TOKAI Mid-Term Management Plan

Innovation Plan 2016 “Growing”
June 27, 2014
TOKAI Holdings Corporation

AgendaⅠ．The TOKAI Group, providing
Total Life Concierge (TLC)
Ⅱ．Next 3-year medium term
management plan
Ⅲ．Future Group strategy(packaged sales)
1Ⅰ．The TOKAI Group, providing
Total Life Concierge (TLC)

2
Ⅰ. The TOKAI Group, providing Total Life Concierge (TLC)

TOKAI-WAY
Corporate Philosophy
To improve the lives of our customers.
We will continue to grow and develop
along with our region and the globe.

VisionBuilding on our nationwide growth to launch a sustained
move into the international community,
become a TLC (Total Life Concierge): a one-stop provisionof products and services our customers demand.
3

Ⅰ. The TOKAI Group, providing Total Life Concierge (TLC)

Group Sales Composition
Retail consumer sales account for 70% of total sales
Energy accounts for 50% of total sales, telecommunications and CATV account for 30%, andothers 20%.

Percentage of retail business to consumers

Sales by segment
Others
2.7％

Aqua
Construction/
Real estate

2.3％

Gas/Petroleum

51.4％

10.2％

To companies

33.2％

FYE March 2014

CATV

Sales

12.8％

FYE March 2014

Sales

¥189.0¥189.0billionbillionTo consumers
66.8％

ICT

20.5％

4
Ⅰ. The TOKAI Group, providing Total Life Concierge (TLC)

Group Business Model (1)The business model is one of monthly fee income
from ongoing customer transactions
The number of customers has increased by approximately 70 thousand every year over the
past 3 years to the current level of 2.52 million customers
Consolidated Sales

Number of customer contracts by service
FYE March 2014

(Thousands)

3,000

2.52 million

2,500

FYE March 2014

¥189.0 billion

200
180
160
140

2,000
1,500

FYE March 2001

120

FYE March 1990

100

¥64.9 billion

80

740 thousand

1,000
500

(¥ billion)FYE March 1990

60

200 thousand

40
20

-

-

Security

Aqua

CATV

MobileBroadband

Gas

5

Ⅰ. The TOKAI Group, providing Total Life Concierge (TLC)

Group Business Model (2)Largest concentration of customers is in
Shizuoka Prefecture
LP gas is offered in suburban areas, CATV and city gas in urban areas, and others, Internet
and aqua businesses are provided everywhere.
Only 20.2% of customers make multiple transactions, so there is still room for integration.

(Number of TOKAI Group contracted households)

920(Number of TOKAI Group contracted households)

1.15

thousand households

million contracts●Gas: 220 thousand●ICT: 470 thousand(Shizuoka Prefecture households)●CATV:380 thousand●Aqua: 80 thousand

1.43 million* Number of TOKAI Group contracts: FYE March 2014 (actual)* Shizuoka Prefecture households: “Population Estimate by Municipality in Shizuoka Prefecture.” Data provided by Shizuoka Prefecture as of April 1, 2014

6

Ⅰ. The TOKAI Group, providing Total Life Concierge (TLC)

Diverse Life Infrastructure Services
Providing services essential to life including
facilities, security, and healthcare based onenergy and telecommunications
Healthcare
Nursingcare

Aqua

Security
Security

Insurance

Facilities
Equipment
andappliancesHouseholdTelecommunications
and ICT

MobileCity gasData
centerCATV

ISP

EnergyRenovation

LP gasPhotovoltaic
power
systems7

Ⅰ. The TOKAI Group, providing Total Life Concierge (TLC)

Strong Sales Channels
Direct Sales Channels andChannels with Strong Customer Pull

Direct Sales Channels●There are 800 full-time people in charge of customers
throughout Shizuoka and the Kanto region

Face-to-face “TLC” sales●There are 8 customer call centers nationwide with a staff of 250

Meticulous customer care

Major Electronics Retail Channels
There are 230 stores nationwide in partnership with the ISP business

Dedicated sales staff collaborate with telecommunications carriers

Large Commercial Facilities Channel
There are 40 large malls nationwide with more than 100 stores

Dedicated sales staff win customers at events

8

Ⅱ．Next 3-year medium-term
management plan9

Ⅱ．Next three-year medium-term management plan

Innovation Plan 2013 Overview
Started new system with “improving financial
standing as our highest priority”
As a company that provides social infrastructure,
our mission is to achieve stable management
Financial position improved significantly. Shareholders’ equity also improved due to increase in individual shareholders.
Number of customers increased, but earnings compressed due to higher costs over competition for customers(a structural issue).
Capitaladequacy ratio

Interest-bearing
liabilities

Number ofshareholders

Number ofcustomers

Sales

Operatingincome7.7%¥124.0

8,132

2.34

¥174.9¥10.8

millionbillionbillionbillion

↓

↓

↓

↓

↓

↓

21.6%

¥85.8

44,5902.52¥189.0¥7.4

millionbillionbillionbillion

◎

◎

◎

◎

〇

×
10

Conditions in mainstay
businesses and future targets

11

Ⅱ．Next three-year medium-term management plan

① LP Gas Business
Mature market
Declining energy consumption per household
Contract by 1.8-2.0% per year based on falling population, energy efficient devices, and the drive to save energy
Fierce competition from competitors in the Kanto region＜Industry Position＞
LP gas operators
3rd largest customer base in Japan＜Key Factors to Improve Earnings＞

580 thousand

No.1 in Shizuoka Prefecture with 18.6% of themarket (170,000 contracts)

Contracts
TLC’s Origin

Market share of 410 thousand contracts (6.3%) in
Kanto region

Profits expected to fall ¥800 million in FYE March 2017 due
to declining energy consumption per household
Turnaround with net increase in contracts beginning in FYEMarch 2015. Targeting ¥900 million in FYE March 2017with 30 thousand net contract increase over 3 years
Expect streamlining in distribution and other areas to bringcosts down by ¥800 million over 3 years and ¥1.3 billion
over 5 years (including partner companies)（Total Life Concierge）(Source: SEKIYU-KAGAKU-SINBUN-SHA, “LP-gas Annual Report: Facts & Figures”)

6.0

Operating income (JPY billion)

4.0

Utilize integrated customer information toacquire detached homeowner customers

2.0

3.9 4.6 4.2 4.4

0.0
FYE March FYE March FYE March FYE March
2014
2015
2016
2017

Share information between retail segments—gas, aqua, information, security, renovation, and insurance—and use it to attract new customers.
Expand customer base among owners of detached homes—a highly profitable demographic.

12
Ⅱ．Next three-year medium-term management plan

② City Gas Business
Energy consumption per household to fall,competition with other types of energy for industrial demand,
and with electricity, city gas, and LP gas provider for household
demand as energy reforms come into effect＜Key Factors to Improve Earnings＞＜Supply Area Overview＞
The company supplies to Yaizu, Fujieda, andShimada cities in Shizuoka Prefecture
・Household demand: 53 thousand
・Sales volume: 150 million m3(130 million m3 to large customers; 20 million m3 to small customers)

Strong regional basewith penetration
rate of 62% inareas of supply

Increase city gas customers (2 thousand net
increase)
Promote fuel switching among industrial clientsand increase sales volumes
Expand preventive care long-term renovations
and pre-owned household renovations amonghousehold customers
Operating income (JPY billion)

0.8
0.6
0.4

The TOKAI Group aims to become
a comprehensive energy supplier in this area,
thus securing future regional contract0.2

0.5 0.5 0.5 0.6

0FYE March FYE March FYE March FYE March
2014
2015
2016
2017

The TOKAI Group plans to sell fuel cells (“energy farms”) to households.
The TOKAI Group also plans to promote cogeneration systems to industrial customers and to supply steam, hot water, and electricity.

13

Ⅱ．Next three-year medium-term management plan

③ Aqua Business
The water delivery market
will continue to expand
Significant user interest and demand for safe and secure drinking water continues＜Key Factors to Improve Earnings＞＜Industry Position＞
Aqua delivery companies
6th largest customer base in Japan

Net customer increase of 60 thousand over 3 years

TOKAI brand water
Market share leader in Shizuoka Prefecture withgained penetration
63.8% of the market (80 thousand contracts)
due to Ulunom
Has a 4.2% market share in Japan (120 thousand
contracts)
and Doraemon(Source: Yano Research Institute Ltd. and Japan Bottled Water Association)

Improve productivity of natural mineral water
plants following increases in number of customers
and units produced
・Increase unit production by 2.9 times over 3 years (1.3 million to
3.7 million units)
・Production cost per unit to increase by 35% over 3 years

Promote highly profitable regular delivery contracts

1

Operating income (JPY billion)

0

Further spread new brands andcapture expanding demand

-1

-1.8

0.1
-1.1 -0.5-2
FYE March FYE March FYE March FYE March
2014
2015
2016
2017

Increase range of customers with the launch of new product Sarari.
Expand sales channels with a focus on large commercial features with high customer appeal.

Improve by ¥2.0 billion
over 3 years

14

Ⅱ．Next three-year medium-term management plan

④ Broadband BusinessBroadband market growth
has slowed down
Broadband market will reach maturity, peaking in FYE March 2016
FTTH carrier wholesale operations are being reexamined alongside the easing of NTT monopoly regulations
Shift from ADSL to FTTH to continue＜Industry Position＞
The TOKAI Group’s sales are the
4th largest sales among internet
service providers in Japan.
(Source: Article published in November 6, 2013 edition of Nikkei
Marketing Journal)

Market share leader in Shizuoka Prefecture with
27.4% of the market (240 thousand contracts)
Market share of 4.4% in Kanto region (520thousand contracts)＜Key Factors to Improve Earnings＞

Advantage of being
able to sell broadband
through 230 major
electronics retailers
nationwide

Net customer increase of 80 thousand over
3 years
Reform ISP system and make back office
operations more efficient at its 2 brands(Source: Estimate based on the Ministry of Internal Affairs and Communications public
document “Number of Contracts for Broadband Services, etc. (as of March 2014)”

Take advantage of our 73% shareof customers at the 3 major
electronics retailers

Operating income (JPY billion)

4
3
2
1

3.3

3.5

3.6

3.8

0
FYE March FYE March FYE March FYE March
2014
2015
2016
2017

Efficiently acquire customers by focusing sales staff on stores with a high rate of acquisition.

15

Ⅱ．Next three-year medium-term management plan

⑤ CATV Business
Markets for FTTH (optic fiber) and
CATV-NET, which uses coaxial cable forInternet connections, are growing
End of broadcasting in different regions
Price competition with major telecom carriers and increasingly competitive broadcasting services＜Industry Position＞
2nd largest sales among the
CATV industry in Japan(Source: Article published in the November 13, 2013 editionof Nikkei Marketing Journal)

The TOKAI Group has 500 thousand broadcast
customers (47% of those in the homes passed)＜Key Factors to Improve Earnings＞

Regional media
with 47% penetrationin the homes
passed area

Grow CATV and FTTH customers by 30
thousand contracts over 3 years
The end of broadcasting in different regions will
only result in 9 thousand cancellations in FYEMarch 2015, a net increase of 5 thousand over
3 years
Operating income (JPY billion)

32Grow share of regional markets
through our advantage of prices ofbroadcast and telecom services

1

1.8

1.4

1.7

2.1

0
FYE March FYE March FYE March FYE March
2014
2015
2016
2017

Attract customers by offering basic free bulk packages bundled with additional services.
Leverage tie-ups with mobile companies (smartphone discounts) to attracts telecom customers.
Greater regional penetration due to better value services, including 4K and 8K broadcasting, fiber optic broadcasts, and wirelessregional services.

16

Ⅱ．Next three-year medium-term management plan

Basic Policy for Next 3 YearsContinue to increase sales by acquiring new customers, andimprove profitability
Continue to improve financial standing and management stability
Provide continuous and stable returns to shareholders
FYE March
2011
Customers(10 thosand)Sales(¥ billion)
Operating income(¥ billion)
EPS(¥/share)
ＥＢＩＴＤＡ(¥ billion)
Interest-bearing
liabilities(¥ billion)
Capital adequacy
ratio（%）

FYE March
2014

FYE March2015 (forecast)FYE March2016 (planned)

FYE March2017 (planned)

266
202.3
9.7
34.91
26.7

273
209.5
12.6
54.06
28.7

234

252

174.9

189.0

10.8

7.4

30.48

22.67

26.3

24.9

259
196.9
8.2
27.86
25.2

124.0

85.8

81.8

74.1

64.7

7.7

21.6

23.0

25.1

28.6
17

Ⅱ．Next three-year medium-term management plan

Key Items for Earnings Recovery
Seeking profits outside the company for “external growth” andincreasing internal efficiency for “internal growth”
Recoup on investments in businesses with upfront costs

Expansion ofExternal customer basegrowth・Number of Aqua business contracts increased from 120 thousand at FYEMarch 2014 to 180 thousand at FYE March 2017
・Number of CATV-FTTH contracts in the CATV business increased from
190 thousand at FYE March 2014 to 220 thousand at FYE March 2017

Increased provider of information and communication
services that earn continuous periodical revenue

Reduced customer acquisition costs
Subtotal¥1.1 billion¥0.8 billion¥0.8 billion¥2.7 billion

Improved productivity in the Aqua business
Internal
growthEconomies of scale

・From 1.3 million units at end of 2014 to 3.7 million units at FYE March2017 (2.9 times)
・Improve manufacturing costs per unit by 35% in 3 years¥1.6 billion

Improve efficiency in LP gas delivery costs
・Improve delivery costs per dayunit by 15% in 3 years

Reduced depreciation burden¥0.9 billion
Subtotal¥2.5 billion

Total for the 3 years from FYE March 2015 and FYE March 2017 ¥5.2 billion

18

Ⅲ．Future Group strategy(packaged sales)

19Ⅲ．Future Group strategy (packaged sales)

Key Perspective (1) Market Maturation
Market maturation (supply > demand)
Competitors face increasingly fierce competition for share of shrinking markets

Commoditization of products and services
Competition is price competition and sales promotion competition

Price competition and acquisition cost competition⇒earnings compress
It is essential that differentiation not compete along the linesof traditional competition(Differentiation chosen by customers)
20

Ⅲ．Future Group strategy (packaged sales)

Key Perspective (2) Customer Needs
Value, 2nd in importance to customers after price, depends on“safety and company trust” along with “support and guarantee”
To be chosen by customers, it is important to meet these needs
Internet Connections

Gas

90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

The TOKAI Groupcustomers

90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Competitor
customers

The TOKAI Groupcustomers

Competitor
customers

Price

Function

Price

Function

Support and guarantee

Safety and company trust

Support and guarantee

Safety and company trust

Based on TOKAI Group survey (June 2014)21

Ⅲ．Future Group strategy (packaged sales)

Key Perspective (3) Change of Business Environment
2016 (deregulation of electric power) is a major turning point
Electric power and gas are moving toward dual services
We are moving to an age where customers choose from a diverse sales offering
provided by each player.
Electric Power Providers
Electric power isan infrastructureservice essential
to life that nearly
all households
use.

City Gas Companies

Telecom Carriers
Broadband is an
information
infrastructure thathas spread to 96.10
million people
nationwide.

Gas energy for domestic
use in Japan divided into
two types of energy.
City gas has spread to
29.14 million
households.

In addition to packaged fixedline and wireless sales, shift
toward packaged sales withelectric power service

Provides service beyond
existing area. Moving topackaged sales of gas andelectric power

22

Ⅲ．Future Group strategy (packaged sales)

Differentiation Strategy Based on Packaged Sales
Customer Needs

Group’s Unique Resources

The customer places value on“safety and company trust”
along with “support andguarantee.”

Provides by itself highly secureand trusted life infrastructure.

×

Has expanded market share with its services
Extra economic benefits are possible based on
profits generated by packaged sales
Achieve differentiation chosen
by customers before competitors

23

Ⅲ．Future Group strategy (packaged sales)

Packaged Sales Offering
The TOKAI Group’s mainstay LP gas and telecommunications
services, which are used in 1.56 million out of 25.2 million
customers, are provided as a package.
・Services are provided to 580 thousand LP gas customers and 980 thousand telecommunications customers for a total of 1.56 million
contracts

We provide attractive benefits to customers who use
packaged services.
・Benefits include discount usage fees or TLC points

LP gas基Basic本
Package
セット

ISP
※

+

*TCN and TOCO Channel Shizuoka’s Hikaridenet are CATV-FTTH (carriers and ISPs)++

Usage fee discount¥1,200 per month discount, which corresponds
to the monthly ISP usage fee

Or
TLC points and other benefits
A benefit of ¥1,200 in premium points per month24

Ⅲ．Future Group strategy (packaged sales)

Review of Package Benefits
Packaged sales menu benefit that customers expect is 60% after discount or points
Considering attractive package benefits based on customer needs
Expected packaged sales menu benefits

14.9%
29.4%
4.8%
3.2%
5.7%
4.7%
1.2%
6.1%

Discount
Points and gift certificates
Commodities
Consumer electronics
Travel and meal vouchers
Support services
Electric power services
Others30.0%

None
Based on TOKAI Group survey (June 2014)25

Ⅲ．Future Group strategy (packaged sales)

Schedule for Expanding Packaged Sales Offering

Began test marketing in August 2014
Began packaged sales in November 2014
Plan to implement in Shizuoka and Kanto area.
Electric power deregulation of FYE March 2017 aims to incorporate electric power service.
Added Packaged Sales
Added Packaged Sales

Gas and Electric Power andTelecommunications and more

Gas and Telecommunications
and more

Step 4Began Packaged Sales
Gas and Telecommunications

Test Marketing

Step 2

Step 1

From
November 2014

From 2016

Step 3

Electric Power
Deregulation (planned)

From
August 2014
26
Ⅲ．Future Group strategy (packaged sales)

Further Increase Market Share in Shizuoka and Kanto Region
Penetrate the regions and continue to grow as a comprehensive life infrastructure company forhouseholds.

Focus on Shizuoka and Kanto
region markets

1.15

million contracts●Gas: 220 thousand●ICT: 470 thousand●CATV: 380 thousand●Aqua: 80 thousand

1.11

million contracts●Gas: 400 thousand●ICT: 570 thousand●CATV: 100 thousand●Aqua: 30 thousand*Results at end of FYE March 2014 (customers outside Shizuoka and Kanto region: 260 thousand)27

These materials contain projections and other forward-looking statements on
management’s judgments derived from information available at the time offormulation, and include potential risks and uncertainties. Various factors may
cause actual results in the future to differ materially from projections and otherforward-looking statements made within these materials.
For inquiries regarding these materials, please contact the following.
TOKAI Holdings Corporation Public Relations and Investor Relations Office
2-6-8, Tokiwa-cho, Aoi-ku, Shizuoka City 420-0034
TEL：+81-(0)54-669-7676
FAX：+81-(0)54-275-1110
http://tokaiholdings.co.jp
e-mail：overseas_IR@tokaigroup.co.jp

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