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
¥743 22,468,452 shares ¥16.694 billion 14.4% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (Act.) PBR (Act.)
¥26.00 3.5% ¥50.28 14.8x ¥388.96 1.9x
* Share price as of close on August 22, 2018. Shares outstanding as of the most recent quarter excluding treasury shares. Figures are rounded.
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 16,688 1,825 1,873 1,207 53.75 27.00
June 2019 (Est.) 15,436 1,700 1,714 1,129 50.28 26.00
* 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 fiscal year June 2018 earnings results and fiscal year June 2019 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. "Wow!" type of interactions with brands is the starting point for experiences, and these experiences allow brands to build fans. In particular, leveraging social network sites (SNS) as hubs allow for the maximum dispersion of experience information relating to promotions across diverse media. 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. 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) at the end of fiscal year June 2017, and 210 employees at the end of fiscal year June 2018.
TOW is endeavoring to increase competitiveness by maintaining high profitability for fiscal year June 2019 and beyond.
Fiscal Year June 2018 Medium Term Strategy Review and Countermeasures
① Responses to organizational reforms by some large clients
Responses, adaptability still inadequate
⇒ Reforms to convert "strengths of the individual" to strengths of the organization
As a structure with management that can effectively oversee sales for the whole company, efforts will be made to homogenize sales and supervisory knowledge, with a view to increasing orders over the medium term
② Maintain High Profitability x Fortify Business Strategy = Business Scale Expansion
Increase employee numbers while maintaining high gross profit, high competitive standing
Training, growth of younger employees since start of regular hiring of new graduates four years ago proceeding smoothly
③ Strengthen the Position of TOW as Japan's First "Experience Design Production"
Increases in medium, large scale experience design projects based upon favorable client evaluation of experience design capabilities
Further strengthen experience design capabilities
⇒ Promote further strengthening, improvements of experience design capabilities, including pursuit of alliances and leveraging data
Respond to growth in non mass-media realm of advertising requires
From bilingual to multilingual, "pursue higher levels of effectiveness of experience design activities by leveraging data, developing service menus to match the clients' needs"
④ Efforts for Large Global Event Project in 2020
Appearance of projects resulting from a large global event is delayed, related orders still low
⇒ 2 years, 500 days, 1 year, 100 days in advance of event, continue to aggressively pursue orders
⑤ Further Fortify Business Alliance Strategy
Company contacts made on an ongoing basis ⇒ Continuation
Fiscal Year June 2018 Earnings Results
Sales, Current Profit Both Rise 2.7% Year-On-Year Respectively
Sales rose 2.7% year-on-year to ¥16.688 billion on the back of accurate responses to the customer needs amidst the shift from mass media advertising to comprehensive promotions (Including digital realm), and on the back of successful promotion of TOW as "Japan's first experience design production" company by leveraging the Company's traditional strength of "real promotions" along with "net (SNS) promotions", "experience events using digital technologies AR, VR, applications", "streaming video contents creation promotions", "PR promotions based upon data" and others. TOW's "experience design" business that leverages data is growing in strength and the favorable evaluation of this business amongst clients is also increasing, allowing for growth in orders for medium to large scale experience design projects.
Operating profit rose by 0.8% year-on-year to ¥1.825 billion due to the successes of various measures, which have allowed profitability to improve on the back of an expansion in the breadth of orders and increases in project pricing. At the same time, anticipatory investments in human resources including the hiring of new graduates in April 2017 and subsequent increases in labor costs limited the growth in operating profit.
Sales, current profit, and net profits attributable to the parent shareholders were 0.1%, 1.2% and 2.7% or ¥15, ¥22 and ¥32 million higher respectively than initial estimates announced on August 8, 2017. However, the booking of some large projects with lower levels of profitability caused operating profit to fall 1.4% or ¥25 million short of initial estimates.
Sales, operating profit, current profit, and net profits attributable to the parent shareholders all achieved new record highs for the third consecutive year.
The branch offices in the Kansai and Nagoya regions were consolidated with T2C at the beginning of fiscal year June 2018. Excluding this factor of the transfer of these operating territories, sales and current profit rose by 5.3% and 7.3% year-on-year.
By category of sales, sales to sales promotions and culture and sports events trended favorably, with both recording double digit growth. Also, the decline in printed advertisements is viewed as a reflex response to the strong growth recorded in the previous term.
By industry category, sales to the telecommunications industry rose by a large margin on the back of strong demand for promotions and advertising for smartphones and games, and sales to the automobile industry also rose by double digits due to large test drive promotions. Sales to the food, beverage and luxury goods industry, and cosmetics and toiletry goods industry fell as a reflex response to the large increases recorded during the previous term.
TOW has been able to book a number of large projects amounting to over ¥100 million, which is a reflection of its strong experience design capabilities and its strong credibility with clients.
TOW has been able to maintain a success rate (Number of promotions produced divided by total number of projects planned) above its guideline of 30%.
Total assets rose by ¥1.247 billion from the end of the previous term to ¥13.055 billion at the end of fiscal year June 2018.
Current assets rose by ¥1.142 to ¥11.357 billion over the same period due primarily to the booking of electronically recorded claims of ¥1.970 billion, notes and accounts receivables of ¥971 million, an increase in cash and deposits of ¥601 million, despite a decline in uncollected payments of ¥2.424 billion.
Noncurrent assets also rose by ¥105 million to ¥1.697 billion over the same period. The factors contributing to this change in noncurrent assets include a ¥7 million decline in tangible noncurrent assets to ¥84 million, a decline in depreciation and amortization, a ¥3 million rise in intangible noncurrent assets to ¥21 million arising from the purchase of software, a ¥108 million rise in investment and other assets to ¥1.592 billion, and a ¥101 million increase in investment securities.
Current liabilities rose by ¥512 million to ¥3.702 billion due in part to booking of accounts payable of ¥366 million, and an increase in others of ¥138 million despite a decline in electronically recorded obligations of ¥77 million.
Noncurrent liabilities rose by ¥36 million to ¥520 million on the back of booking of deferred tax liabilities of ¥13 million, retirement benefits of ¥9 million, and a rise in director retirement benefits of ¥8 million.
Net assets rose by ¥699 million to ¥8.832 billion due in part to the booking of retained earnings of ¥623 million, and a ¥57 million increase in other marketable securities evaluation gains.
Consequent to these changes, capital adequacy ratio fell by 1.3 points to 66.9%.
A net inflow of cash of ¥1.240 billion was recorded in operating activities, which compares with the net inflow in the previous term of ¥872 million. The main factors contributing to this expansion in the net inflow are an increase in accounts receivables of ¥2.941 billion, tax payments of ¥611 million, a decline in uncollected payments of ¥2.424 billion, pretax profit of ¥1.874 billion, an increase in accounts payable of ¥289 million, and an increase in other current liabilities of ¥106 million.
The net cash outflow of investing activities rose from ¥6 million in the previous term to ¥53 million in the current term. The main factors contributing to this increase in net outflow include payment for acquisition of tangible noncurrent assets of ¥22 million, payment of ¥15 million for acquisition of investment securities, and payment of ¥9 million for acquisition of intangible noncurrent assets.
A net inflow of ¥1.187 billion was seen in free cash flow, compared with the net inflow of ¥865 million in the previous term.
A net outflow of ¥585 million was recorded in financing activities, compared with the net outflow of ¥556 million in the previous term. Factors behind this net outflow included the payment of dividends amounting to ¥584 million.
Fiscal Year June 2019 Earnings Estimates
Sales, Current Profit Expected to Decline by 7.5%, 8.5% Year-On-Year
TOW's earnings estimates for fiscal year June 2019 call for sales and current profit to decline by 7.5% and 8.5% year-on-year to ¥15.436 and ¥1.714 billion respectively. Despite the increase in orders from some large clients in fiscal year June 2018, ongoing organizational reforms have led to increased subdivisions and complications in the flow of work within the realm of event promotions and resulted in internalization of work by some large clients. Also, inability of TOW's sales staff to follow up with clients in light of these changes led to weak orders. Furthermore, there is an outlook for a lack of large projects in fiscal year June 2019 like those booked during fiscal year June 2018, and growing caution toward orders from some larger clients exists.
The pace of orders remains in-line with the previous term. Furthermore, TOW expects to be able to secure certain favorable category of orders.
A: Events whose scale (Value amount) and implementation dates have been determined
B: Event orders have been determined, but their scale and implementation date have yet to be determined
Pine: Projects for which TOW expects to book orders with a high rate of confidence (Over 80%probability)
Bamboo: Plans, project proposals for which TOW expects to book orders with a medium rate of confidence (Over 50% probability)
Plum: Plans, projects proposal for which TOW has an uncertain level of confidence to book
(2) Dividends
TOW uses dividend payout ratio and dividend yield on a consolidated basis as two fundamental indicators to determine profit distribution.
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 consolidated 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 (2018/08/07), 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 2019 dividend per share is expected to be ¥25.14. Given this estimate, the expected dividend is ¥26, for a ¥1 decrease from the previous fiscal year, and ¥13 is expected to be paid at the end of first half.
Actual results were basically in line with outstanding estimates. Amidst a large increase in the number of employees, TOW has been able to maintain profit margins by achieving gains in efficiency by largely growing the number of large projects even though there were some low profitability projects. Training of newly hired employees is proceeding smoothly. And while sales and profits are expected to decline during fiscal year June 2019, the number of projects related to a large 2020 global event is expected to grow. And while fiscal year June 2019 is expected to be a tough year until the contributions from the 2020 event kick in during the following fiscal years, strong near term order trends remain in line with the previous year's level. The share price remains stagnant due to the outlook for lower sales and profits in the coming term, but the valuation of a 3.5% dividend yield, and outlook for stronger earnings in fiscal years June 2020 and 2021 arising from demand related to the 2020 event may be worth considering in when reviewing the share price.
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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