| TOW Co., Ltd. (4767) |
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Company |
TOW Co., Ltd. |
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Code No. |
4767 |
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Exchange |
TSE First Section |
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Industry |
Service |
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President |
Koji Egusa |
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HQ Location |
Tokyo, Minato-ku, Toranomon 4-3-13, Hulic Kamiyacho Building |
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Year-end |
June |
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URL |
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* Share price as of close on August 23, 2017. Shares outstanding as of the most recent quarter excluding treasury shares.
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* Estimates are those of the Company. Effective from fiscal year June 2016, the definition for net income has been changed to net income attributable to parent company shareholders (Abbreviated hereafter as parent net income). * A 2 for 1 stock split was conducted in July 2015 and EPS for FY6/14 and FY6/15 have been retroactively adjusted to reflect these stock splits.
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| Key Points |
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| Company Overview |
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In addition to TOW, the Group also boasts of the two consolidated subsidiaries: T2C Co., Ltd., which conducts event creation, operation, production and visual contents creation, and Sport Is Good Co., Ltd., which is focused on cultivating business within the realm of sports. Moreover, "interactive promotions" use digital technologies and ideas to create impressive experiences that are turned into information to be proliferated and shared as part of overall promotions.  <Business Overview>
Demand for event related work appears as soon as promoters come up with an objective (Transmission of information to the promoter's audience). TOW begins work on creating a plan as soon as they are briefed by the promoter about the objective. Thereafter, meetings are held at every step of the workflow process from proposal, basic plan, implementation plan, detailed plan, progress script, construction drawing, time schedule chart and document creation. TOW also creates stages and conducts rehearsals until the day of the actual event.
Flow of Event Planning to Implementation Scope of TOW's Business
In the case of events, TOW receives orders that span the entire range of the workflow process from planning to the actual holding of the event, and performs "planning", "production", "operations", and "staging" activities, in addition to conducting various onsite services during the time that the actual event is conducted. Specifically, these are tasks involved with lighting, sound, visual, stage creation, and model, companion and security guard casting. In addition, TOW provides services related to preparation, site disassembly and removal, and cleaning. TOW is responsible for acting as a total director to oversee the entire event process and outsources these various tasks to specialized service providers with a goal of ensuring that the objectives of the promoter are accurately implemented and conveyed to the audience. The consolidated subsidiary T2 Creative Co., Ltd. specializes in event "production" and "operations", while Sports Is Good Co., Ltd. specializes in sporting event experience planning and production.The main services of promotions include "planning", "design", and "production", printing, premium goods and services, graphic design, executive operations, OOH (Out Of Home: Advertising in public transportation, outdoors), website production and other services are conducted, in addition to the service provided by TOW in its events business of total direction overseeing all aspects of promotions including direction, production and product delivery services. In the case of events, TOW receives orders that span the entire range of the work flow process from planning to the actual holding of the event, and performs "planning", "production", "operations", and "production" activities in addition to conducting various onsite services during the actual time that the actual event is conducted. Specifically, these are tasks involved with lighting, sound, visual, stage creation, and model, companion and security guard casting. In addition, TOW provides services related to preparation, site disassembly and removal, and cleaning. TOW is responsible for acting as a total director to oversee the entire event process and outsources these various tasks to specialized service providers, and with a goal of ensuring that the objectives of the promoter are adequately represented and conveyed to the audience. The consolidated subsidiary T2 Creative Co., Ltd. specializes in event "production" and "operations", while Sports Is Good Co., Ltd. specializes in sporting event experience planning and production. <Medium Term Business Plan and FY 6/18 Business Strategy>
In today's world of excessive and abundant choices, people make purchases not just "to buy a specific product", but to obtain "value in their experiences" in the process of selecting products to buy. "Interactive design" encapsulates things such as the way we purchase, the way things are made, the way things are sold. and entails the entire brand experience. TOW seeks to produce the first "interactive design" production by leveraging and combining strengths such as "real promotion events", "Internet (SNS) promotions", "interactive events utilizing AR, VR, apps and other digital technologies", "video production, promotions", "data driven PR promotions" while at the same time strengthening its IP (Designing digital and real experiences and broadcasting these inspirations across the Internet).Medium Term Business Plan: Japan's First "Experience Design" Production, Maintain Strong Earnings Generating Capability, Expand Scale by Leveraging Business Strategy, Capture "2020 Global Sporting Event" Business As of July 1, 2017, one such example is the reorganization of the current planning team and IP department into the "experience design department" (previously comprised of 25 members of the planning department and 18 members of the IP department) who will specifically design brand experiences. The "experience strategy team" has also been established with the purpose of strengthening solutions by utilizing data and pursuing promotional "accuracy" and "results". The "experience creative team" has also been established to move people and pursue "creative experiences". In order to expand the scale of the business, TOW has been increasing and incorporating a young team by hiring new graduates from four years ago. 11 hires were made in April 2014, 15 in April 2015, 17 in April 2016, 20 in April 2017. The TOW Group has grown from 169 employees at the end of fiscal year June 2016 (TOW: 133, T2C 36) to 188 employees (TOW: 138, T2C 50). In order to capture business related to the "2020 global sporting event" to be held in Tokyo, TOW established Sports Is Good Co., Ltd in May of 2016 as a joint venture between TOW, 1 to 10 Holdings, Inc., which pursues business possibilities through digital technologies, and Geek Pictures, which conducts movie and commercial video production, to handle planning, production and activation of sporting related events. TOW seeks to leverage its strengths in the realm of "sports" to explore new possibilities and pursue proactive participation in this realm. With now only 1,000 days remaining as of October 28, 2017 until the start of this major global sporting event, inquiries are increasing and order backlogs have risen from ¥2.8 million as of the end of fiscal year June 2016 to ¥247 million as of the end of fiscal year June 2017. FY6/18 Business Strategy: Raise Productivity, Strengthen Management and Group Capabilities, Investments and M&A Activity
TOW is focusing its business resources on major advertising agencies as part of its selection and concentration strategy for its customer portfolio to increase productivity. In order to "strengthen its management capabilities" through organizational restructuring, the Kansai and Chubu branch offices were integrated with the rapidly growing subsidiary T2C Co., Ltd. And in order to strengthen the "Group capabilities", efforts will be made to strengthen the management of T2C's sales progress and accounting department to raise its capabilities to the same level as TOW.We are also proactively pursuing investment and M&A activities with firms that have strengths in "real", "digital", "video", "PR", and "data" by creating new alliances. One such example is the capital alliance formed with the major video production company Geek Pictures Co., Ltd. (CEO Tamotsu Osano). In recent years, promotion design has required more in-depth knowledge and expertise in video planning, production. At the same time, video advertising costs and video production fee increases have been notable. Geek Pictures has expertise in video production (commercials, visual music contents, movies, TV shows) as well as digital technologies (AR, VR, MR, AI, IoT, and others), digital marketing, promotion, entertainment contents and a diverse experience, track record, and strong research function. TOW has high expectations of deriving strong synergies from this partnership in the creation of "experience design" going forward. |
| Fiscal Year June 2017 Earnings Result |
 Strengthening of Collaboration with Companies in Other Industries in "Interactive Promotions" Allows Sales, Operating Profits to Rise 6.7%, 7.9%
Sales increased 6.7% year-on-year to ¥16.251 billion. The use of digital technologies in interactive promotions and collaboration with companies whose strength lies in contents creation or video production and strong overall promotions department allowed sales to rise for the second consecutive year to new all time highs. Both TOW and T2C saw increases in big projects orders. Gross profit margins fell slightly by 0.1% point to 16.1%, but this was offset by increased revenues and increased overall gross profits. Sales, general and administrative expenses rose only slightly due to cost controls and operating profit rose 7.9% year-on-year to ¥1.811 billion. An increase in dividend and other income within non-operating income combined with effective tax accounting to allow net profit to increase 11.4% year-on-year to ¥1.206 billion.            |
| Fiscal Year June 2018 Earnings Estimates |
 Estimates Call for Sales, Operating Profit to Rise 2.6%, 2.2% Year-On-Year
TOW expects increases in orders for both digital and real experience type promotions and contributions from the 2020 global sporting event project. Estimates of a slight decline in net profit is due to T2C having a higher statutory effective tax rate than TOW and their profits having a higher contribution to consolidated earnings, thus causing the overall tax burden to rise. One of the reasons why T2C (capital ¥100 million) has a higher statutory effective tax rate than TOW is that it is a corporation exempted from external standards taxation.
(2) Fiscal Year June 2018 Business Strategy: Improve Productivity, Strengthen Management and Group Capabilities, Capital Ties and M&A
TOW will endeavor to raise productivity by implementing a strategy of focusing resources upon major advertising agencies. In addition, operations of the Kansai and Chubu branch offices were integrated with the subsidiary T2C Co., Ltd. at the beginning of the fiscal year. Therefore, higher sales and profits of T2C due to productivity gains from integration of the Kansai and Chubu region office operations and increases in external sales (Rose from ¥3.791 to ¥3.850 billion) allowed the lower sales and profits of TOW to be offset. Moreover, investment and M&A activities with firms that have strengths in "real", "digital", "video", "PR", and "data" will be proactively pursued.
   (2) Dividends
TOW uses dividend payout ratio and dividend yield on a consolidated basis as two fundamental indicators to determine profit distribution. Specifically, the Company uses a dividend payout ratio target of 40% based upon consolidated earnings for the coming year and the dividend yield of 4.5% based upon the closing share price at the close on August 7, 2017, the day before the earnings announcement, and selects the higher of the two indicators to determine its dividend payment. (But based upon the fundamental policy for retained earnings, a maximum dividend payout ratio of 50% has been determined.)Using the above calculations, fiscal year June 2018 dividend per share is expected to be ¥26.15. Given this estimate, the expected dividend is ¥27, for a 1 yen increase from the previous fiscal year (Dividends of ¥13 and ¥14 expected to be paid at the end of the first half and full year respectively). |
| Conclusions |
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| Reference: Regarding Corporate Governance |
 ◎ Corporate Governance Report
Updated on Oct. 7, 2016
Basic View
Our company believes that corporate governance means the "establishment and utilization of a system, which realizes appropriate and efficient decision-making and business execution by the management, prompt reporting of results to stakeholders, and healthy, equitable and highly transparent management, aimed at continuous improvement of corporate value." In order to thrive continuously and increase medium- and long-term corporate value of our company while carrying out our responsibilities to our shareholders, clients, employees, and other stakeholders, we will strive to realize effective corporate governance in accordance with the following basic policies:
1. Our company respects the rights of shareholders and ensures equality.
2. Our company takes account of the benefit of stakeholders, including shareholders, and makes appropriate cooperation.
3. Our company discloses information on our company appropriately and ensures transparency.
4. Our company boosts the effectiveness of the functions to oversee business execution by our board of directors.
5. Our company has constructive dialogue with shareholders whose investment policy is consistent with medium- and long-term benefits of shareholders.
<Non-compliance with the Principles of the Corporate Governance Code (Excerpts)>
 Supplementary principle 1-2-4 Use of the electronic voting platform, and English translations of convening notices of general shareholders meetings Supplementary principle 3-1-2 Disclosure and provision of information in EnglishSupplementary principle 3-1-5 Explanation about reasons why the board of directors has designated each executive and appointed each candidate for the directorSupplementary principle 4-1-2 Commitment to medium-term management plansSupplementary principle 4-10-1 Involvement and advice by independent outside directors regarding important matters, such as nomination and remunerationSupplementary principle 4-11-3 Analysis and evaluation of the effectiveness of the board of directors<Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)>
In order to fulfill our responsibilities, our company has considered it as one of the top priorities to attain effective corporate governance with the aim of sustainable growth and medium- and long-term increase in corporate value of our company by encouraging constructive and bidirectional dialogue with shareholders and investors. Principle 5-1 Policies on constructive dialogue with shareholdersBased on the foregoing, we will take the following measures: 1. Appointment of a director in charge of dialogue with shareholders In our company, the top management himself engages in dialogue with shareholders and the team leader of the general affairs team is in charge of IR activities. 2. Measures to make organic cooperation internally among departments In our company, the general affairs team, which is in charge of IR activities, regularly holds meetings and exchanges opinions with the accounting team. In addition, the two teams cooperate in producing materials used for information disclosure and discuss the content of such materials with each other and even with the top management. 3. Efforts to enrich means of dialogue other than individual interviews Our company has deemed general shareholders meetings as an important opportunity for dialogue with shareholders and therefore will strive for business management that enables us to earn all shareholders' trust through various approaches, including ensuring ample disclosure of information on our business. Furthermore, we will endeavor to realize closer communication with shareholders and investors by holding financial results briefings on a periodic basis. 4. Measures to feed back shareholders' opinions and concerns Our company will develop a structure in which the department in charge summarizes opinions and concerns about our company expressed by shareholders and investors through dialogue and regularly reports such opinions and concerns to the management and the board of directors according to their importance and characteristics. 5. Measures to manage insider information Aiming to ensure substantial fairness of shareholders and investors, our company has formulated a basic policy on impartial information disclosure. Based on the basic policy, we will disclose important information on our company in a timely and fair manner and put forth efforts to thoroughly manage such information so that they are not provided only to some shareholders or investors. Disclaimer
This report is intended solely for information purposes, and is not intended as a solicitation to invest in the shares of this company. The information and opinions contained within this report are based on data made publicly available by the Company, and comes from sources that we judge to be reliable. However we cannot guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and or opinions, nor do we bear any responsibility for the same. All rights pertaining to this report belong to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice. All investment decisions are the responsibility of the individual and should be made only after proper consideration.Copyright(C) 2017 Investment Bridge Co.,Ltd. All Rights Reserved. |
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