Smartvalue Co.,Ltd. Q2 FY2025 earnings call

Company Overview & Mission

• Founded in 1928, 97-year history with a venture-oriented culture, has completed multiple business transformations over decades. Currently operates 3 core business segments with 3 consolidated subsidiaries.
• Mission: "Build a historic social system through smart technology", focused on transforming outdated 20th-century social systems to address modern challenges including population decline, aging, and regional economic stagnation.

Digital Government Segment Updates

• Focuses on cloud services to support local government digital transformation, with core CMS product SMART L-Gov deployed to over 400 public entities. Expanding into adjacent services including online administrative platforms, public facility reservation systems, and resident portals.
• 30-40% complete on migration of infrastructure to Sakura Internet cloud, which has received positive feedback from government clients, though dual costs from old and new environments will remain until the 2027 June term.
• Market challenges: Local government website renewal cycles have extended from 7.22 years (2020) to 10.42 years (2024), reducing annual bid volume and pushing average project prices down. Management is prioritizing new SaaS development for administrative DX to capitalize on government digitalization support policies.
• New initiative: Opening a health support space "SLOW AND STEADY" for office workers in Osaka in March 2025, to test new health tech implementations with future planned integration with government services.

Mobility Service Segment Updates

• Completed divestment of the unprofitable legacy car product sales business in July 2024, fully refocusing on mobility IoT services. CiEMS, an alcohol check management service for corporate fleets, is growing strongly driven by new legal requirements for mandatory alcohol testing, with a popular new integrated app launched in September 2024 in partnership with device maker Elecom. CiEMS already generates stable annual operating profit of over 250 million yen.
• Kuruma Base, an unmanned vehicle sharing service, has resolved prior quality issues, and seen explosive demand driven by labor shortages in logistics and construction. H1 new contract volume reached nearly 3x the full prior year volume, driven by a successful partnership with leading construction equipment rental firm Actio that has attracted interest from other industry players. Management projects Kuruma Base will reach profitability by the 80th term (1.5 years from now).
• New focus on logistics IoT business, developed in partnership with major logistics companies with supported development costs, for faster market entry.

Smart Venue Segment (GLION ARENA KOBE) Updates

• 10,000-capacity multi-purpose arena in Kobe's waterfront is on track for completion in February 2025 and opening in April 2025, developed with co-development partners NTT Docomo and NTT Urban Development, with Smart Value holding operational responsibility.
• It is a core part of Kobe waterfront redevelopment, the only additional 10,000-capacity arena in the Kansai region, targeting an annual utilization rate of over 80% for diverse events including sports, concerts, esports, and corporate events.
• Planned long-term revenue structure: 31% from venue rental, 19% from sponsorship, 32% from owned events, 15% from hospitality, food & beverage, and tenant revenue, which is projected to deliver nearly double the revenue of typical public arenas.
• Developing "Commons Tech KOBE", a smart city initiative centered on the arena, in partnership with multiple private firms and Kobe city, using beacons, AI cameras, and a dedicated mobile app to collect visitor data, improve district circulation, and drive collaborative urban development with local businesses.

1. Digital Government: H1 revenue of 809 million yen (0.809 billion yen), operating profit of 76 million yen (0.076 billion yen), achieved year-over-year revenue and profit growth. Cloud services account for 76.2% of segment revenue. Full-year target is 2.07 billion yen revenue and 0.348 billion yen operating profit. 2. Mobility Service: H1 revenue of 586 million yen (0.586 billion yen), 76.7% of the prior year period, with a slight year-over-year increase in operating profit to 102 million yen (0.102 billion yen). The decline in revenue is due to the divestment of the unprofitable car product sales business in July 2024. Cloud services now account for 75.4% of segment revenue, and monthly recurring revenue (MRR) accounts for 53% of total segment revenue, with an operating margin of 17.4%. Full-year target is 1.302 billion yen revenue and 0.223 billion yen operating profit. 3. Smart Venue: H1 revenue of 410 million yen (0.41 billion yen), 227.4% year-over-year growth. It remains in the investment phase, with an operating loss reduced to 107 million yen (0.107 billion yen) from 224 million yen (0.224 billion yen in the prior year period, cutting the loss by more than half. It accounts for 22.7% of total consolidated H1 revenue, and is projected to exceed 40% of full-year total revenue. Full-year target is 2.235 billion yen revenue and 6 million yen (0.006 billion yen) operating profit, targeting a segment-level profit. Consolidated overall: H1 total revenue is 1.806 billion yen, 105.4% year-over-year, with an operating loss of 152 million yen (0.152 billion yen), a significant improvement from the 303 million yen (0.303 billion yen) loss in the prior year period. Full-year consolidated target is 5.609 billion yen revenue and 68 million yen (0.068 billion yen) operating profit, targeting full-year net profit.

• Maintains full-year 2025 June term guidance of 5.609 billion yen consolidated revenue and 68 million yen operating profit, targeting full-year net profitability after a multi-year period of restructuring.
• Mid-term guidance for the 2026 (79th term) and 2027 (80th term) June terms projects revenue of approximately 8.4 billion yen and 9.0 billion yen respectively, with operating profit of approximately 5 billion yen and 8 billion yen respectively, projecting strong growth driven by the Smart Venue segment.
• Monthly recurring revenue from IoT cloud services is projected to reach nearly 1.5 billion yen for the full 2025 June term, continuing a steady upward trend from under 1 billion yen in 2019.
• Kuruma Base targets 1,202 new contracts in the second half of the 2025 June term, which management views as achievable based on current sales pipeline.

• Digital Government segment: Intense market competition is driving project price declines, and extended website renewal cycles are reducing annual new project volume. Dual infrastructure costs during cloud migration add near-term cost pressure, which will not be fully resolved until 2027.
• Mobility Service: Ongoing cost pressure from semiconductor-related hardware price increases and exchange rate-driven communication cost increases, which management plans to resolve over the next three years.
• Smart Venue: As a new business model, there is uncertainty around revenue performance, which can outperform or underperform current projections. It has required large upfront capital investment, increasing consolidated interest-bearing debt and slightly reducing the equity ratio, though management views current balance sheet risk as manageable.
• Kuruma Base is still unprofitable as of H1, though it is on track to reach profitability in 1.5 years.

Q: Is the sharp growth in Kuruma Base contract numbers primarily driven by the partnership with Actio? / A: Kuruma Base grew from 15 new contracts in H1 2024 to 235 new contracts in H1 2025. Approximately 90% of this growth comes from the Akuspo service launched in partnership with Actio. The full-year second half target is 1,202 additional contracts, which is achievable as the service is planned to roll out to over 400 Actio locations over 5 years, putting the annual target within reach.

Q: What will the revenue structure of Smart Venue look like after GLION ARENA KOBE opens, and how is progress towards full-year targets? / A: Since the arena opens in April 2025, only 3 months of post-opening revenue will be counted in the 2025 June full-year results. Currently, most of the 2025 segment revenue comes from sponsorships and Kobe Storks owned events, with sponsorship already accounting for 43% of 2025 projected revenue. A large pipeline of sponsorship contracts is already secured. Meeting the 20% 2025 venue rental target depends on advanced booking volumes, which already have high certainty based on current bookings for Q4 2025. Management notes the new business can outperform or underperform plans, so they will remain proactive in execution to hit full-year targets.