated Statements of Income

								Thousands of
				Millions of yen			U.S. dollars
				Fiscal year ended October 31,
		2022			2023	2023
Net sales	*1	290,253		*1 330,123	*1 2,208,034
Cost of sales		219,659		240,496	1,608,565
Gross profit		70,593			89,626		599,469
Selling, general and administrative expenses	*2	49,921		*2	57,639	*2	385,525
Operating profit		20,672			31,986		213,943
Non-operating income:
	Void ticket income			203			185		1,240
	Gain on redemption of bonds			-		276		1,852
	Subsidy income		*4 133			*4 31		*4 212
	Other			547			333		2,229
	Total non-operating income			884			827		5,535
Non-operating expenses:
	Interest expenses			3,321			3,766		25,194
	Foreign exchange losses			488			244		1,637
	Expense incurred for evacuation of parking			411			277		1,853
	facilities
	Other			364			852		5,701
	Total non-operating expenses			4,585			5,141		34,387
Recurring profit		16,970			27,673		185,091
Extraordinary income:
	Gain on sale of non-current assets			*5 0		*5	2,267	*5	15,167
	Gain on sale of investment securities			20			979		6,554
	Total extraordinary income			20			3,247		21,721
Extraordinary losses:
	Loss on retirement of non-current assets			408			376		2,518
	Impairment losses		*3	389		*3	3,671	*3	24,559
	Provision for loss on litigation			-	*6	1,090	*6 7,296
	Loss on lease contracts	*7	1,571			-		-
	Other			-		1		10
	Total extraordinary losses			2,368			5,141		34,385
Profit before income taxes		14,623			25,779		172,427
Income taxes - current			9,276			10,590		70,837
Income taxes - deferred			2,869			(2,353)		(15,741)
Total income taxes		12,146			8,237		55,096
Profit			2,476			17,542		117,330
Profit attributable to owners of parent			2,476			17,542		117,330

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	Consolidated Statements of Comprehensive Income
						Thousands of
			Millions of yen		U.S. dollars
			Fiscal year ended October 31,
			2022		2023	2023
Profit		2,476		17,542	117,330
Other comprehensive income
	Valuation difference on available-for-sale		(10)		(2)	(17)
	securities
	Deferred gains or losses on hedges	55		50	341
	Foreign currency translation adjustment		(3,162)		1,018	6,810
	Remeasurements of defined benefit plans	(854)		(223)	(1,497)
	Total other comprehensive income		*1, *2 (3,972)		*1, *2 842	*1, *2 5,636
Comprehensive income		(1,495)		18,384	122,967
Comprehensive income attributable to:
	Owners of parent	(1,495)		18,384	122,967

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