TOW Co., Ltd. (4767)
Koji Egusa, President & CEO
Koji Egusa, President
Corporate Profile
TOW Co., Ltd.
Code No.
TSE First Section
Koji Egusa
HQ Location
Tokyo, Minato-ku, Toranomon 4-3-13, Hulic Kamiyacho Building
Stock Information
Share Price Shares Outstanding Market Cap. ROE (Act.) Trading Unit
¥921 22,468,452 shares ¥20.693 billion 15.8% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (Act.) PBR (Act.)
¥27.00 2.9% ¥52.30 17.6x ¥394.39 2.3x
* Share price as of close on February 19, 2018. Shares outstanding as of the most recent quarter excluding treasury shares.
Consolidated Earnings Trends
Fiscal Year Sales Operating Profit Current Profit Net Profit EPS DPS
June 2014 12,188 1,026 1,035 638 28.90 28.00
June 2015 13,442 1,335 1,349 818 36.93 33.00
June 2016 15,230 1,678 1,682 1,083 48.35 22.00
June 2017 16,251 1,811 1,823 1,206 53.74 26.00
June 2018 (Est.) 16,673 1,851 1,851 1,175 52.30 27.00
* Estimates are those of the Company. Effective from fiscal year March 2016, the definition for net income has been changed to net income attributable to parent company shareholders (Abbreviated hereafter as parent net income).
We present this Bridge Report reviewing the first half of fiscal year June 2018 earnings results and fiscal year June 2018 earnings estimates for TOW.
Key Points
Company Overview
TOW Co., Ltd. is the top ranked independent company in the sales events and promotions industry and a Tokyo First Section publicly traded company. TOW engages in event and promotion planning, creation and operations, in addition to goods and printed materials relating to sales promotions. TOW is aware of the growing influence of the Internet and is placing increased emphasis on utilizing their many years of experience in event planning and idea generation by utilizing digital technologies to create interactive promotions (IP). The Company name TOW is derived from the slogan "Top Of the World" based upon TOW's corporate philosophy of "spreading smiles by creating the world's most unique experiences",

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>
Flow of Event Planning to Implementation
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.
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.
Medium Term Business Plan
Medium Term Business Plan: Japan's First "Experience Design Production"
"Experience design" encapsulates things such as the way people make purchases, the way things are made, the way things are sold and encompasses the entire brand experience. TOW seeks to produce the Japan's first "experience design" production, and conducts efforts to pursue business opportunities in upcoming 2020 global sporting events and through alliance strategies. Moreover, expanding scale (maintaining high profitability x increasing competitiveness) will be also pursued.
"Experience Design Production"
By leveraging and combining strengths such as "real promotion events", TOW facilitates interactive promotion (IP) alliance unit and data usage, and pursues results for the next phase of growth. Specifically, TOW seeks to strengthen IP by combining "data driven PR promotions" with integrated promotion capabilities including "internet (SNS) promotions", "interactive events utilizing AR, VR, apps and other digital technologies", and "video production, promotions".
Promote Efforts for Alliance Strategies
Investments and M&A activities with firms that have strengths in "real", "digital", "video", "PR", and "data" will be pursued to establish deeper alliance relationships. Alliance relationship partners include the content creation company Kayak Co.Ltd. and CR boutique One to Ten design Co., Ltd. in the "digital" realm, Taiyo Kikaku Co. Ltd. and Geek Pictures, Inc. in the "video" realm, and PR firm Material Co. Ltd. in the "PR" realm. With regard to the "data" realm, boom research was implemented, which enables trend analysis on social media, and allowed TOW to facilitate project and effectiveness validation through its ability to allow access from all staff computers.
Scale Expansion
In order to expand the scale of the business, TOW has been increasing and incorporating a young team by hiring new graduates from five 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).
TOW is endeavoring to increase competitiveness by maintaining high profitability for fiscal year June 2018 and beyond.
First Half of Fiscal Year June 2018 Earnings Results
Sales, Operating Profits to Rise 6.1%, 1.7% Year-on-Year
Sales rose by 6.1% year-on-year to ¥9.036 billion. An increase in sales promotions of 22.4% year-on-year acted as a sales driver and absorbed a large decline in sales of productions, which was caused by the disappearance of a major convenience store promotion during the same period in the previous year. By industry, sales declined by more than 30% year-on-year in the realms of foods, beverages, cosmetics, toiletries, and sundries, but sales in the realm of automobiles rose by 25.4% over the same period. Furthermore, sales in the information and communications realm rose by 53.3% year-on-year due to the contribution from nationwide "touch and try" events for new devices from major cellular telephone manufacturers. At the same time, TOW booked numerous large projects range from ¥50.00 to ¥100's of millions including large events targeting large events in 2020. The consolidated subsidiary T2 Creative Co., Ltd. received several project orders for large test-driving events for a major automobile manufacturer.

With regards to profits, gross profit margin fell due to lower profitability projects within large projects. However, increased revenues helped to absorb increases in labor expenses from new graduates entering in April and higher overall sales, general and administrative expenses.
TOW received numerous large projects orders ranging from ¥50.00 to ¥100's millions, including nationwide events from major cellular telephone manufactures, integrated promotions with public general leisure net, and a 2020 global sporting event with a goal of achieving great results from new realms of proposed operations 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 and promotions", and "data driven PR promotions".
Total assets rose by ¥1.936 billion from the end of the previous term to ¥13.744 billion at the end of first half of current fiscal year. Capital adequacy ratio fell to 64.5% from 68.2% from the end of the previous term.
Fiscal Year June 2018 Earnings Estimates
Earnings Estimates Remain Unchanged, Sales, Operating Profits Expected to Rise by 2.6%, 2.2%
TOW expects increases in orders for both digital and real experience type promotions, and contributions from the 2020 global sporting event project to contribute to earnings. Estimates of a slight decline in net profit is attributed to T2C seeing a higher tax rate than TOW and due to their profits accounting for a large portion of consolidated earnings, thus causing the overall tax burden to rise.
Order backlog was ¥4.137 billion at the end of first half of fiscal year. This order backlog combined with ¥6.928 billion of sales over the same period amounted to ¥11.065 billion, which represents the difference from the initial estimate of ¥1.758 billion (A). In contrast, projects with a high probability of being booked as orders (>50% probability) amounted to ¥2.038 billion (B), and B is 1.16 times of A. At the same time, a total sum of first half of fiscal year and order backlog represented ¥10.353 billion, and a difference from full year sales (¥12.251 billion) is ¥1.898 billion (A). Furthermore, projects with a high profitability of being booked as orders (>50% profitability) at the end of first half of fiscal year is ¥2.386 billion.

While B was 1.26 times larger than A in the previous earnings basis, the current term remained at 1.16 times. TOW will focus its efforts to increase the number of projects secured, proposals, and projects with a high probability of being booked as orders (>50% probability) during the second half of fiscal year.
1) Orders for projects whose event scale, value, and implementation period have been determined, 2) orders for projects whose event scale, value, and implementation period have yet to be determined but have been booked, and 3) orders for which the outlook to be booked is very high (over 80%). The combined value of these expected orders is equivalent to TOW's actual order backlog.
Similar to nonconsolidated earnings when comparing A with B (external sales basis), the ratio in the current term is 0.65 compared with 0.94 in the previous term. TOW will need to focus its efforts upon increasing the number of projects secured, proposals and projects with a high probability of being booked as orders (>50% probability).
(2) Dividends
TOW uses dividend payout ratio and dividend yield on a consolidated basis as two fundamental indicators to determine profit distribution. Furthermore, the Company uses a dividend payout ratio target of 40% based upon nonconsolidated earnings for the coming year and a dividend yield target of 4.5% based upon the closing share price on the day before the earnings announcement, and selects the higher of the two indicators to determine its dividend payment. 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 increase from the previous fiscal year, and ¥14 is expected to be paid at the end of full year.
TOW transferred the operational control of the Kansai and Chubu offices to its subsidiary T2C Co., Ltd. with a goal of promoting efficiency and strengthening operations. T2C increased its external sales and profits during the first half of fiscal year on the back of invigorated business activities from the Kansai and Chubu offices resulting from the transfer of control. And while TOW was able to offset the effect of lower sales from the transfer of operations of its offices through large project orders, lower profitability on some large projects and the burden from investments in human resources caused profits to decline. However, the number and value of projects rose by 6% and 35% year-on-year. The recognition of "experience design" is growing due to activities to leverage and combine the strengths of "real promotion events", "Internet (SNS) promotions", "interactive events utilizing AR, VR, apps and other digital technologies", "video production, promotions", "data driven PR promotions", "experience design", which encapsulates the entire brand experience (purchasing, creating, and selling processes).
Reference: Regarding Corporate Governance
◎ Corporate Governance Report
Updated on October 11, 2017
Basic Policy
Our company recognizes corporate governance as "building and operating a structure that achieves appropriate and efficient decision making and business execution by the management, prompt result reports to stakeholders, and soundness, fairness and high transparency of business administration in order to continuously improve the corporate value." In order to achieve sustainable growth and improve our medium and long-term corporate value while fulfilling our responsibility to shareholders, customers, employees and other stakeholders, our company will achieve effective corporate governance in accordance with the basic policy stated below.
1. Respect the rights of shareholders and ensure equality.
2. Consider the interests of stakeholders including shareholders and cooperate properly.
3. Disclose company information properly and ensure the transparency.
4. Improve the effectiveness of the supervisory function for business execution by the board of directors.
5. Have constructive dialogue with shareholders who have an investment policy that matches the interests of shareholders over the medium to long term.
<Reasons for Non-compliance with the Principles of the Corporate Governance Code (Excerpts)>
Supplementary Principle 3-1-5 Explanation about individual election and nomination when the board of directors elects executives and nominates candidates for directors disclosed as "not implemented" in the disclosure on October 7, 2016 was dealt as stated below.

Supplementary Principle 3-1-5 Explanation about individual election and nomination when the board of directors elects executives and nominates candidates for directors
The reason for nomination of each of the candidates for directors is stated in the reference material for the general meeting of stockholders pertaining to the proposal for election of the directors.
<Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)>
Principle 5-1 Policy for having constructive dialogue with shareholders
We are convinced that the most important mission to fulfill our company's responsibility is to promote two-way constructive dialogue with shareholders and investors, and to realize effective corporate governance in order to achieve sustainable growth and improve our medium and long-term corporate value.
Based on this idea, our company will implement the following measures.
1. Designation of directors in charge of dialogue with shareholders
In our company, executives have dialogue with shareholders, and the managing director controls IR activities.
2. Measures for organic coordination of in-company departments
In our company, the general affair team, which is also in charge of IR activities, discusses and exchanges opinions on a daily basis with the accounting team and they also collaborate in preparing the disclosed materials and discuss the content with executives.
3. Efforts for enhancing dialogue methods other than individual interviews
Our company will conduct the general shareholders' meeting that earns shareholders' trust by valuing the general shareholders' meeting as an opportunity for important dialogue with shareholders and ensuring sufficient information disclosure of our business. In addition, our company will work on achieving closer communication with shareholders and investors by regularly holding a financial results briefing.
4. Measures for feedback of opinions and concerns of shareholders
Our company will compile the opinions and concerns about our company heard in the dialogue with shareholders and investors at the department in charge and develop a system that reports this regularly to executives and the board of directors according to its importance and nature.
5. Measures for managing insider information
The basic policy of our company is to provide fair information disclosure in order to ensure substantive equality for shareholders and investors. Based on this policy, we will disclose important information about our company in a timely and fair manner, and strive to manage the information rigorously so that it will not be provided only to some shareholders and investors.
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.
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