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: 2022-07-29

INDEX
Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3.
Key financial data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5.
Recent updates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.
Trends and outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9.
Quarterly trends and results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9.
Full-year company forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13..
Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17..
Medium- and long-term plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17..
Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24..
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25..
Business description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25..
Profitability snapshot, financial ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36..
Market and value chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39..
Strengths and weaknesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44..
Historical performance and financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46...
Historical performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46..
Income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68..
Balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69..
Statement of cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70..
Other information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71..
News and topics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73..
Company profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77..

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, Information and Communications, and CATV its earnings pillars. As of endFY03/22, TOKAI Holdings had 3.2mn customers (general consumers) within its service areas, including Shizuoka Prefecture
and the Kanto region. The company is pushing ahead with its Total Life Concierge (TLC) concept, under which it aims tocreate a one-stop shop for the goods and services desired by its customers (such as gas, information and communications,
CATV, construction, equipment, real estate, and home water delivery). TOKAI Holdings Corporation was established on April
1, 2011, after the management integration of TOKAI Corporation (registered name: The TOKAI Corporation) and TOKAI
Communications Corporation (formerly VIC TOKAI Corporation; name changed on October 1, 2011), and an accompanying
transfer of shares to a holding company.
The company’s Energy business (41.2% of FY03/22 sales, 38.4% of operating profit) and Information and Communications
and CATV businesses (39.9%, 53.2%) 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 staff
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 through FY03/22, TOKAI
Holdings has generated some JPY20–32bn in operating cash flow every year (roughly JPY25bn on average), well more thanthe corresponding ten-year average of about JPY17bn in operating cash flow generated by an industry peer Nippon Gas Co.,
Ltd. (TSE Prime: 8174), about JPY6bn generated by Mitsuuroko Group Holdings Co., Ltd. (TSE Prime: 8131), or about
JPY3.5bn generated by Sinanen Holdings Co., Ltd. (TSE Prime: 8132). The much greater operating cash flow generated by
TOKAI Holdings has given it a clear competitive edge over its peers by providing it the wherewithal in terms of capital tofund growth investment and shareholder returns.
Supported 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 Concierge service 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 also expanded its LP gas sales coverage to the Kyushu and Chugoku
regions, establishing a sales office in Kumamoto (Kumamoto Prefecture) in October 2021 and another in Fukuyama(Hiroshima Prefecture) in January 2022.
The company’s housing-related business is not new, but the company has pursued M&A opportunities aggressively in recent
years to expand the construction business. In September 2019, TOKAI Holdings acquired Nissan Tri Star Construction, Inc., ageneral construction company in Gifu Prefecture whose mainstay business is civil engineering work. In August 2020, thecompany also acquired Chuo Denki Koji Co., Ltd., based in Aichi Prefecture, whose core business is electrical construction.
In April 2021, it acquired Marco Polo Co., Ltd., which is also based in Aichi Prefecture and handles large-scale repair work,
making it a consolidated subsidiary. Reasons for pursuing M&A are: 1) to move into new business territories such as Gifu andAichi prefectures; 2) to expand into other industries to generate synergies to grow the customer base of its Energy andInformation and Communication businesses; and 3) to strategically expand its business portfolio to become a comprehensive
infrastructure company.

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

3

Trends and outlook
FY03/22 results: The company reported sales of JPY210.7bn (+7.1% YoY), operating profit of JPY15.8bn (+3.7% YoY),
recurring profit of JPY15.9bn (+3.9% YoY), and net income attributable to owners of the parent of JPY9.0bn (+1.7% YoY). Sales
and all profit items reached record highs for the full year. Main factors driving the YoY sales growth included an increase in
the number of customers in the Energy and CATV segments, a rise in selling prices linked to higher purchase prices in the
Energy segment, expansion of recurring-revenue businesses targeting corporate customers in the Information andCommunications segment, and the impact of M&A in the Construction, Equipment, and Real Estate segment. The adoptionof the Accounting Standard for Revenue Recognition only had a marginal downward impact on sales.
In the LP gas and Aqua businesses, customer acquisition costs increased YoY as the company worked to win customers at afaster pace than in FY03/21. Nonetheless, a rise in the monthly billing count thanks to higher customer numbers and robust
performance from the Information and Communications business for corporate customers were more than enough to absorb
these costs, and operating profit grew 3.7% YoY. The gross profit margin fell 1.7pp YoY to 40.4%, the SG&A ratio declined
1.5pp YoY to 32.9%, and the operating profit margin decreased 0.2pp YoY to 7.5%. As the full-year results in FY03/22
overshot the initial projections and set new record highs, the company decided to increase its year-end dividend to JPY17
per share, up JPY2 from the previous estimate of JPY15. This, together with the interim dividend of JPY15 per share, brings
the annual dividend to JPY32 per share (JPY30 per share in FY03/21).
FY03/23 forecast: The company forecasts sales of JPY223.0bn (+5.8% YoY), operating profit of JPY14.5bn (-8.2% YoY),
recurring profit of JPY14.3bn (-10.1% YoY), and net income attributable to owners of the parent of JPY8.3bn (-7.5% YoY). The
annual dividend forecast is JPY32 per share (flat YoY). The company expects YoY sales growth in FY03/23 on the back of an
ongoing increase in customer count and project orders. On the profit front, it has concerns that high crude oil prices andweakening Japanese yen could raise the gas purchase prices sharply. However, the company will continue to actively pursue
customer acquisition through billing strategies that maintain price competitiveness.
Medium-term business plan: On May 11, 2021, the company unveiled the TOKAI Group Medium-Term Plan IP24
(Innovation Plan 2024 “Design the Future Life”), a four-year plan spanning FY03/22 through FY03/25. FY03/25 targets are
sales of JPY245.0bn (versus JPY196.7bn in FY03/21), operating profit of JPY18.6bn (JPY15.2bn), net income attributable toowners of the parent of JPY11.0bn (JPY8.8bn), cash flow from operating activities* of JPY26.0bn (JPY22.4bn), ROE of 13% orhigher (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. Life Design Group is a stance of helping tosolve social problems by designing and proposing lifestyles that appeal to customers. IP24 is positioned as the foundationbuilding stage. The five key messages of IP24 are as follows. 1) promote LNG strategy (push business expansion in existingareas, in Japan, and overseas), 2) advance the TLC concept, 3) further strengthen and expand customer base through fullscale DX strategy, 4) optimize allocation of management resources, and 5) strengthen initiatives involving the SDGs.

Strengths and weaknesses
Shared Research believes 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

FY03/12(JPYmn)Sales
YoY

FY03/13

FY03/14

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20

FY03/21

FY03/22

FY03/23

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Est.

181,931

181,684

188,987

187,511

180,940

178,631

186,069

191,600

195,952

196,726

210,691

223,000
5.8%

4.0%

-0.1%

4.0%

-0.8%

-3.5%

-1.3%

4.2%

3.0%

2.3%

0.4%

7.1%

Energy98,316

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

77,977

78,154

77,38086,770Information and Communications

37,94338,49738,803

40,11844,24649,50850,894

51,23451,75350,73551,398

CATV

24,292

23,78624,187

24,35924,60825,39628,38630,511

31,38533,74532,572

Construction, Equipment, andReal Estate

15,881

15,756

19,24520,01920,975

19,511

19,807

20,09022,38323,177

27,780

Aqua

-

3,750

4,378

4,959

5,487

5,762

6,200

7,004

7,416

7,622

7,629

Other

5,498

5,374

5,142

4,987

4,875

5,108

4,706

4,781

4,858

4,065

4,540

Gross profit

69,53768,80968,341

68,932

69,812

73,04075,33676,15979,28982,87085,212

YoY

3.1%

-1.0%

-0.7%

0.9%

1.3%

4.6%

3.1%

1.1%

4.1%

4.5%

2.8%

Gross profit margin

38.2%

37.9%

36.2%

36.8%

38.6%

40.9%

40.5%

39.7%

40.5%

42.1%

40.4%

Operating profit

10,923

8,934

7,392

9,003

8,245

12,75010,971

13,057

14,224

15,226

15,794

YoY

1.6%-18.2%-17.3%

21.8%

-8.4%

54.6%

-14.0%

19.0%

8.9%

7.0%

3.7%

Operating profit margin

6.0%

4.9%

3.9%

4.8%

4.6%

7.1%

5.9%

6.8%

7.3%

7.7%

7.5%

14,500
6.5%

Recurring profit

9,818

8,065

7,013

8,549

8,150

12,775

11,191

13,25914,47915,312

15,907

14,300

YoY

3.5%-17.9%-13.0%

21.9%

-4.7%

56.7%

-12.4%

18.5%

9.2%

5.8%

3.9%

-10.1%

Recurring profit margin

5.4%

4.4%

3.7%

4.6%

4.5%

7.2%

6.0%

6.9%

7.4%

7.8%

7.5%

6.4%

Net income

2,715

3,085

2,598

3,934

3,458

7,337

6,620

7,772

8,241

8,815

8,969

8,300

YoY

26.2%

13.6%

-15.8%

51.4%-12.1%

112.2%

-9.8%

17.4%

6.0%

7.0%

1.7%

-7.5%

Net margin

1.5%

1.7%

1.4%

2.1%

1.9%

4.1%

3.6%

4.1%

4.2%

4.5%

4.3%

3.7%

155,200

155,200

155,200

155,200

139,680

139,680

139,680

139,680

139,680

139,680

139,680

27.2

29.9

22.7

34.2

30.0

64.5

51.2

59.4

62.9

67.3

68.5

-

-

-

34.1

26.9

56.3

50.5

-

-

-

-

-8.2%

Per-share data
Shares issued('000 shares)
EPS
EPS (fully diluted)
Dividend per share

12.0

12.0

12.0

12.0

14.0

28.0

28.0

28.0

28.0

30.0

32.0

Book value per share

262.9

289.3

325.8

368.2

362.8

439.0

460.7

478.3

493.3

568.9

590.2

63.4
32.0

Balance sheet (JPYmn)
Cash and cash equivalents

3,182

2,861

4,077

3,239

3,143

4,164

4,629

41,09340,35140,60635,95938,11738,59439,95142,50644,26846,93247,098

Tangible fixed assets

110,207

2,602

106,602103,129

98,935

95,064

93,647

96,81097,03098,353

101,800

106,017

Investments and other assets

14,995

15,63816,855

19,53916,14917,86018,03016,937

16,51819,552

20,364

Intangible assets

17,266

14,906

12,943

11,224

10,94010,988

11,198

11,128

10,831

10,687

10,993

183,735

177,642

173,620

165,702160,303

161,112

165,993

167,606

169,972

178,974

184,473

Accounts payable

13,636

13,01914,105

13,035

13,511

14,77915,67015,021

15,034

17,226

18,668

Short-term debt

50,834

48,614

44,16936,27928,586

26,88827,35825,966

23,831

16,107

18,628

Total current assets

Total assets

Total current liabilities

4,235

5,577

4,743

85,17982,56378,905

71,16062,95861,30463,70561,38560,61757,00957,822Long-term debt

53,40444,093

41,171

36,79042,82339,596

36,79338,131

38,99141,304

42,625

Total fixed liabilities

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

40,83742,32543,37245,90847,704

Total liabilities

156,553

143,631

135,291

122,234

118,332

104,665

104,543

103,711

103,989

102,917

105,527

Total net assets

27,18134,011

38,32943,467

41,97056,44661,45063,89465,982

76,05678,946

Total interest-bearing debt

104,238

92,707

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

57,411

61,253

Cash flow statement (JPYmn)
Cash flows from operating activities

28,58427,265

21,395

26,692

20,90921,60522,53532,22320,808Cash flows from investing activities-10,037-9,983-9,664-8,851-11,015-10,985-11,488-12,443-12,131-17,068-14,592

Cash flows from financing activities-24,255-14,051

25,713-14,125

22,806-18,764-9,150-16,643-9,527-8,147-10,375-14,064-6,905

Financial ratios
ROA (RP-based)

5.2%

4.5%

4.0%

5.0%

5.0%

7.9%

6.8%

7.9%

8.6%

8.8%

8.8%

ROE

13.1%

10.4%

7.4%

9.8%

8.3%

15.2%

11.4%

12.6%

13.0%

12.7%

11.8%

Equity ratio

14.3%

18.6%

21.6%

25.7%

25.6%

34.5%

36.3%

37.4%

38.0%

41.6%

41.9%

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
profit(JPYmn)Sales

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.

FY03/22Cons.

181,931

181,684

188,987

187,511

180,940

178,631

186,069

191,600

195,952

196,726

210,691

YoY

4.0%

-0.1%

4.0%

-0.8%

-3.5%

-1.3%

4.2%

3.0%

2.3%

0.4%

7.1%

Energy98,316

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

77,977

78,154

77,38086,770-4.3%-13.2%

YoY

2.7%

-

2.9%

-9.2%

3.7%

2.5%

0.2%

-1.0%

12.1%

% of total

54.0%

52.0%

51.4%

49.6%

44.6%

41.1%

40.9%

40.7%

39.9%

39.3%

41.2%

Information and Communications

37,94338,49738,803

40,11844,24649,50850,894

51,23451,75350,73551,398

YoY

9.3%

1.5%

0.8%

3.4%

10.3%

11.9%

2.8%

0.7%

1.0%

-2.0%

1.3%

% of total

20.9%

21.2%

20.5%

21.4%

24.5%

27.7%

27.4%

26.7%

26.4%

25.8%

24.4%

CATV

24,292

23,78624,187

24,35924,60825,39628,38630,511

31,38533,74532,572

YoY

7.3%

-2.1%

1.7%

0.7%

1.0%

3.2%

11.8%

7.5%

2.9%

7.5%

-3.5%

% of total

13.4%

13.1%

12.8%

13.0%

13.6%

14.2%

15.3%

15.9%

16.0%

17.2%

15.5%

Construction, Equipment, and Real
Estate15,881

15,756

19,24520,01920,975

19,511

19,807

20,09022,38323,177

27,780

YoY

6.5%

-0.8%

22.1%

4.0%

4.8%

-7.0%

1.5%

1.4%

11.4%

3.5%

19.9%

% of total

8.7%

8.7%

10.2%

10.7%

11.6%

10.9%

10.6%

10.5%

11.4%

11.8%

13.2%

Aqua

-

3,750

4,378

4,959

5,487

5,762

6,200

7,004

7,416

7,622

7,629

YoY

-

-

16.7%

13.3%

10.6%

5.0%

7.6%

13.0%

5.9%

2.8%

0.1%

% of total

-

2.1%

2.3%

2.6%

3.0%

3.2%

3.3%

3.7%

3.8%

3.9%

3.6%

Other

5,498

5,374

5,142

4,987

4,875

5,108

4,706

4,781

4,858

4,065

4,540

YoY

-20.6%

-2.3%

-4.3%

-3.0%

-2.2%

1.6%

-16.3%% of total

4.8%

-7.9%

1.6%

11.7%

3.0%

3.0%

2.7%

2.7%

2.7%

2.9%

2.5%

2.5%

2.5%

2.1%

2.2%

10,923

8,934

7,392

9,003

8,245

12,75010,971

13,057

14,224

15,226

15,794

YoY

1.6%-18.2%-17.3%

21.8%

-8.4%

54.6%

-14.0%

19.0%

8.9%

7.0%

3.7%

Operating profit margin

6.0%

4.9%

3.9%

4.8%

4.6%

7.1%

5.9%

6.8%

7.3%

7.7%

7.5%

Energy

4,577

5,200

4,520

5,549

6,973

6,942

4,967

4,434

4,907

6,115

6,059

YoY

-0.9%

Operating profit-25.6%--13.1%

22.8%

25.7%

-0.4%

-28.5%-10.7%

10.7%

24.6%

Operating profit margin

4.7%

5.5%

4.6%

6.0%

8.6%

9.5%

6.5%

5.7%

6.3%

7.9%

7.0%

% of total

41.9%

58.2%

61.1%

61.6%

84.6%

54.4%

45.3%

34.0%

34.5%

40.2%

38.4%

Information and Communications

4,197

3,746

3,049

3,486

829

3,065

1,866

2,593

2,959

3,086

3,355

YoY

-2.6%

-10.7%-18.6%

14.3%-76.2%

269.7%-39.1%

39.0%

14.1%

4.3%

8.7%

Operating profit margin

11.1%

9.7%

7.9%

8.7%

1.9%

6.2%

3.7%

5.1%

5.7%

6.1%

6.5%

% of total

38.4%

41.9%

41.2%

38.7%

10.1%

24.0%

17.0%

19.9%

20.8%

20.3%

21.2%

CATV

1,648

429

973

862

1,161

2,331

3,035

4,442

4,543

4,719

5,189

YoY

-36.4%-74.0%

126.8%-11.4%

34.7%

100.8%

30.2%

46.4%

2.3%

3.9%

10.0%

Operating profit margin

6.8%

1.8%

4.0%

3.5%

4.7%

9.2%

10.7%

14.6%

14.5%

14.0%

15.9%

% of total

15.1%

4.8%

13.2%

9.6%

14.1%

18.3%

27.7%

34.0%

31.9%

31.0%

32.9%

555

209

926

495

676

461

655

954

1,379

1,257

1,706

-35.2%-62.3%

343.1%-46.5%

36.6%-31.8%

42.1%

45.6%

44.5%

-8.8%

35.7%

Operating profit margin

3.5%

1.3%

4.8%

2.5%

3.2%

2.4%

3.3%

4.7%

6.2%

5.4%

6.1%

% of total

5.1%

2.3%

12.5%

5.5%

8.2%

3.6%

6.0%

7.3%

9.7%

8.3%

10.8%

Aqua

-

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

101

26

520

401

259

46

YoY

-

-

-

-

-

-

-74.3%

1,895.8%-22.9%-35.4%-82.2%

Operating profit margin

-

-

-

-

-

-

0.1%

2.6%

1.8%

1.1%

0.2%

Construction, Equipment, and Real
EstateYoY--11.5%-28.5%-16.1%-15.5%

0.8%

0.2%

4.0%

2.8%

1.7%

0.3%

Other

% of total

-228

-17

-10

-386

-197

112

301

217

235

-244

-103

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%

-2.3%

% of total

-2.1%

-0.2%

-0.1%

-4.3%

-2.4%

0.9%

2.7%

1.7%

1.7%

-1.6%

-0.7%

Adjustments

174

396

41

445

78

-265

118

-105

-201

32

-460

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
Openening of a fitness club in Kurashiki, Okayama Prefecture2022-07-04

On July 1, 2022, TOKAI Holdings Corporation announced that Kurashiki Cable Television Inc., one of its group companies in
the CATV business, would be opening a fitness club under a franchise agreement with KEIAI Link Ltd., a franchise chain
operator of always-open fitness clubs under the name RETIO BODY DESIGN. The new facility will be known as the RETIO
BODY DESIGN Kojima.
The company explained that through the CATV business, it aims to leverage the strengths of group companies' regional
operations, expand their role as providers of essential services in the local communities, and further enhance theirreputation and stature as reliable providers of services that contribute to the quality of life of local residents and therevitalization of the region.
RETIO BODY DESIGN Kojima (located across from Kojima Station in Kurashiki, Okayama Prefecture)
Pre-opening showing: July 16–30, 2022
Grand opening: July 31, 2022

Tripleize, an investee of subsidiary TOKAI Communications,listed on TSE Growth Market
2022-06-01

On May 31, 2022, TOKAI Holdings Corporation announced that Tripleize Co., Ltd., an investee of subsidiary TOKAI
Communications Corporation, was newly listed on the Growth Market of the Tokyo Stock Exchange (securities code: 5026).
TOKAI Communications signed a business alliance agreement with Tripleize on September 14, 2018. By combining eachother's strengths—TOKAI Communications's business base it has cultivated over the years and Tripleize's advanced
technological expertise—the two companies have utilized each other's specialties to the fullest in efforts to expand andfortify their business domains. TOKAI Holdings said that it will continue aiming for further earnings expansion and sustainablegrowth of both companies.

Acquisition of shares in Wood Recycle K.K.
2022-05-30

On May 27, 2022, TOKAI Holdings Corporation announced that wholly owned subsidiary TOKAI Corporation had enteredinto an agreement to acquire shares in Wood Recycle K.K., making it a consolidated subsidiary.
Based in Gero, Gifu Prefecture, Wood Recycle provides disposal and intermediate processing services for industrial and nonindustrial waste, particularly the scrap wood resulting from demolitions of wooden buildings as well as the branches and small
trees that are cut down during the course of road maintenance work. By pulverizing this kind of waste wood to create small
wood chips, Wood Recycle provides an essential service to local construction contractors needing to dispose of the waste
wood resulting from forest development and maintenance work and restoration projects following natural disasters. The
company also produces wood chips as a fuel source that can be used in wood-fueled biomass power generators. Driven bystrong interest in its wood chips from electric power plant operators, Wood Recycle expects demand for its wood chips tocontinue rising going forward.
Following the acquisition, as a member of the TOKAI Holdings group, Wood Recycle will have access to the additional
management resources needed to put its operations on a more stable footing and carry through with plans to expand its
waste wood intake capacity and increase the production and sales of wood chips.
TOKAI Holdings, for its part, will be able to use the wood chips produced by Wood Recycle to support its own move into theelectric power business, putting the group yet another step closer to realizing the goals set out under its Carbon Neutral

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

7Vision (announced in May 2021).
The company has not disclosed any details concerning the terms of the acquisition.

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

8

Trends and outlook
Quarterly trends and results
Quarterly

FY03/21(JPYmn)Sales

FY03/22

FY03/23

FY03/23

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

45,11344,723

49,95656,934

48,396

47,66453,36061,27151,803

YoY

-1.5%

-5.3%

2.9%

4.7%

7.3%

6.6%

6.8%

7.6%

7.0%

Gross profit

19,651

18,58021,414

23,225

19,71819,021

21,36025,113

20,536

YoY

5.1%

0.7%

6.3%

5.6%

0.3%

2.4%

-0.3%

8.1%

4.1%

Gross profit margin

43.6%

41.5%

42.9%

40.8%

40.7%

39.9%

40.0%

41.0%

39.6%

SG&A expenses

17,181

15,86816,911

16,964

17,90016,491

17,025

17,334

18,568

YoY

2.5%

4.5%

3.7%

5.0%

3.9%

0.7%

2.2%

3.7%

4.2%

SG&A ratio

35.2%

37.8%

34.0%

31.4%

34.1%

35.7%

32.5%

30.3%

33.2%

Operating profit

3,783

1,669

4,449

5,325

3,226

1,997

4,025

6,546

3,355

YoY

17.1%

-26.4%

17.8%

7.7%

-14.7%

19.7%

-9.5%

22.9%

4.0%

Operating profit margin

8.4%

3.7%

8.9%

9.4%

6.7%

4.2%

7.5%

10.7%

6.5%

Recurring profit

3,830

1,669

4,430

5,383

3,353

1,931

4,040

6,583

3,389

YoY

14.3%

-26.1%

14.5%

7.6%

-12.5%

15.7%

-8.8%

22.3%

1.1%

Recurring profit margin

8.5%

3.7%

8.9%

9.5%

6.9%

4.1%

7.6%

10.7%

6.5%

Net income

2,445

834

2,657

2,879

1,870

411

2,353

4,335

1,795

YoY

9.2%

-8.3%

-23.5%

50.6%

-4.0%

Net margin

5.4%

1.9%

5.3%

5.1%

3.9%

0.9%

4.4%

7.1%

Cumulative

Q1

Q1–Q2

Q1–Q3

Q1–Q4

Q1

Q1–Q2

Q1–Q3

Q1–Q4

Q1

45,11389,836

139,792

196,726

48,396

96,060149,420

210,691

51,803

Sales-33.4%

64.9%-50.7%-11.4%

3.5%

YoY

-1.5%

-3.4%

-1.2%

0.4%

7.3%

6.9%

6.9%

7.1%

7.0%

Gross profit

19,651

38,23159,64582,87019,71838,73960,09985,212

20,536

YoY

5.1%

2.9%

4.1%

4.5%

0.3%

1.3%

0.8%

2.8%

4.1%

Gross profit margin

43.6%

42.6%

42.7%

42.1%

40.7%

40.3%

40.2%

40.4%

39.6%

SG&A expenses

15,86832,77949,74367,643

16,491

33,51650,85069,41817,181% of Est.

FY Est.

23.2%

223,000
5.8%

YoY

2.5%

3.5%

3.6%

4.0%

3.9%

2.2%

2.2%

2.6%

4.2%

SG&A ratio

35.2%

36.5%

35.6%

34.4%

34.1%

34.9%

34.0%

32.9%

33.2%

Operating profit

3,783

5,452

9,901

15,226

3,226

5,223

9,248

15,794

3,355

YoY

17.1%

-0.9%

6.7%

7.0%

-14.7%

-4.2%

-6.6%

3.7%

4.0%

Operating profit margin

8.4%

6.1%

7.1%

7.7%

6.7%

5.4%

6.2%

7.5%

6.5%

Recurring profit

3,830

5,499

9,929

15,312

3,353

5,284

9,324

15,907

3,389

YoY

14.3%

-1.9%

4.8%

5.8%

-12.5%

-3.9%

-6.1%

3.9%

1.1%

Recurring profit margin

8.5%

6.1%

7.1%

7.8%

6.9%

5.5%

6.2%

7.5%

6.5%

Net income

2,445

3,279

5,936

8,815

1,870

2,281

4,634

8,969

1,795

YoY

9.2%

-6.1%

16.3%

7.0%

-23.5%-30.4%-21.9%

1.7%

-4.0%

-7.5%

Net margin

5.4%

3.6%

4.2%

4.5%

3.9%

2.4%

3.1%

4.3%

3.5%

3.7%

23.1%

14,500
-8.2%
6.5%

23.7%

14,300-10.1%
6.4%

21.6%

8,300

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)(JPYmn)Sales
YoY

FY03/20

FY03/21

FY03/22

FY03/22

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

45,80447,211

48,54254,395

45,11344,723

49,95656,934

48,396

47,66453,36061,27151,803

2.8%

6.6%

-1.1%

1.4%

-1.5%

-5.3%

2.9%

4.7%

7.3%

6.6%

6.8%

7.6%

7.0%

Energy18,577

17,18919,42522,963

17,634

15,79620,00723,94318,99817,15522,56428,05323,274

YoY

5.5%

5.2%

-6.3%

-1.5%

-5.1%

-8.1%

3.0%

4.3%

7.7%

8.6%

12.8%

17.2%

22.5%
12,873

Information andCommunications

12,795

13,116

12,923

12,91912,65012,481

12,70012,904

12,61912,683

12,904

13,192

YoY

2.3%

3.8%

0.9%

-2.7%

-1.1%

-4.8%

-1.7%

-0.1%

-0.2%

1.6%

1.6%

2.2%

2.0%

CATV

7,738

7,855

7,840

7,952

8,226

8,264

8,504

8,751

7,996

8,085

8,184

8,307

8,239

YoY

3.0%

3.0%

1.9%

3.5%

6.3%

5.2%

8.5%

10.0%

-2.8%

-2.2%

-3.8%

-5.1%

3.0%

Construction, Equipment, andReal Estate

3,777

5,959

5,183

7,464

3,819

5,255

5,741

8,362

5,542

6,819

6,664

8,755

4,641
-16.3%

YoY

-9.3%

23.6%

6.7%

19.5%

1.1%

-11.8%

10.8%

12.0%

45.1%

29.8%

16.1%

4.7%

Aqua

1,798

1,954

1,851

1,813

1,896

1,984

1,898

1,844

1,921

1,992

1,898

1,818

1,860

YoY

8.8%

6.4%

3.5%

5.1%

5.5%

1.5%

2.5%

1.7%

1.3%

0.4%

0.0%

-1.4%

-3.2%

1,116

1,139

1,147

1,320

1,283

885

943

1,106

1,131

1,319

929

1,145

915

1.5%

11.3%

7.4%

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

49.0%

-1.5%

3.7%

1.2%

-30.6%

Operating profit

Other

3,231

2,269

3,778

4,946

3,783

1,669

4,449

5,325

3,226

1,997

4,025

6,546

3,355

YoY

4.0%

YoY

35.2%

109.1%

6.0%-17.8%

17.1%-26.4%

17.8%

7.7%

-14.7%

19.7%

-9.5%

22.9%

Operating profit margin

7.1%

4.8%

7.8%

9.1%

8.4%

3.7%

8.9%

9.4%

6.7%

4.2%

7.5%

10.7%

6.5%

Energy

1,489

477

3,964

3,488

1,972

410

2,652

3,954

1,578

385

2,354

4,616

1,936

YoY

22.7%

26.0%

-

34.2%

-9.7%

32.4%

-14.0%-33.1%

13.4%-20.0%-6.1%-11.2%

16.7%

Operating profit margin

8.0%

2.8%

20.4%

15.2%

11.2%

2.6%

13.3%

16.5%

8.3%

2.2%

10.4%

16.5%

8.3%

Information andCommunications

1,217

1,052

3,366

860

1,110

926

1,045

1,263

1,224

1,181

1,087

1,229

1,236

YoY

68.1%

19.0%

29.7%

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

46.9%

10.3%

27.5%

4.0%

-2.7%

1.0%

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%

9.3%

9.6%

CATV

1,286

1,253

3,790

1,234

1,367

1,266

1,469

1,103

1,459

1,498

1,582

1,313

1,559

YoY

7.7%

10.3%

6.2%

-10.9%

6.3%

1.0%-61.2%-10.6%

6.7%

18.3%

7.7%

19.0%

6.9%

Operating profit margin

16.6%

16.0%

48.3%

15.5%

16.6%

15.3%

17.3%

12.6%

18.2%

18.5%

19.3%

15.8%

18.9%

Construction, Equipment, andReal Estate

213

630

1,242

874

233

388

473

971

263

475

388

1,354

53

YoY

0.0%

84.8%

35.7%

24.9%

9.4%

-38.4%-61.9%

11.1%

12.9%

22.4%

-18.0%

39.4%-79.8%
1.1%

Operating profit margin

5.6%

10.6%

24.0%

11.7%

6.1%

7.4%

8.2%

11.6%

4.7%

7.0%

5.8%

15.5%

Aqua

169

231

597

77

271

175

132

-5

37

149

101

38

62

YoY

76.0%

18.5%

34.5%

-75.8%

60.4%-24.2%-77.9%--86.3%-14.9%-23.5%-

67.6%

Operating profit margin

9.4%

11.8%

32.3%

4.2%

14.3%

8.8%

7.0%

-

1.9%

7.5%

5.3%

2.1%

3.3%

Other and adjustments-1,145-1,374-3,682-1,589-1,171-1,496-1,321-1,961-1,337-1,690-1,487-2,004-1,494

Q1

Q1–Q2

Q1–Q3

Q1–Q4

Q1

Q1–Q2

Q1–Q3

Q1–Q4

Q1

Q1–Q2

Q1–Q3

Q1–Q4

Q1

Cumulative

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

9Sales45,80493,015

141,557

195,952

45,11389,836

139,792

196,726

48,396

96,060149,420

210,691

YoY

2.8%

4.7%

2.6%

2.3%

-1.5%

-3.4%

-1.2%

0.4%

7.3%

6.9%

6.9%

7.1%

7.0%

18,57735,76655,191

78,154

17,63433,43053,437

77,38018,99836,15358,717

86,77023,274

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

51,803

5.5%

5.4%

0.9%

0.2%

-5.1%

-6.5%

-3.2%

-1.0%

7.7%

8.1%

9.9%

12.1%

22.5%

12,79525,911

38,83451,753

12,65025,131

37,83150,735

12,61925,302

38,206

51,39812,873

2.3%

3.0%

2.3%

1.0%

-1.1%

-3.0%

-2.6%

-2.0%

-0.2%

0.7%

1.0%

1.3%

2.0%

7,738

15,59323,43331,3858,226

16,49024,99433,745

7,996

16,081

24,26532,572

8,239

3.0%

3.0%

2.6%

2.9%

6.3%

5.8%

6.7%

7.5%

-2.8%

-2.5%

-2.9%

-3.5%

3.0%

3,777

9,736

14,91922,383

3,819

9,074

14,81523,177

5,542

12,361

19,02527,7804,641-16.3%

-9.3%

8.3%

7.7%

11.4%

1.1%

-6.8%

-0.7%

3.5%

45.1%

36.2%

28.4%

19.9%

1,798

3,752

5,603

7,416

1,896

3,880

5,778

7,622

1,921

3,913

5,811

7,629

1,860

8.8%

7.5%

6.1%

5.9%

5.5%

3.4%

3.1%

2.8%

1.3%

0.9%

0.6%

0.1%

-3.2%

1,116

2,255

3,575

4,858

885

1,828

2,934

4,065

1,319

2,248

3,395

4,540

915

1.5%

6.2%

6.7%

1.6%

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

49.0%

23.0%

15.7%

11.7%

-30.6%

3,231

5,500

9,278

14,224

3,783

5,452

9,901

15,226

3,226

5,223

9,248

15,794

3,355

35.2%

58.3%

31.8%

8.9%

17.1%

-0.9%

6.7%

7.0%

-14.7%

-4.2%

-6.6%

3.7%

4.0%

7.1%

5.9%

6.6%

7.3%

8.4%

6.1%

7.1%

7.7%

6.7%

5.4%

6.2%

7.5%

6.5%

Energy

1,489

1,966

3,964

7,452

1,972

2,382

5,034

8,988

1,578

1,963

4,317

8,933

1,936

YoY

26.0%

81.4%

34.2%

9.3%

32.4%

21.2%

27.0%

20.6%

-20.0%-17.6%-14.2%

-0.6%

22.7%

Operating profit margin

8.0%

5.5%

7.2%

9.5%

11.2%

7.1%

9.4%

11.6%

8.3%

5.4%

7.4%

10.3%

8.3%

YoY
Operating profit
YoY
Operating profit margin

Information and Communications

1,217

2,269

3,366

4,226

1,110

2,036

3,081

4,344

1,224

2,405

3,492

4,721

1,236

YoY

68.1%

41.1%

29.7%

10.4%

-8.8%

-10.3%

-8.5%

2.8%

10.3%

18.1%

13.3%

8.7%

1.0%

Operating profit margin

9.5%

8.8%

8.7%

8.2%

8.8%

8.1%

8.1%

8.6%

9.7%

9.5%

9.1%

9.2%

9.6%

1,286

2,539

3,790

5,024

1,367

2,633

4,102

5,205

1,459

2,957

4,539

5,852

1,559

CATV
YoY

7.7%

9.0%

6.2%

1.4%

6.3%

3.7%

8.2%

3.6%

6.7%

12.3%

10.7%

12.4%

6.9%

Operating profit margin

16.6%

16.3%

16.2%

16.0%

16.6%

16.0%

16.4%

15.4%

18.2%

18.4%

18.7%

18.0%

18.9%

Construction, Equipment, and Real Estate
YoY
Operating profit margin
Aqua
YoY
Operating profit margin
Other and adjustments

213

843

1,242

2,116

233

621

1,094

2,065

263

738

1,126

2,480

53

0.0%

52.2%

35.7%

31.0%

9.4%

-26.3%-11.9%

-2.4%

12.9%

18.8%

2.9%

20.1%

-79.8%

5.6%

8.7%

8.3%

9.5%

6.1%

6.8%

7.4%

8.9%

4.7%

6.0%

5.9%

8.9%

1.1%

169

400

597

674

271

446

578

573

37

186

287

325

62

76.0%

37.5%

34.5%

-11.5%

60.4%

11.5%

-3.2%

-15.0%-86.3%-58.3%-50.3%-43.3%

67.6%

9.4%

10.7%

10.7%

9.1%

14.3%

11.5%

10.0%

7.5%

1.9%

4.8%

4.9%

4.3%

3.3%

-1,145-2,519-3,682-5,271-1,171-2,667-3,988-5,949-1,337-3,027-4,514-6,518-1,494

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.

Q1 FY03/23 results (out July 28, 2022)
Overview
In Q1 FY03/23, the company reported sales of JPY51.8bn (+7.0% YoY), operating profit of JPY3.4bn (+4.0% YoY), recurring
profit of JPY3.4bn (+1.1% YoY), and net income attributable to owners of the parent of JPY1.8bn (-4.0% YoY). Q1 sales
increased YoY for the second consecutive year, reaching a record high, and operating profit rose for the first time in two
years.
In Q1, the company’s progress toward its full-year targets was 23.2% for sales (in Q1 FY03/22, sales reached 23.0% of the
full-year result), 23.1% for operating profit (20.4%), 23.7% for recurring profit (21.1%), and 21.6% for net income (20.8%).
Both sales and profits exceeded the company’s forecast. The full-year company plan remains unchanged.
Sales up 7.1% YoY: Several factors drove overall sales growth. These included an increase in the number of customers in the
Energy and CATV segments, a rise in selling prices linked to higher purchase prices in the Energy segment, and the
expansion of recurring-revenue businesses targeting corporate customers in the Information and Communications segment.
Operating profit up 4.0% YoY: In the LP gas business, although purchase prices increased significantly YoY, a rise in themonthly billing count thanks to higher customer numbers and robust performance from the Information andCommunications business for corporate customers were more than enough to absorb these increases, and operating profit
finished up YoY. The gross profit margin fell 1.1pp YoY to 39.6%, the SG&A ratio declined 0.9pp YoY to 33.2%, and theoperating profit margin decreased 0.2pp YoY to 6.5%.
Net income down 4.0% YoY: The decrease is attributable to factors including the absence of gain on donation of fixed assets
and loss on devaluation of investment securities.
The number of continuing customers amounted to 3,213,000, up 19,000 from end-FY03/22. The number of subscribers to
TLC Membership Service grew by 19,000 to 1,106,000.
Topics: In June 2022, the company acquired shares in Wood Recycle K.K. (Gero, Gifu Prefecture), a company engaged inindustrial waste processing and wood chip manufacturing, making it a consolidated subsidiary. The company has alsoestablished an organizational structure to bring to fruition its Life Design Group concept*—a new theme starting in FY03/22—and has begun considering concrete measures.
TOKAI Holdings/ 3167
Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp10*The company’s 10-year vision is to become a Life Design Group that contributes to solving social issues by designingand proposing lifestyles desirable to customers.

Customer countThe number of continuing customers amounted to 3,213,000, up 19,000 from end-FY03/22. Versus end-FY03/22, net
customer count grew by 7,000 in the gas business (LP gas and city gas), 8,000 in the CATV business, 5,000 in Hikari
Collaboration, and 3,000 in the LIBMO business.

Change in customer numbers, by service segment
Number ofcustomers('000)Gas (LP gas, city gas)

FY03/14

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20

FY03/21

FY03/22

FY03/23

YoY

Q1

Q1

Q1

Q1

Q1

Q1

Q1

Q1

Q1

Q1

Change

629

627

625

634

645

664

687

718

752

791

39

Conventional ISP

834

858

802

595

507

451

411

383

391

413

22

Hikari Collaboration

-

-

58

251

310

327

326

328

337

351

14

LIBMO

-

-

-

-

8

32

42

50

53

58

5

Information andCommunications

834

858

860

846

825

810

778

760

781

823

42

CATV

693

692

692

716

738

1,039

1,069

1,161

1,206

1,240

34

Aqua

105

126

130

134

138

151

157

159

164

166

2

Mobile

217

229

235

235

232

225

214

211

201

187

-14

Security
Total

19

18

18

17

17

17

17

16

16

16

0

2,471

2,526

2,537

2,557

2,570

2,883

2,907

3,012

3,108

3,213

105

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.

EnergySales were JPY23.3bn (+22.5% YoY), and operating profit was JPY1.1bn (+23.7% YoY).
The LP gas business generated sales of JPY19.3bn (+19.4% YoY). The company continued its customer acquisition efforts,
and the number of customers expanded to 720,000, up 5,000 from end-FY03/22. The increase in sales was driven byhigher selling prices linked to purchase prices in industrial gas sales.
The city gas business reported sales of JPY3.9bn (+40.7% YoY). Customer count grew to 71,000, up 1,000 from endFY03/22. Sales rose, driven by the impact of the fuel cost adjustment system and other factors.
Operating profit rose on the back of an increase in the monthly billing count resulting from higher customer numbers,
despite the impact of soaring LP gas purchase prices.

Information and Communications
Sales were JPY12.9bn (+2.0% YoY), and operating profit was JPY811mn (-3.5% YoY).

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11

In the Information and Communications business, services for consumers generated sales of JPY6.0bn (-3.6% YoY). In the
ISP business, the company expanded its acquisition capability through a partnership with a major mobile carrier. In themobile business, it worked to acquire customers by upgrading its service menu and offering set plans bundled with fixedlines. Thanks to these measures, the number of broadband customers increased by 3,000 from end-FY03/22 to657,000, while LIBMO customers grew by 3,000 to 58,000. Sales from consumer services were down, however, due toa decline in ARPU.
In the Information and Communications business, sales to corporate clients were JPY6.9bn (+7.4% YoY). Sales growth was
driven by steady progress in cloud services and a higher number of contracted development projects.
Higher broadband customer acquisition costs contributed to a drop in operating profit.

CATV
Sales were JPY8.2bn (+3.0% YoY), and operating profit was JPY1.4bn (+5.7% 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 rising by 3,000 from endFY03/22 to 891,000, while communications services customers grew by 5,000 to 349,000.

Construction, Equipment, and Real Estate
Sales were JPY4.6bn (-16.3% YoY), and the segment recorded an operating loss of JPY98mn (versus operating profit of
JPY82mn in Q1 FY03/22).
Both sales and profit declined due to decreases in large facility construction projects and new construction work for storesand other buildings.

Aqua
Sales were JPY1.9bn (-3.2% YoY), and the segment recorded an operating loss of JPY9mn (operating loss of JPY33mn in Q1
FY03/22).
Customer numbers increased by 1,000 from end-FY03/22 to 166,000 on the back of steady event sales at largecommercial facilities and non-personal sales activities such as online customer acquisition and telemarketing. However,sales declined as per-household consumption volume was down. Meanwhile, the operating loss narrowed.

Other businesses
Sales were JPY915mn (-30.6% YoY), and operating profit totaled JPY38mn (versus an operating loss of JPY4mn in Q1
FY03/22).
In the nursing care business, sales grew 13.4% YoY to JPY359mn due to higher user numbers.
In the shipbuilding business, sales fell 78.4% YoY to JPY125mn as the number of ships repaired declined.
In the bridal events business, wedding ceremonies and banquets showed a recovery with sales finishing at JPY217mn(+34.0% YoY).
For details on previous quarterly and annual results, please refer to the Historical financial statements section.

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12Full-year company forecast
Company forecast for FY03/23 (out May 10, 2022)
Est.
(JPYmn)1H Act.

FY03/212H Act.

Full-year

1H Act.

FY03/222H Act.

Full-year

FY03/23FY Est.

Sales
YoY

89,836-3.4%

106,8903.8%

196,726
0.4%

96,0606.9%

114,6317.2%

210,691
7.1%

223,000
5.8%

Cost of sales
Gross profit
YoY

51,60538,231
2.9%

62,251
44,6396.0%

113,856
82,870
4.5%

57,321
38,7391.3%

68,15846,473
4.1%

125,479
85,2122.8%

Gross profit margin
SG&A expenses

42.6%
32,77941.8%
34,86442.1%
67,64340.3%
33,51640.5%
35,902

40.4%
69,418

SG&A ratio
Operating profit

36.5%
5,452

32.6%
9,774

34.4%
15,226

34.9%
5,223

31.3%
10,571

32.9%
15,794

14,500

YoY
Operating profit margin
Recurring profit

-0.9%
6.1%
5,499

12.0%
9.1%
9,813

7.0%
7.7%
15,312

-4.2%
5.4%
5,284

8.2%
9.2%
10,623

3.7%
7.5%
15,907-8.2%
6.5%
14,300YoY
Recurring profit margin

-1.9%
6.1%

10.6%
9.2%

5.8%
7.8%

-3.9%
5.5%

8.3%
9.3%

3.9%
7.5%

-10.1%
6.4%

Net income
YoY

3,279
-6.1%

5,536
16.6%

8,815
7.0%

2,281
-30.4%

6,688
20.8%

8,969
1.7%

8,300
-7.5%

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

Overview
Company forecast for FY03/23 (out May 10, 2022)
For FY03/23, the company forecasts sales of JPY223.0bn (+5.8% YoY), operating profit of JPY14.5bn (-8.2% YoY), recurring
profit of JPY14.3bn (-10.1% YoY), and net income attributable to owners of the parent of JPY8.3bn (-7.5% YoY). The annual
dividend forecast is JPY32 per share (flat YoY).
While the company anticipates a 5.8% YoY increase in sales, it forecasts an 8.2% YoY decline in operating profit, factoring in
a JPY5.1bn cost increase due to a sharp rise in LP gas purchase prices. The company indicates the forecast for FY03/23 does
not deviate from the assumptions of the medium-term plan IP24, except for the surge in LP gas purchase prices and thelower-than-expected customer acquisition in the Aqua business due to the pandemic, which were not accounted for during
the formulation of the medium-term plan.
The company will work toward sustainable growth and development based on the five key messages set forth in the
TOKAI Group Medium-Term Plan IP24 (Innovation Plan 2024 “Design the Future Life”), a four-year plan spanning
FY03/22 through FY03/25.
The five key messages of IP24 are as follows. 1) LNG strategy (business expansion in existing areas, in Japan, 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 initiatives involving the SDGs. (See the "Mediumterm plan" section for details).
The company expects a 5.8% YoY sales growth in FY03/23 (breaking the sales record for the fourth consecutive year)
on the back of an ongoing increase in customer count and project orders. On the profit front, it has concerns thathigh crude oil prices and weakening Japanese yen could raise the gas purchase prices sharply, and accordingly
factored in a JPY51.0bn increase in procurement costs in its FY03/23 earning forecast. The company will continue toactively pursue customer acquisition through billing strategies that maintain price competitiveness.
The company targets a group-wide customer count of 3,295,000 at end-FY03/23 (+102,000 YoY), and a 42,000 net
increase in the number of LP gas customers in FY03/23 versus an increase of 34,000 in FY03/22.

Difference between medium-term plan IP24 and company forecast for FY03/23
Sales: The FY03/23 forecast (out May 13, 2022) calls for sales of JPY223.0bn, up JPY2.0bn or 0.9% from the
JPY221.0bn target under the medium-term plan IP24
Operating profit: The forecast calls for operating profit of JPY14.5bn, down JPY1.1bn or 7.1% from the JPY15.6bn target
under IP24
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13

Net income: The forecast calls for net income of JPY8.3bn, down JPY700mn or 7.8% from the JPY9.0bn target under
IP24
Customer count at end-FY03/23: The forecast expects a customer count of 3.30mn, down 20,000 or 0.6% from the
3.32mn target under IP24
In FY03/23, the company expects operating profit to fall 8.2% YoY mainly due to the impact of a sharp rise in LP gas
purchase prices. However, from FY03/24 onward, it will aim to get back on track for YoY sales and profit growth, looking toachieve the operating profit targets under the medium-term plan of JPY16.5bn in FY03/24 and JPY18.6bn in FY03/25.

By segment
EnergyTargets
Customer count at end-FY03/23: 840,000 (+60,000 YoY; -10,000 versus IP24 target)
FY03/23 EBITDA: JPY11.7bn (-JPY2.1bn YoY; -JPY1.7bn versus IP24 target)
Business policy and strategy (no change from medium-term plan)
LP gas, city gas, and electricity: Step up efforts to expand nationwide (deepen relations with customers in the Chukyo
region; accelerate business rollout to new areas).
Achieve rationalization and improved efficiency via full-scale upgrade of core systems.
Proactively pursue decarbonization and use of renewable energy.
Market outlook
The company expects LP gas demand to decrease for household-use gas but increase for industrial-use gas, attributing
this trend to declining birthrate and aging population, smaller households, moves to conserve energy, shift to otherenergy sources, and competitive environment within the LP gas industry.
The company believes there is demand associated with disaster countermeasures, and also anticipates rising demandin Southeast Asia accompanying economic growth in the region.

Information and Communications (services for consumers)
Targets
Customer count at end-FY03/23: 830,000 (+10,000 YoY; flat versus IP24 target)
FY03/23 EBITDA: JPY1.5bn (increase of about JPY100mn YoY; +JPY100mn versus IP24 target)

Business policy and strategy (no change from medium-term plan)
In response to growing demand for internet access, provide optimal and high-quality telecommunications services bybolstering and improving efficiency of network facilities.
Promote new sales methods, including sales using online customer services and a network of web-based virtual
agencies, to complement the solid performance of new customer acquisition via the internet and at mass retailers.
Promote the MVNO business (LIBMO) by appealing its price competitiveness.
Enhance solutions such as online services that target households.
Market outlook
The company expects the expanding uptake of video content and smart home electronics (IoT) to propel an increase
in internet demand.
It also expects competition among telecom carriers to intensify.
The company believes new internet businesses will emerge in response to an increase in the time consumers spend
at home.

Information and Communications (business targeting corporate customers)
Targets
FY03/23 sales: JPY29.1bn (+JPY2.1bn YoY; -JPY1.1bn versus IP24 target)
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14

FY03/23 EBITDA: JPY7.2bn (+JPY445mn YoY; +JPY100mn versus IP24 target)
Business policy and strategy (no change from medium-term plan)
Expand cloud services. (In October 2021, TOKAI Communications became the first company in Japan to be certified
as an AWS Networking Competency Partner by Amazon Web Services Japan.)
Focus on the overseas rollout of cloud integration services. (The company began offering AWS solutions covering
China.)
Expand network infrastructure in preparation for DX and new IT strategy.
Strengthen engineer development.
Market outlook
The company anticipates acceleration in the growth of DX demand and the spread of IT and digitalization ingovernment procedures.
It also expects the spread of 5G to drive an increase in demand for network enhancements.
The company expects to see new business opportunities emerge in relation to new lifestyles including work styles.

CATV
Targets
Customer count at end-FY03/23: 1,270,000 (+39,000 YoY; +20,000 versus IP24 target)
FY03/23 EBITDA: JPY12.1bn (+JPY535mn YoY; +JPY400mn versus IP24 target)
Business policy and strategy (no change from medium-term plan)
Provide high-quality CATV services through full conversion to fiber-optic networks.
Form partnerships with local governments in services such as the transmission of disaster-related information. (Thecompany formed partnerships with 32 towns and cities as of end-FY03/22.)
Work to expand local broadband wireless access (BWA) and local 5G. (The company obtained BWA licenses at 12
towns and cities as of end-FY03/22; it obtained local 5F license in the city of Shizuoka and began a field test.)
Promote regional revitalization through the use of community channels.
Develop a new subscription service to follow CATV.
Market outlook
The company expects to see competition intensify among video streaming service providers.
In addition to competitive pricing, the company believes that customers will place more importance on fixed-line
telecommunication services with superior communication speed and stability.

Construction, Equipment, and Real Estate
Targets
FY03/23 sales: JPY31.5bn (+JPY3.7bn YoY; -JPY100mn versus IP24 target)
FY03/23 EBITDA: JPY3.6bn (+JPY99mn YoY; -JPY100mn versus IP24 target)
Business policy and strategy (no change from medium-term plan)
Make full-scale entry to the Kanto and Chukyo regions. (In FY03/22, the company acquired Marco Polo Co., Ltd.,
which handles large-scale repair works mainly for condominiums in the Chukyo area, and made it a group company.)
Promote mutual customer referrals through group collaboration; make comprehensive proposals covering the threemain types of equipment installation work (air-conditioning, plumbing, and power systems).
Increase orders for building maintenance business in the Kanto (Kanagawa and Tokyo) and Chukyo regions.
Promote nationwide rollout of "On-the-Spot" (OTS) housing (see the "Carbon Neutral Vision" section); expand salesof packaged products.
Prepare for business expansion by bolstering the construction capacity and securing workers with qualifications.
Market outlook
The company projects demand for construction work to remain stable.
It expects demand to trend upward in the renovation market.

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15

Aqua
Targets
Customer count at end-FY03/23: 170,000 (+5,000 YoY; -10,000 versus IP24 target)
FY03/23 EBITDA: JPY1.3bn (+JPY282mn YoY; -JPY400mn versus IP24 target)
Business policy and strategy (no change from medium-term plan)
Expand customer base. (Roll out the one-way bottle service across Japan while maintaining the customer base of
returnable bottle service at the same time; engage in both event-based, in-person sales and non-face-to-face(telemarketing and web-based) sales activities.
Streamline and raise logistics efficiency.
Promote thorough quality control and productivity improvement.
Use environmentally friendly materials and promote recycling and reuse by taking advantage of the in-house
recycling plant.
Market outlook
The company expects the water delivery market to show gradual growth.
It believes stay-at-home demand and availability of the unattended delivery (non-contact delivery) option will help
raise the popularity of water delivery business.
The company expects rising distribution costs to become a matter of concern.

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16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 work style reforms, the medium-term plan calls for steady YoY growth in sales and profit.
Other indices aimed at meeting investors’ expectations include ROE of 13% or higher and ROIC of 9.9% or higher while thecompany looks to maintain the equity ratio at around 40%.

Management indices(JPYmn)Sales

FY03/21 results
196,726

FY03/22 budget
207,000

FY03/23 target
221,000

FY03/24 target
232,000

FY03/25 target
245,000

Operating profit
Net income

15,226
8,815

15,2408,830

15,6009,000

16,5009,500

18,60011,000Cash flow from operating
22,400activities

21,80023,00024,00026,000

Dividend payout ratio

44.6%

ROE
ROIC

12.7%
9.2%

Equity ratio
Number of customers

41.6%
3.10mn40–50%→→
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.jp17Company views of market environment from 2021 onward
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.
Changes in the environment
Lifestyle changes due to the pandemic
Global demand for actions for achieving the SDGs
Movement toward clean energy
Digitalization

Group vision
Tokai Holdings aims to achieve sustainable growth and evolve into a Life Design Group (LDG) 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.
Life Design Group (LDG)
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 initiatives
involving the SDGs.

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
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18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.
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

Strengthen initiatives involving the SDGs
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 about 50% (170,000 tons) compared to 360,000 tons in FY03/21 by popularizing high-efficiency gas appliances
and installing solar power generation systems. The company further aims to market decarbonized gas by 2050, thusachieving carbon neutrality (see below for details).
Work style reform: The company introduced remote work in April 2021 with the aim of reducing office attendance by
50% and office floor area by 40%. By FY03/25, TOKAI Holdings looks to make all employees (excluding essential
workers) eligible for remote work. The company also aims to increase the number of female managers 10-fold by 2030,
eliminate the circumstances that require employees to leave the company to care for family members, and promote
diversity of human resources.
Strengthen governance: The Nomination and Compensation Committee was established in February 2021 to evaluate
director nominees and remuneration while also ensuring transparency and objectivity in the decision-making process.

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19

The company aims to continue improving the effectiveness and transparency of corporate governance through measures
such as reviewing the composition of directors.
Materiality themes of the TOKAI group
As the company aspires to become a Life Design Group, it will seek to strengthen the business foundation in order to create
services from a new vantage point that focuses on 10 years from now. The company indicates that it will conduct in-depth
reviews along the concept of further developing local communities, and expand this idea into attracting individuals andfamilies to such communities.
Decarbonization and clean energy
Take on the challenge of accomplishing carbon neutrality by 2050.
Achievement of a smart society
Enhance people's lifestyles through DX and collaborations.
Creation of an infrastructure that supports daily living
Lay the groundwork for safe, secure, convenient, and comfortable living.
Harmonious co-existence with local communities and social contribution
Offer joy and purpose in life to the communities.
Motivated work environment with high level of job satisfaction
Create a work environment where all can thrive.
Governance
Ensure sound corporate management.

Carbon Neutral Vision
Achieve carbon neutrality in 2050
On May 20, 2021, TOKAI Holdings unveiled its Carbon Neutral Vision. Upholding its corporate philosophy, "For customers'
livelihood along with the region, together with the earth, we will continue to grow and develop,” the TOKAI group has
sought to expand usage of clean gas and high-efficiency gas equipment. In response to growing societal demand for action tocombat climate change, the company aims to further spread the use of environmentally friendly energy equipment. At thesame time, it plans to utilize renewable energy and electric vehicles in its own business operations, working toward the goalof achieving carbon neutrality by 2050.

Policy of the carbon neutrality initiative
The TOKAI group commits to achieving carbon neutrality in 2050 through the adoption of innovative technologies.
By working to reduce CO2 emissions even before the adoption of innovative technologies, the group will achieve
reduction of 183,000 tons in 2030.
Reduce 170,000 tons in CO2 emissions from households using gas (equivalent to about 50% of CO2 emissions fromhousehold-use gas in FY03/21, which amounted to 360,000 tons). This comprises 70,000 tons reduced from use ofhigh-efficiency gas equipment and 100,000 tons from expanding the installation of solar power generation systems
for homes.
Reduce 13,000 tons in CO2 emissions from the company's business operations (equivalent to 70% of the group's
CO2 emissions in FY03/21).
TOKAI Holdings will consider decarbonization as an opportunity for future growth rather than a constraint or cost.
Promote decarbonization through a combination of renewable energy usage and housing equipped with highefficiency gas equipment and storage batteries; propose use of new energy that contributes to achievement of carbon
neutrality.
Gas will continue to play an important role in supporting resilience under disasters and other situations.

Gas industry's initiatives toward carbon neutrality and the company's stance
The Japan LP Gas Association promotes research and development of carbon neutral LP gas through its Green LP Gas
Study Group. It aims to achieve carbon neutrality for LP gas by 2050 through introduction of propanation* 1, bio LP

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gas* 2, and other innovative technologies.
In the city gas domain, research and development of methanation and carbon capture, utilization, and storage(CCUS)* 3 are also under way with an eye toward accomplishing carbon neutrality by 2050.
As a gas retailer, the TOKAI group intends to proactively participate in industry efforts. It will support decarbonization
by sourcing and selling gas that is carbon neutral, and achieve carbon neutrality by 2050.
* 1 Propanation: Technology to artificially synthesize propane from hydrogen and carbon dioxide* 2 Bio LP gas: Technology to produce propane mainly from livestock manure* 3 Carbon capture, utilization, and storage (CCUS): Technology to separate, collect, use, and store carbon dioxide

Measures to reduce CO2 emissions from households using gas
The TOKAI group plans to substantially reduce CO2 emissions by 2030, even before the adoption of various innovativetechnologies, by proactively engaging in efforts toward decarbonization. That being said, it believes that needs for energy
supplies must be met at times of disasters such as earthquakes and typhoons, and that gas continues to play a vital role insustaining stable energy supplies going forward.
The company has laid out several measures to reduce CO2 emissions from households using gas. It plans to reduce 70,000
tons of CO2 emissions from customer households by introducing high-efficiency gas equipment such as Eco Jozu (highefficiency water heater) and Ene Farm (residential fuel cell cogeneration system). It will also reduce 100,000 tons of CO2
emissions through residential solar power generation systems and promote usage of storage batteries, electric vehicles, andother electric equipment. The planned reduction totaling 170,000 tons is equivalent to roughly 50% of CO2 emissions fromhousehold-use gas in FY03/21, which amounted to 360,000 tons.
PPA model to promote solar power
The company utilizes the power purchase agreement (PPA) model to spread household use of solar power. PPA refers to anelectricity sales agreement between electricity providers and those generating electricity (customers). The model enables
distributed generation of renewable energy where the providers install solar power equipment at customers' homes for free,and sell the generated electricity to these customers. The TOKAI group intends to reduce 100,000 tons of CO2 emissions
by installing solar power equipment at 48,000 households by 2030.
Carbon neutral housing
In addition to installing gas equipment that helps reduce CO2 emissions and promoting household use of solar power, thegroup will engage in leading-edge initiatives to create homes that are carbon neutral.
As a home seller, the company had an early start in handling Net Zero Energy Houses (ZEHs)* 4. In 2021, it also beganselling in-house developed On-the-Spot (OTS) houses* 5 that are completely self-sufficient in water and electricity.
* 4 Net Zero Energy House (ZEH): Housing that achieves net zero energy consumption on an annual basis. ZEH's
highly insulated and airtight structure and the adoption of various eco-friendly technologies help reduce the energy
being used, while the house also has the capacity to create energy via solar power generation.
* 5 On-the-Spot (OTS) house: Housing with own supply of water and electricity, allowing residents to remain unaffectedby power failure or water outage caused by natural disasters

Proposal for optimal use of electricity and gas as energy sources
T&T Energy (a joint venture between TEPCO Energy Partner, Inc. and TOKAI Corporation established in October 2019 forretail sales of city gas) began retail sales of electricity in January 2020. The joint venture will promote uptake of its Eco Plan(eco-friendly service plan using renewable energy sources) and distributed renewable energy power generation systems(PPA model) to reduce CO2 emissions. It will also make comprehensive proposals on optimal energy use that combines gas
and electricity.
Proposals for electricity: Encourage uptake of Eco Plan that uses renewable energy sources, and adoption of
distributed renewable energy generation systems (PPA model)

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21Proposals for gas: Make energy proposals that combine residential solar power generation, storage batteries, hybrid
water heaters, and other equipment (also taking disasters and power outages into consideration)

Reduction of CO2 emissions stemming from industrial- and business-use gas
The company plans to encourage cogeneration and fuel shift to gas as well as adoption of gas-powered air-conditioning
systems to help customers reduce both costs and CO2 emissions (equivalent to CO2 emission reduction of 8,000 tons).
Going forward, it will continue to propose CO2 emission reduction to industrial and corporate customers that use gas.

In-house use of renewable energy and electric vehicles
CO2 emissions resulting from the TOKAI group's business operations total 18,000 tons. Of this amount, the company plansto reduce 10,000 tons by 2030 by installing solar power generation equipment at its business bases and using electricity
from renewable energy sources. Taking advantage of the progress in technological innovations, the company also plans to
reduce another 3,000 tons by transitioning to electric vehicles when the time comes to replace existing company vehicles.
It expects these efforts to reduce overall CO2 emissions by about 70% (13,000 tons).
Solar power generation: As of May 2021, the company had already installed solar power systems with total power
generation capacity of 900kW at 30 of its business bases, with more to come in the future.
Electric vehicles: The company plans to replace its delivery trucks to electric vehicles from 2025 following the fullscale introduction of such trucks to the automobile market.
Reduction of CO2 emissions via ABCIR+S
The company will push forward efforts to achieve operational efficiency and save energy by applying ABCIR+S* 6. It will
promote automatic metering that utilizes Low Power Wide Area (LPWA)* 7 devices, and analyze the data acquired fromautomatic metering with AI to optimize delivery timing and routes. Through these delivery efficiency improvements, thecompany plans to reduce CO2 emissions by 1,000 tons.
* 6 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).
* 7 Low Power Wide Area (LPWA) refers to the technology that enables long-distance and wide-range communications
using small amounts of electricity.

LPWA automatic meter reading: Improve delivery efficiency through hourly metering to track remaining volume andoptimize delivery timing
AI-based delivery forecast: Optimize delivery routes based on forecast made by AI
LP gas My Page: Eliminate mailing of metering notifications and promote paperless operations by posting results
online on TLC My Page (a webpage for TLC members and LP gas customers) for viewing via smartphones
Sophistication of call centers: Promote automated operation of call centers and achieve operational efficiency

Development of energy-saving power sources
As of May 2021, TOKAI Holdings owned the following six mega solar plants with total power generation capacity of
10,309kW (reducing CO2 emissions by 6,000 tons). The company aims to continue pursuing solar power projects alongwith projects involving wind and hydraulic power to help promote power generation using renewable energy sources.
Mt. Fuji Shizuoka Airport: Power generation capacity of 1,525kW
Toyokin Ishino: 1,546kW
Nasushiobara: 1,989kW
Susono Chabatake: 1,653kW
Hamamatsu Tenryu: 1,872kW
Susono Ichibadaira: 1,624kW

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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.

TargetTargetTargetTargetVs. FY03/17

Customers (mn)

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

12,75011,40014,00016,20022,500

1.8x

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

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23Previous medium-term plan, Innovation Plan 2020 “JUMP”
Basic direction of the previous medium-term plan, Innovation Plan 2020 “JUMP,” was as follows:
Engage aggressively in M&A and alliances, investing JPY100bn over four years on a leveraged growth strategy.
Acquire or partner companies that will expand the customer base of core businesses such as gas, CATV, and Information
and Communications, and companies with new, monthly fee-based, lifestyle services that will help harness the 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.jp24Business
Business description
As of end-March 2022, the company provides a diverse range of products and services to 3,194,000 customers in Shizuoka
Prefecture, the Kanto region, and other areas. The company’s core operations are energy and housing-related services (which
includes LP gas) and information and communications services (such as internet connection 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 Other businesses.
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

FY03/12

FY03/13

FY03/14

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20

FY03/21

FY03/22

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

596

577

575

572

580

588

606

628

652

681

715

City gas

52

53

53

54

54

54

54

56

61

63

70

Gas total

648

629

628

626

634

642

661

684

713

744

785

Conventional ISP

758

816

854

859

633

528

465

419

389

395

415

4

219

299

323

327

324

337

346

2

29

41

48

53

55

('000)
LP gasHikari Collaboration
LIBMO
Information andCommunications

758

816

854

863

852

829

817

787

761

785

816

Broadcasting

542

505

502

493

499

508

775

789

862

875

887

Telecommunication

180

186

191

197

211

225

257

274

292

322

344

CATV

722

691

693

690

710

733

1,032

1,063

1,154

1,198

1,231

Aqua

97

102

122

130

133

135

146

156

161

162

165

233

227

217

212

206

MobileSecurity
Total

191

20

20

19

18

18

17

17

17

16

16

16

2,415

2,445

2,519

2,537

2,558

2,564

2,876

2,902

3,003

3,099

3,194

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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25Performance by segment (segment operating profits are before allocation of overhead
expenses)
Earnings by segment

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.

Cons.

Sales

181,931

181,684

188,987

187,511

180,940

178,631

186,069

191,600

195,952

196,726

210,691

YoY

4.0%

-0.1%

4.0%

-0.8%

-3.5%

-1.3%

4.2%

3.0%

2.3%

0.4%

7.1%

Energy98,316

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

77,977

78,154

77,38086,77012.1%(JPYmn)FY03/22

YoY

2.7%

-

2.9%

102.9%-13.2%

-9.2%

3.7%

2.5%

0.2%

-1.0%

% of total

54.0%

52.0%

51.4%

49.6%

44.6%

41.1%

40.9%

40.7%

39.9%

39.3%

41.2%

Information and Communications

37,94338,49738,803

40,11844,24649,50850,894

51,23451,75350,73551,398

YoY

9.3%

1.5%

0.8%

3.4%

10.3%

11.9%

2.8%

0.7%

1.0%

-2.0%

1.3%

% of total

20.9%

21.2%

20.5%

21.4%

24.5%

27.7%

27.4%

26.7%

26.4%

25.8%

24.4%

CATV

24,292

23,78624,187

24,35924,60825,39628,38630,511

31,38533,74532,572

YoY

7.3%

-2.1%

1.7%

0.7%

1.0%

3.2%

11.8%

7.5%

2.9%

7.5%

-3.5%

% of total

13.4%

13.1%

12.8%

13.0%

13.6%

14.2%

15.3%

15.9%

16.0%

17.2%

15.5%

Construction, Equipment, and Real
Estate15,881

15,756

19,24520,01920,975

19,511

19,807

20,09022,38323,177

27,780

YoY

6.5%

-0.8%

22.1%

4.0%

4.8%

-7.0%

1.5%

1.4%

11.4%

3.5%

19.9%

% of total

8.7%

8.7%

10.2%

10.7%

11.6%

10.9%

10.6%

10.5%

11.4%

11.8%

13.2%

Aqua

3,750

4,378

4,959

5,487

5,762

6,200

7,004

7,416

7,622

7,629

YoY

-

16.7%

116.7%

10.6%

5.0%

7.6%

13.0%

5.9%

2.8%

0.1%

2.1%

2.3%

2.6%

3.0%

3.2%

3.3%

3.7%

3.8%

3.9%

3.6%

% of total
Other

5,498

5,374

5,142

4,987

4,875

5,108

4,706

4,781

4,858

4,065

4,540

YoY

-20.6%

-2.3%

-4.3%

-3.0%

-2.2%

4.8%

-7.9%

1.6%

1.6%

-16.3%

11.7%

3.0%

3.0%

2.7%

2.7%

2.7%

2.9%

2.5%

2.5%

2.5%

2.1%

2.2%

10,923

8,934

7,392

9,003

8,245

12,75010,971

13,057

14,224

15,226

15,794

1.6%-18.2%-17.3%

21.8%

-8.4%

54.6%

-14.0%

19.0%% of total
Operating profit
YoY

8.9%

7.0%

3.7%

Operating profit margin

6.0%

4.9%

3.9%

4.8%

4.6%

7.1%

5.9%

6.8%

7.3%

7.7%

7.5%

Energy

6,857

7,358

6,506

7,679

8,991

9,161

7,364

6,815

7,452

8,988

8,933

YoY

11.4%

-

-11.6%

18.0%

17.1%

1.9%

-19.6%

-7.5%

9.3%

20.6%

-0.6%

Operating profit margin

7.0%

7.8%

6.7%

8.3%

11.1%

12.5%

9.7%

8.7%

9.5%

11.6%

10.3%

% of total

44.3%

55.5%

53.7%

56.2%

67.8%

52.3%

47.0%

37.9%

38.2%

42.4%

40.0%

Information and Communications

5,544

4,934

4,412

4,956

2,308

4,213

3,174

3,827

4,226

4,344

4,721

YoY

28.6%

-11.0%-10.6%

12.3%-53.4%

82.5%-24.7%

20.6%

10.4%

2.8%

Operating profit margin

14.6%

12.8%

11.4%

12.4%

5.2%

8.5%

6.2%

7.5%

8.2%

8.6%

9.2%

% of total

35.8%

37.2%

36.4%

36.3%

17.4%

24.0%

20.3%

21.3%

21.7%

20.5%

21.2%

CATV

2,298

1,251

1,808

1,669

1,975

2,752

3,554

4,953

5,024

5,205

5,852

YoY

8.7%

-11.3%-45.6%

44.5%

-7.7%

18.3%

39.3%

29.1%

39.4%

1.4%

3.6%

12.4%

Operating profit margin

9.5%

5.3%

7.5%

6.9%

8.0%

10.8%

12.5%

16.2%

16.0%

15.4%

18.0%

% of total

14.8%

9.4%

14.9%

12.2%

14.9%

15.7%

22.7%

27.6%

25.8%

24.6%

26.2%

977

633

1,386

1,029

1,266

1,098

1,330

1,615

2,116

2,065

2,480

YoY

14.1%

-35.2%

119.0%-25.8%

23.0%-13.3%

21.1%

21.4%

31.0%

-2.4%

20.1%

Operating profit margin

6.2%

4.0%

7.2%

5.1%

6.0%

5.6%

6.7%

8.0%

9.5%

8.9%

8.9%

% of total

6.3%

4.8%

11.4%

7.5%

9.6%

6.3%

8.5%

9.0%

10.9%

9.8%

11.1%

Aqua

-

-926

-2,001-1,313-1,119

298

246

762

674

573

325

YoY

-

-

-

-

-

-

-17.4%

209.8%-11.5%-15.0%-43.3%

4.0%

10.9%

Construction, Equipment, and Real
EstateOperating profit margin% of total
Other and adjustments

-

-

-

-7.0%

-16.5%

-9.6%

-8.4%

1.7%

1.6%

4.2%

3.5%

2.7%

1.5%

-4,754--4,318-4,719-5,016--5,175--4,775

5.2%-4,699-4,916-4,916

9.1%-4,916

7.5%-6,518

4.3%

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.

EnergyThe Energy segment is the company's core business. In FY03/22, segment sales were JPY86.8bn (accounting for 41.2% of
overall sales), and segment profit before allocation of overhead expenses was JPY8.9bn (accounting for 40.0% 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 FY03/22, the LP gas business generated sales of JPY73.8bn and thecity gas business generated sales of JPY13.0bn.

LP gasIn this subsegment, the company mainly sells LP gas, liquefied natural gas (LNG), petroleum products, and related
equipment and services. The LP gas business has roughly 715,000 customers spread over Tokyo and 16 other prefectures
located mainly in the Tokai and Kanto regions. Of this total, Shizuoka had 186,000 customers, Kanto 460,000 customers,
and Okayama Prefecture and other areas 69,000 customers (as of end-March 2022). The company has a top market share(26%) in Shizuoka Prefecture, is second (7%) in the Kanto region, and is the third-largest LP gas business operator in Japan(source: 2022 LP Gas Annual Report: Facts and Figures, Vol 57, Sekiyu Kagaku Shinbun Sha). In the Kyushu region, thecompany established a sales office in Kumamoto Prefecture in October 2021 following expansion into Fukuoka Prefecture in
2018. In the Chugoku and Shikoku regions where the company opened a sales office in Okayama Prefecture in 2017, it

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26

added another office in Fukuyama (Hiroshima Prefecture) in January 2022. The company plans to roll out its eighth regionalbase in the focus region of Chukyo (around Nagoya) during FY03/23.

LP gas providers

Source: Shared Research based on 2022 LP Gas Annual Report: Facts and Figures, 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 70,000
customers combined (as of end-March 2022). Sales volume was 140mn 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. to form T&T Energy Co., Ltd. With thisjoint venture, the company is looking to bring together the expertise of TEPCO Energy Partner in the city gas retail sales
business and its gas sourcing capabilities with its own sales network in the Tokai region and use this to develop its city gas
retail sales business in the Tokai region. In addition to city gas sales in the Tokai region, the joint venture is also looking at
expanding its sales territory outside of the three prefectures that comprise the Tokai region.

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 FY03/22, the Information and Communications segment reported sales of JPY51.4bn (accounting for 24.4% of overallsales), and segment profit before allocation of overhead expenses was JPY4.7bn (accounting for 21.2% 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 2022, the number of customers was 1,007,000 (versus 991,000 at end-March 2021). According to the Ministryof Internal Affairs and Communications (MIC) Information & Communications Statistics Database, the company has a top
market share in Shizuoka Prefecture (17.1%) with 200,000 customers and a 2.0% share in the Kanto region with 350,000
customers as of end-December 2021.

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27Based on FY03/22 figures, consumer sales totaled JPY24.4bn (-7.2% YoY) while corporate sales amounted to JPY27.0bn(+10.5% YoY).

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.

Mobile
The company is an agent for Softbank Mobile Corporation (a subsidiary of Softbank Corporation [TSE Prime: 9984]) in
Shizuoka and Saitama prefectures through 15 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 (20 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.

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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. The alliance considers
implementing platform service linkage and network service interconnections.
Members of the alliance as of end-March 2022 were as follows.
Regular members:

・Hokkaido Telecommunication Network Co., Inc. (subsidiary of Hokkaido Electric Power Co., Inc. [TSE Prime: 9509])
・Tohoku Intelligent Telecommunication Co., Inc. (subsidiary of Tohoku Electric Power Co., Inc. [TSE Prime: 9506])
・BSN INET Co., Ltd.
・ITOCHU Techno-Solutions Corporation (TSE Prime: 4739; subsidiary of ITOCHU Corporation [TSE Prime: 8001])
・AGS Corporation
・Sakura Information Systems Co., Ltd. (subsidiary of OGIS-RI Co., Ltd.)・Uniadex, Ltd.
・Ryomo Systems Co., Ltd.
・LCV Corporation (subsidiary of TOKAI Holdings Corporation [TSE Prime: 3167])
・TOKAI Communications Corporation (subsidiary of TOKAI Holdings)
・ Hokuden Information System Service Company, Inc. (subsidiary of Hokuriku Electric Power Company [TSE Prime:9505])
・iTEC Hankyu Hanshin Co., Ltd.
・OGIS-RI Co., Ltd. (subsidiary of Osaka Gas Co., Ltd. [TSE Prime: 9532])
・Sakura KCS Corporation (subsidiary of Sumitomo Mitsui Banking Corporation)
・Ryobi Systems Co., Ltd.
・QTNet, Inc. (subsidiary of Kyushu Electric Power Co., Inc. [TSE Prime: 9508])
・Nishitetsu Information System Co., Ltd. (subsidiary of Nishi-Nippon Railroad Co., Ltd. [TSE Prime: 9021])
・Meiko Technos Co., Ltd.
・Okigin SPO Co., Ltd.
Supporting member:・IBC Co., Ltd.

The EA and SI businesses have a combined total of approximately 700 engineers (as of end-March 2022) 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 11,000km 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 FY03/22, the CATV segment reported sales of JPY32.6bn (accounting for 15.5% of overall sales), and segment profit
before allocation of overhead expenses was JPY5.9bn (accounting for 26.2% of overall operating profit). The company
provides broadcasting services and telecommunications services (ISP) in Tokyo and six prefectures: Shizuoka, Kanagawa,Chiba, Nagano, Okayama, and Miyagi. In FY03/20, broadcasting services accounted for 47% of subsegment sales andtelecommunications services accounted for 53%. As of end-FY03/22, the CATV segment reported a total of 1,231,000
TOKAI Holdings/ 3167
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29

subscribers (1,198,000 at end-FY03/21), including 887,000 subscribers for broadcasting services (875,000 at end-FY03/21)
and 344,000 subscribers for telecommunications services (322,000 at end-FY03/21).
In the broadcasting services business, the company provides local information through community channels and amultichannel digital broadcasting service offering up to 160 channels. The business had 887,000 subscribers (as of endMarch 2022).
In the telecommunications services business, the company provides fiber-optic internet and telephone services in addition toconventional CATV internet connection. These services utilize the company’s proprietary fiber-optic network, which has abackbone network as well as fiber-to-the-home (FTTH). The telecommunications services business had 344,000 subscribers(as of end-March 2022).
The number of households serviceable by the company’s broadcasting and telecommunications network infrastructure is1,653,000, of which 887,000 households are subscribers (as of end-March 2022). 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).

Construction, Equipment, and Real Estate segment
In FY03/22, the Construction, Equipment, and Real Estate segment reported sales of JPY27.8bn (accounting for 13.2% of
overall sales), and segment profit before allocation of overhead expenses was JPY2.5bn (accounting for 11.1% of overall
operating profit). The company designs, constructs, and renovates housing, retail stores, and other structures, and sells
equipment and appliances. It also develops, sells, leases, and brokers real estate. Contributions from leasing of retail andoffice space accounts for a high percentage of sales. Renovation accounted for around 22% of total sales, equipment andappliance for roughly 15%, and installation work for 13% (in FY03/21).
The company entered the housing equipment business in 1970 and is involved in a broad array of operations, from 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. (Aichi
Prefecture) was made a subsidiary in August 2020 and consolidation of the new civil engineering and electrical construction
businesses positioned TOKAI Holdings as a general contractor and enabled the creation of an ordering system for major
companies in the construction industry. In November 2020, Inoue Technica Co., Ltd., which operates a building
maintenance business, was made a consolidated subsidiary, allowing TOKAI Holdings to absorb the management expertise
accumulated over many years and facilitating expansion of this business.
In FY03/22, the company acquired Marco Polo Co., Ltd., which handles large-scale repair works mainly for condominiums in
the Chukyo area, and made it a consolidated subsidiary. With the addition of Marco Polo, the company expanded its base in
the Shizuoka, Aichi, and Gifu prefectures as a comprehensive construction business operator (covering large-scale repairs,
civil engineering projects, and electrical, air-conditioning, and plumbing works).

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Aqua segment
In FY03/22, the Aqua segment reported sales of JPY7.6bn (accounting for 3.6% of overall sales), and segment profit before
allocation of overhead expenses was JPY325mn (accounting for 1.5% of overall operating profit). The company manufactures,
sells, and delivers drinking-water products. It considers the Aqua business as a main growth area.
Along with the growing importance of the business, the Aqua business, which was previously included in the Gas andPetroleum segment, became a reportable 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 region 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
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 roughly JPY4,400, or about two bottles per user (one 12-liter bottle of Ulunom“Asagiri no Shizuku” costs JPY1,391 including tax (as of end-March 2022); charges for the water dispenser are separate.

Other businesses
In FY03/22, sales were JPY4.5bn (accounting for 2.2% of overall sales). The company reported an operating loss of
JPY103mn (loss of JPY244mn in FY03/21). This 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
Other services include life and casualty insurance agency, travel-agency service, and operating of nursing care facilities.

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31

The company is working to strengthen its nursing care facility operations, which it started in April 2011. As of end-March
2022, 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 3,194,000 customers (+95,000 YoY), to whom it
offers a wide variety of products and services. Historically, the company simply sold various products and services, without cobranding or bundling. However, the company has promoted its new strategy of becoming a Total Life Concierge (TLC),
offering one-stop service and product menu to its customers. As of end-March 2022, there were 1,086,000 TLC members(+107,000 YoY). Members registered on TLC My Page totaled 290,000 as of end-FY03/22. The company plans to increase
this number to 800,000 by FY03/25. The information collected from My Page will be fed to the D-sapiens platform foranalysis, based on which the company plans to predict customers' lifestyle and behavioral patterns using AI and apply the
results when marketing new services.

Business portfolio
In recent years, TOKAI Holdings has become more focused on its core competencies, seeing its services as a single businessportfolio as opposed to a random array of unrelated services. Although Energy is the company’s core segment, the market
itself is shrinking. The company sees this business primarily as a cash cow as well as a sales platform, enabling it to offer
customers other TOKAI group services and products. The gas business has historically been the main growth driver. The
group’s LP gas business operates mostly in the Kanto region and, with operations in Metropolitan Tokyo and 16 prefectures,
serving a total of 715,000 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 70,000 customers (as of end-FY03/22). It employs a sales force ofaboutd 500, and generated 40% of the company’s overall operating profit (before allocation of overhead expenses) in
FY03/22. Another cash cow for the company is the CATV segment.
In April 2019, TOKAI Holdings acquired a minority stake in Isesaki Gas Co., Ltd., a city gas business operator in the city of
Isesaki, Gunma Prefecture, making Isesaki Gas an equity-method affiliate. By sharing management resources and expertise,
the two companies aim to collaborate in the city gas business and LP gas business and mutually promote each other’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, the Information and Communications segment (accounting for 24.4% of overall sales and 21.2% of overall
operating profit in FY03/22) and the Aqua segment are growth areas over the medium term, and the company will beaggressively investing in these businesses. Within Information and Communications, SIS and corporate telecommunications
subsegments as the key drivers.

Geographic expansion
As of end-FY03/22, the TOKAI group had 2.6mn customers mainly in the Kanto region and Shizuoka Prefecture, and 3.2mn
nationwide.
The outline of operations in each area is as follows.
Kanto region
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-FY03/22, mainly in the LP gas and Information and Communications businesses. Kanto is thelargest consumer market in Japan although there is intense competition. The company considers there is still wide room for
acquiring new customers.

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Shizuoka
As of end-FY03/22, 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 2022. In Suwa (Nagano
Prefecture), central Japan, there were 89,000 customers of the CATV service (94%). In Kurashiki (Okayama Prefecture),
western Japan, there were 97,000 CATV customers. The company opened its third data center in the Okayama area in April
2013. In the western Japan region, where TOKAI advanced in April 2012, the Information and Communications businessturned black in FY2015. TOKAI took part in the market of Fukuoka in the western Japan (Kyushu) in April 2014. With thelaunch of the around-the-clock call center service outsourced from real estate companies, TOKAI started selling equipment
and making efforts to find customers of its LP gas service in the Kyushu region.
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, it is operating mainly in the Kanto region and
Shizuoka Prefecture, and has advanced into the southern Tohoku region in northeastern Japan and the Chubu and Tokai areasof central Japan from 2015. For the Aqua business, the company plans to expand it to the Hokuriku and Chugoku regions,starting from the Kansai 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 growth
in FY03/23 and beyond appears to be large. In this environment, leveraging the “Mt. Fuji brand” and the company’s sales
capabilities can achieve significant market penetration in Shizuoka Prefecture, as can gradually expanding the sales area. The
company stated that with its outright-owned water sources it can respond adequately to future demand growth.
Shared Research understands that while the Aqua business requires a significant investment, it has high incremental margins.
Once the breakeven has been reached, the profitability can be remarkable. The cost of goods sold has two components,
water servers and the water itself (extraction at the source and other related costs). (See Profitability Snapshot, Financial
Ratios for more detailed discussion). The water servers are the main cost here and as the business gains scale, the cost per
server could decline somewhat. Customer acquisition (an SG&A component) is the largest cost which is high enough 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.

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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 believes 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.
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 is categorizes as below.
Usage

Share in domestic
demandHousehold & commercial use 43.0%

Main features
Propane is the main ingredient and cylinders are installed on-site to supply households andcommercial facilities.

General industrial use

21.8%

Chemical raw material

20.4%

City gas
Automobile use

7.9%
5.5%

Used in ferrous and non-ferrous metal processing as a thermal source, and for such applications as
drying of industrial 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.
Used in domestic LP gas-powered vehicles, butane is the main ingredient.

Electricity generation
Large-scale steelmakers

0.6%
0.7%

Used as a backup fuel at thermal power stations.
Used in the steel industry for heating and heat-treating steel materials.

：

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 Annual Report: Facts & Figures, the industry has several tiers (the company is mainly a retailer but also hassome 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.
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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 forsupply, 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.

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Profitability snapshot, financial ratios
Profit margins

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.

Gross profit

69,53768,80968,341

68,932

69,812

73,04075,33676,15979,28982,87085,212Gross profit margin

38.2%

37.9%

36.2%

36.8%

38.6%

40.9%

40.5%

39.7%

40.5%

42.1%

40.4%

Operating profit

10,923

8,934

7,392

9,003

8,245

12,75010,971

13,057

14,224

15,226

15,794

Operating profit margin

FY03/22

6.0%

4.9%

3.9%

4.8%

4.6%

7.1%

5.9%

6.8%

7.3%

7.7%

7.5%

EBITDA

28,826

26,381

24,963

26,232

24,97928,391

26,18228,14729,65031,026

31,726

EBITDA margin

15.8%

14.5%

13.2%

14.0%

13.8%

15.9%

14.1%

14.7%

15.1%

15.8%

15.1%

Net margin

1.5%

1.7%

1.4%

2.1%

1.9%

4.1%

3.6%

4.1%

4.2%

4.5%

4.3%

Financial ratios
ROA (RP-based)

5.2%

4.5%

4.0%

5.0%

5.0%

7.9%

6.8%

7.9%

8.6%

8.8%

8.8%

ROE

13.1%

10.4%

7.4%

9.8%

8.3%

15.2%

11.4%

12.6%

13.0%

12.7%

11.8%

Total asset turnover

0.97

1.01

1.08

1.11

1.11

1.11

1.14

1.15

1.16

1.13

1.16

Inventory turnover

12.8

13.9

14.8

15.9

18.1

19.8

21.2

20.8

20.7

20.5

21.4

Days in inventory

28.6

26.2

24.7

22.9

20.2

18.4

17.2

17.5

17.6

17.8

17.0

Working capital (JPYmn)

16,595

16,06616,146

13,745

13,405

13,117

13,525

15,475

16,378

14,67016,044Current ratio

48.2%

48.9%

51.5%

50.5%

60.5%

63.0%

62.7%

69.2%

73.0%

82.3%

81.5%

Quick ratio

57.6%

29.1%

30.5%

32.0%

32.2%

40.3%

42.5%

42.3%

47.2%

50.3%

56.0%

OCF / Current liabilities

0.33

0.31

0.28

0.36

0.32

0.43

0.33

0.35

0.37

0.55

0.36

Net debt-to-equity ratio

373.9%

260.1%

214.3%

161.5%

160.4%

112.0%

99.3%

93.8%

88.2%

68.2%

71.6%

OCF / Total liabilities

0.2

0.2

0.2

0.2

0.2

0.3

0.2

0.2

0.2

0.3

0.2

Cash conversion cycle (days)

28.6

26.4

25.2

22.2

18.4

14.6

12.8

15.3

17.8

14.5

12.4

Change in working capital

-642

-529

80

-2,401

-340

-288

408

1,950

903

-1,708

1,374

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.

Consolidated basis
In FY03/22, consolidated operating profit margin stood at 7.5% (-0.2pp YoY), largely maintaining the same level ofprofitability as in FY03/21 when the company recorded the highest margin in the past ten years through FY03/22. ROE was
11.8% (-0.9pp YoY), down YoY for the second consecutive fiscal year since FY03/20, owing to an increase in equity capital.
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 an operating profit margin of 7.7% (the highest in 10 years) and an ROE of 12.7%.
EnergyIn FY03/22, the segment operating profit margin (before allocation of overhead expenses) was 10.3% (-1.3pp YoY). Despite
the rise in customer count and higher selling prices, an increase in customer acquisition costs caused the margin to fall1.3pp YoY.
Profit margins in the Energy segment are heavily affected by purchase costs incurred in the mainstay LP gas business. The
lowest segment 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 was due to a surge in contract price (CP). Meanwhile, according to thecompany, the margin increase in FY03/10 reflected its effort to raise the selling price to a suitable level relative to thecontract price. The operating profit margin declined in FY03/14, in part because the cost pass-through in response to risingpurchase costs was not reflected until the following fiscal year. With the situation rectified and thanks to other rationalization
efforts, operating profit margin improved from FY03/15 onward.
In FY03/18, sales were solid as the company raised selling prices to match higher procurement prices and sales volume rose
thanks to the increase in customer count. On the other hand, profits were weak due to higher costs to secure new customers
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, the operating profit margin increased 2.1pp YoY to 11.6%,
thanks to the rising customer count.
TOKAI Holdings/ 3167
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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.
Shared Research understands that profit margins are more stable in the city gas business compared with the LP gas business.
At end-FY03/22, the number of customers in the city gas business totaled 70,000, up 7,000 YoY.
Information and Communications
In FY03/22, the segment operating profit margin (before allocation of overhead expenses) was 9.2% (+0.6pp YoY). In
addition to continued growth in demand from corporate customers, profitability improvement in the LIBMO service lifted theoperating profit margin by 0.6pp YoY, marking growth for the fourth consecutive year since FY03/19. Profit margins
declined after hitting its latest high of 14.6% in FY03/12 and dropped to 5.2% in FY03/16, mainly due to the burden ofheavy promotional spending on the new fiber-optical service Hikari Collaboration. However, since FY03/17, earnings haveshown signs of improvement, driven by sales contribution from Hikari Collaboration, expansion of the corporate business,and other factors.
In FY03/18, the company made investments (to secure new customers, prevent cancellations, promote sales in the MVNO
business) to expand its earnings base in the future. As a result, the operating profit margin fell 2.3pp YoY. However, theoperating 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 profit margin up another 0.7pp in FY03/20, to 8.2%.
FY03/21 saw a net increase in consumer customers supported by the launch of new MVNO service rate plans andpromotion of new customer acquisition through online marketing. Corporate customer demand increased thanks to progresswith the cloud service rollout and increased telework demand, leading to a 0.4pp increase in the operating profit margin to
8.6%.
CATV
In FY03/22, the segment operating profit margin (before allocation of overhead expenses) came to 18.0% (+2.6pp YoY),
topping the record-high of 16.2% set in FY03/19 for the first time in three years. Although competition with major
telecommunications carriers has become fierce, measures such as the bundling of broadcasting and telecommunications
services, discounts for long-term subscribers to increase customer loyalty, and content enhancement have proved effective.
Aqua
In FY03/22, the segment operating profit margin (before allocation of overhead expenses) was 4.3% (-3.2pp YoY). Against
the backdrop of rising distribution costs, intensifying competition, and an increase in customer acquisition costs due to the
COVID-19 pandemic, the operating profit margin has been tracking downward after reaching 10.9% in FY03/19 (declining
YoY for three consecutive years through FY03/22).
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 inusage rates and an increase in customers who are both LP gas and Aqua customers will lead to a decrease in cancellation
rates and costs.

TOKAI Holdings/ 3167
Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp37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.
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, and Tatsuno area of Nagano Prefecture.

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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.

Other businesses
Tokai 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. (100.0%): 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
EnergyIn 2020, LP gas demand (for household and commercial use) totaled 5,927,000 tons (-1.2% YoY). The demand peaked in2006 at 7,969,000 tons and had been on the wane since then due to a falling average number of people per household, thegrowing use of energy-efficient appliances, declining volume usage driven by increased environmental awareness, andchanges 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 people 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 has been working to develop its Aqua business. The water delivery market has been expanding. For 2022, theJapan Water Home Delivery Association estimates a total customer dispenser count of 4,920,000 (+270,000 YoY), putting
the market value at JPY193.0bn (+JPY11.4bn 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 2020, the per capita
consumption of mineral water in Japan was 33.3 liters, substantially lower than other developed countries (Italy: 187.7 liters,
France: 139.0 liters, Germany: 114.7 liters, US: 114.7 liters). Based on these figures, Shared Research believes mineral water
consumption in Japan has plenty of room to grow in the future.

Information and Communications
The fixed-line 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, there
were 36.4mn fiber-optic line subscribers (+5.3% YoY) at end-December 2021. Following a temporary decline, the growth rate
returned to an upward trajectory thanks to the spread of teleworking during the pandemic (subscriptions were up 4.5% YoY in
FY2019). 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
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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 31.17mn
households at end-March 2021, or 52.4% 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. Under the New Growth Strategy approved by
the Japanese cabinet in June 2010, the housing renovation market was targeted to double from JPY6.0tn in 2010 to
JPY12.0tn in 2020. Meanwhile, according to a study by Yano Research Institute, the size of housing renovation market wasvalued at JPY6.9tn (+5.7% YoY) in 2021. The analysis showed the renovation-related market expanded since early autumn of2020 as sheltering in place became somewhat of a normal lifestyle against the backdrop of frequent declaration of state of
emergency and quasi-emergency due to the spread of COVID-19.

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.

Competition
EnergyThe number of direct customers in the LP gas business is 715,000 (as of end-March 2022). This gives the company the thirdlargest customer base in Japan. Competitors include industry leader Iwatani Corporation (TSE Prime: 8088) and the secondlargest operator, Nippon Gas Co., Ltd. (TSE Prime: 8174). In its stronghold of Shizuoka Prefecture, the company has a 26.0%
market share, putting it in top place. In the Kanto region (including Fukushima Prefecture in the Tohoku region), it has a 7.8%
market share (based on the number of subscribers; source: 2022 LP Gas Annual Report: Facts & Figures, Sekiyu Kagaku
Shinbun Sha). Looking at historical trends, there are few cases of drastic fluctuations in market share, but competition in theindustry tends to be relatively fierce.

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LP gas retailers

Source: Shared Research based on LP Gas Annual Report data

There were approximately 16,800 LP gas retailers in Japan as of end-December 2021. Although this number is in gradualdecline, the company expects a major realignment in the industry over a relatively brief period, which may decrease thenumber of small operators and spawn an oligopoly. Accordingly, to expand the customer base, the company has indicated itwill consider the use of M&A and business alliances.

Aqua
In the Aqua business, competitors include Premium Water Holdings, Inc. (TSE Standard: 2588), NAC Co., Ltd. (TSE Prime:9788), and Aqua Clara, Inc. Premium Water Holdings and NAC have around 20% of the market, but TOKAI’s market share isaround 4% (all market share figures are for 2016; source: Yano Research Institute). Still, it has almost a 50% share whenlooking only at the Shizuoka area. Using the “Mt. Fuji” brand and its sales capabilities as key advantages, the company ispreparing for a major sales push in the Kanto region. Premium Water Holdings 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 900,000 households (home pass total: 1.65mn households as of end-March 2022) whom it already knows,
and through strong local community-based sales it has a direct relationship with customers and is able to provide close aftersales service. The company explains that 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.

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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 region. It has leveraged its highmarket 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 3.3mn at end-FY03/22, from 1.8mn at end-FY03/09. The
company expects to continue growing its customer base through regional expansion and offering a diversified productoffering.

“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 third
biggest segment in terms of sales, stood at an average of 7.9% before allocation of overhead expenses and 5.4% after
allocation over the five years through FY03/22, showing a stable profit status.

Beneficiary of structural reform and realignment of the LP gas industry
There are nearly 17,000 gas operators supplying LP gas nationwide (as of end-December 2021; source: METI). Demand for
LP gas is on the decline, and in view of this situation, Shared Research believes that there will be an eventual realignment of
the gas industry. Given its stronghold in mainstay gas operations, coupled with an improving financial position, the company
is well situated to be an “acquirer” rather than an “acquiree.” For that reason, the realignment of the gas industry will not
only mean an easing of price competition, but may also provide new growth opportunities for the company.

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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 2022. 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 businessWithin 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
Full-year FY03/22 results (out May 10, 2022)
Overview
Results summary
In FY03/22, the company reported sales of JPY210.7bn (+7.1% YoY), operating profit of JPY15.8bn (+3.7% YoY), recurring
profit of JPY15.9bn (+3.9% YoY), and net income attributable to owners of the parent of JPY9.0bn (+1.7% YoY). Sales and all
profit items reached record highs for the full year (sales grew for five consecutive years and operating profit for four
consecutive years).

Achievement rates
Achievement rates versus the full-year company forecast were 101.8% for sales, 103.6% for operating profit, 103.8% forrecurring profit, and 101.6% for net income. Sales and all profit items exceeded the company's projections.

Sales
In FY03/22, sales amounted to JPY210.7bn (+JPY14.0bn or +7.1% YoY), exceeding the JPY200bn mark for the first time andachieving growth for the fifth consecutive year (breaking the record for the fourth consecutive year). Sales by segment wereas follows.
Energy: JPY86.8bn (+12.1% YoY)
Information and Communications: JPY51.4bn (+1.3% YoY)
CATV: JPY32.6bn (-3.5% YoY)
Construction, Equipment, and Real Estate: JPY27.8bn (+19.9% YoY)
Aqua: JPY7.6bn (+0.1% YoY)
Other businesses: JPY4.5bn (+11.7% YoY)
Sales growth was driven by several factors including an increase in customer count in the Energy and CATV segments and arise in selling prices linked to higher purchase prices in the Energy segment. Other contributors were the 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. Adoption of the Accounting Standard for Revenue
Recognition only had a marginal impact on sales.
Customer countThe number of continuing customers amounted to 3,194,000, up 95,000 from end-FY03/21. Versus end-FY03/21, net
customer count grew by 41,000 in the gas business (LP gas and city gas), 33,000 in the CATV business, and 3,000 in the
Aqua business. The number of subscribers to TLC Membership Service grew by 107,000 to 1,086,000, surpassing the one
million mark.

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Change in customer numbers, by service segment
Number of customers

FY03/22

YoY('000)

Q4

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

785

41

Conventional ISP

816

854

859

633

528

465

419

389

395

415

20

4

219

299

323

327

324

337

346

9

2

29

41

48

53

55

2

Hikari Collaboration

FY03/15

FY03/16

LIBMO

FY03/17

FY03/18

FY03/19

FY03/20

FY03/21

Information and Communications

816

854

863

852

829

817

787

761

785

816

31

CATV

691

693

690

710

733

1,032

1,063

1,154

1,198

1,231

33

Aqua

102

122

130

133

135

146

156

161

162

165

3
-15

MobileSecurity
Total

227

235

236

233

227

217

212

206

191

19

19

18

18

17

17

17

16

16

16

0

2,445

2,519

2,537

2,558

2,564

2,876

2,902

3,003

3,099

3,194

95

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.

Operating profit
In FY03/22, operating profit came to JPY15.8bn (+JPY568mn or +3.7% YoY), a record high for the fourth consecutive year.
Operating profit by segment (before allocation of overhead expenses) is shown below.
Energy: JPY8.9bn (-0.6% YoY)
Information and Communications: JPY4.7bn (+8.7% YoY)
CATV: JPY5.9bn (+12.4% YoY)
Construction, Equipment, and Real Estate: JPY2.5bn (+20.1% YoY)
Aqua: JPY325mn (-43.3% YoY)
Other businesses and adjustments: Operating loss of JPY6.5bn (loss widened by JPY567mn from the FY03/21 loss of
JPY6.0bn)
In the LP gas and Aqua businesses, customer acquisition costs increased YoY as the company worked to win customers at afaster pace than in FY03/21. Nonetheless, a rise in the monthly billing count from higher customer numbers and robust
performance in the Information and Communications business for corporate customers were more than enough to absorb
these costs, and operating profit grew YoY. The gross profit margin fell 1.7pp YoY to 40.4%, the SG&A ratio declined 1.5pp
YoY to 32.9%, and the operating profit margin decreased 0.2pp YoY to 7.5%.

Dividend increase
As the full-year results in FY03/22 overshot the initial projections and set new record highs, the company decided toincrease its year-end dividend to JPY17 per share, up JPY2 from the previous estimate of JPY15 per share. This, together with
the interim dividend of JPY15 per share, brings the annual dividend to JPY32 per share (JPY30 per share in FY03/21).

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 Co., Ltd., 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. It

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opened new LP gas sales offices in Kumamoto (Kumamoto Prefecture) in October 2021, and in Fukuyama (Hiroshima
Prefecture) in January 2022.

Results by segment
Segment results as reported by the company reflect allocated overhead expenses.

EnergyIn FY03/22, sales were JPY86.8bn (+JPY9.4bn or +12.1% YoY), operating profit was JPY6.1bn (-JPY56mn or -0.9% YoY), and
EBITDA was JPY13.8bn (+JPY109mn or +0.8% YoY). The number of customers at end-FY03/22 stood at 785,000 (+41,000 or+5.5% YoY). EBITDA exceeded the company's forecast by roughly JPY500mn while the number of customers fell short by
17,000.
In the LP gas business, sales came to JPY73.8bn (+12.4% YoY). The company continued its customer acquisition efforts,
and the number of customers rose to 715,000, up 34,000 from end-FY03/21. The sales volume of LP gas totaled
344,000 tons (+9.2% YoY), of which gas for household use amounted to 114,000 tons (+2.3% YoY) and gas for industrial
and other use 230,000 tons (+13.0% YoY).
In the city gas business, sales were JPY13.0bn (+10.7% YoY). Customer count grew to 70,000, up 7,000 from endFY03/21. Sales growth was primarily driven by higher sales volume of industrial gas and the impact of the fuel costadjustment system.
Operating profit fell slightly, mainly due to an increase in customer acquisition costs. Factors behind changes inoperating profit (before allocation of overhead expenses) were as follows.
Upward impact: Increase in customer count (+JPY1.2bn); purchase cost reduction (+JPY780mn)
Downward impact: Higher customer acquisition costs (-JPY1.2bn); increase in other costs (-JPY420mn); unseasonabletemperatures, other (-JPY460mn)

Information and Communications
In FY03/22, sales were JPY51.4bn (+JPY663mn or +1.3% YoY), operating profit was JPY3.4bn (+JPY269mn or +8.7% YoY), and
EBITDA was JPY8.1bn (+JPY306mn or +3.9% YoY). The number of customers at end-FY03/22 came to 816,000 (+31,000 or+3.9% YoY). The customer count exceeded the company's forecast by roughly 24,000.
In the Information and Communications segment, services for consumers generated sales of JPY24.4bn (-7.2% YoY) and
EBITDA of JPY1.4bn (+3.9% YoY). EBITDA came in higher than the company's projection by about JPY100mn. In the ISP
business, the company expanded its service offerings through a partnership with a major mobile carrier. In the mobile
business, it worked to acquire customers by reviewing its service menu as necessary and offering set plans bundled with
fixed lines. Thanks to these measures, the number of broadband customers stood at 654,000, keeping the decline down
to 2,000 since end-FY03/21, while LIBMO customers increased by 2,000 to 55,000.
In the Information and Communications business, sales to corporate clients were JPY27.0bn (+10.5% YoY) and EBITDA was
JPY6.8bn (+3.9% YoY). While sales fell short of the company's forecast by about JPY400mn, EBITDA exceeded the target
by about JPY100mn. Sales growth was driven by steady progress in cloud services and a higher number of contracted
development projects.
Operating profit was up 8.7% YoY. Factors behind changes in operating profit (before allocation of overhead expenses)
were as follows.
Upward impact: Corporate client business (+JPY370mn); LIBMO (+JPY170mn)
Downward impact: Services for consumers (-JPY20mn); increase in other costs (-JPY140mn)

CATV
In FY03/22, sales were JPY32.6bn (-JPY1.2bn or -3.5% YoY), operating profit was JPY5.2bn (+JPY470mn or +10.0% YoY), and
EBITDA was JPY11.6bn (+JPY424mn or +3.8% YoY). EBITDA came in about JPY200mn higher than the company's forecast.

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48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 12,000 fromend-FY03/21 to 887,000, while communications services customers increased by 22,000 to 344,000. Together, thecustomer count of the two services reached 1,231,000, up 33,000 YoY and exceeding the company's forecast by roughly
10,000.
Operating profit grew 10.0% YoY. The main factor behind the growth in operating profit (before allocation of overhead
expenses) was as follows.
Upward impact: Increase in customer count (+JPY650mn)

Construction, Equipment, and Real Estate
In FY03/22, sales were JPY27.8bn (+JPY4.6bn or +19.9% YoY), operating profit was JPY1.7bn (+JPY449mn or +35.7% YoY),
and EBITDA was JPY3.5bn (+JPY605mn or +20.9% YoY). Sales fell short of the company's forecast by about JPY1.2bn, but
EBITDA came in above plan by about JPY100mn.
Sales and profit grew YoY. In addition to contributions from the consolidation of Marco Polo Co., Ltd., orders in existing
businesses such as construction and equipment work and civil engineering projects held firm. Factors behind changes inoperating profit (before allocation of overhead expenses) were as follows.
Upward impact: Construction and equipment (+JPY460mn)
Downward impact: Renovation (-JPY50mn)

Aqua
In FY03/22, sales were JPY7.6bn (+JPY7mn or +0.1% YoY), operating profit was JPY46mn (-JPY213mn or -82.1% YoY), and
EBITDA was JPY1.0bn (-JPY195mn or -16.1% 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. Customer count slightly undershot the company's forecast, and
EBITDA fell short of plan by about JPY300mn.
Factors behind changes in operating profit (before allocation of overhead expenses) were as follows.
Upward impact: Increase in customer count (+JPY120mn)
Downward impact: Increase in customer acquisition costs (-JPY370mn)

Other businesses
In FY03/22, sales were JPY4.5bn (+JPY475mn or +11.7% YoY), and the company reported an operating loss of JPY103mn(operating loss of JPY244mn in FY03/21).
In the nursing care business, user numbers rose and sales amounted to JPY1.4bn (+2.9% YoY).
In the shipbuilding business, the number of ships repaired grew, and sales came to JPY1.7bn (+11.1% YoY).
The bridal events business showed a slight recovery with sales finishing at JPY646mn (+54.9% YoY).

Progress of medium-term management strategy
The company has been implementing initiatives toward sustainable growth and development based on 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. With April 2021 marking the tenth year since the adoption of a holding company structure, the company positions
the current medium-term plan as its first step toward advancement over the next decade.

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The company believes FY03/22 was successful as the first year of the plan (a year for laying the groundwork), considering
progress made in a variety of areas (see below for details).

Vision: Becoming a Life Design Group (LDG)
The environment surrounding corporations is changing drastically amid lifestyle changes due to the pandemic, global
demand for actions for achieving the SDGs, movement toward clean energy, and digitalization. Against the backdrop ofthese changes, the company aims to achieve sustainable growth and become a Life Design Group that is central to people's
living.

The five key messages of 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 initiatives
involving the SDGs.
Promote LNG strategy
The company advanced the LNG strategy by further expanding market share in existing sales areas. In FY03/22, it boosted
the number of customers by 95,000 YoY, mainly in the core businesses of gas, CATV, and Aqua (YoY increase of 40,000 forgas, 34,000 for CATV, and 3,000 for Aqua).
In the LP gas business, the company expanded its sales coverage in the Kyushu region, opening a second sales office inKumamoto (Kumamoto Prefecture) in October 2021 following expansion into Fukuoka Prefecture in 2018. In the Chugoku
and Shikoku regions where the company established a sales office in Okayama Prefecture in 2017, it added another office inFukuyama (Hiroshima Prefecture) in January 2022. The company plans to roll out its eighth regional base in the focus regionof Chukyo (around Nagoya) during FY03/23.
Toward achieving the group's target customer count of 3.56mn in FY03/25, the company will work to ramp up the customer
count, which is its earnings base.
New development in the Information and Communications business
The company serves as a one-stop shop for corporate customers seeking to adopt Amazon Web Services (AWS). Its
comprehensive services span all processes from consultation on AWS adoption, system design, system connection, tomonitoring and operation. As an AWS-certified Advanced Consulting Partner, the company has supported numerous
customers in their cloud utilization. In September 2021, it began offering AWS solutions covering China by leveraging thistrack record and experience, and as of end-FY03/22, it has engaged in specific talks with multiple Japanese companies thathave local bases in China. The company intends to actively develop the business, riding the tailwind of expanding cloudusage.
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 corporate IT systems and smartphone apps on contract, and it has built a long-lasting relationship of trust with major
companies (users) based on its technological strengths that enable flexible response to customer needs. By combining groupcompany TOKAI Communication's expertise in cloud network integration for corporate customers and Query's strengths intechnology and customer relations, TOKAI Holdings plans to generate synergies, provide greater added value to customers,
and capture more business.
Further growth and expansion as a comprehensive construction business operator
In April 2021, the company acquired all outstanding shares in Marco Polo Co., Ltd. and made it a consolidated subsidiary.
Marco Polo, based in Toyota (Aichi Prefecture), provides large-scale repair services, and it has built trust based on a solid
track record in construction projects contracted from local governments, condominium management associations, andconstruction companies.
In the Construction, Equipment, and Real Estate business, TOKAI Holdings previously acquired several companies to expand
operations beyond the construction and equipment installation work it has engaged in from the past. Such acquisitions
included Nissan Tri Star Construction, Inc. (civil engineering company based in Gifu Prefecture, acquired in 2019) and Chuo

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Denki Koji Co., Ltd. (electrical work company based in Aichi Prefecture, acquired in 2020), which were both made a
consolidated subsidiary. With the addition of Marco Polo, the company expanded its area coverage to include Shizuoka,
Aichi, and Gifu prefectures, operating as a comprehensive construction business operator with the capacity to handle a wide
range of projects (such as large-scale repairs, civil engineering, and electrical, air-conditioning, and plumbing works). As acomprehensive construction business operator, the company intends to further develop and expand the Construction,
Equipment, and Real Estate business.
Advance the TLC concept: Promotion of digital marketing
The company believes identifying customer attributes is indispensable for fulfilling its goal of becoming a Life Design Group(LDG). For this reason, in addition to the basic data such as customers' names and addresses the company acquires whenproviding its services, it intends to gradually collect more in-depth information on customers' hobbies, interests, andlifestyles. The plan is to collect the information using TLC My Page, a webpage for TLC members and LP gas customers.
As of end-FY03/22, the number of customers registered on TLC My Page totaled 290,000. The company plans to increase
this number to 800,000 by FY03/25. The collected information will be fed to the D-sapiens platform for analysis, based on
which the company will predict customers' lifestyle and behavioral patterns using AI and apply the results when marketing
new services. The company has also stepped up efforts to install smart meters (devices based on Low Power Wide Area
[LPWA] technology) at the homes of LP gas customers and raise operational efficiency through automatic metering and othermeans. It hopes to cultivate new businesses by analyzing hourly metering data using AI and by making use of D-sapiens topredict customers' lifestyles and family compositions.
Full-scale launch of DX strategy
The company formulated a digital transformation (DX) strategy for the TOKAI group at the same time it announced the
medium-term management plan. The DX strategy calls for maximum utilization of the data accumulated through businessdealings with the company's 3.2mn customers nationwide, as well as the cutting-edge digital technology referred to by thegroup as ABCIR+S. (See the "Medium-term plan" section for details).
The company plans to optimize the existing business model further, achieve operational efficiency, and elevate its services'added value. It will also endeavor to create new businesses such as new services using digital data technology. For instance, itwill partner with Life Log Technology, Inc., which has AI-based image analysis technology for meals, and launch a field test for
new services and solutions in the healthcare domain. Through such initiatives, it aims to accelerate progress toward
becoming a Life Design Group and contribute to enriching the lives of its customers.
Optimize allocation of management resources
The company has optimized the allocation of its management resources as planned, devoting about JPY16.0bn of its
JPY21.8bn net operating cash flows in FY03/22 to growth investment such as funding to improve existing businesses andacquire new companies.
In terms of shareholder returns, TOKAI Holdings used JPY4.1bn for the payment of year-end dividends for FY03/21 andinterim dividends for FY03/22. The annual dividend in FY03/22 was raised to JPY32 per share, up YoY for the second
consecutive year. The company aims to share the results of earnings growth with its shareholders. In FY03/23, the company
expects JPY21.2bn in operating cash flows, which it plans to optimally allocate for the use of proactive growth investment andimprovement of shareholder value.
TOKAI Group 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. It intends to reduce CO2 emissions by further promoting the use of environmentally friendly energy
while utilizing renewable energy and electric vehicles in its own business operations. (See the "Outlook" section for details.)
Launch of carbon neutral gas sales
In August 2021, the company began sales of carbon neutral gas in the city gas business, adopting the J-Credit scheme tooffset CO2 emissions and effectively achieve carbon neutrality. Driven by the launch of this new business, it also signed acollaborative agreement with the city of Fujieda (Shizuoka Prefecture), which has declared to become a Zero Carbon City.
In the LP gas business, in January 2022 the company also began handling carbon neutral LP gas, which has CO2 emissions
offset by the primary suppliers. As a gas retailer, the company plans to proactively take part in the decarbonization efforts of

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the gas industry. It intends to contribute by expanding the use of carbon neutral LP gas through sales to corporate customers
that are committed to decarbonization, and through in-house use at the group's business bases.
In October 2021, the company began offering the TOKAI Zero Solar service (electricity retail business using the powerpurchase agreement [PPA] model; see the "Medium-term management strategy" section), which allows customers to installsolar power generation systems at their homes at zero initial cost. Under this service, the company installs TOKAI groupowned solar power systems to customers' rooftops for free. When the customers use the electricity generated by the system
during a given contract period, they pay a service usage fee based on the amount of use. Surplus energy is sold by the
TOKAI group to electric power companies. For the duration of the contract, customers can reduce their utilities expenses,
and when the contract period is over, they can obtain the equipment free of charge. In these ways, the company plans tocontribute to the reduction of CO2 emissions while appealing to customers by offering cost-effective solutions.
Work style reforms
In April 2021, the company introduced a teleworking program, providing the necessary hardware to its employees andoffering work-from-home allowances. In line with the DX strategy, it made efforts to create a safe and comfortableenvironment where employees can work regardless of location or time. The company explains that it has made steadyprogress toward its target of reducing in-office attendance and office floor space by 50% and 40%, respectively. The company
is also seeing results from efforts aimed at improving operational processes, such as the shift to paperless operations and theintroduction of electronic contracts (signing electronic documents with electronic signatures).
Promotion of health & productivity-oriented management
In March 2022, the company was selected as a "health & productivity stock" under the Health & Productivity Stock Selection
Program run jointly by the Ministry of Economy, Trade and Industry and the Tokyo Stock Exchange. The company has been
actively promoting health and productivity-oriented management focusing on the three pillars of safety and hygiene, healthpromotion, and work style reforms. It maintains that in FY03/23 and beyond, it will continue to advance reforms aimed atachieving work style flexibility while also actively supporting health improvements so that employees can thrive at work with
comfort and in good health.
Enhancement of governance structure
TOKAI Holdings has been stepping up efforts to strengthen its governance structure in order to achieve sustainable growthand enhance corporate value over the medium to long term. In addition to various governance-related initiatives taken todate, in February 2021, the company established a Nomination and Compensation Committee to ensure transparency andobjectivity in the assessment and decision-making processes associated with directors' nomination and remuneration. The
move also looks to further strengthen the independence, objectivity, and accountability of the Board of Directors. Of the nine
directors selected at the annual general shareholders meeting held in June 2021, TOKAI Holdings nominated three
independent outside directors including one female director to ensure diversity and specialization in its Board. The company
indicates it is committed to establishing unwavering trust through sound management of its businesses based on a high levelof self-discipline.
For details on previous quarterly and annual results, please refer to the "Historical performance" section.

Q3 FY03/22 results (out January 27, 2022)
Overview
Cumulative Q3 FY03/22 results
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.
As of end-Q3, the number of continuing customers amounted to 3,142,000, up 43,000 from end-FY03/21. The number ofsubscribers to TLC Membership Service grew by 87,000 to 1,066,000.

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Rates of progress
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(details below), net income attributable to owners of the parent was also above internal projections. However, the netincrease in the number of continuing customers was only 43,292 in cumulative Q3, lower than the company's full-year
projection of 100,000. Accordingly, the company will focus on acquiring customers and preventing contract cancellation in
Q4. The company maintains that it will not attempt to secure profits by cutting down on customer acquisition costs. The
company has made no changes to its full-year FY03/22 forecast.

Sales
In cumulative Q3, sales were JPY149.4bn (+JPY9.6bn, or +6.9%, YoY). Details for individual segments can be found below.
Energy: JPY58.7bn (+9.9% YoY)
Information and Communications: JPY38.2bn (+1.0% YoY)
CATV: JPY24.3bn (-2.9% YoY)
Construction, Equipment, and Real Estate: JPY19.0bn (+28.4% YoY)
Aqua: JPY5.8bn (+0.6% YoY)
Other businesses: JPY3.4bn (+15.7% 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
Cumulative Q3 operating profit was JPY9.2bn (-JPY653mn, or -6.6%, YoY). A breakdown of operating profit by segment(before allocation of overhead expenses) can be found below.
Energy: JPY4.3bn (-14.2% YoY)
Information and Communications: JPY3.5bn (+13.3% YoY)
CATV: JPY4.5bn (+10.7% YoY)
Construction, Equipment, and Real Estate: JPY1.1bn (+2.9% YoY)
Aqua: JPY287mn (-50.3% YoY)
Other businesses and adjustments: operating loss of JPY4.5bn (loss of JPY4.0bn in cumulative Q3 FY03/21; loss
expanded by JPY526mn)
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.
One major factor driving growth in operating loss within Other businesses and adjustments was an increase in expenses
associated with work style reforms (+JPY230mn in cumulative Q3 after factoring downward impact from lower transportation
expenses and other factors), including a rise in home allowance and IT-related expenses and office renovation expenses.
The gross profit margin fell 2.5pp YoY to 40.2%, 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 attributable to owners of the parent
Net income was JPY4.6bn (-JPY1.3bn, or -21.9%, YoY). The company posted JPY1.3bn in extraordinary losses, including onetime losses such as JPY244mn in costs related to events commemorating the company's 10th anniversary, JPY542mn in loss
on retirement of non-current assets, and JPY496mn in other costs related to misconduct of a former employee of a company
subsidiary (details below).

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Key points
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 Co., Ltd., 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. In
October 2021, it opened a new LP gas sales office in Kumamoto, Kumamoto Prefecture.

Results of an investigation into the misconduct of a former
employee of the company
The company set up an internal investigation committee (chaired by its legal counsel) to conduct a detailed investigation into
the misconduct of a former employee (see the section below, entitled "1H FY03/22 results"). It has received theinvestigation report from this committee and announced related details on December 24, 2021. In addition, TOKAI
Corporation and TOKAI Gas Corporation reported details related to this misconduct, including associated managerial
responsibility, recurrence prevention measures, and the impact of this misconduct on the company's consolidated financial
statements. In Q2, the company recorded extraordinary losses (see above) consisting of losses and additional projected
income taxes associated with this misconduct, and does not expect to record any additional losses as a result of thismisconduct. As a preventive measure for its entire corporate group, the company will redouble its compliance efforts on agroup-wide basis, upgrade payment processing verification operations, and begin conducting personnel rotation in theaccounting departments of group companies.

Customer count
As of end-Q3, the number of continuing customers amounted to 3,142,000, up 43,000 from end-FY03/21. Versus endFY03/21, net customer count grew by 30,000 in the gas business (LP gas and city gas), 26,000 in the CATV business(including 8,000 from acquisitions), and 3,000 in the Aqua business.
At the end of Q3, continuing customers were more numerous than projected in the CATV business, but less numerous thanprojected in the Energy, Aqua, and broadband (part of the Information and Communications segment) businesses.
Continuing customers fell short of forecast in the Energy segment, primarily because the company's acquisition of businessterritories fell behind projections. Meanwhile, the shortfall in the Aqua business was mainly due to a decrease in acquisition
opportunities caused by the COVID-19 pandemic. Continuing customers were less numerous than anticipated in the
broadband business, mainly because intensified competition resulted in a greater volume of contract suspensions andcancellations than the company had expected (new customer acquisitions were mostly commensurate with the company's
projections).

Change in customer numbers by service type
Number of customers

FY03/14

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20

FY03/21

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

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.

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*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.

EnergyIn cumulative Q3, sales were JPY58.7bn (+JPY5.3bn, or +9.9%, YoY), and operating profit was JPY2.3bn (-JPY714mn, or-23.8%, YoY). Cumulative sales volume increased by about 8% YoY. The main reason for this increase was recovery in demand
stemming from the industrial sector. Despite a decrease in consumption per customer, sales generated through householdenergy customers increased 1% YoY thanks in part to an increase in customers of this type. The YoY decrease in consumption
per household energy customer was due to temperature-related factors (a YoY rise of 0.1°C) and absence of the boost
previously provided in Q3 FY03/21 by demand stemming from tendency of consumers to remain at home in response to
the COVID-19 pandemic.
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. Sales rose, driven by higher sales volume of industrial gas and the impact of the fuel cost adjustment system.
Operating profit fell mainly due to an increase in customer acquisition costs.
Upward impact: JPY740mn from an increase in contracts and JPY650mn from growth in selling prices and factors
related to procurement
Downward impact: JPY790mn from an increase in customer acquisition costs, JPY460mn from a decrease in
consumption, and JPY860mn from an increase in other costs

Information and Communications
In cumulative Q3, sales were JPY38.2bn (+JPY375mn, or +1.0%, YoY), and operating profit was JPY2.5bn (+JPY322mn, or+15.0%, YoY). The company observed recovery in IT investment, which had previously been subdued, and an expansion indevelopment projects. On the other hand, recurring revenue generated through sales associated with communication lines
were almost unchanged 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
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.

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Operating profit increased 15.0% YoY and exceeded the company's projections by JPY410mn.
Upward impact: JPY320mn from profit generated through corporate clients, JPY190mn from improvement in earnings
produced through LIBMO, JPY70mn from a decline in costs associated with the acquisition of individual broadband
customers, and JPY20mn from other factors
Downward impact: JPY190mn from work style reform expenses

CATV
In cumulative Q3, sales were JPY24.3bn (-JPY729mn, or -2.9%, YoY), and operating profit was JPY4.0bn (+JPY304mn, or+8.1%, YoY). The YoY decline in sales was primarily due to downward impact of JPY1.4bn stemming from the company's
adoption of the Accounting Standard for Revenue Recognition. Specifically, the company now recognizes revenue fromcable phones provided by telecom carriers on a net basis rather than on a gross basis (in which both sales and cost of sales
were recorded). This change has no impact on profit.
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 (such as Netflix and DAZN) 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 from end-FY03/21 to 885,000, while communications services customers increased by
16,000 to 339,000. Customers for both broadcasting and telecommunications services were more numerous than thecompany projected.
Operating profit increased 8.1% YoY due mainly to an increase in customer count.

Construction, Equipment, and Real Estate
In cumulative Q3, sales were JPY19.0bn (+JPY4.2bn, or +28.4%, YoY), and operating profit was JPY555mn (+JPY16mn, or+3.1%, YoY).
The company made progress in M&A, and orders for equipment work increased. As a result, sales and profit grew YoY.
The 3.1% YoY increase in operating profit was mainly due to YoY growth of JPY30mn in profit generated throughrenovation projects for individual customers.

Aqua
In cumulative Q3, sales were JPY5.8bn (+JPY33mn, or +0.6%, YoY), and operating profit was JPY67mn (-JPY266mn, or -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 decreased due to higher customer acquisition costs.
Upward impact: Increase in customer countDownward impact: JPY260mn from an increase in customer acquisition costs and JPY30mn from a decrease in
consumption

Other businesses
In cumulative Q3, sales 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.
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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)
Other businesses: 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)
Other businesses and 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.
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%.

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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 Co., Ltd., 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, net customer count grew by 20,000 in the gas business (LP gas and city gas), 17,000 in the CATV business, and
3,000 in the Aqua business.

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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58

Change in customer numbers by service type
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

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

('000)

Security
Total

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

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 impact of 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 behind changes in operating profit were as follows:
Upward impact: Increase in customer count (+JPY520mn); purchase cost reduction (+JPY60mn)
Downward impact: Customer acquisition costs (-JPY500mn); unseasonable temperatures, other (-JPY370mn); othercosts (-JPY130mn)

Information and Communications
Sales were JPY25.3bn (+0.7% YoY), and operating profit was JPY1.7bn (+22.0% YoY).

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59

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 themobile 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-line 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
the billing price per customer. Factors behind changes in operating profit were as follows:
Upward impact: 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)
Downward impact: Increase in other expenses such as those to prepare the environment for work style reforms (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 behind changes in operating profit were as follows:
Upward impact: Increase in customer count (+JPY320mn)
Downward impact: 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).
The company made progress in M&A, and orders for renovation and building work increased. As a result, sales and profit
sharply rose YoY. Factors behind changes in operating profit were as follows:
Upward impact: Higher profit in the renovation business (+JPY80mn); higher profit in the construction and equipment
businesses (+JPY40mn)
Downward impact: 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 behind changes in operating profit were as follows:
Upward impact: Increase in customer count (+JPY20mn)

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60

Downward impact: Higher customer acquisition costs (-JPY280mn)

Other businesses
Sales were JPY2.2bn (+22.9% YoY), and the company reported an operating loss of 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 actions for achieving the SDGs, movement towardclean energy, and digitalization. Under these conditions, the TOKAI group aims to maintain sustainable growth to become aLife 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 initiatives involving the SDGs
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.

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61M&A: Further growth and expansion as a comprehensive construction business operator
In April 2021, the company acquired shares in Marco Polo Co., Ltd., 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 track record 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 theacquisitions 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 a comprehensive 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 theresults of earnings growth with its 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.

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62Strengthen initiatives involving the SDGs
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
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 the
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63assessment 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.

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 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.

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. Versus end-FY03/21, net customer count grew by 8,000 in the gas business (LPgas and city gas), 8,000 in the CATV business, and 2,000 in the Aqua business. The number of continuing customers fell
short of the company’s target by 5,000 due to lower-than-expected customer acquisition in the LP gas, Information andCommunications, Aqua, and mobile businesses. Meanwhile, the number of continuing customers in the CATV businessoutperformed 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 to
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64have 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.
(See the "Outlook" section for details.)

Change in customer numbers by service type
Number of customers

FY03/14

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20

FY03/21

FY03/22

YoY('000)

Q1

Q1

Q1

Q1

Q1

Q1

Q1

Q1

Q1

ChangeGas (LP gas, city gas)

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

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
Total

9

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

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 Other businesses).
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)
Other businesses: 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)

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65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)
Other businesses and adjustments: Loss of JPY1.3bn (loss of JPY1.2bn in Q1 FY03/21; loss expanded by JPY166mn)

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,
TOKAI Holdings/ 3167
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66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).
The company made progress in M&A, and orders for renovation and building work increased. As a result, sales grew
sharply 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 company reported an operating loss of 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.

Other businesses
Sales were JPY1.3bn (+49.0% YoY), and the company reported an operating loss of 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.

TOKAI Holdings/ 3167
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67

Income statement
Income statement(JPYmn)Sales
YoY
EnergyFY03/12

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.

FY03/22Cons.

181,931

181,684

188,987

187,511

180,940

178,631

186,069

191,600

195,952

196,726

210,691

4.0%

-0.1%

4.0%

-0.8%

-3.5%

-1.3%

4.2%

3.0%

2.3%

0.4%

7.1%

98,316

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

77,977

78,154

77,38086,770Information and Communications

37,94338,49738,803

40,11844,24649,50850,894

51,23451,75350,73551,398

CATV

24,292

23,78624,187

24,35924,60825,39628,38630,511

31,38533,74532,572

Construction, Equipment, andReal Estate

15,881

15,756

19,24520,01920,975

19,511

19,807

20,09022,38323,177

27,780

Aqua

-

3,750

4,378

4,959

5,487

5,762

6,200

7,004

7,416

7,622

7,629

Other

5,498

5,374

5,142

4,987

4,875

5,108

4,706

4,781

4,858

4,065

4,540

Cost of sales

112,393

112,875

120,646

118,579

111,128

105,591

110,733

115,441

116,663

113,856

125,479

Gross profit

69,53768,80968,341

68,932

69,812

73,04075,33676,15979,28982,87085,212

YoY

3.1%

-1.0%

-0.7%

0.9%

1.3%

4.6%

3.1%

1.1%

4.1%

4.5%

2.8%

Gross profit margin

38.2%

37.9%

36.2%

36.8%

38.6%

40.9%

40.5%

39.7%

40.5%

42.1%

40.4%

SG&A expenses

58,61459,87460,94859,92861,56760,29064,365

63,10265,066

67,64369,418

SG&A ratio

32.2%

33.0%

32.2%

32.0%

34.0%

33.8%

34.6%

32.9%

33.2%

34.4%

32.9%

Operating profit

10,923

8,934

7,392

9,003

8,245

12,75010,971

13,057

14,224

15,226

15,794

1.6%-18.2%-17.3%

21.8%

-8.4%

54.6%

-14.0%

19.0%

8.9%

7.0%

3.7%

6.0%

4.9%

3.9%

4.8%

4.6%

7.1%

5.9%

6.8%

7.3%

7.7%

7.5%

Non-operating income

YoY

1,095

983

1,006

747

772

719

774

655

652

601

729

Non-operating expenses

2,200

1,852

1,385

1,201

868

693

555

453

397

515

615

Recurring profit

9,818

8,065

7,013

8,549

8,150

12,775

11,191

13,25914,47915,312

15,907YoY

3.5%-17.9%-13.0%

21.9%

-4.7%

56.7%

-12.4%

18.5%

9.2%

5.8%

3.9%

Recurring profit margin

5.4%

4.4%

3.7%

4.6%

4.5%

7.2%

6.0%

6.9%

7.4%

7.8%

7.5%

Extraordinary gains

270

59

486

203

215

172

829

183

677

672

700

Extraordinary losses

2,626

1,954

1,508

1,210

1,929

840

1,113

1,029

2,225

1,414

1,617

Income taxes

4,695

3,073

3,381

3,573

2,924

4,685

4,176

4,496

4,484

5,597

5,857

Implied tax rate

62.9%

49.8%

56.4%

47.4%

45.4%

38.7%

38.3%

36.2%

34.7%

38.4%

39.1%

52

11

10

33

52

85

109

144

204

157

163

Operating profit margin

Net income attributable to noncontrolling interests
Net income attributable to ownersof the parent

2,715

3,085

2,598

3,934

3,458

7,337

6,620

7,772

8,241

8,815

8,969

YoY

26.2%

13.6%

-15.8%

51.4%-12.1%

112.2%

-9.8%

17.4%

6.0%

7.0%

1.7%

Net margin

1.5%

1.7%

1.4%

2.1%

1.9%

4.1%

3.6%

4.1%

4.2%

4.5%

4.3%

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.

TOKAI Holdings/ 3167
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68Balance sheet
Balance sheet(JPYmn)FY03/12

FY03/13

FY03/14

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20

FY03/21

FY03/22

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

AssetsCash and deposits

2,602

4,235

3,182

2,861

4,077

3,239

3,143

4,164

4,629

5,577

4,743

Accounts receivable

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

24,79825,85926,32328,566Inventories

8,051

8,141

8,178

6,695

5,611

5,058

5,389

5,698

5,553

5,573

6,146

Other

8,260

7,031

7,173

6,318

7,124

7,459

7,613

7,846

8,227

9,459

7,643

Total current assets

41,09340,35140,60635,95938,11738,59439,95142,50644,26846,93247,098

Buildings (net)

48,18645,59842,15738,41335,17833,71834,28033,75634,25634,50835,500Machinery and equipment (net)23,353

22,83022,081

21,68422,074

21,84823,096

23,592

23,773

24,614

24,832

Land

21,584

21,79921,91822,006

21,825

22,634

22,842

22,921

23,06824,054Marketable securities

24,911Other fixed assets (net)17,084

16,375

16,973

16,832

15,987

15,447

16,592

16,761

17,256

18,624

20,774

Total tangible fixed assets

110,207

106,602103,129

98,935

95,064

93,647

96,81097,03098,353

101,800

106,017

Investments and other assets

14,995

15,63816,855

19,53916,14917,86018,03016,937

16,51819,552

20,364

Goodwill

15,54012,632

10,241

8,270

6,589

5,861

5,430

5,044

5,125

5,258

6,040

Other

1,726

2,274

2,702

2,954

4,351

5,127

5,768

6,084

5,706

5,429

4,953

Total intangible assets

17,266

14,906

12,943

11,224

10,94010,988

11,198

11,128

10,831

10,687

10,993

Total fixed assets

142,470

137,147

132,928

129,699

122,153

122,496

126,038

125,097

125,703

132,041

137,375

Total assets

183,735

177,642

173,620

165,702160,303

161,112

165,993

167,606

169,972

178,974

184,473

Accounts payable

13,636

13,01914,105

13,035

13,511

14,77915,67015,021

15,034

17,226

18,668

Short-term debt

50,834

48,614

44,16936,27928,586

26,88827,35825,966

23,831

16,107

18,628

Liabilities

Other

20,70920,93020,631

21,846

20,861

19,637

20,677

20,39821,752

23,676

20,526

Total current liabilities

85,17982,56378,905

71,16062,95861,30463,70561,38560,61757,00957,822Long-term debt

53,40444,093

41,171

36,79042,82339,596

36,79338,131

38,99141,304

42,625

Other

17,97016,975

15,214

14,284

12,550

3,765

4,044

4,194

4,381

4,604

5,079

Total fixed liabilities

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

40,83742,32543,37245,90847,704

Total liabilities

156,553

143,631

135,291

122,234

118,332

104,665

104,543

103,711

103,989

102,917

105,527

Capital stock

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

21,86822,18322,18322,315

19,25824,28625,52525,52725,54225,54225,552Retained earnings

1,780

4,225

5,436

7,803

9,870

15,04817,76821,863

26,426

31,56336,395-11,224-8,313-8,191-8,033-6,409-3,285-2,223-2,222-2,221-2,219-2,332

Other

-149

1,006

3,992

6,460

4,344

5,606

5,250

3,459

848

5,625

3,620

Share subscription rights

327

324

318

260

208

-

-

-

-

-

9

Non-controlling interests

578

584

588

662

699

791

1,130

1,267

1,387

1,545

1,702

Net assets

Treasury stock

Total net assets

27,18134,011

38,32943,467

41,97056,44661,45063,89465,982

76,05678,946

Working capital

16,595

16,06616,146

13,745

13,405

13,117

13,525

15,475

16,378

14,67016,044

Total interest-bearing debt

104,238

92,707

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

57,411

61,253Net debt

101,636

88,47282,15870,20867,332

63,24561,00859,93358,193

51,83456,510Source: 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 at end-FY03/11. Thereafter, with the establishment of TOKAI
Holdings, the company improved its financial position by reducing working capital and only investing in areas where it canachieve high returns. As a result, total assets had been decreasing. In FY03/17, however, total assets increased YoY, because
the value of investment securities rose due to a rise in the market value. Total assets have continued to increase since
FY03/18 due to business expansion through M&A.

Liabilities
As a result of the company’s aggressive investment strategy, which was mainly debt-financed, its interest-bearing debt reached
JPY127.7bn at end-FY03/10. The company worked to develop a more stable financial position and aimed to reduce interestbearing debt to less than JPY100bn by end-FY03/14 as part of its medium-term business plan formulated following theestablishment of TOKAI Holdings Corporation. At end-FY03/13, interest-bearing debt came to JPY92.7bn, achieving thecompany's target one year ahead of schedule. The debt amount further declined, totaling JPY57.4bn at end-FY03/21. At endFY03/22, the amount slightly increased, reaching JPY61.3bn.

Net assets
Equity ratio was 7.7% at end-FY03/11, but as mentioned above, the company worked to improve its financial position by
reducing interesting-bearing debt and increasing retained earnings. As a result, its equity ratio improved to 18.6% at endFY03/13. 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 set out in its
previous medium-term business plan, one year ahead of schedule. The equity ratio stood at 41.9% at end-FY03/22.
TOKAI Holdings/ 3167
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69The company held 8,820,000 shares of treasury stock (6.3% of shares outstanding) at end-March 2022. The company hassuggested that it will consider capital tie-ups or alliances using these treasury shares.

Per share data
Per-share data

FY03/12

FY03/13

FY03/14

FY03/15

FY03/16

FY03/17

FY03/18

FY03/19

FY03/20

FY03/21

FY03/22

FY03/23

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Cons.

Est.

155,200

155,200

155,200

155,200

139,680

139,680

139,680

139,680

139,680

139,680

139,680

27.2

29.9

22.7

34.2

30.0

64.5

51.2

59.4

62.9

67.3

68.5

-

-

-

34.1

26.9

56.3

50.5

-

-

-

-

(JPY)
Shares issued (year end; '000)
EPS
EPS(fully diluted)
Dividend per share

12.0

12.0

12.0

12.0

14.0

28.0

28.0

28.0

28.0

30.0

32.0

Book value per share

262.9

289.3

325.8

368.2

362.8

439.0

460.7

478.3

493.3

568.9

590.2

63.4
32.0

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

FY03/12

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.

Cash flows from operating activities (1)28,58425,71322,80627,265

21,395

26,692

20,90921,60522,53532,22320,808Cash flows from investing activities (2)-10,037-10,985-11,488-12,443-12,131-17,068-14,592-9,983-9,664

FY03/22-8,851-11,015

Free cash flow (1+2)

18,547

15,73013,142

18,414

10,38015,707

9,421

9,162

10,40415,155

6,216

Cash flows from financing activities-24,255-14,051-14,125-18,764-9,150-16,643-9,527-8,147-10,375-14,064-6,905

Depreciation and amortization (A)17,903

17,447

17,571

17,22916,734

15,641

15,211

15,09015,42615,80015,932

Capital expenditures (B)-11,193-10,747-10,083-9,712-11,435-11,331-11,665-12,423-11,592-12,925-13,345

Working capital changes (C)

-642

-529

80

-2,401

-340

-288

408

1,950

903

-1,708

1,374

Simple FCF (NI + A + B - C)

10,067

10,31410,006

13,852

9,097

11,935

9,758

8,489

11,172

13,398

10,182

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.

Cash flows from operating activities
The company has a stable source of operating cash flow and has reduced its debt repayment period (interest-bearing debt
divided by operating cash flow) from 5.8 years in FY03/10 to 1.8 years in FY03/21. In FY03/22, the debt repayment period
increased to 2.9 years due to a YoY increase in interest-bearing debt and a YoY decline in operating cash flows.

Cash flows from investing activities
The company’s investing 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.

TOKAI Holdings/ 3167
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70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.jp71Major shareholders
Top shareholders

Shares held

Shareholding ratio

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

16,131,400

12.3%

Aioi Nissay Dowa Insurance Co., Ltd.

7,559,820

5.8%

Suzuyo Shoji Co., Ltd.

5,799,700

4.4%

Custody Bank of Japan, Ltd. (Trust account)

5,236,000

4.0%

Tokio Marine & Nichido Fire Insurance Co., Ltd.

4,361,887

3.3%

The Shizuoka Bank, Ltd.

4,065,527

3.1%

Sumitomo Mitsui Trust Bank, Ltd.

3,816,000

2.9%

TOKAI Group Employee Stock Holding Association

3,808,101

2.9%

Mizuho Bank, Ltd.

3,588,577

2.7%

Astomos Energy Corporation

2,724,848

2.1%

131,357,097

100.00%Shares outstanding (excluding 8,322,880 treasury shares)

Source: Shared Research based on company data
(As of March 31, 2022)

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 4,407 employees (consolidated basis) and 898 part-time workers as of end-March 2022.
The number of employees in each business segment is presented below (part-time workers in parentheses).
Energy: 1,483 (383)Construction, Equipment, and Real Estate: 410 (133)
CATV:657 (82)
Information and Communications: 1,276 (103)Aqua: 154 (59)Other businesses: 273 (166)
Corporate: 154 (24)
As of end-March 2021, there were 88 employees at the holding company with an average 14.7 years of employment andaverage annual salary of JPY6.7mn.
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
2,434 employees as of end-March 2021.

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

Investor relations
The company holds earnings briefings following release of first half and full-year business results.

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72

News and topics
Strengthening the Information and Communications business forcorporate clients in the Chugoku and Shikoku areas by openingof Okayama office2022-04-01

On March 31, 2022, TOKAI Holdings Corporation announced that group company TOKAI Communications Corporation,
which runs the Information and Communications business, will open its Okayama office on April 1, 2022. The Okayama
office is TOKAI Communications' fifth business base for corporate information services after Shizuoka, Tokyo, Osaka, andNagoya.
In recent years, TOKAI Communications has seen its business grow with companies in the Chugoku and Shikoku areas. The
company decided to open an office in Okayama to move physically closer to customers and partners to facilitatecommunication with them.

Completed and began operation of IP network-based
terrestrial broadcasting backup system
On the same day, TOKAI Holdings Corporation announced that subsidiary TOKAI Cable Network Corporation had completed
and started operation of an internet protocol (IP) network-based backup system for terrestrial broadcasting.
The backup system can deliver high quality terrestrial broadcasts over long distances by using IP to transmit terrestrial
broadcasts via the company's CATV network.
The system will be able to transmit broadcasts when terrestrial broadcast signals cannot be transmitted via transmitting
stations such as broadcasting towers because of lighting strike and other emergencies. The system receives broadcast signals
from broadcasting towers in other areas of Shizuoka Prefecture and transmits the signals over a wide area via the company's
CATV network. This allows customers who subscribe to the company's CATV service to continue to watch terrestrial television
broadcasts when transmission failures occur.
The system was developed after the greatest lightning strikes since records began in Ishikawa Prefecture interrupted
broadcasts by two commercial TV broadcasters in January 2018. Believing that it was the responsibility of CATV companies tocontinue to provide a broadcasting service when a major accident occurs (such as a TV broadcast blackout), the company
engaged in talks with broadcasters in Shizuoka Prefecture about building an emergency backup system. The company plansto operate the new system to provide a more robust TV viewing environment to residents of its service area.

Began handling carbon-neutral LPG
2022-02-01

On January 31, 2022, TOKAI Holdings Corporation announced that its wholly owned subsidiary, TOKAI Corporation, began
handling carbon-neutral LPG.
In May 2021, the TOKAI group formulated the Carbon Neutral Vision with an eye toward the achievement of carbon
neutrality by 2050. In the vision, as a gas retailer, the company aims to actively participate in the gas industry's efforts todecarbonize. The vision also states that the company will contribute to decarbonization through, for example, theprocurement and sale of carbon-neutral gas.
This announcement to begin handling carbon-neutral LPG is one of the measures aimed at materializing the vision. TOKAI
Corporation will purchase carbon-neutral LPG from Astomos Energy Corporation and begin selling it to corporate customers
who are working to decarbonize their businesses. As an energy company, TOKAI Corporation will strive to reducegreenhouse gas emissions by promoting the use of carbon-neutral LPG. At the same time, the TOKAI group will work to
decarbonize its operations by using carbon-neutral LPG for LP gas used at its offices.

TOKAI Holdings/ 3167
Research Coverage Report by Shared Research Inc. | https://sharedresearch.jp73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.jp74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 to

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75improving 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 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.

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.

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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, Prime Market

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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77About Shared Research Inc.
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