Overseas IR
Thematic discussion material
June, 2017
TOKAI Holdings Corporation(Code: 3167)

Prioritize areas already ezpanded or neighboring
Targeting operators in the areas already established in the neighboring of the LP gas advanced
area (blue in the figure below) and group projects (other than insurance, aqua, industrial etc.)
other than the LP gas business.
From the viewpoint of population dynamics and consumption, priority is given to the Pacific sideand the Setouchi district.
Planned to enter the LPG business
in FY2017

Nagano
Tokyo

Osaka

Fukuoka

Already established area (Other than LPG)

Shizuoka

Okayama

Already established area (LPG)

New area target

Mie

Planned area (FY 2017)

Entered area (other than LPG)
NaganoInsurance Division

Osaka

Aqua Division

Fukuoka

Industrial, Building Management Support
Department

1

TLC model which can be established in Shizuoka prefecture—It is our basic strategy to promote multiple contracts by community-based sales——Gas and CATV business is the basis for TLC because customer contact points
are strong, and providing a high rate of multiple service contracts—
Of these, 16.0% use two
or more services (nationwide: 7%)

Two in three households in Shizuoka
Prefecture are our customers

ShizuokaPrefecture

Kanto area

16.4%

1.1%

(TOKAI Group household contracts)

934 thousand(Households in Shizuoka Prefecture)

1.45 million

Of this figure, gas customers are especiallyeffective targets for cross-selling the Group’s
other services※

City gas

CATV

LP gas

36.6%

32.5%

23.2%

(As of March 31, 2017)※ The number of households in Shizuoka Prefecture is as of April 1, 2017 according to “Shizuoka Prefecture
Population Statistics, by City, Ward, Town, and Village,” Shizuoka Prefectural Government.
Contracts by the TOKAI Group as of March 31, 20172

Advancement of Broadcasting in CATV (Toward optical line)
The Ministry of Internal Affairs and Communications is targeting the penetration rate of 4K broadcasting to 50% for the2020 Tokyo Olympic Games.
In order to provide 4K broadcasting in the CATV infrastructure, it is necessary to optical line (FTTH), our Group havepromoted change the line to optical from 2008 . →Cover almost the entire area in 2020.
We assume that many small and medium-sized operators that can not make capital investment will come out in the near
future.
End of 2020
4K (compatible) TV
To Tokyo Olympic 4K viewing
28.55 million units * 2(August 2424)
Aim for penetration rateof 4K broadcasting 50%

4K tuner Built-in TV
release (forecast)(Ministry of Internal Affairs andCommunications Japan revitalization
strategy 2016)

June, 2418:
Russia 2418 FIFA World Cup

April, 2418:
BS/CS4K practical broadcasting start

FY2418 summer

6.86 to8.35mn unit※1

4K tuner built-in TV(Dedicated antenna isrequired for 4K viewing * 3)

As of the end of December 2416
(JEITA shipment record cumulative total)
Business
opportunities

2.11mn unit

FY2416

4K Tuner not equipped TV(Requires 4K tuner anddedicated antenna * 3)

FY2417

FY2418FY2419FY2424*1"6.68mn units" are from JEITA"Worldwide Demand Trend of AV& IT Equipment"(Adjusted actual difference in 2016)"8.35mn units" are cited from
Nomura Research Institute"IT Navigator 2017".
Both are intermediate values
between 2017 and 2018
*2
Number of basic resident registryhouseholds and 50% of the total
number of households in FY2020
estimated by the National Social
Security and Population ResearchInstitute "Estimation of the numberof households in Japan" by 2020
Fifty percent (1 household)*3
BS / CS Ezchange required fromthe current antenna to watch left-turnbroadcasting3Competition due to liberalization of city gas
Liberalization of full gas retailing of city gas began on April 1, 2017.
Traditionally gas companies that monopolized the supply area and were protected by regulated fees
were also exposed to competition and the environment changed completely.

4

Promote M&A by all our group
The group M&A Promotion Office, a newly established investment special department established within HD,
is the promotion agency. Supporting projects promoted by operating companies (Candidate inspection andevaluation using ezternal advisors at the initial stage).
"M & A Promotion Council" consisting of HD top and constituent members of each business company top is
promoted base.
M&A Promotion Council
TOKAI Holdings
Top management

Katsuhiko Tokita
President & CEOGroup M & A Promotion Office(Utilizing external advisors as well)

ＴＯＫＡＩ(The top)

ＴＯＫＡＩＣＯＭ(The top)

Tokai gas
(The top)

ＴＣＮ(The top)

ＴＯＫＡＩＨＤ

Consideration
Selection of candidates for M&A

Annual plan formulation(budget formation)

5

Reason to turn to aggressive management (M&A)
Maturity of the market and intensification of competition between operators are on the rise incosts, and operators who are considering business continuity due to successor problems andliberalization also tend to increase.
In addition to sales that accumulates one case per case, it is judged that efficient baseezpansion by M & A is also a rational strategy.

The opponent company

Our group
Maturity of the market(Slowing growth)

Successor problem
Insufficient investment
capacityCompetition intensification
Increased burden of
acquisition cost

Timing of M&A for
both companies

Impact of liberalization

6

Achievements after the HD structure◎ Achieved operating income of 12.8 billion yen (record high) in fiscal 2416

◎ Net income tripled. +5.1 billion yen (2.2 billion yen ⇒ 7.3 billion yen)
◎ Interest bearing debt halved. -69.9 billion yen (124 billion yen ⇒ 54.1 billion yen)
◎ Equity ratio improved significantly （7.7％⇒34.5％）
Improve profitability by eliminating
upfront costs

LPG purchase, BB · Aqua upfront cost
increased

14.8

FY201014.9

FY2011Three times more than in 2010
30.48

27.17

29.85

22.67

2.2

2.7

3.1

2.6

FY2010FY2011FY2012FY201312.8
8.9

FY20127.4
FY20139.4

FY20148.2
FY2015FY2016

64.46

Earnings per share (¥)

Operating Income（¥bn）

34.16

30.01

3.9

3.5

FY2014FY2015

7.3

FY2016Net Income（¥bn）
Equity ratio improved significantly

Half balance after HD structure
124.4

FY2010145.7

FY201193.7

FY201285.8

FY2013

34.5
14.3

73.1

FY201471.4

FY2015Interest bearing debt（¥bn）

54.1
FY2016

18.6

21.6

25.7

25.6

FY2014FY20157.7

FY2010FY2011FY2012FY2013Equity ratio（%）

FY2016

7

Financing plan in the new medium-term plan
For the four-year total cash flow, FCF is ezpected to be minus 38.9 billion yen, because¥121.7bn earned by sales activities and invests ¥160.6bn. And anticipate ¥36.5bn as dividends
and other payments, so procurement will be ¥75.4bn.
It is necessary for ¥94.1bn against M&A investment of ¥100bn yen, we plan to allocate¥18.7bn from ezisting business.
FY2017 to FY2020
Cash flows from operating
activities
Cash flows from investing
activities
Free cash flow
Financial Cash
Flow

Procurement andallocate for M&A
Dividend and otherpayments
Total

Existing
business

M&A
Investment

Total¥110.1bn¥11.6bn¥121.7bn(¥59.2bn)(¥101.4bn)(¥160.6bn)¥50.9bn(¥89.8bn)(¥38.9bn)(¥18.7bn)¥94.1bn¥75.4bn(¥32.2bn)(¥4.3bn)(¥36.5bn)(¥50.9bn)¥89.8bn¥38.9bn

8

Numerical targets include doubling sales in
FY03/21 versus FY03/17
Target sales of 274.3 billion yen and operating profit of 18.5 billion yen for established businesses, plus M&A to attain
FY03/21 sales of 339.3 billion yen and operating profit of 22.5 billion yen (up 90% and 80%, respectively, versus FY03/17).
Target 70% increase in customer count to 4.32 million over the same period.
Target interest-bearing debt/EBITDA ratio of 2.8z, equity ratio of 31.6%, and ROE of 13% by management focused on
capital efficiency.
(Billions of yen)

FYE 3/17

FYE 3/18

FYE 3/19

FYE 3/20

FYE 3/21

ResultTargetTargetTargetTarget

Sales

178.6

189.4

202.0

224.4

(+90%)

393.3

Operating profit

12.8

11.4

14.0

16.2

(+80%)

22.5

Net income

7.3

6.4

7.9

8.7

(+60%)

11.5

Total assets

161.1

169.8

173.8

191.2

(+80%)

283.5

2.0x

2.4x

2.2x

2.0x

2.8x

Equity ratio

34.5%

33.9%

35.6%

34.9%

31.6%

ROE

15.2%

11.1%

12.8%

13.0%

13.0%

2.56

2.88

2.99

3.72

Interest-bearing debt/EBITDA
ratio

Customer numbers (millions)(+70%)
Over

4.32

Note: () denotes increase versus FY03/17

9

Evaluation of electricity liberalization
There is no withdrawal of our customers due to electricity.
For retailers, margins are low, and for consumers, it is not an attractive fee either.
We will position it as TLC's product line-up, and will proceed in a natural way.

Electricity application status nationwide
General household
sector number ofArea

subscriptions ※1･･･①

Low pressure switching (transition to new
Number ofhousehold※1･･･②electric power) Number of applications ※2

As of Apr.
30･･･③③÷①③÷②

Former generalelectric utility(reference)High altitude ·New price transition countHigh voltage
switching ratio
As of February
2017

operator
New Fee Count※3
･･･④

③＋④
･･･⑤

⑤÷①

⑤÷②

Hokkaido Electric Power

2,760 thousand 2,751 thousand

175.4 thousand

6.4%

6.4%

2.115 thousand

178 thousand

6.4%

6.5%

19.0%

Tohoku Electric Power

5,467 thousand 4,578 thousand

130.7 thousand

2.4%

2.9%

19 thousand

150 thousand

2.7%

3.3%

8.4%

20,743 thousand

1,941.1 thousand

8.5%

9.4%

685 thousand 2,626 thousand

11.4%

12.7%

15.3%

Chubu Electric Power

7,615 thousand 6,602 thousand

315.4 thousand

4.1%

4.8%

1,043 thousand 1,358 thousand

17.8%

20.6%

7.4%

Hokuriku Electric Power

1,237 thousand 1,154 thousand

22.1 thousand

1.8%

1.9%

9 thousand 32 thousand

2.5%

2.7%

0.9%

Kansai Electric Power

10,067 thousand 9,503 thousand

780.0 thousand

7.7%

8.2%

285 thousand 1,065 thousand

10.6%

11.2%

19.1%

Chugoku Electric Power

3,499 thousand 3,315 thousand

51.9 thousand

1.5%

1.6%

340 thousand

392 thousand

11.2%

11.8%

5.1%

Shikoku Electric Power

1,941 thousand 1,755 thousand

39.9 thousand

2.1%

2.3%

13 thousand 52 thousand

2.7%

3.0%

5.5%

Kyushu Electric Power

6,218 thousand 5,929 thousand

238.7 thousand

3.8%

4.0%

96 thousand

334 thousand

5.4%

5.6%

9.7%

Tokyo Electric Power22,966 thousand

Okinawa Electric Power760 thousand

622 thousand

0.0 thousand

0.0%

0.0%

0.9 thousand 0.9 thousand

0.1%

0.1%

2.7%

Total

62,531 thousand

56,951 thousand

3,695.2 thousand

5.9%

6.5%

2,492 thousand 6,187 thousand

9.9%

10.9%

12.0%

※1 Number of subscriptions is "Used Electric Light A, B, C at the end of March 2016 and low-voltage electricity", the number of households is "Basic Resident Register on January 1, 2016“(Based on sales volume)※2 Number of applications applied from local power company to local electric power company (ezcluding transition to new price menu within regional power).
※3 The number of switchover contracts within the company of the former general electric utility company (regulation ⇒ freedom) is "Electricity Gas Transaction Monitoring Committee Electric Power Transaction
Report <Switching Results (End of February)".

10

Situation of city gas liberalization
Unlike electricity, the gas conduit is not connected throughout Japan, the proportion of consignment fee toretail is highNew entry is a very high barrier

Hokkaido
TohokuKanto
Chubu, Hokuriku
Kinki
Chugoku, Shikoku
Kyushu, Okinawa
Nationwide

10-Mar24-Mar

7-Apr

21-Apr

5-May

19-May

－

－

－

－

－

－

（－）

（－）

（－）

（－）

（－）

（－）

－

－

－

－

－

－

（－）

（－）

（－）

（－）

（－）

（－）

（－）

10,605（－）

46,533

3,284

8,977

14,91519,882

27,176（＋3,284）（＋5,693）（＋5,938）（＋4,967）（＋7,294）

15,634

20,17925,25028,93532,667（＋5,029）（＋4,545）（＋5,071）（＋3,685）（＋3,732）

71,213

96,230124,790

135,651

146,550（＋24,680） （＋25,017） （＋28,560） （＋10,861） （＋10,899）

（－）

－

－

－

－

－

－

（－）

（－）

（－）

（－）

（－）

（－）

654
（－）

57,792
（－）

2,272

4,956

6,504

7,455

8,914

（＋1,618）（＋2,684）（＋1,548）（＋951）（＋1,459）

92,403130,342

171,459

191,923

215,307（＋34,611） （＋37,939） （＋41,117） （＋20,464） （＋23,384）※ Numbers in parentheses indicate changes from previous published figures11

Estimating 10,000 customer cross-selling models by M&A
When acquiring a business operator with a customer base, it is possible to sell various dailyliving-related products of the group to the customer.
Based on the results of our company, we estimate the following four services, it is ezpected tocreate synergies.
Addition service

Total
Customer base

CATV

City gas

LP gasInternet

Aqua

Housing/Renovation

Security

Overlap rate：10.0%
Increase in sales：¥12mn
Increase in profit：¥1.2mnOverlap rate：4.5%
Increase in sales：¥22mn
Increase in profit：¥10mn

Overlap rate：0.79%
Increase in sales：¥67mn
Increase in profit：¥17mn

Overlap rate：0.81%
Increase in sales：¥2.9mnIncrease in profit：¥1.5mnIncrease in sales：¥104mnIncrease in profit：¥30mn

Overlap rate：14.0%
Increase in sales：¥58mn
Increase in profit：¥21mn

Overlap rate：5.86%
Increase in sales：¥29mn
Increase in profit：¥13mn

Overlap rate：3.00%
Increase in sales：¥136mnIncrease in profit：¥34mn

Overlap rate：1.54%
Increase in sales：¥5.5mnIncrease in profit：¥2.9mnIncrease in sales：¥229mnIncrease in profit：¥71mn

Overlap rate：9.73%
Increase in sales：¥40mn
Increase in profit：¥15mn

Overlap rate：5.57%
Increase in sales：¥28mn
Increase in profit：¥13mn

Overlap rate：0.79%
Increase in sales：¥67mn
Increase in profit：¥17mn

Overlap rate：2.15%
Increase in sales：¥8mn
Increase in profit：¥4mn

Increase in sales：¥143mnIncrease in profit：¥49mn

Overlap rate：4.19%
Increase in sales：¥21mn
Increase in profit：¥10mn

Internet
Unit price(¥/item・month)
Sales / Profit

CATV 1,000/100
Others 3,456/1,264

OW4,179/1,914

Increase in sales：¥21mn
Increase in profit：¥10mn
CA,LP850/215
TG453/113

Household use 2,967/1,567

12

TLC model which can be established in Shizuoka prefecture—It is our basic strategy to promote multiple contracts by community-based sales——Gas and CATV business is the basis for TLC because customer contact points
are strong, and providing a high rate of multiple service contracts—

Two in three households in Shizuoka
Prefecture are our customers

Of these, 16.0% use two
or more services (nationwide: 7%)
ShizuokaPrefecture

Kanto area

16.4%

1.1%

(TOKAI Group household contracts)

934 thousand(Households in Shizuoka Prefecture)

1.45 million※

Of this figure, gas customers are especiallyeffective targets for cross-selling the Group’s
other services

City gas

CATV

LP gas

36.6%

32.5%

23.2%

(As of March 31, 2017)※ The number of households in Shizuoka Prefecture is as of April 1, 2017 according to “Shizuoka Prefecture
Population Statistics, by City, Ward, Town, and Village,” Shizuoka Prefectural Government.
Contracts by the TOKAI Group as of March 31, 201713

TLC membership system effective for continuation and multiple contracts
Institutionalized in December 2011 to further eztend long-term continuity and multi-transaction(cross-selling) measures to 2.56 million customer base.
TLC points are awarded according to the usage amount of group service (1 point of basic point formonthly usage charge of 200 yen) and the number of contracts of service (bonus points 50 to 500
points according to the number of contracts)
Electricity

Internet

LIBMO

CATV

Aqua

Security

586

City Gas

Group Services

676

LP GasMembers ezceeded 600,000（Thousand）

◎

ー

ー

◎

◎

◎

◎

◎

600

491

Basic Points※ Receive 1 TLC point per 200 yen of monthly usage
amount of target 6 services

366
306

◎

92

End of Mar.
2013

End of Mar.
2015

End of Mar.
2016

End of Mar.
2017

End of May
2017

◎

◎

◎

◎

◎

◎

※Receive TLC points according to the number oftargeted 8 services contracts• 2 contracts → 50 points• 3 contracts → 150 points• 4 contracts → 300 points• 5 contracts → 500 points

Bonus Points

End of Mar.
2014◎

End of Mar.
2018
(Plan)

14

40 million customer contact points per year are our strengths
We have 40 million customer contacts annually in the group as a whole (4.51 million times online incontact with customers directly, 35 million times offline in contact with web or mail).
In particular, the customer's contact in the gas and CATV business, which is in contact withcustomers on a face-to-face basis strongly, and this is also evident in cross-selling results.
(Counts per year) (Thousand)

Delivery Collection
Gas customers

1,630

Aqua customer

430

Call
CenterSales
Activity

HP
Access

430

250

160

ー

2,690

1,500

ー

2,450

1,210

1,310

2,910

220
ー

510

ー

Total

CATV customers

ー

ー

360

ISP customers

ー

ー

600

ー

8,880

17,76027,240

TLC members

ー

ー

40

ー

240

3,930

4,210

12,00023,00039,510Total※FY2014 result

2,070

220

1,950

30

E-MailMagazine

280

Contact directly

Web or E-Mailmagazine

4,510

35,00015

Information system that centrally manages cross-sell information
Instantaneously convey information necessary for cross-selling promotion, such as
introduction information and prospect information, and combine it with closing.

TOKAI

TOKAI

Cross-sellingbusiness
LIFE Plus
City Service

Electicity

Customers

LP gasDiscover Needs
Tokai Gas
City gas

Nursing
Care

TOKAI
Bottledwater

BraidalTCS

TOKAI
Security

CATVｖ
Providing
destination
Salesperson

KCT

TOKAI

Transfer and sharebusiness information
across group companies

CATV
LCV
CATV

Renovation
TOKAI

EST
CATV

Housing

COM
AIC

BB

TCN

CATV

CATV

ICN

Company

ProvidingSalesperson

CATV

Business

16

Promote multiple trading with "TLC Kasatok Plus"（ＴＬＣ Kasanete Tokusuru Campaign + TOKAI Ｓｍａｒｔ Ｐｌuｓ ）As a new cross-selling measure, in addition to the previous point return program, we started"TLC Kasatoku Plus" from FY2019, which provide customers with incentives for multiple trading.
Developed as a new measure incorporating electricity and LIBMO.
Applicable services
LP gasAqua

CATVInternet

Security

Housing/Renovation

Electricity

LIBMO

TOKAI Group service users (ezisting customers of the applicable services) add another applicable service, resulting
multiple contracts.
If the customer canceled a service and only one or no services remain, the multiple-transaction benefit stopped.

Qualification

Monthly

200 TLC Points / month (each 1 contract)

Initial time only

LIBMO
HousingRenovation

Benefit：：：2,000 TLC Points / registration
10,000 TLC Points / delivery
3,000 TLC Points / delivery

Up to 60 months (5 years)

Benefit providing period
Example: Conceptual
image of application

LP gasCATV

LP gasCATV

35+13＝48

35+13+21＝69

Bonus points

54

154

Kasatoku points

244

444

35

298

619

Customer benefit

－

- 3%

- 5%

Our gross margin(*)

144

144

174

Basic points

NEW

LP gas

Total

35*Profit (ezclude customer benefit) level when the current LP gas gross profit is taken as 100

Aqua

17

Cross-selling thorough (Challenge to multiple trading ratios of 20%)
Challenge to raise the multiple trading rate from 7%(current situation) to 20% and anincrease of 1.7 billion yen.
Number(Thousands)

Current
multiple
trading
rate (%)

LP gas588

City gasAqua

Base
customer

Additional items to be sold to ezisting customers (Thousands)Multiple
trading
rate in
FY2020
(%)

Aqua

BB
(Broadband)

CATV

Security

Low-cost
SIM

9.9

21

28

9

1

12

5

75

23.5

54

36.6

3

8

5

0.1

2

1

19

74.9

135

24.5

1

3

7

5

0.0

1

1

18

48.1

（Include
MVNO）

827

9.2

20

5

21

0.2

53

9

109

29.1

CATV

733

18.0

13

2

14

0.1

10

4

43

31.1

Security

17

49.5

0.1

0.0

0.1

0.0

0.2

0.4

52.3

BB

LP gasCity gas

0.0

0.0

New
item

Total

～
～
Total

2,564

～
～

7.4

34

11

60

42

19

1

78

20

266

24.4

18

Business Model
Earnings model (LP Gas (Shizuoka)) based on acquisition cost (acquisition cost + advertisement ezpenditure) 59.5 thousand yen / gross profit per case 6.040 thousand yen /Gross profit per item (Thousand of yen)
Acquisition cost per case (Thousand of yen)month
FY2018FY2019FY2020

72

72

72

-24

72

72

72

FY2017FY2018FY2019FY202072

72

FY2017FY2017
Acquisition36（6.040 thousand yen×6month）（6.040 thousand yen×12month）-64
Earnings

FY2018Acquisition36（6.040 thousand yen×6month）（6.040 thousand yen×12month）-64

Earnings-24
FY2017FY2018FY2019Acquisition

72

72

FY2019FY202072

36（6.040 thousand yen×6month）（6.040 thousand yen×12month）-64

Earnings-24
FY201772

FY2019FY2018FY2020Acquisition

FY202036（6.040 thousand yen×6month）-64

Earnings

Total Earnings

-24

- 24

48

FY2017120

192

FY2019FY2018FY2020192
124

4 years total

252

48
148

36
-64

184

-64

-24

Acquisition cost per case-64
Gross profit per item

-64
Total Earnings

19