Smartvalue Co.,Ltd. Q4 FY2025 earnings call

• Completed Strategic Portfolio Restructuring

  • Completed the disposal of the Digital Government business to WingArc1st Inc. in late June 2025, exiting the competitive public bidding market where eroding margins and declining competitiveness made standalone growth unfeasible. Sapporo-based subsidiary North Detail was retained and transferred to the Smart Venue segment to lead smart city model development.
  • Disposed of the low-margin car retail business within the Mobility segment at the start of the term, significantly improving segment operating margin.
  • Ended the term with 4.126 billion yen in cash and cash equivalents, up from 1.726 billion yen at the end of the prior term, creating a strong balance sheet for new growth investments.

• Kobe Arena (Smart Venue Segment) Operational Update

  • Successfully opened the 10,000-seat GLION ARENA KOBE in April 2025, one month after construction completion (shorter than the standard 3-6 month pre-opening preparation period) to reduce upfront costs. Initial opening issues (booking cancellations from operational chaos) have been fully resolved, and the subsidiary Kobe Storks B.League club saw significant revenue improvement in April.
  • The arena is a private-owned, private-operated facility holding ZEB Ready certification, powered 100% by renewable energy, with a unique waterfront location on a Kobe pier. It is one of only two 10,000-seat arenas in the Kansai region, and already has strong booking demand across sports, music, and corporate/MICE events.
  • The company is implementing the "Commons Tech KOBE" smart city initiative in partnership with Kobe City and JR West Japan, including the TOTTEI KOBE app, pedestrian flow tracking beacons, and city-wide fan marketing to improve visitor circulation and local consumption, targeting 3 million annual visitors.

• Mobility Services Segment Growth Update

  • CiEMS integrated vehicle management service is seeing growing demand for its new mandatory alcohol check recording feature, which has already been adopted by over 1,000 companies.
  • Kuruma Base, an unmanned/light labor-saving platform for rental car, car sharing, and construction machinery rental, has won new business with major industry players including Actio and Rent, and is well-positioned to address industry labor shortage challenges.

• Mid-Term Strategic Vision

  • Aims to build a private-sector led "new public" regional revitalization model that addresses Japan's structural challenges of population decline, limited public sector capacity, and labor shortages. This model combines arena/sports venue operation (Smart Venue), mobility IoT (Mobility Services), and smart city data utilization to create both economic and social value, with plans to expand the model to other cities across Japan.

1. Digital Government Segment (fully disposed at end-June 2025): Revenue of 1.743 billion yen, with a slight year-over-year revenue increase; Operating profit of 169 million yen, a large year-over-year decrease, particularly with a much weaker-than-expected Q4 performance. This segment contributed ~40% of total consolidated revenue before disposal. 2. Mobility Services Segment: Revenue of 1.103 billion yen, a year-over-year decrease driven by the disposal of the low-margin car retail business at the start of the term; Gross operating profit of 176 million yen, a slight year-over-year decrease but maintained stable performance. Core CiEMS vehicle management service saw a net slight increase in contracts (28,663 total contracts) despite some churn, while the high-growth Kuruma Base vehicle sharing platform achieved 282.3% year-over-year contract growth, reaching 878 total contracts with almost no churn. 3. Smart Venue Segment: Revenue of 1.515 billion yen (from the April 2025 opening of Kobe Arena), resulting in an operating loss of 320 million yen due to initial opening costs and one-off operational issues. After the Digital Government segment disposal, North Detail (the former Digital Government subsidiary leading smart city model development) has been reallocated to this segment, adding 634 million yen in expected revenue for the 2026 June term. Total consolidated revenue for 2025 June term is 4.361 billion yen, with an operating loss of 440 million yen, an ordinary loss of 733 million yen, and a net profit of 916 million yen driven by gains from the Digital Government business disposal.

• 2026 June term (current term): Management expects consolidated revenue of 7.421 billion yen, operating profit of 910 million yen, ordinary profit of 20 million yen, and a net loss of 68 million yen. This represents a downward revision of 1.035 billion yen to revenue from the August 2024 mid-term plan, but an upward revision of 404 million yen to operating profit. The net loss is entirely driven by accounting impacts from new lease accounting standard adoption, with no change to actual cash expenses.
• Smart Venue segment three-year forecast: Revenue is projected to grow to 6.1 billion yen in 2026 June term, 6.9 billion yen in 2027 June term, and 7.3 billion yen in 2028 June term, with operating profit growing from 1.1 billion yen to 1.2 billion yen over the same period. For 2026 June term, revenue will break down as 35% from arena rental, 19% from sponsorship (almost fully secured already), 19% from self-promoted events, 15% from hospitality/retail, and 12% from other/smart city development.
• Mobility Services segment: Temporary profit declines in 2025 and 2026 June terms are expected due to communication module replacement costs, with profit recovering to growth by 2028 as Kuruma Base expansion drives gains. Kuruma Base targets at least 800 net new contracts per year going forward.
• Consolidated mid-term target: Ordinary profit is expected to recover to over 300 million yen by the 2028 June term, with stable EBITDA maintained and a strong cash position preserved for growth investments.

• Adopting the new lease accounting standard for the Kobe Arena lease creates a 277 million yen accounting-driven worsening of results, with accounting losses expected for the first 2-3 years of the lease term, even though actual cash outflow has not changed. This will pressure reported net income in the near term, though the lease structure will lead to higher reported profits in the later half of the 23-year lease term.
• Mobility Services faces temporary near-term profit pressure from required communication module specification changes and vehicle unit replacement.
• Kobe Arena operating performance is highly dependent on maintaining high utilization rates, which is core to the segment's profitability.
• The national expansion of the company's new regional revitalization smart city model is still in the early proposal stage, with no guaranteed timeline for new project wins.

Q: How does the new lease accounting standard impact free cash flow, and will it lead to permanently lower net income? / A: The accounting standard change does worsen reported earnings, but free cash flow is actually on an increasing trend. It is true that net income will be under pressure in the near term, but management expects profitable results to emerge within 2-3 years. The lease is a 23-year contract, and the accounting structure actually leads to higher reported profits in the second half of the lease term, so the pressure is only temporary.

Q: What is the current status of Kobe Arena utilization and what is the target going forward? / A: Utilization rate is the core driver of profitability for the arena business, and management is working closely with event promoters to boost bookings. Currently, bookings for the next two years are already secured, and performance is on track. Management targets an 80%+ utilization rate, matching the strong performance of neighboring Osaka Castle Hall, and current booking levels are on track to hit this target.