TOKAI Holdings is a unique company with two main business areas, its legacy energy business (LP gas and city gas) and its information and communications and CATV businesses. Although it may change somewhat from year to year, these business areas generate over 80% of sales, making energy, and information and communications and CATV its earnings pillars. As of end-FY03/21, TOKAI Holdings had 3.1mn customers (general consumers) within its service areas, including Shizuoka Prefecture and the Kanto area. The company is pushing ahead with its Total Life Concierge (TLC) concept, under which it aims to create a one-stop shop for the goods and services desired by its customers (such as gas, information and communications, CATV, construction, equipment, real estate, and home water delivery). TOKAI Holdings Corporation was established on April 1, 2011, after the management integration of TOKAI Corporation (registered name: The TOKAI Corporation) and TOKAI Communications Corporation (formerly VIC TOKAI Corporation; name changed on October 1, 2011), and an accompanying transfer of shares to a holding company.
The company’s energy business (39.3% of FY03/21 sales, 40.2% of operating profit) and information and communications and CATV businesses (43.0%, 51.3%) are synergistic and are the sources of the company’s competitive advantage and its growth. The first area where synergies are realized is in the area of personnel. At its B2C businesses, the company has a total of 1,600 local sales representatives that are engaged in door-to-door sales and are thus in a position to offer a range of services to meet the needs of individual customers. Unlike other companies in the industry, TOKAI Holdings uses its own people for new customer development and does not farm out this task to outside contractors. Its sales force also differs from competitors in its ability to offer a wide range of services. Offering everything from energy to information and communications, TOKAI Holdings’ sales representatives are productive, and the company has taken advantage of this productivity to continue adding new customers, make effective acquisitions, and expand its business territory.
The second area where synergies are realized is on the capital side. During the past ten years TOKAI Holdings has generated some JPY20–25bn in operating cash flow every year, well more than the roughly JPY15bn in operating cash flow generated by an industry peer Nippon Gas Co., Ltd. (TSE Prime: 8174), the JPY5–10bn in operating cash flow generated by Mitsuuroko Group Holdings Co., Ltd. (TSE Prime: 8131), or the roughly JPY5bn in operating cash flow generated annually by SINANEN Holdings Co., Ltd. (TSE Prime: 8132). The much greater operating cash flow generated TOKAI Holdings has given it a clear competitive edge over its peers by providing it the wherewithal in terms of capital to fund growth investment and shareholder returns.
Aided by its strong competitive position, TOKAI Holdings has been able to expand its sales territory by actively pursuing M&A and alliances. The versatility of its sales representatives, discussed above, means it does not need to worry about limiting its acquisition targets to just one particular industry. This is because its Total Life Conciergeservice package brings the gas companies and CATV service providers it acquires together so that multiple products can be efficiently sold through the same sales channel.
Business acquisitions in recent years include Sendai CATV Co., Ltd. (in March 2020), Shioya Ltd. (a CATV service provider in eastern Shizuoka Prefecture, acquired in October 2019), TV Tsuyama Inc. (a CATV service provider in Okayama Prefecture, acquired in February 2018), Tokyo Bay Network Co., Ltd. (a CATV service provider in the Tokyo Metropolitan Area, acquired in July 2017), Shimonita’s city gas business (Gunma Prefecture, acquired in April 2019), and Nikaho’s city gas business (Akita Prefecture, acquired in April 2020).
The company’s housing-related business is not new, but aggressive M&A to expand the construction business has been a feature in recent years. In September 2019, TOKAI Holdings acquired Nissan Tri Star Construction, Inc., a general construction company in Gifu Prefecture whose mainstay business is civil engineering work. In August 2020, the company also acquired Chuo Denki Koji Co., Ltd., based in Aichi Prefecture, whose core business is electrical construction. Reasons for pursuing M&A are: 1) to move into new business territories such as Gifu and Aichi prefectures; 2) to expand into other industries to generate synergies to grow the customer base of its Energy and Information and Communication businesses; and 3) to strategically expand its business portfolio to become an all-round infrastructure company.
FY03/22 results: The company reported sales of JPY210.7bn (+7.1% YoY), operating profit of JPY15.8bn (+3.7% YoY), recurring profit of JPY15.9bn (+3.9% YoY), and net income attributable to owners of the parent of JPY9.0bn (+1.7% YoY). Sales and profits reached new record highs for the full year. Despite the downward impact from the company's adoption of the Accounting Standard for Revenue Recognition, several factors drove overall sales growth. These included an increase in the number of customers in the Energy and CATV segments, a rise in selling prices linked to higher purchase prices in the Energy segment, expansion of recurring-revenue businesses targeting corporate customers in the Information and Communications segment, and the impact of M&A in the Construction, Equipment, and Real Estate segment. In the LP gas and Aqua businesses, customer acquisition costs increased YoY as the company worked to win customers at a faster pace than in FY03/21. Nonetheless, a rise in the monthly billing count thanks to higher customer numbers and robust performance from the Information and Communications business for corporate customers were more than enough to absorb these costs, and operating profit finished up YoY. The gross profit margin fell 1.7pp YoY to 40.4%, the SG&A ratio declined 1.5pp YoY to 32.9%, and the operating profit margin decreased 0.2pp YoY to 7.5%. As the full-year results in FY03/22 overshot the initial projections and set new record highs, the company decided to increase its year-end dividend to JPY17 per share, up JPY2 from the previous estimate of JPY15. This, together with the interim dividend of JPY15 per share, brings the annual dividend to JPY32 per share (JPY30 per share in FY03/21).
FY03/23 forecast: The company forecasts sales of JPY223.0bn (+5.8% YoY), operating profit of JPY14.5bn (-8.2% YoY), recurring profit of JPY14.3bn (-10.1% YoY), and net income attributable to owners of the parent of JPY8.3bn (-7.5% YoY). The annual dividend forecast is JPY32 per share (flat YoY). The company expects sales growth in FY03/23 on the back of an ongoing increase in customer count and project orders. On the profit front, it has concerns that high crude oil prices and weakening Japanese yen could raise the gas purchase prices sharply. However, the company will continue to actively pursue customer acquisition through billing strategies that maintain price competitiveness.
Medium-term business plan: On May 11, 2021, the company unveiled the TOKAI Group Medium-Term Plan IP24 (Innovation Plan 2024 “Design the Future Life”), a four-year plan spanning FY03/22 through FY03/25. FY03/25 targets are sales of JPY245.0bn (versus JPY196.7bn in FY03/21), operating profit of JPY18.6bn (JPY15.2bn), net income attributable to owners of the parent of JPY11.0bn (JPY8.8bn), cash flow from operating activities* of JPY26.0bn (JPY22.4bn), ROE of 13% or higher (12.7%), ROIC of 9.9% or higher (9.2%), dividend payout ratio of 40–50% (44.6%), equity ratio of around 40% (41.6%), and 3,560,000 customers (3,100,000). (*cash flow from operating activities = operating profit + depreciation - lease payments - taxes)
The basic concept of the medium-term plan is to become a Life Design Group in 10 years’ time, continuing to expand and improve its services with a vision of making the company’s TLC concept a reality. The basic concept of the medium-term plan is to become a Life Design Group in 10 years’ time, continuing to expand and improve its services with a vision of making the company’s TLC concept a reality. Life Design Group is a stance of helping to solve social problems by designing and proposing lifestyles that appeal to customers. IP24 is positioned as the foundation-building stage. The five key messages of IP24 are as follows. 1) promote LNG strategy (business expansion in existing areas, in Japan, and overseas), 2) advance the TLC concept, 3) further strengthen and expand customer base through full-scale DX strategy, 4) optimize allocation of management resources, and 5) strengthen SDGs initiatives.
Shared Research thinks TOKAI Holdings’ strengths center on its regional dominance providing greater profit contributions from non-gas businesses, flexibility to take business away from major utility companies, and beneficiary of structural reform and realignment of the LP gas industry. Weaknesses center on its lack of experience in cross-selling, structural decline in LP gas market, and intensifying competition in the CATV business. (See the Strengths and weaknesses section for details.)
|Information and Communications||38,497||38,803||40,118||44,246||49,508||50,894||51,234||51,753||50,735||51,398|
|Construction, Equipment, and Real Estate||15,756||19,245||20,019||20,975||19,511||19,807||20,090||22,383||23,177||27,780|
|Gross profit margin||37.9%||36.2%||36.8%||38.6%||40.9%||40.5%||39.7%||40.5%||42.1%||40.4%|
|Operating profit margin||4.9%||3.9%||4.8%||4.6%||7.1%||5.9%||6.8%||7.3%||7.7%||7.5%||6.5%|
|Recurring profit margin||4.4%||3.7%||4.6%||4.5%||7.2%||6.0%||6.9%||7.4%||7.8%||7.5%||6.4%|
|Shares issued (year-end; '000)('000 shares)||155,200||155,200||155,200||139,680||139,680||139,680||139,680||139,680||139,680||139,680|
|EPS (fully diluted)||-||-||34.1||26.9||56.3||50.5||-||-||-||-|
|Dividend per share||12.0||12.0||12.0||14.0||28.0||28.0||28.0||28.0||30.0||32.0||32.0|
|Book value per share||289.3||325.8||368.2||362.8||439.0||460.7||478.3||493.3||568.9||590.2|
|Balance sheet (JPYmn)|
|Cash and cash equivalents||4,235||3,182||2,861||4,077||3,239||3,143||4,164||4,629||5,577||4,743|
|Total current assets||40,351||40,606||35,959||38,117||38,594||39,951||42,506||44,268||46,932||47,098|
|Tangible fixed assets||106,602||103,129||98,935||95,064||93,647||96,810||97,030||98,353||101,800||106,017|
|Investments and other assets||15,638||16,855||19,539||16,149||17,860||18,030||16,937||16,518||19,552||20,364|
|Total current liabilities||82,563||78,905||71,160||62,958||61,304||63,705||61,385||60,617||57,009||57,822|
|Total fixed liabilities||61,068||56,385||51,074||55,373||43,361||40,837||42,325||43,372||45,908||47,704|
|Total net assets||34,011||38,329||43,467||41,970||56,446||61,450||63,894||65,982||76,056||78,946|
|Total interest-bearing debt||92,707||85,340||73,069||71,409||66,484||64,151||64,097||62,822||57,411||61,253|
|Cash flow statement(JPYmn)|
|Cash flows from operating activities||25,713||22,806||27,265||21,395||26,692||20,909||21,605||22,535||32,223||20,808|
|Cash flows from investing activities||-9,983||-9,664||-8,851||-11,015||-10,985||-11,488||-12,443||-12,131||-17,068||-14,592|
|Cash flows from financing activities||-14,051||-14,125||-18,764||-9,150||-16,643||-9,527||-8,147||-10,375||-14,064||-6,905|
|Segment sales and operating profit||FY03/13||FY03/14||FY03/15||FY03/16||FY03/17||FY03/18||FY03/19||FY03/20||FY03/21||FY03/22|
|% of total||52.0%||51.4%||49.6%||44.6%||41.1%||40.9%||40.7%||39.9%||39.3%||41.2%|
|Information and Communications||38,497||38,803||40,118||44,246||49,508||50,894||51,234||51,753||50,735||51,398|
|% of total||21.2%||20.5%||21.4%||24.5%||27.7%||27.4%||26.7%||26.4%||25.8%||24.4%|
|% of total||13.1%||12.8%||13.0%||13.6%||14.2%||15.3%||15.9%||16.0%||17.2%||15.5%|
|Construction, Equipment, and Real Estate||15,756||19,245||20,019||20,975||19,511||19,807||20,090||22,383||23,177||27,780|
|% of total||8.7%||10.2%||10.7%||11.6%||10.9%||10.6%||10.5%||11.4%||11.8%||13.2%|
|% of total||2.1%||2.3%||2.6%||3.0%||3.2%||3.3%||3.7%||3.8%||3.9%||3.6%|
|% of total||3.0%||2.7%||2.7%||2.7%||2.9%||2.5%||2.5%||2.5%||2.1%||2.2%|
|Operating profit margin||4.9%||3.9%||4.8%||4.6%||7.1%||5.9%||6.8%||7.3%||7.7%||7.5%|
|Operating profit margin||5.5%||4.6%||6.0%||8.6%||9.5%||6.5%||5.7%||6.3%||7.9%||7.0%|
|% of total||58.2%||61.1%||61.6%||84.6%||54.4%||45.3%||34.0%||34.5%||40.2%||38.4%|
|Information and Communications||3,746||3,049||3,486||829||3,065||1,866||2,593||2,959||3,086||3,355|
|Operating profit margin||9.7%||7.9%||8.7%||1.9%||6.2%||3.7%||5.1%||5.7%||6.1%||6.5%|
|% of total||41.9%||41.2%||38.7%||10.1%||24.0%||17.0%||19.9%||20.8%||20.3%||21.2%|
|Operating profit margin||1.8%||4.0%||3.5%||4.7%||9.2%||10.7%||14.6%||14.5%||14.0%||15.9%|
|% of total||4.8%||13.2%||9.6%||14.1%||18.3%||27.7%||34.0%||31.9%||31.0%||32.9%|
|Construction, Equipment, and Real Estate||209||926||495||676||461||655||954||1,379||1,257||1,706|
|Operating profit margin||1.3%||4.8%||2.5%||3.2%||2.4%||3.3%||4.7%||6.2%||5.4%||6.1%|
|% of total||2.3%||12.5%||5.5%||8.2%||3.6%||6.0%||7.3%||9.7%||8.3%||10.8%|
|Operating profit margin||-||-||-||-||-||0.1%||2.6%||1.8%||1.1%||0.2%|
|% of total||-11.5%||-28.5%||-16.1%||-15.5%||0.8%||0.2%||4.0%||2.8%||1.7%||0.3%|
|Operating profit margin||-0.3%||-0.2%||-7.7%||-4.0%||2.2%||6.4%||4.5%||4.8%||-6.0%||-2.3%|
|% of total||-0.2%||-0.1%||-4.3%||-2.4%||0.9%||2.7%||1.7%||1.7%||-1.6%||-0.7%|
On March 31, 2022, TOKAI Holdings Corporation announced that group company TOKAI Communications Corporation, which runs the Information and Communications business, will open its Okayama office on April 1, 2022. The Okayama office is TOKAI Communications' fifth business base for corporate information services after Shizuoka, Tokyo, Osaka, and Nagoya.
In recent years, TOKAI Communications has seen its business grow with companies in the Chugoku and Shikoku areas. The company decided to open an office in Okayama to move physically closer to customers and partners to facilitate communication with them.
On the same day, TOKAI Holdings Corporation announced that subsidiary TOKAI Cable Network Corporation had completed and started operation of an internet protocol (IP) network-based backup system for terrestrial broadcasting.
The backup system can deliver high quality terrestrial broadcasts over long distances by using IP to transmit terrestrial broadcasts via the company's CATV network.
The system will be able to transmit broadcasts when terrestrial broadcast signals cannot be transmitted via transmitting stations such as broadcasting towers because of lighting strike and other emergencies. The system receives broadcast signals from broadcasting towers in other areas of Shizuoka Prefecture and transmits the signals over a wide area via the company's CATV network. This allows customers who subscribe to the company's CATV service to continue to watch terrestrial television broadcasts when transmission failures occur.
The system was developed after the greatest lightning strikes since records began in Ishikawa Prefecture interrupted broadcasts by two commercial TV broadcasters in January 2018. Believing that it was the responsibility of CATV companies to continue to provide a broadcasting service when a major accident occurs (such as a TV broadcast blackout), the company engaged in talks with broadcasters in Shizuoka Prefecture about building an emergency backup system. The company plans to operate the new system to provide a more robust TV viewing environment to residents of its service area.
|Gross profit margin||40.8%||39.1%||41.5%||40.4%||43.6%||41.5%||42.9%||40.8%||40.7%||39.9%||40.0%||41.0%|
|Operating profit margin||7.1%||4.8%||7.8%||9.1%||8.4%||3.7%||8.9%||9.4%||6.7%||4.2%||7.5%||10.7%|
|Recurring profit margin||7.3%||4.8%||8.0%||9.2%||8.5%||3.7%||8.9%||9.5%||6.9%||4.1%||7.6%||10.7%|
|Cumulative||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||Q1–Q3||Q1–Q4||% of Est.||FY Est.|
|Gross profit margin||40.8%||40.0%||40.5%||40.5%||43.6%||42.6%||42.7%||42.1%||40.7%||40.3%||40.2%||40.4%|
|Operating profit margin||7.1%||5.9%||6.6%||7.3%||8.4%||6.1%||7.1%||7.7%||6.7%||5.4%||6.2%||7.5%||7.4%|
|Recurring profit margin||7.3%||6.0%||6.7%||7.4%||8.5%||6.1%||7.1%||7.8%||6.9%||5.5%||6.2%||7.5%||7.4%|
|Information and Communications||12,795||13,116||12,923||12,919||12,650||12,481||12,700||12,904||12,619||12,683||12,904||13,192|
|Construction, Equipment, and Real Estate||3,777||5,959||5,183||7,464||3,819||5,255||5,741||8,362||5,542||6,819||6,664||8,755|
|Operating profit margin||7.1%||4.8%||7.8%||9.1%||8.4%||3.7%||8.9%||9.4%||6.7%||4.2%||7.5%||10.7%|
|Operating profit margin||8.0%||2.8%||20.4%||15.2%||11.2%||2.6%||13.3%||16.5%||8.3%||2.2%||10.4%||16.5%|
|Information and Communications||1,217||1,052||3,366||860||1,110||926||1,045||1,263||1,224||1,181||1,087||1,229|
|Operating profit margin||9.5%||8.0%||26.0%||6.7%||8.8%||7.4%||8.2%||9.8%||9.7%||9.3%||8.4%||9.3%|
|Operating profit margin||16.6%||16.0%||48.3%||15.5%||16.6%||15.3%||17.3%||12.6%||18.2%||18.5%||19.3%||15.8%|
|Construction, Equipment, and Real Estate||213||630||1,242||874||233||388||473||971||263||475||388||1,354|
|Operating profit margin||5.6%||10.6%||24.0%||11.7%||6.1%||7.4%||8.2%||11.6%||4.7%||7.0%||5.8%||15.5%|
|Operating profit margin||9.4%||11.8%||32.3%||4.2%||14.3%||8.8%||7.0%||-||1.9%||7.5%||5.3%||2.1%|
|Other and adjustments||-1,145||-1,374||-3,682||-1,589||-1,171||-1,496||-1,321||-1,961||-1,337||-1,690||-1,487||-2,004|
|Information and Communications||12,795||25,911||38,834||51,753||12,650||25,131||37,831||50,735||12,619||25,302||38,206||51,398|
|Construction, Equipment, and Real Estate||3,777||9,736||14,919||22,383||3,819||9,074||14,815||23,177||5,542||12,361||19,025||27,780|
|Operating profit margin||7.1%||5.9%||6.6%||7.3%||8.4%||6.1%||7.1%||7.7%||6.7%||5.4%||6.2%||7.5%|
|Operating profit margin||8.0%||5.5%||7.2%||9.5%||11.2%||7.1%||9.4%||11.6%||8.3%||5.4%||7.4%||10.3%|
|Information and Communications||1,217||2,269||3,366||4,226||1,110||2,036||3,081||4,344||1,224||2,405||3,492||4,721|
|Operating profit margin||9.5%||8.8%||8.7%||8.2%||8.8%||8.1%||8.1%||8.6%||9.7%||9.5%||9.1%||9.2%|
|Operating profit margin||16.6%||16.3%||16.2%||16.0%||16.6%||16.0%||16.4%||15.4%||18.2%||18.4%||18.7%||18.0%|
|Construction, Equipment, and Real Estate||213||843||1,242||2,116||233||621||1,094||2,065||263||738||1,126||2,480|
|Operating profit margin||5.6%||8.7%||8.3%||9.5%||6.1%||6.8%||7.4%||8.9%||4.7%||6.0%||5.9%||8.9%|
|Operating profit margin||9.4%||10.7%||10.7%||9.1%||14.3%||11.5%||10.0%||7.5%||1.9%||4.8%||4.9%||4.3%|
|Other and adjustments||-1,145||-2,519||-3,682||-5,271||-1,171||-2,667||-3,988||-5,949||-1,337||-3,027||-4,514||-6,518|
The company reported sales of JPY210.7bn (+7.1% YoY), operating profit of JPY15.8bn (+3.7% YoY), recurring profit of JPY15.9bn (+3.9% YoY), and net income attributable to owners of the parent of JPY9.0bn (+1.7% YoY). Sales and profits reached new record highs for the full year.
Achievement rates versus the full-year company forecast were 101.8% for sales, 103.6% for operating profit, 103.8% for recurring profit, and 101.6% for net income. Sales and all profit items exceeded the company's projections.
Sales up 7.1% YoY: Despite the downward impact from the company's adoption of the Accounting Standard for Revenue Recognition, several factors drove overall sales growth. These included an increase in the number of customers in the Energy and CATV segments, a rise in selling prices linked to higher purchase prices in the Energy segment, expansion of recurring-revenue businesses targeting corporate customers in the Information and Communications segment, and the impact of M&A in the Construction, Equipment, and Real Estate segment.
Operating profit up 3.7% YoY: In the LP gas and Aqua businesses, customer acquisition costs increased YoY as the company worked to win customers at a faster pace than in FY03/21. Nonetheless, a rise in the monthly billing count thanks to higher customer numbers and robust performance from the Information and Communications business for corporate customers were more than enough to absorb these costs, and operating profit finished up YoY. The gross profit margin fell 1.7pp YoY to 40.4%, the SG&A ratio declined 1.5pp YoY to 32.9%, and the operating profit margin decreased 0.2pp YoY to 7.5%.
Dividend increase: As the full-year results in FY03/22 overshot the initial projections and set new record highs, the company decided to increase its year-end dividend to JPY17 per share, up JPY2 from the previous estimate of JPY15. This, together with the interim dividend of JPY15 per share, brings the annual dividend to JPY32 per share (JPY30 per share in FY03/21).
The number of continuing customers amounted to 3,194,000, up 95,000 from end-FY03/21. The number of subscribers to TLC Membership Service grew by 107,000 to 1,086,000.
Topics: The company established TOKAI Venture Capital & Incubation Corporation in April 2021. This business will promote the TLC concept through synergies with existing businesses and the creation of new lifestyle-related services. In the same month, the company acquired shares in Marco Polo Co., Ltd., which is engaged in large-scale repair work for condominiums and other facilities in the Construction, Equipment, and Real Estate business, and Query Co., Ltd., which is engaged in systems development in the Information and Communication business, and made these companies consolidated subsidiaries. It opened new LP gas sales offices in Kumamoto (Kumamoto Prefecture) in October 2021, and in Fukuyama (Hiroshima Prefecture) in January 2022.
The number of continuing customers amounted to 3,194,000, up 95,000 from end-FY03/21. Versus end-FY03/21, net customer count grew by 41,000 in the gas business (LP gas and city gas), 33,000 in the CATV business (including 8,000 from acquisitions), and 3,000 in the Aqua business.
|Number of customers||FY03/13||FY03/14||FY03/15||FY03/16||FY03/17||FY03/18||FY03/19||FY03/20||FY03/21||FY03/22||YoY|
|Gas (LP gas, city gas)||629||628||626||634||642||661||684||713||744||785||41|
|Information and Communications||816||854||863||852||829||817||787||761||785||816||31|
* Mobile virtual network operator (MVNO): Business offering self-branded mobile communication services for mobile phones and PHS devices without building or operating wireless communication facilities, and instead leasing communication lines from major mobile communication carriers.
** The company is actively promoting LIBMO (http://www.libmo.jp/) as not only a method to capture new customers in mobile communication, but also as a strategic measure to acquire more contracts and prevent contract termination of fixed-line services, by packaging it with products such as Hikari Collaboration. Specifically, TOKAI is working in partnership with major electronics mass retailers to gain new customers. The company is also working to expand sales to its existing customers by awarding loyalty points in addition to its TLC membership services, and by utilizing flyers and email newsletters.
Segment results as reported by the company reflect allocated overhead expenses. Beginning in Q1 FY03/21, the company revised the names of some its segments, with the Gas and Petroleum segment becoming the Energy segment and the Building and Real Estate segment becoming the Construction, Equipment, and Real Estate segment. The name changes have no impact on actual earnings in the segments.
Sales were JPY86.8bn (+12.1% YoY), and operating profit was JPY6.1bn (-0.9% YoY).
The LP gas business reported sales of JPY73.8bn (+12.4% YoY). The company continued its customer acquisition efforts, and the number of customers expanded to 715,000, up 34,000 from end-FY03/21.
The city gas business reported sales of JPY13.0bn (+10.7% YoY). Customer count grew to 70,000, up 7,000 from end-FY03/21. Sales rose, driven by higher sales volume of industrial gas and the impact of the fuel cost adjustment system.
Operating profit fell slightly, mainly due to an increase in customer acquisition costs.
Sales were JPY51.4bn (+1.3% YoY), and operating profit was JPY3.4bn (+8.7% YoY).
In the Information and Communications business, services for consumers generated sales of JPY24.4bn (-7.2% YoY). In the ISP business, the company expanded its service offerings through a partnership with a major mobile carrier. In the mobile business, it worked to acquire customers by reviewing its service menu as necessary and offering set plans bundled with fixed lines. Thanks to these measures, the number of broadband customers stood at 654,000, keeping the decline down to 2,000 since end-FY03/21, while LIBMO customers increased by 2,000 to 55,000.
In the Information and Communications business, sales to corporate clients were JPY27.0bn (+10.5% YoY). Sales growth was driven by steady progress in cloud services and a higher number of contracted development projects.
Sales were JPY32.6bn (-3.5% YoY), and operating profit was JPY5.2bn (+10.0% YoY).
During the COVID-19 pandemic, as a community-based operator, the company focused on delivering local information and program production, as well as working with major video distribution companies to enhance its content offerings, striving to help customers enjoy staying at home. Cautious yet constant and sustained sales activities in each area enabled the company to acquire new customers, with the number of broadcasting services customers increasing by 12,000 from end-FY03/21 to 887,000, while communications services customers increased by 22,000 to 344,000.
Sales were JPY27.8bn (+19.9% YoY), and operating profit was JPY1.7bn (+35.7% YoY).
In addition to contributions from the consolidation of Marco Polo Co., Ltd., orders in existing businesses such as construction and equipment work and civil engineering projects held firm. As a result, sales and profit grew YoY.
Sales were JPY7.6bn (+0.1% YoY), and operating profit was JPY46mn (-82.1% YoY).
Sales grew thanks to favorable performance from events held at large commercial facilities and telemarketing and other non-face-to-face sales activities. Customer count amounted to 165,000, up 3,000 from end-FY03/21. Operating profit was down YoY due to higher customer acquisition costs.
Sales were JPY4.5bn (+11.7% YoY), and the company reported an operating loss of JPY103mn (operating loss of JPY244mn in FY03/21).
In the nursing care business, user numbers rose and sales amounted to JPY1.4bn (+2.9% YoY).
In the shipbuilding business, the number of ships repaired grew, and sales came to JPY1.7bn (+11.1% YoY).
The bridal events business showed a slight recovery with sales finishing at JPY646mn (+54.9% YoY).
For details on previous quarterly and annual results, please refer to the Historical financial statements section.
|(JPYmn)||1H Act.||2H Act.||Full-year||1H Act.||2H Act.||Full-year||FY Est.|
|Cost of sales||51,605||62,251||113,856||57,321||68,158||125,479|
|Gross profit margin||42.6%||41.8%||42.1%||40.3%||40.5%||40.4%|
|Operating profit margin||6.1%||9.1%||7.7%||5.4%||9.2%||7.5%||6.5%|
|Recurring profit margin||6.1%||9.2%||7.8%||5.5%||9.3%||7.5%||6.4%|
For FY03/23, the company forecasts sales of JPY223.0bn (+5.8% YoY), operating profit of JPY14.5bn (-8.2% YoY), recurring profit of JPY14.3bn (-10.1% YoY), and net income attributable to owners of the parent of JPY8.3bn (-7.5% YoY). The annual dividend forecast is JPY32 per share (flat YoY).
The company works toward sustainable growth and development based on the five key messages set forth in the TOKAI Group Medium-Term Plan IP24 (Innovation Plan 2024 “Design the Future Life”), a four-year plan spanning FY03/22 through FY03/25.
The five key messages of IP24 are as follows. 1) LNG strategy (business expansion in existing areas, in Japan, and overseas), 2) advance the TLC concept, 3) further strengthen and expand customer base through full-scale DX strategy, 4) optimize allocation of management resources, and 5) strengthen SDGs initiatives (discussed in more detail later).
The company expects sales growth in FY03/23 on the back of an ongoing increase in customer count and project orders. On the profit front, it has concerns that high crude oil prices and weakening Japanese yen could raise the gas purchase prices sharply. However, the company will continue to actively pursue customer acquisition through billing strategies that maintain price competitiveness.
On May 11, 2021, the company unveiled the TOKAI Group Medium-Term Plan IP24 (Innovation Plan 2024 “Design the Future Life”), a four-year plan spanning FY03/22 through FY03/25.
Management indices for FY03/25, the final year of the medium-term plan, include sales of JPY245.0bn (+124.5% versus FY03/21), operating profit of JPY18.6bn (+122.2%), net income attributable to owners of the parent of JPY11.0bn (+124.8%), operating cash flow of JPY26.0bn (+116.1%), and customer count of 3.56mn (+114.9%). Although the company forecasts operating profit will be flat YoY in FY03/22 because of costs associated with strengthening LP gas customer acquisition and preparing an environment for work style reforms, the medium-term plan calls for steady YoY growth in sales and profit.
Other indices aimed at meeting investors’ expectations include ROE of 13% or higher and ROIC of 9.9% or higher while the company looks to maintain the equity ratio at around 40%.
|(JPYmn)||FY03/21 results||FY03/22 budget||FY03/23 target||FY03/24 target||FY03/25 target|
|Cash flow from operating activities||22,400||21,800||23,000||24,000||26,000|
|Dividend payout ratio||44.6%||40–50%|
|ROE||12.7%||→||13% or higher|
|ROIC||9.2%||→||9.9% or higher|
|Equity ratio||41.6%||→||Approx. 40%|
|Number of customers||3.10mn||3.20mn||3.32mn||3.44mn||3.56mn|
The company aims for aggressive shareholder returns in line with group growth and rising profit levels. As was the case in FY03/21, when the dividend was hiked by JPY2 to JPY30 per share, the policy is to maintain a payout ratio of 40–50% and to flexibly conduct share buybacks.
The basic concept of the medium-term plan is to become a Life Design Group in 10 years’ time, continuing to expand and improve its services with a vision of making the company’s TLC concept a reality. Life Design Group is a stance of helping to solve social problems by designing and proposing lifestyles that appeal to customers. The medium-term plan, IP24 (Innovation Plan 2024 “Design the Future Life”) is positioned as the foundation-building stage.
The company believes that the COVID-19 pandemic has brought about changes in the environment related to daily life, including changes to the customers lifestyles and acceleration of social changes such as the adoption of SDGs. Lifestyle changes caused by the pandemic include a shift to online consumption, promotion of teleworking and staggered commuting, heightened health awareness, realization of regional issues, enhancement of home-based services, and development of experience-oriented services. In addition, social changes affecting companies include the trend toward clean energy, energy liberalization, digitalization, work reform, population decline, declining birthrate, and the aging population.
Tokai Holdings aims to achieve sustainable growth and evolve into a Life Design Group that designs and provides new lifestyles while adapting to changes in society. The corporate philosophy is based on the unchanging value of “For customers livelihood along with the region, together with the earth, we will continue to grow and develop.” Along with this philosophy, the company strives to provide values that are sought by society at large.
The company’s 10-year vision is to become a Life Design Group that contributes to solving social issues by designing and proposing lifestyles desirable to customers. The objective is to progress from providing daily life infrastructure (service supply: the format of the past 10 years) to providing living support (the objective of the current four-year medium-term plan, IP24) to proposing Lifestyle Design (the six years after IP24). By expanding multiple services provided, the company will consider proposals that have experience-oriented value. Examples are as follows:
Household energy solutions: Propose eco-friendly lifestyle with the best energy mix comprised of gas, electricity, and renewable energy in combination with storage batteries and energy farms.
Comprehensive online-supported living: Propose options that customers can take advantage of without leaving home, including working from home or enjoying the benefits of various daily life services such as medical care and education.
Home delivery service: In addition to Aqua (bottled water delivery), propose convenient ways to enjoy food by providing recipes, delivering food ingredients, disseminating information via social media and video streaming, and holding showroom cooking classes.
Community revitalization service: Propose outdoor experience-oriented services that leverage regional characteristics, such as Aoi Bune boat excursion for tourism, health promotion through sports, and operation of outdoor and hot bath facilities.
The company is dedicating the next four years FY03/22–FY03/25 in its medium-term plan, IP24 (Innovation Plan 2024 “Design the Future Life”) to building the foundation for realizing Life Design.
The five key messages of IP24 (Innovation Plan 2024 “Design the Future Life” are as follows. 1) promote LNG strategy (business expansion in existing areas, in Japan, and overseas), 2) advance the TLC concept, 3) further strengthen and expand customer base through full-scale DX strategy, 4) optimize allocation of management resources, and 5) strengthen SDGs initiatives.
The company intends to expand customer count through regional expansion (boost customer count from 3.1mn at end-FY03/21 to 3.56mn by FY03/25 through expansion in existing areas, in Japan (strategic market expansion), and overseas while also sustaining growth.
Expansion in existing areas: Aim to expand market share in existing areas.
Expansion in Japan: Expand the Energy business to Shikoku and West Japan while expanding the Construction, Equipment, and Real Estate business to the Kanto and Chukyo regions and expanding the Information and Communications business to the Kyushu and Hokuriku regions.
Global expansion: Expand the Energy business in Southeast Asia, beginning with Vietnam, while expanding the Information and Communications business in China and Indonesia.
The company aims to further promote the TLC concept through the dual strategies of advancing digital marketing to better understand customer needs and open innovation centered on corporate venture capital. The company will advance two strategies as steppingstones for the design and counter-planning of lifestyles desired by customers: 1) digital marketing to analyze actual and potential needs and 2) open innovation to expand and create new services.
DX strategy initiatives utilizing ABCIR+S* are the inter-disciplinary drivers behind promotion of the above-noted LNG strategy and TLC. TOKAI Holdings will consolidate data from 3mn customers nationwide and utilize its data analysis platform D-sapiens to enhance digital marketing that appeals to customer needs. The company has begun to explore and build new businesses in pursuit of technologies, ideas, and human resources by investment in start-up companies through TOKAI Venture Capital & Incubation Co., Ltd (corporate venture capital company established on April 1, 2021).
*ABCIR+S refers to the group’s strategies toward technological innovation; the term is formed from the initials of AI (A), Big Data (B), Cloud (C), IoT (I), Robotics (R), and Smartphone (S).
The company strives to optimally allocate management resources generated by cash flow from operating activities while making growth investments such as capital investment for future growth and enhancing shareholder returns to improve shareholder value. Specific management indices are as follows:
Green strategy: By FY03/31, TOKAI Holdings aims to reduce CO2 emissions from business activities by 70% (13,000 tons) from FY03/21 levels. In terms of marketing activities, the company aims to reduce CO2 emissions from household gas by 50% (170,000 tons) compared to 360,000 tons in FY03/21 by popularizing high-efficiency gas appliances and installing solar power generation systems. The company further aims to market decarbonized gas by 2050, thus achieving carbon neutrality.
Work style reform: The company introduced remote work in April 2021 with the aim of reducing office attendance by 50% and office floor area by 40%. By FY03/25, TOKAI Holdings looks to make all employees (excluding essential workers) eligible for remote work. The company also aims to increase the number of female managers 10-fold by 2030, eliminate the circumstances that require employees to leave the company to care for family members, and promote diversity of human resources.
Strengthen governance: The Nomination and Compensation Committee was established in February 2021 to evaluate director nominees and remuneration while also ensuring transparency and objectivity in the decision-making process. The company aims to continue improving the effectiveness and transparency of corporate governance through measures such as reviewing the composition of directors.
On May 9, 2017, the company unveiled its medium-term business plan, Innovation Plan 2020 “JUMP”—a four-year plan that ended in FY03/21. It was TOKAI Holdings’ third medium-term plan following the first Innovation Plan 2013 (FY03/12–FY03/14) and second Innovation Plan 2016 “Growing” (FY03/15–FY03/17). Whereas the first and second were three-year plans, the third was a four-year plan (FY03/18–FY03/21), because the company wanted the final year to coincide with its 70th anniversary, which was 2020 (FY03/21). Innovation Plan 2020 “JUMP” was an aggressive plan of investing in strategic M&A and alliances to increase topline growth.
The initial targets for FY03/21 called for sales of JPY339.3bn (1.9x the level in FY03/17) and operating profit of JPY22.5bn (1.8x). In May 2020, the company revised the targets to sales of JPY205.3bn and operating profit of JPY15.0bn. This compares to the actual FY03/21 figures of only JPY196.7bn in sales (1.1x the FY03/17 level) and JPY15.2bn in operating profit (1.2x). JPY100bn had been earmarked for M&A, but only JPY16.7bn of this was invested due to financial discipline. The lower-than-projected M&A activity is the main reason the initial targets were not achieved.
The company had also focused on capital efficiency, setting indices of interest-bearing debt/EBITDA of 2.6x, an equity ratio of 31.6%, and ROE of 13.0%. The actual FY03/21 figures were 1.4x, 41.6%, and 12.7% respectively.
The company saw the liberalization of gas and electric power as an opportunity and invested aggressively in strategic M&A and alliances (JPY100bn in total over four years). Targets were companies likely to help expand existing businesses such as gas, CATV, and Information and Communications, as well as those with services and customers in new lifestyle business areas. TOKAI Holdings worked to increase consolidated earnings by M&A of companies with an earnings base in addition to organic growth of existing group businesses. It also sought to generate synergies by cross-selling of monthly fee-based lifestyle and other services acquired from other companies to harness the strengths of its business model.
The company aimed to grow the number of customers from 2.56mn at end-FY03/17 to 4.32mn at end-03/21 and increase the percentage of customers using more than one of its services from around 7% at end-FY03/17 to 20% at end-FY03/21. (In FY03/21, the company had 3,099,000 continuing customers, and 979,000 TLC members.) It worked to increase average revenue per user (ARPU) and lower cancellation rates (i.e., increase lifetime value per customer) by taking advantage of its direct point of contact with customers to encourage use of multiple daily life infrastructure services. Around 20% of the group’s 4,000 or so employees had contact with retail customers.
|Customers (mn)||2.56||2.88||2.99||3.72||4.32 or higher||1.7x|
|Interest-bearing debt / EBITDA||1.9x||2.0x||1.7x||1.8x||2.6x||-|
Basic direction of the previous medium-term plan, Innovation Plan 2020 “JUMP,” was as follows:
Engage aggressively in M&A and alliances, investing JPY100bn over four years on a leveraged growth strategy.
Acquire or partner companies that will expand the customer base of core businesses such as gas, CATV, and Information and Communications, and companies with new, monthly fee-based, lifestyle services that will help harness the strengths of the group’s business model.
Prioritize operating profit as well as sales, aiming to double both between FY03/17 and FY03/21, and ROE (FY03/21 target of 13.0%)
Provide continuous and stable returns to shareholders.
The company is involved in a wide-range of products and services. It has a relatively simple strategy of actively adding products and services that contribute to future growth and meet the needs of customers.
Since its founding, the company has focused on energy, such as LP gas, and information and communications, such as FTTH and CATV. Now it is focusing on its added value group-wide rather than the added value of each segment as a source of further growth, given that market growth is beginning to slow for these core businesses.
Only a fraction of the company’s customers use more than one product or service. TOKAI has begun launching various measures to encourage customers to use multiple products and services. If it can increase such customers, it will achieve synergies, reducing cancellations and improving sales efficiency.
As of end-March 2021, the company provides a diverse range of products and services to 3,099,000 customers in Shizuoka Prefecture, Kanto, and other areas. The company’s core operations are energy and housing-related (which includes LP gas) and information communications (such as Internet connection services and CATV).
TOKAI Holdings Corporation was established on April 1, 2011, after the management integration of TOKAI Corporation and TOKAI Communications Corporation, and an accompanying transfer of shares to a holding company. Prior to this, TOKAI Communications Corporation was a subsidiary of TOKAI Corporation.
The company’s businesses, which provide a diverse array of services targeting both retail and commercial customers, fall into six business segments: Energy; Information and Communications; CATV; Aqua; Construction, Equipment, and Real Estate; and Others.
The Energy, Information and Communications, and CATV segments account for the majority of sales and operating profit and have the largest number of customers, as summarized in the following table.
|Number of customers||FY03/09||FY03/10||FY03/11||FY03/12||FY03/13||FY03/14||FY03/15||FY03/16||FY03/17||FY03/18||FY03/19||FY03/20||FY03/21|
|('000)||TOKAI cons.||TOKAI cons.||TOKAI cons.||Cons.||Cons.||Cons.||Cons.||Cons.||Cons.||Cons.||Cons.||Cons.||Cons.|
|Information and Communications||758||816||854||863||852||829||817||787||761||785|
|Segment sales and operating profit||FY03/11||FY03/12||FY03/13||FY03/14||FY03/15||FY03/16||FY03/17||FY03/18||FY03/19||FY03/20||FY03/21|
|% of total||54.7%||54.0%||52.0%||51.4%||49.6%||44.6%||41.1%||40.9%||40.7%||39.9%||39.3%|
|Information and Communications||34,725||37,943||38,497||38,803||40,118||44,246||49,508||50,894||51,234||51,753||50,735|
|% of total||19.9%||20.9%||21.2%||20.5%||21.4%||24.5%||27.7%||27.4%||26.7%||26.4%||25.8%|
|% of total||12.9%||13.4%||13.1%||12.8%||13.0%||13.6%||14.2%||15.3%||15.9%||16.0%||17.2%|
|Construction, Equipment, and Real Estate||14,907||15,881||15,756||19,245||20,019||20,975||19,511||19,807||20,090||22,383||23,177|
|% of total||8.5%||8.7%||8.7%||10.2%||10.7%||11.6%||10.9%||10.6%||10.5%||11.4%||11.8%|
|% of total||-||-||2.1%||2.3%||2.6%||3.0%||3.2%||3.3%||3.7%||3.8%||3.9%|
|% of total||4.0%||3.0%||3.0%||2.7%||2.7%||2.7%||2.9%||2.5%||2.5%||2.5%||2.1%|
|Operating profit margin||6.1%||6.0%||4.9%||3.9%||4.8%||4.6%||7.1%||5.9%||6.8%||7.3%||7.7%|
|Operating profit margin||6.4%||4.7%||5.5%||4.6%||6.0%||8.6%||9.5%||6.5%||5.7%||6.3%||7.9%|
|% of total||57.2%||41.9%||58.2%||61.1%||61.6%||84.6%||54.4%||45.3%||34.0%||34.5%||40.2%|
|Information and Communications||4,310||4,197||3,746||3,049||3,486||829||3,065||1,866||2,593||2,959||3,086|
|Operating profit margin||12.4%||11.1%||9.7%||7.9%||8.7%||1.9%||6.2%||3.7%||5.1%||5.7%||6.1%|
|% of total||40.1%||38.4%||41.9%||41.2%||38.7%||10.1%||24.0%||17.0%||19.9%||20.8%||20.3%|
|Operating profit margin||11.4%||6.8%||1.8%||4.0%||3.5%||4.7%||9.2%||10.7%||14.6%||14.5%||14.0%|
|% of total||24.1%||15.1%||4.8%||13.2%||9.6%||14.1%||18.3%||27.7%||34.0%||31.9%||31.0%|
|Construction, Equipment, and Real Estate||856||555||209||926||495||676||461||655||954||1,379||1,257|
|Operating profit margin||5.7%||3.5%||1.3%||4.8%||2.5%||3.2%||2.4%||3.3%||4.7%||6.2%||5.4%|
|% of total||8.0%||5.1%||2.3%||12.5%||5.5%||8.2%||3.6%||6.0%||7.3%||9.7%||8.3%|
|Operating profit margin||-||-||-||-||-||-||-||0.1%||2.6%||1.8%||1.1%|
|% of total||-||-||-11.5%||-28.5%||-16.1%||-15.5%||0.8%||0.2%||4.0%||2.8%||1.7%|
|Operating profit margin||-||-||-0.3%||-0.2%||-7.7%||-4.0%||2.2%||6.4%||4.5%||4.8%||-6.0%|
|% of total||-2.5%||-2.1%||-0.2%||-0.1%||-4.3%||-2.4%||0.9%||2.7%||1.7%||1.7%||-1.6%|
In FY03/21, this core segment saw JPY77.4bn in sales (accounting for 39.3% of overall company sales) and JPY9.0bn in operating profit before allocation of overhead expenses (accounting for 42% of overall operating profit).
The Energy segment has four subsegments, of which the Liquefied Petroleum Gas and Petroleum (LP gas) subsegment accounts for the majority of sales and operating profit. In FY03/21, the LP gas business reported sales of JPY65.6bn and the city gas business reported sales of JPY11.7bn.
In this subsegment, the company mainly sells LP gas, liquefied natural gas (LNG), and petroleum products, along with related equipment and services. The subsegment has approximately 681,000 customers spread over Tokyo and 16 other prefectures located mainly in the Tokai and Kanto regions. Of this total, Shizuoka accounted for approximately 182,000 customers and Kanto accounted for roughly 450,000 customers (as of end-March 2021). The company has top market share (21%) in Shizuoka Prefecture, is second (7%) in Kanto, and is the third-largest LP gas business in Japan (source: LP Gas Annual Report: Facts and Figures, Vol 56, 2021, Sekiyu Kagaku Shinbun Sha).
|Ranking||Company||No. of direct customers|
|2||Nippon Gas Co., Ltd.||877,000|
|4||Itochu Enex Co., Ltd.||551,000|
|5||Toho Liquefied Gas Co., Ltd.||372,611|
|6||Itami Sangyo Co., Ltd.||308,192|
|7||Saisan Co., Ltd.||304,700|
|8||ENEOS Globe Energy Corporation||300,999|
|9||Horikawa Sangyo Co., Ltd.||240,000|
The company supplies city gas in the cities of Yaizu, Fujieda, and Shimada, located in central Shizuoka Prefecture, to 63,000 customers combined (as of end-March 2021). Sales volume was 130mn sqm, of which large-lot users accounted for 120mn sqm and small-lot users for 20mn sqm. In April 2018, the company concluded an agreement relating to the transfer of the gas business operated by the town of Shimonita in Gunma Prefecture. It obtained authorization for the transfer from the Kanto Bureau of Economy, Trade and Industry in October of the same year. It took over operations of the business in April 2019. In March 2019, it also obtained preferential negotiation rights for the gas business operated by the city of Nikaho (Akita Prefecture), and assumed operations of the business starting in April 2020. In April 2019, TOKAI Holdings acquired a minority stake in Isesaki Gas Co., Ltd., a city gas business operator in the city of Isesaki (Gunma Prefecture), making Isesaki Gas an equity-method affiliate. In October 2019, TOKAI Corporation joined together with TEPCO Energy Partner, Inc. to form T&T Energy Co., Ltd. With this joint venture, the company is looking to bring together the expertise of TEPCO Energy Partner in the city gas retail sales business and its gas sourcing capabilities with its own sales network in the Tokai region and use this to develop its city gas retail sales business in the Tokai region. In addition to city gas sales in the Tokai region, the joint venture is also looking at expanding its sales territory outside of the three prefectures that comprise the Tokai region.
The company manufactures and sells high-pressure gas products such as oxygen and nitrogen, as well as related equipment.
The company wholesales automated security services and other security systems to other security service providers.
In FY03/21, the Information and Communications segment reported JPY50.4bn in sales (accounting for some 26% of overall sales) and JPY4.3bn in operating profit before allocation of overhead expenses (accounting for 21% of overall operating profit). The segment has four subsegments. The ADSL/FTTH and mobile subsegments target individual consumers, while the system innovation service (SIS) and corporate telecommunications subsegments serve corporate customers.
At end-March 2021, the number of customers was 991,000 (versus 973,000 at end-March 2020). According to the Ministry of Internal Affairs and Communications (MIC) Information & Communications Statistics Database, the company has top market share in Shizuoka Prefecture (17.8%) with 210,000 customers and a 2.2% share in the Kanto area with 360,000 customers as of end-December 2020.
In FY03/20, ADSL/FTTH reported sales of JPY24.8bn and operating profit of JPY2.3bn; mobile reported sales of JPY4.7bn and operating loss of JPY488mn; SIS reported sales of JPY14.4bn and operating profit of JPY1.6bn; and corporate telecommunications reported sales of JPY7.8bn and operating profit of JPY2.0bn.
Based on FY03/21 figures, consumer sales totaled JPY26.3bn while corporate sales totaled JPY24.4bn.
As an internet service provider (ISP), the company sells services directly to consumers under three brands: @T COM, a nationwide brand focusing on the Kanto region; TOKAI Network Club (TNC) in Shizuoka Prefecture; and Web Shizuoka. Sales efforts for ISP were expanded to the Tohoku region in 2012. In Shizuoka Prefecture and the Kanto region, the company also wholesales optical and ADSL circuits as a telecommunications carrier.
The company is an agent for Softbank Mobile Corporation (a subsidiary of Softbank Corporation; TSE Prime: 9984) in Shizuoka and Saitama prefectures through 14 stores primarily selling mobile handsets and service contracts.
The SIS subsegment comprises two classes: EA business and SI and DCS business. EA is outsourced software development; SI is sales, maintenance, and operation of information systems; and DCS is data centers. In FY03/15, EA accounted for 49% of subsegment sales, and SI and DCS accounted for 51%. Operating profit (excluding overhead costs) were 41% and 59%, respectively.
DCS provides a range of outsourcing services, including colocation, e-mail, data backup, and cloud-computing platforms (virtual servers) from two data centers located in Yaizu, Shizuoka Prefecture (according to the company, these facilities are designed to withstand earthquakes up to level 7 on the Japanese seismic intensity scale). The company has jointly developed a third data center in Okayama Prefecture with Ryobi Systems Co., Ltd., which commenced services in April 2013. The three data centers have approximately 1,000 racks. Data-center operators from throughout Japan (21 companies) are collaborating to provide business continuity- and disaster recovery-related services. In March 2013, the company established Cloud Master Co., Ltd., in Taipei, Taiwan. The company will cooperate with this joint venture company and to provide secure and low-cost hosted private cloud services. The company intends to strengthen its operations through by providing enhanced services.
*Data Center X Alliance (DCXA): The DCXA is a group of domestic data center operators formed for the purpose of stimulating the domestic data center business environment through the commercialization of BCP and DR services, providing complimentary services, field-testing of virtual services, and providing commercial-use services. TOKAI Communications Corp. is a member and currently serves as the organization’s secretariat. As of end-March 2021, other members of the alliance include Hokkaido Telecommunication Network Co., Inc. (a subsidiary of Hokkaido Electric Power Co., Inc. [TSE Prime: 9509]), Tohoku Intelligent Telecommunication Co., Inc. (a subsidiary of Tohoku Electric Power Co., Inc. [TSE Prime: 9506]), ITOCHU Techno-Solutions Corporation (TSE Prime: 4739; a subsidiary of ITOCHU Corporation [TSE Prime: 8001]), Hokuden Information System Service Company, Inc. (a subsidiary of Hokuriku Electric Power Company [TSE1: 9505]), OGIS-RI Co., Ltd. (a subsidiary of Osaka Gas Co., Ltd [TSE Prime: 9532]), Sakura KCS Corporation ( a subsidiary of Sumitomo Mitsui Banking Corporation), QTNet Co., Ltd. (a subsidiary of Kyushu Electric Power Co., Inc. [TSE Prime: 9508]), Nishitetsu Information System Co., Ltd. (a subsidiary of Nishi-Nippon Railroad Co., Ltd. [TSE Prime: 9021]), Sakura Information Systems Co., Ltd. (a subsidiary of OGIS-RI Co., Ltd.), BSN Information NETwork Service, AGS Corporation, LCV Corporation (a subsidiary of TOKAI Holdings Corporation [TSE Prime: 3167]), iTEC Hankyu Hanshin Co., Ltd., Ryomo Systems Co., Ltd., TOKAI Communications Corporation (a subsidiary of TOKAI Holdings), MEIKO TECHNOS, Ryobi Systems, Co., Ltd, UNIADEX, Ltd., OKIGIN SPO, NTT Facilities, Inc., and IBC Co., Ltd. The alliance may implement platform service linkage and network service interconnections.
The EA and SI businesses have a combined total of approximately 700 engineers (as of end-March 2021) and provide total solutions from consulting and system development through to operation and maintenance. Moreover, the company provides AWS solutions in support of cloud migration and utilization. These businesses serve a broad variety of industries and fields, including the restaurant industry, the health care sector, and the public sector, with emphasis on such systems as accounting and human resources.
The company provides Internet connection services and interoffice telecommunications services to the corporate market via a proprietary fiber-optic network covering an area stretching from northern Kanto region in the east to Osaka in the west. The network is approximately 10,000km long. Within the subsegment, the Leased Line business—which offers interoffice telecommunications services—accounts for about 90% of sales, and the remainder is made up of other businesses such as the wire leasing business offering fiber-optic lines.
On April 1, 2013, the company extended its fiber-optic network to Okayama Prefecture, accompanying the opening of the Okayama Data Center and strengthening the company’s telecommunications infrastructure in western Japan.
In FY03/21, the CATV segment reported JPY33.7bn in sales (accounting for roughly 17% of overall sales) and JPY5.2bn in segment profit before allocation of overhead expenses (accounting for 25% of overall operating profit). The company provides broadcasting services and telecommunications services (ISP) in Metropolitan Tokyo and six prefectures: Shizuoka, Kanagawa, Chiba, Nagano, Okayama, and Miyagi. In FY03/20, broadcasting services accounted for 47% of subsegment sales and telecommunications services accounted for 53%. As of end-FY03/21, the CATV segment reported a total of 1,198,000 subscribers (875,000 for broadcasting service and 322,000 for telecommunications service) versus 1,154,000 at end-FY03/20.
The broadcasting services business provides local information through community channels and a multichannel digital broadcasting service offering up to 160 channels.
In the telecommunications services business, the company provides, in addition to conventional CATV internet, fiber-optic internet and telephone services. These services utilize the company’s proprietary fiber-optic network, which has a backbone network as well as fiber-to-the-home (FTTH). The telecommunications services business had 322,000 subscribers (as of end-March 2021).
The number of households serviceable by the company’s broadcasting and telecommunications network infrastructure is 1,621,000, of which 875,000 households are subscribers (as of end-March 2021). Hence, the broadcasting subscription ratio (subscribers divided by number of serviceable households) is approximately 54%. Among these households, 61% subscribed only to broadcasting services, 28% to both broadcasting and telecommunications services, and 11% to telecommunications services only (as of end-March 2021).
In FY03/21, the Construction, Equipment, and Real Estate segment reported JPY23.2bn in sales (accounting for 12% of overall sales) and JPY2.1bn in segment profit before allocation of overhead expenses (accounting for 10% of overall operating profit). The company designs, constructs, and renovates housing and retail stores; sells equipment and appliances; and develops, sells, leases, and brokers real estate. Contributions from leasing of retail and office space accounts for a high percentage of sales. Renovation accounted for around 22% of total sales, equipment and appliance for roughly 15%, and installation work for 13% (in FY03/21).
The company entered the housing equipment business in 1970 and is involved in a broad array of operations, from the construction of detached houses and rental apartments to renovation services, as well as construction of condominiums, offices, and other large-scale projects. The company also promotes the development of high-quality residential land and is involved in urban development. It wholesales housing-related equipment to house manufacturers and small-scale builders, installs air-conditioning equipment, and carries out plumbing and sewage work. In addition, in April 2010, the company acquired 61% of the total floor area of Aoi Tower, located near JR Shizuoka Station, and it leases retail and office space in this complex.
The company made a full-scale entry into the general renovation business when it launched TOKAI WILL Reform in April 2012. Through its gas business and strong ties to local communities, the company has built up a solid track record in plumbing-related renovation work. Utilizing its technical expertise and over 600,000 customers in its gas business, the company is determined to grow its renovation business. Also, the company actively employs female planners, producing proposals and designs that meet the needs of homemakers and other female customers.
In September 2019, the company acquired and made Nissan Tri Star Construction, Inc., a general construction company in Gifu Prefecture, a consolidated subsidiary. Although the acquisition of a general contractor such as this will not generate the same kinds of synergies that the acquisition of another CATV service provider or city gas company would because it does not leverage TOKAI Holdings’ strength in product sales, it will give the TOKAI group expertise in civil engineering that it did not have previously and new sales bases. The acquisition was driven by TOKAI Holdings’ confidence in its own expertise in selling multiple product lines in the new areas through acquisition of sales bases. Chuo Denki Koji Co., Ltd. (Gifu Prefecture) was made a subsidiary in August 2020 and consolidation of the new civil engineering and electrical construction businesses positioned TOKAI Holdings as a general contractor and enabled the creation of an ordering system for major companies in the construction industry. In November 2020, Inoue Technica Co., Ltd., which operates a building maintenance business, was made a consolidated subsidiary, allowing TOKAI Holdings to absorb the management expertise accumulated over many years and facilitating expansion of this business.
In FY03/21, the Aqua segment reported sales of JPY7.6bn (accounting for around 4% of overall sales) and segment profit before allocation of overhead expenses was JPY573mn. The company manufactures, sells, and delivers drinking-water products. It considers the Aqua business as a main growth area.
The aqua business has developed into a significant segment and separated from the Gas and Petroleum segment, and became the Aqua segment in Q1 FY03/14.
In November 2007, the company commenced a returnable-bottle service (bottles are collected, washed and sterilized, and subsequently reused) in Shizuoka Prefecture, and in March 2011 it launched a nationwide one-way bottle service (bottles are home delivered and disposed of after use similar to PET bottles). The service has around 162,000 customers, of which 71,000 are in Shizuoka Prefecture using the returnable bottle service. The Shizuoka Prefecture service has a market penetration rate of about 5%, giving it the prefecture’s largest market share. The nationwide one-way bottle service has 91,000 customers (all figures are as of end-March 2021).
The company’s returnable-bottle service is affectionately known as the “Oishii Mizu no Takuhaibin” (“Delicious Water Home Delivery”) brand. Its one-way bottle service was rebranded as “Oishii Mizu no Okurimono - ulunom” (“The Gift of Delicious Water”) in May 2013, focusing mainly on the Kanto area and targeting child rearing mothers who are highly concerned about their family’s drinking water.
The product’s main characteristic is its natural water qualities from its local area of Mt. Fuji. The company sources its water from the base of Mt. Fuji on Asagiri Plateau (Fujinomiya, Shizuoka Prefecture). According to the company, Asagiri Plateau is well-known as a high-quality water source area and is said to have abundant natural spring water with useful mineral content that has been filtered through the layer of basalt from which Mt. Fuji is formed.
The company has produced water in returnable bottles at its own TOKAI Aqua Yaizu Plant (Yaizu, Shizuoka Prefecture) since April 2008. With annual production capacity of 1.85mn bottles, this is enough to supply approximately 70,000 households. However, to meet growing demand for its one-way bottle product and as part of business continuity plan, in March 2013 it commenced operations at a second plant—Aqua Fujisan Plant. Located in the Fujisan Nanryo Industrial Park (Fujinomiya, Shizuoka Prefecture), the Aqua Fujisan plant has an annual production capacity of 3.0mn bottles, or enough to supply approximately 110,000 households.
The company has expanded the service from Shizuoka to cover the entire country, and in April 2012 it established a subsidiary in Shanghai, China, named TOKAI (Shanghai) Trade & Commerce Co. Ltd. Under the product name “Fujishigen” it commenced sales in June 2012 and targets an affluent market segment.
The average revenue per user (ARPU) is around JPY4,600, or about two bottles per user (one 12-liter bottle of Ulunom “Asagiri no Shizuku” costs JPY1,391 including tax (as of end-March 2021); charges for the water dispenser are separate.
In FY03/21, the Others segment reported JPY4.1bn in sales (accounting for some 2% of overall sales). The Others segment includes three businesses.
These operations include Grandair Bouquet Tokai, a facility within Aoi Tower near Shizuoka Station.
The company undertakes ship repairs, including for ocean-going and in-shore fishing vessels.
This includes life and casualty insurance agency, travel-agency services, and operating of nursing care facilities.
The company is working to strengthen its nursing care facility operations, which it started in April 2011. As of end-March 2021, the company had six day care facilities, one short stay facility, one paid-nursing care facility, and two care plan centers in Shizuoka Prefecture. The company intends to cater to the growing needs, and enhance its day care, short stay, and nursing care facilities, and expand its businesses while benefiting the local communities.
Centering on the Kanto region and Shizuoka Prefecture, the company has 3,099,000 customers (up 95,000 YoY), to whom it offers a wide variety of products and services. Historically, the company simply sold a variety of products and services, without co-branding or bundling. In May 2011, the company stated its new strategy of becoming a Total Life Concierge (TLC), offering one-stop service and product menu to its customers. As of end-March 2021, there were 979,000 TLC members (up 83,000 members YoY).
Shared Research thinks that there is still some way to go with the TLC model and it makes more sense to evaluate the company as a sum of its individual businesses. As of end-March 2020, of the company’s 3,099,000 customers, the number of customers that use multiple services stood at 20.0%. (The company had aimed to get that figure above 20% by end-FY03/21.)
In December 2012, the company began issuing the TLC WAON card, using Aeon Co., Ltd.’s (TSE Prime: 8267) WAON e-money. This marked the launch of the integrated TLC Member Service covering the entire TOKAI group offering. Under this system, members accumulate points as they use various services provided by the company. Other than using their accumulated points to pay, there are 17 menu options for exchanging these points, including WAON Points and MI Points (e-money). Shared Research thinks these new initiatives have potential and will be following developments of the service and any similar measures closely.
In the recent years TOKAI Holdings has become more focused on its core competencies, seeing its services as a single business portfolio as opposed to a random array of unrelated services. Although Energy is the company’s core segment, the market itself is shrinking. The company sees this business primarily as a cash cow as well as a sales platform, enabling it to offer customers other TOKAI group services and products. The gas business has historically been the main growth driver. The group’s LP gas business operates mostly in the Kanto region and, with operations in Metropolitan Tokyo and 16 prefectures, serving a total of 681,000 customers. Its city gas business (which supplies natural gas), operates in the cities of Yaizu, Fujieda, and Shimada in Shizuoka Prefecture, serving a total of 63,000 customers. It employs a sales force of around 500, and accounted for 38% of the company’s overall operating profit (before allocation of overhead expenses) in FY03/21. Another cash cow for the company is the CATV segment.
In April 2019, TOKAI Holdings acquired a minority stake in Isesaki Gas Co., Ltd., a city gas business operator in the city of Isesaki, Gunma Prefecture, making Isesaki Gas an equity-method affiliate. By sharing management resources and expertise, the two companies aim to collaborate in the city gas business and LP gas business and mutually promote each other’s services. In October 2019, TOKAI Corporation joined together with TEPCO Energy Partner, Inc. to form T&T Energy Co., Ltd. With this joint venture, TOKAI Holdings is looking to bring together the expertise of TEPCO Energy Partner in the city gas retail sales business and its gas sourcing capabilities with its own sales network in the Tokai region and use this to develop its city gas retail sales business in the Tokai region. In addition to city gas sales in the Tokai region, the joint venture is also expanding its sales territory outside of the three prefectures that comprise the Tokai region. In April 2020, the company took over the gas business previously operated by the city of Nikaho in Akita Prefecture, marking the group’s first entry into Akita Prefecture. In addition to helping TOKAI Holdings expand its city gas business, this acquisition was also aimed at helping the company expand the reach of its other services under its Total Life Concierge (TLC) service banner.
In contrast, Aqua and Information and Communications (with SIS and corporate telecommunications subsegments as key drivers) are growth segments, and the company is aggressively investing in these businesses.
As of end-FY03/21, the TOKAI Holdings group had 2.6mn customers mainly in the Kanto region and Shizuoka Prefecture and 3.1mn nationwide.
The outline of operations in each area is as follows.
The company has steadily expanded its customer base in the Kanto region, including Tokyo, with the number of customers totaling 1.38mn as of end-FY03/21, mainly in the LP gas and information and communications businesses. Kanto is the largest consumer market in Japan though there is intense competition. The company considers there is still wide room for finding new customers.
As of end-FY03/21, the number of customers of the group’s services in the Shizuoka area was 940,000 households, accounting for some 63% of all households in Shizuoka Prefecture. In the area, the company operates the LP gas business mainly in the suburbs and the CATV and city gas services mainly in cities. It also runs the internet and Aqua businesses all over the prefecture. Though the rate of population decline, expected for 20 years later, will be high in Japan, Shizuoka is ranked second after Tokyo in all prefectures in terms of income of residents. Accordingly, the company believes that there is wide room for expansion of profits by encouraging customers to use multiple services.
The company had a total of roughly 600,000 customers in other regions as of end-March 2021. In Suwa, Nagano Prefecture, central Japan, there were 89,000 customers of the CATV service (94%). In Kurashiki, Okayama Prefecture, western Japan, there were 97,000 CATV customers. The company opened its third data center in the Okayama area in April 2013. In the western Japan region, where TOKAI advanced in April 2012, the information and communications business is to turn black in FY2015. TOKAI took part in the market of Fukuoka in the western Japan (Kyushu) in April 2014. With the launch of the around-the-clock call center service outsourced from real estate companies, TOKAI started selling equipment and making efforts to find customers of its LP gas service in the Kyushu region.
In addition to efforts to enlarge its businesses in existing areas, the company plans to extend the territories to surrounding areas, focusing on the LP gas and Aqua businesses. In the LP business, now it is operating mainly in the Kanto region and Shizuoka, and has advanced into the southern Tohoku region in northeastern Japan and the Chubu and Tokai areas of central Japan from 2015. For the Aqua business, the company plans to expand it to the Hokuriku and Chugoku regions, starting from the Kansai western Japan region.
The company was founded in 1950 with the objective of selling city gas in Yaizu, Shizuoka Prefecture. In 1959, the company launched its LP Gas business to expand the sales territory. After the LP Gas business achieved the top market share in Shizuoka Prefecture, in 1979 the company entered the Kanto region and simultaneously diversified its Shizuoka stronghold through the launch the CATV and ISP businesses.
TOKAI Holdings has used its reputation, customer relationships, and distribution expertise cultivated in the LP gas business to start up the Aqua business, a water cooler distribution business.
The company thinks that selling water is an exceptional addition to its traditional LP gas retailing business—the demand for water peaks in summer while the peak for gas consumption is during winters.
Although Aqua is the company’s first manufacturing business, it is also a simple one—the company has secured a water source that provides it with a reliable supply of water at a low price. Unlike LP gas, which is purchased at market prices, the Aqua business enjoys extremely stable input costs.
Although Aqua business has its own dedicated sales force, in Shizuoka Prefecture and other areas where the company has an established customer base, sales staff of the LP Gas business also conduct sales activities for the Aqua business. This business segment also utilizes LP Gas’ existing logistics expertise.
As discussed in the Market Overview section, the water delivery market has been expanding, and the potential for future growth appears to be large. In this environment, leveraging the “Mt. Fuji brand” and the company’s sales capabilities can achieve significant market penetration in Shizuoka Prefecture, as can gradually expanding the sales area. The company stated that with its outright-owned water sources it can respond adequately to future demand growth.
Shared Research understands that while the Aqua business requires a significant investment, it has high incremental margins. Once the breakeven has been reached, the profitability can be remarkable. The cost of goods sold has two components, water servers and the water itself (extraction at the source and other related costs). (See Profitability Snapshot, Financial Ratios for more detailed discussion). The water servers are the main cost here and as the business gains scale, the cost per server could decline somewhat. Customer acquisition (an SG&A component) is the largest cost which is high enough to make the business lose money in the initial growth phase. However, once the cash flow from existing customers exceeds the new customer acquisition costs, margins start expanding rapidly. The business segment turned profitable in FY03/17.
An important characteristic of the SIS and corporate telecommunications subsegments is the company’s trinity of services: data centers, system development, and corporate interoffice telecommunication services utilizing the company’s proprietary fiber-optic network infrastructure.
The important strength of the company’s business model in this segment is that it combines in one package one-off revenues of development projects and recurring revenues of its corporate interoffice telecommunications services and data center operations. In order to grow the profitability however, the company thinks it needs to develop cloud-based services for medium-size firms. Doing so will allow to boost its data center utilization rates (a major driver of segment profitability).
Sales of the CATV segment are ARPUs times the number of subscribers. ARPU change depending on whether users buy higher priced services or use multiple services. The number of subscribers is the subscription rate times the number of households in the service area. Changes in ARPU drive profit margins. In addition, more subscribers give the company bargaining power vis-à-vis suppliers of hardware and programming content. As a side note, depreciation accounts for a large proportion of cost of sales.
Comparing the company with the CATV industry leader, Jupiter Telecommunications Co., Ltd., two firms have the following growth strategies in common: localized sales effort tailored to its region geography and other unique characteristics; rich service lineup; and the use of M&A to buy growth. For the company, its expertise in selling locally door-to-door, the original strength of both its LP gas and CATV businesses, could also mean a higher probability of success in pushing the “total concierge” strategy, cross-selling other products and services using the same sales force.
LP gas is a fuel made primarily from butane and propane, which easily liquefy at room temperature when compressed. This makes LP gas cylinders easy to refill and transport. For this reason, in suburban areas and small cities where there is no city gas pipeline network, LP gas is a common household thermal source.
In contrast, “city gas” refers to gas delivered via an urban pipeline network and is primarily made from natural gas (methane). Unlike butane and propane, liquefying natural gas requires not only pressure but also cooling to minus 16 degrees Celsius (about three degrees Fahrenheit) or below. For this reason, it is not suited for transportation in cylinders but instead is supplied to households in gas form through underground pipes.
|Usage||Share in domestic demand||Main features|
|Household & commercial use||43.0%||Propane is the main ingredient and cylinders are installed on-site to supply households and commercial facilities.|
|General industrial use||21.8%||Used in ferrous and non-ferrous metal processing as a thermal source, and for such applications as drying of industrial components and foodstuffs.|
|Chemical raw material||20.4%||Demand is on an upward trend for butane as a raw material in the manufacture of such chemical products as ethylene and propylene.|
|City gas||7.9%||Although the main ingredient of city gas is methane, LP gas is an additive to increase thermal power.|
|Automobile use||5.5%||Used in domestic LP gas-powered vehicles, butane is the main ingredient.|
|Electricity generation||0.6%||Used as a backup fuel at thermal power stations.|
|Large-scale steelmakers||0.7%||Used in the steel industry for heating and heat-treating steel materials.|
On a nationwide basis, 24.0 million households use LP gas (approximately 45%). By contrast, within Shizuoka Prefecture—the company’s core territory—around 60% of households uses LP Gas (2015).
The LP gas industry has a three-tier structure comprising primary suppliers (“motouri”), wholesalers, and retailers. As of March 31, 2012, there were eight primary suppliers, approximately 1,100 wholesalers, and 21,518 retailers. Based on the 2013 LP Gas Industry Report, the industry has several tiers (the company is mainly a retailer but also has some wholesale operations):
Primary suppliers: Import and sell gas from producer countries, as well as refine crude oil and sell refined petroleum products. Fierce competition has seen significant realignment and consolidation of this part of the industry. In 1980, there were 25 primary suppliers, but by 2011 this had shrunk to eight companies.
Wholesalers: Purchase LP gas from primary suppliers and sell to retailers who have direct relationships with end users. Each region has dominant wholesalers, and entry by such companies into the retail business is accelerating.
Retailers: Purchase LP gas from wholesalers and sell to households and other customers as well as delivery, safety assurance, and collection of fees. There are a large number of small-scale retailers who maintain very close links with their respective local communities. These operators face a trend of rising costs for delivery and safety assurance.
User charges, unlike those for electricity and city gas, are set by each seller based on its own calculation method. Whereas the basic law governing city gas suppliers is the Gas Utility Industry Law, the basic law governing LP gas suppliers is the Law Concerning the Securing of Safety and the Optimization of Transaction of Liquefied Petroleum Gas (LP Gas Law). Under the revised LP Gas Law (effective April 1997), to make tariff systems more transparent, suppliers are obligated to disclose the tariff structure to consumers in an easily understood way and indicate the content of services covered by those charges. Types of tariff structures include two-tier, three-tier, minimum usage, and multiple. As of 2015, the most common structure is a two-tier tariff.
The two-tier tariff structure comprises a base charge and metered volume charge. The basic charge is a fixed amount per customer (dwelling or premises) that is not dependent on usage volume, and covers 1) the cost of equipment necessary for supply, such as cylinders and meter; and 2) the cost of safety and meter reading as well as gas alarm rental. The metered volume charge is tariff based on gas usage volume and comprises the gas input cost as well as the delivery cost.
LP gas is mostly imported, and the price varies depending on the contract price (CP) and cost, insurance, and freight (CIF). CP refers to the price determined by Saudi Aramco, the national oil and natural gas company of Saudi Arabia—a major LP gas producer—based on a combination of factors, including crude oil price trends and spot bid prices for gas sold by Saudi Arabia and other gas-producing countries. Bid prices are unpublished, hence CP is to some extent a unilaterally notified price (CP is the handover price at the port of the exporting country and is denominated in dollars/ton). CIF refers to one type of basic set of conditions used in the conduct of international trade transactions and is nowadays the most commonly used benchmark. It is the delivered price including freight and insurance. In Japan, it is usually the price to a Japanese port denominated in yen/ton.