TOKAI Holdings Corporation(TSE: 3167)

IR Discussion Material

About the TOKAI Group

Energy (LP gas or city gas)

Communication (Fixed broadband) (ISP)

Number of LP Gas Direct Sales Consumers: No. 3 inIndustry (*1)

Communication (Mobile)

Internet Service Provider Sales: No. 4 in Industry(*2)

Communication (Information andcommunication services for companies)

CATV

Aqua





Housing construction and renovation

Security

CATV Sales in Urban Areas: No. 3 in Industry (*3)

No. of Customers in the Water Delivery Business: No. 6 inIndustry (*4)

Nursing, bridal and other businesses

Sources: 1. LP Gas Annual Report Facts and Figures, 2015 Edition; 2. Nikkei MJ, Nov. 5, 2014; 3. Nikkei MJ, Nov. 11, 2015; 4. Japan Delivery Water & Server Association, Yano Research Institute Inc., Mineral Water Market 2015

A Group Providing People with Lifelines
A history of our continuous expansion of energy and other services
indispensable for people’s lives
 TOKAI was founded in 1950. Engaged in a range of services from city gas to LP gas, we expanded our business area from Shizuoka
Prefecture to the entire Kanto region. Moreover, we diversified into offering a wide variety of life-related services in the era of advanced
growth. We are now vigorously developing our Aqua and nursing services in new fields.

 Aqua business (2007~)
 Nursing business (2011~)
FULL-FLEDGED PARTICIPATION IN
COMMUNICATION SERVICES
 Dial-up Internet business (1996~)
 Broadband Internet business (2001~)
 Mobile business (2006~)
ERA OF CREATING INFORMATION AND
COMMUNICATION SERVICES
 System development business (1983~)
 Data center business (1985~)
 CATV broadcasting business (1988~)
ESTABLISHMENT OF FOUNDATIONOF ENERGY BUSINESS






 City gas business (1950~)
 LP gas business (1959~)

1950

DIVERSIFICATION OF LIFE-RELATEDSERVICES

1970

1980

Housing facilities business (1970~)
Wedding hall operation business (1972~)
Insurance business (1973~)
Security business (1984~)

1990

2005

Holding company to create a system providing
total solutions

 Information and communication services, in which we have engaged in a full-fledged manner since the 1980s, have now grown intopillars of the gas business and the Group's earnings.
NEW LIFE-RELATED SERVICES

2011

1

Number of Retail Customers of the Group
Robust earnings base of Group derived from monthly fee income from ongoingcustomer transactions
 As of March 31, 2015, the number of retail customers was 2.54 million. Of these, over 50% (1.32
million) are gas and CATV customers with connections built through face to face contact.


Since the 2000s Internet, Mobile, and CATV customers have grown dramatically.

Aqua

240

130

(Unit: thousand)Gas (LP and City)

Communication(Mobile)Communication(Internet)

2.52 million
2.19 million

630↑
1.58 million

860

2.54 million

Weaker690
CATV

1.14 million

Customer
service0.89 million
Stronger↓2

Actively Expanding Regionally
Customer base has spread from Shizuoka Prefecture
and the Kanto region to all over Japan TOKAI possesses a strong customer base, mainly in Shizuoka
Prefecture and the Kanto region (Tokyo and 6 prefectures), thelargest domestic commercial zone.
 TOKAI’s CATV business has spread to Nagano and Okayama
prefectures. Our share of the broadcast-available area of
Nagano Prefecture exceeds 90%, and we provide communitybased broadcasting and communication services.
 We have developed our ISP and Aqua businesses nationwide,
and we have customers throughout Japan.

Over 1,000,000 ・・・Shizuoka (1)Shizuoka Head Office and Tokyo Head Office
Branches and offices of operating companies

Over 200,000

・・・Kanagawa, Saitama, Chiba (3)Over 100,000

・・・Tokyo, Nagano, Okayama (3)Over 30,000

・・・Tochigi, Ibaraki, Gunma (3)Over 5,000・・・Fukushima, Aichi, Miyagi, Niigata, Yamanashi (5)Over 1,000

・・・Gifu, Osaka, Mie, Yamagata, Hyogo, etc. (8)Under 1,000

・・・Aomori, Fukuoka, Hiroshima, Kyoto, Shiga, etc. (24)3Operating Income by Segment
Earnings created by the gas business stabilizes Group earnings and generates
cash for growth businesses

As regards information and communication services, in this fiscal year (FY2015) TOKAI started the full-scale Hikari collaboration*1 and has made upfront
expenses (¥3 billion) to strongly uncover and win new customers.



The CATV business has posted stable earnings, despite the impact of the completion of terrestrial digitization in FY2012. Sales of the FTTH communication
service by itself have grown into the broadcast-available households area, and from now on we expect a further expansion of earnings.



The Aqua business, in which eight years have passed since its launch in FY2007, has been developing nationwide since FY2013, and should go into the blackin FY2016.

FY2011Result

FY2012
Result

FY2013Result

FY2014
ResultForecast

FY2016Plan

FY2015

Gas andpetroleum(¥ billion)

7.8

7.4

6.5

7.7

7.9

7.5

Information andcommunication(¥ billion)

5.5

4.9

4.4

5

2.7

5.2

CATV

(¥ billion)

2.3

1.3

1.8

1.7

1.8

2

(¥ billion)

1

0.6

1.4

1

1.4

1.9

Aqua

(¥ billion)

- 0.9

- 0.9

-2

- 1.3

-1

0.2

Other businesses
and adjustments(¥ billion)

- 4.8

- 4.3

- 4.7

-5

- 5.1

- 4.2

All companies(¥ billion)

10.9

8.9

7.4

9

7.8

12.6

Building
construction andreal estate*1. Hikari collaboration: A model where NTT provides ISP operators and others with optical fiber lines they can use to provide their own-branded optical fiber broadband services.
*2. On basis of before allocation to indirect expenses, etc.
*3. Forecast for FY2015 was disclosed in May 2015. Plan for FY2016 was disclosed in June 2014.

4

Medium-term Management Plan
Innovation Plan 2016 “Growing”

An aggressive plan to raise earnings to record levels in FY2016
 TOKAI regained financial soundness by the FY2011-FY2013 medium-term management plan (Innovation Plan 2013), which had been our
maximum concern. Currently, we are proceeding with the next medium-term management plan (FY2014-FY2016): Innovation Plan 2016 “Growing.”
 TOKAI aims to achieve an approximately doubled EPS compared with the end of FY2013 to raise earnings to record levels in FY2016. (Operating
income of ¥12.6 billion and net income of ¥6.2 billion.) TOKAI also aims to achieve a capital adequacy ratio of about 30%, and plans to have interest-bearing liabilities at the level of half the figure of ¥124
billion, as they were before the Group integration in FY2010.

FY2010Result

FY2013Result

FY2014Plan

FY2015Plan

FY2016Plan

Net sales(¥ billion)

174.9

189

196.9

202.3

209.5

Operating income(¥ billion)

10.8

7.4

8.2

9.7

12.6

Net income(¥ billion)

2.2

2.6

3.2

4.0

6.2

Net earnings per share(¥/share)

30.48

22.67

27.86

34.91

54.06

EBITDA(¥ billion)

26.3

24.9

25.2

26.7

28.7

Interest-bearing
liabilities(¥ billion)

124

85.8

81.8

74.1

64.7

（%）

7.7

21.6

23.0

25.1

28.6

Capital adequacy ratio* FY2014-FY2016 plan was disclosed in June 2014

5

Progress With Medium-term Management Plan (1) Earnings
This fiscal year, the final year of the plan, TOKAI should adequately get the benefit of the advanceinvestment made in sales promotion costs for the fiber optic broadband service collaboration
In FY2014, net income exceeded the innovation plan IP16 and achieved a record figure. This fiscal year (FY2015), TOKAI started the full-scale Hikari
collaboration and will incur one-time reduced earnings due to the current upfront expenses (¥3 billion) for sales activities to win new customers. (From next
fiscal year, TOKAI expects increased earnings from fee income and so does not expect any impact on FY2016 earnings.)Performance in the first half of FY2015 saw profits significantly exceed initial plans and steady progress is being made toward full-year projections.
Uncertainties are inherent in the LP gas business in the second half, so we will defer revising the full-year forecast.

The main factors for increased earnings from FY2015 to FY2016 are improved earnings in the Aqua business, increased earnings in the Hikari collaboration,
increased earnings due to a larger number of customers mainly because of an expanded LP gas area, and reduced expenses due to the end of theamortization of goodwill generated at the time of the management merger.

IP16

results and plan
12.6

80IP16

results and plan

54.06

Earnings per share (¥/share)

70

12.6

34.16

6.2

60

6.2

50
9.0

40

7.8

30

IP16

results and plan

50

9.7
8.2

60
40
20

4.0

10
0

3.9

‐10

3.2

28.7

30

28.05
3.2

28.7

26.7

26.2
25.2
25.3

‐20

20

‐30
10

‐40

0

FY2014FY2015FY2016

Operating income (¥ billion)‐50

FY2014FY2015FY2016

Net income (¥ billion)

FY2014FY2015FY2016

EBITDA (¥ billion)* IP16 was disclosed in June 2014. Actual and Planned denote FY2014 actual results and forecasts for FY2015 (disclosed in May 2015) and FY2016(disclosed in June 2014)

6

Progress With Medium-term Management Plan
(2) Financial Conditions
TOKAI expects to achieve the plan targets for improving financial conditions by the end of the first halfof FY2015
 The improvement in financial conditions has now exceeded the IP16 pace. TOKAI expects to achieve targets for both capital adequacy
ratio and interest-bearing liabilities in FY2015, due to increased net income in FY2014 and to increased operating cash flows.

90,300IP16
81.8

80,30070,300IP16

results and plan

results and plan

32.0

30.1

74.1
73.1

72.5

64.7

60,300

30.0

63.1

28.0
50,30026.040,30030,300

25.7

26.1

28.6

25.1

24.0

20,30022.0

10,300
300

23.0

20.0

FY2014FY2015FY2016

Interest-bearing liabilities (¥ billion)

FY2014FY2015FY2016

Capital adequacy ratio (%)* IP16 was disclosed in June 2014. Actual and Planned denote FY2014 actual results and forecasts for FY2015 (disclosed in May 2015) and FY2016 (figures disclosed in June2014 from beginning of the period for actual results and reflecting forecasts)

7

Breakdown of Capital Investment During FY2014-FY2016
TOKAI is investing ¥34.7 billion over 3 years, and is allocating 63% as growth investments
to increase the number of retail customers and other businesses The main businesses receiving investments are gas and petroleum, CATV, and information a communication services.
 Of this, ¥21.9 billion, or 63%, is growth investment and the remaining ¥12.8 billion will be maintenance investment for existing equipment.
 The main growth investments are directed at the gas business (LP and City), facilities to win new customers in the CATV business,
expanding facilities for optic-fiber trunk line transmission to expand communication demand for companies, together with data centers.
TOKAI is also investing in mega solar.

0.9 billion

Building
construction
and real estate LP gas conduits for customer

0.6 billion
0.2 billion

3.8 billion

Gas andpetroleum

Growthinvestment

10.1

21.9

billionCapital investment
during FY2014-FY2016
Information andcommunication
services City gas conduits for facilities
 CATV-FTTH facilities
 Expansion of optic trunk-line
transmission facilities
 Data center facilities

34.7

 Mega solar

billion

9.4

（63%）

facilities

billion
CATV

9.7

Investment tomaintainfacilities

12.8

billion* FY2014-FY2016 plan was disclosed in June 2014

Breakdown of capital investment

8

FY2014-FY2016 Cash Flows
TOKAI has created ¥41.3 billion in free cash flows, as underlying assets for debt
repayments or shareholder returns
 As regards cash flows during FY2014-FY2016, operating cash flows should exceed IP16 and free cash flows should
also exceed plan targets.
 Free cash flows are forecast to significantly exceed ¥3 billion.

(Units: ¥ billion)

Free cash flows

Free cash flows

37.8

41.3

Operations cash flows

Operations cash flows

70.8

72.9
Investment cash flows

Investment cash flows

33.0

31.6

Innovation Plan 2016 “Growing”(Disclosed in June 2014)

FY2014 results and FY2015-FY2016 plan
(FY2015 forecast was disclosed in May 2015,
FY2016 plan was disclosed in June 2014)9

Approach to Shareholder Returns
TOKAI’s policy in FY2015 is to achieve a total return ratio of 100%.
 Aiming for a dividend payout ratio of 40%, TOKAI’s approach is to achieve stable dividends, and when surplus cash has been
generated, we will flexibly return it by purchasing TOKAI shares or alternative methods.
 For FY2015, the annual dividend is expected to be ¥12 (comprising an interim dividend of ¥6 and a year-end dividend of ¥6), and thetotal dividend amount to be ¥1.4 billion. In addition, we intend to purchase ¥1.8 billion of treasury stock because our business results
have been progressing steadily toward the final fiscal year of IP16.
 Moreover, on November 6, 2015, TOKAI canceled 15.52 million of its treasury stock, representing 10% of its issued common shares.

100.0%(Units: ¥ billion)

4

Dividend

Share buy‐backTotal return ratio

90.0%

3

70.0%

52.9%
44.2%
2

40.2%

35.1%

1.8

50.0%

30.0%

1

1.2

1.3

1.4

1.4

1.4

0

10.0%

‐10.0%FY2011FY2012FY2013

FY2014FY201510

Expanding the Area of the LP Gas business
Aiming to further stabilize and expand TOKAI’s earnings foundation,
including through M&A
 TOKAI has been pursuing the expansion of its sales area from the
beginning of the current fiscal year. (We are newly advancing into
one prefecture in South Tohoku and Tokai area.)①

 Not limiting ourselves to electricity set plans alone, TOKAI will also
simultaneously provide a set menu for Aqua, communications,broadcasting and lifestyle-related services. As the only Groupcapable of doing so, we will utilize this strength to push ahead withfinding new customers.

① South Tohoku area LP gas market of 530
thousand households③② Tokai area LP gas market of 2,030
thousand households③ Koshin area LP gas market of 930
thousand households②
Kanto (Tokyo and 6 prefectures)+ Fukushima Prefecture

Shizuoka Prefecture
・・・New area
・・・Kanto area and Fukushima Prefecture
・・・Shizuoka Prefecture LP gas market of 820
thousand households
 TOKAI share: 19.6%(Top share in Shizuoka
Prefecture)LP gas market of 6,320
thousand households
TOKAI share: 6.3%
(No.2 in Kanto)

11

Opportunity for Further Growth Through Cross-selling
Currently, only 7% of customers make multiple transactions, so there is still a lot of room for future
growth.
 The TLC Members Service was formed in December 2014 with the aim of capturing the business of customers engaging in multiple transactions,and currently the Service has 440 thousand members.
 The effect of the Service has been that 40% less members terminate their contracts as compared to non-members. Looking ahead, it will
effectively reduce costs by anchoring customers.
 Cross-selling by vigorously recruiting members has led to TOKAI gaining results from over five times as many members as non-members.

Number of members of the TLC Members Service

50

7%

40
30

25

20

31

36

38

42

44

16
9

10
0

29

33

40

March 31, Sept. 30, Sept. 30, Dec. 31, March 31, Sept. 30, Sept. 30, Dec. 31, March 31, Sept. 30, Sept. 30,
2013
2013
2013
2013
2014
2014
2014
2014
2015
2015
2015

93%
The ratio of terminated contracts（Note1）of members and non-members

TLC non‐member

Ratio of customers doing multiple transactions
Note1: The ratio of terminated contracts is the result of calculating the number of terminated contracts during
the year of FY2014 divided by the number of customers at the beginning of each month in FY2014
Note2: The ratio of cross-selling contracts is the result of calculating the number of customers who did crossselling each month during FY2014 divided by the number of customers at the beginning of each month in
FY2014

TLC member
0.00%

1.19%

The ratio of cross-sellingof members and non-members （Note2）

TLC non‐member 0.67%
TLC member

0.88%
0.50%

1.00%

1.50%

3.55%

0.00% 1.00% 2.00% 3.00% 4.00%

12

Tie-up With Tokyo Electric Power Company (TEPCO) in
Response to Electric Power Deregulation
TOKAI will also provide services to 20 million households that are customers of TEPCO, independent theGroup's 2.54 million customers
 TOKAI officially agreed on an official tie-up with TEPCO to sell electricity, and from the same day started selling high-voltage electricity to customer
companies in the service area of Chubu Electric Power Co., Inc.
 At this year’s end, TOKAI plans to announce a set menu for the sale of gas, other Group company services, and electricity. From October, TOKAI
has started PR activities about being engaged in electricity sales, and from January 2016 TOKAI will start accepting business reservations.

Targeting households and companies that will be completely affectedby retail sales of electricity after electric power deregulation(Service area of TEPCO and Chubu Electric Power)

TOKAI offers business benefits to customers that sign contracts for set products

LP gasVarious business products andservice-charges plan

Electricity-charges plan in response toelectric power deregulation

TOKAI GroupTEPCO

Hikari
Securitycollaboration

CATV

Aqua

Electricity

セキュリティ

Provision of Total Life
Concierge (TLC) services

Provision of stable electricity powerby virtue of possessing the largest
power supply in Japan13

Promotion of Cross-selling Utilizing Electric Power Sales Opportunities
Starting with the sale of electric power services that are popular in all households, TOKAI is
promoting a set menu of the Group's business products
 Comprehensively proposing (through a set sales menu) the wide variety of life infrastructure services TOKAI possesses by meansof the total 1.5 thousand customer-support staff having face-to-face meetings with customers.
 For customers, TOKAI will contribute to reducing monthly infrastructure costs by about 10%, and examine the effect on the
HikariCompany of increasing earnings by 40%.
TLC points
Aqua
collaboration

Electricity
セキュリティ

Points reflecting
monthly usage

Security

Points reflecting
no. of contracts

LP gasCATV

Addition of TOKAI’s
electricity

Current membershipservice

LP gas

LP gasElectricity

Further addition of
the Group'sbusiness products

Hikaricollaboration

LP gasBenefits gained fromusing the TLC
Members Service
Electricity Hikari
Aqua
collaboration

TOKAI’s profit

100

130

140

Customer’smonthly costー

About 5% reduction

About 10% reduction

14

Future Growth Opportunities for the Group
Aiming for further growth, TOKAI will expand its earnings foundation by area expansion andpromoting membership services
 TOKAI will expand nationwide from peripheral areas by using the community-based life infrastructure service provision model that has
been established in Shizuoka Prefecture and throughout the Kanto region.
 Seizing the opportunities provided by electric power deregulation, TOKAI will push ahead with cross-selling using the foothold ofelectricity sales in order to reduce customer anchoring costs and to efficiently improve earnings by multiple transactions.

LP gasAqua
セキュリティ

Electricity

CATV
Hikaricollaboration

Security

15

Promote Various Further Collaborations
Toward Topline Growth
Enhance the Lifestyle Infrastructure Business lineup through alliances with many influential
businesses

Astomos Energy（Gas suppliers）

Rinnai（Gas device suppliers）

TEPCO((Electric power) supply
partners)

NTT（Optical fiber broadband
line suppliers）

KDDI（Optical fiber broadband
line suppliers）

SoftBank（Mobile phone agency）

Nojima（ISP service acquisition
partners）

Kojima（ISP service acquisition
partners）

K'S HOLDINGS（ISP service acquisition
partners）

J:COM（Broadcast content
buyers）

AIR WATER（Aqua service partners）

Aioi Nissay Dowa
Insurance（Insurance agency
contractors）

ALSOK（Security service
partners）

AEONRETAIL（Members card service
partners）

Amazon Data Services
Japan（Connection service
partners of
TOKAI cloud service）

IBM Japan（Connection service
partners of
TOKAI cloud service）

Google（Connection service
partners of
TOKAI cloud service）

Internet Initiative Japan（Connection service
partners of
TOKAI cloud service）

Techfirm（Systems development
partners）

Microsoft Azure
Microsoft（Connection service
partners of
TOKAI cloud service）

16

（Ｓｕｍｍａｒｙ） Attraction and Growth Opportunities of the TOKAI Group
Expand the earnings base through both service area expansion and crossselling promotion, which will further improve corporate value
 TOKAI, engaged in LP gas, information and communications services, CATV, Aqua, andreal estate businesses, is made up of a unique set of companies unprecedented in Japan.
In the future, we will use this differentiation to further enhance our corporate value.


Among these companies, the Group has more than 100 locations, about 1,500 sales representatives, and 2.25 million customers in
Shizuoka Prefecture and the Kanto region (1.16 million customers in Shizuoka Prefecture and a strong customer base of 1.09 million
customers in the Kanto region has been established as a result of our track record).

 We will continue to efficiently expand our earnings base on the two key points of service
area expansion and cross-selling promotion.
To build a more robust earnings base, we must expand the current business area to include more regions of Japan and build up ourcustomer base further. If we combine cross-selling with the current 2.54 million customers and sales of ¥200 billion, there is hidden
potential to increase operating income to ¥12 billion. We are hopeful this will come about.

Package contracts deployed by the Group will bring in three times more revenue than sales based on the LP gas business alone. Currently,
only 7% of customers have package contracts. We aim to expand power machine sales to all households, including existing customers andnew customers, as it is possible to start promotion of the set sales menu in hopes of effectively improving profitability.

 In the past, our financial structure was fragile with a high debt ratio and significant
improvement was possible before the previous medium-term management plan (FY20112013). In the future, we will shift our focus to ROE, while leveraging profitability
improvement measures.
For profit growth, we believe we must aggressively increase topline growth, including through M&A.



In the Innovation Plan 2016 "Growing" period, we're thinking to strengthen shareholder value. The goal of the plan achievement of the final
year of FY2016, we want to consider, actions such as dividend hikes and share buy back.

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

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