FY 2015 Q2(Fiscal Year Ending March 31 2016)

Financial Results Highlights
TOKAI Holdings Corporation(Code 3167 JP)
November 5 2015

Agenda1. Outline of FY 2015 Q2 Financial Results
2. Main topics in H1
3. Measures to increase new customers in corebusinesses
4. Full-year forecast for FY2015
5. Shareholder Returns

1

Highlights of Q2 Results (1/4)
 Business Environment and PerformancezSaudi imported LPG contract prices have dropped to Y51,000 per tonne down 62%
YoY from Y81,000. This impacted sales in H1 by –Y4.3bln or -4.9% YoY. However
Operating, Recurring and Net Profit all exceeded last year’s levels and initial forecasts.
(Actual OP exceeded forecasts by Y1bln, RP by Y1bln and NP by Y0.6bln)z The 6,000 new customer increase in H1 was well behind the run-rate for the 70,000
targeted increase in new customer numbers for the FY. Pace of increase will be
increased in H2.

2

Highlights of Q2 Results (2/4)
 Shareholder Returns
zFor next FY (final year of IP16) we are confident to achieve equity ratio of over 30%
and interest bearing debt of Y50bln
zOur group is not satisfied with a Y500 of share price level, hence we decided to cancel
15mln treasury stock (10% of outstanding). We believe the high level of treasury stockat 25% of outstanding has been a dilution concern for shareholders.
zReturns to shareholders have been increased significantly. The company will return toshareholders the equivalent of 100% of our estimated Y3.2bln net income through a
Y1.4bln dividend and Y1.8bln share buyback.

3

Highlights of Q2 Results (3/4)
 Full Year Forecasts
zQ2 results announced on Oct 29th exceeded the forecasted numbers released inMay
zAlthough H1 has been strong, FY forecasts will not be changed at this stage due touncertainties affecting our business such as LPG contract price uncertainty, volatile
demand due to temperatures and forex changes. Although we expect demand topick up in H2, our forecasts will only be revised when this becomes more certain.

4

Highlights of Q2 Results (4/4)
 Main Topics
1.

An official announcement of a business tie-up with Tokyo Electric Power forsales of electric power with Tokyo Electric Power was made. In October,marketing and sales of high voltage electric power for corporations was started
in the Chubu Electric Power area.

2.

The number of customers nationwide switching to “Hikari Collaboration” hasbeen increasing at a slower pace than forecasted. Our company switch rate was
16.5% which exceeded the national average of 11.2%. The number of new
customers for “Hikari Collaboration” has grown steadily using our network ofhome electric appliances stores, which is a strength of our company.

3.

In the LP gas sector, we promote more contact with customers by our sales
forces to prevent possible cancelation of the contract. Also, we are expanding
our marketing area where is adjacent to our current main area such as Kanto
region and Shizuoka Prefecture.

51ώOutline of FY 2015 Q2
Financial Results

6

Contract Price Changes for LPG
z In FY 3/2015 the average CP for LP gas was $426 per ton vs $804 per ton at the same period last year(-$378 per ton). The exchange rate for $1 was Y121.5 this term vs Y102.2 in the same period last year.
z As a result the average purchase price per ton was approx. Y30,000 lower than the previous year (60% of
the price of the previous FY).
(CP:$)
1,000

913
813 790 823 828 800

800$804 per ton in the previous year
(exchange rate: Y102.2 / $1)

763 740673-$378 per ton
600(exchange rate: Y19.3 lower)
Previous FYThis FY400

Y82,168 per ton
Y51,759 per ton

580
488
438

475 480 463

 37.0%$426 per ton in this term(exchange rate: Y121.5 / $1)

435

400 380

340

200

7

Consolidated Q2 Financial Results (P/L)
z Sales declined 2.9% YoY. This was due to the distribution of Y4.3 billion to customers in response to the LPG

price revision, which was implemented after the fall in the purchase price (negative impact of 4.9%). This
negative result was offset by an increase in retail customer numbers and a revenue increase in theconstruction business, etc.
z Operating Income, Ordinary Income, Net Income, and Quarterly Net Income exceeded both the previous FY
and the original budget.

PreviousYear㻔㼅㻌㼎㼕㼘㼘㼕㼛㼚㻕

Forecast

Change YoY

ResultComparison vsforecast

Declined by Y4.3 billion due to the price revision
after the decline of the purchase price.

㻿㼍㼘㼑㼟

87.3

86.8

84.8

㻻㼜㼑㼞㼍㼠㼕㼚㼓㻌㼕㼚㼏㼛㼙㼑

1.8

0.9

1.9

㻻㼞㼐㼕㼚㼍㼞㼥㻌㼕㼚㼏㼛㼙㼑

1.6

0.7

1.8

㻽㼡㼍㼞㼠㼑㼞㼘㼥㻺㼑㼠 㼕㼚㼏㼛㼙㼑

0.2

-0.4

0.3

2.5

-2.9䠂

-

2.1

-2.4䠂

0

+2.2䠂

+

1.0

+105.6䠂

+

0.2+12.2䠂

+1.0+143.1䠂

+

0.1+22.8䠂

+

0.6

-

-

+

8

Consolidated Operating Income by segmentz The original planned 1H Operating Income was Y0.9 billion (down Y0.9 billion YoY) including Y1 billion revenue

increase in the Gas, Aqua and Broadband sectors and Y1.9 billion of anticipated expenses for “Hikari Collaboration”.
z 1H results of Y1.9 billion exceeded the initial plan by Y1 billion. Due to costs carried over to H2 due to the delay ofthe switch to “Hikari Collaboration䇿 (Y0.3 billion) and revenue growth (Y0.7 billion) including the improved income
from the LP gas sector and the increase in CATV customer numbers(Y billion)

Previous Year

Forecast

Results

Change YoY

Comparison vs forecast

vspreviousyear

Gas / Petroleum

2.0 +0.2

2.2

2.7

+0.6

+31.2%+0.5+23.2%

Information /Communication
Services

2.4

0.8

1.1

-1.3

-54.5%+0.3+42.3%

CATV

0.8

0.9

1.0

+0.1

+14.8%

+0

+3.8%

0.1
0.3
-1.0 +0.4 -0.6

0.3
-0.6

+0.2 +142.9% +0.1
-%
+0.4
-0

+18.0%

Others / Adjusted
amount

-2.6

-2.7

-2.6

+0

-%

Total

1.8

0.9

1.9

+0

+2.2%

Construction /Real estate
Aqua

1.5

0.9

Forecast in income decline vs previous year

+0.1

-%
-%

+1.0 +105.6%
9Factors behind an Increase in Operating Income YoY
z Operating income was Y1.9 billion, exceeding the previous year. The anticipated expense of Hikari
Collaboration (Y1.5 billion) was offset by an increase in customers in core areas of Aqua, Broadband and CATV,
as well as the profit increase from improved performance in LP gas area.
(Y billion)

䞉Reduction of the purchasing cost for gas+0.3
䞉Conclusion of the repayment for business rights, etc. +0.3
䞉Reduction of indirect costs
+0.1

ὺᵎᵌᵐ
Increase in numberof jobs in construction/ real estate businessesὺᵎᵌᵕImprovementin profits in
LP gasbusiness

Ṵᵏᵌᵓ

ᵏᵌᵖ

FY 2014Q2(3 jobs from car dealers)䞉Increase in the support
for building management+0.1(increase of management
properties / up 140,000)

ὺᵎᵌᵕ
Anticipatedexpenses of
HikariCollaboration,ᵏᵌᵗ䞉 Large scale jobs inconstruction business+0.1

䞉Sales increase in aqua products:+0.4
Increase inrevenues due to (Products sold up 100,000: +0.1 / price hike for some products:+0.2 / reduction of costs and expenses for manufacturing:+0.1)
an increase in䞉Increase in FTTH customers / up 140,000: +0.3
customer
䞉Increase in CATV customers / up 8,000:+0.1
numbers, etc.

FY 2015Q2

10Group Customer Numbers
z Group customer numbers have grown especially in the CATV and Gas sectors. This has resulted in a increase in
net customer numbers for the first time in 3 quarters. However, the net increase was only 6,000 due to the delay in
execution of the net increase plan aiming at a 35,000 customer increase.
z The pace of existing FLET’S customers switching to 䇾Hikari Collaboration䇿 exceeded that of the national average.
(unit: thousand)Gas (LP gas, city gas)
Telecommunications(fixed / wireless)[the number of the customers who have switched
to “Hikari Collaboration”: the numbers are notincluded in the total below]

Telecommunications (mobile)
CATV
Aqua
Security
Total
Net increase / decrease in a quarter
Net increase / decrease including theswitch to䇾Hikari Collaboration䇿

FY2014, Q2

FY2014, Q4

FY2015, Q1

626
863

626
864

625
861

[ 0]

[ 4]

[ 53]

[ 95]

231
690
132
18
2,535

235
690
130
18
2,537

235
692
130
18
2,537

234
698
䘟
132
18
2,543

8
+8

3
+1

1
+48

7
+49

+

-

-

FY2015, Q2

䘟

627
859

+

11

2ώMain topics in H1

12

Business tie up with TEPCO for Electricity Salesz A business tie up with Tokyo Electric Power was officially announced for electricity sales. The sales ofhigh voltage power targeting the corporate customers in Chubu Electric Power area was launched on thesame date.
z At the end of the year, a new sales plan, in which a combination of electricity and services of our group
including Gas etc will be announced. An advertising campaign for electricity sales was started in October
2015 and order reservations will be taken from January 2016.
Families and companies which are subject to full retail electricity deregulation

Benefit for Customers with New Plans
Discount set plans for various products andservices

TOKAI GroupElectric price plans in response to the
deregulation
B u s i n e s s
t i e
u p

Tokyo Electric Power
Company (TEPCO)Electric (within the area of
TEPCO)

EnergyTelecommunicationsCATVAqua

Provision of Total Life Concierge
TOKAI Holdings
President
TokitaTEPCO CSC
President
Kobayakawa

Electric (within the area of
Chubu Electric power )Stable provision of electric power with thenation’s largest scale of power source

The service area of TEPCO and Chubu Electric Power13

Promoting the switch to “Hikari Collaboration”
z The pace of the switch to Hikari Collaboration was slower than we initially expected, but our company switch ratio(ratio of the customers switching to Hikari Collaboration vs all FLET’S customers) was 16.5%, exceeding the 11.2%
national average.
z New customers for Hikari Collaboration increased steadily through the electronic home appliances store network
which is a real strength of our company. It is assumed that the mid-term profit plan will not be affected even after thereview of the pace of Hikari Collaboration switching (the 262,000 customer target number set in the budget for FY
March 2016 will be now be achieved by the end of March 2017).

TheRatiooftheSwitch(*1)
The National The Ratio of
Average Ratio(*2) our Company

After reviewing the pace ofswitching, the target numberof switching customers is
expected to be achieved in
the end of FY 2016 instead of
FY 2015.

16.5%

11.2%

䠘

262

䕔Results/forecast䕔Budget

218(the number of contract: thousand)

A:Newcustomer
B:Switched
customer

5 7

᪂つ
A

㌿⏝
B

᪂つ
A

53
㌿⏝
B

FY2015,Q1
2015ᖺ6᭶ᮎ

138

95

85

4 4

FY2014,Q42015ᖺ3᭶ᮎ

181

165

0 0

264

᪂つ
A

60 64

41 46

22 29
㌿⏝
B

FY2015,Q2
2015ᖺ9᭶ᮎ

᪂つ
A

㌿⏝
B

FY2015,Q3
2015ᖺ12᭶ᮎ

᪂つ
A

㌿⏝
B

FY2015,Q4
2016ᖺ3᭶ᮎ㌿⏝
B
FY2016,Q4
2017ᖺ3᭶ᮎ

* 1 The ratio of the switch: A ratio of the customers who have switched to Hikari Collaboration, to the whole FLET’S customers* 2 The national average ratio: As of August 5 2015. Our company forecasted the ratio of Q2 using the previous ratios of the switch and the additional materials of Q1 Financial Results of NTT.

14

ϪώMeasures to obtain more
new customers for thegroup’s core business

15

LP Gas Sectorz Since the beginning of this FY, our marketing areas has been expanded (to Tohoku area and 3 prefectures in
Tokai area).
z In January, 2016, new discount bundle plans with electric power will be released (will be announced in theend of 2015). Our bundle plan is not only with electric power, but also with other items, such as aqua,telecommunication and broadband, as well as any other services and products we provide in order to enhance
our sales promotion through making differentiation to our competitors.

South Tohoku area
LP gas: 530 thousand
customers

Nagano Prefecture
LP gas: 290 thousand
customers

Kanto (Tokyo
Metropolitan and 6
prefectures) + Fukushima
Prefecture

3 prefecturesin Tokai area

LP gas: 6.32 million customers

Our share: 6.3%

LP gas: 2.03 million customers(2nd largest in Kanto area)

Shizuoka Prefecture

䞉䞉䞉Newarea
䞉䞉䞉KantoareaandFukushimaPref.
䞉䞉䞉ShizuokaPref.䞉䞉䞉 Ouroffices

LP gas: 820 thousand
customers

Our share: 19.6%(the largest share in Shizuoka
Prefecture)

16

City Gas Sectorz We target to obtain more customers by higher penetration in household and sales area expansion. The city gas business has
the strongest connection to local areas among our businesses, and our showroom has been playing a role of a business hub toacquire new customers by providing comprehensive lifestyles in addition to energy, renovation, telecommunication andbroadcasting businessz New discount plans with a bundle of city gas and electric power will be sold in January 2016 (will be announced in the end of2015).

Fujieda City

Tokai Gas showroom “Kurippy Plaza”
EnergyShimada City

Renovation

Yaizu City
New business promotion by
providing comprehensive lifestyles
that combines various services.

Aqua

Rent service foraged care items
Broadcasting

Telecommunications

17

ᾒᾐᾣᾥ Sectorz In order to increase a sign-up ratio in our broadcasting service area, bulk measures have been taken to condominiums (37%)
since the last fiscal year, and the promotion has been expanding. At the same time, we have maintained ARPU by offering atelecommunication and multiple channel broadcasting at reasonable fee.
z In 2H FY2015, we kicked off special sales team who regularly visit existing high-pay customers (broadcasting +telecommunication). In January 2016, we will release new discount bundle plans with CATV and electric power (will beannounced in the end of 2015).

(No.ofcustomers)
12,000Change in the result of thebulk measures
Acquiring the᪤Ꮡ⋓ᚓ

10,000Complexinthepast
Lead-incoaxialcable
Lead-in
FTTH

existing customers
Acquiring new᪂つ⋓ᚓcustomers

Bulkforacomplex
Coaxial cable is forbroadcasting, and Hikari cableis for telecommunication

8,000

6,000

Multiple channels, additionalsign-up for telecommunication

Enjoy broadcast andtelecommunication services
with Optical cables

4,000

No antenna
is needed

Lead-in
FTTH
TEL
EXT.

Phone line
Phone

Cordless handset

Reasons of the boost in sales (advantages for the customers)
2,000

0

FY2014ᖺୖᮇ
2014, H1 FY2014,
H2 FY2015,
H1
2014ᖺୗᮇ
2015ᖺୖᮇ

FY2015,H2
2015ᖺୗᮇ

z Our company bears the costs for installation and the usage of broadcasting
service including equipment for broadband services, etc. (partial)z Offering broadcasting services with multiple channels and telecommunication
menus at reasonable prices to our customers (providing a high quality service
at a reasonable price)

18

Broadband Sectorz The promotion of “Hikari Collaboration” will be continued in H2. The activity will be even stronger using theconnection with electronics retail stores and telemarketing activities, which were started in H1.
z Since our company has strong price competitiveness in the NTT East Japan area, new discount sales plans, abundle of “Hikari Collaboration” and electric power will be launched in January 2016 (will be announced in theend of 2015).

Further promotion of“Hikari Collaboration”
To promote the switch to “Hikari
Collaboration”, we monitor the results ofthe promotion activities in H1 in order todetermine potential customers toapproach as preference. Our strengthof retail stores will have its sales
system enhanced.

1. Electronics retail storesz Increase in the number of sales staff
by 20%

Special promotion for a set plan with electric
power starting in January䐡 Special set
discount
Further discount on a set
plan!!

3 advantages of a set
plan with electric power䐠 Electric power
Discount on usage!!

䐟 “Hikari
Collaboration䇿
Discount on
usage fee䐟 “Hikari
Collaboration”
Discount on usage fee

2. Telemarketingz Promotional activity targeting at
highly potential customers,QFDVHZKHUHDFRQWUDFWLVPDGHRQO\IRU
n+LNDUL&ROODERUDWLRQn,QFDVHZKHUHDFRQWUDFWLVPDGHIRUERWKn+LNDUL&ROODERUDWLRQ|DQGHOHFWULFSRZHU

19

Aqua Sectorz In addition to the existing promotional activities using our own network (sales activity by offering actual
products at large shopping complexes, online sales, branches and agencies), the diversification of the sales
network will be enhanced with partnership agreement with a major agent company in order to obtain new
customers.
z In January 2016, new discount bundle plans of aqua products with electric power will be released (will be
published in the end of 2015).

Partnershipagreementz Direct sales (face to face) by offering
product tasting at large shopping
complexes throughout the nationz Our sales network running throughout thenation with branches (150), agencies(2,000)z Website sales network

Purchased by 30 thousand-50
thousand customers every year

z 3rd largest number of ISP
customers in the nationz Promoting online applications to
its members
z Offering points to applicants
Focusing on 3 million of ISP
members, online application is
promoted.

20

ϫώFull-year forecast for FY201521ẔConsolidationẕ Performance Forecast for the
Entire Fiscal Yearz The results of Q2 exceeded the original forecast released in May, and the differences between the forecast
and the results are shown below.
z Although our business is steadily growing towards the goals of the year, the performance forecast for theentire fiscal year will not be reviewed because currently some uncertain factors are expected in H2 (ourforecast will be reviewed when income increase becomes certain).
(¥ billion)

H1

Sales

Quarterly net
incomeOperating income

Ordinary income

86.8
84.8

0.9
1.9

0.7
1.8

-0.4
0.3

-2.1

+1.0

+1.0

+0.6

Operating income

Ordinary income

Current
forecast

192.2
192.2

7.8
7.8

7.4
7.4

3.2
3.2

Increase /decrease

䠉

䠉

䠉

䠉

The previous
forecast
Results
Increase /decrease

The entire
fiscal year
The previous
forecast

Sales

Net income22Ϭώ Returns to stockholders

23

Self-evaluation of the current value of our groupz The value of our group this FY is approx. ¥152 billion based on our EBITDA. Our stock value
shall be approx. ¥78 billion, discounting the current balance of net interest-bearing debt. Our selfevaluation for the value of stock price is a ¥600 level based on our cash flow (the closing price on
September 30, 2015 was ¥499 per stock.)z In a meantime, we understand that our group’s treasury stock, which is 25.3% of the wholeissued shares, is still a big concern for our stockholders (causing stock dilution).

151.8

The stock value estimated based on EV/EBITDA ratio of 6.0 …

Forecast for FY2015
EBITDA ¥25.3 billion
㽢
EV/EBITDA ratio
6.0

Company value Ὂ Net interest-bearing debt ᾌ Stock value
Approx. ¥152 billion Approx. ¥74 billion
Approx. ¥78 billion

Treasury stock

74

77.8

FY2015 Q2
The balance of net
interest-bearing debt
¥74 billion

Value of per stock
Approx. ¥670

39.19 million stock (25.3%) as of FY2015 Q2Issuedstocks(excludingownstock)
116millionThenumberofownstock
55.38million

2011/04 Establishment ofHoldingCompany
2012/11 Launch ofthesales15.8million

Exerciseofshareoptions

0.39million

Total

௻ᴗ౯್
Company
value

39.19million

䲼㚱⇑⫸屈⁝Net
interest-bearing debt ᰴᘧ౯್Stock value

24

Financial Improvement by issuing CB (2015/6)
z Currently, our target of equity ratio in FY2016(the final FY in IP16) is expected to be achieved.( A )z In addition, we are confident with our B/S improvement plan (equity ratio: 36.2%, interest-bearing debt: ¥53.1 billion B ) with afunding by issuing zero-coupons overseas convertible bonds with the purpose of financial improvement by stock conversion.
z Therefore, we have decided to enhance the plan on the returns to our shareholders in the period of IP16.

Significance of the issuance(contribution for financial improvement)

Purpose of the issuance of CB

䖂 Stockconversionwillwidelycontributetofinancialimprovement
䐟 Reduction of interest costs (issuance of zero coupons)
Capital stock

Equity ratio

Interest-bearing
debt

FY 2010 (results)¥14.9 billion

7.7%¥124 billion

FY 2014 (results)¥42.5 billion

25.7%¥73.1 billion

FY 2015 (forecast)¥44.4 billion

26.1%¥72.5 billion

A

FY 2016 (forecast)¥49.2 billion

30.1%¥63.1 billion

B

Effect of CB¥59.2 billion

36.2%¥53.1 billion

FY 2016 (IP16)¥46.8 billion

28.6%¥64.7 billion

䐠 Increase equity capital by stock conversion andreduction of interest-bearing debt

Outline of the CB scheme
TotalamountoftheissuedCB:¥10billion

Dateofissuance:June25,2015

Dateofredemption:

June25,2020(5yearbonds)

Conversionvalue:

¥585(increaseratio:10.17%)

Downwardadjustment
oftheconversionvalue:

70%offloorvalue(1yearlater,and2yearslater)

25

Pay out to Shareholders in FY 2015z An annual dividend is expected to be ¥12 (the end of Q2: ¥6 + the end of the FY: ¥6), and the total amountis estimated to be ¥1.4 billion.
z Our company will pay out 100% of proft to shareholders by share buy-back for ¥1.8 billion. This is because,the business performance has been steadily growing towards the end of the medium-term management
plan called “Innovation Plan 2016” (IP16).
z At the same time, 155.2 millions of treasury stocks (10% of the outstanding shares) will be cancelled.

By shares buy-back (¥1.8 billion)
we pay out 100% to our shareholders for this FY.

100.0%

1.8
52.9%

44.2%

40.2%

1.2

1.3

1.4

1.4

1.4

2012/3᭶ᮇ㻲㼅㻞㻜㻝㻝

2013/3᭶ᮇ㻲㼅㻞㻜㻝㻞

2014/3᭶ᮇ㻲㼅㻞㻜㻝㻟

2015/3᭶ᮇ㻲㼅㻞㻜㻝㻠

2016/3᭶ᮇ㻲㼅㻞㻜㻝㻡

Dividend(\billion)
¥

35.1%

Sharebuyback(\billion) ¥Dividendpayoutratio

26

Ӌᎋ᝻૰

Financial Highlights

FY2014 2Q

FY2014 4Q

FY2015 2Q

FY2015 4Q

Total assets¥ billion

164.5

165.7

160.2

170.2

Total liabilities¥ billion

125.5

122.2

117.7

124.7

Interest-bearing
liabilities¥ billion

80.9

73.1

76.3

72.5

Total net assets¥ billion

39.0

43.5

42.5

44.4

%

0.6

9.9

0.7

7.5

¥ billion

10.5

26.2

10.2

25.3

%

23.1

25.7

25.9

26.1

ROE
EBITDA
Equity ratio

27

The performance forecasts and future outlooks in this material are calculated according to
information available as of now, and there are potential risks and uncertainty. Please beaware that, due to the changes in various factors, there is a possibility that actual results
may widely differ to the future outlooks mentioned.

For inquiries in regards to this material, please contact below.
TOKAI Holdings Corporation
The Public Relations / IR Division
2-6-8, Tokiwa-cho, Aoi-ku, Shizuoka City, 420-0034, JAPANTEL䠖+81-(0)54-669-7676
FAX䠖+81-(0)54-275-1110
http://tokaiholdings.co.jp
E-mail䠖overseas_IR@tokaigroup.co.jp