Research Coverage Report by Shared Research Inc.

3167

TOKAI Holdings
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make every effort to provide an accurate, objective, and neutral analysis. In order to highlightany biases, we clearly attribute our data and findings. We will always present opinions fromcompany management as such. Our views are ours where stated. We do not try to convince or
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Coverage initiated on: 2013-05-31
Last update: 2022-01-28

INDEX
Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3.
Key financial data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5.
Recent updates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.
Trends and outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10..
Quarterly trends and results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10..
Full-year company forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13..
Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15..
Medium and long-term plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15..
Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19..
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20..
Business description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20..
Profitability snapshot, financial ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30..
Market and value chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33..
Strengths and weaknesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38..
Historical performance and financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40...
Historical performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40..
Income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56..
Balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58..
Statement of cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59..
Other information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60..
News and topics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64..
Company profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68..

TOKAI Holdings/ 3167
Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

2

Executive summary
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 businessareas 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 itaims to create a one-stop shop for the goods and services desired by its customers (such as gas, information andcommunications, CATV, construction, equipment, real estate, and home water delivery). TOKAI Holdings Corporation wasestablished 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 totalof 1,600 local sales representatives that are engaged in door-to-door sales and are thus in a position to offer a range ofservices 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 fromcompetitors in its ability to offer a wide range of services. Offering everything from energy to information andcommunications, TOKAI Holdings’ sales representatives are productive, and the company has taken advantage of thisproductivity 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. (TSE1: 8174), the JPY5–10bn in operating cash flow generated by Mitsuuroko
Group Holdings Co., Ltd. (TSE1: 8131), or the roughly JPY5bn in operating cash flow generated annually by SINANEN
Holdings Co., Ltd. (TSE1: 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 andshareholder 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 throughthe same sales channel.
Business acquisitions in recent years include Sendai CATV Co., Ltd. (in March 2020), Shioya Ltd. (a CATV service provider ineastern 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, acquiredin 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 afeature 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. Reasonsfor pursuing M&A are: 1) to move into new business territories such as Gifu and Aichi prefectures; 2) to expand into otherindustries 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.

Trends and outlook
Full-year FY03/21 results: The company reported sales of JPY196.7bn (+0.4% YoY), operating profit of JPY15.2bn (+7.0%
YoY), recurring profit of JPY15.3bn (+5.8% YoY), and net income attributable to owners of the parent of JPY8.8bn (+7.0% YoY).
The company posted record sales for the fourth consecutive year and record profit for the third year running. Despite thesales decline from lower LP gas and city gas purchase prices pushing down gas selling prices (although this had no impact on
profit) and negative impact of the COVID-19 pandemic, sales increased YoY on growth in household LP gas sales volume, an

TOKAI Holdings/ 3167
Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

3expansion in recurring revenue business for information and communications companies, and a rise in CATV and Aqua
(water home delivery service) customers.
For FY03/22, the company forecasts full-year consolidated sales of JPY207.0bn (+5.2% YoY), operating profit of JPY15.2bn(+0.1% YoY), recurring profit of JPY15.3bn (+0.1% YoY), and net income attributable to owners of the parent of JPY8.8bn(+0.2% YoY). The annual dividend forecast is JPY30 per share (flat YoY). The company expects sales to grow 5.2% YoY in
FY03/22 on the back of an ongoing increase in customer count and project orders, but anticipates flat profits because of
expenses to prepare an environment for customer acquisition and work style reforms.
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 andimprove 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 andproposing lifestyles that appeal to customers. IP24 is positioned as the foundation-building stage. The five key messages ofIP24 are as follows. 1) promote LNG strategy (business expansion in existing areas, in Japan, and overseas), 2) advance theTLC concept, 3) further strengthen and expand customer base through full-scale DX strategy, 4) optimize allocation ofmanagement resources, and 5) strengthen SDGs initiatives.

Strengths and weaknesses
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 reformand 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.)

TOKAI Holdings/ 3167
Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

4Key financial data
Income statement

FY03/11(JPYmn)Cons. **

Sales

174,901

YoY

FY03/12

FY03/13

FY03/14

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20

FY03/21

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

181,931

181,684

188,987

187,511

180,940

178,631

186,069

191,600

195,952

196,726

207,000
5.2%

Est.

9.8%

4.0%

-0.1%

4.0%

-0.8%

-3.5%

-1.3%

4.2%

3.0%

2.3%

0.4%

Energy95,69798,316

94,51997,22993,06780,74573,34476,073

77,977

78,154

77,380Information and Communications

34,72537,94338,49738,803

40,11844,24649,50850,894

51,23451,75350,735

CATV

22,647

24,292

23,78624,187

24,35924,60825,39628,38630,511

31,38533,745Construction, Equipment, and Real
Estate14,907

15,881

15,756

19,24520,01920,975

19,511

19,807

20,09022,38323,177

Aqua

-

-

3,750

4,378

4,959

5,487

5,762

6,200

7,004

7,416

7,622

Other

6,923

5,498

5,374

5,142

4,987

4,875

5,108

4,706

4,781

4,858

4,065

Gross profit

67,44569,53768,80968,341

68,932

69,812

73,04075,33676,15979,28982,870

YoY

6.5%

3.1%

-1.0%

-0.7%

0.9%

1.3%

Gross profit margin

38.6%

38.2%

37.9%

36.2%

36.8%

38.6%

40.9%

40.5%

39.7%

40.5%

42.1%

Operating profit

10,755

10,923

8,934

7,392

9,003

8,245

12,75010,971

13,057

14,224

15,226

15,240

YoY

7.2%

1.6%

-18.2%-17.3%

21.8%

-8.4%

54.6%

-14.0%

19.0%

8.9%

7.0%

0.1%

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%

7.4%

Recurring profit

9,489

9,818

8,065

7,013

8,549

8,150

12,775

11,191

13,25914,47915,312

15,320

YoY-12.3%

3.5%-17.9%-13.0%

21.9%

-4.7%

56.7%

-12.4%

18.5%

9.2%

5.8%

0.1%

5.4%

5.4%

4.4%

3.7%

4.6%

4.5%

7.2%

6.0%

6.9%

7.4%

7.8%

7.4%

Recurring profit margin

4.6%

3.1%

1.1%

4.1%

FY03/224.5%

Net income

2,152

2,715

3,085

2,598

3,934

3,458

7,337

6,620

7,772

8,241

8,815

8,830

YoY

-30.1%

26.2%

13.6%

-15.8%

51.4%-12.1%

112.2%

-9.8%

17.4%

6.0%

7.0%

0.2%

1.2%

1.5%

1.7%

1.4%

2.1%

1.9%

4.1%

3.6%

4.1%

4.2%

4.5%

4.3%

Net marginPer-share data
Shares issued (year-end; '000)

70,845

155,200

155,200

155,200

155,200

139,680

139,680

139,680

139,680

139,680

139,680

EPS

30.5

27.2

29.9

22.7

34.2

30.0

64.5

51.2

59.4

62.9

67.3

EPS (fully diluted)

30.5

-

-

-

34.1

26.9

56.3

50.5

-

-

-

Dividend per share

8.0

12.0

12.0

12.0

12.0

14.0

28.0

28.0

28.0

28.0

30.0

Book value per share

210.8

262.9

289.3

325.8

368.2

362.8

439.0

460.7

478.3

493.3

568.9

67.4
30.0

Balance sheet (JPYmn)
Cash and cash equivalents

8,622

2,602

4,235

3,182

2,861

4,077

3,239

3,143

4,164

4,629

5,577

49,74441,09340,35140,60635,95938,11738,59439,95142,50644,26846,932

Tangible fixed assets

110,613110,207

106,602103,129

98,935

95,064

93,647

96,81097,03098,353

101,800

Investments and other assets

15,99614,995

15,63816,855

19,53916,14917,86018,03016,937

16,51819,552Intangible assets

16,654

17,266

14,906

12,943

11,224

10,94010,988

11,198

11,128

10,831

10,687

Total current assets

Total assets

193,239

183,735

177,642

173,620

165,702160,303

161,112

165,993

167,606

169,972

178,974

Accounts payable

12,652

13,636

13,01914,105

13,035

13,511

14,77915,67015,021

15,034

17,226

Short-term debt

56,75650,834

48,614

44,16936,27928,586

26,88827,35825,966

23,831

16,10789,78385,17982,56378,905

71,16062,95861,30463,70561,38560,61757,009Long-term debt

65,40053,40444,093

41,171

36,79042,82339,596

36,79338,131

38,99141,304

Total fixed liabilities

81,866

71,37461,06856,38551,07455,37343,361

40,83742,32543,37245,908

Total liabilities

171,649

156,553

143,631

135,291

122,234

118,332

104,665

104,543

103,711

103,989

102,91776,056

Total current liabilities

Total net assets

21,58927,18134,011

38,32943,467

41,97056,44661,45063,89465,982

Total interest-bearing debt

122,156

104,238

92,707

85,34073,06971,40966,48464,15164,09762,822

57,411

Cash flows from operating activities

23,521

28,58425,71322,80627,265

21,395

26,692

20,90921,60522,53532,223

Cash flows from investing activities-14,601-10,037-9,983-9,664-8,851-11,015-10,985-11,488-12,443-12,131-17,068

Cash flows from financing activities-11,278-24,255-14,051-14,125-18,764-9,150-16,643-9,527-8,147-10,375-14,064

Cash flow statement (JPYmn)

Financial ratios
ROA (RP-based)

4.9%

5.2%

4.5%

4.0%

5.0%

5.0%

7.9%

6.8%

7.9%

8.6%

8.8%

ROE

14.8%

13.1%

10.4%

7.4%

9.8%

8.3%

15.2%

11.4%

12.6%

13.0%

12.7%

Equity ratio

7.8%

14.3%

18.6%

21.6%

25.7%

25.6%

34.5%

36.3%

37.4%

38.0%

41.6%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Results for FY03/11 and prior years are of TOKAI Corp.

TOKAI Holdings/ 3167
Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

5Segment sales and operating profit after allocation of overhead expenses
Segment sales and operating
profitFY03/11

FY03/12

FY03/13

FY03/14

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20(JPYmn)Cons. **

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Sales

174,901

181,931

181,684

188,987

187,511

180,940

178,631

186,069

191,600

195,952

196,726

FY03/21

YoY

9.8%

4.0%

-0.1%

4.0%

-0.8%

-3.5%

-1.3%

4.2%

3.0%

2.3%

0.4%

Energy95,69798,316

94,51997,22993,06780,74573,34476,073

77,977

78,154

77,380-4.3%-13.2%

YoY

7.5%

2.7%

-

2.9%

-9.2%

3.7%

2.5%

0.2%

-1.0%

% 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

34,72537,94338,49738,803

40,11844,24649,50850,894

51,23451,75350,735

YoY

0.2%

9.3%

1.5%

0.8%

3.4%

10.3%

11.9%

2.8%

0.7%

1.0%

-2.0%

% of total

19.9%

20.9%

21.2%

20.5%

21.4%

24.5%

27.7%

27.4%

26.7%

26.4%

25.8%

CATV

22,647

24,292

23,78624,187

24,35924,60825,39628,38630,511

31,38533,745

YoY

44.7%

7.3%

-2.1%

1.7%

0.7%

1.0%

3.2%

11.8%

7.5%

2.9%

7.5%

% 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
Estate23,177

14,907

15,881

15,756

19,24520,01920,975

19,511

19,807

20,09022,383

YoY

3.5%

6.5%

-0.8%

22.1%

4.0%

4.8%

-7.0%

1.5%

1.4%

11.4%

3.5%

% of total

8.5%

8.7%

8.7%

10.2%

10.7%

11.6%

10.9%

10.6%

10.5%

11.4%

11.8%

Aqua

-

-

3,750

4,378

4,959

5,487

5,762

6,200

7,004

7,416

7,622

YoY

-

-

-

16.7%

13.3%

10.6%

5.0%

7.6%

13.0%

5.9%

% of total

-

-

2.1%

2.3%

2.6%

3.0%

3.2%

3.3%

3.7%

3.8%

3.9%

Other

6,923

5,498

5,374

5,142

4,987

4,875

5,108

4,706

4,781

4,858

4,065

YoY

25.8%

-20.6%

-2.3%

-4.3%

-3.0%

-2.2%

4.8%

-7.9%

1.6%

1.6%

-16.3%% of total

4.0%

3.0%

3.0%

2.7%

2.7%

2.7%

2.9%

2.5%

2.5%

2.5%

2.1%

10,755

10,923

8,934

7,392

9,003

8,245

12,75010,971

13,057

14,224

15,226

YoY

7.2%

1.6%

-18.2%-17.3%

21.8%

-8.4%

54.6%

-14.0%

19.0%

8.9%

7.0%

Operating profit margin

6.1%

6.0%

4.9%

3.9%

4.8%

4.6%

7.1%

5.9%

6.8%

7.3%

Operating profit

2.8%

7.7%

Energy

6,154

4,577

5,200

4,520

5,549

6,973

6,942

4,967

4,434

4,907

6,115

YoY

-13.5%-25.6%--13.1%

22.8%

25.7%

-0.4%

-28.5%-10.7%

10.7%

24.6%

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

YoY

20.2%

-2.6%

-10.7%-18.6%

14.3%-76.2%

269.7%-39.1%

39.0%

14.1%

4.3%

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%

CATV

2,592

1,648

429

973

862

1,161

2,331

3,035

4,442

4,543

4,719

YoY

38.7%

-36.4%-74.0%

126.8%-11.4%

34.7%

100.8%

30.2%

46.4%

2.3%

3.9%

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%

856

555

209

926

495

676

461

655

954

1,379

1,257

431.7%-35.2%-62.3%

343.1%-46.5%

36.6%-31.8%

42.1%

45.6%

44.5%

-8.8%

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%

Aqua

-

-

-1,029-2,107-1,448-1,275

101

26

520

401

259

YoY

-

-

-

-

-

-

-

-74.3%

1,895.8%-22.9%-35.4%

Construction, Equipment, and Real
Estate
YoY

-

-

-

-

-

-

0.1%

2.6%

1.8%

1.1%

-

-

-11.5%-28.5%-16.1%-15.5%

0.8%

0.2%

4.0%

2.8%

1.7%

Other

Operating profit margin

-274

-228

-17

-10

-386

-197

112

301

217

235

-244

YoY

-

-

-

-

-

-

-

168.8%-27.9%

8.3%-

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%

Adjustments-2,883

174

396

41

445

78

-265

118

-105

-201

32

% of total-

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Segment operating profits are after allocation of overhead expenses.

TOKAI Holdings/ 3167
Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

6Recent updates
Additional monetary contribution to a board benefit trust (BBT)2022-01-28

On January 27, 2022, TOKAI Holdings Corporation resolved to make an additional monetary contribution to a board benefit
trust (BBT), a trust it has established based on a trust agreement concluded with Mizuho Trust & Banking Co., Ltd.
The company decided to make an additional monetary contribution to the trust as funds for the trust to acquire shares
expected to be required for future benefit distributions to maintain the BBT system.
Overview of additional trust
Date of additional trust: February 10, 2022 (planned)
Amount of additional trust: JPY120mn
Type of shares to be acquired: Common stock of the company
Maximum number of shares to be acquired: 131,000
Acquisition period: February 10–March 9, 2022 (planned)
Acquisition method: Acquisition via stock exchange transactions
Please refer to the notice regarding the introduction of a BBT system dated May 10, 2016 and the notice regarding thedetails of a BBT system dated August 5, 2016 for an overview of the company's BBT system (Japanese only).

Sales area expansion for the LP gas business
2022-01-06

On January 6, 2022, TOKAI Holdings Corporation announced that wholly owned subsidiary TOKAI Corporation (operator of
the company's Energy business, which includes LP gas sales) had opened a sales office in Fukuyama, Hiroshima Prefecture.
In its new medium-term management plan, Innovation Plan 2024 "Design the Future Life" (IP24), the group has outlined a
local, national, and global (LNG) strategy for "expanding its business domain starting with local areas situated primarily in the
Shizuoka and Kanto regions before spreading throughout Japan and later to areas located overseas." The company will
especially apply this strategy in its Energy business, where it plans to pursue nationwide expansion of its LPG business byextending its business domain in the Shikoku region and Western Japan.
In pursuit of nationwide expansion and a broader customer base for its LP gas business, TOKAI has extended the domain of its
LP gas business to include the Tohoku and Sendai regions in Northern Japan and the Kyushu and Kumamoto regions ofSouthern Japan. The company currently maintains a base of 670,000 customers who are situated in 16 different prefectures
located primarily within the Tokai and Kanto regions of Japan.
With the opening of its new sales office in Fukuyama, Hiroshima Prefecture (following its previous establishment of a sales
office in Okayama Prefecture, which is also located in Japan's Chugoku region), the company will expand into the eastern
portion of Hiroshima Prefecture. Hiroshima Prefecture has the largest population and the largest number of LP gasconsuming households in the Chugoku region, making it a powerful trading area for LP gas. The company believes that its
entry into Hiroshima Prefecture will broaden the foundation of its LP gas business and create opportunities for wider use of
its products and services.

Investment in Audit Digital & Innovation Consortium andbusiness launch2021-12-10

On December 9, 2021, TOKAI Holdings Corporation announced that its wholly owned subsidiary TOKAI Communications
Corporation jointly established Audit Digital & Innovation Consortium ("ADIC") with three audit firms.
Wholly owned subsidiary TOKAI Communications, along with three audit firms Gyosei & Co., Avantia GP, and RSM Seiwa,
jointly established ADIC with the aim of providing small and medium-sized audit firms—the key players supporting the futureof Japan's securities market—with a common IT infrastructure in which these firms can securely use an electronic audit record
TOKAI Holdings/ 3167
Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

7system (a system that electronically integrates and manages audit records audit firms are obliged to create, organize, andstore).
Background and purpose of joint venture
Japan's securities market is unique in that many of the listed companies are medium-sized corporations, and for this reason,
there has been growing expectations and needs for small and medium-sized audit firms. In response, the Financial Services
Agency has announced a policy aimed at cultivating these audit firms, under which the agency has outlined measures tosupport the utilization of IT for enhancing the quality audit processes, including support for the adoption of electronic audit
reports and other digitalization efforts. Amid rapid technological developments in the IT environment, small and mediumsized audit firms are facing immediate needs to promote digitalization and implement cybersecurity measures, but they find
it difficult to make investments into these areas on their own due to limited capital and personnel resources. To address suchneeds of small and medium-sized audit firms, the four companies above decided to establish ADIC to launch a joint businessaimed at providing a platform to promote and accelerate digitalization initiatives of these audit firms, including by facilitating
the adoption of electronic audit report systems.
Business outlook
ADIC will launch a business primarily focused on providing a common IT infrastructure to enable small and medium-sized
audit firms, whose position in Japan's securities market is expected to rise, to use electronic audit report systems in a secureenvironment. The common IT infrastructure is already adopted by the three audit firms participating in the joint venture, andis in operations with over 500 users. TOKAI Communications, another participating member of the joint venture, has a trackrecord of building and operating cloud-based infrastructure, and will support ADIC's services in the utilization of the common
IT infrastructure.

TOKAI Communications opens a communication services
connection point on SCSK's netXDC Inzai Campus
2021-12-07

On December 6, 2021, TOKAI Holdings Corporation announced the opening by wholly owned subsidiary, TOKAI
Communications, of a communication services connection point on SCSK's netXDC Inzai Campus.
Together with SCSK Corporation, the company's wholly owned subsidiary, TOKAI Communications, has opened a connection
point to TOKAI Communications' BroadLine communications service for carriers and corporations, on SCSK's netXDC Inzai
Campus (Inzai, Chiba Prefecture).
TOKAI Communications' BroadLine service utilizes the group's optical fiber network to provide connectivity between clientcompanies' physical sites and connection services to major public clouds.
The newly opened connection point will enable SCSK to provide its data center customers with a high-quality communication
service at low cost and with less delivery time.
Background to collaboration
In recent years, greater uptake of cloud services and faster access lines have created an increase in data traffic that in turnhas generated stronger demand for broadband connections. To meet this demand, TOKAI Communications has established acommunication facility on the netXDC Inzai Campus that can satisfy all bandwidth requirements from 10Mbps to 100Gbps.

As the connection point can be accessed from the campus' structured cabling, it is possible to provide a high-quality
communication service that combines less delivery time with low cost, delivering connectivity between client companies'
physical sites, as well as connections to major public clouds, internet, and overseas sites. Moreover, this high-capacity andhighly reliable communication service can flexibly support hybrid cloud connections and multicloud connections withcomplex configurations.
Purpose of collaboration
TOKAI Communications and SCSK will work together to realize efficient connections for service users and contribute toimproving connection quality and reducing costs. They aim to draw on their extensive expertise in data center services,
network services, and system development and infrastructure construction and operation for companies.

TOKAI Holdings/ 3167
Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

8

TOKAI Communications will continue to provide customers with one-stop and total support for all processes from
infrastructure installation to the design, construction, and operation of cloud services, harnessing the technology andexpertise it has cultivated over years as a system integrator.

TOKAI Holdings/ 3167
Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

9Trends and outlook
Quarterly trends and results
Quarterly

FY03/20(JPYmn)FY03/21

FY03/22

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Sales

45,80447,211

48,54254,395

45,11344,723

49,95656,934

48,396

47,66453,360

YoY

2.8%

6.6%

-1.1%

1.4%

-1.5%

-5.3%

2.9%

4.7%

7.3%

6.6%

6.8%
21,360Gross profit

18,706

18,45920,13721,987

19,651

18,58021,414

23,225

19,71819,021

YoY

4.1%

7.8%

4.6%

0.7%

5.1%

0.7%

6.3%

5.6%

0.3%

2.4%

-0.3%

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%

SG&A expenses

15,475

16,18916,36017,042

15,86816,911

16,964

17,90016,491

17,025

17,334

YoY

-0.6%

1.0%

4.3%

7.8%

2.5%

4.5%

3.7%

5.0%

3.9%

0.7%

2.2%

SG&A ratio

33.8%

34.3%

33.7%

31.3%

35.2%

37.8%

34.0%

31.4%

34.1%

35.7%

32.5%

Operating profit

3,231

2,269

3,778

4,946

3,783

1,669

4,449

5,325

3,226

1,997

4,025

YoY

35.2%

109.1%

6.0%-17.8%

17.1%-26.4%

17.8%

7.7%

-14.7%

19.7%

-9.5%

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%

Recurring profit

3,351

2,257

3,870

5,001

3,830

1,669

4,430

5,383

3,353

1,931

4,040

YoY

34.7%

106.5%

5.5%-16.8%

14.3%-26.1%

14.5%

7.6%

-12.5%

15.7%

-8.8%

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%

Net income

2,239

1,253

1,611

3,138

2,445

834

2,657

2,879

1,870

411

2,353

YoY

56.4%

312.2%-17.6%

9.2%

-8.3%

-23.5%Net margin

4.9%

2.7%

3.3%

5.8%

5.4%

1.9%

5.3%

5.1%

3.9%

0.9%

4.4%

Cumulative

Q1

Q1–Q2

Q1–Q3

Q1–Q4

Q1

Q1–Q2

Q1–Q3

Q1–Q4

Q1

Q1–Q2

Q1–Q3

45,80493,015

141,557

195,952

45,11389,836

139,792

196,726

48,396

96,060149,420

Sales
YoY
Gross profit-27.8%-33.4%

64.9%-50.7%-11.4%

2.8%

4.7%

2.6%

2.3%

-1.5%

-3.4%

-1.2%

0.4%

7.3%

6.9%

6.9%

18,706

37,16557,302

79,28919,651

38,23159,64582,87019,71838,73960,099

YoY

4.1%

5.9%

5.5%

4.1%

5.1%

2.9%

4.1%

4.5%

0.3%

1.3%

72.2%

FY Est.
207,000
5.2%

0.8%

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%

SG&A expenses

15,47531,66448,02465,066

15,86832,77949,74367,643

16,491

33,51650,850

YoY

-0.6%

0.2%

1.6%

3.1%

2.5%

3.5%

3.6%

4.0%

3.9%

2.2%

2.2%

SG&A ratio

33.8%

34.0%

33.9%

33.2%

35.2%

36.5%

35.6%

34.4%

34.1%

34.9%

34.0%

Operating profit

3,231

5,500

9,278

14,224

3,783

5,452

9,901

15,226

3,226

5,223

9,248

YoY

35.2%

58.3%

31.8%

8.9%

17.1%

-0.9%

6.7%

7.0%

-14.7%

-4.2%

-6.6%

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%

Recurring profit

3,351

5,608

9,478

14,479

3,830

5,499

9,929

15,312

3,353

5,284

9,324

YoY

34.7%

56.6%

30.8%

9.2%

14.3%

-1.9%

5.8%

-12.5%

-3.9%

-6.1%

4.8%

% of Est.

60.7%

15,240
0.1%
7.4%

60.9%

15,320

52.5%

8,830

0.1%

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%

Net income

2,239

3,492

5,103

8,241

2,445

3,279

5,936

8,815

1,870

2,281

4,634

7.4%

YoY

56.4%

101.2%

28.7%

6.0%

9.2%

-6.1%

16.3%

7.0%

-23.5%-30.4%-21.9%

0.2%

Net margin

4.9%

3.8%

3.6%

4.2%

5.4%

3.6%

4.2%

4.5%

3.9%

2.4%

3.1%

4.3%

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Quarterly performance by segment (segment operating profits are before allocation ofoverhead expenses)
Segments (quarterly)

FY03/20(JPYmn)FY03/21

FY03/22

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Sales

45,80447,211

48,54254,395

45,11344,723

49,95656,934

48,396

47,66453,360

YoY

2.8%

6.6%

-1.1%

1.4%

-1.5%

-5.3%

2.9%

4.7%

7.3%

6.6%

6.8%

Energy18,577

17,18919,42522,963

17,634

15,79620,00723,94318,99817,15522,564

YoY

5.5%

5.2%

-6.3%

-1.5%

-5.1%

-8.1%

3.0%

4.3%

7.7%

8.6%

12.8%

12,795

13,116

12,923

12,91912,65012,481

12,70012,904

12,61912,683

12,904

Information and Communications
YoY
CATV
YoY
Construction, Equipment, and Real
Estate
YoY
Aqua

2.3%

3.8%

0.9%

-2.7%

-1.1%

-4.8%

-1.7%

-0.1%

-0.2%

1.6%

1.6%

7,738

7,855

7,840

7,952

8,226

8,264

8,504

8,751

7,996

8,085

8,184
-3.8%

3.0%

3.0%

1.9%

3.5%

6.3%

5.2%

8.5%

10.0%

-2.8%

-2.2%

3,777

5,959

5,183

7,464

3,819

5,255

5,741

8,362

5,542

6,819

6,664

-9.3%

23.6%

6.7%

19.5%

1.1%

-11.8%

10.8%

12.0%

45.1%

29.8%

16.1%

1,798

1,954

1,851

1,898

1,844

1,898

1,813

1,896

1,984

1,921

1,992

8.8%

6.4%

3.5%

5.1%

5.5%

1.5%

2.5%

1.7%

1.3%

0.4%

0.0%

1,116

1,139

1,320

1,283

885

943

1,106

1,131

1,319

929

1,147

YoY

1.5%

11.3%

7.4%

-10.2%-20.7%-17.2%-16.2%-11.8%

49.0%

-1.5%

3.7%

Operating profit

3,231

2,269

3,778

4,946

3,783

1,669

4,449

5,325

3,226

1,997

4,025

35.2%

109.1%

6.0%-17.8%

17.1%-26.4%

17.8%

7.7%

-14.7%

19.7%

-9.5%

7.1%

4.8%

7.8%

9.1%

8.4%

3.7%

8.9%

9.4%

6.7%

4.2%

7.5%

Energy

1,489

477

3,964

3,488

1,972

410

2,652

3,954

1,578

385

2,354

YoY

26.0%

-20.0%

YoY
Other

YoY
Operating profit margin

-

34.2%

-9.7%

32.4%

-14.0%-33.1%

13.4%

-6.1%

-11.2%

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%

Information and Communications

1,217

1,052

3,366

860

1,110

926

1,045

1,263

1,224

1,181

1,087

YoY

68.1%

19.0%

29.7%

-30.2%-8.8%-12.0%-69.0%

46.9%

10.3%

27.5%

4.0%

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%

1,286

1,253

3,790

1,234

1,367

1,266

1,469

1,103

1,459

1,498

1,582

YoY

7.7%

10.3%

6.2%

-10.9%

6.3%

1.0%-61.2%-10.6%

6.7%

18.3%

7.7%

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%

CATV

Construction, Equipment, and Real
Estate

213

630

1,242

874

233

388

473

971

263

475

388

YoY

0.0%

84.8%

35.7%

24.9%

9.4%

-38.4%-61.9%

11.1%

12.9%

22.4%

-18.0%

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%

169

231

597

77

271

175

132

-5

37

149

101

76.0%

18.5%

34.5%

-75.8%

60.4%-24.2%-77.9%--86.3%-14.9%-23.5%Aqua
YoY
Operating profit margin

4.2%

14.3%

-

1.9%

-1,145-1,374-3,682-1,589-1,171-1,496-1,321-1,961-1,337-1,690-1,487

Q1

Q1–Q2

Q1–Q3

Q1–Q4

Q1

Q1–Q2

Q1–Q3

Q1–Q4

Q1

Q1–Q2

Q1–Q3

Sales

45,80493,015

141,557

195,952

45,11389,836

139,792

196,726

48,396

96,060149,420

YoY

2.8%

4.7%

2.6%

2.3%

-1.5%

-3.4%

-1.2%

0.4%

7.3%

6.9%

6.9%

18,57735,76655,191

78,154

17,63433,43053,437

77,38018,99836,15358,717

Other and adjustments
Cumulative

Energy

9.4%

11.8%

32.3%

8.8%

7.0%

7.5%

5.3%

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10

YoY

5.5%

5.4%

0.9%

Information and Communications
YoY
CATV
YoY
Construction, Equipment, and Real Estate
YoY
Aqua
YoY
Other
YoY

0.2%

-5.1%

-6.5%

-3.2%

-1.0%

7.7%

8.1%

9.9%

12,79525,911

38,83451,753

12,65025,131

37,83150,735

12,61925,302

2.3%

3.0%

2.3%

1.0%

-1.1%

-3.0%

-2.6%

-2.0%

-0.2%

0.7%

1.0%

7,738

15,59323,43331,3858,226

16,49024,99433,745

7,996

16,081

24,26538,206

3.0%

3.0%

2.6%

2.9%

6.3%

5.8%

6.7%

7.5%

-2.8%

-2.5%

-2.9%

3,777

9,736

14,91922,383

3,819

9,074

14,81523,177

5,542

12,361

19,025

-9.3%

8.3%

7.7%

11.4%

1.1%

-6.8%

-0.7%

3.5%

45.1%

36.2%

28.4%

1,798

3,752

5,603

7,416

1,896

3,880

5,778

7,622

1,921

3,913

5,811

8.8%

7.5%

6.1%

5.9%

5.5%

3.4%

3.1%

2.8%

1.3%

0.9%

0.6%

1,116

2,255

3,575

4,858

885

1,828

2,934

4,065

1,319

2,248

3,395
15.7%

1.5%

6.2%

6.7%

1.6%

-20.7%-18.9%-17.9%-16.3%

49.0%

23.0%

3,231

5,500

9,278

14,224

3,783

5,452

9,901

15,226

3,226

5,223

9,248

35.2%

58.3%

31.8%

8.9%

17.1%

-0.9%

6.7%

7.0%

-14.7%

-4.2%

-6.6%

7.1%

5.9%

6.6%

7.3%

8.4%

6.1%

7.1%

7.7%

6.7%

5.4%

6.2%

1,489

1,966

3,964

7,452

1,972

2,382

5,034

8,988

1,578

1,963

4,317

YoY

26.0%

81.4%

34.2%

9.3%

32.4%

21.2%

27.0%

20.6%

-20.0%-17.6%-14.2%

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%

1,217

2,269

3,366

4,226

1,110

2,036

3,081

4,344

1,224

2,405

3,492

YoY

68.1%

41.1%

29.7%

10.4%

-8.8%

-10.3%

-8.5%

2.8%

10.3%

18.1%

13.3%

Operating profit margin

9.5%

8.8%

8.7%

8.2%

8.8%

8.1%

8.1%

8.6%

9.7%

9.5%

Operating profit
YoY
Operating profit margin
EnergyInformation and Communications

CATV

9.1%

1,286

2,539

3,790

5,024

1,367

2,633

4,102

5,205

1,459

2,957

4,539

YoY

7.7%

9.0%

6.2%

1.4%

6.3%

3.7%

8.2%

3.6%

6.7%

12.3%

10.7%

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%

213

843

1,242

2,116

233

621

1,094

2,065

263

738

1,126

YoY

0.0%

52.2%

35.7%

31.0%

9.4%

-26.3%-11.9%

-2.4%

12.9%

18.8%

2.9%

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%

169

400

597

674

271

446

578

573

37

186

287

76.0%

37.5%

34.5%

-11.5%

60.4%

11.5%

-3.2%

-15.0%-86.3%-58.3%-50.3%

9.4%

10.7%

10.7%

9.1%

14.3%

11.5%

10.0%

7.5%

1.9%

4.8%

4.9%

-1,145-2,519-3,682-5,271-1,171-2,667-3,988-5,949-1,337-3,027-4,514

Construction, Equipment, and Real Estate

Aqua
YoY
Operating profit margin
Other and adjustments

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Segment operating profits are before allocation of overhead expenses.
Note: 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.

Q3 FY03/22 results (out January 27, 2022)
Overview
The company reported sales of JPY149.4bn (+6.9% YoY), operating profit of JPY9.2bn (-6.6% YoY), recurring profit of JPY9.3bn(-6.1% YoY), and net income attributable to owners of the parent of JPY4.6bn (-21.9% YoY). Cumulative Q3 sales grew YoY for
the first time in two fiscal years, setting a new record high for the period.
Versus full-year FY03/22 company forecast, cumulative Q3 sales were 72.2% (cumulative Q3 FY03/21 sales were 71.1% of
FY03/21 full-year results), operating profit 60.7% (65.0%), recurring profit 60.9% (64.8%), and net income 52.5% (67.3%).
Sales, operating profit, and recurring profit exceeded the company's forecasts. Despite the recording of extraordinary losses,
net income attributable to owners of the parent was also above internal projections. The company maintained its full-year
FY03/22 forecast.
Sales up 6.9% YoY: Sales growth was mainly driven by a rise in the number of customers in the Energy and CATV segments,
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 down 6.6% YoY: A rise in the monthly billing count due to higher customer numbers and robust
performance from the Information and Communications business for corporate customers pushed up profit. However,operating profit fell YoY due to higher customer acquisition costs, because the company moved ahead with customer
acquisition at a faster pace than a year ago in the LP gas and Aqua businesses. The gross profit margin fell 2.5pp YoY to40.2%, the SG&A ratio declined 1.6pp YoY to 34.0%, and the operating profit margin decreased 0.9pp YoY to 6.2%.
Net income down 21.9% YoY: The company recorded extraordinary losses of JPY1.3bn, including costs associated with events
to commemorate its 10th anniversary.
The number of continuing customers amounted to 3,142,000, up 43,000 from end-FY03/21. The number of subscribers to
TLC Membership Service grew by 87,000 to 1,066,000.
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 samemonth, 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 insystems development in the Information and Communication business, and made these companies consolidated subsidiaries.
In October 2021, it opened a new LP gas sales office in Kumamoto, Kumamoto Prefecture.
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11Customer countThe number of continuing customers amounted to 3,142,000, up 43,000 from end-FY03/21. Versus end-FY03/21, the gas(LP gas and city gas) business had a net increase of 30,000 customers, the CATV business had a net increase of 26,000
customers (including 8,000 from acquisitions), and the Aqua business had a net increase of 3,000 customers.

Change in customer numbers, by service segment
Number of customers

FY03/22

YoY('000)

Q3

Q3

Q3

Q3

Q3

Q3

Q3

Q3

Q3

Q3

Gas (LP gas, city gas)

629

624

629

635

653

674

703

737

774

37

Conventional ISP

848

866

686

538

478

430

396

375

382

7

Hikari Collaboration

-

-

173

288

319

328

324

335

342

7

LIBMO

-

-

-

-

21

39

45

52

55

3

Information andCommunications

848

866

859

826

818

797

766

763

779

16

CATV

694

689

704

728

1,002

1,055

1,088

1,188

1,224

36

Aqua

121

133

134

135

143

157

160

162

166

4

Mobile

225

234

235

234

229

220

214

209

195

-14

Security
Total

FY03/14

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20

FY03/21

19

18

18

17

17

17

16

16

16

0

2,510

2,540

2,553

2,551

2,839

2,898

2,933

3,063

3,142

79

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Customer numbers are duplicated for Information and Communications and CATV segments when shown separately, but not in the totals.

* 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 inmobile 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 andemail newsletters.

Results by segment
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 haveno impact on actual earnings in the segments.

EnergySales were JPY58.7bn (+9.9% YoY), and operating profit was JPY2.3bn (-23.8% YoY).
The LP gas business reported sales of JPY50.0bn (+10.7% YoY). The company continued its customer acquisition efforts,
and the number of customers expanded to 705,000, up 24,000 from end-FY03/21.
The city gas business reported sales of JPY8.7bn (+5.4% YoY). Customer count grew to 68,000, up 6,000 from endFY03/21, and sales rose due higher sales volume of industrial gas and the fuel cost adjustment system.
Operating profit fell mainly due to an increase in customer acquisition costs.

Information and Communications
Sales were JPY38.2bn (+1.0% YoY), and operating profit was JPY2.5bn (+15.0% YoY).
In the Information and Communications business, services for consumers generated sales of JPY18.3bn (-7.6% YoY). In the
ISP business, the company expanded its service offerings through a partnership with a major mobile carrier. In themobile business, it worked to acquire customers by reviewing its service menu and offering set plans bundled with fixedlines. The number of ISP customers decreased by 7,000 from end-FY03/21 to 725,000 while LIBMO customers

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12

increased by 2,000 to 55,000. The company steadily expanded its sales channels and worked to halt the slide in net
customer count, but sales to consumers declined.
In the Information and Communications business, sales to corporate clients were JPY19.9bn (+10.4% YoY). Sales growth
was driven by steady progress in cloud services and a higher number of contracted development projects.

CATV
Sales were JPY24.3bn (-2.9% YoY), and operating profit was JPY4.0bn (+8.1% YoY).
During the COVID-19 pandemic, as a community-based operator, the company focused on delivering local informationand 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 10,000 fromend-FY03/21 to 885,000, while communications services customers increased by 16,000 to 339,000.

Construction, Equipment, and Real Estate
Sales were JPY19.0bn (+28.4% YoY), and operating profit was JPY555mn (+3.1% YoY).
In addition to the benefits of progress with M&A, orders for equipment work also increased, resulting in a YoY increase insales and profit.

Aqua
Sales were JPY5.8bn (+0.6% YoY), and operating profit was JPY67mn (-79.7% YoY).
Sales grew thanks to favorable performance from events held at large commercial facilities and telemarketing and othernon-face-to-face sales activities. Customer count amounted to 166,000, up 3,000 from end-FY03/21. Operating profit
was down YoY due to higher customer acquisition costs.

OthersSales were JPY3.4bn (+15.7% YoY), and the operating loss came to JPY111mn (operating loss of JPY120mn in cumulative Q3
FY03/21).
In the nursing care business, user numbers rose and sales amounted to JPY1.0bn (+1.1% YoY).
In the shipbuilding business, the number of ships repaired grew, and sales came to JPY1.2bn (+22.2% YoY).
In the bridal events business, sales were JPY515mn (+60.0% YoY), reflecting a slight recovery in the number of wedding
ceremonies and meetings held at the group’s banquet halls and hotels.
For details on previous quarterly and annual results, please refer to the Historical financial statements section.

Full-year company forecast
Est.
(JPYmn)FY03/20
1H Act.

2H Act.

FY03/21Full-year

1H Act.

2H Act.

FY03/22Full-year

1H Act.

2H Est.

FY Est.

Sales

93,015102,937

195,952

89,836

106,890

196,726

96,060110,940

207,000

YoY

4.7%

0.2%

2.3%

-3.4%

3.8%

0.4%

6.9%

3.8%

5.2%

Cost of sales

55,85060,813

116,663

51,60562,251

113,856

57,321--Gross profit

37,16542,12479,28938,231

44,63982,87038,739

-

-

YoY

5.9%

2.5%

4.1%

2.9%

6.0%

4.5%

1.3%

-

-

Gross profit margin

40.0%

40.9%

40.5%

42.6%

41.8%

42.1%

40.3%

-

-

SG&A expenses

31,66433,40265,06632,77934,86467,64333,516--

SG&A ratio

34.0%

32.4%

33.2%

36.5%

32.6%

34.4%

34.9%

-

-

Operating profit

5,500

8,724

14,224

5,452

9,774

15,226

5,223

10,017

15,240

YoY

58.3%

-9.0%

8.9%

-0.9%

12.0%

7.0%

-4.2%

2.5%

0.1%

Operating profit margin

5.9%

8.5%

7.3%

6.1%

9.1%

7.7%

5.4%

9.0%

7.4%

Recurring profit

5,608

8,871

14,479

5,499

9,813

15,312

5,284

10,03615,320

YoY

56.6%

-8.3%

9.2%

-1.9%

10.6%

5.8%

-3.9%

2.3%

0.1%

Recurring profit margin

6.0%

8.6%

7.4%

6.1%

9.2%

7.8%

5.5%

9.0%

7.4%

Net income

3,492

4,749

8,241

3,279

5,536

8,815

2,281

6,549

8,830

101.2%-21.3%

6.0%

-6.1%

16.6%

7.0%

-30.4%

18.3%

0.2%

YoY

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

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13

Overview
For FY03/22, the company forecasts full-year consolidated sales of JPY207.0bn (+5.2% YoY), operating profit of JPY15.2bn(+0.1% YoY), recurring profit of JPY15.3bn (+0.1% YoY), and net income attributable to owners of the parent of JPY8.8bn(+0.2% YoY). The annual dividend forecast is JPY30 per share (flat YoY).
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.
The five key messages of IP24 are as follows. 1) LNG strategy (business expansion in existing areas, in Japan, andoverseas), 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 FY03/22 on the back of an ongoing increase in LP gas customer count and projectorders, but flat profits YoY because of expenses associated with strengthening customer acquisition and preparing anenvironment for work style reforms.

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14Outlook
Medium and long-term plans
Medium-term plan, Innovation Plan 2024 “Design the
Future Life” (IP24)
Overview
Announcement of medium-term plan, IP24 (Innovation Plan 2024 “Design the FutureLife”)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 indicesManagement 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 andpreparing an environment for workstyle 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 thecompany looks to maintain the equity ratio at around 40%.

Management indices(JPYmn)Sales
Operating profit
Net income

FY03/21 results
196,726
15,226
8,815

Cash flow from operating
22,400activities
Dividend payout ratio

44.6%

ROE
ROIC

12.7%
9.2%

Equity ratio
Number of customers

41.6%
3.10mnFY03/22 budget

FY03/23 target

207,000
15,2408,830

221,000
15,6009,000

21,80023,000FY03/24 target

FY03/25 target

232,000
16,5009,500

245,000
18,60011,00024,00026,00040–50%→→
3.20mn→3.32mn13% or higher
9.9% or higher
3.44mnApprox. 40%
3.56mnSource: Shared Research based on company data
Note: Cash flow from operating activities = operating profit + depreciation – lease payment – tax payment

Capital policy
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 toflexibly conduct share buybacks.

Basic concept over the next 10 years
Basic concept
The basic concept of the medium-term plan is to become a Life Design Group in 10 years’ time, continuing to expand andimprove its services with a vision of making the company’s TLC concept a reality. Life Design Group is a stance of helping tosolve 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.

TOKAI Holdings/ 3167
Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp15Company views of market environment going forward
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. Lifestylechanges 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, anddevelopment of experience-oriented services. In addition, social changes affecting companies include the trend towardclean energy, energy liberalization, digitalization, work reform, population decline, declining birthrate, and the aging
population.

Group vision
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.

10-year group objectives
The company’s 10-year vision is to become a Life Design Group that contributes to solving social issues by designing andproposing 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 willconsider 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, andrenewable 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 bathfacilities.
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.

Five key messages of medium-term plan, IP24
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.

Promote LNG strategy
The company intends to expand customer count through regional expansion (boost customer count from 3.1mn at endFY03/21 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 andCommunications business to the Kyushu and Hokuriku regions.

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16Global expansion: Expand the Energy business in Southeast Asia, beginning with Vietnam, while expanding theInformation and Communications business in China and Indonesia.

Promote the TLC concept
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 toanalyze actual and potential needs and 2) open innovation to expand and create new services.

Full-scale launch of DX strategy
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).

Optimal allocation of management resources
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 improveshareholder value. Specific management indices are as follows:
Operating cash flow (FY03/22–FY03/25): JPY94.8bn
Growth investment (FY03/22–FY03/25): JPY65.0bn (expansion of business foundation)
ROE (FY03/25): 13% or higher
ROIC (FY03/25): 9.9% or higher
Shareholder returns (FY03/22–FY03/25): Payout ratio of 40–50%; flexible implementation of share buybacks

Strengthened SDGs initiatives
Green strategy: By FY03/31, TOKAI Holdings aims to reduce CO2 emissions from business activities by 70% (13,000tons) from FY03/21 levels. In terms of marketing activities, the company aims to reduce CO2 emissions from householdgas by 50% (170,000 tons) compared to 360,000 tons in FY03/21 by popularizing high-efficiency gas appliances andinstalling solar power generation systems. The company further aims to market decarbonized gas by 2050, thus achievingcarbon neutrality.
Workstyle 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.

TOKAI Holdings/ 3167
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(Reference) Previous medium-term plan, Innovation Plan
2020 “JUMP”
Results of third medium-term plan
Four-year plan ending in 70th anniversary year
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-yearplans, 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.

Numerical targets and results
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.

Overview
Increasing customer base and services by M&A
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 asgas, 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 andother services acquired from other companies to harness the strengths of its business model.

Growing customer base and increasing lifetime value per customer
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. (InFY03/21, the company had 3,099,000 continuing customers, and 979,000 TLC members.) It worked to increase averagerevenue 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 thegroup’s 4,000 or so employees had contact with retail customers.

Numerical targets of Innovation Plan 2020 “JUMP”
FY03/17

FY03/18

FY03/19

FY03/20

FY03/21Act.

TargetTargetTargetTarget

2.56

2.88

2.99

3.72

4.32 or higher

1.7x

Sales

178,631

189,400

202,000

224,400

339,300

1.9x

Operating profit

12,75011,40014,00016,20022,5001.8x

Vs. FY03/17
Customers (mn)Net income

7,337

6,400

7,900

8,700

11,5001.6x

Total assets

161,112

169,800

173,800

191,200

283,400

1.8x

1.9x

2.0x

1.7x

1.8x

2.6x

-

Equity ratio

34.5%

33.9%

35.6%

34.9%

31.6%

-

ROE

15.2%

11.1%

12.8%

13.0%

13.0%

-

Interest-bearing debt / EBITDA

Source: Shared Research based on company data

Previous medium-term plan, Innovation Plan 2020 “JUMP”
Basic direction of the previous medium-term plan, Innovation Plan 2020 “JUMP,” was as follows:

TOKAI Holdings/ 3167
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18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 strengthsof 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.

Strategy
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 offurther 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 achievesynergies, reducing cancellations and improving sales efficiency.

TOKAI Holdings/ 3167
Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp19Business
Business description
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.

Main business segments
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 andhave 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.

LP gas

633

627

622

596

577

575

572

580

588

606

628

652

681

City gas

52

52

52

52

53

53

54

54

54

54

56

61

63

Gas total

685

679

674

648

629

628

626

634

642

661

684

713

744

758

816

854

859

633

528

465

419

389

395

4

219

299

323

327

324

337

2

29

41

48

53

Conventional ISP
Hikari Collaboration
LIBMO
Information andCommunications

758

816

854

863

852

829

817

787

761

785
875

Broadcasting

335

521

562

542

505

502

493

499

508

775

789

862

Telecommunication

98

164

178

180

186

191

197

211

225

257

274

292

322

CATV

433

685

740

722

691

693

690

710

733

1,032

1,063

1,154

1,198

Aqua

39

57

71

97

102

122

130

133

135

146

156

161

162

233

227

217

212

206

MobileSecurity
Total

23

22

21

20

20

19

18

18

17

17

17

16

16

1,842

2,190

2,343

2,415

2,445

2,519

2,537

2,558

2,564

2,876

2,902

3,003

3,099

Source: Shared Research based on company data
Note: Communication services overlap Information and Communications and CATV. Duplicate numbers are excluded from totals.
Note: From FY03/21, Information and Communications (conventional ISP services) includes customers with supplementary ISP service contracts.
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Results for FY03/11 and prior years are of TOKAI Corp.

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20Performance by segment (segment operating profits are before allocation of overhead
expenses)
Segment sales and operating
profitFY03/11

FY03/12

FY03/13

FY03/14

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20(JPYmn)Cons. **

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Sales

174,901

181,931

181,684

188,987

187,511

180,940

178,631

186,069

191,600

195,952

196,726

FY03/21

YoY

9.8%

4.0%

-0.1%

4.0%

-0.8%

-3.5%

-1.3%

4.2%

3.0%

2.3%

0.4%

Energy95,69798,316

94,51997,22993,06780,74573,34476,073

77,977

78,154

77,380-4.3%-13.2%

YoY

7.5%

2.7%

-

2.9%

-9.2%

3.7%

2.5%

0.2%

-1.0%

% 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

34,72537,94338,49738,803

40,11844,24649,50850,894

51,23451,75350,735

YoY

0.2%

9.3%

1.5%

0.8%

3.4%

10.3%

11.9%

2.8%

0.7%

1.0%

-2.0%

% of total

19.9%

20.9%

21.2%

20.5%

21.4%

24.5%

27.7%

27.4%

26.7%

26.4%

25.8%

CATV

22,647

24,292

23,78624,187

24,35924,60825,39628,38630,511

31,38533,745

YoY

44.7%

7.3%

-2.1%

1.7%

0.7%

1.0%

3.2%

11.8%

7.5%

2.9%

7.5%

% 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
Estate23,177

14,907

15,881

15,756

19,24520,01920,975

19,511

19,807

20,09022,383

YoY

3.5%

6.5%

-0.8%

22.1%

4.0%

4.8%

-7.0%

1.5%

1.4%

11.4%

3.5%

% of total

8.5%

8.7%

8.7%

10.2%

10.7%

11.6%

10.9%

10.6%

10.5%

11.4%

11.8%

Aqua

-

-

3,750

4,378

4,959

5,487

5,762

6,200

7,004

7,416

7,622

YoY

-

-

-

16.7%

13.3%

10.6%

5.0%

7.6%

13.0%

5.9%

% of total

2.8%

-

-

2.1%

2.3%

2.6%

3.0%

3.2%

3.3%

3.7%

3.8%

3.9%

Other

6,923

5,498

5,374

5,142

4,987

4,875

5,108

4,706

4,781

4,858

4,065

YoY

25.8%

-20.6%

-2.3%

-4.3%

-3.0%

-2.2%

4.8%

-7.9%

1.6%

1.6%

-16.3%% of total

4.0%

3.0%

3.0%

2.7%

2.7%

2.7%

2.9%

2.5%

2.5%

2.5%

2.1%

10,755

10,923

8,934

7,392

9,003

8,245

12,75010,971

13,057

14,224

15,226

YoY

7.2%

1.6%

-18.2%-17.3%

21.8%

-8.4%

54.6%

-14.0%

19.0%

8.9%

7.0%

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%

Energy

6,154

4,577

5,200

4,520

5,549

6,973

6,942

4,967

4,434

4,907

6,115

YoY

-13.5%-25.6%--13.1%

22.8%

25.7%

-0.4%

-28.5%-10.7%

10.7%

24.6%

Operating profit

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

YoY

20.2%

-2.6%

-10.7%-18.6%

14.3%-76.2%

269.7%-39.1%

39.0%

14.1%

4.3%

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%

CATV

2,592

1,648

429

973

862

1,161

2,331

3,035

4,442

YoY

38.7%

-36.4%-74.0%

126.8%-11.4%

34.7%

100.8%

30.2%

46.4%

2.3%

3.9%

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%

856

555

209

926

495

676

461

655

954

1,379

1,257

431.7%-35.2%-62.3%

343.1%-46.5%

36.6%-31.8%

42.1%

45.6%

44.5%

-8.8%

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%

Aqua

-

-

-1,029-2,107-1,448-1,275

101

26

520

401

259

YoY

-

-

-

-

-

-

-

-74.3%

1,895.8%-22.9%-35.4%

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%

Other

-274

-228

-17

-10

-386

-197

112

301

217

235

YoY

-

-

-

-

-

-

-

168.8%-27.9%

8.3%-

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%

Adjustments-2,883

174

396

41

445

78

-265

118

-105

-201

32

Construction, Equipment, and Real
Estate
YoY

4,543

4,719

-244

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: The Aqua business was included in the Energy segment for FY03/12 and prior years.
Note: Figures for FY03/11 and prior years are based on TOKAI Corp. data. FY03/12 comparisons are with FY03/11 TOKAI Corp. figures.
Note: Segment operating profits are before allocation of overhead expenses.

Energy segment
In FY03/21, this core segment saw JPY77.4bn in sales (accounting for 39.3% of overall company sales) and JPY9.0bn inoperating 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 thecity gas business reported sales of JPY11.7bn.

LP gasIn this subsegment, the company mainly sells LP gas, liquefied natural gas (LNG), and petroleum products, along withrelated equipment and services. The subsegment has approximately 681,000 customers spread over Tokyo and 16 otherprefectures 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).

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21

LP gas utilities
RankingCompany

No. of direct customers

1 Iwatani Corporation

1,000,000

2 Nippon Gas Co., Ltd.

877,000

3 TOKAI CORPORATION

651,682

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

10 Kamei Corporation

210,000
··

Total

··
22,189,743

Source: Shared Research based on company data (source: LP Gas Annual Report: Facts and Figures, 2021, Sekiyu Kagaku Shinbun Sha)

City gas
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 thegas 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 aminority 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. toform 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 anduse this to develop its city gas retail sales business in the Tokai region. In addition to city gas sales in the Tokai region, thejoint venture is also looking at expanding its sales territory outside of the three prefectures that comprise the Tokai region.

High-pressure gas
The company manufactures and sells high-pressure gas products such as oxygen and nitrogen, as well as related equipment.

Security
The company wholesales automated security services and other security systems to other security service providers.

Information and Communications
In FY03/21, the Information and Communications segment reported JPY50.4bn in sales (accounting for some 26% of overallsales) 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 thesystem 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 Ministryof 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 asof 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.

ADSL/FTTHAs an internet service provider (ISP), the company sells services directly to consumers under three brands: @T COM, anationwide 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, thecompany also wholesales optical and ADSL circuits as a telecommunications carrier.

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22

MobileThe company is an agent for Softbank Mobile Corporation (a subsidiary of Softbank Corporation; TSE1: 9984) in Shizuoka
and Saitama prefectures through 14 stores primarily selling mobile handsets and service contracts.

Source: Shared Research based on company dataSIS
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 aredesigned to withstand earthquakes up to level 7 on the Japanese seismic intensity scale). The company has jointly developeda 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 MasterCo., Ltd., in Taipei, Taiwan. The company will cooperate with this joint venture company and to provide secure and low-costhosted private cloud services. The company intends to strengthen its operations through by providing enhanced services.

TOKAI Holdings/ 3167
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*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, othermembers of the alliance include Hokkaido Telecommunication Network Co., Inc. (a subsidiary of Hokkaido ElectricPower Co., Inc. [TSE1: 9509]), Tohoku Intelligent Telecommunication Co., Inc. (a subsidiary of Tohoku Electric Power
Co., Inc. [TSE1: 9506]), ITOCHU Techno-Solutions Corporation (TSE1: 4739; a subsidiary of ITOCHU Corporation [TSE1:
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 [TSE1: 9532]), Sakura KCS Corporation ( a subsidiary of
Sumitomo Mitsui Banking Corporation), QTNet Co., Ltd. (a subsidiary of Kyushu Electric Power Co., Inc. [TSE1: 9508]),
Nishitetsu Information System Co., Ltd. (a subsidiary of Nishi-Nippon Railroad Co., Ltd. [TSE1: 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 [TSE1: 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 totalsolutions 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.

Corporate telecommunications
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 interofficetelecommunications 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.

CATV segment
In FY03/21, the CATV segment reported JPY33.7bn in sales (accounting for roughly 17% of overall sales) and JPY5.2bn insegment 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 endFY03/20.
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 endMarch 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).

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24Construction, Equipment, and Real Estate segment
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 highpercentage of sales. Renovation accounted for around 22% of total sales, equipment and appliance for roughly 15%, andinstallation 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 theconstruction 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 thiscomplex.
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, thecompany 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 thesame kinds of synergies that the acquisition of another CATV service provider or city gas company would because it does notleverage TOKAI Holdings’ strength in product sales, it will give the TOKAI group expertise in civil engineering that it did nothave 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.

Aqua segment
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-waterproducts. 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, andbecame the Aqua segment in Q1 FY03/14.

In November 2007, the company commenced a returnable-bottle service (bottles are collected, washed and sterilized, andsubsequently reused) in Shizuoka Prefecture, and in March 2011 it launched a nationwide one-way bottle service (bottles arehome 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 waterfrom the base of Mt. Fuji on Asagiri Plateau (Fujinomiya, Shizuoka Prefecture). According to the company, Asagiri Plateau is
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25

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) sinceApril 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 itcommenced 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 asubsidiary in Shanghai, China, named TOKAI (Shanghai) Trade & Commerce Co. Ltd. Under the product name “Fujishigen” itcommenced 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.

OthersIn FY03/21, the Others segment reported JPY4.1bn in sales (accounting for some 2% of overall sales). The Others segment
includes three businesses.

Bridal, events, and hotel
These operations include Grandair Bouquet Tokai, a facility within Aoi Tower near Shizuoka Station.

Ship repair
The company undertakes ship repairs, including for ocean-going and in-shore fishing vessels.

Other services
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 centersin 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.

Business model
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 (up83,000 members YoY).
Shared Research thinks that there is still some way to go with the TLC model and it makes more sense to evaluate thecompany as a sum of its individual businesses. As of end-March 2020, of the company’s 3,099,000 customers, the number ofcustomers that use multiple services stood at 20.0%. (The company had aimed to get that figure above 20% by endFY03/21.)
In December 2012, the company began issuing the TLC WAON card, using Aeon Co., Ltd.’s (TSE1: 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.

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Business portfolio
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, themarket itself is shrinking. The company sees this business primarily as a cash cow as well as a sales platform, enabling it tooffer 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, andaccounted for 38% of the company’s overall operating profit (before allocation of overhead expenses) in FY03/21. Anothercash 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’sservices. 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 thecompany 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.

Geographic expansion
As of end-FY03/21, the TOKAI Holdings group had 2.6mn customers mainly in the Kanto region and Shizuoka Prefectureand 3.1mn nationwide.
The outline of operations in each area is as follows.
Kanto
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 thelargest consumer market in Japan though there is intense competition. The company considers there is still wide room forfinding new customers.
Shizuoka
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 businessmainly in the suburbs and the CATV and city gas services mainly in cities. It also runs the internet and Aqua businesses allover the prefecture. Though the rate of population decline, expected for 20 years later, will be high in Japan, Shizuoka isranked 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.
Other main areas
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 thewestern 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 thearound-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.

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27Extending operating areas to expand customer baseIn 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 fromthe 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.
Aqua
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 anestablished customer base, sales staff of the LP Gas business also conduct sales activities for the Aqua business. This businesssegment 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 canachieve significant market penetration in Shizuoka Prefecture, as can gradually expanding the sales area. The company statedthat 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 tomake 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.
Information and Communications
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 proprietaryfiber-optic network infrastructure.
The important strength of the company’s business model in this segment is that it combines in one package one-off revenuesof 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).
CATV
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 ofhouseholds 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.

TOKAI Holdings/ 3167
Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp28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; richservice 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.

Reference: LP gas
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 issupplied to households in gas form through underground pipes.

LP gas usage categories (FY2019)
Usage

Share in domestic
demandHousehold & commercial
use

43.0%

General industrial use

21.8%

Chemical raw material

20.4%

City gas

7.9%

Propane is the main ingredient and cylinders are installed on-site to supply households and commercial
facilities.
Used in ferrous and non-ferrous metal processing as a thermal source, and for such applications as drying ofindustrial components and foodstuffs.
Demand is on an upward trend for butane as a raw material in the manufacture of such chemical products as
ethylene and propylene.
Although the main ingredient of city gas is methane, LP gas is an additive to increase thermal power.

Automobile use
Electricity generation
Large-scale steelmakers

5.5%
0.6%
0.7%

Used in domestic LP gas-powered vehicles, butane is the main ingredient.
Used as a backup fuel at thermal power stations.
Used in the steel industry for heating and heat-treating steel materials.

Main features：

Source Shared Research based on data from the Japan LP Gas Association

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 the2013 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, safetyassurance, 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 therevised LP Gas Law (effective April 1997), to make tariff systems more transparent, suppliers are obligated to disclose thetariff 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 isa 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

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29supply, such as cylinders and meter; and 2) the cost of safety and meter reading as well as gas alarm rental. The meteredvolume 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 commonlyused 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.

LP gas retail, wholesale, CIF, and contract prices

Source: Shared Research based on data from the Oil Information Center

Domestically, added to CIF are: import primary supplier costs (coastal freight, safety expenses, gas terminal expenses,
general administrative expenses, and petroleum gas tax); wholesale costs (personnel expenses, delivery expenses, costs ofoperating charge stations, safety expenses, and general administrative expenses); and retail costs (personnel expenses,
delivery expenses, depreciation expenses, safety expenses, fee collection and meter-reading expenses, and generaladministrative expenses). LP gas tariffs are set in accordance with the business conditions of each supplier.
Margins (charges less costs) are generally determined by such factors as the competitive situation, and the time lag between
cost fluctuations and tariff increases or decreases. Although a change in the import price of LP gas has a short-term impact on
the earnings performance of an LP gas supplier, earnings tend to level out over time.

Profitability snapshot, financial ratios
Profit margins

FY03/11

FY03/12

FY03/13

FY03/14

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20(JPYmn)Cons. **

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

67,44569,53768,80968,341

68,932

69,812

73,04075,33676,15979,28982,870Gross profit

FY03/21

Gross profit margin

38.6%

38.2%

37.9%

36.2%

36.8%

38.6%

40.9%

40.5%

39.7%

40.5%

42.1%

Operating profit

10,755

10,923

8,934

7,392

9,003

8,245

12,75010,971

13,057

14,224

15,226

6.1%

6.0%

4.9%

3.9%

4.8%

4.6%

7.1%

5.9%

6.8%

7.3%

7.7%

EBITDA

26,30028,826

26,381

24,963

26,232

24,97928,391

26,18228,14729,65031,026

EBITDA margin

15.0%

15.8%

14.5%

13.2%

14.0%

13.8%

15.9%

14.1%

14.7%

15.1%

15.8%

Net margin

1.2%

1.5%

1.7%

1.4%

2.1%

1.9%

4.1%

3.6%

4.1%

4.2%

4.5%

Operating profit margin

Financial ratios
ROA (RP-based)

4.9%

5.2%

4.5%

4.0%

5.0%

5.0%

7.9%

6.8%

7.9%

8.6%

8.8%

ROE

14.8%

13.1%

10.4%

7.4%

9.8%

8.3%

15.2%

11.4%

12.6%

13.0%

12.7%

Total asset turnover

0.91

0.97

1.01

1.08

1.11

1.11

1.11

1.14

1.15

1.16

1.13

Inventory turnover

11.6

12.8

13.9

14.8

15.9

18.1

19.8

21.2

20.8

20.7

20.5

Days in inventory

31.3

28.6

26.2

24.7

22.9

20.2

18.4

17.2

17.5

17.6

17.8

Working capital (JPYmn)

17,237

16,595

16,06616,146

13,745

13,405

13,117

13,525

15,475

16,378

14,670Current ratio

55.4%

48.2%

48.9%

51.5%

50.5%

60.5%

63.0%

62.7%

69.2%

73.0%

82.3%

Quick ratio

32.2%

29.1%

30.5%

32.0%

32.2%

40.3%

42.5%

42.3%

47.2%

50.3%

56.0%

OCF / Current liabilities

0.25

0.33

0.31

0.28

0.36

0.32

0.43

0.33

0.35

0.37

0.55

Net debt-to-equity ratio

525.9%

373.9%

260.1%

214.3%

161.5%

160.4%

112.0%

99.3%

93.8%

88.2%

68.2%

OCF / Total liabilities

0.2

0.2

0.3

0.2

0.2

0.2

Cash conversion cycle (days)

33.2

28.6

26.4

25.2

22.2

18.4

14.6

12.8

15.3

17.8

14.5

Change in working capital

-753

0.1

-642

0.2

-529

80

-2,401

0.2

-340

0.2

-288

408

1,950

903

-1,7080.3

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Results for FY03/11 and prior years are of TOKAI Corp.

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The company’s consolidated operating profit margin in FY03/13–FY03/16 was generally lower than the previous level ofaround 6.0%, but improved to 7.1% in FY03/17. Although sales declined due to price cuts to reflect lower gas purchaseprices, this makes minimal impact on profits due to the company’s earning structure, and the profitability of priority
businesses such as Hikari Collaboration and Aqua improved. ROA and ROE also improved significantly in FY03/17 as aresult of higher profitability. ROE had been trending down since FY03/10, but improved to 15.2% (+6.9pp YoY) in FY03/17.
However, in FY03/18, the first year of the new medium-term management plan Innovation Plan 2020 “JUMP,” which ends atthe end of FY03/21, the company made investments to expand its earnings base in the future. As a result, profitability andefficiency worsened YoY. The operating profit margin fell 1.2pp YoY to 5.9% and ROE fell 3.8pp to 11.4%. V-shaped recovery
was achieved in FY03/19, with the operating profit margin rising 0.9pp to 6.8%, and ROE rising 1.2pp to 12.6%. In FY03/21,
the company achieved a consolidated operating profit margin of 7.7% (the highest in 10 years) and an ROE of 12.7%.

EnergyIn FY03/21, the segment operating profit margin (before allocating overhead expenses) was 11.6%. In the mainstay LP Gas
business, the lowest operating profit margin since FY03/07 was 3.6% in FY03/08 and the highest was 12.5% in FY03/17.
The decline in operating profit margin in FY03/08 reflected a substantial rise in purchase prices. The increase in FY03/10
reflected a revision in selling prices (i.e., passing on higher costs to the end user in terms of price hikes). The operating
profit margin declined in FY 03/14, partly because selling prices failed to reflect higher purchase costs exactly. Since
FY03/15, operating profit margin improved due to the correction to the previous year’s situation and rationalization efforts.
However, in FY03/18, sales were solid as the company raised selling prices to match higher procurement prices and sales
volume rose due the increase in customer count. On the other hand, profits were weak due to higher costs to secure newcustomers and prevent contract cancellations. The operating profit margin fell 2.8pp YoY to 9.7%. In FY03/19, the operating
profit margin fell 1.0pp to 8.7% due to the impact to LP gas sales volume from higher temperatures and the surge in LP gas
procurement costs. In FY03/20, a decline in gas procurement costs underpinned a 0.8pp rise in the segment operating
profit margin to 9.5%. In FY03/21, despite falling selling prices, operating profit margin increased 2.1pp YoY to 11.6%,
thanks to the rising customer count.
For reference, a USD10/ton decline in contract price (CP) adds JPY130mn to operating profit, and a one yen fall in the yen
versus the USD adds around JPY50mn to operating profit (FY03/21 base). However, although there is a slight time lag
between purchase price and selling price, they move in tandem for the most part and generally are stable. The company’s
operating profit margin is high compared with industry peers, the fact that Shared Research attributes to a high weight ofresidential customers (not businesses) in the company’s mix. As the LP gas market faces gradual decline, a key issue ismaintaining profitability by pursuing efficiency. Acquisitions of similar operators and thus boosting the scale of the businessare one way of doing this. In addition, if the company was able to take advantage of industry realignment and utilize M&A toboost its size, it may gain some room for lowering its purchase price though greater economies of scale.
The city gas business has approximately 63,000 customers, the number that has remained more or less stable over time. The
same can probably be said about profitability—the regulated city gas business is a small but stable part of the company’s
portfolio.

Aqua
The Aqua business turned profitable at operating profit level for the first time in FY03/17. In FY03/18, the businessmaintained profitability, although the operating profit margin fell 1.2pp YoY to 4.0%. The operating profit margin rose 6.9pp
to 10.9% in FY03/19 on a reduction in distribution expenses resulting from the business alliance with Toell Co., Ltd. With
these cost-savings dropping out and distribution costs rising, the segment operating profit margin fell 1.8pp to 9.1% in
FY03/20. In FY03/21, the operating profit margin declined 1.6pp YoY to 7.5% as rising distribution costs outweighed thehigher customer count and an increase in the average selling price per customer. The company commented that its bottled
water commands a gross profit margin of approximately 50%. An improvement in usage rates and an increase in customers
who are both LP gas and Aqua customers will lead to a decrease in cancellation rates and costs.

Information and Communications
In FY03/21, the segment operating profit margin (before allocating overhead expenses) was 8.6% (+0.4pp YoY). The
operating profit margin declined after hitting its latest high of 14.6% in FY03/12 and dropped to 5.2% in FY03/16, mainly
due to heavy promotional spending on the new fiber-optical service Hikari Collaboration. Earnings improved in FY03/17 asHikari Collaboration began contributing to sales. In FY03/18, the company made investments (secure new customers,
prevent cancellations, sales promotions in MVNO business, etc.) to expand its earnings base in the future. As a result, theoperating profit margin fell 2.3pp YoY. However, the operating profit margin rose 1.2pp to 7.5% in FY03/19 with the
optimization of LIBMO customer acquisition costs (changed focus to the acquisition of users that are certain to continue to
use the service). Rising demand from corporate customers (mainly for cloud services) helped pushed the segment operating
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profit margin up another 0.7pp in FY03/20, to 8.2%. FY03/21 saw a net increase in consumer customers supported by thelaunch of new MVNO service rate plans and promotion of new customer acquisition through online marketing. Corporate
customer demand increased thanks to progress with the cloud service rollout and increased telework demand, leading to a
0.4pp increase in the operating profit margin to 8.6%.

CATV
In FY03/21, the segment operating profit margin of 15.4% was down 0.6pp from the record-high of 16.2% set in FY03/19,
but was still well above the 11.9% figures reported for FY03/11 and the previous record-high of 12.5% logged in FY03/18.
Though competition with major telecommunications carriers becomes fierce, the company is enjoying successful results fromsuch measures as the bundling of broadcasting and telecommunications services and discounts for long-term subscribers toincrease customer loyalty.

Group companies
TOKAI Holdings was established in April 2011 to coincide with the 60th anniversary of the founding of the TOKAI group. Asof March 2021, the company has 43 operating companies, led by TOKAI Corporation and TOKAI Communications
Corporation (33 consolidated subsidiaries and 10 equity-method affiliates). The figures in parentheses indicate the company’s
holding ratio.

Core operating companies
TOKAI Corporation (100.0%): In Tokyo and 15 prefectures stretching from the Tohoku region in the north to Kyushu inthe south, the company provides a diverse range of products and services to the household sector, including LP gas, Aqua
(returnable and disposable bottles), housing-related products and services, solar panels and other environmental andenergy products, security, and insurance.
TOKAI Communications Corporation (100.0%): Provides ICT services.
TOKAI Gas Corporation (100.0%): Supplies city gas and LP gas, as well as provides renovation services in the cities of
Yaizu, Fujieda, and Shimada, Shizuoka Prefecture and in the town of Shimonita, Gunma Prefecture.
TOKAI Cable Network Corporation (100.0%): In addition to providing CATV digital multichannel broadcasting services,
the company also offers FTTH Internet services and telephone services utilizing proprietary CATV fiber-optic lines.

Energy (LP Gas business)
Y.K. Osuga Gas Service (100.0%)
Joynet Co., Ltd. (50.0%)
Energy Line Corporation (100.0%)
TOKAI Home Gas Corporation (100.0%)
TOKAI Myanmar Company Limited (60.0%)

Aqua
TOKAI (Shanghai) Trade & Commerce Co. Ltd. (100.0%): Conducts home water delivery service under the “Fujishigen”
brand in Shanghai, China. Also manufactures water servers used in the Japanese market.

Information and Communications
Cloud Master Co., Ltd. (50.0%): A joint venture established in March 2013 in Taiwan with SYSCOM. Set up with theobjective of providing information and communications services in the Asia market, beginning with Japan, Taiwan, andChina.

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Scythe Co., Ltd. (100.0%): Operates the information services business specializing in consignment development ofsystems and provision of in-house developed survey systems mainly for use in online research.

CATVTokyo Bay Network Co., Ltd. (93.9%): Operates a CATV business in Chuo and Koto wards in Tokyo.
Ichihara Community Network TV Corp. (92.0%): Operates a CATV business in Ichihara, Chiba Prefecture.
Atsugi Isehara Cable Network, Inc. (99.2%): Operates a CATV business in Atsugi, Kanagawa Prefecture.
LCV Corporation (89.2%): Operates a CATV business in the Suwa/Okaya/Tatsuno area of Nagano Prefecture.
KCT Corporation (98.3%): Operates a CATV business in such cities as Kurashiki, Soja and Tamano in Okayama Prefecture.
TV Tsuyama Inc. (96.0%): Operates a CATV business in Tsuyama, Okayama Prefecture.
TOCO Channel Shizuoka Co., Ltd. (85.9%): Operates a CATV business in the city of Shizuoka, Shizuoka Prefecture.
Net Technology Shizuoka Co., Ltd. (55.0%)
Sendai CATV Co., Ltd. (99.3%): Operates CATV business serving the cities of Sendai and Natori in Miyagi Prefecture

Construction, Equipment, and Real Estate
Nissan Tri Star Construction, Inc. (100.0%): General contractor in Gifu Prefecture
Chuo Denki Koji Co., Ltd. (100.0%): Electrical contractor in Aichi Prefecture
Inoue Technica Co., Ltd (100.0%): Operates a building maintenance business in Numazu, Shizuoka Prefecture.

OthersTokai City Service Co., Ltd. (100.0%): Operates the Grandair Bouquet Tokai bridal and banquet hall.
TOKAI LIFE PLUS CORPORATION (100.0%): Operates a day service and other nursing care services in the city of
Shizuoka, Shizuoka Prefecture.
TOKAI Management Service Corporation (100.0%): Undertakes administrative duties for internal departments.
TOKAI Human Resources EVOL Corporation (39.0%): Operates a labor dispatch business.
TOKAI Zosen Unyu Co., Ltd. (90.8%): In the shipbuilding business, conducts ship repairs; in the transportation business,
operates LP gas tanker trucks from Oigawa Gas Terminal. In the Aqua home-delivery service, delivers water bottles andservers from Shizuoka Prefecture to household and office customers.

Market and value chain
Market overview
EnergyLP gas demand (household and commercial use) peaked in 2006 and had been on the wane since then due to a falling
average number of persons per household, the growing use of energy-efficient appliances, declining volume usage driven
by increased environmental awareness, and changes in energy source.

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LP gas demand (household use)

Source: Shared Research based on data from the Japan LP Gas Association

According to the National Institute of Population and Social Security Research, after peaking in 2023, the total number ofhouseholds in Japan will begin to decline. The average number of persons per household is also expected to fall. In light ofthis trend, LP gas and city gas usage per household is anticipated to decline. In other words, the gas business operates in amarket that started a secular decline.

Japan’s households and people per household

Source: Shared Research based on Ministry of Internal Affairs and Communications, National Institute of Population and Social Security Research data

Aqua
The company is building up the Aqua segment, its water delivery business, where the market has been expanding. For 2021,
the Japan Water Home Delivery Association estimates a total customer dispenser count of 4,600,000 (up 170,000 YoY),
putting the market value at JPY179bn (up JPY6.7bn YoY).
Note: Water delivery refers not to PET bottles filled with water, but to water delivered in larger containers. A dedicatedwater server is placed in a home or office, which is used to dispense cold or hot water whenever users desire.

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Water delivery market and production amount

Number of delivery water customers (thousands of servers)

Source: Shared Research based on data from the Japan Delivery Water & Server Association
Note: Returnable means reuse containers. OW (one way) and BIB (bag in box) indicate disposable containers.

According to the Japan Mineral Water Association, per capita mineral water consumption in Japan continues to increase
annually. The water-delivery market is growing faster than the overall domestic water market. In 2019, the per capita
consumption of mineral water in Japan was 31.7 liters, substantially lower than other developed countries (Italy: 192.0 liters,
U.S.: 119.0 liters, UK: 38.9 liters). Judging from these figures, mineral water consumption in Japan would appear to haveplenty of room to grow in the future.

Information and Communications
The fixed broadband market for individual consumers, which is handled by the Information and Communications segment,
has slowed significantly in recent years. According to the Ministry of Internal Affairs and Communications, as end-December
2019, there were 32.72mn fiber-optic line subscribers (+4.3% YoY). However, the growth rate has slowed gradually and thenumber of increase in FY2015 was up 4.7% YoY. This is largely due to the penetration of smartphones and tablet devices, aswell as an increase in the number of single-person households—particularly young people—who do not subscribe to a fixed

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line service. In 2014, the Nippon Telegraph and Telephone Corp. group, the largest provider of fiber-optic lines in Japan,
announced a change in selling policy to launch the wholesaling of its fiber-optic services (Hikari Collaboration). Various
business operators, including mobile telecommunications carriers, introduced new services using this collaboration model.
TOKAI was one of the companies starting the new services.
Shared Research anticipates growth in the SIS and corporate telecommunications businesses. According to MM ResearchInstitute, the market scale of the public cloud (SaaS/FaaS/PaaS/IaaS) is expected to grow from JPY616.5bn in FY2018 to
JPY1.6tn in FY2023, representing a CAGR of 21.7%. According to a survey by IDC Japan, a research institution specializing
in IT, the data center services market in Japan is expected to grow from JPY1.2tn in FY2017 to JPY1.8tn in FY2022,
representing a CAGR of 8.6%.

CATV
According to the Ministry of Internal Affairs and Communications, the number of CATV subscribers stood at 30.9mn
households at end-March 2020, or 52.3% of the overall market. With the market penetration rate already above 50%, the
CATV market has clearly been maturing in recent years.

Cable TV subscriber households and market penetration rate

Source: Shared Research based on data from the Ministry of Internal Affairs and Communications

Construction, Equipment, and Real Estate
The company has positioned the housing-renovation business as a growth field, and under the New Growth Strategy
approved by the Japanese cabinet in June 2010, the housing renovation market was indeed targeted to double from
JPY6.0tn in 2010 to JPY12.0tn in 2020. Although the governing party at the time, the Democratic Party of Japan (DPJ) lost
power in 2012 to the Liberal Democratic Party (LDP), we do not expect to see any change vis-à-vis this market. The main
reason for this expectation is that the original proposal for stimulating the housing-renovation market was made during theprevious LDP administration. According to the Ministry of Land, Infrastructure, Transport and Tourism, there are particularlyhigh needs in the plumbing field related to kitchen, toilet, and bathroom renovation. In addition, since the Great East Japan
Earthquake, instability in the electricity supply has led to increased renovation needs and energy conservation.

Barriers to entry
The company’s main businesses, including LP Gas, Information and Communications, and CATV, require large-scale capital
investment, making the barriers to entry high.
In contrast, the Aqua business and the housing-renovation business are not necessarily market pioneers and do not requirelarge initial investments. For such reasons, barriers to entry are not as high. However, to build these businesses to a certain
level of momentum, it is necessary to have some attributes of differentiation. Shared Research sees the company’s
differentiation in its LP Gas customer base and the “Mt. Fuji” brand. Around the foot of Mt. Fuji, there are increasing moves
to regulate the taking of water, meaning it is not easy to drill new wells.

TOKAI Holdings/ 3167
Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp36Competition
EnergyThe number of direct customers in the LP Gas business is 681,000 (as of end-March 2021). This gives the company the thirdlargest customer base in Japan. Competitors include industry leader Iwatani Corporation (TSE1: 8088) and the second-largest
operator, Nippon Gas Co., Ltd. (TSE1: 8174). In its stronghold of Shizuoka Prefecture, the company has a 24.1% market share,
putting it in top place. In the Kanto region (including Fukushima Prefecture in the Tohoku region), it has a 7.2% market share(based on the number of subscribers; (source: LP Gas Research Report Facts & Figures 2020, Sekiyu Kagaku Shinbun Sha).
Looking at historical trends, there are few cases of drastic fluctuations in market share, but competition in the industry tends
to be relatively fierce.

LP gas retailers

Source: Shared Research based on LP Gas Annual Report data

There were approximately 17,800 LP gas retailers in Japan as of end-March 2019. Although this number is in decline, thecompany expects a major realignment in the industry over a relatively brief period, which may decrease the number of small
operators and spawn an oligopoly. Consequently, to expand the customer base, the company has indicated it will consider
the use of M&A and business alliances.

Aqua
In the Aqua business, competitors include NAC Co., Ltd. (TSE1: 9788) and Aqua Clara, Inc. These two companies havearound 20% of the market, but TOKAI’s market share is around 4% (all market share figures are for 2016; source: Yano
Research Institute Ltd.). Still, it has almost a 50% share when looking only at the Shizuoka area. Using the “Mt. Fuji” brandand its sales capabilities as key advantages, the company is preparing for a major sales push in the Kanto region. Water Direct
Corporation (TSE Mothers: 2588) also operates a water-delivery service using natural water sourced from the foot of Mt. Fuji.
Shared Research considers the company’s competitive advantage its existing relationship with LP Gas customers.

CATV
Originally, the company utilized such leading-edge technologies as CATV-FTTH to offer Internet access and multichannel
broadcasting, and leveraged its sales capabilities to expand the CATV business. However, the full transition to terrestrial
digital broadcasting in Japan in July 2011 shrunk the area affected by signal interference, revitalizing the multichannelmarket. Major telecommunications carriers have also expanded into offering bundled broadcasting, Internet, and telephoneservices, further intensifying competition.
For the company, key competitors include major telecommunications carriers, which boast abundant capital resources,
infrastructure assets, and purchasing power, and utilize these to offer a rich array of content, hence leading to differentiation.
In addition to efforts to reinforce its customer base by making Tokyo Bay Network a consolidated subsidiary (in July 2017), thecompany is aiming to generate synergies (increase ARPU) by packaging its services with the assorted comprehensive lifestyleservices of the group. The CATV business of the TOKAI group is ranked third in the industry in sales, sixth in number ofbroadcasting households, and fourth in number of subscribing households (source: TOKAI Holdings). The company can offer
one-stop access to broadcasting services, FTTH Internet access, and telephone services. It also provides broadcasting services
to approximately 800,000 households (home pass total: 1.38mn households as of end-March 2020) whom it already knows,

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and through strong local community-based sales it has a direct relationship with customers and is able to provide close aftersales service. The company thinks that the major telecommunications carriers are not able to cultivate such advantages.
In particular, unlike the commercial free-to-air broadcasters, who are tied to programming that is backed by advertisingsponsors, CATV operators have much greater freedom in deciding their programming and are able to focus on theirstrengths in providing content that is valuable to viewers in their defined service area. Based on this attribute, the company isworking to strengthen its role as a core infrastructure provider in its respective service areas. This includes offering services
that focus on local traditions and culture and services that have a strong local community perspective.

Information and Communications
According to TOKAI, in terms of sales for the ISP business (ADSL/FTTH), the company boasts the top market share in
Shizuoka Prefecture, and the fourth largest share nationwide.
Unlike many ISPs, the company is highly cost competitive due to its proprietary infrastructure, such as relay transmission and
IP transit. Another key feature is its customer base focusing on the Kanto region and Shizuoka Prefecture.
In the corporate telecommunications and SIS businesses, the company is likely to face intensified competition from the large
system integration (SI) companies, which were previously not direct competitors. This change reflects a general move in theinformation industry toward cloud services, which has prompted the large SI companies to target second-tier companies
rather than blue chip companies. Hence, the previously existing segmented market structure is undergoing significant
changes. Meanwhile, as the cloud business market expands, operations and business-support platforms, as well as application
providers such as Platform as a Service (PaaS) and Software as a Service (SaaS) are expanding.
In this environment, the company is striving to differentiate itself by combining hardware- and software-based services, basedon a full lineup of services from data centers and network infrastructure through to SI services performed by IT engineers. In
addition, SYSCOM, the company’s local partner in its Taiwan joint venture, provides price-competitive cloud services. Basedon these services, the company intends to roll out cloud services targeting SMEs.

Strengths and weaknesses
Strengths
Regional dominance providing greater profit contributions from non-gas businesses:
The company began selling LP gas in Shizuoka Prefecture, and expanded to the Kanto area. It has leveraged its high market
share (over 20%) and customer base in Shizuoka Prefecture, where it built its LP gas business, to successfully launch CATV,ISP and other businesses, and as with the LP gas business, it has expanded these businesses into other areas, using Shizuoka
Prefecture as a base. Its customers have grown to 3.1mn at end-FY03/21, from 1.8mn at end-FY03/09. The company expects
to continue growing its customer base through regional expansion and offering a diversified product line-up.

“Lean and mean” provides flexibility to take business away from major utility companies:
In the wake of the liberalization of Japan’s electric power industry, the large utility companies have, through their groupcompanies, attempted to expand their operations beyond the electricity business. The top three electric power companies
have aggressively expanded into the telecommunications business. However, after determining that earnings were unlikely
to improve owing to intensified competition, they pulled out of this business, and focused exclusively on energy-related
operations. The enormous size proved too costly. However, TOKAI Holdings has been able to penetrate this area due to its
lower cost structure, aggressive management, and regional focus, expanding into other regions departed by the major
electric companies. For example, the operating profit margin of the Information and Communications segment, the second
biggest segment in terms of sales, stood at an average of 7.8% for the past five years up to FY03/21, showing a stable profit
status.

Beneficiary of structural reform and realignment of the LP gas industry:
There are nearly 18,000 gas operators supplying LP gas nationwide. Demand for LP gas is on a declining trend, and in viewof this situation, Shared Research thinks that there will be an eventual realignment of the gas industry. Given its strongholdin mainstay gas operations, coupled with an improving financial position (i.e., reducing interest-bearing debt one year aheadof schedule), the company is well situated to be an “acquirer” rather than an “acquiree.” For that reason, the realignment of

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the gas industry will not only mean an easing of price competition, but may also provide new growth opportunities for thecompany.

Weaknesses
Lack of experience in cross-selling:
Despite the company’s successful sales of multiple products, only around 20% of the company’s customers use multiple
products or services of the company as of end-March 2021. To turn the proverbial “conglomerate discount” into a“conglomerate premium,” the company needs to boost the cross-selling ratio of multiple product and services.

LP gas market is in structural decline:
The company’s core business operates in declining market (driven by demographic factors) but is competitive (due to acommodity nature of the product offered and limited consolidation).

Intensifying competition in the CATV business:
Within the company’s business portfolio, the CATV business has been identified as a growth area. However, there isincreasing momentum in service bundling by telecommunications carriers, not only in the ISP field but also in such areas as
IP telephony, terrestrial digital broadcasting, and satellite digital broadcasting (BS/CS). This means intensifying competition
for customers.

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Historical performance and financial
statements
Historical performance
1H FY03/22 results (out October 28, 2021)
Overview
1H FY03/22 results
The company reported sales of JPY96.1bn (+6.9% YoY), operating profit of JPY5.2bn (-4.2% YoY), recurring profit of JPY5.3bn(-3.9% YoY), and net income attributable to owners of the parent of JPY2.3bn (-30.4% YoY). 1H sales grew YoY for the first timein two fiscal years, setting a new record high for 1H sales.

Progress versus full-year forecast
Versus full-year FY03/22 company forecast, 1H sales were 46.4% (1H FY03/21 sales were 45.7% of FY03/21 full-year
results), operating profit 34.3% (38.7%), recurring profit 34.5% (38.7%), and net income 25.8% (37.2%). Progress in sales,
operating profit, and recurring profit outpaced the company plan. On the other hand, the company noted that customer
acquisition was behind schedule. As such, it intends to use the surplus profits from 1H to step up customer acquisition effortsin 2H and achieve the full-year customer count target of 3.2mn by end-FY03/22. As for the net income, despite the one-off
recording of extraordinary losses, net income attributable to owners of the parent was largely in line with plan. The company
maintained its full-year forecast, which looks for record highs in sales and all profit items.

Sales
Sales stood at JPY96.1bn, up 6.9% YoY. A breakdown of sales by segment is given below:
Energy: JPY36.2bn (+8.1% YoY)
Information and Communications: JPY25.3bn (+0.7% YoY)
CATV: JPY16.1bn (-2.5% YoY)
Construction, Equipment, and Real Estate: JPY12.4bn (+36.2% YoY)
Aqua: JPY3.9bn (+0.9% YoY)
Others: JPY2.2bn (+23.0% YoY)
Sales growth was mainly driven by a rise in the number of customers in the Energy and CATV segments, expansion ofrecurring-revenue businesses targeting corporate customers in the Information and Communications segment, and theimpact of M&A in the Construction, Equipment, and Real Estate segment.

Operating profit
Operating profit was JPY5.2bn, down 4.2% YoY. A breakdown of operating profit (before allocation of overhead expenses) is
as follows:
Energy: JPY2.0bn (-17.6% YoY)
Information and Communications: JPY2.4bn (+18.1% YoY)
CATV: JPY3.0bn (+12.3% YoY)
Construction, Equipment, and Real Estate: JPY738mn (+18.8% YoY)
Aqua: 186mn (-58.3% YoY)
Others, adjustments: Operating loss of JPY3.0bn (loss of JPY2.7bn in 1H FY03/21; loss expanded by JPY360mn YoY)
A rise in the monthly billing count due to higher customer numbers and robust performance from the Information andCommunications business for corporate customers pushed up profit. However, operating profit fell YoY due to higher
customer acquisition costs, because the company moved ahead with customer acquisition at a faster pace than a year ago in
the LP gas and Aqua businesses. The company also incurred expenses for preparing the environment for work style reforms.

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The gross profit margin fell 2.3pp YoY to 40.3%, the SG&A ratio declined 1.6pp YoY to 34.9%, and the operating profit
margin decreased 0.7pp YoY to 5.4%.

Net income attributable to owners of the parent
Net income attributable to owners of the parent fell 30.4% YoY to JPY2.3bn. The company recorded one-off extraordinary
losses, which included JPY208mn in costs related to events commemorating the company's 10th anniversary, JPY382mn inloss on retirement of non-current assets, and JPY498mn in costs associated with fraudulent activities by former employees(details to follow). Despite this, the company maintained that 1H net income was largely in line with plan.

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, thecompany acquired shares in Marco Polo, Inc., which is engaged in large-scale repair work for condominiums and otherfacilities 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.

Customer countThe number of continuing customers amounted to 3,125,000, up 26,000 from end-FY03/21. Subscribers to TLC
Membership Service reached the one million mark with an increase of 44,000 members to 1,023,000. Versus endFY03/21, the gas (LP, city gas) business had a net increase of 20,000 customers, the CATV business had a net increase of
17,000 customers, and the Aqua business had a net increase of 3,000 customers.

Discovery of fraudulent activities by former employees ofsubsidiaries
A tax inspection conducted by the Nagoya Regional Tax Bureau in July 2021 revealed that former employees of two of thecompany's subsidiaries misappropriated some company assets for personal use by creating false invoices and fraudulently
transferring funds. While these fraudulent activities are currently being investigated by an internal investigation committee
chaired by a corporate attorney (see below), the company posted an extraordinary loss of JPY498mn in Q2 in line with theamount identified by the Nagoya Regional Tax Bureau. The company also added JPY88mn to income taxes based on its
projection for tax penalty associated with the discovery of fraudulent activities.
TOKAI Corporation: From February 2014, former employee A provided false invoices on an ordered construction
project, and made fraudulent profits totaling approximately JPY173mn.
TOKAI Gas Corporation: From March 2014, former employee B used his/her position as an accountant to divert a
total of approximately JPY368mn in company funds to his/her own bank account for personal use.
The former employees and any other internal accomplices, including superiors, will be severely dealt with in accordancewith company regulations.
Following the discovery, the company established an internal investigation committee chaired by a corporate attorney tocarry out an investigation focusing on clarification of the details of the cases, understanding the responsibility of managers,
identifying the causes, and preventing repeat incidents. Once the committee has completed its investigation, the company
plans to disclose the report of its findings as soon as it receives this from the committee. It also plans to promptly disclose any
material information that emerges during the investigation. The company takes these fraudulent acts very seriously, and it
will work to further strengthen internal controls and improve their effectiveness based on the findings of the committee toprevent future incidents.

TOKAI Holdings/ 3167
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41

Change in customer numbers, by service segment
Number ofcustomers

FY03/14

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20

FY03/21

FY03/22

YoY

Q2

Q2

Q2

Q2

Q2

Q2

Q2

Q2

Q2

ChangeGas (LP gas, city gas)

629

626

627

634

648

670

696

728

764

36

Conventional ISP

841

861

742

565

492

440

403

379

386

7

Hikari Collaboration

-

-

117

272

315

328

324

332

339

7

('000)

LIBMO

-

-

-

-

13

36

43

51

54

3

Information andCommunications

841

861

859

837

819

804

770

762

779

17

CATV

693

690

698

722

995

1,046

1,076

1,179

1,214

35

Aqua

120

132

132

135

141

156

159

161

165

4

Mobile

221

231

234

234

231

223

215

209

198

-11

Security

19

18

18

17

17

17

16

16

16

0

2,498

2,535

2,543

2,554

2,827

2,893

2,918

3,042

3,125

83

Total

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Customer numbers are duplicated for Information and Communications and CATV segments when shown separately, but not in the totals.

* 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 inmobile 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 andemail newsletters.

Results by segment
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 haveno impact on actual earnings in the segments.

EnergySales were JPY36.2bn (+8.1% YoY), and operating profit was JPY635mn (-39.0% YoY).
The LP gas business reported sales of JPY30.7bn (+10.3% YoY). The company continued its customer acquisition efforts,
and the number of customers expanded to 697,000, up 16,000 from end-FY03/21. Sales rose due to higher selling
prices linked to a rise in purchase prices.
The city gas business reported sales of JPY5.4bn (-2.6% YoY). Customer count grew to 67,000, up 4,000 from endFY03/21, but sales declined due primarily to the fuel cost adjustment system.
Operating profit fell mainly due to an increase in customer acquisition costs and decline in demand per household
caused by unseasonable temperatures and other factors. Recovery in sales volume was mainly underpinned by restored
demand for industrial-use gas. Household sales volume fell against strong year-ago results that benefited from an extra
boost of stay-at-home demand. Factors driving increase/decrease in operating profit were as follows:
Factors contributing to profit increase: Increase in customer count (+JPY520mn); purchase cost reduction (+JPY60mn)
Factors contributing to profit decline: Customer acquisition costs (-JPY500mn); unseasonable temperatures, other (JPY370mn); other costs (-JPY130mn)

Information and Communications
Sales were JPY25.3bn (+0.7% YoY), and operating profit was JPY1.7bn (+22.0% YoY).
In the Information and Communications business, services for consumers generated sales of JPY12.2bn (-6.9% YoY). In the
ISP business, the company expanded its service offerings through a partnership with a major mobile carrier. In the

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mobile business, it worked to acquire customers by offering enhanced services through initiatives such as review of priceplans and offering of set plans bundled with fixed lines. The number of customers came to 779,000, down 6,000 fromend-FY03/21 (ISP customers decreased by 7,000 to 725,000 while LIBMO customers increased by 1,000 to 54,000).
The company steadily expanded its sales channels and the trend of net customer decline has ceased, but sales declined
due to lower average service prices.
In the Information and Communications business, sales to corporate clients were JPY13.1bn (+9.0% YoY). Sales growth was
driven by steady progress in cloud services and a higher number of contracted development projects.
The company secured double-digit YoY growth in operating profit, thanks to higher profit from the corporate clientbusiness, lower customer acquisition costs, and higher profit from LIBMO. Customer acquisition costs fell from 1H
FY03/21, when the company made substantial outlay on marketing activities for fixed broadband. The rise in profit from
LIBMO was attributable to an increase in customer count and the provision of a high data volume plan, which raised thebilling price per customer. Factors driving increase/decrease in operating profit were as follows:
Factors contributing to profit increase: Higher profit from the corporate client business (+JPY220mn); lower customer
acquisition costs (+JPY130mn); higher profit from LIBMO (+JPY130mn); higher profit from business targeting
consumers (+JPY30mn)
Factor contributing to profit decline: Increase in other costs such as those to prepare the environment for work stylereforms (-JPY140mn)

CATV
Sales were JPY16.1bn (-2.5% YoY), and operating profit was JPY2.6bn (+9.9% YoY).
During the COVID-19 pandemic, as a community-based operator, the company focused on delivering local informationand 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 5,000 fromend-FY03/21 to 881,000, while communications services customers increased by 11,000 to 333,000.
Factors driving increase/decrease in operating profit were as follows:
Factor contributing to profit increase: Increase in customer count (+JPY320mn)
Factor contributing to profit decline: No major factor to note

Construction, Equipment, and Real Estate
Sales were JPY12.4bn (+36.2% YoY), and operating profit was JPY341mn (+40.8% YoY).
In addition to the benefit of progress with M&A, orders for renovation and building work also increased, resulting in asignificant YoY increase in sales and profit. Factors driving increase/decrease in operating profit were as follows:
Factors contributing to profit increase: Higher profit in the renovation business (+JPY80mn); higher profit in theconstruction and equipment businesses (+JPY40mn)
Factor contributing to profit decline: No major factor to note

Aqua
Sales were JPY3.9bn (+0.9% YoY), and operating profit was JPY32mn (-88.1% YoY).
Sales grew thanks to favorable performance from events held at large commercial facilities and telemarketing and othernon-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.
Factors driving increase/decrease in operating profit were as follows:
Factor contributing to profit increase: Increase in customer count (+JPY20mn)
Factor contributing to profit decline: Higher customer acquisition costs (-JPY280mn)

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43Others
Sales were JPY2.2bn (+22.9% YoY), and the operating loss was JPY114mn (operating loss of JPY140mn in 1H FY03/21).
In the nursing care business, user numbers rose and sales amounted to JPY657mn (+0.3% YoY).
In the shipbuilding business, the volume of ship repairs grew, and sales came to JPY854mn (+29.5% YoY).
In the bridal events business, sales were JPY281mn (+150.5% YoY), reflecting a slight recovery in the number of wedding
ceremonies and meetings held at the group’s banquet halls and hotels.

Launch of medium-term plan, IP24 (Innovation Plan 2024
"Design the Future Life")
April 2021 marked the tenth year since TOKAI's adoption of a holding company structure, and as the first step toward the next
decade, the company has been advancing the TOKAI Group Medium-Term Plan IP24 (Innovation Plan 2024 "Design the
Future Life"), which spans the four years from FY03/22 to FY03/25. The environment surrounding corporations is changing
drastically amid lifestyle changes due to the pandemic, global demand for SDGs-related action, movement toward clean
energy, and digitalization. Under these conditions, the TOKAI group aims to maintain sustainable growth to become a Life
Design Group central to people's lives in 10 years' time (see the Outlook section for details). The company says it willcontinue to step up efforts in 2H to finish the first year of the plan with success, and clearly lay out the path toward its 10-year
vision of becoming a Life Design Group.
The company positions FY03/22 as a year to create the foundation for realizing the five key messages of IP24 (shown
below).
Promote LNG strategy (business expansion in existing areas, in Japan, and overseas)
Advance Total Life Concierge (TLC) concept through digital marketing (analyzing customer needs) and open
innovation (bolstering service lineup)
Fully move forward with digital transformation (DX) strategy to drive LNG strategy and TLC concept
Optimize allocation of management resources to achieve business growth and improve shareholder value
Strengthen SDGs initiatives
The company's 1H progress related to the five key messages is outlined below.

Promote LNG strategy
Expansion of customer base in mainstay businesses
The company boosted the number of customers (its revenue base) by 26,000 in 1H FY03/22, mainly in the core businessesof gas, CATV, and Aqua. In the domestic LP gas business, in October 2021 it opened a new sales office in Kumamoto,Kumamoto Prefecture—its second sales base in the Kushu region following Fukuoka. In the Chugoku and Shikoku regions,the company established an office in Okayama Prefecture in 2017, and it is considering the rollout of a new sales base in
Hiroshima Prefecture around January 2022. The plan is to build up the customer count further in preparation to achieve the
FY03/25 target of 3.56mn customers.
New development in the Information and Communications business
The company provides a one-stop service to corporate customers seeking to adopt Amazon Web Services (AWS). The onestop service spans all processes from consultation regarding adoption of AWS, system design, and construction toconnection, monitoring, and operation. As an AWS-certified Advanced Consulting Partner, the company has thus far
supported numerous customers in their use of cloud computing. Leveraging such track record and experience, it beganoffering AWS solutions in China on September 1, 2021, providing AWS-related support to local subsidiaries of Japanesecompanies. The company intends to actively develop the business, riding the tailwind of expanding cloud usage.
M&A: Further growth and expansion as an all-round construction business operator
In April 2021, the company acquired shares in Marco Polo, Inc., a provider of large-scale repair services in Aichi Prefecture,and made it a consolidated subsidiary. Based in Toyota, Aichi Prefecture, Marco Polo has built trust through its solid trackrecord in construction projects from local governments, condominium management associations, and construction
companies. Previous M&A activities in the company's Construction, Equipment, and Real Estate business include the
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44acquisitions of Nissan Tri Star Construction, Inc. (civil engineering company) in 2019 and Chuo Denki Koji Co., Ltd.
(electrical works company) in 2020; both companies are now consolidated subsidiaries. These acquisitions have given thecompany the ability to handle a wide spectrum of major construction works. The company plans to draw on the strengths ofthese subsidiaries, create synergies, and achieve further growth and expansion as an all-round construction business
operator.
M&A: Further expansion of the Information and Communications business
In April 2021, the company acquired all outstanding shares in Query Co., Ltd. and made it a consolidated subsidiary. Querydevelops IT systems and smartphone/tablet apps under contract with corporate customers. Query has built a long-lasting
relationship of trust with major companies, leveraging its technological strengths that allows it to flexibly respond to
customer needs. By matching Query's technology and customer relations with the TOKAI group's cloud/network integration
expertise in ICT services for corporate customers, the company plans to generate synergies, provide more value tocustomers, and capture more business.

Advance TLC concept
The company has been promoting digital marketing as a tool to identify potential customer needs and make proposals on
new lifestyle designs. Though the use of D-sapiens, an analysis platform that centrally manages various data (payment andtransaction history, event participation, and other information) of the company's 3.125mn customers nationwide (as of end-1H
FY03/22), the company aims to deepen understanding of its customers so that it can propose optimal services. By doing so,
it intends to add further value and improve customer experience. For instance, the company has been working to detectsigns of service cancellation using AI. On the occasion of its annual Autumn Thanksgiving Fair promotions, it built a special
Thanksgiving website enabling non-face-to-face consultations with customers. In addition to making online sales pitches, thecompany applied the usage and attribute data of customers' visiting the site to automatically distribute optimal content while
maintaining the appropriate distance desired by each customer. In such ways, the company has been working to improvecustomer experience.

Fully move forward with DX strategy
The company formulated a DX strategy for the TOKAI group at the same time when it announced its medium-term plan IP24.
The strategy calls for maximum utilization of data accumulated from business dealings with roughly 3.1mn customers
nationwide, as well as the cutting-edge digital technology honed through the ABCIR+S* initiatives. The company will further
optimize existing business models, achieve operational efficiency (improving productivity and operational efficiency throughdigital workplace), and establish high-value-added services (understanding customers via D-sapiens and improving customer
experience). It will also take on the challenge of creating new businesses (through collaboration and co-creation withstartups).
*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).

Optimize allocation of management resources
The company says that allocation of management resources has been progressing in line with plan. Of the JPY11.4bn
operating cash flow generated in 1H, JPY9.0bn was allocated to growth investment such as funding for existing businesses(JPY6.3bn) and acquisition of new subsidiaries (JPY2.7bn). In terms of shareholder returns, the company plans to share thefruit of business growth with the shareholders by increasing FY03/22 dividends to JPY30 per share (total dividend paymentof JPY2.1bn), up JPY2 per share from FY03/21. The company expects an operating cash flow of JPY21.8bn for the full year; itwill aim to optimally allocate management resources and make aggressive growth investment while improving shareholder
value.

Strengthen SDGs initiatives
Carbon Neutral Vision
In May 2021, the company unveiled the TOKAI Group Carbon Neutral Vision with an eye toward the achievement of carbon
neutrality by 2050. Since the Japanese government's carbon neutrality declaration in October 2020, corporations haveaccelerated their efforts to combat climate change. In response to growing societal demand, the TOKAI group intends toreduce CO2 emissions by further expanding the use of environmentally friendly energy equipment while utilizing

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45renewable energy and electric vehicles in its business operations. In line with the announcement of Carbon Neutral Vision,
the group is already implementing specific measures aimed at carbon neutrality as outlined below.
Sales of carbon neutral gas*
In August 2021, the company began sales of carbon neutral gas in the city gas business, adopting the J-Credit scheme** toeffectively offset CO2 emissions. As a first step, it began providing carbon neutral gas to a public facility in Fujieda, Shizuoka
Prefecture, upon signing a collaborative agreement with the City of Fujieda, which declared to become a Zero Carbon Cityin February 2021. The company is cooperating with Fujieda to raise its citizens' awareness on prevention of global warmingand help create a Zero Carbon City.
* Carbon neutral gas refers to the provision of city gas at effectively net zero CO2 emissions through the application of
credit generated by businesses engaging in, for instance, appropriate forest management or use of energy-saving
facilities.
** J-Credit is a scheme under which the Japanese government certifies as credit the amount of greenhouse gas (such asCO2) reduced via the adoption of energy-saving facilities and use of renewable energy. The scheme also certifies ascredit the amount of greenhouse gas absorbed through appropriate forest management.

Launched TOKAI Zero Solar service
To promote the take-up of renewable energy, in October 2021 the company began offering the TOKAI Zero Solar service,
which allows customers to install solar power generation systems at their homes at zero initial cost. The initial installation costis fully covered by the TOKAI group. Under this service, when customers use the electricity generated by the system during agiven contract period*, they pay a service usage fee based on the amount of usage (kWh). The service provides economic
benefits to customers, as the usage fee billed does not include renewable energy levy and is more affordable compared tothe price settings of electric power companies. Also, surplus electricity can be sold to power companies. For the duration of
the contract, customers can reduce their utilities expenses, and when the contract period is over, they can obtain theequipment free of charge. The company says spreading the use of solar power generation systems is crucial to improvement
in energy self-sufficiency and achievement of a decarbonized society. As such, it plans to contribute to the reduction of CO2
emissions by promoting the merits of renewable energy to its customers.
* Contract period: For a 5–10Kw system, 10–13 years from the date of connection to power grid; for a 3–5Kw system,
10–15 years from the date of connection to power grid (contract period varies depending on surrounding environment
and installment conditions)

Employee work style reforms
In April 2021, the company introduced a new work style program centered on telework, providing smartphones and laptops
to employees, reformatting the office to a hot desk system, and offering work-from-home allowances. It applied its DX strategy
to create a safe and comfortable environment where employees can work regardless of location or time. The company says it
is making steady progress toward a 50% target for in-office attendance and a 40% target for office floor space reduction.
Improvements in office processes, such as the shift to paperless operations and introduction of an electronic seal system, arealso making headway. Through its work style reform efforts, the company plans to establish flexible ways of working that aresuitable to a diverse range of personnel.
Strengthen governance
In February 2021, the company established a Nomination and Compensation Committee to further strengthen the
independence, objectivity, and accountability of the Board of Directors by ensuring transparency and objectivity in theassessment and decision-making processes associated with directors' nomination and remuneration. The appointment of nine
directors was approved at the company's 10th ordinary general meeting of shareholders convened in June 2021. To achieve
diversity and access to expertise, the directors' composition included three independent outside directors, one of whichbeing a female director. The company says it is committed to establishing unwavering trust through continued soundmanagement of its businesses based on a high level of self-discipline.

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46

Q1 FY03/22 results (out July 29, 2021)
Overview
Q1 FY03/22 results: The company reported sales of JPY48.4bn (+7.3 YoY), operating profit of JPY3.2bn (-14.7% YoY),
recurring profit of JPY3.4bn (-12.5% YoY), and net income attributable to owners of the parent of JPY1.9bn (-23.5% YoY). Q1
sales grew YoY for the first time in two fiscal years, setting a new record high for Q1 sales.
Versus full-year FY03/22 company forecast, Q1 sales were 23.4% (Q1 FY03/21 sales were 22.9% of FY03/21 full year
result), operating profit 21.2% (24.8%), recurring profit 21.9% (25.0%), and net income 21.2% (27.7%). Both sales and profits
exceeded the company’s forecast. Sales were ahead of plan with contributions from the Energy segment, reflecting growth insales volume accompanying boosted utilization rates of energy for industries and rising energy prices. The Information andCommunications business for corporate customers and the Construction, Equipment, and Real Estate business also
contributed to higher sales. Operating profit surpassed the plan thanks to lower-than-expected personnel expenses andSG&A expenses in the Energy business. The Information and Communications business for corporate customers and theConstruction, Equipment, and Real Estate business also contributed to higher profit.
Sales up 7.3% YoY: The increase in sales was mainly due to a rise in the number of customers in the Energy and CATV
segments, as well as growth of recurring-revenue businesses targeting corporate customers in the Information andCommunications segment andd the impact of M&A in the Construction, Equipment, and Real Estate segment.
Operating profit down 14.7% YoY: A rise in the monthly billing count due to an increase in the number of customers, and anincrease in profit in the Information and Communications business for corporate customers, were positive factors for profit.
However, the decrease in LP gas sales volumes to households, mainly due to warmer temperatures than in Q1 FY03/21, andhigher customer acquisition costs associated with acquiring customers at a faster rate than in Q1 FY03/21 in the LP gas andAqua businesses had a negative impact on profit. The gross profit margin fell 2.9pp YoY to 40.7%, the SG&A ratio declined
1.1pp YoY to 34.1%, and the operating profit margin decreased 1.7pp YoY to 6.7%.
Net income down 23.5% YoY: Accumulated other comprehensive loss was JPY119mn (income of JPY1.6bn in Q1 FY03/21)
due to a negative valuation difference on available-for-sale securities and a decline in deferred gains on hedges.
Number of continuing customers: Increased 95,000 since end-FY03/21 to 3,108,000. Subscribers to TLC Membership
Service grew 19,000 to 998,000.
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 samemonth, the company acquired shares in Marco Polo, Inc., which is engaged in large-scale repair work for condominiums andother 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.

Customer countThe number of continuing customers was 3,108,000, up 9,000 from end-FY03/21. The company proactively worked on
expanding its client base while applying strict measures to control the spread of COVID-19, including conducting sales
activities without face-to-face interactions. Compared with end-FY03/21, the gas (LP, city gas) business had a net increase of
8,000 customers, the CATV business had a net increase of 8,000 customers, and the Aqua business had a net increase of
2,000 customers. The number of continuing customers fell short of the company’s target by 5,000 due to lower-thanexpected customer acquisition in the LP gas, Information and Communications, Aqua, and mobile businesses. Meanwhile,the number of continuing customers in the CATV business outperformed the company’s forecast.
TOKAI Holdings is proactively working on strategies to shore up its earnings base. In its fourth medium-term management
plan, Innovation Plan 2024 “Design the Future Life,” a four-year plan spanning through FY03/25, the company targets tohave 3,200,000 customers at end-FY03/22 and reach 3,560,000 customers at end-FY03/25. It aims to achieve a netincrease of 461,000 customers over the four years, of which it targets a net increase of 101,000 customers in FY03/22.
(Discussed in detail in the Outlook section.)

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47

Change in customer numbers, by service segment
Number of customers

FY03/22

YoY('000)

Q1

Q1

Q1

Q1

Q1

Q1

Q1

Q1

Q1

ChangeGas (LP gas, city gas)

FY03/14
629

627

625

634

645

664

687

718

752

34

Conventional ISP

834

858

802

595

507

451

411

383

391

8

Hikari Collaboration

-

-

58

251

310

327

326

328

337

9

LIBMO

-

-

-

-

8

32

42

50

53

3

Information and Communications

834

858

860

846

825

810

778

760

781

21

CATV

693

692

692

716

738

1,039

1,069

1,161

1,206

45

Aqua

105

126

130

134

138

151

157

159

164

5

Mobile

217

229

235

235

232

225

214

211

201

-10

Security

19

18

18

17

17

17

17

16

16

0

2,471

2,526

2,537

2,557

2,570

2,883

2,907

3,012

3,108

96

Total

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20

FY03/21

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Customer numbers are duplicated for Information and Communications and CATV segments when shown separately, but not in the totals.

* 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 inmobile 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 andemail newsletters.

Overview of sales and operating profit
Sales
Sales in Q1 FY03/22 were JPY48.4bn, up 7.3% or JPY3.3bn YoY. Q1 sales grew YoY for the first time in two fiscal years,
marking a record high for Q1 sales. In addition to an increase in continuing customers (up 96,000 customers YoY), otherfactors that boosted sales include higher selling prices linked to a rise in purchase prices in the Energy business, M&A andhigher renovation orders in the Construction, Equipment, and Real Estate business, and growth in the number of ship repairs
and a slight recovery in the number of wedding ceremonies and meetings held at the group’s of banquet halls and hotels(under the Others segment).
A breakdown of sales by segment is given below:
Energy: JPY19.0bn (+7.7% YoY)
Information and Communications: JPY12.6bn (-0.2% YoY)
CATV: JPY8.0bn (-2.8% YoY)
Construction, Equipment, and Real Estate: JPY5.5bn (+45.1% YoY)
Aqua: JPY1.9bn (+1.3% YoY)
Others: JPY1.3bn (+49.0% YoY)

Operating profit
Operating profit in Q1 FY03/22 was JPY3.2bn, down14.7% or JPY557mn YoY. Growth in customer count and performance in
the Information and Communications business for corporate customers pushed up profit, while lower sales volume of LP gas
to households due to warmer temperatures than in Q1 FY03/21 and higher customer acquisition costs (the number of new
customers grew YoY in the LP gas and Aqua businesses) led to lower profit.
A breakdown of operating profit by segment (before allocation of overhead expenses) is as follows:
Energy: JPY1.6bn (-20.0%, or JPY394mn YoY)
Information and Communications: JPY1.2bn (+10.3%, or JPY114mn YoY)
CATV: JPY1.5bn (+6.7%, or JPY92mn YoY)
Construction, Equipment, and Real Estate: JPY263mn (+12.9%, or JPY30mn YoY)
Aqua: JPY37mn (-86.3%, or JPY234mn YoY)
Others/adjustments: Loss of JPY1.3bn (loss of JPY1.2bn in Q1 FY03/21; loss expanded by JPY166mn)

TOKAI Holdings/ 3167
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48Results by segment
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 haveno impact on actual earnings in the segments.

EnergySales were JPY19.0bn (+7.7% YoY), and operating profit was JPY910mn (-30.7% YoY).
The LP gas business reported sales of JPY16.2bn (+9.5% YoY). As a result of continued customer acquisition initiatives, thenumber of customers expanded by 6,000 from end-FY03/21 to 687,000. The company says the customer count fell
below its forecast by slightly less than 3,000 (slightly below 2,000 due to delay in acquisition of commercial rights and
1,000 due to more cancellations than the forecast). Sales increased due to higher selling prices linked to a rise inpurchase prices.
The city gas business reported sales of JPY2.8bn (-1.3% YoY). Customer count was up by 2,000 from end-FY03/21 to
64,000, but sales declined due primarily to a downturn in selling prices associated with the fuel cost adjustment system.
Operating profit declined despite growth in customer count. Profit fell due to lower sales volume of LP gas tohouseholds, influenced by warmer temperatures than in Q1 FY03/21, in addition to higher customer acquisition costs as
the number of new LP gas customers grew YoY.

Information and Communications
Sales were JPY12.6bn (-0.2% YoY), and operating profit was JPY913mn (+14.6% YoY).
In the Information and Communications business, services for consumers business generated sales of JPY6.2bn (-6.1%
YoY). In the ISP business, the company expanded its service offerings through a partnership with a major mobile carrier
and offered mobile services at the lowest price in the industry. In addition, the company made progress on new customer
acquisition through offering an ISP and mobile set fee.
The number of customers decreased by 4,000 from end-FY03/21 to 781,000 (ISP customers decreased by 4,000 to
728,000 and LIBMO customers remained unchanged at 53,000). Although the number of new customers exceeded thecompany’s plan by 400, the number of cancellations was higher than anticipated due to intensifying competition withmobile telecommunications carriers. As a result, customer count fell short of the company’s forecast by 1,400. Although
the trend of net customer decline has ceased for the most part, sales declined due to lower average service prices.
In the Information and Communications business, sales to corporate clients rose to JPY6.4bn (+6.1% YoY). Growth wascentered on recurring-revenue services, with steady progress in cloud services and system integration projects.

CATV
Sales were JPY8.0bn (-2.8% YoY), and operating profit was JPY1.3bn (+5.9% YoY).
During the COVID-19 pandemic, as a community-based operator, the company focused on delivering local informationand 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 thenumber of broadcasting services customers increasing by 2,000 from end-FY03/21 to 878,000, while communications
services customers increased by 6,000 to 328,000. New customer acquisition for the communications service was firm,
exceeding the company’s forecast. In addition, the cancellations in the broadcasting services were lower than expected.
As a result, communications service customers exceeded the company’s forecast by 1,900, and broadcasting services
customers exceeded by 700.

Construction, Equipment, and Real Estate
Sales were JPY5.5bn (+45.1% YoY), and operating profit was JPY82mn (-0.2% YoY).

TOKAI Holdings/ 3167
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49

In addition to the benefits of progress with M&A, orders for renovation and building work also increased, resulting in asignificant increase in sales YoY. Growth in the renovation business offset the YoY decline in profit in the Construction,
Equipment, and Real Estate Business. However, segment profit was largely flat YoY due mainly to an increase in goodwill
amortization.

Aqua
Sales were JPY1.9bn (+1.3% YoY), and the operating loss was JPY33mn (operating profit of JPY194mn in Q1 FY03/21).
Sales from events at large commercial facilities were strong compared to Q1 FY03/21, which had been affected by
restraint on activities due to the pandemic. Sales were also helped by non-face-to-face sales activities, including
telemarketing. Customer count was up by 2,000 from end-FY03/21 to 164,000.
The company recorded an operating loss due to increases in customer acquisition costs and advertising expenses.

OthersSales were JPY1.3bn (+49.0% YoY), and the operating loss was JPY4mn (operating loss of JPY70mn in Q1 FY03/21).
The nursing care business reported sales of JPY317mn (-1.8% YoY), with user numbers falling amid by the pandemic.
In the shipbuilding business, higher volume in ship repairs led to sales of JPY580mn (+79.0% YoY).
In the bridal events business, sales were JPY161mn (+484% YoY), reflecting a slight recovery in the number of wedding
ceremonies and meetings held at the group’s banquet halls and hotels.

Application of the Accounting Standard for Revenue Recognition
Tokai Holdings adopted the Accounting Standard for Revenue Recognition from the start of Q1 FY03/22. As a result, thecompany now recognizes revenue in the amount expected to be received in exchange for goods or services when thecontrol of the promised goods or services is transferred to the customer. While TLC points used by customers—which
previously were included in SG&A expenses—are deducted from sales after the application of this standard, the impact on
the company’s sales and profit is minor. Specifically, the application of this standard reduced Q1 sales by JPY360mn (noimpact on profit).
In the mainstay LP gas business, the company records revenue when inspecting the customers’ gas meters. Revenue
generated from LP gas sales from the last inspection to the end of the fiscal year are the company’s estimates. In addition,
revenue from products such as appliances is recorded at the time of delivery. Revenue from housing and other construction
work is recorded based on cost recovery method except for revenue from construction work that are recorded based on
percentage-of-completion method. Revenue from provision of services is recorded when the provision of services has been
completed.

Full-year FY03/21 results (out May 11, 2021)
Overview
Full-year FY03/21 results: The company posted sales of JPY196.7bn (+0.4% YoY), operating profit of JPY15.2bn (+7.0% YoY),
recurring profit of JPY15.3bn (+5.8% YoY), and net income attributable to owners of the parent of JPY8.8bn (+7.0% YoY). The
company posted record sales for the fourth consecutive year and record profit or the third year running.
Progress: Versus full-year FY03/21 company forecast, sales were 95.8%, operating profit 101.5%, recurring profit 103.0%,
and net income 104.2%. Sales fell slightly short, but profit at all levels surpassed the full-year company forecast.
Sales up 0.4% YoY: Despite the sales decline from lower LP gas and city gas purchase prices pushing down gas selling prices(although this had no impact on profit) and negative impact of the COVID-19 pandemic, sales increased YoY on growth inhousehold LP gas sales volume, an expansion in recurring revenue business for information and communications companies,
and a rise in CATV and Aqua (water home delivery service) customers.
Operating profit up 7.0% YoY: Some of the company’s businesses, such as the wedding and banquet businesses in the Others
segment, were negatively impacted by the COVID-19 pandemic. However, operating profit was up YoY as this negative
TOKAI Holdings/ 3167
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50

impact was offset by factors such as an increase in monthly billing count due to the rise in number of customers in the LP gas,Aqua, and CATV businesses, and higher profit in the Information and Communications business for corporate customers.
GPM improved 1.6pp YoY to 42.1%, while the SG&A expense to sales ratio grew 1.2pp to 34.4%, and OPM improved 0.4pp
to 7.7%.
The number of continuing customers: Increased 96,000 since end-FY03/20 to 3,099,000. Subscribers to TLC Membership
Service increased 83,000 to 979,000.
Topics: In June 2020, the company established sales offices in Kasugai, Aichi Prefecture and Yokkaichi, Mie Prefecture in the
LP gas business. In the Construction, Equipment, and Real Estate segment, the company acquired the shares of two
companies, making them consolidated subsidiaries: Chuo Denki Koji Co., Ltd. (Nagoya, Aichi Prefecture), which operates anelectrical construction business (August 2020) and Inoue Technica K.K. (Numazu, Shizuoka Prefecture), which operates abuilding maintenance business (November 2020). The company believes these acquisitions will lead to expansion for thegroup by helping it enter new areas and expand its business area. Overseas, the company successfully entered Vietnam’s LP
gas market by making two companies equity-method affiliates in June 2020: Mien Trung Gas Joint Stock Company and V-Gas
Petroleum Corporation, which operate an LP gas sales business in Vietnam.

Customer countThe number of continuing customers was 3,099,000, up 96,000 from end-FY03/20. Compared with end-FY03/20, the gas(LP, city gas) business had a net increase of 31,000 customers, the CATV business had a net increase of 44,000 customers,
and the Hikari Collaboration business had a net increase of 13,000 customers.

Change in customer numbers, by service segment
Number of customers

FY03/21YoY('000)

Q4

Q4

Q4

Q4

Q4

Q4

Q4

Q4

Q4

ChangeGas (LP gas, city gas)

FY03/13629

FY03/14
628

626

634

642

661

684

713

744

31

Conventional ISP

816

854

859

633

528

465

419

389

395

6

4

219

299

323

327

324

337

13

Hikari Collaboration

FY03/15

FY03/16

LIBMO

FY03/17

FY03/18

FY03/19

FY03/20

2

29

41

48

53

5

Information and Communications

816

854

863

852

829

817

787

761

785

24

CATV

691

693

690

710

733

1,032

1,063

1,154

1,198

44

Aqua

102

122

130

133

135

146

156

161

162

1

227

235

236

233

227

217

212

206

-6

19

19

18

18

17

17

17

16

16

0

2,445

2,519

2,537

2,558

2,564

2,876

2,902

3,003

3,099

96

MobileSecurity
Total

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Customer numbers are duplicated for Information and Communications and CATV segments when shown separately, but not in the totals.
Note: From FY03/21, Information and Communications (conventional ISP services) includes customers with supplementary ISP service contracts.

* 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 inmobile 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 andemail newsletters.

Results by segment
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 haveno impact on actual earnings in the segments.

Energy▷ Sales: JPY77.4bn (-1.0% YoY)
▷ Operating profit: JPY6.1bn (+24.6% YoY)
TOKAI Holdings/ 3167
Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp51

The LP gas business reported sales of JPY65.6bn (+0.6% YoY). As a result of refraining from in-person sales because of
COVID-19, instead focusing on telemarketing and utilizing online tools, the number of customers expanded by 30,000
from end-FY03/20 to 681,000. Despite lower selling prices linked to a fall in purchase prices, sales volumes ofhousehold-use gas increased, due in part to consumers staying home.
The city gas business reported sales of JPY11.7bn (-9.1% YoY). Customer count was up by 2,000 from end-FY03/20 to
63,000, but sales declined due primarily to a downturn in selling prices associated with the fuel cost adjustment system,
which is designed to quickly reflect fluctuations in the prices of raw materials for gas (such as LNG [liquefied natural gas]and LPG [liquefied petroleum gas]) in actual gas prices.
Operating profit was up due to a higher customer count.

Information and Communications▷ Sales: JPY50.7bn (-2.0% YoY)
▷ Operating profit: JPY3.1bn (+4.3% YoY)

Services for consumers generated sales of JPY26.3bn (-8.0% YoY). In light of competition with major mobile carriers andgrowing demand for communications services amid the COVID-19 pandemic, the company focused on customer
acquisitions. It worked to acquire customer through the Internet and to actively expand sales channels and expand Hikari
Collaboration set plans, including through the introduction of a new pricing plan (“nattoku plan”) to LIBMO (TOKAI brand
MVNO service), offering customers the best plan for their needs. As a result, the company generated a net increase ingeneral consumer customers after six consecutive years of decline as customer count rose to 785,000 (+24,000
compared to end-FY03/20; includes 732,000 ISP customers [-19,000] and 53,000 LIBMO customers [+5,000]).
Sales to corporate clients rose to JPY24.4bn (+5.5% YoY). In addition to a growth in existing cloud services, the company
was able to capture demand from those working at home, which contributed to an increase in recurring-revenue business.

CATV▷ Sales: JPY33.7bn (+7.5% YoY)
▷ Operating profit: JPY4.7bn (+3.9% YoY)
During the COVID-19 pandemic, as a community-based operator, the company focused on delivering local informationand program production, as well as working with major video distribution companies to improve 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 14,000 fromend-FY03/20 to 875,000, while communications services customers increased by 30,000 to 322,000.

Construction, Equipment, and Real Estate▷ Sales: JPY23.2bn (+3.5% YoY)
▷ Operating profit: JPY1.3bn (-8.8% YoY)

Sales grew from the contribution of M&A despite COVID-19-related delays to sales activities. Profit t declined due
primarily to a decrease in orders for construction and facility equipment projects.

Aqua▷ Sales: JPY7.6bn (+2.8% YoY)
▷ Operating profit: JPY259mn (-35.4% YoY)
The number of customers increased by 1,000 from end-FY03/20 to 162,000 despite a reduction in commercial activity
in shopping malls and other areas. In addition, stay-at-home demand contributed to an increase in unit sales per customer.
However, profit fell due to an increase in logistics costs and other factors.

Others▷ Sales: JPY4.1bn (-16.3% YoY)
▷ Operating loss: JPY244mn (versus operating profit of JPY235mn in FY03/20)
TOKAI Holdings/ 3167
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52

Benefitting from a contribution from Tender Co., Ltd. (Gero, Gifu Prefecture), which was made a consolidated subsidiary
in FY03/20, the nursing care business reported sales of JPY1.3bn (+5.8% YoY).
In the shipbuilding business, higher volume in ship repairs led to sales of JPY1.5bn (+1.7% YoY).
In the bridal events business, sales were JPY417mn (-69.3% YoY) due to wedding ceremony postponements and voluntary
restraint associated with the holding of banquets.

Cumulative Q3 FY03/21 results (out January 28, 2021)
Overview
Cumulative Q3 FY03/21 results: The company posted sales of JPY139.8bn (-1.2% YoY), operating profit of JPY9.9bn (+6.7%
YoY), recurring profit of JPY9.9bn (+4.8% YoY), and net income attributable to owners of the parent of JPY5.9bn (+16.3% YoY).
Cumulative Q3 operating profit grew YoY for the third year in a row, and each profit line achieved a record high for thesecond year in a row.
Progress: Versus full-year FY03/21 company forecast, sales were at 68.1% (72.2% of full-year sales in Q3 FY03/20),
operating profit 66.0% (38.7%), recurring profit 66.8% (65.5%), and net income 70.2% (61.9%). The 66.0% progress ofoperating profit versus the full-year company forecast is higher than in the past (typically 58–60%). The company has madeno changes to its full-year forecast. It has no special expenses planned for Q4.
Operating profit was ahead of plan with contributions from Energy, CATV, and Aqua. However, Others (bridal, events, andhotel business) and Construction, Equipment, and Real Estate came in short of plan, as both were affected by the COVID19 pandemic. In addition, in Information and Communications, subscriber acquisition surpassed the company’s
expectations, but due to higher acquisition costs, profit was below plan.
Sales down 1.2% YoY: Despite the positive effects from an increase in household LP gas sales volume, an expansion inrecurring-revenue business for information and communications companies, and a growth in CATV and Aqua (water homedelivery service) customers, sales declined 1.2% YoY as lower LP gas and city gas purchase prices pushed down gas selling
prices (although this had no impact on profit) and sales activities were delayed by the pandemic.
The number of continuing customers: Increased 60,000 since end-FY03/20 to 3,063,000, with the increase nearly double
the 31,000 added between end-FY03/19 and end-Q3 FY03/20. Subscribers to TLC Membership Service increased 62,000
to 958,000. The company’s revenue base expanded on net increases in continuing customers for mainstay gas, CATV, andHikari Collaboration services. Actively pursuing non-face-to-face sales activities—using telemarketing, online information
dissemination and business meetings, and other measures—proved successful. The ratio of customers subscribing to morethan one service was 19.7% (+0.9pp versus end-FY03/20).
The number of continuing customers for telecommunications and CATV services for consumers grew more than
anticipated. Nationwide efforts to acquire ISP subscribers at electronics mass retailers, along with the capture of stay-athome and telework demand, contributed to the increase in terms of telecommunications services for consumers. The
company says the number of new subscriptions increased even as the number of cancellations declined.
Operating profit up 6.7% YoY: Some of the company’s businesses, such as the wedding and banquet businesses in the Others
segment, were negatively impacted by the COVID-19 pandemic. However, operating profit was up YoY as this negative
impact was offset by factors such as an increase in monthly billing count due to the rise in number of customers in the LP gas
and CATV businesses, and higher profit in the Information and Communications business for corporate customers. GPM
improved 2.2pp YoY to 42.7%, while the SG&A expense to sales ratio grew 1.7pp to 35.6%, and OPM improved 0.5pp to
7.1%.
Net income up 16.3%: Extraordinary losses shrank from JPY1.8bn in cumulative Q3 FY03/20 to JPY643mn in cumulative Q3
FY03/21 due to a YoY decrease in provisions for losses on litigation from JPY1.2bn to JPY26mn.
Topics: In June 2020, the company established sales offices in Kasugai, Aichi Prefecture and Yokkaichi, Mie Prefecture in the
LP gas business. In the Construction, Equipment, and Real Estate segment, the company acquired the shares of two
companies, making them consolidated subsidiaries: Chuo Denki Koji Co., Ltd. (Nagoya, Aichi Prefecture), which operates anelectrical construction business (August 2020) and Inoue Technica Co., Ltd. (Numazu, Shizuoka Prefecture), which operates
a building maintenance business (November 2020). The company believes these acquisitions will lead to expansion for thegroup by helping it enter new areas and expand its business area. Overseas, the company successfully entered Vietnam’s LP
TOKAI Holdings/ 3167
Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp53gas market by making two companies equity-method affiliates in June 2020: Mien Trung Gas Joint Stock Company and V-Gas
Petroleum Corporation, which operate an LP gas sales business in Vietnam.

Customer countThe number of continuing customers was 3,063,000, up 60,000 from end-FY03/20. Compared with end-FY03/20, the gas(LP, city gas) business had a net increase of 24,000 customers, the CATV business had a net increase of 34,000 customers,
and the Hikari Collaboration business had a net increase of 11,000 customers.
In the gas business, there was a net increase of 19,000 customers due to the acquisition of business territories, including
4,000 from the acquisition of LP gas business territories and 8,000 as 11 sales offices entered new areas in the LP gas
business. Overall, there was a net increase of 24,000 customers, up 26% from a net increase of 19,000 in cumulative Q3
FY03/20.
In the CATV business, the net increase in customer count for telecommunications services was 25,000, up 92% from a
net increase of 13,000 in Q3 FY03/20. For the CATV business as a whole, there was a net increase of 34,000
customers, up 31% from a net increase of 26,000 in Q3 FY03/20.
In the Information and Communications business, the downward trend in the total of fixed-line (ISP) and wireless (LIBMO)
customers is slowing. Nationwide efforts to acquire ISP subscribers at electronics mass retailers, along with the capture ofstay-at-home and telework demand, contributed to this deceleration. Versus end-FY03/20, there were 14,000 new ISP(including Hikari Collaboration) subscribers and 10,000 fewer cancellations (together resulting in a net increase of
24,000).
The Aqua business recorded a net decrease QoQ of 1,600 customers in Q1 because of the COVID-19 outbreak, but a netincrease QoQ of 1,300 in Q2 and then again in Q3. The pace of growth in Q2 and Q3 recovered to levels similar to Q2
and Q3 FY03/20.

Change in customer numbers, by service segment
Number of customers

FY03/21YoY('000)

Q3

Q3

Q3

Q3

Q3

Q3

Q3

Q3

Q3

Q3

Q3

Gas (LP gas, city gas)

656

631

629

624

629

635

653

674

703

737

34

752

803

848

866

686

538

478

430

396

375

-21

HikariCollaboration

-

-

-

-

173

288

319

328

324

335

11

LIBMO

-

-

-

-

-

-

21

39

45

52

7

Information andCommunications

752

803

848

866

859

826

818

797

766

763

-3

CATV

100

Conventional ISP

FY03/12

FY03/13

FY03/14

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20

726

688

694

689

704

728

1,002

1,055

1,088

1,188

Aqua

97

103

121

133

134

135

143

157

160

162

2

Mobile

186

207

225

234

235

234

229

220

214

209

-5

Security

20

20

19

18

18

17

17

17

16

16

0

2,414

2,427

2,510

2,540

2,553

2,551

2,839

2,898

2,933

3,063

130

Total

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Customer numbers are duplicated for Information and Communications and CATV segments when shown separately, but not in the totals.

* 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 inmobile 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 andemail newsletters.

Results by segment
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 haveno impact on actual earnings in the segments.
TOKAI Holdings/ 3167
Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp54Energy▷ Sales: JPY53.4bn (-3.2% YoY)
▷ Operating profit: JPY3.0bn (+38.9% YoY)
The LP gas business reported sales of JPY45.1bn (-1.1% YoY). While face-to-face sales could not be conducted because of
the pandemic, the company conducted telemarketing and online activities, and the number of customers expanded by
24,000 from end-FY03/20 to 676,000. However, sales declined as lower purchase prices contributed to lower selling
prices and the sales volumes of commercial gas decreased.
The city gas business reported sales of JPY8.3bn (-13.3% YoY). Customer count was flat from end-FY03/20 at 61,000, but
as with the LP gas business, sales declined due primarily to a downturn in selling prices associated with the fuel costadjustment system, which is designed to quickly reflect fluctuations in the prices of raw materials for gas (such as LNG[liquefied natural gas] and LPG [liquefied petroleum gas]) in actual gas prices.

Information and Communications▷ Sales: JPY37.8bn (-2.6% YoY)
▷ Operating profit: JPY2.2bn (-11.4% YoY)

Services for consumers generated sales of JPY19.8bn (-8.6% YoY). In light of competition with major mobile carriers andgrowing demand for communications services amid the COVID-19 pandemic, the company focused on customer
acquisitions. It worked to acquire customers through the Internet and to actively expand sales channels and expand Hikari
Collaboration set plans, including through the introduction of a new 30GB plan to LIBMO (TOKAI brand MVNO service).
As a result, the company generated a net increase in general consumer customers after six consecutive years of decline
as customer count rose to 763,000 (+2,000 compared to end-FY03/20; includes 711,000 ISP customers [-2,000] and52,000 LIBMO customers [+4,000]).
Sales to corporate clients rose to JPY18.0bn (+5.0% YoY). In addition to a growth in existing cloud services, the company
was able to capture demand from those working at home, which contributed to an increase in recurring-revenue business.

CATV▷ Sales: JPY25.0bn (+6.7% YoY)
▷ Operating profit: JPY3.7bn (+9.0% YoY)
During the COVID-19 pandemic, as a community-based operator, the company was able to maintain its sales activities in a
careful and stable manner and according to the actual conditions effecting each region. The number of broadcasting
services customers rose by 10,000 from end-FY03/20 to 871,000, while communications services customers increased
by 25,000 to 317,000.

Construction, Equipment, and Real Estate▷ Sales: JPY14.8bn (-0.7% YoY)
▷ Operating profit: JPY539mn (-24.0% YoY)

Sales and profit declined due primarily to a decrease in renovation and facility equipment sales caused by COVID-19related delays to sales activities.

Aqua▷ Sales: JPY5.8bn (+3.1% YoY)
▷ Operating profit: JPY333mn (-14.2% YoY)
The number of customers increased by 1,000 from end-FY03/20 to 162,000 despite event-related sales slowing due to a
reduction in commercial activity in shopping malls and other areas. In addition, stay-at-home demand contributed to anincrease in unit sales per customer. However, profit fell due to an increase in logistics costs and other factors.

TOKAI Holdings/ 3167
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55

Others▷ Sales: JPY2.9bn (-17.9% YoY)
▷ Operating loss: JPY120mn (versus operating profit of JPY186mn in Q3 FY03/20)
Benefitting from a contribution from Tender Co., Ltd. (Gero, Gifu Prefecture), which was made a consolidated subsidiary
in FY03/20, the nursing care business reported sales of JPY995mn (+9.9% YoY).
In the shipbuilding business, lower volume in ship repairs led to sales of JPY991mn (-5.8% YoY).
In the bridal events business, sales were JPY322mn (-68.8% YoY) due to wedding ceremony postponements and voluntary
restraint associated with the holding of banquets.

Income statement
Income statement

FY03/11(JPYmn)Cons. **

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Sales

174,901

FY03/12
181,931

FY03/13
181,684

FY03/14
188,987

FY03/15
187,511

FY03/16
180,940

FY03/17
178,631

FY03/18
186,069

FY03/19
191,600

FY03/20
195,952

FY03/21
196,726

YoY

9.8%

4.0%

-0.1%

4.0%

-0.8%

-3.5%

-1.3%

4.2%

3.0%

2.3%

0.4%

Energy95,69798,316

94,51997,22993,06780,74573,34476,073

77,977

78,154

77,380Information and Communications

34,72537,94338,49738,803

40,11844,24649,50850,894

51,23451,75350,735

CATV

22,647

24,292

23,78624,187

24,35924,60825,39628,38630,511

31,38533,745Construction, Equipment, and Real Estate

14,907

15,881

15,756

19,24520,01920,975

19,511

19,807

20,09022,38323,177

Aqua

-

-

3,750

4,378

4,959

5,487

5,762

6,200

7,004

7,416

7,622

Other

6,923

5,498

5,374

5,142

4,987

4,875

5,108

4,706

4,781

4,858

4,065

Cost of sales

107,455

112,393

112,875

120,646

118,579

111,128

105,591

110,733

115,441

116,663

113,856

Gross profit

82,87067,44569,53768,80968,341

68,932

69,812

73,04075,33676,15979,289

YoY

6.5%

3.1%

-1.0%

-0.7%

0.9%

1.3%

4.6%

3.1%

1.1%

4.1%

4.5%

Gross profit margin

38.6%

38.2%

37.9%

36.2%

36.8%

38.6%

40.9%

40.5%

39.7%

40.5%

42.1%

SG&A expenses

56,69060,29064,365

63,10265,066

67,64358,61459,87460,94859,92861,567

SG&A ratio

32.4%

32.2%

33.0%

32.2%

32.0%

34.0%

33.8%

34.6%

32.9%

33.2%

34.4%

Operating profit

10,755

10,923

8,934

7,392

9,003

8,245

12,75010,971

13,057

14,224

15,226

YoY

7.2%

1.6%

-18.2%-17.3%

21.8%

-8.4%

54.6%

-14.0%

19.0%

8.9%

7.0%

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%

Non-operating income

973

1,095

983

1,006

747

772

719

774

655

652

601

Non-operating expenses

2,240

2,200

1,852

1,385

1,201

868

693

555

453

397

515

Recurring profit

9,489

9,818

8,065

7,013

8,549

8,150

12,775

11,191

13,25914,47915,312

YoY

5.8%-12.3%

3.5%-17.9%-13.0%

21.9%

-4.7%

56.7%

-12.4%

18.5%

9.2%

Recurring profit margin

5.4%

5.4%

4.4%

3.7%

4.6%

4.5%

7.2%

6.0%

6.9%

7.4%

Extraordinary gains

265

270

59

486

203

215

172

829

183

677

672

Extraordinary losses

3,533

2,626

1,954

1,508

1,210

1,929

840

1,113

1,029

2,225

1,414

7.8%

Income taxes

3,015

4,695

3,073

3,381

3,573

2,924

4,685

4,176

4,496

4,484

5,597

Implied tax rate

48.5%

62.9%

49.8%

56.4%

47.4%

45.4%

38.7%

38.3%

36.2%

34.7%

38.4%

Net income attributable to non-controllinginterests

1,054

52

11

10

33

52

85

109

144

204

157

Net income attributable to owners of theparent

2,152

2,715

3,085

2,598

3,934

3,458

7,337

6,620

7,772

8,241

8,815

YoY

-30.1%

26.2%

13.6%

-15.8%

51.4%-12.1%

112.2%

-9.8%

17.4%

6.0%

7.0%

1.2%

1.5%

1.7%

1.4%

2.1%

1.9%

4.1%

3.6%

4.1%

4.2%

4.5%

Net margin

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Results for FY03/11 and prior years are of TOKAI Corp.

FY03/10 results
The company achieved record high operating profits despite a decline in sales. In addition to the favorable growth inoperating profit, recurring profits increased significantly, supported by a rise in non-operating income, mainly due to a
JPY2.1bn gain in derivatives trading (recorded derivative losses as non-operating charges in FY03/09) during the fiscal year.
By segment, operating profit expanded in the Gas and Petroleum segment due to lower purchasing costs and customer
growth in the aqua business. Information and communications (currently separated into two segments—Information andCommunications and CATV business) also achieved significant operating profit growth, supported by a rise in intra-firm
communication projects, together with an increase in CATV customers as a result of an acquisition.

FY03/11 results
The company recorded its highest-ever sales and operating profits in FY03/11. However, recurring profit declined mainly
due to gains from derivatives trading (non-operating income) recorded a year earlier.
By segment, Gas and Petroleum operations suffered a decline in operating profit, hurt by an increase in purchasing costs
and decline in unit consumption by households, despite profit improvement in the aqua business. However, operating profit
for the Information and Communications segment increased, supported by improvements in the mobile business. CATVTOKAI Holdings/ 3167
Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp

56

segment operating profit increased, supported by its FTTH service and contributions from two CATV companies made into
subsidiaries in FY03/10. Operating profit for the Building and Real Estate segment increased due to improved profitability
on real estate leasing operations of Aoi Tower.

FY03/12 results
Sales were JPY181.9bn (+4.0% YoY), operating profit was JPY10.9bn (+1.6%), recurring profit was JPY9.8bn (+3.5%), and net
income was JPY2.8bn (+26.2%). The company achieved record-high sales and operating profit for the fiscal year. The
company was able to absorb costs of roughly 1.6 billion related to becoming a holding company, and managed to increase
operating profit. By segment, Gas and Petroleum operations, and Information and Communications business contributed tothe increase in profits.

FY03/13 results
Sales were JPY181.7bn (-0.1% YoY), operating profit was JPY8.9bn (-18.2%), recurring profit was JPY8.1bn (-17.9%), and net
income was JPY3.1bn (+13.6%). Information and Communications services saw higher sales, but other segments struggled. As
a result, despite the decline over the previous year, operating profit was better than the company’s forecast, which wasrevised up on July 31, 2012.
The number of customers for the company’s recurring services grew by 30,000 compared with the start of FY03/13, to 2.4
million households as of end of FY03/13. An increase in broadband subscribers in the Information and Communications
segment made up for a decline in customers in the LP Gas and Petroleum, and CATV segments. In addition, the number of
TLC memberships, a new customer service introduced in December 2012, reached 105,000 members as of end of March2013.
TLC membership is a service that allows member customers to earn points from using the company’s electronic moneycard, “TLC WAON card” for its various services.

FY03/14 Results
Sales were JPY189.0bn (+4.0% YoY), operating profit was JPY7.4bn (-17.3%), recurring profit was JPY7.0bn (-13.0%). Sales
were up but profits were down YoY, due to higher promotional expenses in the FTTH and Aqua businesses and delays inpassing on increased procurement costs of LP gas. However, results outperformed forecast announced in January 2014.
The customer base for recurring services increased by 73,000 over the year, to 2.5mn. The broadband and Aqua businesses
both saw robust growth in subscriber count. TLC membership also increased by 201,000 over the year, to 306,000. TOKAI
launched the TLC Membership Service in December 2012, to increase customer loyalty. The TLC Membership Service
allows customers who hold multiple service contracts to earn loyalty points.

FY03/15 results
Sales were JPY187.5bn (-0.8% YoY), operating profit was JPY9.0bn (+21.8%), recurring profit was JPY8.5bn (+21.9%), and net
income reached record highs at JPY3.9bn (+51.4%).
Sales increased due to a rising subscriber count in the aqua and broadband businesses. Profits increased significantly—theresult of lower marketing, customer acquisition, and advertising costs in the aqua business due to more efficient sales,
coupled with higher productivity and other streamlining initiatives in the LP gas business. Operating profit surpassed thecompany’s latest target of JPY8.9bn, which had been revised upward from the initial forecast of JPY8.2bn when it announced
its 1H FY03/15 results. On a segment basis, the three main businesses of Gas and Petroleum, Information andCommunications and Aqua drove the overall improvement in group earnings. In particular, the Gas and Petroleum segment,
which made efforts to streamline distribution, administrative and other expenses in the LP gas business, made significant
contributions.

TOKAI Holdings/ 3167
Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp57Balance sheet
Balance sheet

FY03/11

FY03/12

FY03/13

FY03/14

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20

FY03/21(JPYmn)Cons. **

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

AssetsCash and deposits

8,622

2,602

4,235

3,182

2,861

4,077

3,239

3,143

4,164

4,629

5,577

20,321

22,18020,94422,07320,08521,30522,83823,806

24,79825,85926,323Inventories

9,568

8,051

8,141

8,178

6,695

5,611

5,058

5,389

5,698

5,553

5,573

Other

11,233

8,260

7,031

7,173

6,318

7,124

7,459

7,613

7,846

8,227

9,459

Total current assets

49,74441,09340,35140,60635,95938,11738,59439,95142,50644,26846,932

Buildings (net)50,084

48,18645,59842,15738,41335,17833,71834,28033,75634,25634,508

Machinery and equipment (net)24,50723,353

22,83022,081

21,68422,074

21,84823,096

23,592

23,773

24,614

Land

21,91821,584

21,79921,91822,006

21,825

22,634

22,842

22,921

23,068Other fixed assets (net)

14,10417,084

16,375

16,973

16,832

15,987

15,447

16,592

16,761

17,256

18,624

Total tangible fixed assets

110,613110,207

106,602103,129

98,935

95,064

93,647

96,81097,03098,353

101,800

Investments and other assets

15,99614,995

15,63816,855

19,53916,14917,86018,03016,937

16,51819,552

Goodwill

15,022

15,54012,632

10,241

8,270

6,589

5,861

5,430

5,044

5,125

5,258

Other

1,632

1,726

2,274

2,702

2,954

4,351

5,127

5,768

6,084

5,706

5,429

Total intangible assets

16,654

17,266

14,906

12,943

11,224

10,94010,988

11,198

11,128

10,831

10,687

Total fixed assets

143,265

142,470

137,147

132,928

129,699

122,153

122,496

126,038

125,097

125,703

132,041

Total assets

193,239

183,735

177,642

173,620

165,702160,303

161,112

165,993

167,606

169,972

178,974

Accounts payable

12,652

13,636

13,01914,105

13,035

13,511

14,77915,67015,021

15,034

17,226

Short-term debt

56,75650,834

48,614

44,16936,27928,586

26,88827,35825,966

23,831

16,107

Other

20,37520,70920,93020,631

21,846

20,861

19,637

20,677

20,39821,752

23,676

Total current liabilities

89,78385,17982,56378,905

71,16062,95861,30463,70561,38560,61757,009Long-term debt

65,40053,40444,093

41,171

36,79042,82339,596

36,79338,131

38,99141,304Other

16,466

17,97016,975

15,214

14,284

12,550

3,765

4,044

4,194

4,381

4,604

Total fixed liabilities

81,866

71,37461,06856,38551,07455,37343,361

40,83742,32543,37245,908

Total liabilities

Marketable securities
Accounts receivable

24,054

Liabilities

171,649

156,553

143,631

135,291

122,234

118,332

104,665

104,543

103,711

103,989

102,917

Capital stock

14,00414,00014,00014,00014,00014,00014,00014,00014,00014,00014,000Capital surplus

2,207

21,86822,18322,18322,315

19,25824,28625,52525,52725,54225,542Retained earnings

-651

1,780

4,225

5,436

7,803

9,870

15,04817,76821,863

26,426

31,563

Treasury stock-135-11,224-8,313-8,191-8,033-6,409-3,285-2,223-2,222-2,221-2,219

Other

-268

-149

1,006

3,992

6,460

4,344

5,606

5,250

3,459

848

5,625

Share subscription rights

0

327

324

318

260

208

-

-

-

-

-

Non-controlling interests

6,432

578

584

588

662

699

791

1,130

1,267

1,387

1,545

Net assets

Total net assets

27,18134,011

38,32943,467

41,97056,44661,45063,89465,982

76,056

Working capital

17,237

16,595

16,06616,146

13,745

13,405

13,117

13,525

15,475

16,378

14,670Total interest-bearing debt

122,156

21,589104,238

92,707

85,34073,06971,40966,48464,15164,09762,822

57,411

Net debt

113,534

101,636

88,47282,15870,20867,332

63,24561,00859,93358,193

51,834

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Results for FY03/11 and prior years are of TOKAI Corp.

AssetsFor the past few years, the company has been aggressively investing in growth, placing priority on improving profitability.
Consequently, total assets have expanded to JPY193.2bn as of FY03/11. However, with the establishment of TOKAI Holdings,
the company improved its financial position by reducing working capital and only investing in areas where it can achieve
high returns. As a result, total assets were decreasing. In FY03/17, however, total assets increased YoY, because the value ofinvestment securities rose due to a rise in the market value. Total assets have continued to increase since FY03/18 due tobusiness expansion through M&A.

Liabilities
As a result of the company’s aggressive investment strategy, which was mainly debt-financed, its interest-bearing debt grew to
JPY127.7bn in FY03/10. The company will focus on developing a more stable financial position going forward and aims to
reduce interest-bearing debt to less than JPY100bn by end-FY03/14 as part of its medium-term business plan developed
following the establishment of TOKAI Holdings Corporation. Hence, interest-bearing debt totaled JPY92.7bn as of FY03/13,
achieving its target one year ahead of schedule. The debt amount further reduced in FY03/21, totaling JPY57.4bn.

Net assets
Equity ratio was 7.7% as of FY03/11, but as mentioned, the company has been improving its financial position by reducing
interesting-bearing debt and increasing retained earnings. As a result, its equity ratio improved to 18.6% at end-FY03/13.
The company has been improving its equity ratio even prior to merging its business operations (TOKAI Corporation with VIC
TOKAI Corporation in 2010) and achieved its equity ratio target of at least 17%, as highlighted in its previous medium-termbusiness plan, one year ahead of schedule. The ratio stood at 41.6% in FY03/21.

TOKAI Holdings/ 3167
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The company held 8,713,000 shares of treasury stock (6.2% of shares outstanding) as of end-March 2021. The company hassuggested that it will consider capital tie-ups or alliances going forward.

Per share data
Per-share data

FY03/11

FY03/12

FY03/13

FY03/14

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20

FY03/21

FY03/22(JPY)

Cons. **

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Est.

70,845

155,200

155,200

155,200

155,200

139,680

139,680

139,680

139,680

139,680

139,680

EPS

30.5

27.2

29.9

22.7

34.2

30.0

64.5

51.2

59.4

62.9

67.3

EPS (fully diluted)

30.5

-

-

-

34.1

26.9

56.3

50.5

-

-

-

Dividend per share

8.0

12.0

12.0

12.0

12.0

14.0

28.0

28.0

28.0

28.0

30.0

Book value per share

210.8

262.9

289.3

325.8

368.2

362.8

439.0

460.7

478.3

493.3

568.9

FY03/18

FY03/19

FY03/20

Shares issued (year end; '000)

67.4
30.0

Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Results for FY03/11 and prior years are of TOKAI Corp.

Statement of cash flows
Cash flow statement

FY03/11(JPYmn)FY03/12

FY03/13

FY03/14

FY03/15

FY03/16

FY03/17

FY03/21Cons. **

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cash flows from operating activities (1)23,521

28,58425,71322,80627,265

21,395

26,692

20,90921,60522,53532,223

Cash flows from investing activities (2)-14,601-10,037-9,983-9,664-8,851-11,015-10,985-11,488-12,443-12,131-17,068

8,920

18,547

15,73013,142

18,414

10,38015,707

9,421

9,162

10,40415,155-11,278-24,255-14,051-14,125-18,764-9,150-16,643-9,527-8,147-10,375-14,064

Free cash flow (1+2)
Cash flows from financing activities
Depreciation and amortization (A)15,545

17,903

17,447

17,571

17,22916,734

15,641

15,211

15,09015,42615,800Capital expenditures (B)-13,845-11,193-10,747-10,083-9,712-11,435-11,331-11,665-12,423-11,592-12,925

Working capital changes (C)

-753

-642

-529

80

-2,401

-340

-288

408

1,950

903

-1,708

Simple FCF (NI + A + B - C)

4,605

10,067

10,31410,006

13,852

9,097

11,935

9,758

8,489

11,172

13,398Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Results for FY03/11 and prior years are of TOKAI Corp.

Cash flows from operating activities
The company has a stable source of operating cash flow and has managed to reduce its debt repayment period (interestbearing debt divided by operating cash flow) from 5.8 years in FY03/10 to 1.8 years in FY03/21.

Cash flows from investing activities
The company’s investment cash flow changes in tandem with capital expenditures.

Cash flows from financing activities
The company has been free cash flow positive since FY03/11 and has been using excess cash to reduce interest-bearing
debt.

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Other information
History
The company was established as Yaizu Gas Co., Ltd., and began operations as a city gas supplier in 1950. It changed its nameto TOKAI Gas Corporation in 1956 and expanded by establishing TOKAI Gas Transportation Corporation in 1967 and Yaizu
Cable Vision Corporation in 1977. Yaizu Cable Vision Corporation changed its name to VIC TOKAI Corporation in 1978.
TOKAI Gas Corporation went public in 1981, listing its shares on the First Section of the Nagoya Stock Exchange. The
company listed its shares on the First Section of the Tokyo Stock Exchange in 1987 and changed its name to TOKAI
Corporation. VIC TOKAI Corporation listed its shares on the JASDAQ in 2002. TOKAI Corporation announced a merger with
VIC TOKAI Corporation in 2010. The two companies established a joint holding company, TOKAI Holdings Corporation in
April 2011, and listed its shares on the First Section of the Tokyo Stock Exchange. In October 2011, VIC TOKAI Corporation
changed its name to TOKAI Communications Corporation.

Business development
The company began its mainstay operations in energy as a city gas supplier in 1950. However, its city gas business wasregulated by the government, which limited its service area. Consequently, the company expanded into the liquefied
petroleum gas (LP gas) business in 1959, an industry that offered an unregulated service area. Since then, the company has
developed into a diversified service provider involved in a wide-range of operations that include its mainstay energy
business, housing business (started in 1970), bridal business (1972), insurance business (1973), security business (1984) and,in recent years, its Aqua business (2007), nursing care business (2011), and electric power sales business (2016).
In addition, the company has expanded operations in its Information and Communications segment to include SIS business(1983), data center services (1985), CATV business (1988), Internet operations (1996), broadband business (2001), andmobile operations (2006), and has gradually transformed into a comprehensive information and communications provider.

TOKAI Holdings/ 3167
Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp60Major shareholders
Shares held

Top shareholders

Shareholding ratio(shares)

The Master Trust Bank of Japan, Ltd. (Trust account)

10,479,100

7.98%

Custody Bank of Japan, Ltd. (Trust account)

7,599,100

5.79%

Aioi Nissay Dowa Insurance Co., Ltd.

7,559,820

5.76%

Suzuyo Shoji Co., Ltd.

5,799,700

4.42%

Tokio Marine & Nichido Fire Insurance Co., Ltd.

4,611,887

3.51%

The Shizuoka Bank, Ltd.

4,065,527

3.09%

Sumitomo Mitsui Trust Bank, Ltd.

3,816,000

2.91%

TOKAI Group Employee Stock Holding Association

3,667,101

2.79%

Mizuho Bank, Ltd.

3,588,577

Astomos Energy Corporation
Shares outstanding (excluding 8,322,035 treasury shares)

2.73%

2,724,848

2.07%

131,357,942

100.0%

Source: Shared Research based on company data
(As of March 31, 2021)

Top management
Katsuhiko Tokita, President and Representative Director
Born in 1945, Mr. Tokita joined the Ministry of International Trade and Industry (currently, Ministry of Economy, Trade andIndustry) in 1968. In 1992, he was promoted to director-general’s secretariat at the Agency for Natural Resources and Energy.
In July 1993, Mr. Tokita became vice-governor of Kyoto. Mr. Tokita served as Chief of the Central Procurement Office at the
Ministry of Defense in 1996, Director-General of the Small and Medium Enterprise Agency in 1998, and Director of theJapan National Oil Corporation in 1999. Mr. Tokita became an advisor to TOKAI Corporation in 2002, and subsequently
served in various senior executive positions, eventually becoming TOKAI Holdings President and Representative Director
and Chairman of TOKAI Cable Network in 2012. He became Chairman and Representative Director of TOKAI Gas
Corporation and TOKAI Management Service Corporation in 2013, Chairman and Representative Director of TOKAI
Corporation in 2016, Chairman and Representative Director of TOKAI Communications Corporation in 2018, and Chairman
and Representative Director of TOKAI Venture Capital & Incubation Corporation in 2021.

Employees
The company had 4,251 employees (consolidated basis) and 898 part-time workers as of end-March 2021.
The number of employees in each business segment is presented below (part-time workers in parentheses).
Energy: 1,454 (399)Construction, Equipment, and Real Estate: 366 (81)
CATV: 640 (77)Information and Communications: 1,236 (90)Aqua: 146 (61)Others: 253 (158)
Corporate: 156 (32)
As of end-March 2020, there were 86 employees at the holding company with an average 14.3 years of employment andaverage annual salary of JPY6.4mn.
The company’s employees belong to two labor unions, the TOKAI Labor union, which is a member of the Federation of Gas
Workers’ Union of Japan, and the All Japan Shipbuilding and Engineering Union (Yaizu Branch). Union members totaled
2,369 employees as of end-March 2020.

Dividends and shareholder benefits
Dividends
The company adheres to a policy of “maintaining stable and continuous dividend payments, while strengthening its corporate
structure and developing future businesses.”

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Shareholder Benefits
The company offers gifts and benefits to shareholders of record holding at least one trading unit (100 shares) at the end of
the first half (September) and fiscal year (March). Based on the number of shares owned, shareholders can select one of thefollowing gifts:
The company also offers shareholders a 10% discount and JPY100,000 coupon (discount limited to JPY200,000) on
wedding ceremonies held at its wedding halls and a 20% discount at its French restaurants, Beau Ciel and Aoi.
“Oishii Mizu no Takuhaibin” (“Delicious Water Home Delivery”) and “Oishii Mizu no Okurimono ulunom” (“The Gift ofDelicious Water - ulunom”) products
Gift certificates (prepaid QUO Card)
Meal vouchers for the company’s French restaurants Beau Ciel and Aoi
Points for the company’s membership service, TLC Membership Service
LIBMO, a low-cost SIM service

Source: Shared Research based on company data

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Investor relations
The company holds earnings briefings following release of first half and full-year business results. Additionally, the company
holds overseas investor relations events twice per year.

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63News and topics
Discovery of fraudulent activities by former employees ofsubsidiaries
2021-10-08

TOKAI Holdings Corporation announced the discovery of fraudulent activities by two former employees of f its subsidiaries.
A tax inspection conducted by the Nagoya Regional Taxation Bureau in July 2021 identified instances of fraud by two former
employees of two of the company's subsidiaries.
Overview of misconduct
TOKAI Corporation: From February 2014, former employee A provided false invoices on an ordered construction
project, and made fraudulent profits totaling approximately JPY173mn.
TOKAI Gas Corporation: From March 2014, former employee B used his/her position as an accountant to divert a
total of approximately JPY368mn in company funds to his/her own bank account for personal use.
The former employees and any other internal accomplices, including superiors, will be severely dealt with in accordancewith company regulations.
Following the discovery, the company established an internal investigation committee chaired by a corporate attorney tocarry out an investigation focusing on clarification of the details of the cases, understanding the responsibility of managers,
identifying the causes, and preventing repeat incidents. Once the committee has completed its investigation, the company
plans to disclose the report of its findings as soon as it receives this from the committee. It also plans to promptly disclose any
material information that emerges during the investigation. The company takes these fraudulent acts very seriously, and it
will work to further strengthen internal controls and improve their effectiveness based on the findings of the committee toprevent future incidents.

Sales area expansion for the LP gas business
2021-10-01

TOKAI Holdings Corporation announced that it was expanding the sales area for the LP gas business.
On October 1, 2021, TOKAI Corporation—a wholly owned subsidiary of TOKAI Holdings Corporation that operates theEnergy business (includes LP gas sales)—established a new sales office in Kumamoto, Kumamoto Prefecture.
In the group's new medium-term management plan, Innovation Plan 2024 (IP24) "Design the Future Life," TOKAI Holdings
Corporation has set out a Local, National, and Global (LNG) strategy that aims to expand its business area, starting with local
expansion, centering on Shizuoka and Kanto, and progressing onto national expansion across Japan and global expansion
overseas. In the Energy business, in particular, the company plans to expand the LP gas business in Shikoku and West Japanto take the business nationwide.
TOKAI Corporation has now expanded its business to Kumamoto, Kumamoto Prefecture as a new sales base for the Kyushu
area. Kumamoto Prefecture is the second most populous prefecture in the Kyushu area, after Fukuoka Prefecture, and it also
has the third-highest number of households using LP gas in the area, after Fukuoka and Kagoshima prefectures, so it is apromising business region for LP gas. The company believes its advance into Kumamoto Prefecture will provide
opportunities to grow its LP gas business base and supply products and services.

Formulation of Carbon Neutral Vision2021-05-20

TOKAI Holdings Corporation announced Carbon Neutral Vision.
Given the rise of social demand for measures against global warming, the company intends to achieve carbon neutrality by
2050. It plans to use renewable energy and electric vehicles in its operations while further expanding the use ofenvironmentally friendly energy equipment.
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64Approach for carbon neutrality
Switch to carbon neutral gas using innovative technologies to achieve carbon neutrality by 2050.
Work to reduce CO2 before introducing innovative technologies, and by 2030:
Reduce residential CO2 emissions of customers using gas by 170,000 tons (equivalent to 50% of the 360,000-ton
CO2 emissions from gas used at home in FY2020) by (1) reducing CO2 by 70,000 tons through the expanded use ofhigh-efficiency gas equipment and other means, and (2) another 100,000 tons by installing solar power for homes.
Reduce 13,000 tons of CO2 emissions in its operations (equivalent to 70% of the 18,000-ton CO2 emissions in
FY2020).
Consider decarbonization as a growth opportunity instead of a constraint or cost increases.
Promote decarbonization of homes by combining renewable energy with high-efficiency equipment and storage
battery. Propose new energy use to achieve carbon neutrality.
Gas will continue to play an important role in preserving resilience for cases like disaster response.

New medium-term business plan, formulation of digitaltransformation strategy, and acquisition of shares in Query
2021-05-11

TOKAI Holdings Corporation announced its new medium-term business plan.
On the same day, the company announced that it had formulated its digital transformation (DX) strategy.
The company plans to maximize utilization of data gathered in its business activities and the latest digital technologies(ABCIR+S*) to optimize its existing business model, streamline operations, and add value to services. It will also take on thechallenge of creating new businesses and put into action the key strategies of its new medium-tern business plan, IP24 (seereferences attached to press release for details of the company’s DX strategy).
* ABCIR+S refers to 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).

On the same day, the company announced it had acquired shares in Query Co., Ltd. and made it a consolidated subsidiary.
On April 28, 2021, wholly owned subsidiary TOKAI Communications Corporation concluded a share transfer agreement toacquire share in Query Co., Ltd. and made it a consolidated subsidiary. The share transfer date was April 30, 2021. The
number of shares held was 0 before the share transfer and 60 (100% ownership) after the transfer.
Query is a system development company, mainly contract development of companies’ IT systems, software, andsmartphone apps, and website production and operation. Its strengths lie in technological capabilities that allow it torespond flexibly to client needs and solid, long-term relationships with major clients over many years.
The company acquired shares in Query because it seeks synergies between Query’s technological capabilities and TOKAI
Communications’ strengths in cloud network integration. This will strengthen their business structure and expand thescope of services offered, adding further value to clients, which will lead to more business with them, and increase thecorporate value of both companies in the longer term.
The company commented that the impact of the acquisition on its FY03/22 earnings is minimal.

Acquisition of shares in Marco Polo2021-04-09

TOKAI Holdings Corporation announced the acquisition of shares in Marco Polo, Inc., making it a consolidated subsidiary.
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65Tokai Holdings’ wholly owned subsidiary TOKAI Corp. concluded a share transfer agreement to acquire the equity shares of
Marco Polo, Inc. on February 11, 2021, and the share transfer was implemented on April 9, making Marco Polo a
consolidated subsidiary of TOKAI Corp. TOKAI Corp. now owns all 8,000 shares, or 100% of Marco Polo’s common stock.
Prior to the transaction, it had no equity interest (0 shares) in the acquired company.
Purpose of the acquisition
With the stock of newly built condominiums and similar buildings expanding, the market for large-scale repair work on suchbuildings is expected to continue growing as an increasing number of buildings reach the age when such repair work is
required by deterioration over time.
TOKAI Corp. is engaged in a diverse range of business, with its core business being the delivery of LP gas and bottled water
to a combined customer base of about 900,000 customers nationwide. The company also is engaged in construction,
facilities construction, and real estate sales businesses in Shizuoka, Aichi, and Kanagawa prefectures. The construction andfacilities construction business, which centers on plumbing and air conditioning, services customers in the public and private
sectors. In Shizuoka Prefecture, in particular, the company is engaged in renewal (renovation) projects as well as new
construction. Marco Polo, based in Toyota, Aichi Prefecture, is engaged in large-scale repair work for condominiums andpublic facilities. It has undertaken projects contracted by local governments, such as Toyota City and Nagoya City, as well as
condominium management associations, condominium management companies, and construction companies.
In May 2020, TOKAI Corp. opened a central sales office in Nagoya, Aichi Prefecture, with the aim of expanding the businessdomain of its construction and facilities construction business to the Chukyo region, which has been a base for its LP gas
business. It also has been aggressively acquiring companies in the Chukyo region, making consolidated subsidiaries of
Nissan Tri Star Construction, Inc., in Gifu Prefecture in 2019 and Chuo Denki Koji Co., Ltd., in Aichi Prefecture in 2020.
These acquisitions added civil engineering and electrical works to TOKAI Corp.’s capabilities, making it a comprehensive
construction company capable of receiving orders for major construction projects.
TOKAI Corp. now will be able to leverage the sales and technical expertise of Marco Polo’s large-scale repair business to
expand the range of projects that can be covered by its facilities construction business in the Chukyo region and grow its
renovation business. In addition, Marco Polo plans to expand its operations into Shizuoka Prefecture and other regions bytaking advantage of TOKAI Corp.’s established sales network.
The company expects this acquisition will have little impact on its FY03/22 consolidated results.

Upgrade to FY03/21 dividend forecast and establishment of a
new management company to invest in domestic startups
2021-03-11

TOKAI Holdings Corporation announced an upgrade to its dividend forecast for FY03/21.
In FY03/21, although the COVID-19 pandemic has had a negative impact on some businesses such as wedding ceremonies
and banquets, the company is expected to achieve its full-year forecast and record profits for the third year in a row due tothe steady increase in continuing customers.
Based on this, the company revised its year-end dividend forecast for FY03/21 to JPY16, up by JPY2 from its previous
forecast, and revised its full-year dividend forecast to JPY30 (JPY28 in FY03/20).
On the same day, the company announced the establishment of a new management company for the purpose of investing indomestic startups.
The company has decided to establish TOKAI Venture Capital & Incubation Co., Ltd. (TVC&I), a 100%-owned managementcompany for the purpose of investing in domestic startups. TVC&I is due to be formally established on April 1, 2021.
Purpose of establishment
In the third medium-term management plan, Innovation Plan 2020 “JUMP,” which concludes in FY03/21, the company has
increased its base of continuing customers, a key focus, and has promoted multiple contracts based on the TLC (Total Life
Concierge) concept. In addition to expanding its business areas, it is actively working on a strategy to grow the earnings basefurther, through initiatives such as M&A and investment in alliances.

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TVC&I will play a part in the group’s open innovation strategy for the creation of new businesses with the aim of expanding
the TLC service lineup, the main theme of the company's approach to its business.
In addition to synergies with the existing businesses such as energy, information and communications, and housing-related
businesses, the company will take on the challenge of creating lifestyle-related businesses in completely new areas, and will
invest in a wide range of domestic startups, based on an agile and collaborative investment approach.

Establishment of Nomination and Compensation Committee andcomprehensive cooperation agreement between TV Tsuyama andthe city of Tsuyama, Okayama
2021-02-18

TOKAI Holdings Corporation announced the establishment of a Nomination and Compensation Committee.
At a meeting of the Board of Directors held on February 18, 2021, the company resolved to establish a Nomination andCompensation Committee as a voluntary advisory body to the Board of Directors.
Purpose: The company decided to establish the Nomination and Compensation Committee as a voluntary advisory bodyto the Board of Directors in order to strengthen the independence, objectivity, and accountability of the Board of
Directors, and to further enhance the system of corporate governance.
Role: The Nomination and Compensation Committee will deliberate and report on matters related to the appointment
and dismissal of directors, the appointment and dismissal of representative directors, and the compensation of directors,
in response to enquiries from the Board of Directors. It will also deliberate and report on other matters as requested by
the Board of Directors.
Composition: The Nomination and Compensation Committee is to be composed of three or more members who are also
directors, selected by resolution of the Board of Directors, the majority of whom are to be independent outside directors.
Date of establishment: February 18, 2021
On the same day, the company announced the conclusion of a comprehensive cooperation agreement between its
subsidiary TV Tsuyama Inc. and the city of Tsuyama, Okayama Prefecture.
TV Tsuyama Inc. (based on Tsuyama city, Okayama Prefecture), a subsidiary of the company, entered into a comprehensive
cooperation agreement with the city of Tsuyama, Okayama Prefecture. TV Tsuyama and the city of Tsuyama plan tocooperate with each other in future in a range of fields, including the revitalization of local communities as well as the
improvement of services for citizens, on the basis of this agreement.
The objective is for close cooperation between TV Tsuyama and the city of Tsuyama to enable the more effective use ofhuman and physical resources of both parties in order to improve citizen welfare and revitalize the region.

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Profile
Company Name

Head Office

TOKAI Holdings Corporation

2-6-8 Tokiwa-cho Aoi-ku Shizuoka, Japan 420-0034

Phone

Listed On

054-275-0007

Tokyo Stock Exchange 1st Section

EstablishedExchange Listing

2011-04-01

2011-04-01

WebsiteFiscal Year-End

http://tokaiholdings.co.jp/index.html

Mar

IR Contact

IR Web-https://tokaiholdings.co.jp/english/ir/

IR Phone

IR Email--

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68About Shared Research Inc.
We offer corporate clients comprehensive report coverage, a service that allows them to better inform investors and other stakeholders by
presenting a continuously updated third-party view of business fundamentals, independent of investment biases. Shared Research can be foundon the web at https://sharedresearch.jp.

Contact Details
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Shared Research Inc.

+81 (0)3 5834-8787

AddressEmail3-31-12 Sendagi Bunkyo-ku Tokyo, Japan

info@sharedresearch.jp

Websitehttps://sharedresearch.jp

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